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spk07: Good morning, and thanks for joining us for Fulton Financial's conference call and webcast to discuss our earnings for the second quarter of 2022. Your host for today's conference call is Phil Wenger, Chairman and Chief Executive Officer. Joining Phil are Curt Myers, President and Chief Operating Officer, and Mark McCollum, Chief Financial Officer. Our comments today will refer to the financial information and related slide presentation included with our earnings announcement which we released yesterday afternoon. These documents can be found on our website at fult.com by clicking on investor relations and then on news. The slides can also be found on the presentations page under investor relations on our website. On this call, representatives of Fulton may make forward-looking statements with respect to Fulton's financial condition, results of operation, and business. These statements are not guarantees of future performance and are subject to risk uncertainties, and other factors, and actual results could differ materially. Please refer to the Safe Harbor Statement on forward-looking statements in our earnings release and on slide two of today's presentation for additional information regarding these risks, uncertainties, and other factors. Fulton undertakes no obligation other than as required by law to update or revise any forward-looking statements. In discussing Fulton's performance, Relative representatives of Fulton may refer to certain non-GAAP financial measures. Please refer to the supplemental financial information included with Fulton's earnings announcement released yesterday, as well as slides 10 through 12 of today's presentation for reconciliation of those non-GAAP financial measures to the most comparable GAAP measures. And now I'd like to turn the call over to your host, Phil Wenger.
spk06: Thanks, Matt. Good morning, everyone. As usual, I'll share a brief overview of the quarter's highlights. Then Kurt will discuss our business performance, and Mark will share the details of our financial performance. And then we'll be happy to take your questions. The second quarter of 2022 was a good one for Fulton, and we were pleased with our performance. Our earnings per share of 42 cents was an increase of 4 cents. over the previous quarter. Several factors helped drive performance. We saw very strong loan growth. Our net interest income benefited from rising interest rates. Overall fee income was solid. And asset quality remained relatively stable, despite a more cautious outlook. In April, Fulton released the company's first corporate social responsibility report. This comprehensive report illustrates how our purpose-driven company provides an exceptional banking experience for our customers while strengthening the communities we serve. In June, Fulton Bank announced upcoming changes to our overdraft program and fee schedule. In the fourth quarter of 2022, Fulton Bank will eliminate non-sufficient funds fees, and extended overdraft fees for consumer customers. And as of July 1, I am pleased to report that we completed the acquisition of Prudential Bank Inc. in just under four months after our announcement. Later this year, we expect the bank conversion to occur, and Prudential Bank and its customers will be merged into Fulton Bank. Many of our team members have been working to ensure that the transition to Fulton Bank is a smooth one for Prudential Bank customers and employees. As part of this acquisition in early July, Fulton made a $2 million contribution to the Fulton Forward Foundation. And this contribution will provide impact gifts to nonprofit organizations in Philadelphia that are focused on advancing economic empowerment, particularly in underserved communities. With the Prudential Bancorp acquisition completed, we have doubled our loan portfolio and expanded our deposit base fourfold in the Philadelphia market. Looking ahead, with our $75 million share repurchase authorization in place, and the closing of the Prudential Bancorp acquisition now complete, we can consider repurchasing shares later in the year if it makes financial sense to do so. Now, Kurt will take a closer look at the details of our business results. Kurt?
spk12: Thank you, Phil, and good morning. We were very pleased with our performance for the second quarter, so let me share some additional detail on several key areas. Loan growth was very strong for the quarter. due to solid originations in both our commercial and consumer businesses. And we also experienced slower prepayments in residential mortgage lending. Total loan growth excluding PPP loans was approximately 537 million, or about 11.6% annualized, and was spread throughout most loan categories and products. As a reminder, all of the loan and deposit growth numbers I will be referencing are annualized numbers, on a linked quarter basis. Starting with commercial lending, we had another solid quarter where commercial loans grew $225 million, or 7.2%. CNI loan growth accelerated, increasing $106 million, or 10.6% versus 8.1% in the first quarter and 5.5% compared to the prior year period. Increased originations largely drove this growth. Commercial line utilization ended the quarter at 22% flat with the prior quarter and represents additional growth potential in future periods. As a reminder, commercial line utilization as of the first quarter of 2020 was 32%, representing a $530 million opportunity should line utilization revert to pre-pandemic levels at some point in the future. During the quarter, commercial mortgages rebounded from a flat quarter in the first quarter, growing $128 million or 7%, driven by strong originations and migration from construction to permanent loans. Commercial mortgage growth did impact commercial construction balances, which declined $79 million during the quarter. Even with strong originations during the quarter, the commercial pipeline grew nicely and is now at or above recent levels. Turning to our consumer and small business lending, loan balances grew $281 million, or 18.9%. Residential mortgage growth for the quarter was $257 million, or 26% length quarter. With the rise in interest rates, we saw a shift from fixed-rate saleable mortgages to on-balance sheet adjustable rate originations. In addition, we experienced a slowing in residential mortgage loan prepayment. As I mentioned in the past several quarters, our FinTech partnership for student loan refinance business continues to progress nicely, with 28 million of originations in the quarter. This portfolio now exceeds 50 million in balances and gives us access to an attractive customer segment. Lastly, our consumer indirect business grew 22 million, or 23%, from both adding new dealer customers and increased consumer spending. Overall, we were very pleased with the depth and breadth of our loan growth this quarter. Turning to deposits, on an ending balance basis, we saw a decline in total deposits for the quarter. This decline was driven by decreases in wholesale, time, and other interest-bearing deposit products. Non-interest-bearing deposits, which represent a third of our total deposit base, remained flat-linked quarters. These broad-based declines were in some cases seasonal, but were also driven in part by our disciplined pricing strategy. Recently, we have started to selectively raise deposit rates to both retain and grow our deposit customers. For the quarter, total deposit balances declined $397 million, or 7.4%. Moving to our fee income businesses, we were pleased with our overall performance. The diversification in our business lines has served us well. with certain business lines growing, offsetting the near-term challenges we face in businesses that are more sensitive to interest rates and market volatility. In our commercial line of business, total fees increased $4.4 million, up 27% versus the prior period, driven by sizable increases in capital markets, merchant activity fees, and our poor cash management business. Capital markets fees, predominantly commercial loan interest rate swaps, were up $2.2 million versus the prior quarter, driven by both volume and size of transaction. As I noted in prior periods, capital markets fees are transactional in nature and are driven by the needs of our commercial customer base. Merchant fees were up $1.1 million, or 23% linked quarter, driven by increases in gross sales volume. Cash management grew 634,000 or 11.7% linked quarter as we are starting to see increased activity and the impact of annual fee increases. In addition, we have managed earnings credit rates very effectively. Offsetting growth in the commercial business, wealth management fees declined 1.2 million or 5.9% linked quarter. Continued strong sales efforts, client retention, and our recurring fee revenue model helped buffer the impact of declines in the financial markets. At June 30, the market value of assets under management and administration declined to $12.6 billion, or 8.7%, down less than the overall market. Turning to consumer and small business banking, most consumer fee categories grew nicely, offsetting declines in mortgage banking. Consumer fees from card and transaction accounts were up 717,000, or 4.6% linked quarter, largely due to increased customer activity. Offsetting consumer fees, mortgage banking revenue declined to 808,000, driven by a quarter and 80,000 decline in gain-on-sale income. While gain-on-sale spreads widened, we saw lower loan sales due to the swing from fixed rate to adjustable rate products, which we chose to put on the balance sheet. Moving to credit, our performance this quarter was stable with net recoveries and only a modest provision for credit losses. With that being said, we are seeing modest increases in non-performing loans and delinquency. During the quarter, we had 3.7 million or eight basis points of annualized net recoveries compared to 1.1 million or two basis points of annualized net recoveries in the first quarter. Our second quarter provision for credit losses was $1.5 million versus a negative $7 million provision for the first quarter. This is the first quarter in which we recorded an increase in our allowance for credit losses out of the last five quarters and was primarily driven by strong loan growth during the quarter. At June 30, the allowance for credit losses excluding PPP balances is 1.32% of loans. As always, our allowance for credit loss trends could change in future period based on new loan origination volumes, loan mix, net charge-off activity, and longer-term economic projections. Overall, our credit performance remains stable. However, our credit outlook has turned more cautious due to macroeconomic environment. Now I'll turn the call over to Mark to discuss our financial results and outlook in a little more detail.
spk08: Thank you, Kurt, and good morning to everyone on the call. Unless I know it otherwise, the quarterly comparisons I will discuss are with the first quarter of 2022. Starting on slide three, earnings per diluted share this quarter were 42 cents on net income available to common shareholders of 67.4 million. This is up from 38 cents in the first quarter of 2022. Our second quarter performance included a sharp increase in net interest income and a modest increase in fee income for the quarter, offset by increases in the provision for credit losses as well as operating expenses, which I'll cover in more detail later in my comments. Moving to slide four, our net interest income was $179 million, an $18 million increase linked quarter. This increase was a function of both very strong loan growth as well as the impact of rising interest rates during the quarter. With respect to our PPP program, during the second quarter, we saw these loans decrease by another $92 million, ending the quarter at only $72 million outstanding. Because the remaining impact to our financials is no longer material, this will be the last quarter in which we discuss this portfolio in our prepared remarks, but we will continue to show the portfolio separately in our financial tables for the balance of the year. With respect to the investment portfolio, balances declined modestly during the period, decreasing $171 million to end the quarter at $4.1 billion. Given our strong loan growth during the quarter, we opted to pare back on investment securities growth. Turning to deposits, total deposits declined approximately $397 million on an ending balance basis. Most of this decline was in interest-bearing demand products. On an average balance basis, total deposits increased $44 million for the quarter to $21.5 billion. Our cost of deposits for the quarter remained at 11 basis points, consistent with the prior quarter. We expect this to be at the bottom for deposit costs, as we are starting to selectively increase interest rates for certain products and customer segments. Our ending loan to deposit ratio increased from 85.8% in the first quarter to 89.5% currently. Our net interest margin for the second quarter was 3.04% versus 2.78% in the first quarter. The 26 basis points of linked quarter increase resulted primarily from an improvement in the mix of interest earning assets, an asset sensitive loan portfolio, and stable deposit costs. Going forward, I would expect our net interest margin to expand with additional rate increases, but we will also be adjusting deposit costs during this period. Turning to slide six, non-interest income, I'll provide some additional detail on the business results Kurt discussed. Mortgage banking revenues declined and were driven by a decline in mortgage loan sales, offset in part by an increase in gain on sale spreads, which rose to 190 basis points this quarter versus 161 basis points during the first quarter. Our pipeline in this business has declined to pre-COVID levels, and only 6% of our mortgage originations this past quarter were for refinancings. Pre-payments have also slowed considerably, which has contributed to the quarterly loan growth we saw in this category. In June, we also announced some changes to our overdraft products and services. These changes will be effective in the fourth quarter of 2022. They are not expected to have a material impact to 2022 results, less than $1 million, and this reduction is reflected in the refreshed 2022 guidance provided at the end of my comments. Moving to slide seven, non-interest expenses, excluding merger-related charges, were approximately $149 million in the second quarter, up $3.1 million late quarter. This increase was driven by the following factors. Total salaries and benefits were up $1 million linked quarter, driven by annual merit increases in the month of April and one additional calendar day during the quarter. Also contributing to the linked quarter increase in expenses were higher outside services costs due to the timing of certain technology projects in the second quarter, resulting in a $600,000 increase And lastly, a $2.2 million increase in other expenses that was primarily due to lower real estate-related gains on sale, an increase in certain state tax assessments, and an additional calendar day during the quarter. Slide 8 provides more detail on our capital ratios. As of June 30th, we maintained solid cushions over the regulatory minimums, and our bank and parent company liquidity remained very strong. Accumulated other comprehensive income decreased $145 million during the quarter. This impacted our tangible common equity ratio as well as tangible book value per share by 40 basis points and $1.25 per share, respectively, offset by strong net retained earnings. During the quarter, we did not repurchase any shares, and as Phil mentioned, our board approved another $75 million share repurchase authorization expiring at the end of the year. On slide nine, we are providing updated guidance for 2022. Our guidance now assumes a total of 275 basis points of Fed funds increases occurring as follows. The 150 basis points previously announced in March, May, and June, 75 basis points assumed in July, and 25 basis point increases assumed in both September and December. Our revised guidance also includes the impact of our Prudential Bancorp acquisition, which closed on July 1st. Based on those assumptions, our revised guidance is as follows. We expect our net interest income to be in the range of $745 to $760 million. We expect our non-interest income, excluding securities gains, to be in the range of $220 to $230 million. We expect our non-interest expenses to be in the range of $600 to $610 million for the year. Note that this operating expense guidance excludes the impact of $1.4 million in merger-related charges through June related to the Prudential Bancorp acquisition. We expect total one-time merger-related charges of $17 to $18 million for this acquisition or approximately another $16 million of merger expenses occurring in the second half of 2022. And lastly, we expect our effective tax rate to be in the range of 18% plus or minus for the year. Many of you also look at pre-provision net revenue, or PPNR, as a key metric to assess the profitability of core operations. Our version of this metric is included in the financial tables of our press release. PPNR has increased 18% year-over-year and 24% link core as a result of our 2021 balance sheet restructuring, earning asset growth over the past year, and core margin expansion from our asset-sensitive balance sheet. With that, I'll turn the call over to the operator for questions. Gigi, can you help us, please?
spk05: As a reminder, to ask a question, you will need to press star 1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Daniel Tamayo from Raymond James.
spk00: Morning, everyone.
spk05: Your line is now open.
spk00: Morning, Danny. Hey, Danny. Hey, Danny. Good morning, everybody. So maybe first just starting on the net interest income guidance, seeing if we can perhaps break away the differences between kind of what excess liquidity, I guess where that is now, how much the deployment of that is embedded in the guidance relative to just kind of asset sensitivity from rate hikes. And then also on the deposit side, what you guys are assuming in terms of either betas or costs?
spk08: Yeah. So, Danny, first on, you know, X plus liquidity, I would say our liquidity actually this quarter, you know, with holding the line on deposit costs as we did and with the strong loan growth that we had, you know, we're really, you know, down to a comfortable level of X plus liquidity. So I would say that in that guide, what you're really seeing there is just the impact of the additional interest rates we've assumed that in the back half of the year. And then remind me on your second question? Deposit betas. Yeah, thank you. Deposit betas, so obviously year to date we've had zero. You know, if you take our interest rate assumptions and if you take that NII guide, you know, we had said earlier that we expect through the cycle you know, we expect our overall deposit beta to be in the 30% range. But when you look, you know, just for the stub during this period where you don't, you know, typically we calculate betas a full 12 months out after the last rate increase. You know, so if you look at what we expect that beta to be, you know, just for this year, we would expect it to be more in the 15 to 20% range by the end of the year. And that's offset by a loan beta you know, that is forecasted to be in the low 40s.
spk00: Okay. All right. Terrific. That's really helpful. And then changing gears here a little bit to the loan growth side, you know, I'm interested in, you know, your thoughts on, there's a lot going on with residential mortgages and mortgage banking with the increase in rates. So just your thoughts on where you're comfortable taking the residential mortgage portfolio as a percentage of the overall portfolio. And then, you know, in your mind, once that level is reached, if it's somewhat near, that could then add to mortgage banking, given you're already kind of trending towards a level you haven't seen from a mortgage banking perspective in quite a while.
spk12: Yeah, Danny, on the mix, I think we do have room to continue to grow that portfolio, and we're comfortable with the mix increasing somewhat. So short-term, we don't think that'll impact what we're willing to put on the balance sheet. Really what we saw in the second quarter was the customer demand shifting from long-term fixed rates to adjustable rate mortgage. That's really what accelerated it in the quarter. So, as we look forward, we think residential mortgage growth will moderate from what we saw in the second quarter.
spk00: Okay. Terrific. All right. I'll step back. Thanks for answering my questions. Thanks, Dean.
spk05: Thank you. Our next question comes from the line of Russell Gunther from D.A. Davidson.
spk04: Good morning, guys.
spk01: Good morning, Russ.
spk04: Good morning, Russ. Good morning. Just a quick follow-up on the growth outlook. So if you guys, you know, really strong results first half of the year and building momentum into 2Q. I hear you on the expectations for Resi. Can you comment, though, on just overall organic growth expectations for the back half of the year and any expectations for, you know, a potential slowdown from the momentum you've shown in the first half?
spk12: Yes, we did have a really strong quarter and really strong first half. On the consumer side of the business, as rates move up, that will impact demand. So I think there is potential for consumer to slow down as rates go up. We feel good about the businesses and the backlog and activity that we have right now. But I think that's a macroeconomic environment that we're worried about as those rates go up. On the commercial side, you know, our pipeline remains strong. We're adding to our team. We had growth in every area geographically of the company, and we expect consistent origination performance in the back half in commercial banking. Okay.
spk04: That's really helpful. And then thinking about funding the growth from a deposit perspective, you know, you mentioned some seasonality that we saw this quarter, and I think we get some again in 3Q, and also the, you know, recent rising of rates to retain and grow balances. So, would you expect to be able to continue to fund the growth outlook with deposits, and how would you expect that loan to deposit ratio to trend going forward?
spk08: Yeah, I do, Russell. You know, in the third quarter, as you point out, we do have, you know, typical seasonality. We have, you know, $2.2 billion of municipal deposits on the books as of June. You know, those have a blended cost of around six basis points. I mean, our municipal book is a little bit more core than maybe how some people view municipal deposits, but there will be some tax rolls coming in here in the third quarter. You know, so, you know, but on top of that, I mean, again, we are going to see a full quarter impact of the rate increases that we saw in June, you know, plus the rate increases occurring in July. So, you know, that now gives us room, and we are starting to, you know, look at, you know, the customers that we want to retain, and we have a lot of long-term depositors that, you know, we're going to be increasing rates for here in the third quarter. so that we can continue to retain and grow that book and continue to fund ourselves organically. All right, great. Thanks, Mark.
spk04: And then just switching gears, last question here just on M&A. So, with the recent deal closed and integration coming shortly, Just an update in terms of your appetite for M&A going forward and whether any macro concerns have diminished that at all in the near term.
spk06: So we would still be interested in strategic acquisitions within our footprint. I think things have slowed down considerably, but we would be interested. Okay, great.
spk04: Thanks, Phil. I'll step back. Thanks, guys, for taking my questions.
spk01: Thanks.
spk04: Thanks, Phyllis.
spk05: Thank you. Our next question comes from the line of Frank Chiraldi from Piper Sandler.
spk09: It's actually Justin Crowley on for Frank this morning. Just to follow up, again, sort of on the growth discussion, On the hiring side, I think you mentioned last quarter about adding some teams in DC as well as Southeast PA. I was wondering if you could talk about sort of the traction you're seeing there and then some of the more hiring you're doing and how that factors into the outlook going into the back half of the year.
spk12: Yeah, we are always recruiting and want to hire and pull teams into the organization as much as we can in the quarter. We added the Southeast PA, and we actually added a team in Northern Virginia. So those are the teams that we added. But we added then commercial bankers throughout the footprint as well. I think linked to quarter, we were up 11 individuals. So that is a constant. We're very focused on organic growth. And that is a critical way to do it in commercial banking. So we are always recruiting and looking to add talent. Okay, great. So we are always recruiting and looking to add talent.
spk09: Okay, great. And then just online utilization rates, you know, you talked about those staying flat. You know, is there anything you're seeing? You talked about the opportunity. Should that sort of reach where you guys run historically? You know, is there anything you're seeing or hearing that, you know, would bring you to expect that to start to pick up, you know, as we head into the third quarter?
spk12: We monitor it. You know, it flattened out. We got a little bit of growth first quarter based on line utilization, and then length quarter here, it It was relatively flat. So we do think that will increase over time as liquidity comes out of the system, as customers are going to use their liquidity first. So we're going to see that natural pool between deposit balances and line utilization. So we're navigating that, but we do expect slow and steady increase in line utilization.
spk09: Okay, great. That's helpful. And then just sort of lastly for me, just on capital and coming out of the prudential deal close, you know, on repurchases, can you just sort of remind us, you know, how you weigh, you know, sort of how active you plan to be, you know, whether that's looking at capital levels or squaring that against, you know, what you're seeing from a loan growth perspective?
spk08: Yeah. So, you know, the waterfall in capital, you know, for us is always organic growth first. So we're going to make sure we maintain healthy cushions on capital to be able to fund the customer growth that we have. If we have excess capital, then we will certainly evaluate where the stock is trading and evaluate a buyback versus other forms of capital like inorganic growth and acquisition use, whether that's for whole bank acquisitions or whether that's for you know, some of the bolt-on wealth acquisitions that we've done over the years.
spk09: Okay. And then the swings in AOCI, does that impact at all sort of your thinking on buybacks or is that more just, you know, semantics?
spk08: Well, I think that's a great question. And, you know, I guess I would throw that out to everyone on this call, you know, to sort of weigh in on that as well. You know, we have spoken with some of you and we've spoken with Moody's and we've spoken with some of the larger institutional investors. And I think the general view on that is that this is an accounting issue, you know, and not an economic issue. But, you know, we're paying very close attention to that. because we want to make sure that all constituencies feel as comfortable as we do on the strength of our balance sheet.
spk09: Got it. That is it for me. Thank you guys for taking my questions. Thanks.
spk05: Thank you. Our next question comes from the line of Chris McGrady from KBW. Good morning.
spk02: Good morning, Chris. Good morning, Chris. Hey, Mark, I want to start with just an NII question. Yeah, we're all using, I think, a little bit different rate curves. Could you remind me the rule of thumb for each 25 on NII?
spk08: Yeah, so the rule of thumb for 20, and this is just obviously for 22. We'll be coming out with 23 guidance in early 23. But based on our current assumptions on deposit betas, the rule of thumb is between $1 and $1.5 million a month for each 25. You know, so said another way, you know, we have 25 assumed in September. If you have 50 in your model, that meeting's in early September. That would be four months, so that would be around $5 million additional to NII.
spk02: Great. That's exactly what I was looking for. You referenced the service charge shifts that a lot of your competitors are also doing. You also mentioned that's mostly going to take effect at the end of the year. Maybe a question for, like, lift-off point, you know, in 4Q. Like, can you remind me what the total impact is? I think you said it was going to be a million this year, but looking to next year, just help with that service charge. Yeah, so...
spk08: So we don't give 23 guidance until 23. You know, we're giving the fourth quarter guidance, but, you know, we're also offering some new, you know, products, you know, for customers that might change some consumer behavior. So until we really know that, you know, Chris, I mean, I'm not going to go beyond, you know, the fourth quarter guide that we give, which I said is less than a million dollars and is reflected, you know, in the 220 to 230 overall fee income guide. Okay.
spk02: And then lastly, on the share, I have it in my notes, about 6 million shares from the deal for the third quarter. You got it.
spk08: Yep.
spk02: Got it. Great. Thanks, Mark.
spk05: Thank you. Our next question comes from the line of Casey Hare from Jefferies.
spk03: Hi, Connolly. On behalf of Casey Hare, So, you know, this is kind of touched upon, but obviously, you know, deposits down 2% at the end of the quarter. I saw cash vision come down a little bit. So just in terms of, you know, just in terms of the balance sheet, like for funding loan growth from here, will it come primarily from the securities portfolio? And do you have a level of cash that you're comfortable with operating at going forward? Thanks.
spk08: Yeah, it would come from cash flows from the investment portfolio. You know, we do have a little bit of cash. We've historically, you know, in the industry for a long period of time has not, you know, had any overnight borrowings. You know, so we have ample liquidity certainly, you know, through our securities book, you know, for borrowing capacity at the FHLB as well. And we also have a loan to deposit ratio, which while it is ticked up, you know, it is still below our historic loan to deposit ratio standards. And, you know, we feel very comfortable you know, running it in the mid-90s, you know, we're still sitting below 90% today.
spk03: Okay, great. Thanks for taking my question. You bet.
spk05: Thanks. Thank you. Our next question comes in the line of Matthew Breeze from Stevens.
spk11: Hey, just curious, you know, thinking about the updated NII Guide 745 to 760, I mean, it feels safe to say that the 4Q, the exit NII run rate will be north of $200 million. I'm curious if by your projections, is that exit NII closer to $200 million or $210 million? Maybe frame for us what kind of the annualized exit rate is in that fourth quarter.
spk08: Yeah. So, you know, we just give annual guides, but, you know, I would tell you that, you know, your guess of between 200 and 210 is pretty well spot on. So I'll leave it there.
spk11: Okay. And Mark, maybe just provide for us what the incremental loan yield is today, what the blended rate on the portfolio, the pipeline is. And are there any areas where you're starting to see some spread compression? Just curious where you're seeing the most competition.
spk08: Yeah, so I'll take the first part of the question. I'll turn it over to Kurt. So, you know, for loan yields, you know, we were, you know, 356, you know, for the second quarter. You know, to give a sense, though, you know, kind of where we are coming out of the quarter, we were 370 for the month of June. You know, and then that really, because our deposit cost stayed flat, You know, that really drove the margin expansion where, you know, our margin for the quarter was 304. You know, our margin for the month of June was 319. But now I'll turn to Kurt if he's in on the second half of your question.
spk12: Yeah, just to add some color on the origination. I mean, we remain very disciplined in our pricing. And, you know, we grew most loan categories for the quarter. So it remains a competitive market. you know, but we're not given on credit terms and we're not going below what we're comfortable with on credit spread.
spk11: Okay. And you mentioned that, you know, you were offering selectively promotional deposit rates. Curious, you know, what categories and what rates you were offering. If you could provide the June cost of funds too, that'd be helpful.
spk08: The June cost of funds?
spk11: Yeah, cost of deposits, sorry.
spk08: Yeah, it was 11 basis points as well. Okay. So that's taken on. And in terms of, you know, things that we're offering today, I mean, we're, you know, looking at individual pockets of customers and categories. One specific thing that we're launching right now is a three-year consumer CD at 2%. You know, so we are going out with that, you know, to get a little bit ahead of, you know, where, you know, If the 75 basis points occurs in July, we'll be borrowing overnight north of 2% pretty soon. So that's one example of things that we're doing.
spk11: Okay. And then my last one, just on the topic of credit, so in your prepared remarks, a little bit more cautious language on the credit front, noting some slight deterioration. I was just curious where you're seeing that slight deterioration. Yeah, I'll stop there.
spk12: We had a modest uptick in delinquency, so that's a leading indicator. But again, we're at historically low levels of delinquency, but that picked up modestly. We had some increases in non-performing as well. That was specifically in C&I. A few C&I accounts struggling with the things that are in the macroeconomic environment. whether it be supply chain or talent, there's a handful of accounts struggling with that. But it's really specific to those accounts, and we don't see anything on a portfolio level in consumer or commercial at this point.
spk11: Okay. Last one, just two portfolios that I'm paying a little bit more attention to.
spk12: commercial real estate office and equipment and I was curious if you could provide a little bit of a color on those two and then exposures yeah well you're spot-on focused on those were focused on those as well in the equipment finance side we really haven't seen any any change or any increased risk in that portfolio at this point On office, we are doing a lot of work on understanding office. We're specifically focused on investment real estate office. And we have about $560 million portfolio. We've done a deep dive on all of those accounts. We have a weighted average loan-to-value of roughly 51% and a very strong weighted average cash flow. At this point, and we're looking at lease terms and where emerging risk might occur, but at this point, even that portfolio where we may expect some pressure, we're not seeing it, and we feel good about our portfolio.
spk11: Okay. What was the equipment balance?
spk08: Roughly $250 million, $260 million. Okay. Perfect. Okay.
spk11: I appreciate you taking all my questions. Thank you.
spk08: You bet. You bet.
spk05: Thank you. Our next question comes in the line of Daniel Tamayo from Raymond James.
spk00: Hey, guys. Just a quick follow-up here. Thanks for taking it. Just on reserves, so, you know, obviously we seem to be getting to a stablish point here or a bottom, but I was curious how you're thinking about the lever or the leverage, I guess, to any changes in economic forecasts or, you know, actual data in terms of unemployment, GDP, and whatever else is driving those calculations for you guys. How much, you know, changes in those items could impact reserves and how quickly that could happen with in the CECL era here.
spk08: Yeah, Danny, that's going to go beyond the time of this call to talk about all of the nuances around the CECL calculation. But, you know, it's obviously a mix of, you know, very, you know, large, complex, you know, macroeconomically driven models as well as, you know, qualitative overlays where we look at things like, you know, office right now and portfolios that we think have potentially higher risk. Should the macroeconomic environment change significantly, that could have impact, obviously, on our levels that we need to provide going forward. But macroeconomic factors tend to lag a little bit, but they also tend to move a little bit more slowly than some of the stuff that's more specific to your own portfolio.
spk00: Yeah, no, that's... That's a good point. Is it fair to say you think we've hit a bottom here from a reserve ratio perspective?
spk08: You know, I think that's really hard to say. You know, the one other thing I guess I would comment, because you're asking about macroeconomic factors, I mean, the one thing that's interesting with where we are right now in the cycle is that normally, you know, when you start to see a downturn in credit, you're also in an environment then where rates are falling and that puts pressure on bank earnings. You know, but here we're in an environment where, you know, we don't know, you know, if we're at, you know, sort of a trough in terms of credit and if non-performers are, you know, are going to go up or not. But we're also in an environment where earnings, you know, the outlook for earnings for the near term is pretty good, you know, with respect to rates.
spk00: Yeah, that's a good point. All right, well, I appreciate your insight there. That's all I had.
spk08: Thanks, Dan. All right, thanks, David.
spk05: Thank you. Our next question comes from the line of David Bishop from Haldi Group.
spk03: How are you? Hey, David. Hey, David.
spk10: Hey, most of my questions have been asked and answered, but I think in the preamble you might have noted – a change in pricing on commercial cash management? Was that the driver, some of the increase on the cash management side of the house, on the fee side?
spk12: It was a component just based on the second quarter. That's typically when we do our annual rate sheet changes for cash management services. So within this quarter, that impact was felt.
spk10: And in your view, does that sort of bring you back up to the market, above market? Just curious sort of where you lie relative to Peterson.
spk12: Yeah, I mean, we are competitive, you know, with our regional and large competitors there. So we feel that those fees, even with the increases, remain very competitive and allow us to continue to add customers and grow the customer base.
spk11: Great. I appreciate the question. Sure.
spk05: Thank you. I would now like to turn the conference back over to Phil Wenger, Chairman and CEO, for closing remarks.
spk06: Well, thank you again, everyone, for joining us today.
spk05: This concludes today's conference.
spk06: We'll be with us when we discuss third quarter results in October.
spk05: this concludes today's conference call thank you for participating you may now disconnect
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