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spk10: Good morning and welcome to the People's Bancorp, Inc. conference call. My name is Cole and I'll be your conference facilitator. Today's call will cover a discussion of the results of operations for the three and six months ended June 30th, 2024. Please be advised that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, please simply press stars and one on your telephone keypad. and questions will be taken in the order that they are received. If you would like to withdraw your question, please press star then two. This call is also being recorded. If you object to the recording, please disconnect at this time. Please be advised that the commentary in this call will contain projections or other forward-looking statements regarding people's future financial performance or future events. These statements are based on management's current expectations. The statements in this call, which are not historical fact, are forward-looking statements and involve a number of risks and uncertainties detailed in the People's Security and Exchange Commission's filings.
spk01: Management believes that the forward-looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of people's business and operations. However, it is possible actual results may differ materially. from these forward-looking statements. People's disclaims any responsibility to update these forward-looking statements after this call, except as may be required by applicable legal requirements.
spk10: People's second quarter 2020 earnings release conference call presentation were issued this morning and are available under the peoplesbankorg.com under investor relations. A reconciliation of the non-general accepted accounting principles or GAAP financial measures discussed during this call to the most directly comparable GAAP measures is included at the end of the earnings release. This call will include about 15 to 20 minutes of prepared commentary, followed by a question and answer period, which I will facilitate. An archived webcast of this call will be available on the peoplesbankcorp.com in the investor relations section for one year. Participants in the call today will be Tyler Wilcox, President and Chief Executive Officer, and Katie Bailey, Chief Financial Officer and Treasurer.
spk01: And each will be available for questions. Mr. Wilcox, you may begin your conference Good morning, everyone, and thank you for joining our call today. We're providing an earnings conference call presentation, which we filed as part of our Form 8-K this morning with our earnings release. and is also posted on our website with this webcast. We are pleased to bring another quarter of consistent results for our shareholders. And for the second quarter, Second quarter, diluted earnings per share were 82 cents compared to 84 cents for the link quarter. For the first half of 2024, diluted EPS were $1.66 compared to one $1.56 for 2023.
spk02: Some positives for the second quarter included loan growth of 8% annualized compared to the linked quarter, improvements in our criticized and classified loans, which declined 6% and 19%, respectively, compared to the linked quarter end. While our total deposits declined $29 million, Our core deposits grew by $42 million for the quarter, which excludes brokered CDs. Our brokered CDs continue to decline as we generate customer deposits. Our book value increased from $29.93 at the linked quarter end to $30.36 at June 30th, while our tangible book value per share grew to $18.91, a 3% increase.
spk01: increase from March 31st. Our tangible equity to tangible assets ratio improved 24 basis points to 7.6%. A regulatory cap capital ratios improved by double digit percentages compared to the linked quarter end. Our return on average assets for the second quarter was 1.3%. We had a decline in our provision for credit losses compared to the linked quarter. And we generated improvements in our fee-based income, excluding the annual performance performance-based insurance commissions we recognized last quarter. As it relates to our credit quality We had many improvements this quarter, including a reduction in our criticized and classified loans, which were down $17 million and $27 million. million respectively compared to the quarter end.
spk02: This was driven by paydowns on some loans that we downgraded last quarter as we diligently worked those credits. We noted last quarter in our call that we did not believe the downgrades at that time were indicative of core portfolio issues and this is shown to be the case. We continue to receive paydowns on these loans. and have received additional funds in July, including another $8 million. We also had upgrades of two classified credits totaling $5 million to watch status, and one upgrade of $2.5 million from criticized to fair. Our allowance for credit losses remained at 1.05% of total loans at quarter end, consistent with the linked quarter end.
spk08: Our provision for credit losses for the quarter was driven by net charge
spk01: higher reserves on individually analyzed leases and loan growth. Our annualized net charge-off rate for the quarter increased to 27%. basis points compared to 22 basis points for the first quarter. Combined, our leasing and Consumer indirect net charge-offs contributed 21 of the 27 basis points of our annualized net charge off rate for the second quarter. We continue to see elevated net charge charge-offs and small ticket leases from our North Star division, which contributed 14 of the 27 basis points to our annualized net charge-off. rate. These charge-off levels are similar to pre-pandemic rates or the rates we expected to see when we acquired the business. We continue to evaluate the various lending verticals in the small ticket leasing area. Small ticket leasing area. and adjust our appetite based on performance. So the second
spk02: For the second quarter, the yield on our small-ticket leasing balances was over 14%, and we continue to be very satisfied with our risk-adjusted return on our core small-ticket leasing business. Our net charge-offs have grown in consumer indirect loans, adding seven basis points to our annualized net charge-off rate for the second quarter. We are seeing a national trend of increased delinquency in auto lending, leading to higher surrender rates. When combined with the previous spike in used values, the dollar value of our net charge-offs has increased. We remain disciplined in our lending practices with weighted average FICO scores at over 750 on our production and remain optimistic about the business.
spk01: Non-performing assets increased 2.4 million, which was mostly due to higher non-accrual leasing balances. Our delinquency improved this quarter, and the portion of our loan portfolio Considered recurrent at June 30th was 98.8%, up from 98.7% at March 31st. You're confident in our commercial loan concentrations. With our exposure to non-owner-occupied office space at less than 2% of our total portfolio balance at June 30th. Our exposure declined compared to the length quarter end as we successfully exited an $8 million classified office loan. Our hospitality and assisted living facilities were each around 2.5 percent of our total balances. At the same time, Our multifamily loan balance is worth $557 million. $35 million. $35 million increase compared to the length of the quarter end.
spk02: We continue to have strong sponsor support and economic metrics with the deals we have chosen in this segment and will continue to be diligent in our underwriting of these loans. We see rents on multifamily loans holding up, and in our seven metro markets, we are still experiencing average rental growth of 3.2%, compared to the national average of 0.9%. Compared to the linked quarter end, our total loan portfolio grew $123 million, or 8% annualized. Our premium finance balances contributed $54 million of growth, compared to the linked quarter end.
spk01: Increases in our commercial and industrial portfolio of $43 million, mostly offset decline. mostly offset declines of 48 million in our commercial real estate portfolio. But as I mentioned earlier, here, a meaningful portion of the credits that paid down Part of our criticized and classified assets, which we view as a positive. Consumer loans contributed $39 million of growth Driven by higher consumer indirect balance. At quarter end, our commercial real estate loans comprised 35% of the total loans, yearly 40% of which were percent of which were owner-occupied, while the remainder were investment real estate. At the same time, our total consumer loans, which include residential real estate and home equity lines of credit. 29% of total loans.
spk02: commercial and industrial loans were 20%, leases totaled 7%, construction loans were 5%, and premium finance was 4% of total loans. At quarter end, 47% of our total loans were fixed rate, with the remaining 53% at a variable rate. We continue to actively assess market conditions on our commercial real estate books including the impact of higher interest rates on upcoming loans repricing or maturing. We are comfortable with our ability to handle the repricing of our commercial loan portfolio and only have $289 million repricing or maturing during the last half of 2024 and another $396 million during 2025. I will now turn the
spk01: Call over to Katie for a discussion of our financial performance. Thanks, Tyler. Our net interest income was stable compared to the first quarter. While our net interest margin was 4.18% compared to 4.26%. Nearly half of the reduction in net interest margin compared to the link quarter was lower accretion income net of amortization expense, which only added $28 basis points this quarter compared to 32 basis points last quarter. The remainder of the decline was mostly due to higher borrowing costs incurred during the second quarter, which offset higher earning asset yields. First half of 2024, our net interest income grew 10%, while our net interest margin declined. While our net interest margin declined 31 basis points to 4.22%. Our earning asset yields improved to 68%. 6.32% for the first six months of 2024 compared to 5.49% for 2023, while higher funding costs more than offset the improvement.
spk03: Accretion income net of amortization expense added 31 basis points to net interest margin for the first half of 2024 compared to 19 basis points for 2023. Moving on to our fee-based income, excluding our annual performance-based insurance commission of $2.2 million we received in the first quarter, fee-based income grew compared to the linked quarter. We typically recognize the performance-based insurance commission during the first quarter of each year.
spk01: Additionally, for the second quarter, growth in electronic banking income, trust and investment investment income, offset decline in bank-owned life insurance and lease income. For the first half of 2020 to 2024, our fee-based income grew 15%, with an increase with increases in all lines primarily due primarily due to the limestone merger that occurred on April 30, 2023. Okay. Does it relate to our non-interest expenses?
spk03: expenses, they were relatively flat compared to the first quarter of 2024, as our other non-interest expense was impacted by a one-time prior period true-up of corporate expenses. For the first half of 2024, non-interest expense was up 8% as higher operating costs from the additional footprint from Limestone was partially offset by lower acquisition-related expenses during 2024. For the second quarter, both our reported efficiency ratio and our efficiency ratio adjusted for non-core expenses was 59.2%. Our reported and adjusted efficiency ratio increased compared to the linked quarter and was related to lower fee-based income compared to the linked quarter.
spk01: For the first half of the reported efficiency ratio was 58.6%. decline from 2020 to 2023. efficiency ratio for the first six months of 2024 was 58.7%. An increase from 2023 due ...interest expenses... ...interest expenses...
spk03: Moving on to the balance sheet, our investment securities portfolio continued to comprise 20% of total assets at June 30th, while our loan to deposit ratio increased to 87%. During the quarter, we were able to gain additional liquidity by moving some of our governmental deposits and repurchase agreements with our customers to insured cash suite products, which allowed us to free up some previously pledged investment securities. From a deposit perspective, our total deposits declined $29 million from the linked quarter end, which was mostly due to reductions in brokerage CDs and seasonal declines in governmental deposits.
spk01: which are typically higher during the first and third quarters of each year. Excluding brokered our deposits were up $42 million compared to the linked compared to the linked quarter end. East grew 132 million. $32 million. While we were able to reduce our brokerage CDs, is by 71 is by 70 one million dollars
spk03: For the second quarter, our deposit costs only increased by nine basis points compared to the linked quarter. Our retail CD promotions have been for a 5% CD over a relatively short term, and our entire retail CD portfolio had an average remaining life of five months at June 30th. Our demand deposits as a percent of total deposits were flat compared to the linked quarter end and remained at 35% at June 30th. while our non-interest-bearing deposits were 20% of total deposits. At quarter end, our deposit composition was 78% in retail deposit balances, which included small businesses.
spk01: And 22%... and commercial deposit balances. Our average customer to with 25,000 $25,000 at quarter end. And while our median was nearly $3,000. Moving on to our capital position.
spk03: Our capital ratios improved compared to the linked quarter and benefited from earnings outpacing dividends. At quarter end, our common equity tier one capital ratio was 11.8%. Our total risk-based capital ratio was 13.5%. Our leverage ratio was 9.7%. And our tangible equity to tangible assets ratio improved to 7.6% compared to 7.4%. at quarter end. As it relates to our capital deployment, we did not repurchase shares this quarter. We do provide an attractive dividend as part of our capital usage, which has a current yield of 4.89%.
spk01: Our dividend Our dividend payout ratio stood at 39.9%. At 48.9. percent for the second quarter. Finally, I will turn the call over to Tyler for his question. for his closing comments. Katie?
spk02: During the first half of 2024, we made strides in improving our technology. As we rolled out a new customer relationship management system that integrates referrals, opportunities, and client information between our lines of business, enhancing our ability to execute by making it easier for us to connect with and serve our clients. We also implemented a new software system for our insurance groups and began utilizing more functionality with our implementation of Microsoft products as we continue to look to replace legacy systems. We are also well on our way to implementing a new business loan origination system that will be in place starting in 2025.
spk01: As we mentioned software upgrades, I would also like to note that the crowd strike outage from last week had a phenomenal impact on our system. Last week had nominal impact on our systems and any impact has been resolved at this point. We place high importance on our employee satisfaction and workplace. We are proud that our company We're proud that our company's culture is being recognized. recognized in the marketplace during the first half of 2024. We were recognized by US News and World Report.
spk02: the best company to work for in banking and by Newsweek as one of America's greatest workplaces. As we look to the second half of 2024, we currently anticipate net interest income to benefit from the full-year impact of the limestone merger. We continue to expect our quarterly net interest margin to be between 4.1% and 4.3%, assuming that there are no significant short-term interest rate changes in the remainder of 2024. We believe our fee-based income growth will be between 6% and 8% compared to 2023.
spk01: Our quarterly total non-interest expense forecast remains unchanged at between 67 and 69 million. The third and fourth quarters of 2024. You're lowering our 2024 loan growth. guidance to 5% to 7% compared to previous guidance of six to eight percent. This slide is an adjustment in our estimate is partly a result of the paydowns received and expected pay downs will be noted on criticized classified loans, which will offset some of our anticipated loan production.
spk02: We also expect some reduction from our leasing business due to recent credit quality and net charge-off trends. Based on current information, We expect our provision for credit losses for the third and fourth quarters to be relatively consistent with the amounts recognized during the first two quarters of 2024. We anticipate a full year net charge-off rate of around 25 to 30 basis points, primarily driven by trends in small ticket leasing and indirect charge-offs expected for the remainder of the year. We are pleased to bring our shareholders solid, consistent performance while also improving our product offerings
spk01: infrastructure, technology, and aligning our business to grow. This concludes our commentary and we will call for questions. Questions? Once again, this is Tyler Wilcox. Thank you for joining me for the Q&A session. This is Katie Bailey, our Chief Financial Officer. call back into the hands of our facilitators. Thank you. And we will now begin the question and answer session. in the question and answer session. If you would like to ask a question,
spk10: ask a question during this time, please simply press stars and one on your telephone keypad, and questions will be taken in the order that they are received. If you would like to withdraw your question, please press stars and two. And our first question today will come from Daniel Tamayo with Raymond James. Go ahead. Go ahead.
spk05: Hi, Danny. Thank you. Hey, good morning. Good morning. Maybe we... Maybe we start just on the margin. I know you appreciate the guidance that you provided, but just wondering if you could get a little more detailed, given the restructuring benefit in the third quarter and then deposit competition and everything else, just
spk01: how you're thinking about the magnitude of of margin compression in the back half of You have friends now. You have friends now. You referenced a You referenced a restructuring in the third quarter. the third quarter I'm not sure what
spk03: specifically you're talking about there, we did not reposition our investment portfolio during the second quarter or really the first quarter in any meaningful way. So I think the guidance that you see us give is largely consistent with what we've been giving all year. I think there will continue to be slight compression in margin, more a function of accretion income as that continues to trail off. Again, we printed 28 basis points of accretion benefit in the second quarter. We expect, you know, maybe two to four basis points of continued compression in each quarter thereafter to get us for the year in the 25 to 30 basis points benefit of accretion, but the latter half is...
spk01: come down from the 28th. I think that's what we expect as we pursue. through the year. I think the... ...execution as well. is largely going to be stable so we're aware of where we were for this. Got it. Got it. Okay. Yep. Sorry.
spk05: That was a misspeak. My apologies on the restructuring, but yeah, the accretion is what I was thinking of. And then I guess just to follow up on just the small ticket leasing business. You talked about it a lot in the prepared remarks and in the release, but Just curious if you are seeing an uptick in those loss rates. I mean, you saw classifieds come down. I guess you could just talk a little bit about the drivers of the lower classifieds, but also kind of the continued elevated net charge-offs related to the leasing business. That'd be great.
spk01: Sure, Danny. Thanks. I guess I'll I'll separate those out a bit. Very optimistic, you know, kind of as we talked about last quarter and as we talked talked about and reiterated it again on the talked about and reiterated it again on the commercial I think there's a great commercial I think So I think there's a great story to tell there. The decline was, you know, upgrades and upgrades and payoffs by and large.
spk02: We continue to work the core book as well as the book of business that we picked up from Limestone. And I think the positives there are delinquency has declined in the core commercial book. I'm proud of the fact that we've built a book that is relatively underweight to the industry and peers with respect to commercial real estate. And so just that core book. And just a word as well on that is that during the first half of this year, we saw some nice balance mix away from CRE and into CNI. So the paydowns were just about 60% in the commercial real estate.
spk01: the commercial real estate and the production about 60% on the industrial side. There's kind of a natural rebound. have a natural rebounding going on there. So as far as the, it's a bit of a of two portfolios. The core, which represents 90-plus percent of our portfolio. is very strong.
spk02: On the two primary drivers, the small ticket leasing, the inherent nature of that business is in the higher risk segments. It's in hospitality, restaurants, startups of less than three years, breweries, transportation, all of those mission-critical equipment. And we said when we bought the business that we were pricing for about 4.5% charge-offs. And we based that on about a 22-year history of prior to when we bought it, the records of where the historical charge-offs were.
spk01: you know, we saw during, you know, we saw You know, we saw during 2021 and 2020, 2022, you know, less than charge-offs. And so, you know, we've received benefits. You know, We've received the benefit of that from the pricing side and we're seeing a return. We're seeing a return to to normalization and I think those higher risk areas with the higher areas with the higher pricing leads us to
spk02: continue to be satisfied with kind of the risk-adjusted return of that business.
spk08: But we are seeing, you know, we are seeing an increase there.
spk05: That was helpful. Thanks, Tyler. I appreciate it. And that's all for me. Thanks for my question.
spk03: Thanks, Danny.
spk10: Thanks. And our next question will come from Brendan Nothal with Hobdy Group. Please go ahead.
spk07: Hey, good morning, folks. Hope you're doing well.
spk10: Hey, Brendan.
spk02: Good, thanks.
spk07: I just wanted to circle back to the charge-off guide and the leasing piece. What are you embedding for these charge-offs into that overall guidance for the back half of the year?
spk01: And then what do you view as... like it feels like we're still a way to go a way to go To get there. To get there. I'm curious how you view Today's normalization versus that 4.5% you laid out. you laid out. the third and fourth Third and fourth quarter will be relatively consistent from a charge-off standpoint with the small ticket leasing specifically.
spk02: You know, there is the delinquency in that portfolio has ticked up. You know, we've obviously, as we referenced, done some tightening of the portfolio there. But as far as the outlook, specifically with those leases, that guide is going to be consistent from a charge-off standpoint. I don't know if I answered your question.
spk07: Yeah, yeah, that's helpful. Maybe one more from me, just pivoting. Can you provide some color on the overall M&A environment and whether you're expecting any change in that environment now that bank multiples have firmed up as much as they have over the past year?
spk01: Sure. I would say there is a discussion going on. going on from an M&A perspective. From what I see, I think there are a lot of management management teams and boards that are playing a little bit of a wait and see, wait and see what happens with rates, wait and see what happens with the election.
spk02: I'm not suggesting either of those are magic bullets at all, but as we have conversations, which we continue to have, I think there are a lot of banks that are considering their options for the future, and we're continuing to be part of those conversations. So I would expect more M&A activity next year than this year, but that's about as far as my crystal ball goes. I'm more focused on what opportunities we see for ourselves out there in the coming year, and we think it's promising that we'll have some of the conversations that we've been having for, you know, A long time will hopefully bear fruit in the future.
spk01: Thank you. Thank you. And our next question comes from Terry McAvoy with Stevens. Please go ahead. Please go ahead. Please go ahead. All right, good morning. Hi, Terry. Thank you, Terri. Just looking at the average balance sheet, the CRE and C&I averages,
spk04: Both declined quarter over quarter, and it's kind of half your loan portfolio. So you talk about the quarter over quarter decline, and within the margin outlook for the back half of this year, where do you see loan yields or those portfolios trending?
spk03: Yeah, I think you're seeing the accretion on those portfolios diminish quarter over quarter, as we've stated. That's where the large marks come when we acquired the books. predominantly limestone most recently. So again, I think we'll continue to see slight compression and accretion quarter to quarter. I think I previously said two to four basis points that might go down in the quarters again as that book continues to
spk01: pay down, pay off. That's why we see less. Excellent. accretion there. So I think it will be relatively stable with the caveat that accretion will Go down slightly. Perfect. That's what I assumed it was but wanted to ask. And then assumed it was but wanted to ask. And then and then Tyler, you talked about some technology investments. Okay. How is that kind of built into your expenses?
spk04: outlook and maybe talk about some of the efficiency gains that you foresee because of those investments.
spk02: Sure. Thanks, Terry. With respect to the expense guide, I would say we've talked for a few quarters now about how that expense is baked in. So our guide for the forward is remainder of the year and into next year should be relatively consistent because We implemented the customer relationship management software, began to pay for it last year, and has been implemented this year. From an efficiency standpoint, it's been giving us a couple of pieces of efficiency even just early on.
spk01: It's helped us have a unified system for some of our operations. operational aspects. We've had a few processes that in integrating images unified system have allowed us to cut internal service times on certain processes. This is down from multiple hours to minutes, which we're very pleased with. to give us some efficiency in eliminating additional third-party systems. that are now now integrated into a single system.
spk02: When I go forward, my expectation is that we have a broad, diversified group of businesses, and one of our primary goals is always, and I think strengths, has always been getting those businesses to work together. This system will allow us to kind of mine our client data and push opportunities to for our clients between the businesses in a much more efficient way that will hopefully improve our revenue results at the end of the day. So that's the expectation on that system, and we're pretty excited about it. But it represents kind of a long-term fundamental investment and fundamental change in what we're doing.
spk01: from an operational standpoint. Maybe one small one to attack. $1.1 million tax. That was cited in the press release. Thanks again. I think it'll, the, I think the tax rate in the back half will be consistent with the first half. I think the, if you adjust the Q1, our Q2 amount, the 1.1. one we quoted I think you get something closer to
spk03: 22, 22 and a half. And I think that can be the expectation for the back half of 24. Great.
spk04: Thanks for taking my questions.
spk03: Thanks.
spk10: And our next question will come from Tim Switzer with KBW. Please go ahead.
spk06: Hey there. Thank you for taking my questions. I have a quick follow-up on some of the commentary around the leasing charge-offs. Could you talk about how maybe a change in the macro environment along with lower interest rates could maybe improve that, the credit trends you're seeing in that sector right now.
spk01: Yeah, thanks, Tim. I think the AD I think the decline in the interest rates interest rates would certainly help with the outlook. can help alleviate some of the pressure. that we're seeing in some of these we're seeing in some of these small businesses. You know, and I think expectation expectation there is that
spk02: Though, again, you look at the pre-pandemic era when the average, it would go up and down, but the average has historically been about 4.5%. And at the end of the day, the borrowers are going to this outlet because they are higher risk industries. And so they're going outside the traditional banking services. And those loans are fixed rate, just to be clear. But as interest rates fall, additional debt, they may find relief elsewhere. So I don't think it will be a meaningful fee change, but it can't hurt.
spk01: And again, there's short duration on those leases as well, generally. So they tend to burn off pretty quickly. than the average portfolio as well. Okay, that's helpful. And you guys have always had a good amount of non-conspiracy. of non-existent income. Higher percentage of revenue than most peers. It's come down a little bit. Revenue than most peers. It's come down a little bit over But it's come down a little bit over time, partially due to acquisition.
spk06: Is there a range you'd like to bring that back up to where like you have a target of fee income as a percent of total? And are there any specific businesses you'd like to get a little bit more scale in?
spk02: Yeah, historically, we were up in the 30%, and boy, I would love to be back there. And you're correct. The acquisitions, by and large, both bank acquisitions and then some of the specialty finance businesses have continued that trend. We love our fee businesses. I'll say it that way. From an insurance perspective, we've continued to grow that.
spk01: It just hasn't at the same pace of the bank of the bank we should, you know, be somewhere around 20 million in revenue annually. $20 million in revenue annually this year and into the future. We need to do some smaller acquisitions in that area. And we'll continue to do so. We have a large appetite for that. Or insurance. Owners who are looking for an exit strategy.
spk02: Trust and investments as well. We have $3.6 billion in assets under management. We have continued to grow that business organically at a nice pace. expanded some of the lines of business within that business, and we'll continue to look for acquisitions both of books of business and more meaningfully sized in that business. So I didn't give you an exact target, but more would be my goal.
spk08: Great. Thank you. That's all for me. Thank you.
spk03: Thank you.
spk10: And once again, if you would like to ask a question, please press star then 1.
spk01: Our next question will come from . D. A. Davidson D. A. Davidson Go ahead. Hey, good morning, my bud. Good morning, my bud. Good job. I'm leasing. I'm just wondering I'm just wondering what extent are you going to see balance declines there?
spk09: Is this the normal kind of cyclical trends there that on small ticket leasing you'll pull back when you see net charge rise a little bit and you'll still get that higher through the cycle risk adjusted return metrics? Just trying to clarify those movements.
spk02: Yeah, thanks, Manuel. So, first, I would say, you know, we've had this business for a few years now. This is our first kind of credit increase from where we were, and when we bought it, as I mentioned, we were at a low point from a charge-off perspective. So, you know, we're certainly not panicking.
spk01: We're making adjustments to The verticals. within that business. I don't believe we'll see in balances in small-ticket leasing. ultimately . You know, there continues to be production in the core. And if there were a decline, it would be very nominal. it would be very nominal and we have a lot of confidence in our ability to continue to grow that business.
spk02: But in a rising environment, you know, we're required and have an expectation to take a good look at what's performing well and make those adjustments.
spk09: There would be a feeling that if rates came down, I don't know, 100 basis points middle of next year, you'd be right back in some of these verticals, or would you be still cautious?
spk02: No, I think we'll could, you know, look, we've grown that business from 80 million on the balance sheet to over 220 million. As we've grown it, you know, we've expanded the capabilities.
spk01: We've expanded the nationwide reach. And so, you know, We're all in on the business. From a pre-tax standpoint, You know, It's putting up over a two ROI way. And so it's very profitable for us even with the higher loss rate. Again, because we priced it. We look forward to continuing to invest into it.
spk02: And notwithstanding the, you know, kind of the steepness of the increase recently Again, we're just trying to actively manage the business and continue to grow it over the long term because it's very viable and very profitable. And we think it's a great, you know, it's 3.4% of our total loan portfolio for perspective. So it has the ability to make a nice impact, but it's a very small portion of the pie.
spk09: That's a great point. I'm shifting over to Nim. Can you discuss kind of thoughts on deposit costs? Where could they potentially peak?
spk01: And how would they kind of... How the costs react to rate cuts. Yeah. So, I think that a part of the reason increase this quarter compared to last quarter as we had a little bit continued reshifting in the mix of our our deposit deposit portfolio to a slower extent than what we saw on the prior quarter.
spk03: I think we're close to the peak on that rate. We are continuing to see a little bit more mix shift. We're continuing to see growth in the retail CDs, but I think it's slowing a bit. And I think to the extent rate cuts transpire as they are being projected to happen later this year and this quarter, we'll see some benefit. As we mentioned, we've kind of used a short-term promotional product that had at 630 a five-month average life remaining. So, I think we can take the benefit of rate cuts in pretty short order on the funding cost side.
spk01: Can you talk about balancing... You made the comment that you... less of your securities book. book is now pledged because of some movement in terms of deposits. on the deposit side. Can you just talk about flexibility that adds when we see More securities run off. The pay down broke. broker to pay down other kind of higher cost areas of the liability side, areas of the liability side, or
spk09: Just kind of talk about that balance that you're getting based on that comment.
spk03: Yeah, so what you saw last quarter was an increase in kind of cash and cash equivalents on our balance sheet, which you saw this quarter and the second quarter relative to Q1 was a reduction in that cash and cash equivalents because we didn't have to hold as much cash to have kind of readily available liquidity because we had unpledged securities that could quickly be sold. sold if we had need for the immediate liquidity. So that was the trade-off we were trying to describe there. The reduction in cash and cash equivalents in the quarter was because we were able to have uncolleged securities available for liquidity.
spk01: if or when needed. Not that we think they're needed, but just per our policy. These are some guidance that we have internally. Yeah. Thank you for clarifying. for me. And is And is that mean that the current level? But going forward, Going forward going forward.
spk09: afford kind of cash flow tighter, securities balances probably stay in similar range or similar level?
spk03: Yeah, I think that's right. I think over time, you know, we've said we'd like our investment portfolio to be something between 18 and 20%. We're currently sitting at 20%. So it's in the range. And again, I would say we're not actively buying much in the portfolio, investment portfolio, given rates and the like. So I'd expect it to be relatively stable.
spk09: Okay, I appreciate it. Thank you guys for the commentary.
spk03: Yeah, thank you.
spk09: Thank you.
spk10: And at this time, there are no further questions. Sir, do you have any closing remarks?
spk02: Yes, I want to thank everyone for joining our call this morning. Please remember that our earnings call, earnings release, and a webcast of this call, including our earnings conference call presentation, will be archived at peoplesbankcorp.com under the investor relations section. Thank you for your time and have a great day.
spk10: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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