Q2 2022 Fulton Financial Corp Earnings Call
Speaker 1: from 22 was any good one for Fulton and we were pleased with our performance.
Speaker 1: Our earnings per share of 42 cents was an increase of four cents over the previous quarter. It was an increase of four cents over the previous quarter.
Speaker 1: Several factors help drive performance.
Speaker 1: We saw a very strong lung growth.
Speaker 1: Our net interest income benefited from rising interest rates.
Speaker 1: Overall, be income with solids.
Speaker 1: and after quality remain relatively stable, despite a more cautious outlook.
Speaker 1: In April , Fulton released the company's first corporate social responsibility report.
Speaker 1: This comprehensive report illustrates how our purpose-driven company provides an exceptional banking experience for its customers.
Speaker 1: While strengthening the communities we serve.
Speaker 1: In June , Fulton Bank announced upcoming changes to our overdraft program and fee schedule.
Speaker 1: In the fourth quarter of 2022, a Fulton Bank will eliminate non-sufficient funds fees and extend it over to app fees for consumer customers. And extend it over to app fees for consumer customers.
Speaker 1: And as of July 1, I am pleased to report that we completed the acquisition of Prudential Bancorp Inc.
Speaker 1: just under in just under four months after our announcement.
Speaker 1: Later this year we expect the bank conversion to occur, and the potential bank and its customers will be merged into Polnbank.
Speaker 1: Many of our team members have been working to ensure that the transition to Fulton Bank is a smooth one for Prudential Bank.
Speaker 1: customers and employees.
Speaker 1: As part of this acquisition in early July , Fulton made a two-million-dollar contribution to the Fulton Forward Foundation. And this contribution will provide impact gifts to non-profit organizations in Philadelphia that are focused on advancing economic empowerment.
Speaker 1: particularly in underserved communities.
Speaker 1: With the potential bank work acquisition completed, we have doubled our loan portfolio and expanded our deposit base fourfold in the Philadelphia market.
Speaker 1: Looking ahead with our $75 million share repurchase authorization in place and the closing of the potential bank or acquisition now complete, we can consider repurchasing shares later in the year if it makes financial sense to do so.
Speaker 1: Now, current will take a closer look at the details of our business results. Now, current will take a closer look at the details of our business results. Now, current will take a closer look at the details of our business results. Now, current will take a closer look at the details. Now, current will take a closer look at the details. Bye.
Speaker 1: Thanks Phil and good morning. We were very pleased with our performance for the second quarter. Let me share some additional detail on several key areas.
Speaker 1: 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.
Speaker 1: 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 that will be referencing are annualized numbers on a link to quarter basis.
Speaker 1: Starting with commercial lending, we had another solid quarter where commercial loans grew to $225 million or 7.2%.
Speaker 1: 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.
Speaker 1: Increased originations largely drove this growth.
Speaker 1: Commercial line utilization ended the quarter at 22% flat with prior quarter and represents additional growth potential in future periods.
Speaker 1: 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 mortgage is rebounded from a flat quarter in the first quarter, growing 128 million or 7%. And by strong origination.
Speaker 1: migration from construction to permanent loans. Commercial mortgage growth did impact commercial construction balances which declined 79 million during the quarter.
Speaker 1: Even with strong originations during the quarter, the commercial pipeline grew nicely and is now at or above recent levels.
Speaker 1: Turning to our consumer and small business lending, loan balances grew 281 million or 18.9%.
Speaker 1: Residential mortgage growth for the quarter was $257 million or 26 percent length quarter.
Speaker 1: With the rise in interest rates, we saw a shift from fixed rate sailable mortgages to unbalanced sheet adjustable rate originations.
Speaker 1: In addition, we experienced a slowing in residential mortgage loan prepayments.
Speaker 1: 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, our FinTech partnership will continue to progress nicely.
Speaker 1: This portfolio now exceeds 50 million in balances and gives us access to an attractive customer segment.
Speaker 1: Lastly, our consumer indirect business grew 22 million, or 23%, from both adding new dealer customers and increased consumer spending.
Speaker 1: Overall, we are very pleased with the depth and breadth of our loan growth this quarter.
Speaker 1: Turning to deposits on an ending balance basis, we saw decline in total deposits for the quarter.
Speaker 1: This decline was driven by decreases in wholesale, time, and other interest-bearing deposit products.
Speaker 1: Non-interest-bearing deposits which represent a third of our total deposit base remain flat length quarter.
Speaker 1: These broad-based declines were in some cases seasonal, but were also driven in part by our disciplined pricing strategy.
Speaker 1: Recently, we have started to selectively raise deposit rates to both retain and grow our deposit customers.
Speaker 1: For the quarter, total deposit balances declined 397 million or 7.4%.
Speaker 1: 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.
Speaker 1: and market volatility.
Speaker 1: In our commercial line of business, total fees increased 4.4 million of 27% versus the prior period driven by sizable increases in capital markets.
Speaker 1: Merchant activity fees and our core cash management business.
Speaker 1: 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.
Speaker 1: As I noted in prior periods, capital markets, fees are transactional in nature and are driven by the needs of our commercial customer base.
Speaker 1: Merchant fees were up 1.1 million or 23% length quarter driven by increases in growth sales volume.
Speaker 1: Cash management grew 634,000 or 11.7% length quarter, as we are starting to see increased activity and the impact of annual fee increases. and the impact of annual fee increases.
Speaker 1: In addition, we have managed earnings credit rates very effectively.
Speaker 1: Offsetting growth in the commercial business, wealth management fees declined 1.2 million, or 5.9% linked quarter.
Speaker 1: Continued strong sales efforts, client retention and our recurring fee revenue model helped buffer the impact of declines in the financial markets. Continued strong sales efforts, client retention and our recurring fee revenue model helped buffer the impact of declines in the financial markets. Continued strong sales efforts, client retention
Speaker 1: At June 30, the market value of assets under management administration declined to 12.6 billion or 8.7% down less than the overall market. We hope you enjoyed your views on my conversation, thank you and it was a good project thanks to someone listening to the census showing potential of<|en|><|transcribe|> of course that you will see. Our wind up dat jar. We're watching the garden, agreeing we could it. Without market. January and grand TensorFlow you
Speaker 1: Turning to consumer and small business banking, most consumer feed categories grew nicely.
Speaker 1: Offsetting declines in Mortgage Banking.
Speaker 1: Consumer fees from card and transaction accounts were up $717,000 or 4.6% linked quarter largely due to increased customer activity.
Speaker 1: Offsetting consumer fees mortgage banking revenue decline to $80,000, driven by a decline in gain on sale income.
Speaker 1: While gain on sale spreads widened, we saw lower loan sales due to the swing from fifth rate to industrial rate products, which we chose to put on the balance sheet.
Speaker 1: Moving to credit, our performance this quarter was stable with net recoveries and only a modest provision for credit losses. The pandemic in the following credit losses.
Speaker 1: With that being said, we are seeing modest increases in non-performing loans and delinquency.
Speaker 1: During the quarter, we had 3.7 billion or 8 faces points of annualized net recoveries.
Speaker 1: Compared to 1.1 million or two basis points of manualized net recoveries in the first quarter. of the Vandalized Net Recovery in the first quarter.
Speaker 1: Our second quarter provision for credit losses was $1.5 million versus a negative $7 million provision for the first quarter.
Speaker 1: 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.
Speaker 1: At June 30, the allowance for credit losses excluding PPP balances is 1.32% of loans.
Speaker 1: As always, our allowance for credit loss trends could change in future period based on new loan origination volumes, but myths, net charge off activity and longer term economic projections.
Speaker 1: Overall, our credit performance remains stable. However, our credit outlook has turned more cautious.
Speaker 1: due to macroeconomic environment.
Speaker 1: Now I'll turn the call over to Mark to discuss our financial results and outlook in a little more detail.
Speaker 1: Thank you, Kurt. And good morning, everyone on the call. Unless I knew it otherwise, the quarterly comparisons that I will discuss are with the first quarter of 2022. I will discuss are with the first quarter of 2022.
Speaker 2: Starting on slide three, earnings per polluted share this quarter were 42 cents. When net income available to common shareholders of 67.4 million.
Speaker 2: This is up from 38 cents in the first quarter of 2022.
Speaker 2: Our second quarter performance included a sharp increase in that 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.
Speaker 2: which I'll just cover in more detail later in my comments.
Speaker 2: Moving to slide four, our net interest income was $179 million. An 18 million dollar increase linked quarter.
Speaker 2: This increase was a function of both very strong loom growth, as well as the impact of rising interest rates during the quarter.
Speaker 2: 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.
Speaker 2: Because the remaining impact to our financials is no longer material, this will be the last quarter in which we discussed this portfolio in our prepared remarks, but we will continue to show the portfolio separately that our financial tables for the balance of the year. And our financial tables for the balance of the year.
Speaker 2: With respect to the investment portfolio, balances declined modestly during the period, decreasing 171 million to end the quarter at 4.1 billion.
Speaker 2: Given our strong loan growth during the quarter, we opted to pair back on investment securities growth.
Speaker 2: Turning to deposits, total deposits declined approximately 397 million on an ending balance basis.
Speaker 2: Most of this decline was an interest-sparrying demand product.
Speaker 2: On an average balance basis, total deposits increased $44 million for the quarter to $21.5 billion.
Speaker 2: Our cost of deposits for the quarter remained at 11 basis points consistent with the prior quarter.
Speaker 2: We expect this to be at the bottom for deposit costs as we are starting to selectively increase interest rates for certain products in customer segments. We expect this to be at the bottom for deposit costs
Speaker 2: Our ending loan to deposit ratio increased from 85.8% in the first quarter to 89.5% currently.
Speaker 2: Our net interest margin for the second quarter was 3.04% versus 2.78% in the first quarter.
Speaker 2: The 26 basis points of link quarter increase resulted primarily from an improvement in the mix of the interest-earning assets, an asset-sensitive loan portfolio, and stable deposit costs.
Speaker 2: Going forward, I would expect our net interest barge into expand with additional rate increases, but we will also be adjusting deposit costs during this period.
Speaker 2: Turning to slide six, non-interest income, I'll provide some additional detail when the business results occurred discussed. Turning to slide six, non-interest income,
Speaker 2: Mortgage banking revenues declined and were driven by a decline in mortgage loan sales, offset in part by an increase in gain on sales spreads, which rose to 190 basis points this quarter versus 161 basis points during the first quarter.
Speaker 2: Our pipeline in this business has declined to pre-COVID levels, and only six percent of our mortgage originations this past quarter were for refinancing. Next slide.
Speaker 2: Preparations have also slowed considerably, which is contributed to the quarterly loan growth we saw in this category. Preparations have also slowed considerably, which is contributed to the quarterly loan growth Preparations have also slowed considerably,
Speaker 2: In June , we also announced some changes to our overdraft products and services.
Speaker 2: These changes will be effective in the fourth quarter of 2022.
Speaker 2: They are not expected to have a material impact to 2022 results, less than $1 million.
Speaker 2: And this reduction is reflected in the refreshed 2022 guidance provided at the end of my comments.
Speaker 2: 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.
Speaker 2: This increase was driven by following factors.
Speaker 2: Total salaries and benefits were up 1 million link quarter driven by annual merit increases in the month of April and one additional calendar day during the quarter.
Speaker 2: Also contributing to the link 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.
Speaker 2: Slide 8 provides more detail on our capital ratios.
Speaker 2: As of June 30th, we maintained solid cushions over the regulatory minimums and our bank and parent company liquidity remain very strong.
Speaker 2: Accumulated other comprehensive income decreased $145 million during the quarter.
Speaker 2: 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.
Speaker 2: 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.
Speaker 2: On slide nine, we are providing updated guidance for 2022.
Speaker 2: Our guidance now assumes a total of 275 basis points of Fed funds increases occurring as followers. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Speaker 2: The 150 basis points previously announced in March, May and June .
Speaker 2: 75 basis points assumed in July .
Speaker 2: and 25 bases point increases assumed in both September and December .
Speaker 2: Our revised guidance also includes the impact of our Prudential Bancorp acquisition, which closed on July 1st.
Speaker 2: Based on those assumptions, our revised guidance is as follows.
Speaker 2: We expect our net interest income to be in the range of $745 to $760 million.
Speaker 2: We expect our non-interest income, excluding securities gains, to be in the range of 220 to 230 million. We expect our non-interest income to be in the range of 220 to 230 million.
Speaker 2: We expect our non-interest expenses to be in the range of 600 to 610 million for the year.
Speaker 2: Note that this operating expense guidance excludes the impact of $1.4 million in merge-related charges through June related to the Pranential Bank Corp acquisition.
Speaker 2: 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. On the other hand, we expect our effective tax rate here.
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.
PPR has increased 18% year over year, and 24% link quarter, 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 now turn the call over to the operator for questions. Gigi, can you help us, please?
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.
Morning, everyone. You're lying. Good morning.
Morning, Danny. Good morning, Danny. Hey, good morning, everybody. So maybe first, just starting on the, on the Nettnish Stinkham Guidance, I think if we can...
perhaps break away the differences between what excess liquidity, where that is now, how much the deployment of that is embedded in the guidance relative to just asset sensitivity from rate hikes, and then also on the deposit side what you guys are assuming in terms of either betas or costs.
Yeah, so, so, Danny, first on, you know, X-less liquidity, I would say our liquidity actually this quarter, you know, with holding the line on the positive cost as we did, and with the strong long growth that we had, you know, we're really, you know, down to a comfortable level of X-less 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 in the back half of the year.
And then remind me on your second question.
Depositives. Yes. Yeah, thank you. Depositives, so obviously year to date, we've had zero. If you take our interest rate assumptions, and if you take that NII guide, we had said earlier that we expect through the cycle, we expect our overall deposit beta to be in the 30% range. But when you look just for the stub during this period where you don't typically calculate betas,
to the loan growth side. I'm interested in 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, in your mind, once that is level is reached, if it's somewhat near, that could then add to.
Mortgage banking given you already. You've got a trending toward a level you haven't. You've got a trending toward a level you haven't.
Seeing on them from the mortgage bank perspective in Kueh-Wa.
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 resident from War of Gage Grove will moderate from what we saw in the......
into the second quarter.
Okay, terrific. All right, I'll step back. Thanks for answering my questions. All right, I'll step back.
Bunu OK.
Thank you. Our next question comes from the line of Russell Gunther from DA Davidson.
Good morning guys.
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Just a quick follow up on the growth outlook. So if you guys, you know, really strong results. 1st, half of the year and building momentum into 2 Q, I hear you on the expectations for. That can you comment though on just overall organic growth expectations for the back half of the year. And any expectations for potential slow down from. The momentum you've shown in the 1st half.
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 a consumer to slow down as rates go up. We feel good about the businesses and the backlog connectivity that we have right now, but I think that's a macroeconomic environment that we're worried about as those rates go up.
That's really helpful. And then thinking about funding the growth from a deposit perspective, you mentioned some seasonality that we saw this quarter and I think we get some again in three Q and also the recent rising of race 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 low to the deposit ratio to trend going forward?
Yeah, I do. So in the third quarter, as you point out, and we do have typical seasonality, we have 2.2 billion of initial deposits on the books as a June . 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 roles coming in here in the third quarter.
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 , plus the rate increases occurring in July . So that now gives us room and we are starting to look at the customers that we want to retain and we have a lot of long-term depositors that 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. 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.
So we would still be interested in strategic acquisitions within our footprint.
I think things have.
Slow down considerably, but we would be interested.
Okay, great. Thanks Phil. I'll step back. Thanks guys for taking my question.
Thanks. Thanks, Ross.
Thank you. Our next question comes from the line of Frank Schiraldi from Piper Sandler.
I'm actually adjusting proudly 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 teens 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, you know, how that factors into the outlook going into the back half of the year.
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 like the quarter, we're 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 a tad.
Okay, great. So we are always recruiting and looking to add to that.
Okay, great. And then just on mine, you know, the 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.
We monitor it, it flattened out. We got a little bit of growth first quarter based on line utilization and then length quarter here. It was relatively flat. So we do think that will increase over time as liquidity comes out of the system as customers are gonna use their liquidity first. So we're gonna see that natural pool between deposit balances and a lot of utilization.
So we're navigating that, but we do expect slow and steady increase in line utilization.
Okay, great. That's helpful. And then just sort of lastly for me, just on capital, income out of the prudential deal close, on repurchases, can you just sort of remind us how you weigh, how active you plan to be, whether that's looking at capital levels or squaring that against what you're seeing from a loan growth perspective?
Yeah, so the waterfall on capital 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 the way to buy back versus other forms of capital like inorganic growth and acquisition use, whether that's for whole bank acquisitions or whether that's for...
of moodies 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 You know because we want to make sure that all constituencies feel as comfortable as we do on the strength or malachute
Got it. That is it for me. Thank you guys for taking my questions.
Thanks.
Thank you. Our next question comes in the line of Christ the Grady from KBW. The next question comes in the line of Christ the Grady from KBW. The next question comes in the line of Christ the Grady from KBW.
Good morning.
Are ag my.
Hey, Mark, what's the sort of like, just an NII question? Yeah, we're all using, I think, a little bit different rate curves. Could you remind me the rule for each 25 on the NII?
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 one and one and a half million dollars a month for each 25. So said another way, you know, we have 25 assumed in September , if you have 50 in your model that meetings in early September , that would be four months.
yeah
So we don't give 23 guidance until 23. We're given the fourth quarter guidance, but we're also offering some new products for customers that might change some consumer behaviors. So we really know that. Chris, I mean, I'm not going to go beyond the fourth quarter guide that we give, which I said is less than a million dollars and is reflected in the 220 to 230 overall fee income guide.
Okay, and then lastly on the share, I have it in my notes about six million shares from the deal, the fourth quarter for the third quarter.
You got it. 6.2. Yep. Got it.
Great. Thanks, Mark.
Thank you. Our next question comes to the line of KP here from Jeffries.
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 biz 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 operating at going forward? Thanks. Yeah it would come from cash flows from the investment portfolio.
We do have a little bit of cash. We've historically, in the industry for a long period of time, has not had any overnight borrowings. So we have ample liquidity, certainly, through our securities book for borrowings capacity, FEP, FHLB, as well. And we also have a loan deposit ratio, which, while it is ticked up, it is still below our historic loan deposit ratio standards. And we feel very comfortable.
you know, running it in the mid 90s, you know, we're still sitting below 90 percent today.
Okay great, thanks for taking my question.
Thanks.
Thank you. Our next question comes in the line of Matthew Breeze from Stevens.
Hey, just curious, you know, thinking about the updated NII guide, 745-760.
and if you feel safe to say that you know the four q the exit and ii run rate will be north to hundred million
I'm curious if by your projections, is that exit NII closer to 200 million or 210? Maybe frame for us what kind of the annualized exit rate is in that fourth quarter.
Yeah, so, you know, we just give annual guides, but, you know, I would tell you that, you know, your desk is between 200 and 2.10, and it's, you know, pretty well spot-off. So, I'll leave it there. Okay, and Mark, maybe just provide for us, you know, what the incremental loan yielded today, what the blended rate on the portfolio of 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. Yeah, so I'll take the first part of the question. I'll turn it over to Kurt. So for loan yields, we were 356 for the second quarter. 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 .
And that really, because our deposit cost stayed flat, that really drove the margin expansion, where our margin for the quarter was 304, our margin for the month of June was 319. But now, I'll turn the curtain, he's in, but in the second half here.
Yeah, just to add some color on the origination, I mean we've remained very disciplined in our pricing and we grew most loan categories for the quarter, so it remains a competitive market, but we're not given on credit terms and we're not going below what we're comfortable with on credit spread.
Okay, and you mentioned that 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 would be helpful.
The June cost of funds. Yeah, I'm cost of deposit. Sorry.
Yeah, it was 11 basis points as well. Okay. So that's taking on to add it in terms of, things that we're offering today, I mean, we're 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%. So we are going out with that to get a little bit ahead of where if the 75 basis points occurs in July , we'll be borrowing overnight north and two for set precinct.
So that's one example, things that we're doing.
So that's one example. Things over there. So.
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. We had a modest uptick in the link Quincy, so that leading indicator, but again, we're at historically low levels of the link Quincy, but that picked up modestly. We had some increases in the non-conforming as well. That was specifically in CNI. You see in I count struggling with the things that are in the macro. That are in the macro.
real estate office and equipment and I was curious if you could provide a little bit of color on those two and then exposures. a color on those two and then exposures.
Yeah, well, you're spot on focused on those. We're focused on those as well. In the equipment finance side, we really haven't seen 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 dollar 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 to be at a lower level,
Some pressure will not see it and we feel good about our portfolio. Okay, what was the equipment balance?
Roughly 250, 260 million. Okay. Perfect. I appreciate taking all my questions. Thank you.
Good. Good.
Thank you. Our next question comes from the line of Daniel Tamayo from Raymond James. Hey, guys. Just a quick follow-up here.
Thanks for taking it.
Just on unreserved, so obviously...
We seem to be getting to a stable-ish point here or a bottom, but I was curious how you're thinking about the leverage, I guess, to any changes in economic forecasts or actual data in terms of unemployment, GDP, and whatever else is driving those calculations for you guys. How much?
changes in those items could impact reserves and how quickly that could happen in the diesel era here.
Yeah, Dave, that's a, that's a, that's going to go beyond the time of this call. You should talk about all of the nuances around the CSO calculation, but you know, it's obviously a mix of, you know, varying, you know, large, complex, you know, macroeconomically driven models, as well as, you know, qualitative overlaying, but we look at things like, you know, office right now and portfolios that we think have potentially higher risk. You know, should the macroeconomic environment, you know, change?
I think we've hit a bottom here from a reserve ratio perspective.
I think that's really hard to say. 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 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. But here we're in an environment where we don't know if we're at a loss.
sort of a draw off in terms of credit and if non performers are going to go up or not. But we're also in an environment where earnings, the outlook for earnings for the near term is pretty good. But you know what's respect or rate.
Yeah, it's a good point. All right, well, I appreciate your insight there. That's all I had.
Thanks, Ian. Thanks, Ian. Thank you. Our next question comes from the line of David Bishop from HOSD Group.
Are you?
Hey, we're going to go again. Hey, uh, put my questions in the...
I think at the preamble you might have noted a change in pricing on the commercial cash management. With an acutely that's the driver, some of the increase on the cash management side of the house on the free side.
Yeah, 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.
And in your view, does that sort of bring you back up to the market, above market, just sort of where you lie relative to Peter?
Yeah, I mean, we are competitive 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 customer and grow the customer base. And we are the customer base. We are the customer base.
Very appreciate the question. Sure.
Thank you. I would now like to turn the conference back over to Phil Wenger, Chairman and CEO for Closing remarks.
Well, thank you again, everyone for joining us today. This concludes today's conference. We'll be with us when we discuss the third quarter results in October .
This concludes today's conference call. Thank you for participating. You may now disconnect.
The conference will begin shortly. The conference will begin shortly.
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