Q2 2024 Peoples Bancorp Inc Earnings Call
Good morning, and welcome to the Peoples 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 and it ended June 30th 2024. Please be advised that all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer period.
If you would like to ask a question. During this time. Please simply press Star then 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 to.
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 peoples future financial performance.
I'd bet. These.
These statements are based on management's current expectations.
In this call, which are not historical facts are forward looking statements and involve a number of risks and uncertainties detailed in the peoples security and Exchange Commission filings.
Management believes that the forward looking statements made during this call are based on reasonable assumptions within the bounds of their knowledge of peoples business and operations.
However, it is possible actual results may differ materially from those four from these forward looking statements.
Peoples disclaim any responsibility to update these forward looking statements. After this call except as may be required by applicable legal requirements.
Speaker Change: Peoples second quarter 2024 earnings release conference call presentation.
This morning, and are available under the peoples bank or Dot com under Investor Relations. A reconciliation of the non general accepted accounting principles or GAAP financial measures discussed during this call to the most.
The 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 peoples Bancorp Dot com in the Investor Relations section for one year.
Participants on the call today will be Tyler Wilcox, President and Chief Executive Officer, and Katie Bailey, Chief Financial Officer, and Treasurer, and each will be available for questions. Following opening statements. Mr. Wilcox you may begin your conference.
Thank you Paul Good morning, everyone and thank you for joining our call today. This quarter, we are providing an earnings conference call presentation, which we've 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're pleased to bring another quarter of consistent results for our shareholders and for the second quarter diluted earnings per share were <unk> 82 cents compared to 84 cents for the linked quarter.
First half of 2024 diluted EPS were $1.66 compared to $1 56 for 2023.
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 brokerage Cds.
Our brokerage Cds continued to decline as we generate customer deposits.
Our book value increased from 29 93 at the linked quarter end June 30, 36 at June 30th while our tangible book value per share grew to $18, 91% to 3% increase from March 31.
Our tangible equity to tangible assets ratio improved 24 basis points to seven 6%.
Our regulatory capital ratios improved by double digit percentages compared to the linked quarter and Ah.
Our return on average assets for the second quarter was one 3% we.
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 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, respectively compared to the linked quarter and.
This was driven by pay downs on some loans that we downgraded last quarter as we diligently work 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 fare.
Our allowance for credit losses remained at 1.0% to 5% of total loans at quarter end consistent with the linked quarter end.
Our provision for credit losses for the quarter was driven by net charge offs higher reserves on individually analyzed leases and loan growth.
Annualized net charge off rate for the quarter increased to 27 basis points compared to 22 basis points for the first quarter combined.
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 offs 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 offs levels are similar to pre pandemic rates or the rates, we expected to see when we acquired the business we.
We continuously evaluate the various lending verticals in the small ticket leasing area and adjust our appetite based on performance.
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 and consumer indirect loans, adding seven basis points to our annualized net charge off rate for the second quarter, you're 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.
Nonperforming assets increased $2 4 million, which was mostly due to higher non accrual leasing balances are.
Speaker Change: Our delinquency improved this quarter and the portion of our loan portfolio considered current at June 30th was 98, 8% up from 98, 7% at March 31.
We are confident in our commercial loan concentrations with our exposure to non owner occupied office space at less than 2% of our total loan portfolio balance at June 30th.
Our exposure declined compared to the linked quarter and as we successfully exited and $8 million classified office alone.
Our hospitality and assisted living facilities were each around two 5% of our total balances.
At the same time, our multifamily loan balances were 557 million a $35 million increase compared to the linked quarter end.
We continue to have strong sponsor support and economic metrics with the deals we have chosen in this segment and we will continue to be diligent in our underwriting of these loans.
We see rents on multifamily loans holding up and then our seven metro markets. We are still experiencing average rental growth of three 2% compared to the national average of 9%.
Compared to the linked quarter and 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.
Increases in our commercial and industrial portfolio of 43 million, mostly offset declines of $48 million in our commercial real estate portfolio.
But as I mentioned earlier, a meaningful portion of the credits that paid down this quarter, what 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 balances.
At quarter end, our commercial real estate loans comprised 35% of total loans, nearly 40% 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 were 29% of total loans 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 for fixed rate with the remaining 53% at a variable rate.
We continue to actively assess market conditions on our commercial real estate book, including the impact of higher interest rates on upcoming loans repricing or maturing.
We're 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 'twenty 'twenty four and another $396 million during 2025.
I'll now turn the call over to Katy for a discussion of our financial performance.
Thanks, Tyler our net interest income was stable compared to the first quarter, our net interest margin was 4.18% compared to 4.26%.
Nearly half of the reduction in net interest margin compared to the linked quarter was the 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.
For the first half of 'twenty 'twenty four our net interest income grew 10%, while our net interest margin declined 31 basis points to 4.22%.
Our earning asset yields improved to $6 three 2% for the first six months of 'twenty 'twenty four compared to 5.49% for 2023, Oh higher funding costs more than offset the improvement.
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 'twenty two 'twenty three.
Moving onto 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 commissions during the first quarter of each year.
Sure.
Speaker Change: Additionally for the second quarter gross and electronic banking income and trust and investment income offset declines in bank on life Insurance, Inc.
And.
Bank owned life insurance and lease income.
For the first half of 'twenty 'twenty four our fee based income grew 15% with increases in all lines, primarily due to the limestone merger that occurred on April 30th 2023.
As it relates to our noninterest expenses, they were relatively flat compared to the first quarter of 'twenty 'twenty four and there are other noninterest expense was impacted by a one time prior period true up of corporate expenses.
For the first half of 'twenty 'twenty four noninterest expense was up 8% as higher operating costs from the additional footprint for milestone was partially offset by lower acquisition related expenses during 2024.
For the second quarter, that's our reported efficiency ratio and our efficiency ratio adjusted for noncore expenses was 59, 2%.
Speaker Change: 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.
For the first half of 'twenty 'twenty four the reported efficiency ratio was 58, 6% decline from 'twenty to 'twenty three.
The adjusted efficiency ratio for the first six months of 'twenty 'twenty four was 58, 7% an increase from 2023 due to higher noninterest expenses.
Moving onto 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 insured cash suite product.
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 broker Cds and seasonal declines in governmental deposits, which.
There are typically higher during the first and third quarters of each year.
Excluding brokered Cds, our deposits were up $42 million compared to the linked quarter and.
Our retail Cds grew $132 million, while we were able to reduce our broker Cds I $71 million.
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% C. D O very 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 noninterest bearing deposits were 20% of total deposits.
At quarter end, our deposit composition was 78% and retail deposit balances, which included small businesses and 22% and commercial deposit balances.
Our average retail customer deposit relationship with $25000 at quarter end, while our median with nearly $3000.
Moving onto our capital position, our capital ratios improved compared to the linked quarter and benefited from earnings outpacing dividend.
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 nine 7% and our tangible equity to tangible assets ratio improved to seven 6%.
Speaker Change: The seven 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%.
Our dividend payout ratio stood at 48, 9% for the second quarter.
Finally, I will turn the call over for Thailand to Tyler for his closing comments.
Thank you Katie.
During the first half of 'twenty 'twenty four 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.
Speaker Change: 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.
Speaker Change: We are also well on our way to implementing a new business loan origination system that will be in place starting in 2025.
As we mentioned software upgrades I would also like to note that the crowd strike outage from last week had a 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's culture is being recognized in the marketplace.
During the first half of 'twenty 'twenty four we were recognized by U S News and World report as a 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 'twenty 'twenty four we currently anticipate.
Speaker Change: 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 four 1% and four 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.
Our quarterly total noninterest expense forecast remains unchanged at between 67 and $69 million for the third and fourth quarters of 2024.
We are lowering our 2020 for loan growth guidance to 5% to 7% compared to our previous guidance of 6% to 8%.
This slight adjustment in our estimate is partly a result of the pay downs received unexpected pay downs. We noted on criticized and classified loans, which will offset some of our anticipated production.
Speaker Change: 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 'twenty 'twenty four 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're pleased to bring our shareholders solid consistent performance, while also improving our product offerings infrastructure technology and aligning our business to grow.
This concludes our commentary and we will open the call for questions. Once again. This is Tyler Wilcox and joining me for the Q&A session is Katie Bailey, our Chief Financial Officer, I will now turn the call back into the hands of our call facilitator. Thank you.
Thank you everyone now begin the question and answer session.
If you would like to ask a question. During this time. Please simply press Star then one on your telephone keypad.
Questions will be taken in the order that they are received if you would like to withdraw your question. Please press Star then two.
And our first question today will come from Daniel Tamayo with Raymond James.
Go ahead.
Go ahead.
Hey, Danny Thank you.
Hey, good morning.
Maybe we are.
We start just on the on the margin.
I know you appreciate the guidance for <unk>.
You provided but just wondering if you could.
And a little more detail given the the restructuring benefit in the third quarter, and then deposit competition everything else just how youre thinking about the magnitude of margin compression in the back half of the year.
So Danny.
A reference.
We're getting a lot.
You referenced a restructuring in the third quarter I'm not sure what specifically you're talking about there we did not do it 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 I guess is largely consistent with what we've been giving all year I think there will continue to be slight compression in margin more of a function of accretion and I missed that continues to trail off.
Again, we print and 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 to for the year in the 25 to 30 basis points benefit of accretion, but the latter half as well.
It will come down from the 28.
That's what we expect as we proceed through the year I think the core margin ex accretion that's largely be stable to where we.
Where for the second quarter.
Speaker Change: Yeah.
Got it okay Yep, sorry that was a mistake my apologies on the restructuring, but yeah. The accretion is what I was thinking of and then I guess just a follow up on.
Uh huh.
Just the small ticket leasing business you talked about it a lot in the prepared remarks and in the in the release, but.
I'm just curious if you are seeing an uptick in AR in those.
Loss rates I mean, you saw classifieds come down I guess, if you could just talk a little bit about the drivers of the of the.
Lower classifieds, but also kind of the.
And you.
Speaker Change: Elevated net charge offs related to the leasing business.
That'd be great sure Danny Thanks.
I guess, Oh, I'll separate those out a bit I'm very optimistic.
Kind of as we talked about last quarter and as we talked about and reiterated it again on the core commercial I think there's a great story to tell there are the decline was.
Upgrades and payoffs are by and large we continue to work.
Speaker Change: Core book as well as the book of business that we are.
Picked up from limestone and I think the positives. There are you know delinquency has declined in the core commercial book them I'm proud of the fact that we've.
Built a book that is relatively underweight for the industry and peers with respect to commercial real estate and.
So just that that core book and just a word as well and that is that during the first half of this year. We saw some nice balanced mix away from CRE and into C&I. So.
Hey Downs were just about 60% in the commercial real estate and their production was about 60% on the commercial and industrial side. So there's kind of a natural rebalancing going on there so as far as the you know it's a bit of a tale of two portfolios.
But the core which represents 90 plus percent of our of our loan portfolio is very strong on the on the two kind of 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.
All of those mission critical.
Equipment and you know.
We said when we bought that the business that we were pricing for about four 5% charge offs and we base that on a about a 22 year history of our prior to when we bought it at the records of where the historical charge offs were.
We saw during 2021 and 2022, you know less than 1% charge offs and so you know we've received the benefit of that on it from the pricing side and we're seeing a return to normalization.
And I think those higher risk areas with the higher pricing.
Lead us to continue to be satisfied with kind of the risk adjusted return of that business.
But we are seeing we are seeing an increase there.
Okay.
That was helpful. Thanks, Tyler I appreciate it.
That's all for me Thanks, a lot of my questions. Thanks Stanley. Thanks.
And our next question will come from Brendan Nosal with Hobdy Group. Please go ahead.
Hey, good morning, folks would be doing well, hey, Brendan good. Thanks.
Just wanted to circle back to the the charge off guidance and the leasing piece what are you embedding for at least charge offs into that overall.
Guidance for the back half of the year and then what are your views.
She said the normalized rate is four 9%, but like.
It feels like there's still a way to go to get there. So curious how you view today's normalization versus that four 5% and you you laid out.
Well I think the third and fourth quarter will be relatively consistent from a charge off standpoint, with the small ticket leasing specifically.
You know there is the delinquency in that portfolio has has ticked up we've obviously.
As we referenced done done some tightening of.
<unk> of the portfolio, there, but as far as the outlook specifically with those leases.
That guide us.
It's going to be consistent from a charge off standpoint.
I don't know if I answered your question.
Yeah, Yeah that's helpful.
Maybe one more for me for 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 multiples have firmed up as much as they have over the past few weeks sure.
I'd say there is a.
A lot of discussion going on from an M&A perspective.
But.
From what I see I think there are a lot of.
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.
I'm not suggesting either of those are our magic bullets at all but as we have conversations which we continue to have I think because there is there are a lot of banks that are considering their options for the future and where.
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 Oh, Yeah, I'm more focused on you know what opportunities we see for ourselves out there in the coming year and we think it's promising that we will have some of the conversations we've been having for you.
A long time will hopefully bear fruit in the future.
Yeah, Yeah, Okay. Thank you for taking my questions.
Thank you.
And our next question.
Comes from Terry make a boy with Stephens, Inc.
Go ahead.
Hi, good morning.
Hi, Terry Terry I'm, just looking at the average balance sheet, the CRE and C&I average yields both both declined quarter over quarter, and it's kind of half your loan portfolio. So you just talk about the quarter over quarter decline in and within the margin outlook for the back half of this year, where do you see loan yields or those.
Portfolio is trending.
Yeah, I think you're seeing the accretion on those portfolios diminish quarter over quarter as we have stated and that's where a large marks common when we acquired the Buck.
Predominantly a limestone most recently so.
Again, I think well continue to see slight compression in accretion quarter to quarter.
I previously said two to four basis points it might go down.
And the quarters again is that book.
Then use to pay down pay off and that's why we see less.
Accretion there so I think it'll be relatively stable with the caveat that accretion well.
Go down slightly.
Perfect. That's what I assumed it was but wanted to ask and then.
Tyler you talked about some technology investments infrastructure investments you know how is that kind of built into your expense outlook and maybe talk about some of the efficiency gains that you foresee because of those investments.
Sure Thanks, Terry the.
With respect to the expense guide I would say we've talked.
<unk> talked for a few quarters now about how the that expense is baked in so.
Speaker Change: You know our guidance for the afore is is remainder of the year and into next year. It should be relatively consistent because we implemented a customer relationship management software.
Begin 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 this early on.
Speaker Change: It has helped us have a unified system for some of our operational aspects. We've had a few processes that in.
<unk> image of that unified system has allowed us to cut our kind of internal service times on certain processes down from multiple hours to minutes, which we're very pleased with its give us giving us some efficiency and eliminating some additional third party systems.
That that are now integrated into a single system on a go forward my expectation is that.
We have a broad diversified group of businesses and one.
One of our primary goals as 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.
For our clients between the businesses and 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 are pretty excited about it but it represents a kind of a long term fundamental investment in fundamental change.
And what we're doing from an operational standpoint.
Maybe one small one the the tax $1.1 million tax benefit.
That was cited in the press release, what's the outlook for the tax rate in the back half of the year. Thanks, again, I think the tax rate in the back half will be consistent with the first quarter I think that if you adjust the Q1 or Q2 amount for the 1.1, we quoted I think you'd get something closer to 'twenty to 'twenty, two and a half.
And I think that can be the expectation for the back half of 'twenty four right.
Great. Thanks for taking my questions.
Speaker Change: And our next question will come from Tim with her with K B W. Please go ahead.
Hi, 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 the credit trends youre seeing in that sector right now.
Yeah. Thanks, Tim.
Thank the a decline in the interest rates would certainly help with the S. Can help alleviate some of the pressure that we're seeing in some of these businesses.
Speaker Change: You know and I think the expectation there is that.
Though again you you look at the pre pandemic.
Era, when you know the average it would go up and down but the average has historically been about four 5% and at the end of the day that 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 you know additional debt may they may find relief elsewhere. So I don't think it will be.
B a meaningful sea change.
But but it can't hurt and again those their short duration on those leases as well generally so they they tend to burn off.
Speaker Change: More quickly than the average portfolio as well.
Okay. That's helpful.
Speaker Change: And you guys have always had a good amount of noninterest income higher percentage of revenue than most peers, but it's come down a little bit over time, partially due to acquisition.
Is there a range you would like to bring that back up to or 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.
Yes, historically, we were up in the 30 percents and boy I would I would love to be back there and you're you're correct. The you know the acquisitions by and large are both bank acquisitions and then some of the specialty finance businesses have continued that trend.
We love, our we love our fee businesses.
I'll say it that way from an insurance perspective, we've we've continued to grow that it just hasn't grown at the same pace of the bank, we should be somewhere around $20 million in revenue annually.
Speaker Change: This year and into the future and we've done some continue to do some smaller acquisitions in that area and we will continue to do so we have a large appetite for that.
And we think a good home for insurance.
Speaker Change: The owners, who are looking for a exit strategy.
Trust and investments as well, we have $3 6 billion in assets under management, we have continued to grow that business organically at a at a nice pace.
Expanded some of the lines of business within that business.
And we will continue to look for acquisitions pools of books of business and more meaningfully sized in that business. So I didn't give you an exact target but.
You know more would be my goal.
Great. Thank you that's all for me thanks.
Thank you.
And once again, if you would like to ask a question. Please press Star then one.
Our next question will come from Budd <unk> with D. A Davidson go.
Go ahead.
Hey, good morning.
Hey, good morning, Mike.
Could Dan.
Sure.
On leasing I'm, just wondering to what extent are you guys see balance declines there is this.
Normal.
Kind of a cyclical trends there that are small ticket leasing you'll pull back when you see net charge offs rise a little bit and you'll still get that higher.
Through the cycle risk adjusted return metrics, just trying to clarify that.
Movements.
Yeah no. Thanks, Thanks, My well, it's so first I would say you know we've had this business for a few years now. This is our this is our first.
Kind of credit increase from where we were in when we bought it as I mentioned, we were at a low point from a charge off perspective so.
So we're not we're certainly not panicking, we're making adjustments to the.
The verticals within that business, but I don't believe we will see a decline in balances in the small ticket leasing.
You know there there continues to be production in the core.
Speaker Change: So if there were a decline it would be very nominal umbrella of a lot of confidence in our ability to continue to grow that business.
But in a in a rising environment, where required and have an expectation to take a good look at what's performing well and make those adjustments.
There would be a ceiling.
Rates came down.
Speaker Change: 100 basis points Middle next year you'd be right back in some of these verticals or would you be.
Speaker Change: Still cautious.
I think well could you know where we've grown that business from $80 million on the balance sheet to over $220 million.
As we've grown it.
Speaker Change: Expanded the capabilities, we've expanded the nationwide reach and so we are you know we're all in on the business from a pretax standpoint.
It's putting up over a two or away.
So it's very profitable for us even with the higher loss rates and again, because we priced it at this rate so.
We look to continue to invest into it and notwithstanding the you know the kind of the steepness of the increase recently again, where.
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 yeah.
Three 4% of our total loan portfolio for perspective, so it has the ability to make a nice impact.
But it's a it's a very small portion of the pie.
That's a great point.
Shifting over to Dan.
Can you discuss kind of thoughts on deposit costs, where could they.
Potentially peaking and how would they kind of in the whole name and deposit costs react to rate cuts.
Yeah.
Yeah. So I think the deposit costs you saw some increase this quarter compared to last quarter as we had a little bit of continued reshaping and a mix of our deposit portfolio to a slower extent than what we saw in the prior quarter.
Think we're close to the peak on that right. We are continuing to see a little bit more mixed shift away from Sydney and continuing to see growth in the retail Cds, but.
Speaker Change: Its I think its slowing a bit and I think to the extent rate cut transpire there being projected to happen later this year in this quarter we.
Speaker Change: We will see some benefit as we mentioned we've kind of used to short term promotional product.
They've 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.
And can you talk about balancing.
You made the comment that.
Less of your Securities book is now pledged because there's some movement on the deposit side can you just talk about that flexibility that ads will we see more securities run off to pay down broker to pay down other kind of higher costs.
Areas of the liability side or just kind of talk about that balance that youre getting based on that comment.
Yeah. So what you saw last quarter was an increase in kind of cash and cash equivalents on our balance sheet. What you saw this quarter in the second quarter relative to Q1 with 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 oleds, if we had.
Need for immediate liquidity, so that once 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 unpledged securities available for liquidity, if if or when needed.
Not that we think they're needed, but just part of our policies and guidance that we have internally.
Got it cash and cash equivalents.
Thank you for clarifying for me Yeah and.
Yeah.
Does that mean that the current level is probably where you'll run at a little bit.
Going forward kind of cash flow tighter.
Securities balances, probably stay in similar range or similar level yeah.
Yeah, I think that's right I think over time, you know we've said, we 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 should not portfolio investment portfolio given rates and the like so I.
I'd expect that to be relatively stable.
Okay I appreciate it thank you guys for the commentary.
Yeah. Thank you.
And at this time there are no further questions. Sir do you have any closing remarks.
Yes, so 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 peoples Bancorp Dot com under the Investor Relations section. Thank you for your time and have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Yeah.
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