Q1 2024 First Merchants Corp Earnings Call
Thank you for standing by and welcome to the first merchants corporations first quarter 'twenty 'twenty four earnings conference call before we begin management would like to remind you that today's call contains forward looking statements with respect to the future performance and financial condition of first merchants.
Operations that involve risks and uncertainty.
Further information is contained within the press release, which we encourage you to review actually Additionally management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most direct comparable GAAP measures. The press release available on the website contains financial and other quantitative.
Information to be discussed today as well as a reconciliation of GAAP to non-GAAP measures.
A reminder, today's call is being recorded.
Now I'd like to turn the conference over to Mr. Mark Hardwick, Chief Executive Officer, Mr. Hardware, you may begin.
Mark K. Hardwick: Good morning, and welcome to the first merchants first quarter 2024 conference call.
Mark K. Hardwick: Thanks for the introduction and recovering the forward looking statement on page two.
We released our earnings today at approximately eight am eastern time.
Mark K. Hardwick: You can access today's slides by following the link on the third page of our earnings release.
Mark K. Hardwick: On page three of our slide you will see today's presenters and our buyers to include President Mike Stewart.
Mark K. Hardwick: Credit Officer, John Martin and Chief Financial Officer, Michel kept me asking.
Mark K. Hardwick: On page four we have a few financial highlights for the quarter.
Mark K. Hardwick: To include total assets of $18 3 billion.
12, 12, and a half a billion of total loans $14 9 billion of total deposits and $8 3 billion of assets under advisement.
Mark K. Hardwick: On slide five.
Mark K. Hardwick: You look at bolt point.
Mark K. Hardwick: One under our first quarter results you will note.
Mark K. Hardwick: That margin is stabilizing and new and renewed loan yields for the quarter totaled $8 one 5%.
Mark K. Hardwick: You will also notice on bolt <unk> five that.
Mark K. Hardwick: We were active during the quarter repurchasing $30 million of shares in first merchants and redeeming $40 million of sub debt, which recently repriced or just over 9%.
Mark K. Hardwick: A bullet point on bullet 0.6.
Mark K. Hardwick: We reported first quarter 2024 earnings per share of <unk> 80.
Mark K. Hardwick: Or <unk> 85 cents when adjusted for three and a half million dollars of noncore items incurred during the quarter.
Mark K. Hardwick: And the last bullet point I would also note that three of our four major technology technology initiatives were deployed during the first four months of the year to include the rollout.
Mark K. Hardwick: Of a new and branch account opening platform called Sarafina.
Mark K. Hardwick: Our new online and mobile platform for more than 150000 consumer customers.
Mark K. Hardwick: They're converted to Q2.
Mark K. Hardwick: And our new private wealth platform converted to assess and CS N O Trust platform as you can imagine these projects require a significant amount of time and resources and require heightened customer focus during implementation now Mike Stewart, who will discuss our line of business momentum. Thank.
Michael J. Stewart: Thank you Mark and good morning to all.
Michael J. Stewart: I'm on page six and our business strategy remains unchanged. We are a commercially focused organization across all of these business segments and across our primary markets of Indiana, Michigan, and Ohio and as we enter 2024, we have remained focused on executing our strategic imperatives organic loan growth.
Michael J. Stewart: Deposit growth fee growth, attracting retaining and engaging our team.
Michael J. Stewart: And the Digitization of our delivery channels, and delivering top tier financial and risk metrics.
Speaker Change: So if you go to slide seven.
Speaker Change: The first quarter continues a choppy trend of loan growth from quarter to quarter.
Speaker Change: I highlighted the 8% annualized loan growth during the fourth quarter of 2023, which followed a relatively flat third quarter of less than one half of 1%.
Speaker Change: The first quarter balance decline in the commercial portfolio was attributed to the seasoning of numerous real estate projects that had stabilized and were refinanced into the secondary market.
Speaker Change: This is normal course for most construction projects and with the current inverted yield curve. It is advantageous for the client to take advantage of lower long term fixed interest rates.
Speaker Change: Commercial balances were also affected by the seasonal nature of our agribusiness clients John.
Speaker Change: John Martin has more detailed information within his portfolio summary, which also highlights the growth within the commercial and industrial portfolio of over five 5% on an annualized basis during the first quarter.
John J. Martin: So short term interest rates have affected the velocity of new investment real estate projects, but we have remained active with well capitalized projects.
John J. Martin: The commercial and industrial growth is building as existing clients continue to finance normal course capital expenditures complete strategic acquisition or as we add market share.
John J. Martin: Our Michigan commercial banking team has built very good momentum that's the former level one in Monroe Bank entities and was our strongest region of C&I growth our investment in people and our brand are building in Michigan.
Speaker Change: The third bullet point further emphasizes the future growth potential within our C&I portfolio. The pipeline ended the quarter strong with and the commercial.
Speaker Change: We'll continue to be the primary driver of our asset growth.
Speaker Change: The consumer portfolio is comprised of residential mortgage HELOC installment in private banking relationships and during the first quarter that portfolio declined 8% and in dollars that represented less than $6 million or private banking portfolio was the primary driver of that decline as high net worth clients.
Speaker Change: Deuced higher cost borrowings with excess liquidity.
Speaker Change: Well the overall economic environment, the Midwest inclusive of the competitive landscape firms my expectations of mid to single high.
Speaker Change: Mid to single digit growth for the balance of the year with improving loan yields.
Speaker Change: Rick highlighted that our new loan yields exceeded 8% during the quarter and Michelle has more detail to share on those trends.
Speaker Change: On the bottom half of that page the quarter saw total deposits growing by one 7% on an annualized basis. The consumer portfolio grew over $155 million during the quarter and is inclusive of both the branch network and our private banking teams efforts.
Speaker Change: The branch network continues to deliver the consistent granular low cost deposit base that we enjoyed the.
Speaker Change: The commercial deposit client during the quarter was primarily from the public funds portfolio as the C&I relationships so growth.
Speaker Change: Like we discussed during last earnings call, both our consumer and commercial teams have been actively managing our interest expense as we now have separation from the Silicon Valley Bank of that last year, our bank's liquidity remains ample so our 2024 efforts will be focused on our margin through interest expense.
Speaker Change: <unk> management.
Speaker Change: As Mark stated in the press release, we are pleased to see our net interest margin stabilizing.
Speaker Change: And again as we enter 2024 were positioned for that continued organic growth.
Speaker Change: Team is positioned for that growth in our underwriting remains supportive consistent and disciplined so I'm going to turn the call over to Michelle. So she can review in more detail the composition of our balance sheet and the drivers on our income statement Michelle thanks.
Michelle: Thanks, Mike Slide eight covers our first quarter results.
Michelle: Pre tax pre provision earnings when adjusted for the noncore charges of $3 5 million that were incurred during the quarter totaled $60 2 million adjusted pretax pre provision return on assets was 131% and adjusted pretax pre provision return on equity was 10, 75%.
Michelle: All of which continue to reflect strong profitability metrics.
Speaker Change: Arrive at our core operating results, we excluded charges recorded this quarter, which included $1 1 million for the increased FDIC special assessment, and $2 4 million and digital platform conversion costs incurred from the projects Mark covered in his opening remarks.
Speaker Change: Tangible book value per share increased to $25 seven at March 31, an increase of $2 14, or nine 3% compared to the same period of prior year.
Speaker Change: Details of our investment portfolio are disclosed on slide nine.
Speaker Change: Securities yields increased two basis points to five 8% as lower yielding securities continued to run off.
Speaker Change: Cash flows from scheduled principal and interest payments and bond maturities and the remaining nine months of 2024 totaled $217 million with the roll off yield of 2.22%.
Speaker Change: Slide 10 shows some details on our loan portfolio.
Speaker Change: The total loan portfolio yield declined three basis points quarter over quarter, which was simply due to a lower day count yield on new and renewed loans continues to increase that youll climbed 14 basis points to 815% this quarter compared to 8.0% to 1% last quarter.
Speaker Change: The bottom right shows that two thirds of our loan portfolio is variable rate, although some of that is priced at or near our new loan yield. We still have over 1 billion of average earning assets that will reprice from a current weighted average rate of just 5%, which will create some good incremental interest income throughout the.
Speaker Change: During the year.
Speaker Change: The allowance for credit losses on slide 11 remained stable compared to last quarter at 164% of total loans.
Speaker Change: We recorded net charge offs of $2 3 million, which was offset by a provision for credit losses on loans of 2 million, resulting in a reserve at quarter end of $204 7 million.
Speaker Change: In addition to that we have $21 8 million of remaining fair value marks on acquired loans, our coverage ratio when including those marks is 182%.
Speaker Change: Slide 12 shows details of our deposit portfolio.
Speaker Change: We continue to have a diversified core deposit franchise with a low uninsured deposit percentage, 36% of our deposits yields five basis points or less.
Speaker Change: Our total cost of deposits only increased six basis points to 264% this quarter slowing dramatically compared to last quarter, where we had experienced an increase of 26 basis points.
Speaker Change: Our total cost of deposits increased to $2 six 9% in February and then declined one basis point to 2.68% in March due to some deposit pricing actions that we took during the quarter, which Mike mentioned in his remarks to reduce deposit costs ahead of the fed rate cuts.
Speaker Change: We expect those actions to ensure stability and the cost of deposits next quarter as well as margin.
Speaker Change: Overall liquidity is very well positioned to support growth in the coming quarters.
Speaker Change: On slide 13, net interest income on a fully tax equivalent basis of $132 9 million declined $3 million from prior quarter.
Speaker Change: Mentioned earlier yield on average, earning assets on line four was impacted by the number of days in the quarter. It still increased by one basis point.
Speaker Change: That increase was offset by the increase in funding costs on line five reflecting stated net interest margin on line six of 310% a decline of six basis points from prior quarter.
Speaker Change: Next slide 14 shows the details of noninterest income.
Speaker Change: Overall noninterest income increased by 200000 on a linked quarter basis.
Speaker Change: Customer related fees declined $1 2 million, reflecting a $900000 decline on the gain on sales of mortgage loans and lower derivative hedge fees.
Speaker Change: The first quarter is always a seasonal low for our mortgage business. Yet we were encouraged by this quarter's activity because the $3 3 million of gains. This quarter included a $500000 loss on the sale of some non accrual loans.
Speaker Change: Excluding that loss James on the sales of mortgage loans would have been $3 7 million, which is a $1 $3 million increased over the first quarter of last year. This increase in year over year production is what gives us confidence that we will see an increase in noninterest income in the coming quarters.
Speaker Change: Moving to slide 15, noninterest expense for the quarter totaled $96 9 million and as previously mentioned included $3 5 million in non core charges.
Speaker Change: Core noninterest expense beat expectations and totaled $93 4 million a decrease of $2 million from last quarters core noninterest expense of $95 4 million managing expenses continues to be appointed emphasis for us this year and the results of Q1 demonstrate that commitment.
Speaker Change: Slide 16 shows our capital ratios, we continue to have a strong capital position with common equity tier one at a robust 11, two 5% coupled with a dividend payout ratio of over 40% over the last 12 months.
Speaker Change: A slight decline in each of the ratios shown reflects a 40 million dollar redemption of sub debt and $30 million of stock buybacks in the quarter.
Speaker Change: These stock buybacks, coupled with $20 million and dividends paid this quarter provided a great return to our shareholders.
Speaker Change: These actions reflect our prudent management of <unk>.
Speaker Change: Excess capital insuring top quartile profitability metrics that.
Speaker Change: That concludes my remarks, and I will now turn it over to our Chief Credit Officer, John Martin to discuss asset quality.
John J. Martin: Thanks, Michelle and good morning.
John J. Martin: My remarks start on slide 17, I'll highlight the loan portfolio touch on the updated.
John J. Martin: Insight slides review asset quality and the nonperforming asset roll forward before turning the call back over to Mark.
John J. Martin: Turning to slide 17, where I've highlighted the various portfolio segments growth in the commercial and industrial loans on lines, one and two was offset by cooling investment real estate activity. We came off a strong origination quarter at the end of the year as Mike mentioned with modest growth in the first quarter, while investment real estate and.
John J. Martin: Struction on lines, four and five slowed for the quarter. We continued to hold underwriting standards for new construction opportunities, which is resulting in higher levels of capital required.
John J. Martin: Contribution this combined with higher borrowing costs has slowed new growth in this segment.
John J. Martin: Then on slide 18, the portfolio inside slide helps to provide transparency into the portfolio as mentioned on prior calls the C&I classification includes sponsor finance as well as owner occupied CRE associated with the business. Our C&I portfolio has a 20% concentration in manufacturing.
John J. Martin: Our current line utilization has remained consistent and was up for the quarter to 42% with line commitments lowered by $68 million, we participate in roughly $755 million of shared national credits across various industries. These are generally relationships, where we have access to management and revenue op.
John J. Martin: Opportunities that go beyond the credit exposure.
John J. Martin: And the sponsor finance portfolio I've highlighted key credit portfolio metrics. There are 86 platform companies with 53 active sponsors and an assortment of industries, 68% of those have a fixed charge coverage ratio greater than one five times based on year end borrower information this portfolio.
John J. Martin: So generally consists of a single bank deals for platform companies are private equity firms as opposed to large widely syndicated leverage loans traded across banks.
John J. Martin: To review this and we review the individual relationships quarterly for changes in borrower condition, including leverage and cash flow coverage.
John J. Martin: Turning to slide 19, where we break out our investment or non owner occupied commercial real estate. Our office exposure is detailed on the bottom half of this slide and represents 2% of total loans with the highest concentration outside of general office and medical office space the wheel.
John J. Martin: Chart on the bottom right details office portfolio maturities loans maturing in less than a year represent 11, 3% of the portfolio or $28 million. The office portfolio is well diversified by tenant type and geographic mix. We continue to periodically review our larger office exposures in view of the exposure is.
John J. Martin: <unk> mitigated through a combination of loan to value guarantees tenant mix and other considerations.
John J. Martin: On slide 20, our the asset quality trends and current position NPA is at 90 days past due loans increased $11 $6 billion to $6 56 basis points of allowance.
John J. Martin: For the quarter. The change was largely driven by a single 12 million new hospitality related credits, which we expect to resolve in the third quarter.
John J. Martin: On line 390 day delinquent loans were up $2 $8 million with one borrower comprising $1 2 million of the increase we view this relationship as well as secured in the process of collection.
John J. Martin: <unk> loans ended the quarter at 224% of loans up from 194% from the prior quarter then down on line nine net charge offs were seven basis points of annualized average loans.
John J. Martin: Moving to slide 21, where I've again rolled forward.
John J. Martin: <unk> of nonperforming loans charge offs or at 90 days past due for the quarter. We added nonaccrual loans on line two of $17 $7 million driven by the hospitality credit I just mentioned previously a reduction from payoffs or changes in accrual status of five $6 billion on line.
John J. Martin: <unk> aided by a $2 1 million nonperforming mortgage loan sale and a reduction from gross charge offs of $3 $2 million.
John J. Martin: Dropping down to line 11, 90 day delinquent loans increased by $2.6 million, which resulted in the NPA is plus 90 days past due ending at $72 million for the quarter. So summarizing asset quality was marginally down in the quarter net charge offs for the quarter were seven basis points, while non accruals and classified.
John J. Martin: Loans were marginally higher I appreciate your attention and I'll now turn the call back over to Mark Hardwick.
Mark K. Hardwick: Thanks, John.
Mark K. Hardwick: Turning to slide 22, we show our track record of shareholder value and there are a number of really positive trends, but.
Mark K. Hardwick: But I would just highlight one in particular, if you look at the top right hand.
Mark K. Hardwick: Portion of the page.
Mark K. Hardwick: We show our 10 year earnings per share CAGR.
Mark K. Hardwick: And it totals 10, 2%.
Mark K. Hardwick: And also we just have a continued focus on growth of tangible book value per share and we are and we're proud of these numbers.
Mark K. Hardwick: On slide 23.
Mark K. Hardwick: It represents our total asset CAGR of 12, 6% during the last 10 years and highlights meaningful acquisitions that have materially added to our demographic footprint that help fuel our growth.
Speaker Change: There are no edits to slide 24, so at this time I'd like to thank you for your attention and your investment and we are happy to take questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again and please wait for your name to be announced please standby, while we compile the Q&A roster one moment for your first question.
Mark K. Hardwick: Our first question comes from the line of Damon Delmonte with <unk>. Your line is now open.
Damon Paul DelMonte: Hey, good morning, everyone hope, you're all doing well today.
Damon Paul DelMonte: Just wanted to start off with a question on margin for Michelle.
Damon Paul DelMonte: Can you just give us a little insight as to kind of how youre seeing the cadence over the next few quarters. It sounds like you guys are.
Damon Paul DelMonte: It currently focused on.
Damon Paul DelMonte: Reducing the funding.
Damon Paul DelMonte: Component of it the cost of funding related to the margin and kind of with new loan production coming on at <unk>.
Damon Paul DelMonte: Rates at over 8% just kind of wondering how you're thinking about the margin at this point.
Damon Paul DelMonte: Yes.
Damon Paul DelMonte: Quarterly margin for Q1 was three times.
Damon Paul DelMonte: Our margin was 311.
Damon Paul DelMonte: The basis points when you decide to late March.
Damon Paul DelMonte: The reason why we have some optimism around it I think it is.
Damon Paul DelMonte: So we do believe that margin will be stable.
Damon Paul DelMonte: Next quarter.
Damon Paul DelMonte: So you've been growing depending on how the how the market through the remainder of the year.
Damon Paul DelMonte: And can you just remind us if there are rate cuts in the back half of the year. What's your anticipation is for a 25 basis point cut.
Damon Paul DelMonte: Yes, our model.
Damon Paul DelMonte: For each 25 basis point cut that our margin declined three basis points.
Damon Paul DelMonte: So the actions that we're taking to try to manage our funding costs and hopefully reduce some of that impact but that is what our model.
Damon Paul DelMonte: But we have.
Damon Paul DelMonte: Okay.
Speaker Change: Got it okay, great. Thank you and then with regards to the outlook for loan growth.
Speaker Change: I think Mike said that he is still.
Speaker Change: Optimistic in the mid to mid single or mid to high single digits. After first quarter results.
Speaker Change: I'll kind of start over.
Speaker Change: Mid to high single.
Speaker Change: Good.
Speaker Change: Given where we are already through April and I tried to highlight data.
Speaker Change: NII growth is really strong right now.
Speaker Change: <unk>.
Speaker Change: <unk> maturity of the real estate project.
Damon Paul DelMonte: But overall, yes mid single high for the year.
Damon Paul DelMonte: It did $30 million of buyback this quarter I guess first how much buyback is remaining under the current authorization and what's your thoughts on additional appetite going forward.
Damon Paul DelMonte: They were around 40.
Damon Paul DelMonte: We have $45 million remaining and continue to be active it's going to be a <unk>.
Damon Paul DelMonte: Full part of our May 7th Board meeting.
Damon Paul DelMonte: Sharing capital planning and thinking about the future. So we're convinced that if our stock price is going to continue to trade it.
Damon Paul DelMonte:
Damon Paul DelMonte: I guess multiples that are.
Damon Paul DelMonte: 10.
Damon Paul DelMonte: When we historically have traded 12% to 13, and we feel like it's prudent to be active with buybacks. So.
Damon Paul DelMonte: And our tangible common equity continues to be above 8% and all the other capital ratios are well above our target so.
Damon Paul DelMonte: In this environment, we feel like it.
Damon Paul DelMonte: The right prudent call to make.
Speaker Change: Great. Thanks for the color and I'll step back.
Speaker Change: Thank you. Thank you.
Speaker Change: One moment for our next question please.
Speaker Change: Question will come from the line of Nathan race with Piper Sandler Your line is now open.
Nathan James Race: Yes, hi, everyone. Good morning, Thanks for taking the questions.
Nathan James Race: Just wanted to clarify on the margin commentary.
Nathan James Race: To the earlier question.
Nathan James Race: The three basis points or so.
Speaker Change: Impact to the downside.
Speaker Change: Under a static rate environment that doesn't necessarily contemplate continued redeployment of excess liquidity coming off the bond book into loans is that correct.
Speaker Change: It does contemplate.
Speaker Change: That excess liquidity into earning assets.
Speaker Change: Okay got it thank you.
Speaker Change: And then just on fee income I think last quarter, you were talking about a run rate around 30 or so per quarter.
Nathan James Race: Still reasonable expectation going forward.
Nathan James Race: Yes.
Speaker Change: If I can just maybe just a touch lower maybe more like $22 29 per quarter last quarter, when we provided that guidance.
Speaker Change: Virtually based on the fact that we expected more repo during the year and whenever we do get very close it really invigorated, our mortgage business with the lean on sale of mortgage loans. It goes higher.
Nathan James Race: Given that we're expecting roughly plus at this point that would probably adjust that down slightly.
Nathan James Race: Okay.
Speaker Change: Gotcha, Okay, great and then.
Speaker Change: Just turning to expenses I think last quarter, you were talking about zero to 2% growth of the <unk> annualized level is that still a good proxy to use going forward for 2024.
Speaker Change: I think our expenses can answer it a little bit of the reduction of non interest income that I just talked about we have really good expense discipline in the quarter.
Speaker Change: And so I would expect you to run a little lower than the guidance that we provided.
Speaker Change: Okay.
Nathan James Race: Nathan.
Nathan James Race: Additional digital platform conversion costs in Q2, just as a reminder, that should run about $2 $5 million that will be on top of that core run rate.
Nathan James Race: Okay got it and then just turning to credit quality it doesn't sound like there was.
Nathan James Race: Any major surprises and this.
Nathan James Race: In terms of the.
Nathan James Race: The rise in classified and non accrual. So John is it fair to assume that youre not seeing that.
John J. Martin: Anything systemic across the portfolio and its more so just ongoing.
John J. Martin: Normalization at the broader industry is encountering these days and just generally kind of how you think about.
John J. Martin: Charge off levels going forward.
John J. Martin: Yes.
John J. Martin: Yes, so I do look at it as more of a normal a return to more of a normalized credit environment.
John J. Martin: The charge off rate I think you said land.
John J. Martin: It's where we've come under it for the last couple of quarters, but I think about it in that 15 to 20 basis point range.
John J. Martin: Yeah.
John J. Martin: Okay.
Speaker Change: Gotcha and then.
Speaker Change: Similar stable.
Speaker Change: Macro environment I know, it's kind of a fluid situation under Cecil but to what extent do you guys see a need to provide for.
Speaker Change: Mid to high single digit growth just given that your reserve is still.
John J. Martin: So all the above peers.
John J. Martin: Well I think one of our coverage ratio is today is largely where we would you mean.
John J. Martin: Economic.
John J. Martin: <unk> doesn't change again, I think we would want to keep our coverage ratio somewhere within the vicinity, where it's at today to cover for any new growth.
John J. Martin: Net charge offs.
Speaker Change: Okay, Great I appreciate the color. Thank you.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Our next question will come from the line of Brian Martin with Janney Montgomery Scott. Your line is now open.
Brian Joseph Martin: Hey, good morning.
Brian Joseph Martin: Good morning, Brian.
Brian Joseph Martin: Hey, Michelle just wanted to ask you you talked about taking some actions on the deposit side.
Brian Joseph Martin: To help on the funding cost can you just elaborate on what you did or I guess is there more of that to come as that kind of done at this point.
Brian Joseph Martin: Given the focus on managing the funding costs.
Michelle: Hey, Brian Yes, we actually just had our asset liability Committee meeting yesterday and walk through every line of business consumer.
Brian: Commercial private wealth and are continuing to look at strategies really across the board, where we can make modest.
Brian: Great productions that we think.
Brian: Some of the pressure off.
Speaker Change: And so we're not doing anything.
Speaker Change: We had a really big way like we're not making 25 basis point reduction.
Speaker Change: Finding ways to pick up five basis points.
Brian: Number of different places that we think of kind of get ahead of a rate reduction and continue to allow us to have really healthy liquidity position at the right price.
Speaker Change: Gotcha, Okay. So there's a little bit more of that it's ongoing.
Brian: Alerting incremental along the way to pick that up.
Speaker Change: Yes, that's correct.
Speaker Change: Yes, Okay, and then one maybe for Mike you talked about the particular strength in C&I this quarter anything special driving that.
Speaker Change: I guess, you believe is sustainable or.
Brian: Yes.
Michael J. Stewart: I do believe it's sustainable.
Michael J. Stewart: One of the drivers the investment that we've done Michigan market, the new markets that we have added.
Michael J. Stewart: Level, one couple of years ago the team the brand.
Michael J. Stewart: Reaching out to the market taking advantage of them. The other competitive landscape there is definitely paid dividends.
Michael J. Stewart: Okay.
Michael J. Stewart: Generally C&I corporate executives still feel good about their businesses. So they are investing again, whether it's plant and equipment.
Michael J. Stewart: We're doing some strategic acquisition.
Speaker Change: Hey, Lee.
Lee: Well into that space.
Lee: Again attributed probably into the fact that the Midwest stills feels pretty insular to the other.
Lee: Headwinds the coasts might have and we're pretty active.
Lee: Got you. Okay. That's helpful. And then just the last two I think particularly as I think you talked we're down a little bit this quarter I guess do those feel.
Lee: Feel like they're beginning to stabilize and then secondly, you also talked about some further redemption of some sub debt maybe another $25 million.
Lee: Is it still the plan.
Lee: Sure.
Speaker Change: Yes, Brian Yes.
Speaker Change: We are paying down the remaining $25 million.
Speaker Change: At the end of this month I didn't catch the first part of your question.
Speaker Change: Yes.
Brian: Noninterest bearing deposit trends, just kind of I know they were down a little bit this quarter, but just beginning to see those stabilize is that kind of what youre seeing underneath.
Brian: We would expect.
Speaker Change: The decline is moderate.
Brian: And so we may see a little bit more compression there.
Lee: We're actually going to start to tail off I think.
Speaker Change: Yeah, Okay perfect. Thank you for taking the question.
Speaker Change: Thank you. Thank you one moment for our next question. Please.
Lee: Our next question comes from the line of Daniel <unk>.
Daniel: <unk> with Raymond James Your line is now open.
Daniel: Thank you.
Daniel: Good afternoon, I suppose we are at now here.
Daniel: Sure.
Daniel: I guess.
Speaker Change: Most of my questions have been asked already but.
Speaker Change: Cleanup questions.
Speaker Change: First I guess John on the Classifieds, if you can provide a little more detail on.
Speaker Change: Where the increase came from if it was C&I or CRE or what youre seeing there.
Speaker Change: Yes.
John J. Martin: It was probably two thirds C&I one third CRE.
Speaker Change: Combination of different types of asset classes within CRE and across industries within the C&I I would describe it as kind of normal inflows and outflows with individual issues with C&I borrowers and just addressing issues as it relates to CRE.
Speaker Change: Sorry, higher interest rates have had an impact on CRE and <unk>.
Speaker Change: Yes.
Speaker Change: That are challenging we're just kind of addressing those so.
Speaker Change: Terrific. Thank you and then I don't know if I missed this or not but.
Speaker Change: Did you provide or do you have the amount of the office loans that are in central business districts.
Speaker Change: I don't have it by Central business District, I've got it split within that fly in Gabon as granular if I have it.
Speaker Change: Okay.
Speaker Change: But I think it's on slide 18, maybe.
Speaker Change: Hold on just a moment.
Speaker Change: On slide 19.
Speaker Change: With a breakdown of type.
Speaker Change: Tenant and geography.
Speaker Change: I will say, yes.
Speaker Change: Anecdotally and what I think about that office portfolio were not a central district.
Speaker Change: That's very type lender of downtown Indianapolis, Chicago or something or.
Speaker Change: Mostly suburban related to developers who have done projects.
Speaker Change: Wade.
Speaker Change: That's great.
Speaker Change: You don't have that much okay, and well that I think that probably answers my question.
Speaker Change: And then just quickly.
Speaker Change: On deposit expectations, obviously, theres a lot of moving parts there, but do you expect.
Speaker Change: To kind of fill the gaps on the funding side to keep the.
Speaker Change: Loan and deposit ratio somewhere to where it is now given your loan growth.
Speaker Change: Yes, I mean, we have a desire to see the loan to deposit ratio tick up slightly.
Speaker Change: Yes.
Speaker Change: A fun time in the business honestly, we're actively pursuing new client relationships on the lending side, we expect to have mid to high single digit growth.
Speaker Change: It feels like we're getting back to what would be more of a historical level, where you tend to grow loans in the mid to high single digits in deposits in the mid to low single digits and.
Speaker Change: I think it creates a little more efficient and effective operating model.
Speaker Change: Okay, great Thanks, Marc and thanks.
Speaker Change: Everyone else I appreciate it.
Speaker Change: Thank you. Thank you.
Speaker Change: Our next question comes from the line of Terry Mcevoy.
Terence James McEvoy: Hi, Good morning, everyone is open.
Terence James McEvoy: Hi, good morning, everyone or good afternoon.
Terence James McEvoy: Michelle you mentioned the $1 billion.
Terence James McEvoy: Repricing was that specifically out of the loan portfolio over the next three quarters.
Terence James McEvoy: Coming out of the 34% of the portfolio Thats fixed today.
Speaker Change: Mostly out of the loan portfolio total, earning asset number sort of also include the securities that are maturing as well.
Speaker Change: It is largely loan.
Speaker Change: The mix of those that are fixed as well as variable.
Speaker Change: Thank you.
Speaker Change: Perfect and then just.
Speaker Change: Taking into consideration your loan growth commentary deposit costs and margin.
Speaker Change: It sounds like net interest income bottomed in the first quarter and should grow from here would you agree with that Michele.
Michele: I would think so the guidance that we gave.
Michele: Outlook last quarter was that we saw in second quarter with stabilized and then we see some growth in the back half of the year and I think thats largely with our expectation.
Speaker Change: And then just one last question when I look at the largest component of non owner occupied CRE multifamily. So do you have any comments on kind of vacancy trends new supply rent growth, particularly within some of those larger metro markets in Indiana and Michigan.
Speaker Change: Yeah, we're still seeing rent growth, but it has slowed its kind of tapered from what was a breakneck speed.
Speaker Change: Earlier in the cycle to a more modest level.
Speaker Change:
Speaker Change: So really that.
Speaker Change: Multifamily that we've had has been as Mike mentioned earlier been able to stabilize and move to.
Speaker Change: The permanent market, so we still feel pretty good about that space.
Speaker Change: Though obviously new opportunities, we're going to get more challenging with.
Speaker Change: Right.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Thank you Sir I am currently showing no further questions at this time I'd like to turn the call back over to Mr. Mark Hardwick for closing comments.
Mark K. Hardwick: Yes, I really don't have much other than just again, an expression of our appreciation for your interest in our company.
Mark K. Hardwick: The continued investment.
Mark K. Hardwick: The teams are working hard to deliver our results for the remainder of the year. So thank you again for your attention.
Mark K. Hardwick: Yes.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.