Q2 2024 Wintrust Financial Corp Earnings Call

Welcome to Wintrust Financial Corporation's second quarter and year-to-date 2024 earnings conference call. A review of the results will be made by Tim Crane, President and Chief Executive Officer.

Operator: and year-to-date 2024 earnings conference call. A review of the results will be made by Tim Crane, President and Chief Executive Officer.

Unknown Executive: and year-to-date 2024 earnings conference call. A review of the results will be made by Tim Crane, President and Chief Executive Officer, David Dykstra, Vice Chairman and Chief Operating Officer, and Richard Murphy, Vice Chairman and Chief Lending Officer. As part of their reviews, the presenters may make reference to both the earnings press release and the earnings release presentation.

Operator: David Dykstra, Vice Chairman and Chief Operating Officer, and Richard Murphy, Vice Chairman and Chief Lending Officer. As part of their reviews, the presenters may make reference to both the earnings press release and the earnings release presentation. Following their presentations, there will be a formal question and answer session.

Speaker Change: David Dykstra, Vice Chairman and Chief Operating Officer, and Richard Murphy, Vice Chairman and Chief Lending Officer.

Speaker Change: As part of their reviews, the presenters may make reference to both the earnings press release and the earnings release presentation. Following their presentations, there will be a formal question and answer session.

Unknown Executive: Following their presentations, there will be a formal question-and-answer session. During the course of today's call, Wintrust's management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Action results could differ materially from the results anticipated or projected in any such forward-looking statements. The company's forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the company's most recent Form 10-K and any subsequent filings with the SEC. Also, our remarks may reference certain non-GAAP financial measures. Our earnings press release and earnings release presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure.

Operator: During the course of today's call, Wintrust Management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. However, actual results could differ materially from the results anticipated or projected in any such forward-looking statements. The company's forward-looking assumptions that could cause actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the company's most recent form, 10-K, and any subsequent filings with the SEC.

Speaker Change: During the course of today's call, Wintrust Management may make statements that constitute projections, expectations, beliefs, or similar forward-looking statements. Actual results could differ materially from the results anticipated or projected in any such forward-looking statements.

Speaker Change: The company's forward-looking assumptions that could cause the actual results to differ materially from the information discussed during this call are detailed in our earnings press release and in the company's most recent Form 10-K and any subsequent filings with the SEC.

Speaker Change: Also, our remarks may reference certain non-GAAP financial measures. Our earnings press release and earnings release presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure.

Operator: Also, our remarks may reference certain non-GAAP financial measures. Our earnings press release and earnings release presentation include a reconciliation of each non-GAAP financial measure to the nearest comparable GAAP financial measure. As a reminder, this conference call is being recorded. I will now turn the call over to Mr. Tim Crane. Good morning, and thank you.

Unknown Executive: As a reminder, this conference call is being recorded.

Timothy Crane: I will now turn the conference over to Mr. Tim Crane. Good morning, and thank you. In addition to the introductions that Lateef made, we're joined by Dave Star, our Chief Financial Officer, and Kate Bogey, our General Counsel. In terms of an agenda, I'll share some high-level highlights. Dave Dykstra will speak to the financial results, and Rich will add some additional information and color on credit performance and loan activity.

Speaker Change: As a reminder, this conference call is being recorded. I will now turn the conference over to Mr. Tim Crane.

Timothy S. Crane: In addition to the introductions that Lateef made, we're joined by Dave Starr, our Chief Financial Officer, and Kate Bogie, our General Counsel. In terms of the agenda, I'll share some high-level highlights. Dave Dykstra will speak to the financial results, and Rich will add some additional information and color on credit performance and loan activity. I'll be back to wrap up with some summary thoughts on two topics, a high-level outlook going forward, and an update on our pending acquisition of Makatawa Bank. And, of course, we'll do our best to answer some questions.

Timothy S. Crane: Good morning and thank you. In addition to the introductions that Lateef made, we're joined by Dave Starr, our Chief Financial Officer, and Kate Bogie, our General Counsel.

Speaker Change: In terms of an agenda, I'll share some high-level highlights, Dave Dykstra will speak to the financial results, and Rich will add some additional information and color on credit performance and loan activity.

Timothy Crane: I'll be back to wrap up with some summary thoughts on two topics: a high-level outlook going forward and an update on our pending acquisition of Macatala Bank. And of course, we'll do our best to answer some questions. For the quarter, we reported net income of just over $152 million and reported record net income of just under $340 million for the first half of the year. The results were in line with our expectations, with several positive and encouraging underlying elements. For the quarter, we grew loans by $1.4 billion and deposits by slightly over $1.6 billion. The loan growth was balanced across all material product categories and would have been higher had we not elected to sell approximately $700 million in loans during the quarter, which Dave will discuss.

Speaker Change: I'll be back to wrap up with some summary thoughts on two topics, a high-level outlook going forward, and an update on our pending acquisition of Makatawa Bank. And of course, we'll do our best to answer some questions.

Timothy S. Crane: For the quarter, we reported net income of just over $152 million and reported record net income of just under $340 million for the first half of the year. The results were in line with our expectations, with several positive and encouraging underlying elements. For the quarter, we grew loans by $1.4 billion and deposits by slightly over $1.6 billion. The loan growth was balanced across all material product categories and would have been higher had we not elected to sell approximately $700 million in loans during the quarter, which Dave will discuss. The deposit growth included absolute growth in our non-interest-bearing deposits, and the percentage of non-interest-bearing deposits relative to total deposits remained stable for the quarter.

David Alan Dykstra: For the quarter, we reported net income of just over $152 million and reported record net income of just under $340 million for the first half of the year.

David Alan Dykstra: The results were in line with our expectations, with several positive and encouraging underlying elements.

David Alan Dykstra: For the quarter, we grew loans by $1.4 billion and deposits by slightly over $1.6 billion.

David Alan Dykstra: The loan growth was balanced across all material product categories and would have been higher had we not elected to sell approximately $700 million in loans during the quarter, which Dave will discuss.

Timothy Crane: The deposit growth included absolute growth in our non-interest-sparing deposits, and the percentage of non-interest-sparing deposits relative to total deposits remains stable for the quarter. Both the loan and deposit results are strong and evidence that we continue to gain share in Chicago, the Midwest, and in our niche businesses. The net interest margin of $352 was in line with our expectations and combined with the growth-produced record net interest income of $471 million, up almost $7 million from the first quarter. We are seeing some of the expected credit normalization from the very low levels of delinquency and loss experienced over the last few years.

David Alan Dykstra: The deposit growth included absolute growth in our non-interest bearing deposits, and the percentage of non-interest bearing deposits relative to total deposits remained stable for the quarter.

Timothy S. Crane: Both the loan and deposit results are strong and evidence that we continue to gain share in Chicago, the Midwest, and in our niche businesses. The net interest margin of $352 million was in line with our expectations and, combined with the growth, produced a record net interest income of $471 million, up almost $7 million from the first quarter. We are seeing some of the expected credit normalization from the very low levels of delinquency and loss experienced over the last few years. However, our non-performing loans remain low, and loans classified as substandard or special mention were little changed from the prior quarter. And again, Rich will walk through some additional detail.

David Alan Dykstra: Both the loan and deposit results are strong and evidence that we continue to gain share in Chicago, the Midwest, and in our niche businesses.

David Alan Dykstra: The net interest margin of $352 million was in line with our expectations and, combined with the growth, produced record net interest income of $471 million, up almost $7 million from the first quarter.

David Alan Dykstra: We are seeing some of the expected credit normalization from the very low levels of delinquency and loss experienced over the last few years.

Timothy Crane: However, non-performing loans remain low, and loans classified as substandard or special mention were little changed from the prior quarter. Again, Rich will walk through some additional detail. Overall, a solid quarter; in particular, I think our team is doing a very nice job with respect to pricing and credit discipline, which will continue to show up in our results going forward. We are also adding consumer and commercial clients, the healthy rate, clients that will be with us for years to come. Compared to the first quarter of this year, we again reported strong loan and deposit growth. The deposit growth of $1.6 billion during the quarter is a 14% increase over the prior quarter on an annualized basis.

David Alan Dykstra: However, our non-performing loans remain low, and loans classified as substandard or special mention were little changed from the prior quarter. And again, Rich will walk through some additional detail.

Timothy S. Crane: Overall, a solid quarter. In particular, I think our team is doing a very nice job with respect to pricing and credit discipline, which will continue to show up in our results going forward. We are also adding consumer and commercial clients at a healthy rate, clients that will be with us for years to come. I'll pause here and hand this over to Dave and Rich, and I'll be back to wrap up. Great. Thanks, Tim.

Speaker Change: Overall, a solid quarter. In particular, I think our team is doing a very nice job with respect to pricing and credit discipline, which will continue to show up in our results going forward. We are also adding consumer and commercial clients at a healthy rate, clients that will be with us for years to come.

Speaker Change: I'll pause here and hand this over to Dave and Rich, and I'll be back to wrap up. Great. Thanks, Tim. First, with respect to the balance sheet growth in the first quarter of this year, we again reported strong loan and deposit growth.

David Alan Dykstra: First, with respect to the balance sheet growth in the first quarter of this year compared to the first quarter of this year, we again reported strong loan and deposit growth. The deposit growth of $1.6 billion during the quarter is a 14% increase over the prior quarter on an annualized basis, and as to the deposit composition, non-interest-bearing deposits increased by approximately $123 million in the second quarter relative to the first quarter and again represented 21% of total deposits at the end of both the first and the second quarter, indicating stabilization and a slight increase in non-interest-bearing deposits from last quarter.

Speaker Change: The deposit growth of $1.6 billion during the quarter is a 14% increase over the prior quarter on an annualized basis. And as for the deposit composition, non-interest bearing deposits increased by approximately $123 million in the second quarter relative to the first quarter.

Timothy Crane: And as to the deposit composition, non-interest bearing deposits increased by approximately $123 million in the second quarter relative to the first quarter. And again represent 21% of total deposits at the end of both the first and the second quarter. So stabilization and a slight increase in the non-interest-bearing deposits from last quarter. The solid loan growth helped the deposit growth helped the fund strong second quarter loan growth of $1.4 billion or 13% on an annualized basis. Adjusting for the impact of the sale of certain premium finance loans during the second quarter, total loans would have increased 2.1 billion or 20% on an annualized basis.

Speaker Change: And again, represented 21% of total deposits at the end of both the first and the second quarter. So stabilization and a slight increase in the non-interest bearing deposits from last quarter.

David Alan Dykstra: The solid loan growth helped to fund strong second – or solid deposit growth helped to fund strong second quarter loan growth of $1.4 billion, or 13% on an annualized basis. Adjusting for the impact of the sale of certain premium finance loans during the second quarter, total loans would have increased $2.1 billion, or 20% on an annualized basis, and it's consistent with our prior guidance of being above the mid- to high-single-digit loan growth for this quarter. Additionally, net of our election to conduct a loan sale transaction that reduced outstanding premium finance balances by $698 million at the end of the second quarter, the commercial premium finance portfolio was up $161 million.

Speaker Change: The solid deposit growth helped to fund strong second quarter loan growth of $1.4 billion, or 13% on an annualized basis.

Speaker Change: Adjusting for the impact of the sale of certain premium finance loans during the second quarter, total loans would have increased $2.1 billion, or 20% on an annualized basis, and it's consistent with our prior guidance of being above the mid- to high single-digit loan growth for this quarter.

Timothy Crane: And it's consistent with our prior guidance of being above the mid to high single-digit loan growth for this quarter. Additionally, net of our election to conduct a loan sale transaction that reduced outstanding premium finance balances by $698 million at the end of the second quarter, the commercial premium finance portfolio would have been up $161 million. The sale of the loan during the quarter was done to maintain appropriate liquidity, capital, and loan to deposit ratios. As other aspects of the balance sheet results, total assets grew by $2.2 billion to $59.8 billion, and a regulatory capital ratios remained relatively stable even with the strong growth.

Speaker Change: Additionally, net of our election to conduct a loan sale transaction that reduced outstanding premium finance balances by $698 million at the end of the second quarter, the commercial premium finance portfolio was up $161 million.

David Alan Dykstra: The sale of the loans during the quarter was done to maintain appropriate liquidity, capital, and loan-to-deposit ratios. As for the other aspects of the balance sheet results, total assets grew by $2.2 billion to $59.8 billion, and our regulatory capital ratios remained relatively stable even with the strong growth. As Tim mentioned, it was another very successful quarter for gaining new customers and for the growth of our franchise, which has always been a primary objective of Wintrust. Our differentiated business model, the exceptional service that our teams provide, and our unique position in the Chicago and Milwaukee markets continue to serve us well, and we think it will continue to do so in the future.

Speaker Change: The sale of loans during the quarter was done to maintain appropriate liquidity, capital, and loan-to-deposit ratios.

Speaker Change: As other aspects of the balance sheet results, total assets grew by $2.2 billion to $59.8 billion, and our regulatory capital ratios remained relatively stable even with the strong growth.

Timothy Crane: As Tim mentioned, it was another very successful quarter for gaining new customers and for the growth of our franchise, which has always been a primary objective of interest. Our differentiated business model, the exceptional service that our teams provide in our unique position in the Chicago and Milwaukee markets, continue to service well, and we think it will do so in the future. As to the income statement categories, our net interest income increased $6.4 million from the prior quarter and represented a record high amount of quarterly net interest income. In increasing the average earning assets, more than offset the modest decline in the net interest margin that we discussed in our last earnings call due to expectations of the strong growth this quarter and was primarily the result of a mixed shift in deposits and the higher cost of attracting incremental deposits to fund the solid loan growth.

Speaker Change: As Tim mentioned, it was another very successful quarter for gaining new customers and for the growth of our franchise, which has always been a primary objective of Wintrust. Our differentiated business model, the exceptional service that our teams provide, and our unique position in the Chicago and Milwaukee markets.

David Alan Dykstra: As to the income statement categories, our net interest income increased $6.4 million from the prior quarter and represented a record high amount of quarterly net interest income. An increase in average earning assets more than offset the modest decline in the net interest margin that we discussed on our last earnings call due to expectations of strong growth this quarter and was primarily the result of a mixed shift in deposits and the higher cost of attracting incremental deposits to fund the solid loan growth.

Speaker Change: Continue to serve us well, and we think it will do so in the future.

Speaker Change: As to the income statement categories, our net interest income increased $6.4 million from the prior quarter and represented a record high amount of quarterly net interest income.

Speaker Change: An increase in the average earning assets more than offset the modest decline in the net interest margin that we discussed on our last earnings call due to expectations of the strong growth this quarter, and was primarily the result of a mixed shift in deposits and the higher cost of attracting incremental deposits to fund the solid loan growth.

David Alan Dykstra: We're obviously happy to take advantage of current market conditions and add high-quality loan and deposit relationships, even if it means a bit of margin pressure. Said another way, these new relationships provide nice gains in market share, additional net interest income, and acceptable returns on long-term franchise value. Our second quarter net interest margin was 3.52% and was slightly higher from where we ended the first quarter, which gives us great confidence that our net interest margin can continue to be in a narrow range around 3.5% in the third quarter and into the fourth quarter of this year.

Timothy Crane: We're obviously happy to take advantage of current market conditions and add high quality loan and deposit relationships, even if it means a bit of margin pressure. Set another way, these new relationships provide nice gains in market share, additional net interest income at acceptable returns, in long-term franchise value. Our second quarter net interest margin was 3.52% and was up slightly from where we ended the first quarter, which gives us great confidence that our net interest margin can continue to be in a narrow range around 3.5% in the third quarter and into the fourth quarter of this year.

Speaker Change: We're obviously happy to take advantage of current market conditions and add high-quality loan and deposit relationships, even if it means a bit of margin pressure.

Speaker Change: Said another way, these new relationships provide nice gains in market share, additional net interest income, and acceptable returns in long-term franchise value.

Speaker Change: Our second quarter net interest margin was 3.52% and was up slightly from where we ended the first quarter, which gives us great confidence that our net interest margin can continue to be in a narrow range around 3.5% in the third quarter and into the fourth quarter of this year.

Timothy Crane: Given the relatively stable net interest margin outlook in the growth and earning assets, we would expect again to increase net interest income in the third quarter. We recorded a provision for credit losses of $40.1 million in the second quarter, which was up from a provision of $21.7 million in the prior quarter but down slightly from the $42.9 million recorded in the fourth quarter of last year. The higher provision expense in the second quarter, relative to the first quarter, was primarily a result of the aforementioned strong loan growth and a slightly higher level of net charge loss and resulted in a build up of our credit reserves.

David Alan Dykstra: Given the relatively stable net interest margin outlook and the growth in earning assets, we would expect again to increase net interest income in the third quarter. We recorded a provision for credit losses of $40.1 million in the second quarter, which was up from a provision of $21.7 million in the prior quarter but down slightly from the $42.9 million recorded in the fourth quarter of last year.

Speaker Change: Given the relatively stable net interest margin outlook and the growth in earning assets, we would expect, again, to increase net interest income in the third quarter.

Speaker Change: We recorded a provision for credit losses of $40.1 million in the second quarter, which was up from a provision of $21.7 million in the prior quarter, but down slightly from the $42.9 million recorded in the fourth quarter of last year.

David Alan Dykstra: The higher provision expense in the second quarter relative to the first quarter was primarily a result of the aforementioned strong loan growth and a slightly higher level of net charge-offs and resulted in a buildup of our credit reserves. Again, Rich will talk about credit in the loan portfolio characteristics in just a bit. On non-interest income and non-interest expense, total non-interest income totaled $121.1 million in the second quarter, which was down approximately $19.4 million when compared to the prior quarter.

Speaker Change: The higher provision expense in the second quarter relative to the first quarter was primarily a result of the aforementioned strong loan growth and a slightly higher level of net charge-offs and resulted in a build-up of our credit reserves. Again, Rich will talk about credit and the loan portfolio characteristics in just a bit.

Timothy Crane: Again, Rich will talk about credit and the loan portfolio characteristics in just a bit. On to non-interest income and non-interest expense, total non-interest income totaled $121.1 million in the second quarter, which was down to approximately $19.4 million when compared to the prior quarter. As you recall, the primary reason for the decline was related to a $20 million gain on the sale of our retirement planning advisors division that we recognize in the first quarter in no similar way. Again, we recorded in the current quarter. And although persistently higher mortgage rates dampen our optimism for stronger spring home biencies and activity, the company generated approximately $1.5 million more in mortgage banking revenue as we experienced higher production revenue to the slightly higher origination volumes, which was offset somewhat by less favorable market value adjustments on our mortgage servicing rights portfolio.

Rich: Non-interest income and non-interest expense. Total non-interest income totaled $121.1 million in the second quarter.

David Alan Dykstra: As you recall, the primary reason for the decline was related to a $20 million gain on the sale of our Retirement Planning Advisors Division that we recognized in the first quarter, and no similar gains were recorded in the current quarter. And although persistently higher mortgage rates dampened our optimism for stronger spring home buying season activity, the company generated approximately $1.5 million more in mortgage banking revenue as we experienced higher production revenue due to slightly higher origination volumes, which was offset somewhat by less favorable market value adjustments on our mortgage servicing rights portfolio.

Rich: which was down approximately $19.4 million when compared to the prior quarter. As you recall, the primary reason for the decline was related to a $20 million gain on the sale of our Retirement Planning Advisors Division that we recognized in the first quarter and no similar gains were recorded in the current quarter.

Rich: And although persistently higher mortgage rates dampen our optimism for stronger spring home buying season activity.

Rich: The company generated approximately $1.5 million more in mortgage banking revenue as we experienced higher production revenue due to slightly higher origination volumes, which was offset somewhat by less favorable market value adjustments on our mortgage servicing rights portfolio.

Timothy Crane: The company recorded $4.3 million of security losses, a modest gain on the sale of our premium finance loans, and a variety of smaller changes to the non-interest income categories, as shown in the tables in the press release. But those changes relative to the prior quarter work, material and not uncommon. Turning to non-interest interest expense categories, the total non-interest expenses were $340.4 million in the second quarter, and were approximately $7.2 million from the first quarter. The primary reasons for the increase related to salary employee benefits expense, increasing by approximately $3.4 million. The slight increase was due to higher mortgage commissions on the increased origination volumes.

David Alan Dykstra: The company recorded $4.3 million in security losses, a modest gain on the sale of our premium finance loans, and a variety of smaller changes to the non-interest income categories as shown in the tables in the press release. But those changes relative to the prior quarter are material and not uncommon. Attorney's Non-Interest Expense Categories

Rich: The company recorded a $4.3 million of security losses, a modest gain on the sale of our premium finance loans, and a variety of smaller changes to the non-interest income categories as shown in the tables in the press release.

Speaker Change: But those changes relative to the prior quarter work material and not uncommon.

David Alan Dykstra: The total non-interest expenses were $340.4 million in the second quarter and were up approximately $7.2 million from the first quarter. The primary reasons for the increase related to salary and employee benefits expense increasing by approximately $3.4 million. The slight increase was due to higher mortgage commissions on the increased origination volumes, with the second quarter having the full effect of annual merit increases that were effective on February 1st. And we had slightly higher employee benefits expenses due to an increased level of health insurance claims during the quarter compared to the first quarter, which tends to be seasonally low. Advertising marketing expenses increased by $4.4 million in the second quarter when compared to the first quarter.

Speaker Change: Attorney's Non-Interest Expense Categories. The total non-interest expenses were $340.4 million in the second quarter and were up approximately $7.2 million from the first quarter.

Speaker Change: The primary reasons for the increase related to salary employee benefits expense increasing by approximately $3.4 million. The slight increase was due to higher mortgage commissions on the increased origination volumes.

Timothy Crane: The second quarter having the full effect of annual merit increases that were effective on February 1st. And we had slightly higher employee benefits expenses due to an increased level of health insurance claims during the quarter compared to the first quarter, which tends to be seasonally low. Avertizing marketing expenses increased by $4.4 million in the second quarter, when compared to the first quarter. As we've discussed on previous calls, this category of expenses tends to be higher in the second and third quarters of the year. To our expenditures related to various major and minor league baseball sponsorships and other summertime sponsorship events held in the communities that we serve.

Speaker Change: The second quarter having the full effect of annual merit increases that were effective on February 1st, and we had slightly higher employee benefits expenses due to an increased level of health insurance claims during the quarter compared to the first quarter, which tends to be seasonally low.

Speaker Change: Advertising marketing expenses increased by $4.4 million in the second quarter when compared to the first quarter. As we've discussed on previous calls, this category of expenses tends to be higher in the second and third quarters of the year.

David Alan Dykstra: As we've discussed on previous calls, this category of expenses tends to be higher in the second and third quarters of the year due to our expenditures related to various major and minor league baseball sponsorships and other summertime sponsorship events held in the communities that we serve. The company also recorded a slight increase in occupancy expense, which was impacted by a $1.9 million charge on the pending sale of a bank branch in downtown Chicago as we worked to optimize our branch network.

Speaker Change: to our expenditures related to various major and minor league baseball sponsorships and other summertime sponsorship events held in the communities that we serve.

Timothy Crane: The company also recorded a slight increase in occupancy expense, which was impacted by a $1.9 million charge on the pending sale of a bank branch in downtown Chicago, as we worked to optimize our branch network. This pending sale is essentially relocation and a downsizing of a branch, which will result in lower expenses going forward, with an estimated payback period of less than two years. Professional fees were slightly elevated due to approximately $532,000 of cost related to the pending acquisition of Macatawatt Bank Corporation. These increases were partially offset by the $4.1 million reduction in our FDAC insurance expense, as the company recorded approximately $5.2 million of such expense related to special assessments imposed by the FDAC in the first quarter and no such special assessments in this quarter.

Speaker Change: The company also recorded a slight increase in occupancy expense.

Speaker Change: which was impacted by a $1.9 million charge on the pending sale of a bank branch in downtown Chicago as we worked to optimize our branch network.

David Alan Dykstra: This pending sale is essentially a relocation and a downsizing of a branch, which will result in lower expenses going forward with an estimated payback period of less than two years. However, professional fees were slightly elevated due to approximately $532,000 in costs related to the pending acquisition of Makatawa Bank Corporation.

Speaker Change: This pending sale is essentially a relocation and a downsizing of a branch, which will result in lower expenses going forward with an estimated payback period of less than two years.

Speaker Change: Professional fees were slightly elevated due to approximately $532,000 of costs related to the pending acquisition of Makatawa Bank Corporation.

David Alan Dykstra: These increases were partially offset by the $4.1 million reduction in our FDIC insurance expense as the company recorded approximately $5.2 million of such expense related to special assessments imposed by the FDIC in the first quarter and no such special assessments in this quarter. The remaining variances, both positive and negative, were relatively normal and don't warrant any special mention on this call. In summary, the second quarter exhibited extraordinarily strong loan and deposit growth, a solid net interest margin in our expected range, a record level of quarterly net interest income, and excluding the impact of the charge on the pending branch sale, other non-interest expenses and non-interest income were within our expected ranges.

Speaker Change: These increases were partially offset by...

Speaker Change: A $4.1 million reduction in our FDIC insurance expense as the company recorded approximately $5.2 million of such expense related to special assessments imposed by the FDIC in the first quarter and no such special assessments in this quarter.

Timothy Crane: The remaining variance is both positive and negative or relatively normal and don't warrant any special mention on this call.

Speaker Change: The remaining variances, both positive and negative, were relatively normal and don't warrant any special mention on this call.

Timothy Crane: In summary, the second quarter exhibited extraordinarily strong loan and deposit growth, a solid net interest margin on our expected range, a record level of quarterly net interest income, and excluding the impact of the charge on the pending brand sale, other non-interest expenses and non-interest income were within our expected ranges. Again, I'd like to highlight, as Tim mentioned, that this quarter's results combined with the first quarter produced record net income for any six months, first six months period in the history of the company. We also continue to build our tangible book value per share during the first half of this year, and as you can see on slide ten of our presentation deck, we've grown tangible book value per share every year since we've been a public company, going back to 1996.

Speaker Change: In summary, the second quarter exhibited extraordinarily strong loan and deposit growth.

Speaker Change: A solid net interest margin in our expected range, a record level of quarterly net interest income, and excluding the impact of the charge on the pending branch sale, other non-interest expenses and non-interest income were within our expected ranges.

David Alan Dykstra: Again, I'd like to highlight, as Tim mentioned, that this quarter's results, combined with the first quarter, produced record net income for any first six-month period in the history of the company. We also continue to build our tangible book value per share. During the first half of this year, and as you can see on slide 10 of our presentation deck, we've grown tangible book value per share every year since we were a public company going back to 1996. And we're on track to do so again in 2024.

Speaker Change: Again, I'd like to highlight, as Tim mentioned, that this quarter's results, combined with the first quarter, produced record net income for any first six-month period in the history of the company.

Speaker Change: We also continue to build our tangible book value per share.

Timothy S. Crane: During the first half of this year, and as you can see on slide 10 of our presentation deck, we've grown tangible book value per share every year since we've been a public company, going back to 1996, and we're on track to do so again in 2024. So that's something we're very proud of.

Timothy Crane: And we're on track to do so again in 2024, so that's something we're very proud of.

David Alan Dykstra: So that's something we're very proud of. We're excited about the future. We have a solid balance sheet, strong pipelines, and it sets us up well for future growth and net interest income. And with that, I will turn it over to Rich to talk about credit. Thanks, Dave.

Timothy Crane: We're excited about the future. We have a solid balance sheet, strong pipelines, and it sets us up well for future growth and net interest income.

Timothy S. Crane: We're excited about the future. We have a solid balance sheet, strong pipelines, and it sets us up well for future growth in net interest income.

Richard Murphy: And with that, I will turn it over to Rich to talk about credit. Thanks, Dave. As Tim and Dave both noted, credit performance continued to be very solid in the quarter. As detailed in the earnings release, long growth for the quarter was 1.4 billion or 13% annualized, net of the impact from the sale is 698 million in premium finance loans. This growth was driven by a number of factors. Commercial premium finance loans grew by 859 million before the impact of the loan sale. As noted in the past, the second quarter is historically when we see our highest funding volumes.

Richard B. Murphy: As Tim and Dave both noted, credit performance continued to be very solid in the quarter. As detailed in the earnings release, loan growth for the quarter was $1.4 billion, or 13% annualized, net of the impact from the sale of $698 million in premium finance loans. This growth was driven by a number of factors.

Rich: And with that, I will turn it over to Rich to talk about credit. Thanks, Dave. As Tim and Dave both noted, credit performance continued to be very solid in the quarter.

Rich: As detailed in the earnings release, loan growth for the quarter was $1.4 billion, or 13% annualized, net of the impact on the sale of $698 million in premium finance loans. This growth was driven by a number of factors.

Richard B. Murphy: Commercial premium finance loans grew by $859 million before the impact of the loan sale. As noted in the past, the second quarter is historically when we see our highest funding value. In addition, we continue to see the effects of a harder market for insurance premiums, particularly for commercial properties, resulting in higher average loan size.

Rich: Commercial premium finance loans grew by $859 million before the impact of the loan sale. As noted in the past, the second quarter is historically when we see our highest funding volumes. In addition, we continue to see the effects of a harder market for insurance premiums, particularly for commercial properties, resulting in higher average loan size.

Richard Murphy: In addition, we continue to see the effects of a harder market for insurance premiums, particularly for commercial properties, resulting in higher average loan size. Finally, we continue to see new opportunities as a result of a consolidation and dislocation within the premium finance industry. During the second quarter, we also saw a growth in core commercial loans, which were up 350 million, driven largely by quality opportunities resulting from dislocation within the banking landscape in our primary markets. We also saw a good growth in our commercial real estate and leasing portfolios. I would also note that we remain highly focused on getting paid appropriately for our risk.

Richard B. Murphy: Finally, we continue to see new opportunities as a result of consolidation and dislocation within the premium finance industry. During the second quarter, we also saw growth in core commercial loans, which were up $350 million, driven largely by quality opportunities resulting from dislocation within the banking landscape in our primary market. We also saw good growth in our commercial real estate and leasing portfolio. I would also note that we remain highly focused on getting paid appropriately for our risk.

Rich: Finally, we continue to see new opportunities as a result of a consolidation and dislocation within the premium finance industry.

Rich: During the second quarter, we also saw growth in core commercial loans, which were up $350 million, driven largely by quality opportunities resulting from dislocation within the banking landscape in our primary markets.

Rich: We also saw good growth in our commercial real estate and leasing portfolios. I would also note that we remain highly focused on getting paid appropriately for our risk. As noted on slide 7, average loan yields continue to increase, up 10 basis points during the quarter.

Richard B. Murphy: As noted on slide 7, average loan yields continue to increase, up 10 basis points during the quarter. We believe that loan growth for the second half of 2024 will continue to be strong and aligned with our previous guidance of mid to high single digits for a number of reasons. Last year's third quarter volume for commercial premium finance loans was very strong. We believe the hard market for insurance premiums should continue through year end.

Richard Murphy: As noted on slide 7, average loan yields continued to increase of 10 basis points during the quarter. We believe that long growth for the second half of 2024 will continue to be strong and align with our previous guidance of mid to high single digits for a number of reasons. Last year's third quarter volume for commercial premium finance also was very strong. We believe the hard market for insurance premiums should continue through year-end. In addition, our core C&I and leasing pipelines remain very solid. Finally, we saw core C&I line utilization rates trending up from 34% to 37% quarter over quarter.

Rich: We believe that loan growth for the second half of 2024 will continue to be strong and aligned with our previous guidance of mid to high single digits for a number of reasons.

Rich: Last year's third quarter volume for commercial premium finance loans was very strong. We believe the hard market for insurance premiums should continue through year-end.

Richard B. Murphy: In addition, our core C&I and leasing pipelines remain very solid. Finally, we saw core C&I line utilization rates trending up from 34% to 37% quarter-over-quarter. Offsetting this growth will be continued pressure on the volume of new CRE opportunities, as higher borrowing costs have reduced loan demand in that area. We believe that higher borrowing costs will continue to cause borrowers to reconsider the economics of new projects, business expansion, and equipment purchase. In summary, we continue to be optimistic about our ability to grow loans at attractive rates and maintain our credit discipline.

Rich: In addition, our core C&I and leasing pipelines remain very solid. Finally, we saw core C&I line utilization rates trending up from 34% to 37% quarter-over-quarter.

Richard Murphy: Offsetting this growth will be continued pressure on the volume of new C-area opportunities, as higher borrowing costs have reduced loan demand in that area. We believe that higher borrowing costs will continue to cause borrowers to reconsider the economics of new projects, business expansion, and equipment purchase.

Rich: Offsetting this growth will be continued pressure on the volume of new CRE opportunities as higher borrowing costs have reduced loan demand in that area. We believe that higher borrowing costs will continue to cause borrowers to reconsider the economics of new projects, business expansion, and equipment purchases.

Richard Murphy: In summary, we continue to be optimistic about our ability to grow loans at attractive rates and maintain our credit discipline. As noted earlier, long growth for the balance of 2024 should continue to be strong and within our guidance of mid to high single digits.

Rich: In summary, we continue to be optimistic about our ability to grow loans at attractive rates and maintain our credit discipline. As noted earlier, loan growth for the balance of 2024 should continue to be strong and within our guidance of mid to high single digits.

Richard B. Murphy: As noted earlier, loan growth for the balance of 2024 should continue to be strong and within our guidance of mid to high single digits. From a credit quality perspective, as detailed on slide 15, we continue to see strong credit performance, but with signs of normalization across the portfolio. This can be seen in a number of ways.

Richard Murphy: From a credit quality perspective, as detailed on slide 15, we continue to see strong credit performance, but with signs of normalization across the portfolio. This can be seen in a number of ways. Now performing loans as a percentage of total loans was up slightly from 34% basis points to 39 basis points. This modest increase in MPLs was evidenced in both our core C&I and CRE portfolios. And as noted on last quarter's call, we continue to see slightly lower but elevated levels of non-performing loans in the commercial premium finance portfolio, resulting from ongoing stress in the transportation segment of that portfolio.

Rich: From a credit quality perspective, as detailed on slide 15, we continue to see strong credit performance, but with signs of normalization across the portfolio. This can be seen in a number of ways. Non-performing loans, as a percentage of total loans, was up slightly from 34 basis points to 39 basis points.

Richard B. Murphy: Non-performing loans, as a percentage of total loans, were up slightly from 34 basis points to 39 basis points. This modest increase in MPLs was evidenced in both our core C&I and CRE portfolios. And as noted on last quarter's call, we continue to see slightly lower but elevated levels of non-performing loans in our commercial premium finance portfolio, resulting from ongoing stress in the transportation segment of that portfolio. We continue to monitor the situation closely, and we have started to see this trend stabilize as a result of tighter loan structures and enhanced underwriting.

Rich: This modest increase in MPLs was evidenced in both our core C&I and CRE portfolios.

Rich: And, as noted on last quarter's call, we continue to see slightly lower but elevated levels of non-performing loans in the commercial premium finance portfolio, resulting from ongoing stress in the transportation segment of that portfolio.

Richard Murphy: We continue to monitor the situation closely, and we have started to see this trend stabilized as a result of tighter loan structures and enhanced underwriting. Higher yields and lay charges from the segment of the portfolio continue to offset our credit losses. Chargers for the quarter were 30 million or 28 basis points, up from 21.8 million or 21 basis points in Q1. These charge jobs resulted primarily from loans within our core CRE, C&I, and commercial premium finance portfolio. Our portfolio continues to be very solid, well diversified, and very granular. Evidence of this could be seen on slide 15, where we saw stable levels in our special mentioned and substandard loans.

Rich: We continue to monitor the situation closely, and we have started to see this trend stabilize as a result of tighter loan structures and enhanced underwriting.

Richard B. Murphy: Higher yields and late charges from this segment of the portfolio continue to offset our credit. Charge-offs for the quarter were 30 million, or 28 basis points, up from 21.8 million, or 21 basis points in Q1. These charge-offs resulted primarily from loans within our core CRE, C&I, and commercial premium finance portfolio.

Rich: Higher yields and late charges from this segment of the portfolio continue to offset our credit losses.

Rich: Charge-offs for the quarter were 30 million, or 28 basis points, up from 21.8 million, or 21 basis points in Q1. These charge-offs resulted primarily from loans within our core CRE, C&I, and commercial premium finance portfolio.

Richard B. Murphy: Our portfolio continues to be very solid, well-diversified, and very granular. Evidence of this can be seen on slide 15, where we saw stable levels in our special mention and substandard levels. We believe that this quarter's level of NPLs and chargeoffs reflect a return to a more normalized credit environment, as evidenced by the chart of historical non-performing asset levels on slide 16. Finally, we are firmly committed to identifying problems early and charging them down where appropriate.

Rich: Our portfolio continues to be very solid, well-diversified, and very granular. Evidence of this can be seen on slide 15, where we saw stable levels in our special mention and substandard loans.

Richard Murphy: We believe that this quarter's level of MPLs and charge jobs reflected a return to a more normalized credit environment, as evidenced by the chart of historical non-performing asset levels on slide 16. Finally, we are firmly committed to identifying problems early and charging them down where appropriate. Our goal, as always, is to stay ahead of any credit challenges.

Rich: We believe that this quarter's level of NPLs and charge-offs reflect a return to a more normalized credit environment, as evidenced by the chart of historical non-performing asset levels on slide 16.

Rich: Finally, we are firmly committed to identifying problems early and charging them down where appropriate. Our goal, as always, is to stay ahead of any credit challenges.

Richard B. Murphy: Our goal, as always, is to stay ahead of any credit challenges. As noted in our last few earnings calls, we continue to be highly focused on our exposure to commercial real estate loans, which comprise roughly one quarter of the total portfolio. Higher borrowing costs and pressure on occupancy and lease rates continue to affect payor evaluations, particularly in the office category.

Richard Murphy: As noted in our last few earnings calls, we continue to be highly focused on our exposure to commercial real estate loans, which comprise roughly one quarter of the total portfolio. Our higher borrowing costs and pressure on occupancy and lease rates continue to affect theory valuations, particularly in the office category. As detailed on slide 19, we saw a modest increase during the second quarter in CRE and PL from 0.34% to 0.40%. We also saw an uptick in the level of CRE charge jobs as we continue to proactively address and right size our more challenged credits. On slide 20, we continue to provide enhanced detail in our CRE and office exposure.

Rich: As noted in our last few earnings calls, we continue to be highly focused on our exposure to commercial real estate loans, which comprise roughly one quarter of the total portfolio. Our higher borrowing costs and pressure on occupancy and lease rates continue to affect payor evaluations, particularly in the office category.

Richard B. Murphy: As detailed on slide 19, we saw a modest increase during the second quarter in CRE NPLs, from 0.34% to 0.40%. We also saw an uptick in the level of CRE charge-offs as we continue to proactively address and right-size our more challenged credit. On slide 20, we continue to provide enhanced detail in our CRE and CRE Office Explosions. Currently, this portfolio remains steady at $1.6 billion, or 13.3% of our total CRE portfolio and only 3.6% of our total loan portfolio. Of the $1.6 billion of office exposure, 42% is medical office or owner-occupied.

Rich: As detailed on slide 19, we saw a modest increase during the second quarter in CRE NPLs, from 0.34% to 0.40%. We also saw an uptick in the level of CRE charge-offs as we continue to proactively address and right-size our more challenged credits.

Rich: On slide 20, we continue to provide enhanced detail in our CRE and CRE office exposure.

Richard Murphy: Currently, this portfolio remains steady at 1.6 billion or 13.3% of our total CRE portfolio and only 3.6% of our total loan portfolio. Of the 1.6 billion of office exposure, 42% of the medical office are owner-occupied. The average loan size of a loan in the office portfolio is only 1.5 million, and we have only 7 loans above 20 million and only 4, which are non-medical or owner-occupied. We perform portfolio reviews regularly on our CRE portfolio, and we stay very engaged with our borrowers. As mentioned on prior calls, our CRE credit team regularly updates their deep dive analysis of every non-owner-occupied loan over 2.5 million, which will be renewing between now and the end of the first quarter of 2025.

Rich: Currently, this portfolio remains steady at $1.6 billion or 13.3% of our total CRE portfolio and only 3.6% of our total loan portfolio.

Rich: Of the 1.6 billion of office exposure, 42% is medical office or owner-occupied.

Richard B. Murphy: The average size of a loan in the office portfolio is only $1.5 million, and we have only seven loans above $20 million, and only four of which are non-medical or owner-occupied. We perform portfolio reviews regularly on our CRE portfolio, and we stay very engaged with our borrowers. As mentioned on prior calls, our CRE credit team regularly updates their deep dive analysis of every non-owner occupied loan over two and a half million, which will be renewing between now and the end of the first quarter of 2025. This analysis, which covered 84% of all non-owner-occupied CRE loans maturing during this period, resulted in the following. Fifty-one percent of the loans reviewed will clearly qualify for renewal at prevailing rates.

Rich: The average size of a loan in the office portfolio is only $1.5 million, and we have only seven loans above $20 million, and only four which are non-medical or owner-occupied.

Rich: We perform portfolio reviews regularly on our CRE portfolio, and we stay very engaged with our borrowers. As mentioned on prior calls, our CRE credit team regularly updates their deep dive analysis of every non-owner-occupied loan over $2.5 million, which will be renewing between now and the end of the first quarter of 2025.

Richard Murphy: This analysis, which covered 84% of all non-owner-occupied CRE loans maturing during this period, resulted in the following. 51% of the loans reviewed will clearly qualify for a renewal at prevailing rates. Roughly 25% of these loans are anticipated to be paid to offer or require a short-term extension at prevailing rates, and the remaining loans will require some additional attention, which could include a pay-down or a pledge of additional collateral. We continue to backcheck the results of these tests conducted during prior quarters, and it found that the projected outcomes versus actual outcomes were very tightly correlated, and generally speaking, borrowers of loans deemed to require additional attention continue to support their loans by providing enhancements, including principal reductions.

Rich: This analysis, which covered 84% of all non-owner-occupied CRE loans maturing during this period, resulted in the following.

Rich: Fifty-one percent of the loans reviewed will clearly qualify for renewal at prevailing rates. Roughly 25 percent of these loans are anticipated to be paid off or will require a short-term extension at prevailing rates, and the remaining loans will require some additional attention, which could include a pay-down or pledge of additional collateral.

Richard B. Murphy: Roughly 25% of these loans are anticipated to be paid off or will require a short-term extension at prevailing rates, and the remaining loans will require some additional attention, which could include a pay-down or pledge of additional collateral. We continue to back-check the results of these tests conducted during prior quarters and have found that the projected outcomes versus actual outcomes were very tightly correlated, and, generally speaking, borrowers of loans deemed to require additional attention continue to support their loans by providing enhancements, including principal reductions.

Rich: We continue to back-check the results of these tests conducted during prior quarters and have found that projected outcomes versus actual outcomes were very tightly correlated and generally speaking, borrowers of loans deemed to require additional attention continue to support their loans by providing enhancements, including principal reductions.

Richard Murphy: As we have stated on prior calls, our portfolio is not immune from the effects of rising rates or the market forces behind lease rates, but we continue to proactively identify weaknesses in the portfolio and work with our borrowers to identify the best possible outcomes. We believe that our portfolio is reasonably good-shaped, appropriately reserved, and situated to whether the challenge is ahead.

Richard B. Murphy: As we have stated on prior calls, our portfolio is not immune from the effects of rising rates or the market forces behind lease rates, but we continue to proactively identify weaknesses in the portfolio and work with our borrowers to identify the best possible outcome. We believe that our portfolio is in reasonably good shape, appropriately reserved, and situated to weather the challenges ahead. That concludes my comments on credit, and now I'll turn it back to Tim. Thanks, Rich.

Rich: As we have stated on prior calls, our portfolio is not immune from the effects of rising rates or the market forces behind lease rates, but we continue to proactively identify weaknesses in the portfolio and work with our borrowers to identify the best possible outcomes.

Timothy S. Crane: We believe that our portfolio is in reasonably good shape, appropriately reserved, and situated to weather the challenges ahead. That concludes my comments on credit, and now I'll turn it back to Tim.

Richard Murphy: That concludes my comments on credit, and I'll turn it back to Tim.

Timothy Crane: Thanks, Rich. To wrap up our prepared remarks, and you've heard me say this on prior calls, we continue to believe that we're well positioned, in some cases uniquely positioned in our markets to take advantage of the current environment with our diverse businesses. The growth this quarter was evidence of that, and while we wouldn't necessarily expect to see this sort of long growth going forward, we continue to be very encouraged by the solid pipelines. As Dave discussed, we believe the margin will be relatively stable in the second half of the year, given the current rate of substance.

Timothy S. Crane: To wrap up our prepared remarks, and you've heard me say this on prior calls, we continue to believe that we are well positioned, in some cases uniquely positioned in our markets to take advantage of the current environment with our diverse businesses. The growth this quarter was evidence of that. And while we wouldn't necessarily expect to see this sort of sustained growth going forward, we continue to be very encouraged by the solid pipeline.

Timothy S. Crane: Thanks, Rich. To wrap up our prepared remarks, and you've heard me say this on prior calls, we continue to believe that we're well-positioned, in some cases uniquely positioned in our markets, to take advantage

Timothy S. Crane: of the current environment with our diverse businesses. The growth this quarter was evidence of that, and while we wouldn't necessarily expect to see this sort of long growth going forward, we continue to be very encouraged by the solid pipelines.

Timothy S. Crane: As Dave discussed, we believe the margin will be relatively stable in the second half of the year, given the current rate of subs. With the growth this quarter in the solid pipelines, we believe that continued net interest income growth is likely in the second half of this year. With respect to our pending acquisition of Makatawa Bank, there have been good conversations and planning regarding the integration and the many benefits, financial and otherwise, associated with the transaction.

Timothy S. Crane: As Dave discussed, we believe the margin will be relatively stable in the second half of the year, given the current rate assumptions. With the growth this quarter in the solid pipelines, we believe that continued net interest income growth is likely in the second half of this year.

Timothy Crane: With the growth this quarter in the solid pipelines, we believe that continued net interest income growth is likely in the second half of this year.

Timothy Crane: With respect to our pending acquisition of Magatalla Bank, there have been good conversations and planning regarding the integration, and the many benefits, financial and otherwise, associated with the transaction. We remain very impressed with their team and the opportunities that we will have together. We received Fed approval for the transaction on June 17th. That was quick in today's environment, about 50 days from application, which we think reflects the relative strength of both organizations and our strong track record regarding acquisitions. You'll recall Magatalla serves the Greater Grand Rapids West Michigan market, which is a top 50 MSA in the United States.

Timothy S. Crane: With respect to our pending acquisition of Makatawa Bank, there have been good conversations and planning regarding the integration and the many benefits, financial and otherwise, associated with the transaction. We remain very impressed with their team and the opportunities that we will have together.

Timothy S. Crane: We remain very impressed with their team and the opportunities that we will have together. We received FED approval for the transaction on June 17. That was quick in today's environment, about 50 days from application, which we think reflects the relative strength of both organizations and our strong track record regarding acquisition. You'll recall Makatawa serves the greater Grand Rapids, West Michigan market, which is a top 50 MSA in the United States.

Timothy S. Crane: We received FED approval for the transaction on June 17th.

Timothy S. Crane: That was quick in today's environment, about 50 days from application, which we think reflects the relative strength of both organizations and our strong track record regarding acquisitions.

Timothy S. Crane: You'll recall Makatawa serves the greater Grand Rapids-West Michigan market, which is a top 50 MSA in the United States.

Timothy Crane: They have solid credit quality, a low loan deposit ratio, and a very attractive low cost deposit book. The loan deposit ratio is approximately 55%, which translates to approximately $1.1 billion in excess deposits.

Timothy S. Crane: They have solid credit quality, a low loan-to-deposit ratio, and a very attractive, low-cost deposit book. The loan-to-deposit ratio is approximately 55%, which translates to approximately $1.1 billion in excess deposits. McIntyre has scheduled their special shareholder meeting to consider approval of the transaction for July 31st, and we would expect to close the transaction shortly after they receive their final shareholder approval. Of course, after closing, we will provide additional information on the related financial entries with our next quarterly results.

Timothy S. Crane: They have solid credit quality, a low loan to deposit ratio, and a very attractive, low-cost deposit book. The loan to deposit ratio is approximately 55%, which translates to approximately $1.1 billion in excess deposits.

Timothy Crane: Magatalla has scheduled their special shareholder meeting to consider approval of the transaction for July 31st, and we would expect to close the transaction shortly after they receive their final shareholder approval. Of course, after closing, we will provide additional information on the related financial entries with our next quarterly results.

Timothy S. Crane: McIntyre has scheduled their special shareholder meeting to consider approval of the transaction for July 31st. And we would expect to close the transaction shortly after they receive their final shareholder approval.

Timothy S. Crane: Of course, after closing, we will provide additional information on the related financial entries with our next quarterly results.

Unknown Executive: At this point, I'll pause, and we can take some questions. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone to remove yourself from the queue. You may press star 11 again. Please stand by while we compile the Q&A roster.

Timothy S. Crane: At this point, I'll pause, and we can take some questions. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star one one again.

Timothy S. Crane: At this point, I'll pause and we can take some questions.

Richard B. Murphy: and Richard Murphy.

Speaker Change: Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone. To remove yourself from the queue, you may press star 1 1 again. Please stand by while we compile the Q&A roster.

Operator: Please stand by while we compile the Q&A. Our first question comes from the line of John Arfstrom of RBC Capital. Morning, John. Hey, good morning.

Jon Arfstrom: Our first question comes on the line of John Arstrom of RBC Capital Markets. Good morning, Jack. Good morning.

Speaker Change: Our first question...

Jon Glenn Arfstrom: Comes from the line of John Arfstrom of RBC Capital Markets.

Richard Murphy: Question for you, Richard Tim, on kind of the near term, I guess the near term long growth expectations. I mean, this quarter was... That's stronger than I thought it would be, and obviously drove some of the provisioning as well. But what kind of a pullback do you expect in the third quarter? And just if there's anything else you would call out in terms of the second quarter activity? Well, you know, as I point out, the second quarter is very affected by what happens in the P and C portfolio. And we knew that was common. We talked about it at the end of the first quarter.

Casey Haire: Good morning. Question for either Rich or Tim on that kind of near-term, I guess the near-term long growth expectations. I mean, this quarter was, Unknown Executive, Casey Haire, Wintrust Financial Corp. Well, you know, as I point out, the second quarter is very affected by what happens in the PNC portfolio. And we knew that was coming. We talked about it at the end of the first quarter, but that definitely gets tempered in the third quarter.

Speaker Change: Morning, John . Hey, good morning. Good morning.

Speaker Change: Question for either Rich or Tim on...

Jon Glenn Arfstrom: That kind of the near term, I guess the near term long growth expectations. I mean, this quarter was

Jon Glenn Arfstrom: Stronger than I thought it would be and obviously drove some of the provisioning as well. But what kind of a pullback do you expect in the third quarter? And just if there's anything else you would call out in terms of the second quarter activity?

Speaker Change: Well, you know, as I point out, the second quarter is very affected by what happens in the P&C portfolio. And we knew that was coming. We talked about it at the end of the first quarter. That definitely gets tempered in the third quarter.

Richard Murphy: That definitely gets tempered in the third quarter. But, as I pointed out, we're still seeing really nice core opportunities in our primary markets. So I would say that we would probably be at the upper end of our range for the back half of the year. You know, certainly in the fourth quarter, you're going to see P and C slow down quite a bit. If you look back at our historic funding patterns, you know, fourth quarter is probably one of the lower ones. So the record will be very strong, as I said, will probably be at the upper end of the range.

Casey Haire: You know, I, you know, but as I pointed out, we're still seeing really nice core opportunities in our primary markets. So I would say that, you know, we would probably be at the upper end of our range for the back half of the year. Certainly in the fourth quarter, you'll see.

Speaker Change: But as I pointed out, we're still seeing really nice core opportunities in our primary markets.

Speaker Change: So I would say that we would probably be at the upper end of our range for the back half of the year. Certainly in the fourth quarter, you're going to see

Casey Haire: PNC slowed down quite a bit; if you look back at our historic funding patterns, the fourth quarter is probably one of the lower ones, so third quarter will be very strong, as I said, we'll probably be at the upper end of the range. Yeah, John, the only thing I'd add is, you know, the loan growth was broad based, obviously exaggerated by the PNC business. But really, in all our material categories, we saw growth and particularly, you know, some strong growth on the CNI side of things, which I think is a function of, a strong market position on our part, and to Rich's point, a little bit more utilization. So whether that continues to be a tailwind or not, I don't know. Okay, good. Thank you for that. Rich, on the charge-off levels, I think you use the term normalization.

Speaker Change: PNC has slowed down quite a bit if you look back at our historic funding patterns. Fourth quarter is probably one of the lower ones, so third quarter will be very strong. As I said, we'll probably be at the upper end of the range.

David Dykstra: Yeah.

David Dykstra: And John, the only thing I'd add is, you know, the long growth was broad based, obviously exaggerated by the P and C business, but really in all our material categories, we saw growth in particularly, you know, some strong growth in the C and I side of things, which I think is a function of a strong market position on our part and to Riches point a little bit more utilization. So whether that continues to be a tailwind or not, I don't know. Thank you on that.

Speaker Change: Yeah, John , the only thing I'd add is, you know, the loan growth was broad-based, obviously exaggerated by the PNC business.

Speaker Change: Really, in all our material categories, we saw growth and

Speaker Change: Particularly, you know, some strong growth in the C&I side of things, which I think is a function of...

Speaker Change: of strong market position on our part, and to Rich's point, a little bit more utilization. So, whether that continues to be a tailwind or not, I don't know.

Richard Murphy: Rich on the charge-off levels, I think you use the term normalization. Anything you would call out. In the second quarter, it looks like the commercial real estate chargeoffs are a bit higher, but anything else unusual rolling around in there? And you expect this, it's hard to say a run, right? But is this normal, more normal for you?

Speaker Change: Okay. Good. Thank you on that. Rich, on the charge-off levels, I think you used the term normalization. Anything you would call out?

Richard B. Murphy: Anything you would call out? In the second quarter, it looks like the commercial real estate charge-offs were a bit higher. But anything else unusual rolling around in there? And do you expect this? It's hard to say a trend, right? But is this more normal for you? No, I mean, it's interesting.

Speaker Change: In the second quarter, it looks like the commercial real estate charge-offs were a bit higher, but anything else unusual rolling around in there, and you expect this, it's hard to say a run rate, but is this more normal for you?

Richard Murphy: No, I mean, it's interesting when I was looking at those slides, like that slide on 19 where we have the commercial real estate charge-offs, you know, it does pop up quite a bit. And, you know, I would, I would point out that we had a number of theory credits that were particularly challenged that, you know, we just got ahead of and just, you know, they were a number of different stories there. But if you look back to 630-23, I mean, we are at 31 basis points. So it's just in the CRE space, it's just lumpy.

Richard B. Murphy: When I was looking at the slides, like that slide on 19, where we have the commercial real estate charge-offs, you know, it does pop up quite a bit. And, you know, I would point out that we had a number of CRE credits that were particularly challenged that, you know, we just got ahead of, and just, you know, there were a number of different stories there. But if you look back to 6-30-23, I mean, we were at 31 basis points. And, you know, so it's just in the CRE space; it's just lumpy.

Rich: No, I mean, it's interesting when I was looking at those slides, like that slide on 19, where we have the commercial real estate charge-offs, you know, it does pop up quite a bit. And, you know, I would point out that we had a number of CRE credits that were particularly challenged that, you know, we just got ahead of, and just, you know, they were...

Rich: A number of different stories there, you know, but if you look back to 6-30-23, I mean, we were at 31 basis points. And, you know, so it's just in the CRE space, it's just lumpy. You know, we don't necessarily anticipate that we would see a similar third quarter in charge ups in CRE, but you just don't necessarily know. We would look at that substandard and criticize, you know, page and just, you know, point out that you're really not seeing a lot of movement.

Richard Murphy: You know, we don't necessarily anticipate that we would see a similar third quarter in charge of the CRE, but you just don't necessarily know.

Richard Murphy: We would look at that substandard and criticized page and just point out that you're really not seeing a lot of movement. So, you know, it's just, you know, these, you have, we don't like to use the term episodic, you know, but sometimes it is, you know, where it's just a primary tenant of a property; you lose it, and it's tough to replace. And, you know, there could be just these types of issues that affect that. But generally speaking, I mean, it doesn't feel like Q2 was all that different other than, you know, some of these signs of normalization.

Richard B. Murphy: You know, we don't necessarily anticipate that we would see a similar third quarter in charge-offs in CRE, but you just don't necessarily know. We would look at that substandard and criticized, you know, page and just, you know, point out that you're really not seeing a lot of movement. So, you know, we don't like to use the term episodic, you know, but sometimes it is, you know, we're just a primary tenant of a property; you lose it, and it's tough to replace. And, you know, there could be just these types of issues that affect that. But generally speaking, I mean, it doesn't feel like Q2 is all that different.

Rich: You know, it's just that, you know, these

Rich: We don't like to use the term episodic, but sometimes it is where just a primary tenant of a property, you lose it and it's tough to replace, and there could be just these types of issues that affect that. But generally speaking, I mean, it doesn't feel like Q2 was all that different other than some of these signs of normalization. When you look at that chart that we point out in terms of historical NPLs, we were at such a low level that it's just, these numbers feel a little out of sort, but if you take a look at a broader 10-year history, I mean, we're still at a very reasonable level in terms of charge-offs and NPLs.

David Alan Dykstra: Other than, you know, some of these signs of normalization. When you look at that chart that we point out in terms of historical NPLs, we were at such a low level that it's just these numbers feel a little out of sorts. But if you take a look at our broader 10-year history, I mean, we're still at a very reasonable level in terms of charge-offs and NPLs. Okay, good. And then I guess the last one, your philosophy at this point and based on what you're seeing is to try to hold the reserve percentage relatively stable. Is that fair?

Richard Murphy: When you look at that chart that we point out in terms of historical NPL, we were at such a low level that it's just, these numbers feel a little out of sort. But if you take a look at a broader 10-year history, I mean, we're still at a very reasonable level in terms of charge of the NPL. Yeah, okay, good.

Richard Murphy: And then I guess the last one that your philosophy at this point and based on what you're seeing is to try to hold the reserve percentage relatively stable. Is that fair? Well, I was certainly we'd like that to happen, but Jon, this day, you know, Cecil sort of drives that that result. Now, we show in our deck, you know, provisioning is always sort of been higher than our charge of the last year or so. So it we've been building reserves, and I think that that's what the Cecil models said was that potentially could have more problematic economic time is going forward to a slight extent.

Speaker Change: Okay, good. And then I guess the last one, your philosophy at this point, and based on what you're seeing, is to try to hold the reserve percentage relatively stable. Is that fair?

David Alan Dykstra: Well, certainly we'd like that to happen, but John, this is Dave, you know, CECL sort of drives that result. Now, we show in our deck that, you know, provisioning has always sort of been higher than our charge-offs over the last year or so. So we've been building reserves, and I think that what the CECL models said was that it potentially could have more problematic economic times going forward to a slight extent, and so we built more reserves. Now, whether that happens or not, some of those economic factors recently have been getting a little bit better and not as problematic.

Speaker Change: Well, certainly we'd like that to happen, but John , this is Dave, you know, CECL sort of drives that.

Speaker Change: Now, we show in our deck, you know, provisioning is always

David Alan Dykstra: We've sort of been higher than our charge-offs over the last year or so. We've been building reserves, and I think that that's what the CECL models said, was that it potentially could have...

David Alan Dykstra: More problematic economic times going forward to a slight extent, and so we've built more reserves. Now whether that happens or not, some of those economic factors recently have been getting a little bit better and not as problematic. So we have built the reserves.

Richard Murphy: And so we've built more reserves. Now whether that happens or not, some of those economic factors recently have been getting a little bit better. And not as a problem at all. So we have built the reserves. I think if you kind of look at the provisioning, you know, we've had some people say, well, what should the provision be going forward? And you know, Cecil sort of says, you've got to book your reserves based upon the fact pattern at that point in time for the life of the long going forward. So, you know, future provisioning would really sort of look at long growth, and obviously this quarter, we had really strong long growth.

David Alan Dykstra: So we have built up the reserves. I think if you kind of look at the provisioning, you know, we've had some people say, well, what should the provision be going forward? And, you know, CECL sort of says you've got to book your reserves based upon the fact pattern at that point in time for the life of the loan going forward. So, you know, future provisioning would really sort of look at loan growth, and obviously, this quarter we had really strong loan growth, so that added to the provision. And then just sort of the normal charge-off levels.

David Alan Dykstra: I think if you kind of look at the provisioning, you know, we've had some people say, well, what should the provision be going forward? And, you know, CECL sort of says you've got to book your reserves based upon the fact pattern at that point in time for the life of the loan going forward. So, you know, future provisioning would really sort of look at

Richard Murphy: So that added to the provision and then just sort of the normal charge-off levels. And I mean, if you look at the last three quarters, our provisioning has averaged, you know, about $35 million. So probably not a bad place to start. We would think that that would exceed charge offs, again, and build reserves. But, you know, one of those quarters was in the 20 million dollar range. And, you know, one was a little bit more than what we had this quarter. So it fluctuates a little bit, you know, sort of based upon the growth and the economic factors.

Speaker Change: loan growth. And obviously, this quarter, we had really strong loan growth. So that added to the provision. And then just sort of the normal charge off levels. And I mean, if you look at the last three quarters, our provisioning has averaged, you know, about $35 million. So probably not a bad place to start, we would think that that would exceed charge offs again and build reserves.

David Alan Dykstra: I mean, if you look at the last three quarters, our provisioning has averaged, you know, about $35 million, so probably not a bad place to start. We would think that that would exceed charge-offs again and build reserves. But, you know, one of those quarters was in the $20 million range, and one was a little bit more than what we had this quarter. So it fluctuates a little bit, sort of based upon growth and economic factors.

Speaker Change: But, you know, one of those quarters was in the $20 million range and one was a little bit more than what we had this quarter. So it fluctuates a little bit, you know, sort of based upon the growth and the economic factors.

Richard Murphy: But probably from a provisioning standpoint, you know, 35 million sort of plus or minus depending on growth and economic conditions or if we see any changes in the classified and, you know, other characteristics of the portfolio, which we aren't, as Rick said, it's very encouraging to us that classified loans, substandard or special mention, those percentages are holding stable. And actually, if you look at the near-term delinquencies that we show in the earnings release, those are actually down, down the score from last quarter. So we're not seeing anything systemic out there. So, as Rick said, the episodic nature of a couple of smaller deals added to it.

David Alan Dykstra: But probably from a provisioning standpoint, you know, $35 million sort of plus or minus, depending on growth and economic conditions, or if we see any changes in the classified and, you know, other characteristics of the portfolio, which we aren't, as Rich said. It's very encouraging to us that classified loans, substandard or special mention, those percentages are holding stable. And actually, if you look at the near-term delinquencies that we show in the earnings release, those are actually down this quarter from last quarter. So we're not seeing anything systemic out there.

Speaker Change: But probably, from a provisioning standpoint, you know...

Rich: $35 million plus or minus depending on growth and economic conditions or if we see any changes in the classified and other characteristics of the portfolio, which we aren't as Rich said. It's very encouraging to us that classified loans...

Rich: Substandard or Special Mention, those percentages are holding stable. And actually, if you look at the near-term delinquencies that we show in the earnings release, those are actually down this quarter from last quarter. So we're not seeing anything systemic out there. So as Rich said, the episodic nature of a couple smaller deals added to it.

David Alan Dykstra: So, as Rich said, the episodic nature of a couple smaller deals added to it. But probably, you know, probably barring macroeconomic changes or something else, if you're sort of in the mid-30s plus or minus, that's probably a decent estimate of what provisioning would be going forward. And obviously, we've been higher and lower than that based on economic factors. But I think that would mean that reserves would continue to build or stay stable. Okay, very helpful. What was that, Dave?

Richard Murphy: But probably, you know, probably barring macroeconomic changes or something else. If you're sort of in the mid 30s plus or minus, that's probably a decent estimate of what provisioning would be going forward. And obviously we've been higher and lower than that based on economic factors. But I think that would mean that reserves would continue to build or stay stable. Okay.

Rich: But probably, you know, probably barring macroeconomic changes or something else, if you're sort of in the mid-30s plus or minus, that's probably

Speaker Change: a decent estimate of what provisioning would be going forward. And obviously, we've been higher and lower than that based on economic factors. But I think that would mean that reserves would continue to build or stay stable.

Unknown Executive: What was that? I'm going to answer. So I apologize for that. Okay. All right.

David Alan Dykstra: Sorry. An unwinded answer, so I apologize for that. Yeah. Okay. All right. Thank you, guys. I appreciate it. Yeah. Thanks, Chad.

Speaker Change: Okay, all right, very helpful.

Unknown Executive: Thank you, guys. I appreciate it. Thanks, sir.

KC Haire: Thank you. Our next question comes from the line of KC Hair of Jeff. and Jeffrey's. Great. Thanks. Good morning, everyone.

Operator: Thank you. Our next question comes from the line of Casey Haire from Jeffrey Rulis. Great, thanks. Good morning, everyone.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Casey Haire of Jeffries.

Operator: Good morning. A couple questions on NIM. I guess first on the funding strategy. Your CDs obviously drove a lot of the growth this quarter. I'm just wondering, do you guys, you're at 19% of the deposit stack. Is there a limit that you don't, you know, is there a limit as to how high you want that to go?

KC Haire: Good morning, a couple of questions on the them. I guess first on the funding strategy, your CD's obviously drove a lot of the growth this quarter. I was just wondering, do you guys, you're at 19% of the deposit stack. Is there a limit that you don't, you know, is there a limit as to how high you want that to go, and then what are your CD operates today? Well, obviously, to the extent that CDs are your more expensive funding source, you prefer to have fewer. But, you know, it's not too recent history when, you know, those could have made up, you know, 30% of somebody's book.

Casey Haire: Great, thanks. Good morning, everyone. Good morning. A couple questions on the NIM, I guess first on the funding strategy.

Casey Haire: Your CDs obviously drove a lot of the growth this quarter. I'm just wondering, you're at 19% of the deposit stack. Is there a limit as to how high you want that to go? And then what are your CD offer rates today?

David Alan Dykstra: And then what are your CD offer rates today? Well, obviously, to the extent that CDs are your more expensive funding source, you'd prefer to have fewer, but, you know, it's not too recent history when, you know, those could have made up, you know, 30% of somebody's book. So I don't think we have a specific number, but we've shortened most of our promotional CD offerings, and they're, you know, plus or minus 5%.

Speaker Change: Obviously, to the extent that CDs are your more expensive funding source, you'd prefer to have fewer, but, you know, it's...

David Dykstra: So I don't think we have a specific number, but we've shortened most of our C promotional CD offerings and their, you know, plus or minus 5%, and what I can tell you is the offerings from approximately a year ago that are now renewing or renewing at lower levels. And so we think there is some rationalization of the pricing to clients that we acquire with these promotional rates, but, you know, we were committed to funding the loan growth with core deposit growth this quarter, and we've done that, and we've acquired a lot of new customers, which we expect will be with us for a long time.

Speaker Change: Not too recent history when, you know, those could have made up, you know, 30% of somebody's book. So, I don't think we have a specific number, but we've shortened most of our promotional CD offerings, CD offerings, and they're, you know, plus or minus 5%.

David Alan Dykstra: And what I can tell you is the offerings from approximately a year ago that are now renewing are renewing at lower levels. And so, you know, we think there is some rationalization of the pricing for clients that we acquire with these promotional rates, but, you know, we were committed to funding the loan growth with core deposit growth this quarter, and we've done that, and we've acquired a lot of new customers, which we expect will be with us for a long time. Okay, and on the loan side of things, loan yields are up 10 bps to 690. Is the premium finance sort of lag on that repricing? Is that now digested?

Speaker Change: And what I can tell you is that the offerings from approximately a year ago that are now renewing are renewing at lower levels. And so we think there is some rationalization of the...

Speaker Change: Pricing to clients that we acquire with these promotional rates, but you know we were committed to funding the loan growth with core deposit growth this quarter and we've done that and We've acquired a lot of new customers, which we expect will be with us for a long time

David Dykstra: Okay, and then on the low side of things, so loan yields up 10 bets to 690, are, is the premium finance sort of the lag on that repricing? Is that now digested, and just wondering, you know, can we, what kind of cadence we can expect in terms of loan yield lift going forward? Yeah, I think it pretty well, as you said, digested KC, and if you look at both of those four poll, you'll say within a year they generally turn over, and prime is no hasn't risen in about a year now. I think we're pretty much through with those rate increases.

Speaker Change: Okay, and on the loan side of things, so loan yields up 10 bips to 690, is the premium finance, sort of the lag on that repricing, is that now digested? And I'm just wondering, you know, can we, what kind of cadence we can expect?

David Alan Dykstra: And I'm just wondering, you know, what kind of cadence we can expect in terms of loan yield lift going forward. Yeah, I think it's pretty well digested, as you said, Casey. I mean, if you look at both of those portfolios, say, within a year, they generally turn over, and prime is, I think we're pretty much through with those rate increases. We do have on book other fixed-rate loans in the commercial real estate area and some leasing loans, et cetera, that we'll reprice up.

Speaker Change: in terms of loan yield lift going forward.

Speaker Change: Yeah, I think it pretty well, as you said, digested, Casey. I mean, if you look at both of those portfolios, they, within a year, they generally turn over. And Prime is...

Speaker Change: No, it hasn't risen in about a year now. I think we're...

David Dykstra: We do have back book, other fixed straight loans in the commercial real estate area and some leasing loans, et cetera, that won't reprice up, but we still think there'll be a slight lift in the loan yields. And even on the deposit side, both of those I would say, you know, we probably think probably single digit in basis point increases in loans into deposits next quarter. So we again expect the margin to stay around 350. So we're managing that. And even if there's a rate cut of 25 basis points or two of the rest of this year, we still think we can hold the 350 margin.

Speaker Change: We're pretty much through with those rate increases. We do have back book other fixed rate loans in the commercial real estate area and some leasing loans, et cetera, that we'll reprice up, but we still think there'll be a slight lift in the loan yields.

David Alan Dykstra: But we still think there'll be a slight lift in loan yields. And even on the deposit side, both of those, I would say, you know, we probably think probably single-digit basis point increases in loans and deposits next quarter. So we again expect the margin to stay around 350. So we're managing that. And even if there's a rate cut of 25 basis points or two the rest of this year, we still think we can hold the 350 margin. Okay, all right, great. And just, just last one.

Speaker Change: Even on the deposit side, both of those, I would say, you know, we probably think probably single digit in basis point increases and in loans and deposits next quarter. So we again expect the margin to stay around 350. So we're managing that. And even if there's a rate cut of 25 basis points or two the rest of this year, we still think we can hold the 350 margin.

David Dykstra: Okay, all right, great. And just last one, sorry if I missed this, but did you guys provide a spot name for at 630? We didn't, but you know, as you know, we ended last quarter at, you know, the 350 range, and we, we, this whole quarter average, 352. So, you know, little 350s is where we're at. Gotcha. Thank you. You bet. Thank you.

David Alan Dykstra: Sorry if I missed this, but did you guys provide a spot in them for at 630? We didn't, but as you know, we ended last quarter at the 350 range, and this whole quarter averaged 352, so low 350s is where we're at. Gotcha. Thank you. You bet. Thank you. Our next question comes from the line of Terry McEvoy of Stevens. Hi, good morning.

Speaker Change: Okay, all right, great. And just last one, sorry if I missed this, but did you guys provide a spot in them at 630?

Speaker Change: We didn't, but as you know, we ended last quarter at the 350 range, and this whole quarter averaged 352, so low 350s is where we're at.

Speaker Change: Gotcha. Thank you.

Terry Mcevoy: Our next question comes from the line of Terry McAvoy of Steve. Conference. I think they're taking my risk.

Speaker Change: You bet.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Terry McEvoy of Stevens.

David Alan Dykstra: I'm just going to start with a quick one here. Was there a gain at all recorded on the $700 million loan sale? Yeah, I mentioned that a little bit in my comments, but I didn't get the number. So we sold roughly $700 million of those loans and had a gain of a little over $4.5 million. You recall last year when we sold the loans; it was a little over a million. The pricing, and funding costs of those have really come down, and the spreads are tighter. So I made a little over a $4.5 million gain on that sale.

David Dykstra: Hi, good morning. I'm just a quick one here to start. Was there a gain and all recorded on the $700 million loan sale? Yeah, I mentioned that a little bit. My comments wouldn't get the numbers. So we sold roughly $700 million of those loans and had a gain of a little over $4.5 million. You're called last quarter or last year when we sold the loans; it was a little over a million. The pricing, the funding costs of those have really just really come in and the spreads are tighter. So about a $4.5 million, a little over a $4.5 million gain on that sale.

Terence James McEvoy: Good morning, just a quick one here to start. Was there a gain in all recorded on the $700 million loan sale?

Speaker Change: Yeah, I mentioned that a little bit in my comments, but I didn't get the number. So we sold roughly $700 million of those loans and had a gain of a little over $4.5 million. You recall last year when we sold the loans, it was a little over a million. The pricing, the funding costs of those have really come in and the spreads are tighter.

Speaker Change: A little over a $4.5 million gain on that sale, but you have to remember, Terry, that that's really just president valuing back the cash flows on those loans and recording the gain. Had we kept them on our balance sheet, we obviously over the next two quarters would have recorded more.

David Dykstra: But you have to remember, Terry, that that's really just President valuing back the cash flows on those loans and recording the gain. Had we kept them on our balance sheet, we obviously, over the next two quarters, would have recorded more net net interest income. But we thought it was prudent to sell them from, like I said, liquidity, loaned deposit, and capital purposes. And those loans come back on the book pretty quickly. You know, that sale of that $700 million, we would have earned money on those from an interest income perspective in the third and the fourth quarters.

David Alan Dykstra: But you have to remember, Terry, that that's really just present-value valuing back the cash flows on those loans and recording the gain. Had we kept them on our balance sheet, we would have recorded more net interest income over the next two quarters. But we thought it was prudent to sell them for, like I said, liquidity, loan to deposit, and capital purposes. And those loans come back on the book pretty quickly.

Speaker Change: Net Interest Income, but we thought it was prudent to sell them from, like I said, liquidity, loan to deposit, and capital purposes.

David Alan Dykstra: That sale of $700 million, we would have earned money on them from an interest income perspective in the third and fourth quarters. But by the end of the year, that portfolio will have substantially been replaced. Thanks for that, Dave.

Speaker Change: And those loans come back on the book pretty quickly. That sale of that $700 million, we would have earned money on those from an interest income perspective in the third and the fourth quarters. But by the end of the year, that portfolio will have substantially been replaced.

David Dykstra: But by the end of the year, that that portfolio will have will have substantially been replaced.

David Dykstra: So thanks for that, Dave. And then within your margin outlook, could you help us maybe understand what you're assuming for interest-bearing deposit costs in the second half of the year and essentially what's the cost of fund that loan growth. And maybe just as a follow up there, you've got 500, we've got 5 billion of CDs, maturing in the back half of this year, I think it was a 475 rate. What are you seeing when those CDs mature? Are they rolling into market rate products or somewhere else? Both is the answer to your last question. Some clients are rolling into CDs.

David Alan Dykstra: And then within your margin outlook, could you help us maybe understand what you're assuming for interest-bearing deposit costs in the second half of the year? And, essentially, what's the cost to fund that loan growth? And maybe just as a follow up there, you've got 500 million CDs maturing in the back half of this year. I think it was a 475 rate. What are you seeing when those CDs mature? Are they rolling into market rate products or, or, or somewhere else? Both are the answer to your last question.

Speaker Change: Thanks for that, Dave. And then within your margin outlook, could you help us maybe understand what you're assuming for interest bearing deposit costs in the second half of the year? And essentially, what's the cost to fund that loan growth?

Speaker Change: and maybe just as a follow-up there, you've got five billion of CDs maturing in the back half of this year. I think it was a 475 rate. What are you seeing when those CDs mature? Are they rolling into market rate products or somewhere else?

David Alan Dykstra: Some clients are rolling into CDs, but as I mentioned, we're shortening the term of the promotional CDs, and so you're also seeing clients roll into the money market offerings, which are closer to 4% than 5%. And so we'll have to work hard to retain this CD volume, and that would, again, continue to allow us to roughly match deposit and loan growth going forward. And, sorry, give me the first part of your question again. Just interest-bearing deposit costs in the second half of this year; they were obviously up in Q2 to fund the loan growth. What do you think they will do in the next two quarters?

Speaker Change: Both is the answer to your last question. Some clients are rolling into CDs, but as I mentioned, we're shortening the term of the promotional CDs, and so you're also seeing clients roll into the money market offerings, which are

David Dykstra: But, as I mentioned, we're shortening the term of the promotional CDs. And so you're also seeing clients roll into the money market offerings, which are closer to 4% and 5%. And so we'll have to work hard to retain this CD volume, and that would again continue to allow us to roughly match deposit and loan growth going forward. And sorry, give me the first part of your question again. Just interest-bearing deposit costs in the second half of this year. They were up obviously in Q2 to fund the loan growth. What do you think they will do over the next two quarters?

Speaker Change: you know, closer to 4% than 5%. And so, you know, we'll have to work hard to retain this CD volume and that would, you know, again continue to allow us to roughly match deposit and loan growth going forward.

Speaker Change: I'm sorry, give me the first part of your question again.

Speaker Change: Just interest bearing deposit costs in the second half of this year. They were up obviously in Q2 to fund the loan growth. What do you think they will do over the next two quarters?

David Dykstra: I think this was the big quarter in terms of movement on the interest-bearing deposit costs that we had some larger deposits from when rates were substantially lower roll off. And so today's point, I think we're going to see a much more muted change in the interest-bearing deposit costs, something that kind of should be similar to what happens to loan yields. Again, we think there'll be a single digit that faces point raises in both those categories.

David Alan Dykstra: I think this was the big quarter in terms of movement on interest-bearing deposit costs. We had some larger deposits from when rates were substantially lower roll-off, and so to Dave's point, I think we're going to see a much more muted change in interest-bearing deposit costs, something that should be similar to what happens to loan yields. Again, we think there'll be single-digit basis point increases in both those categories. Thanks for taking my questions.

Speaker Change: Yeah, I think this was this was the big quarter in terms of movement on the interest bearing deposit costs that we had

Speaker Change: You know, some larger deposits from when rates were substantially lower roll-off, and so to Dave's point, I think we're going to see a much more muted change in the interest-bearing deposit costs. You know, something that kind of should be similar to what happens to loan yields.

David Alan Dykstra: Again, we think they'll be single digit basis point phrases in both those categories.

Unknown Executive: Perfect.

Unknown Executive: Thanks for taking my questions. You bet.

Unknown Executive: Thank you.

Chris Mcgratty: Our next question. Come from the line of Chris McGratty of KVW. Great. Morning. David, come back to the NII guide. The, you know, link quarter of about a percent and a half. Is there, is there an acceleration in the NII growth in the back half of the year relative to this quarter change given the growth that you got this quarter, or is it mitigated by a little bit of new pressure? No, I think we think the NIMS going to hold fairly stable, Chris. So I think that the drive will be the earning asset growth, and really why we believe we can grow NII is that we do think the margin can be held stable here.

David Alan Dykstra: You bet. Thank you. Our next question comes from the line of Chris McGratty of KBW. Oh, great morning.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Chris McGratty of KBW.

David Alan Dykstra: Dave, just going back to the NII guide, the link quarter is about a percent and a half. Is there... Is there an acceleration in NII growth in the back half of the year relative to this quarter's change given the growth that you got this quarter? Or is it mitigated by a little bit of NIM pressure?

Speaker Change: Dave, just going back to the NII guide, the link quarter is about a percent and a half.

Christopher Edward McGratty: Is there an acceleration in the NII growth in the back half of the year relative to...

Speaker Change: This quarter's change, given the growth that you got this quarter, or is it mitigated by a little bit of NIM pressure?

David Alan Dykstra: No, I think we think the NIM is going to hold fairly stable, Chris. So I think the driver will be earnings asset growth. And really why we believe we can grow NII is that we do think the margin can be held stable here, and there'll be growth in the loan. We had a great growth quarter, and that's going to carry over into the second half of the year. And as Rich said, you know, we're at the high end of our mid to high single digit range. End of that. It should It should accelerate more, I would think.

David Alan Dykstra: No, I think we think the NIM is going to hold fairly stable, Chris, so I think the drive will be the earning asset growth and really why we believe we can grow NII is that we do think the margin can be held stable here.

David Dykstra: And it'll be growth in, in the long. So we had a great growth quarter. So that's going to carry over into the second half of the year and has reached that, you know, we're at the high end of our mid- to high-single-digit range. And so if we're at the high end of that, it should, it should accelerate more, I would think.

David Alan Dykstra: and it'll be growth in the loan. So we had a great growth quarter, so that's gonna carry over into the second half of the year. And as Rich said, we're at the high end of our mid to high single digit range. And so if we're at the high...

David Dykstra: Okay. And then you get looking out the market fairly sickle, but right now the market's thinking we're going to get four or five cuts over the next year. I know you're a lot less sensitive than you can, but how much downside to margin do you see if the curve plays out? Well, I think we're looking at this year that maybe we have one to two cuts, and, you know, next year, you know, whether it's five cuts or whatever, whichever forecast you think is out there 25. I mean, if we look at that, you know, we still feel pretty confident that we can keep our margin in the low to mid threes.

Rich: And at the end of that, it should accelerate more, I would think.

David Alan Dykstra: And then looking out, I mean, the market is really fickle, but right now, the market's thinking we're going to get four or five cuts over the next year. Relative to that 350 you've talked about, I know you're a lot less acid sensitive than you've been, but how much downside to margin do you see if the curve plays out? Well, you know, I think we're looking at this year that maybe we have one to two cuts and, you know, next year, whether it's five cuts or whatever, whichever forecast you think is out there of 25.

Rich: and then just looking out in the markets.

Rich: Apparently fickle, but right now the market's thinking we're going to get four or five cuts over the next year.

Speaker Change: Relative to that 350 you've talked about, I know you're a lot less asset sensitive than you've been, but how much downside to margin do you see if the curve plays out?

Speaker Change: Well, you know, I think we're looking at this year that maybe we have one to two cuts and, you know, next year.

Speaker Change: whether it's five cuts or whatever, whichever forecast you think is out there of 25. I mean, if we look at that, we still feel pretty confident that we can keep our margin in low to mid.

David Alan Dykstra: I mean, if we look at that, you know, we still feel pretty confident that we can keep our margin in the low to mid. David Long, Nathan Race, David Dykstra, Brandon King, Richard Murphy, Timothy Crane, Benjamin Gerlinger, Nathan Race, David Dykstra, Brandon King, Richard Murphy, Nathan Long, [inaudible] Perfect.

David Dykstra: So say three and a quarter to three and a half to just sort of, you know, depends on the speed of those and the magnitude of those. But, you know, we've done a lot of hedging to protect that downside. And, you know, I think we'd probably be in that being that rain. So I mean, if we have, if we have 10 or 12 cuts, there's probably going to be some stress because, you know, you're going to lose, you're going to lose on this bread on your free money, et cetera. So I think there'll be some pressure there, but we think we can hold it in that 325 to 350 range based on the current consensus estimate.

Speaker Change: 3s, so say 3 1?4 to 3 1?2. It just sort of, you know, depends on the speed of those and the magnitude of those. But, you know, we've done a lot of hedging to protect that downside and...

Speaker Change: You know, I think we'd probably be in that range. So, I mean, if we have 10 or 12 cuts, there's probably going to be some stress because, you know, you're going to lose on...

Speaker Change: The spread on your free money, et cetera. So I think there'll be some pressure there, but we think we can hold it in that 325 to 350 range based on the current consensus estimate, and we'll just see how to manage it.

David Dykstra: And, and we'll just be out of manager.

David Dykstra: Perfect. And then the tax rate looks a little high this quarter; is just a trooper. So you guys are all pretty sharp on picking out things. Yeah, it's up a little bit this quarter. It's kind of nuanced, but the state of Illinois, you know, passed a law that changed the way the apportionment is treated for investment securities. And that that that will benefit us going forward in future quarters, but we had to revalue our deferred tax inventory because of the change in the law. So that bumped the rate up a little bit in the past.

David Alan Dykstra: And then the tax rate looks a little high this quarter. Is this a true increase or is this a false rate? Well, you guys are pretty sharp at picking out things.

Speaker Change: And then the tax rate looks a little high this quarter. Is this a true up or is this a false rate?

David Alan Dykstra: Yeah, it's up a little bit this quarter. It's kind of nuanced, but the state of Illinois... You know, passed a law that changed the way the apportionment is treated for investment securities, and that will benefit us going forward in future quarters, but we had to revalue our deferred tax inventory because of the change in the law, so that bumped the rate up a little bit. In the past, we thought, generally, our tax rate was more in the 26.5% range, barring any unusual items in the quarter.

Speaker Change: Well, you guys are all pretty sharp on picking out things. Yeah, it's up a little bit this quarter. It's kind of nuanced, but the State of Illinois

Speaker Change: You know passed a law that changed the way the apportionment is treated for investment securities and that

Speaker Change: That will benefit us going forward in future quarters, but we had to revalue our deferred tax inventory because of the change in the law, so that bumped the rate up a little bit.

David Alan Dykstra: We think that it's probably closer now to 26%, so we should pick up close to half a percent in our tax rate going forward. One of the few times that tax law changes in the state of Illinois have benefited us, but we had to revalue our deferred tax inventory, which increased the tax rate a little bit.

David Dykstra: We thought generally our tax rate was more in the 26 and a half percent range, barring any unusual items in the quarter. We think that's probably closer now to 26 percent. So we should pick up, you know, close to half a percent in our tax rate going forward. So one of the few times that tax law changes in the state of Illinois have benefited us, but, but, but we had to revalue our deferred tax inventory, which increased the tax rate a little bit.

Speaker Change: In the past, we thought generally our tax rate was more in the 26.5% range, barring any unusual items in the quarter. We think that's probably closer now to 26%, so we should pick up, you know...

Speaker Change: Close to half a percent in our tax rate going forward so one of the few times that tax law changes in the state of Illinois have benefited us, but but but we had to revalue our deferred tax inventory which Increased the tax rate a little bit Okay

Unknown Executive: Okay, thanks.

David Alan Dykstra: Okay, thanks, Chase. Thank you. Our next question comes from the line..., from Brendan Nossel of HubD. And good morning, folks. Hope you're doing well.

Unknown Executive: Thank you.

Brendan Nosal: Our next question comes from the line of Brendan Nosal of Hubby Group. Thank you. Morning folks, I'll be doing well. All right, maybe just to start off here, could you maybe unpack the trigger points for any additional loan $1,000 in the future? I'm guessing if it was to happen, it would probably be in a seasonally strong quarter like this one for the premium finance business. Yeah, well, I think that's right. I mean, I touched on it generally, but we've been running at 93% loan to deposit. We really don't care to run much higher than that.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Brendan Nossel of HubD Group.

David Alan Dykstra: David, just to start off here, could you maybe unpack the trigger points for any additional loan sales in the future? I'm guessing if there was to happen, it would probably be in a seasonally strong quarter like this one for the premium finance business. Yeah, well, I think that's right.

Brendan Nossel: And good morning, folks. Hope you're doing well.

Brendan Nossel: Maybe just to start off here, could you maybe unpack the trigger points for any additional loan sales in the future? I'm guessing if it was to happen, it would probably be in a seasonally strong quarter like this one for the premium finance business.

David Alan Dykstra: I mean, I touched on it generally, but, you know, we've been running at 93% loan to deposit. We really don't care to run much higher than that, and we'd like to fund the loans with core deposits. And we obviously had an extraordinarily strong quarter here, you know. We had $1.6 billion of deposit growth, and we just would rather not have that loan to deposit ratio go up, and we want to keep the appropriate levels of liquidity and capital.

Speaker Change: Yeah, well, I think that's right. I mean, I touched on it generally. But, you know, we've been running at 93% loan to deposit, we really don't care to run much higher than that. And we'd like to fund the loans with core deposits. And we obviously had an extraordinarily strong quarter here, you know, we had

Timothy Crane: And we'd like to fund the loans with core deposits. And we obviously had an extraordinarily strong quarter here. We had $1.6 billion of deposit growth, and we just would rather not have that loan to deposit ratio go up. And we want to keep the appropriate levels of liquidity in capital. So it would really, it's a nice relief valve for us when we have that strong growth. And we'll use it judiciously because we'd rather have the assets on our books, but we've got to keep those other three metrics in mind, I think. And we need to be disciplined on the liquidity capital planning and follow our playbook.

Brendan Nossel: $1.6 billion of deposit growth, and we just would rather not have that loan-to-deposit ratio go up, and we want to keep the appropriate levels of liquidity and capital. So it's a nice relief valve for us when we have that strong a growth.

David Alan Dykstra: So it's a nice relief valve for us when we have that strong growth, and we'll use it judiciously because we'd rather have the assets on our books, but we've got to keep those other three metrics in mind, I think. We need to be disciplined on liquidity capital planning and follow our playbook.

Brendan Nossel: And we'll use it judiciously because we'd rather have the assets on our books, but we've got to keep those other three metrics in mind, I think, and we need to, we need to be disciplined on the liquidity capital planning and

David Alan Dykstra: Yeah, and I'd just add that it's a relatively attractive asset to do this with because they turn very quickly, as Dave described a few minutes ago, and again, after roughly year end, those loans could be back on our books. Yeah, so you have to, to Tim's point, I mean, we sold about $700 million of that, but the average balance is substantially less than that because they pay off so fast. So the rule of thumb is you divide it roughly by 2.4, and that would be your average balance, and so that because they pay off so quickly.

Timothy Crane: Yeah, and I just add, it's a relatively attractive asset to do this with because they turn very quickly, as Dave described a few minutes ago. And again, after roughly a year, those loans could be back on our books. Yeah, so you have to, to Tim's point, I mean, we've told about 700 million of that, but the average balance is substantially less than that because they pay off so fast. So the rule of thumb is you divide it roughly by 2.4, and that would be your average balance. And so that, because they pay off so quickly.

Speaker Change: I'd just add it's a relatively attractive asset to do this with because they turn very quickly as Dave described a few minutes ago and again after roughly year end those loans could be back on our books.

David Alan Dykstra: Yeah, so you have to, to Tim's point, I mean, we sold about 700 million of that, but the average balance is substantially less than that because they pay off so fast. So the rule of thumb is you divide it roughly by 2.4 and that would be your average balance. And so that, because they pay off so quickly. So it's a great asset class, as Tim says, to sell and get back on your books quickly.

Timothy Crane: So it's a great asset class, as Tim says, to sell and get back on your books quickly. Yep, yeah.

David Alan Dykstra: So it's a great asset class, as Tim says, to sell and get back on your books quickly. Yeah, yeah. One more for me.

David Alan Dykstra: Within the wealth business, I guess I was a little surprised to see AUM just tick down a little bit quarter over quarter given how strong the markets were in the second quarter. Just kind of curious, you know, what trends you're seeing in that business and what underlying momentum looks like. Yeah, you know, it wasn't anything unusual, per se; a couple of clients moved money around to different options, but we would expect that to grow in the third quarter, so it wasn't a substantial change. All right, fantastic.

Brendan Nosal: Yeah, one more for me within the wealth business. I guess there's a little surprise to see AUM just picked down a little bit quarter of a quarter given how strong markets were in the second quarter. Just kind of curious, you know, what trends you're seeing in that business and what underlying momentum looks like. Yeah, you know, there wasn't anything unusual per se with a couple of clients moving money around to different options, but we would expect that to grow in the third quarter. So it wasn't a substantial change. All right, fantastic. Thanks for taking the questions.

David Alan Dykstra: Unknown Speaker 0 1 more for me. Within the wealth business, I guess I was a little surprised to see AUM just tick down a little bit quarter over quarter, given how strong markets were in the second quarter. Just kind of curious, you know, what trends you're seeing in that business and what underlying momentum looks like.

Speaker Change: Yeah, you know, it wasn't anything unusual.

Speaker Change: A couple of clients moved money around to different options, but we would expect that to grow in the third quarter. So it wasn't a substantial change.

Speaker Change: All right, fantastic. Thanks for taking the questions.

Brendan Nosal: Thank you.

Jeff Roles: Next question comes from the line of Jeff Roles of DA Davidson. Thanks. Good morning. Maybe just. Hi, I think you mentioned last quarter. You saw some really some targeted opportunities in office still despite sort of the national rhetoric. And I think you mentioned sort of where, you know, higher tentative or medical wanted to kind of check to see if that's still the case. You still see opportunities. I mean, the non-performing loan ticked up a little bit there, but appetite for office. Just wanted to check in on how you're feeling. was appreciate it.

Operator: Thank you. Our next question comes from the line of Jeff Rulis of D.A. Davis.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Jeff Rulis of D.A. Davidson.

Operator: Thanks. Good morning. Maybe just, I think you mentioned last quarter, you saw some really some targeted opportunities in office still despite sort of the national rhetoric. And I think you mentioned sort of where, you know, higher tenanted or medical, wanted to kind of check to see if that's still the case. You still see opportunities. I mean, the non-performing loan ticked up a little bit there, but appetite for office just wanted to check in on how you're feeling. Yeah, it's, you know, obviously, we're very careful in that space, you know, because of all the dynamics that we talk about, but we did another office deal this quarter of, you know, some reasonable size, not huge, but where you have an investment grade, 100% tenant building.

Jeffrey Allen Rulis: Thanks. Good morning. Maybe just...

Speaker Change: I think you mentioned last quarter.

Jeffrey Allen Rulis: You saw some, really some targeted opportunities in office still, despite sort of the national rhetoric and

Speaker Change: I think you mentioned sort of where...

Speaker Change: You know higher tenanted or medical. I wanted to kind of check to see if that's still the case. You still see opportunities I mean the non-performing loan ticked up a little bit there, but Appetite for office just wanted to check in on how you're feeling

Operator: And, you know, we got really good pricing, we got great structure, and because no one else has got a, you know, probably over allocated towards that space; we're not. So we're, again, want to be very thoughtful, want to be very careful. But, you know, there are still really good deals out there.

Speaker Change: Yeah, it's you know, obviously, we're very careful in that space, you know, because of all the the dynamics that we talked about, but we did another office deal this quarter of, you know, some reasonable size, not huge, but where you have a investment grade, 100% tenant building

Speaker Change: And, you know, we got really good pricing, we got great structure, and because no one else, everybody else has got a, you know, probably over-allocated towards that space, we're not. So, again, want to be very thoughtful, want to be very careful, but, you know, there are still really good deals out there, and, you know, our job, as always, we've talked about this in the past, is never to have to jerk the wheel, never to overreact. And, you know, if there are opportunities out there, you know, we want to be taking advantage of those, but, you know, we're not looking to bulk up on them, you know, we tell our people all the time, it's like.

Richard B. Murphy: And, you know, our job is always, we've talked about this in the past, never to have to jerk the wheel, never to overreact. And, you know, if there are opportunities out there, we want to be taking advantage of those, but, you know, we're not looking to bulk up on them. You know, we tell our people all the time, it's like, you know, if there's a, you know, because there's, there's almost a limitless number of opportunities that you could do here.

Richard B. Murphy: Our job is to really just pick and choose between those that are just, you know, can't find a home and those that are really, really great opportunities. So, yes, we continue to be open for business, but very, very picky. Okay, and Rich, I missed the CRE review bucket you referenced. Was that maturing in a certain timeframe?

Speaker Change: You know, there's almost limitless numbers of opportunities that you could do here. Our job is to really just pick and choose between those that are just...

Speaker Change: You know, can't find a home in those that are really, really great opportunities. So yes, we continue to be open for business, but very, very picky.

Speaker Change: Okay, and Rich, I missed the CRE review bucket you referenced. Was that a maturing in a certain time frame?

Richard B. Murphy: What we do, and we've done this for a number of quarters, is we really want to focus on what's ahead of us and try to think about, you know, the next several quarters. So, what we do is a three-quarter rolling review of what we're expecting, and what we try to do is identify where we may have some challenges, where there's just lease pressures been, you know, more pronounced, or, you know, the higher borrowing costs are really affecting that, and we may have to, you know, ask the borrower to curtail the outstanding balance. So, we look at every loan over two and a half million that's coming due in the three-quarter period, and we just keep track of it.

Speaker Change: Cheers.

Speaker Change: What was that figure again or that?

Speaker Change: Yeah, so what we do, and we've done this for a number of quarters, is to, you know, we really want to focus about what's ahead of us and try to think about, you know, over the next several quarters. So what we do is a three-quarter rolling review of what we're expecting, and what we try to do is identify where we may have some challenges, where there's just lease pressures have been, you know, more pronounced, or, you know, the higher borrowing costs are really affecting that, and we may have to, you know, ask the borrower to curtail the outstanding balance. So we look at every loan, over two and a half million, that's coming due in the three-quarter period, and we just keep track of it.

Richard B. Murphy: And the thing that, as I pointed out in my comments, that's interesting to me is just, you know, those numbers have been pretty consistent in terms of, you know, those loans that are going to require attention, but I think even more importantly is just, you know, as we move forward, you know, that we have not seen a huge amount of, really, any materiality in terms of those borrowers who haven't supported their properties. So, you know, it's just a way for us to kind of look ahead and make sure that we understand what's coming down the pike and address it as prudently as we can. Sure.

Speaker Change: The thing that, as I pointed out in my comments, that's interesting to me is just...

Speaker Change: You know, those numbers have been pretty consistent in terms of, you know, those loans that are going to require attention. But I think even more importantly is just

Speaker Change: As we move forward, we have not seen a huge amount of, really of any materiality in terms of those borrowers who haven't supported their properties.

Speaker Change: So, you know, it's just, it's a way for us to kind of look ahead and make sure that we understand what's coming down the pike and address it as prudently as we can.

Richard B. Murphy: So that's a pretty tight timeframe. And I would imagine as you've undergone that analysis in past quarters, that it's reflective of the current rate environment. So I mean, not to get, I guess the confidence in that, as you've rolled that, the fact that the statistics have stayed similar. And that gives you a pretty good read on credit that nothing's upcoming. Is that fair?

Speaker Change: Sure, so that's a pretty tight time frame and...

Speaker Change: I would imagine as you've undergone that analysis in past quarters, that's reflective of the current rate environment. So, I mean, not to get, I guess the confidence in that as you've rolled that, the fact that the statistics have stayed similar.

Richard B. Murphy: Yeah, that's exactly right. And that's our way, you know, because our job is to try to get ahead of stuff before it washes up. And, you know, so this is our way of doing that. Not always perfect, you know, but generally, it gives you a pretty good understanding as to what you're going to look at.

Speaker Change: That gives you pretty good read on credit that nothing's upcoming.

Speaker Change: That's exactly right. And that's that's our way, you know, because our job is to try to, you know, get ahead of stuff before it washes up. And, you know, so this is our way of doing that. Not always perfect, you know, but generally, it gives you a pretty good understanding as to what you're going to look at. The other thing we know a lot of, you know, has been said about like maturity walls, you know, we look at the maturities pending over the next

Richard B. Murphy: The other thing we, you know, a lot of things have been said about like maturity walls. You know, we look at the maturities pending over the next, you know, two years, two and a half years. And, you know, we just don't have that. It's a very consistent number that's coming due quarter to quarter. And so, you know, again, our job is just to try to look forward as much as we can and try to get in front of those borrowers and make sure that we're all aligned in terms of what the outcome is.

Speaker Change: David Dykstra, Richard Murphy

Richard B. Murphy: Appreciate it. And one quick last one, Tim, you know, it sounds like the Makatawa in terms of two pretty good institutions and that timing sounds like a like a third quarter close. I could always come in late, but there's no sort of community issues cropping up with that transaction, as you've heard. We received approval on June 17th. The primary process includes a comment period prior to approval.

Timothy Crane: One quick last one, Tim. You know, it sounds like the Macatawa in terms of, you know, to pretty good institutions, and that timing sounds like a, like a third quarter close. Any, I always could come in late, but there's no sort of community issues cropping up with that transaction, as you've heard. We received approval on June 17th. You know, the primary process includes a comment period prior to approval. So, no, we, we continue to believe that not only do we serve our communities well, but they do as well. Great, I appreciate it. Thanks. Thank you.

Speaker Change: Appreciate it. And one quick last one, Tim, you know, it sounds like the Makatawa in terms of, you know, two pretty good institutions and, and

Speaker Change: That timing sounds like a...

Speaker Change: Like a third quarter close any I always could come in late, but there's no sort of community issues cropping up with with that transaction as you've heard.

Timothy S. Crane: We received approval on June 17th. The primary process includes a comment period prior to approval. So no, we continue to believe that not only do we serve our communities well, but they do as well.

Timothy S. Crane: So, no, we continue to believe that not only do we serve our community as well, but they do as well. Great, I appreciate it, thanks. Thank you. Our next question comes from the line of David Long of Raymond James. Hey, Dave.

Speaker Change: Great. I appreciate it. Thanks.

David Long: Our next question comes from the line, David Long, Raymond James.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of David Long of Raymond James.

Operator: Good morning, everyone. How's it going? Good. Good. A lot of talk about the net interest margin here and then sticking around the 350 range. As you think about Makatawa, adding Makatawa, how will that impact the net interest margin? And is that part of that sort of 350 outlook for the next couple of quarters and maintaining that? No, 350 we're talking about right now is our current organization. We're not trying to blend in the Macintowell with it.

David Long: Good morning, everyone. How's it going? Good. Um, I want to talk about the net interest margin here in the, sticking around the 350 range. As you think about Macatawa, adding Macatawa, how will that impact the net interest margin? And is that part of that sort of 350 outlook for the next couple of quarters of maintaining that? No, I, as 350, we're talking about right now is our current organization. We're not trying to blend in the Macatawa with it. But, David, if you think about it, Macatawa is about 5% of our asset base. You know, they have publicly available data; some, um, they're publicly created company.

Speaker Change: Hey Dave. Good morning everyone. How's it going? Good.

David Joseph Long: Good. A lot of talk about the net interest margin here and sticking around the 350 range. As you think about Makatawa, adding Makatawa, how will that impact the net interest margin?

Speaker Change: Part of that sort of 350 outlook for the next couple of quarters and maintaining that.

Speaker Change: No, 350 we're talking about right now is our current organization. We're not trying to blend in the Macintowel with it.

David Alan Dykstra: But David, if you think about it, Macintowell is about 5% of our asset base. They have publicly available data, they're a publicly traded company, so people can look at the Qs. We'll go through purchase accounting and revalue all those assets and liabilities at their current market value. But once you go through all of that, we think there'll be, you know, a slight lift to the margin, but because of the size of it relative to the size of Wintrust, it's not going to be dramatic; it's going to be positive.

Speaker Change: But David, if you think about it, Macintyre is about 5% of our asset base.

Speaker Change: They have publicly available data, they're a publicly traded company, so people can look at the queues. We'll go through purchase accounting and revalue all those assets and liabilities to current market value. But once you go through all of that, we think there'll be a slight lift to the margin, but because of the size of it relative to the size of Wintrust, it's not going to be dramatic, it's going to be positive. Those things about Macintyre we think are going to be positive for the organization as far as growth and culture and margins, etc., but we haven't disclosed exactly what that number is. One, they've got a shareholder vote coming up, and we just don't want to try to get out in front of that.

David Dykstra: So, people can look at the cues. We'll go through purchase accounting and, and, and, and re-value all those assets and liabilities to current market value. But once, you know, you go through all of that, we think they'll be, you know, a slight lift to the margin. But it, because of the size of it, relative to the size of winters, it's not going to be dramatic. It's going to be positive. Most things about Macatawa, we think, are going to be positive for the organization as far as his, his growth and culture and margins, et cetera. But we haven't disclosed exactly what that number is.

David Alan Dykstra: Most things about Macintowell we think are going to be positive for the organization as far as growth and culture and margins are concerned, etc., but we haven't disclosed exactly what that number is. One, they've got a shareholder vote coming up, and we just don't want to try to get out in front of that and tout this thing ahead of their shareholder vote. But we think it should be marginally beneficial, but not materially, just because of the size aspect of it. But as you know, they've got a fair amount of. Got it. Thank you for the color.

David Dykstra: Um, one, they've got a shareholder of all coming up, and we just don't want to try to get out front of that and, and, and out this thing, uh, head of their shareholder goal. But we think it should be marginally beneficial, but not, and it's, materially, just because the size aspect of it. But as you know, they've got a fair amount of, uh, excess, uh, liquidity that we can use since our, you know, 50, a little over 55% loan that the deposit, and we can take those, those funds and put them into higher yielding loans fairly quickly.

Speaker Change: [inaudible]

Speaker Change: excess liquidity that we can use since they're a little over 55% loan to deposit, we can take those funds and put them into higher yielding loans fairly quickly. So we think that will be beneficial too.

David Dykstra: So, we think we think that will be beneficial, too.

Unknown Executive: Got it. Thank you for, uh, for the color.

Unknown Executive: And then, the follow question I have really to deposit, and there seems to be some bit of a resurgence in savings rates in the Chicago MSA, um, seeing some rates pretty high. And I'm guaranteed for, uh, you know, the next six months. You know, what are you seeing on, and deposit competitions specifically in the Chicago market, and, and are you seeing a bit of an increase? You know, I, you know, I subjectively, um, I would say it's more or less stable. They've had, I mean, we've been seeing, you know, call it six months to 13, 14 months type rates at around 5%.

David Alan Dykstra: And then the follow-up question I have relates to deposits, and there seems to be some bit of a resurgence in savings rates in the Chicago MSA, seeing some rates that are pretty high and guaranteed for uh... the next six months. What are you seeing on deposit competition specifically in the Chicago market, and is uh... are you seeing a bit of an increase? Subjectively, I would say it's more or less stable, David We've been seeing, call it, six months to 13, 14 month type rates of around 5%. The only surprise I guess that I would have personally is that some people have longer terms out there than others.

Speaker Change: Got it. Thank you for the color. The follow-up question I have relates to deposits. And there seems to be...

Speaker Change: some bit of a resurgence in savings rates in the Chicago MSA, seeing some rates

Speaker Change: pretty high and guaranteed for the next six months. What are you seeing on deposit competition specifically in the Chicago market? And are you seeing a bit of an increase?

Speaker Change: You know, I subjectively, I would say it's more or less stable, David. I mean, we've been seeing, you know, call it six months to 13, 14 month type rates at around 5%.

Unknown Executive: We're, you know, the only surprise, I guess, that I would have personally is that some people have longer terms out there than others. I think we're thinking that, um, those rates should be, you know, 5% and down here going forward. But again, our competitors sometimes do strange stuff.

Speaker Change: You know, the only surprise, I guess, that I would have personally is that some people have longer terms out there than others. I think we're thinking that those rates should be, you know, 5% and down here going forward. But again, our competitors sometimes do strange stuff.

David Alan Dykstra: I think we're thinking that those rates should be 5% and down here going forward. But again, our competitors sometimes do strange stuff. God, thanks guys.

David Alan Dykstra: I appreciate you taking my questions. Thank you. Next question comes from the line of Nathan Race of Piper San: Yeah. Hi, guys. Good morning. Thanks for taking the questions. Morning, Nate.

Nathan Race: Thanks, guys. Appreciate you taking my questions. You bet. Thank you.

Speaker Change: God, thanks guys. I appreciate you taking my questions.

Nathan Race: Our next question comes from the line of Nathan Race, a Piper Sandler. Yeah. Hi guys. Good morning. Thanks for taking the questions. Morning, Nathan. Yep.

Speaker Change: You bet.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Nathan Race, a Piper Sandler.

Operator: Yep. I'm just going back to the margin discussion, you know. I appreciate the commentary around, you know, still being able to hold it around 350, even after the cuts begin, and just curious within that context, in terms of how much in you guys have as it relates to kind of rate-sensitive deposits that can kind of reprice one for one. Unknown Executive, Casey Haire, Wintrust Financial Corp. Well, I mean, if you look at our disclosures, you know, roughly 80% of our deposits are not CDs.

Nathan James Race: Yeah. Hi, guys. Good morning. Thanks for taking the questions. Morning, Nate. Yep.

David Dykstra: Going back to the Martian discussion. You know, I appreciate the commentary around, you know, still being a hold around 350 even after the fact cuts begin. And just curious within that context in terms of how much and you guys have it as relates to kind of rate-sensitive deposits that can kind of increase one for one. Following each cut. Well, I mean, if you look at our disclosures, you know, roughly 80% of our deposits are not CDs. So everything other than CDs and non-interest bearing deposits are fair, fair game as far as being able to reduce the rates quickly.

Nathan James Race: Just going back to the margin discussion, you know, I appreciate the commentary around still being able to hold it around $350,000 even after the cuts begin. I'm just curious within that context, in terms of how much...

Speaker Change #100: You guys have it as it relates to kind of rate sensitive deposits that can kind of reprice one for one.

Speaker Change #100: all in each cup

Speaker Change #101: Well, I mean, if you look at our...

Speaker Change #102: And our disclosures, you know.

Operator: So everything other than CDs and non-interest-bearing deposits is fair game as far as being able to reduce the rates quickly. It would be our intention that if the Fed moved on those money market savings accounts and even CDs, we would cut the rates fairly immediately.

Speaker Change #103: Roughly 80% of our deposits are not CD, so everything other than CDs and non-interest-bearing deposits are fair game as far as being able to reduce the rates quickly, and it would be our intention that if the Fed moves on those money market savings accounts and even CDs that we would cut the rates fairly immediately.

David Dykstra: And it would be our intention that if the Fed moves on those money market savings accounts and even CDs, that we would cut the rates. Fairly immediately, CDs would take a while to work their way through. But, as Tim said, you know, we've done fairly short, short maturities on those recently. So it's not going to take too long for those to work their way through. So, you know, let's say you've got, you know, 60% of them. And we think we would; we would be active in doing so. Yeah, and as a reminder, we really don't have indexed deposits either.

Casey Haire: Cities would take a while to work their way through, but as Tim said, you know, we've done fairly short short maturities on those recently, so it's not going to take too long for those to work their way through. So, you know, let's say you've got, you know, 60% of them. If you take out non-interest bearings at 21, and you take out CDs just under 20, you've got 40% of them that won't pay interest immediately, but you've got another 60% that you have the ability to do that with. And we think we would... we would be active in doing so.

Speaker Change #103: Cities would take a while to work their way through, but as Tim said, you know, we've done fairly short, short maturities on those recently. So it's not going to take too long for those to work their way through. So, you know, let's say you've got, you know,

Timothy S. Crane: 60% of them, if you take out non-interest bearings at 21 and you take out CDs just, you know, under 20, you've got 40% of them that won't price immediately, but you've got another 60% that you have the ability to do that with. And we think we would

Casey Haire: Yeah, and as a reminder, we really don't have indexed deposits either. Some of our municipal deposits are sort of tied to a reference rate, which is actually trending down a little bit prior to the Fed even cutting rates. So that's not going to move the number a ton, but we're watching it carefully. [inaudible] to you guys, just given the size of the company today or whether you guys would still kind of entertain some smaller-scale acquisitions these days. Well, we think we're good.

Timothy S. Crane: We would be active in doing so.

Speaker Change #104: Yeah, and as a reminder, we really don't have indexed deposits either. Some of our municipal deposits are sort of tied to a reference rate, which is actually trending down a little bit, you know, prior to the Fed even cutting. So that's not going to move the number a ton.

David Dykstra: Some of our municipal deposits are sort of tied to a reference rate, which is actually trending down a little bit, you know, prior to the Fed even cutting. So that's not going to move the number of time, but we're watching it carefully.

Unknown Executive: Okay, great. Very helpful.

Speaker Change #104: We're watching it carefully.

Timothy Crane: You know, two years a little bit. We heard from another Chicago land institution this morning that there's some increase in MNH adder lately. I'm curious if you know. I imagine either look likely smaller deals. Imagine if those are interested to you guys just given the size of the company today or if you guys are still kind of entertain some smaller scale acquisitions these days. Well, we think we're good in terms of acquisition activity. We think we've demonstrated ability to do it well. You know, the Makatawa deal is, you know, 2.7 or 2.8 billion. You know, we think that's about the right size.

Speaker Change #105: Okay, great. Very helpful. Changing gears a little bit, we heard from another Chicagoland institution this morning that there's some increase in M&A chatter lately. I'm curious if, you know, I imagine these are likely smaller deals. I imagine if those are interests of you.

Speaker Change #106: To you guys, just given the size of the company today, or if you guys would still kind of entertain some smaller scale acquisitions.

Timothy S. Crane: In terms of acquisition activity, we think we've demonstrated an ability to do it. Well, you know, the Makatawa deal is, you know, 2.7 or 2.8 billion. We think that's about the right size. We would certainly look at smaller deals if they made sense in terms of branch overlap where you would get more favorable economics from, you know, some sort of cost takeout or if there was a strategic market we felt like we needed to be in, but I think the right range for us is $500 million, to pick a number, several billion dollars. We just want good cultures, good companies where we can do integration in markets that we can expand. I don't know if that helps me or not, but yes, no, that's a great color.

Speaker Change #107: Be safe.

Speaker Change #108: Well, we think we're good.

Speaker Change #109: In terms of acquisition activity, we think we've demonstrated an ability to do it well. You know, the Makatawa deal is, you know, $2.7 or $2.8 billion. You know, we think that's about the right size.

Timothy Crane: We would certainly look at smaller deals if they made sense in terms of branch overlap where you would get more favorable economics from, you know, some sort of cost take out or if there was a strategic market. We felt like we needed to be in, but I think the right range for us is, you know, 500 million to pick a number, several billion dollars. We just want, you know, good culture, good companies where we can do integration and markets that we can expand. So, you know, I don't know if that helps, Nate, or not, but yeah, no, that's great color.

Speaker Change #109: We would certainly look at smaller deals if they made sense in terms of...

Speaker Change #109: branch overlap where you would get more favorable economics from, you know, some sort of cost take out or if there was a strategic market we felt like we needed to be in. But I, you know, I think

Speaker Change #109: The right range for us is $500 million to pick a number, several billion dollars. We just want good culture, good companies where we can do integration in markets that we can expand.

Timothy S. Crane: Thanks, Tim. One last one, the gain on sale margin came down versus the 1Q by a considerable degree. Any thoughts on just how the gain on sale margin may trend in the 3Q and 4Q? Unmortgaged?

Speaker Change #110: I don't know if that helps me or not, but...

Unknown Executive: Thanks, Tim.

Unknown Executive: One last one. Again, I feel Martin came down versus the one to you to a considerable, considerable degree. Any thoughts? I'm just, I'll again, I feel Martin made trend in the 3, 2, and 4 queue. I'm working at sound a little bit better. So I mean, if you look at the range, we've been from the load. That's a sort of the we've been from 1.7% of, you know, 2.6%. I would expect us to be in the 2 to 2 and a half percent range going forward.

Tyler: Thanks Tim. One last one. The gain on sale margin came down versus the 1Q to a considerable degree. Any thoughts on just how the gain on sale margin may trend in the 3Q and 4Q?

Casey Haire: Yeah, it's down a little bit, but still, I mean, if you look at the range, we've been from the low, sort of the, we've been from 1.7% to, you know, 2.6%. I would expect us to be in the 2 to 2.5% range going forward. Okay, great. I appreciate all the color.

Speaker Change #112: It's down a little bit, but if you look at the range, we've been from 1.7% to 2.6%. I would expect us to be in the 2 to 2.5% range going forward.

Unknown Executive: Okay, great. I appreciate your look. Thank you. Thanks, Nate. Thank you.

Speaker Change #112: Okay, great. I appreciate all the color. Thanks guys. Yeah. Thanks, Nate.

Casey Haire: Thanks, guys. Yeah, thanks, Nate. Thank you. As a reminder, to ask a question, please press star 11 on your touchtone telephone. Again, that's star 11 to ask a question. Our next question... comes from the line for Jared Shaw of Barclays. Morning, Jared.

Unknown Executive: As a reminder to ask a question, please press star 1-1 on your touchtone telephone. Again, that star 1-1 to ask a question.

Speaker Change #113: Thank you. As a reminder, to ask a question, please press star 11 on your touchtone telephone. Again, that's star 11 to ask a question.

Jared Shaw: Our next question comes from the line of Jared Shaw, Barclays. Good morning. Most of my questions were answered, but I guess, you know, as we look at capital, especially CET-1, what should we be thinking about is sort of a target level for that for you? Is that something that we should be expecting to sort of be growing, growing higher, closer to peers, or are you comfortable with it here? Well, I think we're comfortable where it's that obvious, obviously. We, you know, a couple of things I'd say they're, Jared. You know, we also have leverage in our capital stack.

Speaker Change #114: Our next question.

Speaker Change #115: comes from the line of Jared Shaw of Barclays.

Operator: Morning. Most of my questions were answered. But I guess, you know, as we look at capital, especially CET one, what would you be thinking about is sort of a target level for that for you? Is that something that we should be expecting to sort of be growing, growing higher closer to peers? Are you comfortable with it here?

Jerry: Thank you, Jerry.

Jared David Wesley Shaw: Morning. Most of my questions were answered, but I guess, you know, as we look at, as we look at capital, especially CET-1, what you would be thinking about is sort of a target level for that for you? Is that something that we should be expecting to sort of be growing higher, closer to peers, or are you comfortable with it here?

David Alan Dykstra: Well, I think we're comfortable where it's that obvious, obviously, we, you know, a couple of things I'd say there, Jared, you know, we also have, What leverage in our capital stack? You know, we do use preferred securities as capital, which count as Tier 1. They're just not common equity Tier 1.

Jared David Wesley Shaw: Well, I think we're comfortable where it's at, obviously. A couple of things I'd say there, Jared. We also have...

Jared Shaw: You know, we do use preferred securities as capital, which count as Tier 1. They're just not common equity tier 1. You know, we would expect to grow, continue to grow that number over time here because our earnings generally are outstripping our capital. This quarter is a little unique given the strong, strong growth, but we would expect to grow that and get that over 10% here in a reasonably short period of time. But the limiting factor for us tends to be total risk-based capital in the past. And we managed to that, and if you look in the slide deck on slide 10, you know, that was down a little bit this quarter, but part of that decrease, one was the extraordinarily strong growth.

Jared David Wesley Shaw: leverage in our capital stack. You know, we do use preferred...

Jared David Wesley Shaw: Securities as capital, which count as tier one, they're just not common equity tier one. We would expect to continue to grow that number over time here because our earnings generally are outstripping our capital.

David Alan Dykstra: You know, we would expect to grow, and continue to grow that number over time here because our earnings generally are outstripping our capital. This quarter was a little unique, given the strong, strong growth, but we would expect to grow that and get that over 10% here in a reasonably short period of time. But the limiting factor for us tends to be total risk-based capital in the past, and we managed to do that.

Jared David Wesley Shaw: This quarter was a little unique given the strong, strong growth, but we would expect to grow that and get that over 10% here in a reasonably short period of time. But the limiting factor for us tends to be total risk-based capital in the past.

David Alan Dykstra: And if you look at slide 10, you know, that was down a little bit this quarter, but part of that decrease, one, was the extraordinarily strong growth, but two, you know, we did pay off some sub-debt this quarter, which didn't count as capital, but we also had another sub-debt issue where we're into the sort of the amortization period of how the capital is, so we lost 20% of the remaining sub And so that will, but that will stay flat until we get to next June, where we lose another 20% of accounting.

Speaker Change #118: And we managed to that. And if you look in the slide deck on slide 10, you know, that was down a little bit this quarter. But part of that decrease, one, was the extraordinarily strong growth, but two, you know, we did pay off.

Jared Shaw: But two, you know, we did pay off some sub debt this quarter, which didn't count as capital, but we also had another sub debt issue where we're into the sort of the amortization period of how the capital is. So we lost 20% of the remaining sub debt capital treatment. And so that was, but that will stay flat until we get to next June, where we lose another 20% of counting. So that counted for roughly one tenth of 1% decline in the capital ratios. And if you take that out of the equation, capital ratio stayed relatively flat.

Speaker Change #118: some sub-debt this quarter, which didn't count as capital, but we also had another sub-debt issue where we're into the sort of the amortization period of how the capital is. So we lost 20% of the remaining sub-debt capital treatment. And so that will, but that will stay flat until we get to next June , where we lose another 20% of accounting. So that counted for roughly.

David Alan Dykstra: So that counted for roughly one-tenth of 1% decline in the capital ratios, and if you took that out of the equation, capital ratios stayed relatively flat. And going forward, we expect earnings to outstrip growth, and we would just continue to grow that number. And we also have a little bit more, we acknowledge this; we have a little bit more leverage in our capital stack. Our preferred securities are relatively cheap in this environment, and they count us through as one capital and are permanent until we decide to redeem them.

Speaker Change #118: A one-tenth of one percent decline in the capital ratios and if you take that out of the equation capital ratios stayed relatively flat

Jared Shaw: And going forward, we expect the earnings would outstrip the growth, and we would just continue to grow that number. But we also have a little bit more; we acknowledge this. We have a little bit more leverage in our capital stack. Our preferred securities are relatively cheap in this environment. And they count us through one capital and permanent until we decide to redeem them.

Speaker Change #118: And going forward, we expect the earnings would outstrip the growth and we would just continue to grow that number. But we also have a little bit more, we acknowledge this, we have a little bit more leverage in our capital stack.

Speaker Change #119: Preferred securities are relatively cheap in this environment, and they count as Tier 1 capital and permanent until we decide to redeem them. So, happy to have...

Richard Murphy: So happy to have that capital structure right now, but understanding that we need to get the CET1 probably over 10 sometime in the recently near future. Okay, access for a color. And then maybe just finally, when you look at the charge-offs on commercial real estate, what's been like the average valuation decline on CRE that you've seen, especially on the office? You know, it's such a small population, you know, that it's really hard to kind of draw a number there, you know, but you know, it's not insignificant. But every deal is just a little bit different, you know, depending on location and existing tendency and, you know, how effective it is.

David Alan Dykstra: So happy to have that capital structure right now but understanding that we need to get the CT1 probably over 10 sometime in the reasonably near future. Okay, thanks. That's a great color.

Speaker Change #119: that capital structure right now, but understanding that we need to get the CT1 probably over 10 sometime in the reasonably near future.

Jared David Wesley Shaw: And then maybe just finally, when you look at the charge-offs on commercial real estate, what's been like the average valuation decline on CRE that you've seen, especially in the, You know, it's such a small population, you know, that it's really hard to kind of draw a number there, you know, but, you know, it's not insignificant. But every every deal is just a little bit different. You know, depending on location and existing tenancy and, you know, how effective it is, it's just, I would hate to throw a number out there because there it's just the range is so big.

Speaker Change #120: Okay, thanks, that's very color. And then maybe just finally, when you look at the the charge-offs on commercial real estate, what's been like the average valuation decline on CRE that you've seen, especially on the office?

Speaker Change #121: You know, it's such a small population, you know, that it's really hard to kind of draw a number there, you know, but

Speaker Change #122: It's not insignificant, but every deal is just a little bit different, depending on location and existing tenancy and how effective it is. I would hate to throw a number out there because the range is so big.

Richard Murphy: I would hate to throw a number out there because the range is so big, but nothing that's causing you concern more broadly. Well, I mean, anytime you have declining valuations, I mean, it's not a good situation, you know. So, but I mean, nothing that's like, you know, massively draconian. I mean, you know, it's something that every, again, every situation is a little bit different, just depending on where it's located. And most importantly, you know, what the existing, existing leaf structure looks like. I mean, that's probably the most profound thing that affects it. And generally speaking, we haven't had, you know, again, at the nature of our portfolio is a little bit unique there because we're not looking at, you know, super large projects. You know, so you tend to have more granularity in the tenant base as well.

Jared David Wesley Shaw: But nothing that's causing you concern more broadly? Well, I mean, any time you have declining valuations, it's not a good situation, you know, so, but I mean, nothing that's like, you know, massively draconian. I mean, you know, it's something that every situation is a little bit different, just depending on where it's located and, most importantly, you know, what the existing lease structure looks like. I mean, that's probably the most profound thing that affects them.

Speaker Change #122: But nothing that's causing you concern more broadly? Well, I mean, any anytime you have declining valuations, I mean, it's, it's not a good situation, you know, so but I mean, nothing that's like

Speaker Change #122: massively draconian. I mean, it's something that every, again, every situation is a little bit different.

Speaker Change #122: Just depending on where it's located, and most importantly, you know, what the existing lease structure looks like. I mean, that's probably the most profound thing that affects it. And generally speaking, we haven't had, you know, again, the nature of our portfolio is a little bit unique there because we're not looking at, you know, super large projects.

Richard B. Murphy: And generally speaking, we haven't had, you know, again, the nature of our portfolio is a little bit unique there, because we're not looking at, you know, super large projects. You know, so you tend to have more granularity in the tenant base as well. You know, so we're not seeing, you know, a huge effect, but you know, if you have one or two tenants in a building, you know, and you lose one of them, I mean, that's where you're seeing the most profound effects. Thank you. Thank you. Our next question comes from the line of Brandon King of Truist.

Richard Murphy: You know, so we're not seeing, you know, huge, but, you know, if you have one or two tenants in a building, you know, and you lose one of them, I mean, that's where you're seeing the most profound effects. Thank you.

Speaker Change #122: You know, so you tend to have more granularity in the tenant base as well, you know, so we're not seeing, you know, a huge, but, you know, if you have one or two tenants in a building, you know, and you lose one of them, I mean, it's, that's where you're seeing the most profound effects.

Unknown Executive: Our next question comes on the line, Brandon King of Truest. Hey, just a follow-up on mortgage. Could you give us what your outlook is for the back half of the year, and could you also give us some context as far as the trends you saw, particularly in the left part of the quarter? Yeah, well, as I said, you know, we were a little bit more optimistic last quarter that spring buying season would kick in, and second quarter was a little better than the first quarter. You could see the numbers that we provided. We had origination volumes in the second quarter that for sale of 722 million versus 475 million in the first quarter.

Speaker Change #124: Great, thank you.

Speaker Change #123: Thank you.

Speaker Change #125: Our next question comes from the line of Brandon King of Truist.

Operator: Hey, just a follow up on the mortgage. Could you give us what your outlook is for the second half of the year? And could you also give us some context as far as the trends you saw, particularly in the latter part of the quarter? Yeah, well, as I said last quarter, we were a little bit more optimistic last quarter that spring buying season would kick in, and the second quarter was a little better than the first. You can see the numbers that we provided. We had origination volumes in the second quarter for sale of $722 million versus $475 million in the first quarter.

Brandon Thomas King: Hey, just a follow-up on mortgage. Could you give us what your outlook is for the back half of the year and could you also give us some context as far as the trends you saw, particularly in the later part of the quarter?

Speaker Change #126: Yeah, well, as I said, you know, we were a little bit more optimistic last quarter that spring buying season would kick in. And the second quarter was a little better than the first quarter. You could see the numbers that we provided. We had origination volumes.

David Alan Dykstra: So a tick up there, but we were hoping it would be a little bit stronger than that. Application volume has been fairly stable the last three or four months, and we would expect it probably to stay relatively stable the rest of the quarter here and then probably dip down in the fourth quarter just because of seasonality. Generally, the fourth quarter and first quarter, unless there's a big drop in rates, the purchase activity slows down, and our purchase activity is really roughly 80% of our activity right now given the interest rate structure.

Speaker Change #125: in the second quarter for sale of $722 million versus $475 million in the first quarter. So a tick up there, but we were hoping it would be a little bit stronger than that.

Brandon King: So a tick up there, but we were hoping it would be a little bit stronger than that. Application volume has been fairly stable the last three or four months, and we would expect it probably to stay relatively stable the rest of the quarter here, and then probably dip down in the fourth quarter just because of seasonality. It can only fourth quarter and first quarter, unless there's a big drop in rates, the purchase activity slows down, and our purchase activity is really roughly 80% of our activity right now given the interest rates structure. So we would expect it probably be to be relatively flat in the third quarter, and then probably dip a little on the fourth quarter, unless we see long, you know, the longer term 30 or mortgage rates.

Speaker Change #125: Application volume has been fairly stable the last three or four months.

Speaker Change #125: We would expect it probably to stay relatively stable the rest of the quarter here, and then probably dip down in the fourth quarter just because of seasonality.

Speaker Change #125: Fourth quarter and first quarter, unless there's a big drop in rates.

Speaker Change #128: The Purchase Activity slows down and our purchase activity is really roughly 80% of our activity right now given the interest rate structure. So we would expect it probably to be relatively flat in the third quarter and then probably dip a little in the fourth quarter unless we see the longer term 30-year mortgage rates come down dramatically, which is not our base case right now. As we talked about last quarter too, it's not for lack of want. We have a lot of prequels that come in all the time. The issue is really just inventory. So I think people are looking at the mortgage rates and they've been able to digest the fact that they're up dramatically.

David Alan Dykstra: So we would expect it probably to be relatively flat in the third quarter and then probably dip a little in the fourth quarter unless we see the longer-term 30-year mortgage rates come down dramatically, which is not our base case right now. As we talked about last quarter, too, it's not for lack of want. We have a lot of prequels that come in all the time.

Brandon King: Next come down grammatically, which is not our base case right now. Yeah, you know, as we talked about last quarter, too, you know, it's not for lack of want. We have a lot of prequals that come in all the time. The issue is really just inventory. So I think people are looking at the mortgage rates, and they've been able to digest the fact that they're up dramatically over where they were a couple of years ago, and people are looking to buy homes. They're just not a whole lot of inventory out there. And when there is a property that comes online, it's just their multiple offers right away.

David Alan Dykstra: The issue is really just inventory. So I think people are looking at mortgage rates, and they've been able to digest the fact that they're up dramatically over where they were a couple years ago, and people are looking to buy homes. There's just not a whole lot of inventory out there, and when there is a property that comes on the market, there are multiple offers right away. So that's probably the biggest challenge right now. As Dave said, we're 80% purchase oriented. So if you can't find a home to buy, you can't take out a mortgage.

Speaker Change #128: and Richard Murphy, David Dykstra, Richard Murphy, Richard Murphy, Richard Murphy, Richard

Brandon King: So, you know, that's probably the biggest challenge right now. It's just a, you know, we are, as Dave said, we're 80% purchase-oriented. So if you can't find a home to buy, you can't take out a mortgage.

Speaker Change #128: There are multiple offers right away, so that's probably the biggest challenge right now is just we are, as Dave said, we're 80% purchase oriented, so if you can't find a home to buy, you can't take out a mortgage.

Brandon King: George. And the other thing I'd add, Brandon, this is the day again, is the gross revenue on mortgage banking now is generally 25 to 30 million dollars. Once you pay out commissions out of their expenses, fluctuation in that line item, the net effect after commissions, other expenses, taxes, is not that dramatic. We'd love it to go up, and our teams are doing a good job of managing in this environment. And we think doing a really good job in this environment. But we just don't see it moving enough that it's going to have a dramatic impact on the net income number of the company just because of the net profit on that.

David Alan Dykstra: And the other thing I'd add, and Brandon, this is Dave again, is, you know, the gross revenue on mortgage banking now is generally $25 to $30 million. You know, once you pay out commissions on other expenses, you know, a fluctuation in that line item, the net effect after commissions, other expenses, and taxes is not that dramatic. And we'd love it to go up, and our teams are doing a good job of managing in this environment, and we think they are doing a really good job in this environment. But we just don't see it moving enough that it's going to have a dramatic impact on the net income number of the company, just because of the net profit on that.

Speaker Change #128: And the other thing I'd add, and Brandon, this is Dave again, is, you know, the gross revenue on mortgage banking now is generally, you know, $25 to $30 million.

Speaker Change #129: Once you pay out commissions on other expenses, fluctuation in that line item, the net effect after commissions, other expenses, taxes, is not that dramatic.

Speaker Change #129: We'd love it to go up, and our teams are doing a good job of managing in this environment. And we think doing a really good job in this environment.

Speaker Change #129: But we just don't see it moving enough that it's going to have a dramatic impact on the net income number of the company, just because of the net profit on that. We just don't see rates moving substantially enough to have a dramatic impact, one way or the other.

Brandon King: We just don't see rates moving substantially enough to have a dramatic impact. One way or the other.

David Alan Dykstra: We just don't see rates moving substantially enough to have a dramatic impact, one way or the other. Gotcha. And so with those thoughts on inventory and the issues there, would you say that, you know, mortgages could be less sensitive to a decline in rates moving forward? Well, I mean, there's a sort of a dead zone here because you've got, you know, a lot of people with very low rates.

Brandon King: So, with those thoughts on inventory and issues there, I mean, would you say that mortgage could be less sensitive to decline in rates moving forward? Well, I mean, there's sort of a dead zone here because you've got a lot of people with very low rates. And so the beginning of rate decline may not produce a lot of activity, but at some point, you know, you're certainly progressively going to pick up some volume. It's just a question of kind of when that happens. And I'm reasonably certain that most mortgage originators know exactly where all of their clients' rates are.

Speaker Change #129: So with those thoughts on inventory and the issues there, would you say that mortgage could be less sensitive to a decline in rates moving forward?

Speaker Change #130: Well, I mean, there's a sort of a dead zone here because you've got, you know, a lot of people with very low rates and so...

David Alan Dykstra: And so, you know, the beginning of a rate decline may not produce a lot of activity, but at some point, you're certainly going to pick up some volume. It's just a question of kind of when that happens, and I'm reasonably certain that most mortgage originators know exactly where all of their clients' rates are.

Speaker Change #130: You know, the beginning of rate decline may not produce a lot of activity, but at some point, you know, you're certainly progressively going to pick up some volume.

Speaker Change #130: It's just a question of kind of when that happens, and I'm reasonably certain that most mortgage originators know exactly where all of their clients' rates are.

Brandon Thomas King: Any sense you can give us as to where that level is, or is it kind of a moving target? Again, I think it's evolutionary, so 50 or 100 points would help, but a lot of people have mortgages with a three-handle on them, and so you're going to have to get down to much lower levels before you get back to anywhere near what we saw four or five years ago.

Brandon King: Any sense you can give us as to where that level is, or is it kind to move the target? Again, I think it's evolutionary. So 50 or 100 points would help. But a lot of people have mortgages with a three-handle on them. And so you're going to have to get down to much lower levels before you get back to anywhere near what we saw four or five years ago. Yeah, I mean, just I don't have a scientific answer to that, Brandon, but our portfolio that we service, you know, the average rate on that is drifting up and is right around 4% now where it used to be, you know, 3.5%.

Speaker Change #130: Any sense you can give us as to where that level is, or is it kind of a moving target?

Speaker Change #131: Again, I think it's evolutionary, so 50 or 100 points would help, but a lot of people have mortgages with a three-handle on them, and so you're going to have to get down to much lower levels before you get back to anywhere near what we saw four or five years ago.

Brandon Thomas King: I don't have a scientific answer to that, Brandon, but our portfolio that we service, the average rate on that is drifting up and is right around 4% now, or it used to be 3.5%. To get a lot of refis, it'd have to go down dramatically, but I think that there are people out there that when they had a 3.5% to 4% mortgage rate, they weren't going to go for the 7% to 8% rate, but our gut is that if that rate got into the low 6s or high 5s, people would say, "hey, I really want to get this new house."

Speaker Change #132: Yeah, I don't have a scientific answer to that, Brandon, but our portfolio that we service, the average rate on that is drifting up and is right around 4% now, where it used to be 3.5%. So to get a lot of refis, it'd have to go down dramatically, but I think that there are people out there that when they had a 3.5% to 4% mortgage rate, they weren't going to go for the 7% to 8% rate. But our gut is that if that rate got into the low sixes or high fives, that people would say, hey, I really want to get this new house, I'll go from four to the high fives.

Brandon King: And we need to get a lot of refives that have to go down dramatically. But I think that there are people out there that, when they had a three and a half to 4% mortgage rate, they weren't going to go for the seven to 8% rate. But our gut is that rate got into the low sixes or high fives that people would say, "Hey, I really want to get this new house." I'll go from four to the high fives. I just want to go from four to eight or four to seven and a half. And so our gut is; you'd see it picked up if you got, you know, if you got into the high fives or low sixes.

David Alan Dykstra: I'd go from 4 to the high 5s; I just wouldn't go from 4 to 8 or 4 to 7.5, and so our gut is you'd see a pickup if you got into the high 5s or low 6s, but again, there's got to be supply out there to buy, too, so I think that will mute it, but certainly when rates came down to the 6s before, we started to see a little That is very, very helpful. Thank you for taking my questions. You bet!

Speaker Change #132: I just wouldn't go from four to eight or four to seven and a half. And so our gut is you'd see a pickup if, if you got, you know, if you got into the high fives or low sixes.

Brandon King: But again, there's got to be supply out there to buy, too. So I think that will mute it. But certainly when rates came down to the sixes, before we started to see a little bit of pickup and activity. So I guess we would think that if you got into the low sixes, that would be quite helpful. That is very, very helpful.

Speaker Change #132: But again, there's got to be supply out there to buy too, so I think that will mute it. But certainly when rates came down to the sixes before, we started to see a little bit of pickup in activity. So I guess we would think that if you got into the low sixes, that would be quite helpful.

Unknown Executive: Thanks for taking my questions. You bet. Thank you.

Speaker Change #133: That is very, very helpful. Thank you for taking my questions. You bet. Thank you.

Timothy S. Crane: Thank you. At this time, I'd like to turn the call back over to Tim Crane for closing remarks.

Timothy Crane: At this time, I'd like to turn the call back over to Tim Crane for a close of remarks, sir. Yeah, thanks with me. And everybody on the line, thank you for joining us. Overall, a solid quarter that we think is continued progress in growing the franchise and our presence where we compete. We remain excited about the Macatawac position and hope to be able to share more information with you next quarter. As always, we appreciate your questions and your feedback. Feel free to reach out with any follow-up items. And you can count on our good team to work hard here.

Timothy S. Crane: Yeah, thanks, Latif. And everybody on the line, thank you for joining us. Overall, a solid quarter that we think shows continued progress in growing the franchise and our presence where we compete. We remain excited about the McIntyre acquisition and hope to be able to share more information with you next quarter. As always, we appreciate your questions and your feedback. Feel free to reach out with any follow-up items, and you can count on our good team to work hard here. So with that, we'll sign off, and Latif, thank you. Thank you. And, ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change #133: Thank you. At this time, I'd like to turn the call back over to Tim Crane for closing remarks. Sir? Yeah, thanks, Lateef, and everybody on the line, thank you for joining us. Overall, a solid quarter that we think is continued progress in growing the franchise.

Speaker Change #133: We remain excited about the Makatawa acquisition and hope to be able to share more information with you next quarter.

Speaker Change #133: As always, we appreciate your questions and your feedback. Feel free to reach out with any follow-up items, and you can count on our good team to work hard here. So, with that, we'll sign off, and Lateef, thank you.

Unknown Executive: So with that, we'll sign off, and Latif, thank you. Thank you.

Unknown Executive: And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Thank you.

Lateef: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.