Q3 2024 Wintrust Financial Corp Earnings Call

Unknown Executive: Welcome to Wintrust Financial Corporation's third quarter, and year to date, 2024 earnings conference call.

Welcome to win Trust financial Corporation's third quarter and year to date 2024 earnings conference call.

Unknown Executive: 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.

Speaker Change: Are you of the results will be made by Tim Crane, President and Chief Executive Officer, Dave.

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.

Unknown Executive: During the course of today's call, Wintrust management may make statements to constitute projections, expectations, beliefs or similar forward-looking statements. Action results could differ materially from the results anticipated or projected in any forward-looking statements.

Speaker Change: During the course of today's call when Trust management May make statements that constitute projections expectations beliefs or similar forward looking statements.

Speaker Change: Actual results could differ materially from the results anticipated or projected in any forward looking statements.

Unknown Executive: 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: 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.

Unknown Executive: Also, all 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.

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

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

Speaker Change: As a reminder, this conference call is being recorded.

Unknown Executive: I will now turn the conference over to Mr. Tim Crane.

Speaker Change: Now I'll turn the conference over to Mr. Tim Crane.

Timothy Crane: Thank you, Lateef. Good morning, and thank you for those on the phone joining us for the Wintrust 3rd quarter earnings call. In addition to the introductions, Lateef made, I'm joined by Dave Starr, our Chief Financial Officer, and Kate Bogie, our General Counsel.

Tim Crane: Thank you Latif and good morning.

Tim Crane: And thank you for those on the phone joining us for the wind Trust third quarter earnings call.

Tim Crane: In addition to the introductions Latif made I'm joined by Dave Star.

Tim Crane: Chief Financial Officer, and Kate bogie, our general counsel.

Timothy Crane: In terms of an agenda, I'll share some high-level highlights. Dave Dykster will speak to the financial results, and Richard will add some additional information in color on credit performance and loan activity.

Tim Crane: 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 will be back to wrap up with some summary thoughts on what we expect for the remainder of 2024. And of course, we'll do our best to answer some questions at the end.

Tim Crane: I will be back to wrap up with some summary thoughts on what we expect for the remainder of 2024 and of course, we'll do our best to answer some questions at the end.

Timothy Crane: Before we dive in, let me remind you that this quarter has a few more moving pieces than normal, as it includes two months of the results for Makatawa Bank. We closed on that transaction during the quarter on August 1st. For the quarter, we reported net income of just over $170 million and reported record net income of just under $510 million for the first three quarters of the year. These results were in line with our expectations, and we remain encouraged by underlying activity and pipelines. We grew loans by $2.4 billion, $1.3 billion acquired from Makatawa, and another $1.1 billion organically.

Before we dive in let me remind you that this quarter has a few more moving pieces than normal as it includes two months of the results for macro tower back we closed on that transaction during the quarter on August 1st.

Tim Crane: For the quarter, we reported net income up just over $170 million and reported record net income of just under $510 million for the first three quarters of the year.

Tim Crane: These results were in line with our expectations and we remain encouraged by underlying activity and pipelines.

Tim Crane: We grew loans by $2 $4 billion 1.3 acquired from macro tower and another $1 1 billion organically.

Timothy Crane: We grew deposits by over $3.4 billion, $2.3 billion from Makatawa, and $1.1 billion organically. Importantly, we reduced higher rate broker deposits by over $800 million at quarter end and the immediate benefit of the excess deposits from the Makatawa acquisition. The organic loan growth, organic meaning excluding Makatawa, was balanced across all material product categories, which continues to illustrate the benefit of our diverse asset generating businesses. The organic deposit growth included absolute growth in our non-interest bearing deposits, and the percentage of non-interest bearing deposits relative to total deposits remains stable for the quarter. Both the loan and deposit results are strong evidence that we continue to gain share in Chicago, the surrounding markets, and in our niche businesses.

Tim Crane: We grew deposits by over $3 $4 billion to $3 billion for macro tower and $1 1 billion organically.

Tim Crane: Importantly, we reduced higher rate brokered deposits by over $800 million at quarter end, an immediate benefit of the excess deposits from the macro tower acquisition.

Tim Crane: The organic loan growth organic meaning excluding macro tower was balanced across all material product categories, which continues to illustrate the benefit of our diverse asset generating businesses.

Tim Crane: The organic deposit growth included absolute growth in our noninterest bearing deposits and the percentage of noninterest bearing deposits relative to total deposits remained stable for the quarter.

Tim Crane: Both the loan and deposit results are strong evidence that we continue to gain share in Chicago the surrounding markets and in our niche businesses.

Timothy Crane: In fact, for the Chicago MSA, Wintrust increased deposit share to 7.7%. In contrast, the two largest banks in the MSA, Chase and Bank of America, lost deposit share.

Tim Crane: In fact for the Chicago MSA when trust increased deposit share to seven 7%.

Tim Crane: In contrast, the two largest banks in the MSA Chase and Bank of America last deposit share. This is data from the June 30th FDIC reports.

Timothy Crane: This is data from the June 30th FDIC reports. The net interest margin of 351 was in line with our expectations and combined with organic growth and the Macataw acquisition, produced record net interest income of $503 million, up approximately $32 million from the second quarter. I know many of you remember Wintrust as assets sensitive and well positioned for the rate increases over the past few years. It's important to note that we are now very currently balanced in terms of interest rate sensitivity and well positioned for an orderly movement of rates downward. We expect our margin to remain near current levels for the coming quarters, and accordingly, should experience net interest income growth.

Tim Crane: The net interest margin of $3 51 was in line with our expectations and combined with organic growth and the <unk> acquisition.

Tim Crane: <unk> produced record net interest income of $503 million up approximately $32 million from the second quarter.

Tim Crane: I know many of you remember when trust is asset sensitive and well positioned for the rate increases over the past few years.

Tim Crane: It is important to note that we are now very currently balanced in terms of interest rate sensitivity and well positioned for an orderly movement of rates downward.

Tim Crane: We expect our margin to remain near current levels for the coming quarters, and accordingly should experience net interest income growth.

Timothy Crane: On the credit front, non-performing loans remained low, essentially flat from the second quarter, and charge-offs were down for the quarter. Again, Rich will walk through the credit results and will offer some additional detail on the loan growth in just a moment.

Tim Crane: On the credit front nonperforming loans remained low essentially flat from the second quarter and charge offs were down for the quarter again rich will walk through the credit results and will offer some additional detail on the loan growth in just a moment.

Timothy Crane: The quick note on mortgages, although we tend to get a lot of questions, at current levels, mortgages remain relatively insignificant in terms of the financial impact apart from the MSR valuation. On that front, as you know, it's rate sensitive, and there can be some fluctuation. Rates since quarter end are back up, and given today's rates versus those from the end of the quarter, it's likely the valuation adjustment has been recovered. In terms of new mortgage activity, there were a few days during the quarter where rates dropped, and it looked like we might see a pickup in mortgage production, which could have been helpful.

Tim Crane: A quick note on mortgages, although we tend to get a lot of questions at current levels mortgages remained relatively insignificant in terms of the financial impact apart from the MSR valuation.

Tim Crane: On that front as you know its rate sensitive and there can be some fluctuation.

Tim Crane: Rates since quarter end are back up and given today's rates versus those from the end of the quarter, it's likely the valuation adjustment has been recovered.

Tim Crane: In terms of new mortgage activity there were a few days during the quarter, where rates dropped and it looked like we might see a pickup in mortgage production, which could have been helpful. But that is not lasted in mortgage activity remains muted our mortgage business. However remains an effective hedge for us if rates trend lower and a core part of our client offering.

Timothy Crane: But that has not lasted, and mortgage activity remains muted. Our mortgage business, however, remains an effective hedge for us if rates trend lower and a core part of our client offering. Our two other major fee-based businesses, our Treasury Management activity and our wealth businesses continue to exhibit steady growth. Overall, a solid quarter; in particular, our team continues to do a very nice job with respect to pricing and credit discipline, which will continue to show up in our results and specifically in our margin going forward.

Tim Crane: Our two other major fee based businesses, our treasury management activity in our wealth businesses continue to exhibit steady growth.

Tim Crane: Overall, a solid quarter in particular, our team continues to do a very nice job with respect to pricing and credit discipline.

Tim Crane: Which will continue to show up in our results and specifically in our margin going forward.

Timothy Crane: With that, I'll turn this over to Dave and Rich, and I'll be back to wrap up.

Speaker Change: With that I'll turn this over to Dave and rich and I'll be back to wrap up.

David Stoehr: Thank you, Tim. First, with respect to the balance sheet growth, Tim mentioned the strong loan and deposit growth in the third quarter, excluding the impact of Makatawa that produced a balanced $1.1 billion of growth for both loans and deposits. The loan growth net of the acquisition was nearly 10% on an annualized basis, in line with our prior guidance of being in the upper end of our mid- to high-single-digit loan growth forecast. Also, including the impact of Makatawa, we ended the third quarter with a slightly reduced loaned deposit ratio of roughly 92% compared to the 93% at the end of the prior quarter.

Speaker Change: Great Great. Thank you Tim first of all with respect to the balance sheet growth, Tim mentioned, the strong loan and deposit growth in the third quarter, excluding the impact of macro tower that produced a balanced $1 $1 billion of growth for both loans and deposits. The loan growth net of the acquisition was nearly 10% on an annualized basis.

Speaker Change: In line with our prior guidance of being in the upper end of our mid to high single digit loan growth forecast.

Speaker Change: Also including the impact of <unk>, we ended the third quarter with a slightly reduced loan to deposit ratio of roughly 92% compared to the 93% at the end of the prior quarter.

David Stoehr: I think it's important to note that non-interest bearing deposits increased by approximately $708 million in the third quarter relative to the second quarter, with that growth driven mainly by the non-interest bearing accounts associated with the Macatawabank acquisition. Total non-interest bearing balances have remained stable at 21% of total deposits as of the end of each of the first, second, and third quarters of this year. As to other aspects of the balance sheet results, total assets grew by approximately $4 billion. And our capital ratios increased slightly due to the strong earnings and the impact of the Macatawabank acquisition.

Speaker Change: I think it is important to note that noninterest bearing deposits increased by approximately $708 million in the third quarter relative to the second quarter with that growth driven mainly by the noninterest bearing accounts associated with the macro tower Bank acquisition.

Speaker Change: Non interest bearing balances have remained stable at 21% of total deposits as of the end of each of the first second and third quarters of this year.

Speaker Change: As to other aspects of the balance sheet results total assets grew by approximately $4 billion to $63 8 billion and our capital ratios increased slightly due to the strong earnings and the impact of the macro tower acquisition.

David Stoehr: At turning to the income statement results, this was a very solid operating quarter for us, but as Tim mentioned, the quarter had a few moving pieces. To that end, I'll start off by highlighting what we consider the uncommon items and what they were for the quarter. From our perspective, the quarter included a non-recurring day one provision for credit losses related to the Macatawabank acquisition of $15.5 million. Unpaperable mortgage servicing rights activity of $11.4 million. Acquisition costs of approximately $1.6 million, with the negative impact of those items offset by security gains of $3.2 million. Each of those items is discussed on the second page of the earnings release if you'd like to refer to them later.

Speaker Change: Turning to the income statement results. This was a very solid operating quarter for us, but as Tim mentioned the quarter had a few moving pieces.

Speaker Change: To that end ill start off by highlighting what we consider the uncommon items.

Speaker Change: What they were for the quarter from our perspective the quarter included a nonrecurring day, one provision for credit losses related to the macro tower Bank acquisition.

Speaker Change: $15 5 million.

Speaker Change: Unfavorable mortgage servicing rights activity of 11 $4 million.

The acquisition cost of approximately $1 $6 million with the negative impact of those items offset by security gains of $3 2 million.

Speaker Change: Each of those items are discussed on the second page of the earnings created earnings release, if you'd like to refer to them later.

David Stoehr: The quarter was also impacted by the inclusion of Macatawabank operations for two-thirds of the quarter. So I'll touch on each of these topics during the remainder of my comments, but just wanted to set the table with those items. Our net interest income increased $32 million on the prior quarter and represented a record high level amount of quarterly net interest income. A $3.1 billion increase in the average earning assets, including the addition of the Macatawabank franchise for the last two months of the quarter, and a stable net interest margin contributed to the increase in net interest income.

Speaker Change: Quarter was also impacted by the inclusion of <unk> operations for two thirds of the quarter. So I'll touch on each of these topics during the remainder of my comments, but I just wanted to set the table with those items.

Speaker Change: Our net interest income increased $32 million from the prior quarter and represented a record high level amount of quarterly net interest income of $3 $1 billion increase in the average earning assets, including the addition of the macro tower franchise for the last two months of the quarter and a stable net interest margin contributed to the increase in <unk>.

David Stoehr: Our second quarter net interest margin was 3.51%, which was stable compared to the 3.52% net interest margin in the prior quarter. Yields and rates on the major balance sheet categories were relatively flat, with the loan yields at 6.90% for both the second and the third quarter, and interest bearing deposit costs were down one basis point from the second quarter. Given the current rate environment and the consensus forecast for additional interest rate cuts by the Federal Reserve, remain confident that our net interest margin continued to be in a narrow range around 3.5% in the fourth quarter of 2024 and into 2025.

Speaker Change: Net interest income or.

Speaker Change: Our second quarter net interest margin was $3, five 1%, which was stable compared to the 352% net interest margin in the prior quarter.

Speaker Change: Yields and rates on the major balance sheet categories were relatively flat with the loan yields at 690% for both the second and the third quarter in interest bearing deposit costs were down one basis point from the second quarter.

Given the current rate environment and the consensus forecast for additional interest rate cuts by the federal reserve remain confident that our net interest margin continued to be in a narrow range around three 5% in the fourth quarter of 2024 and into 2025, given our relatively stable net interest margin outlook and the projected continued growth in earning.

David Stoehr: Given our relatively stable net interest margin outlook and the projected continued growth and earning assets, we would expect to again increase net interest income in the fourth quarter. We recorded provision for credit losses of $22.3 million in the third quarter, which included the one-time non-recurring day one CECL provision of $15.5 million related to the Macatawabank acquisition. Excluding this one-time day one acquisition related provision, the provision for credit losses would have been approximately $6.8 million, which is down from the provision of $40.1 million recorded in the prior quarter and the $20 million amount recorded in the third quarter of last year.

Speaker Change: So we would expect to again increase net interest income in the fourth quarter.

Speaker Change: We recorded a provision for credit losses of $22 $3 million in the third quarter, which included the onetime nonrecurring day, one seasonal provision of $15 $5 million related to the mercantile Bank acquisition. Excluding this one time day, one acquisition related provision.

Speaker Change: The provision for credit losses would have been approximately $6 $8 million, which is down from a provision of $40 $1 million recorded in the prior quarter and the $20 million amount recorded in the third quarter of last year, the lower provision expense in the third quarter relative to the second quarter was primarily attributable to lower specific reserves on non.

David Stoehr: The lower provision expense in the third quarter, relative to the second quarter, was primarily attributable to lower specific reserves and non-accrual loans, improved forecasted macroeconomic conditions, and to a lesser extent, portfolio changes related to an improved risk rating mix in an overall shorter life of the loan portfolio.

Speaker Change: Accrual loans improved forecast that macroeconomic conditions and to a lesser extent portfolio changes related to an improved risk rating mix and an overall shorter life of the loan portfolio Richmond.

David Stoehr: William, Richard Murphy will talk about credit in the loan portfolio characteristics in just a bit. Regarding the other nine interest income and nine interest expense areas, nine interest income totaled $113.1 million in the third quarter, which was down approximately $8 million when compared to the prior quarter. The primary reason for the decline was due to the unfavorable mortgage servicing rights related revenue of $11.4 million, mostly due to negative valuation adjustments as mortgage rates near the end of the quarter. Mortgage production revenue was also down slightly as gain-on-sale margins narrowed on what was slightly higher originations for sale production volume.

Speaker Change: Rich Murphy, who will talk about credit and the loan portfolio characteristics in just a bit.

Speaker Change: Regarding the other noninterest income and noninterest expense areas noninterest income totaled $113 $1 million in the third quarter, which was down approximately $8 million when compared to the prior quarter.

Speaker Change: The primary reason for the decline was due to the unfavorable mortgage servicing rights related revenue of 11 4 million, mostly due to negative valuation adjustments as mortgage rates dip near the end of the quarter.

Speaker Change: Mortgage production revenue was also down slightly as gain on sale margins narrowed on what was slightly higher originations for sale production volume.

David Stoehr: Those reductions in mortgage revenues were offset somewhat by a $7 million positive change in gains and losses on securities. I should also note that the prior quarter included an approximately $5 million gain on the sale of certain premium finance loans, which did not re-occur in the third quarter. Although we do hedge a portion of the MSRs, large movements and interest rates may cause some valuation impacts, both positive and negative, and the dip in the interest rates at the end of the third quarter was the cause of the current quarter negative valuation adjustment. But, as Tim noted in his comments, subsequent to the end of the quarter, the originates of risen, which of the quarter were down at these levels would cause a positive valuation adjustment in the fourth quarter.

Speaker Change: Those reductions in mortgage revenues were offset somewhat by a $7 million positive change in gains and losses on securities I should also note that the prior quarter included an approximately $5 million gain on the sale of certain premium finance loans, which did not reoccur in the third quarter.

Speaker Change: And although we don't head, although we do hedge a portion of the msr's large movements in interest rates may cause some valuation impacts both positive and negative and a dip in the interest rates at the end of the third quarter was the cause of the current quarter negative valuation adjustment, but as Tim noted in his comments subsequent to the end of the quarter mortgage rates have risen.

Speaker Change: Which is the quarter, we're down at these levels would cause a positive valuation adjustment in the fourth quarter.

David Stoehr: Turning to nine-interit expenses, nine-interit expenses totaled $360.7 million in the third quarter, and we're up approximately $20.3 million from the second quarter. The primary reasons for the increase were, first, the nine-interit risk-faring expenses associated with the Macatawabanc acquisition were approximately $10.1 million, including a $3 million core-deposit and tangible amortization expense. As this additional $10 million is only for two months of the quarter, we would expect approximately $5 million of additional Macataw-related expense in the fourth quarter to account for a full quarter's worth of activity. Non-operating acquisition-related expenses were approximately $1.6 million in the third quarter, compared to $1.5 million in the prior quarter.

Speaker Change: Turning to noninterest expenses noninterest expenses totaled $367 million in the third quarter and were up approximately $23 million from the second quarter. The primary reasons for the increase were first the noninterest bearing expenses associated with the macro tower Bank acquisition were approximately $10 1 million.

Speaker Change: Including a $3 million core deposit intangible amortization expense.

Speaker Change: Is this additional $10 million is only for two months of the quarter. We would expect approximately $5 million of additional Macintosh related expense in the fourth quarter to account for a full quarter's worth of activity.

Speaker Change: Non operating acquisition related expenses were approximately $1 6 million in the third quarter compared to half a million dollars in the prior quarter.

David Stoehr: The remaining increase of approximately $9 million was primarily related to salary cost for increased staffing to support the company's growth, higher incentive compensation expense accruals, and increased software expense associated with upgrading and maintaining 19 information security infrastructure, and furthering our investments in digital products and services. The nine-interit risk-faring expenses we believe were well controlled when considering the impact of the acquisition. Even with that impact of the acquisition, non-interest expenses as a percent of average assets declined to 2.36% for the third quarter, compared to 2.38% on the prior quarter and 2.41% in the third quarter of last year.

Speaker Change: The remaining increase of approximately $9 million was primarily related to salary cost for increased staffing to support the company's growth higher incentive compensation expense accruals and increased software expense associated with upgrading and maintaining 19 information security infrastructure and furthering our investments in digital products and services.

The noninterest expenses, we believe we are well controlled when considering the impact of the acquisition, even with that impact of the acquisition non interest expenses as a percent of average assets declined to 236% for the third quarter compared to 238% in the prior quarter and $2 four 1% in the third.

David Stoehr: This demonstrates improved expense operating leverage and will continue to try to bring those numbers down. In summary, the third quarter results included a record level of quarterly net interest income supported by strong loan into positive growth and a stable and solid net interest margin. The quarterly results also had good expense control and stable credit metrics. Set another way, excluding the impact caused by the non-recurring Macataw Day 1 related provision for credit losses and the MSR valuation adjustments, it was a really solid quarter for OneTrust, and we're very excited about the prospects for the remainder of the year and throughout 2025.

Speaker Change: Third quarter of last year.

This demonstrates improved expense operating leverage and we will continue to try to bring those numbers down.

Speaker Change: In summary, the third quarter results included a record level of quarterly net interest income supported by strong loan and deposit growth and a stable and solid net interest margin. The quarterly results also had good expense control and stable credit metrics set another way excluding the impact caused by the nonrecurring Mcintyre a day one related provision for credit losses.

Speaker Change: And the MSR valuation adjustments it was a really solid quarter for <unk> and we're very excited about the prospects for the remainder of the year and throughout 2025.

David Stoehr: We also continue to build our tangible net, our tangible book value per share during the quarter, and as you can see in slide 12 by the presentation deck, we've grown tangible book value per share every year since we've been a public company, and we're certainly on track to do that again in 2024. That provides a graphical illustration of Wintrust total shareholder returns for the last 1, 3, 5, and 10 year periods compared to the KBW Regional Bank Index total returns. As you can see from that slide, Wintrust has consistently outperformed that Regional Bank Index, which I think illustrates the resiliency of our operating model through a variety of economic cycles.

Speaker Change: We also continued to build our tangible net our tangible book value per share during the quarter and as you can see on slide 12 of the presentation deck, we've grown tangible book value per share every year since we've been a public company and we're certainly on track to do that again in 2024. Additionally, as we've recently attended several investor conferences, where the <unk>.

Speaker Change: <unk> of total shareholder returns was discussed on various occasions.

Speaker Change: We included a new slide slide 13 in the presentation deck that provides a graphical illustration of <unk> total shareholder returns for the last 135, and 10 year periods compared to the <unk> Regional Bank Index total returns.

Speaker Change: As you can see from that slide <unk> has consistently outperformed that regional bank index, which I think illustrates the resiliency of our operating model through a variety of economic cycles.

Richard Murphy: So, with that, I will conclude my comments and turn it over to Rich to discuss credit.

Speaker Change: So with that I will conclude my comments and turn it over to rich to discuss credit.

Richard Murphy: Thanks, Dave. Tim and Dave both noted credit performance continued to be very solid in the third quarter. As detailed in the earnings release, loan growth for the quarter was 1.1 billion or 10% annualized, excluding the 1.3 billion in loans which we acquired through the purchase of McTawa Bank. As detailed on slide 8, we saw strong growth across all major portfolios. A couple of specific areas of note include our asset-based portfolio, which grew by 243 million as a result of bringing out a number of new customers in higher line utilization. The mortgage warehouse team had another strong quarter as a result of onboarding a number of new relationships, which also come with some great deposit opportunities.

Speaker Change: Thanks, Dave.

Rich Murphy: Tim and Dave both noted credit performance continue to be very solid in the third quarter as detailed in the earnings release loan growth for the quarter was $1 1 billion or 10% annualized excluding the $1 3 billion in loans, which we acquired through the purchase of mercantile Bank.

Rich Murphy: As detailed on slide eight we saw strong growth across all major portfolios. A couple of specific areas of note include our asset based portfolio, which grew by $243 million as a result of bringing on a number of new customers and higher line utilization the.

Rich Murphy: The mortgage warehouse team had another strong quarter as a result of Onboarding, a number of new relationships, which also come with some great deposit opportunities.

Richard Murphy: We also saw continued growth in core commercial loans, commercial real estate loans, and portfolio residential loans. I would also note that we remain highly focused on getting paid appropriately for our risk. As noted on slide 8, we were able to keep our average loan yields consistent quarter over quarter. We believe that long growth for the fourth quarter will continue to be strong and align with our previous guidance of mid to high single digits for a number of reasons. Fourth quarter volume for commercial premium finance loans has historically been very strong. We believe the hard market for insurance premium should continue into next year.

Rich Murphy: We also saw continued growth in core commercial loans commercial real estate loans and portfolio residential loans I.

Rich Murphy: I would also note that we remain highly focused on getting paid appropriately for our risk as noted on slide eight we were able to keep our average loan yields consistent quarter over quarter.

Rich Murphy: We believe that loan growth for the fourth quarter, we will continue to be strong and aligned with our previous guidance of mid to high single digits for a number of reasons.

Rich Murphy: Fourth quarter volume for commercial premium finance loans has historically been very strong we believe the hard market for insurance premiums should continue into next year.

Richard Murphy: In addition, our core C&I and leasing pipelines remain very solid. Finally, we saw core C&I line utilization rates continue their upward trend from 37% to 39% quarter over quarter.

Rich Murphy: In addition, our core C&I and leasing pipelines remained very solid.

Rich Murphy: Finally, we saw core C&I line utilization rates continue their upward trend from 37% to 39% quarter over quarter.

Richard Murphy: Offsetting this growth will be pressure on our CRE portfolios. We anticipate higher volumes of payoffs as borrowers seek long-term fixed-rate refinancing opportunities. In summary, we continue to be optimistic about our ability to grow loans and attractive rates and maintain our credit discipline. From a credit quality perspective, as detailed on slide 18, we continue to see strong credit performance with signs of stabilization across the portfolio. This can be seen in a number of metrics. Now performing loans as a percentage of total loans was down slightly from 39 basis points to 38 basis points. While NPLs in total were up slightly for the quarter, it's interesting to note that NPLs in our CRE portfolio drop by $6 million.

Rich Murphy: Offsetting this growth will be pressure on our CRE portfolio as we anticipate higher volumes of payoffs as borrowers seek long term fixed rate refinancing opportunities.

In summary, we continue to be optimistic about our ability to grow loans at attractive rates and maintaining our credit discipline.

Rich Murphy: From a credit quality perspective as detailed on slide 18, we continue to see strong credit performance with signs of stabilization across the portfolio. This can be seen in a number of metrics.

Rich Murphy: Nonperforming loans as a percentage of total loans was down slightly from 39 basis points to 38 basis points, while npls in total were up slightly for the quarter. It's interesting to note that npls in our CRE portfolio dropped by $6 million. We've also seen two straight quarters of lower npls in our commercial premium premium finance portfolio.

Richard Murphy: We've also seen two straight quarters of lower NPLs in our commercial premium finance portfolio as we continue to manage the stress from the transportation segment of that portfolio. And we are pleased to see this trend improve as a result of tighter loan structures and enhanced underwrite. Charjobs for the quarter were 26.7 million or 23 basis points down from 30 million or 28 basis points in Q2. This reduction in charges is a result of improved performance in our commercial premium finance portfolio and our core CRE portfolio. Our portfolio continues to be very solid and well diversified and very granular.

As we continue to manage the stress from the transportation segment of that portfolio and we are pleased to see this trend improve as a result of tighter loan structures and enhanced underwriting.

Rich Murphy: Charge offs for the quarter were $26 7 million or 23 basis points down from $30 million or 28 basis points in Q2.

Rich Murphy: This reduction in charge offs as a result of improved performance in our commercial premium finance portfolio and our core CRE portfolio.

Rich Murphy: Our portfolio continues to be very solid and well diversified and very granular additional evidence of this can be seen on slide 18, where we saw stable levels in our special mentioned in sub standard loans.

Richard Murphy: Additional evidence of this could be seen in slide 18, where we saw stable levels in our special mention and substandard loans. We believe that this quarter's level of NPLs in charge of reflective return to a more stabilized credit environment is evidenced by the chart of historical non-performing asset levels on slide 19. Finally, we are firmly committed to identifying problems early and charging them downward. Appropriate is evidenced by 18 million of this quarter's charge us, which have been previously reserved. Our goal is always this: to stay ahead of any credit challenges, as noted in our last few earnings calls.

Rich Murphy: We believe that this quarters level of Npls and charge offs reflect a return to a more stabilized credit environment as evidenced by the chart of historical nonperforming asset levels on slide 19.

Rich Murphy: We are firmly committed to identifying problems early and charging them down where appropriate as evidenced by $18 million of this quarters charge offs, which had been previously reserved.

Rich Murphy: Our goal as always is to stay ahead of any credit challenges.

Rich Murphy: As noted in our last few earnings calls we continue to be highly focused on our commercial our exposure to commercial real estate loans, which comprise roughly a quarter of our total portfolio.

Richard Murphy: We continue to be highly focused on our commercial our exposure to commercial real estate loans, which comprise roughly a quarter of our total portfolio. Higher borrowing costs and pressure on occupancy and lease rates continue to affect CRE valuations, particularly in the office category. As detailed on slide 22, we saw promising science of stabilization during the third quarter as CRE NPLs decreased from 0.40% to 0.33%, and as noted earlier, we also saw CRE charge-offs reduced from 53 basis points to essentially zero for the third quarter. On slide 23, we continue to provide enhanced detail in our CRE office exposure.

Rich Murphy: We are borrowing costs and pressure on occupancy and lease rates continue to affect CRE valuations, particularly in the office category.

Rich Murphy: As detailed on slide 22, we saw promising signs of stabilization during the third quarter as CRE Npls decreased from four 1% to three 3% and as noted earlier. We also saw CRE charge offs reduced from 53 basis points to essentially zero for the third quarter.

Rich Murphy: On slide 23, we continue to provide enhanced detailing our CRE office exposure.

Richard Murphy: Currently, this portfolio remains steady at 1.7 billion or 13.1% of our total CRE portfolio and only 3.6% of our total loan portfolio. Of the 1.7 billion of office exposure, 44% is medical officer owner-occupied. The average size of a loan in this office portfolio is only 1.5 million. We have only 8 loans above 20 million, and only 5 of which are non-medical or owner-occupied. We continue to perform portfolio reviews 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 second quarter of 2025.

Rich Murphy: Currently this portfolio remained steady at $1 7 billion or 13, 1% of our total CRE portfolio and only three 6% of our total loan portfolio.

Rich Murphy: Of the $1 $7 billion of office exposure of 44% as medical officer owner occupied the average size of our loan in this office portfolio is only $1 5 million.

Rich Murphy: We have only eight loans above $20 million and only five of which are non medical are owner occupied.

Rich Murphy: We continue to perform portfolio reviews on our CRE portfolio and we stay very engaged with our borrowers as mentioned on prior calls our CRE credit team regularly updates there deep dive analysis of every non owner occupied loan over $2 5 million, which will be renewing between now and the end of the second quarter of 2025.

Richard Murphy: This analysis, which covered 84% of all non-owner occupied CRE loans, which during this period resulted in the following. Roughly half the loans reviewed will clearly qualify for a renewal of prevailing rates. Roughly 28% of the loans are anticipated to be paid off or will require a short-term extension of prevailing rates. The remaining loans will require some additional attention, which could include a pay down or pledge of additional collateral. We continue to backcheck the results of the portfolio reviews 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 the loans by providing enhancements, including principal reductions.

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

Rich Murphy: Roughly half the loans reviewed will clearly qualify for a renewal at prevailing rates roughly.

Rich Murphy: Roughly 28% of the loans are anticipated to be paid off or will require a short term extension at prevailing rates. The remaining lots will require some additional attention which could include a pay down our pledge additional collateral.

Rich Murphy: We continue to back check the results of the portfolio reviews 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 the loans by providing enhancements, including principal reductions.

Richard Murphy: As we have stated on prior calls, our portfolio is now immune from the effects of higher rates in 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.

Rich Murphy: As we have stated on prior calls our portfolio is not immune from the effects of higher rates and 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. In summary, we are encouraged by the trends we saw in the third quarter and we believe that our portfolio is in good shape and appropriately.

Richard Murphy: In summary, we are encouraged by the trends we saw on the third quarter, and we believe that our portfolio is in good shape and appropriately reserved.

Richard Murphy: That concludes my comments on credit, and I'll turn it back to 10.

Speaker Change: Served that concludes my comments on credit and now I'll turn it back to Tim.

Timothy Crane: Okay, thank you. That was a lot.

Okay. Thank you that was a lot I hope helpful to wrap up our prepared remarks I'll be very brief I would just emphasize dave's reference to the historical chart that we've included in our presentation materials.

Timothy Crane: I hope helpful to wrap up our prepared remarks. I'll be very brief. I would just emphasize Dave's reference to the historical charts that we've included in our presentation materials. We've performed well over various time periods and in different economic environments. We would expect that to continue; our pipelines remain strong. Our credit approach is disciplined. We remained well positioned to build share in our Midwest markets and within our niche businesses. And with respect to Macatawaii, it's still early, but our integration activities are on target. And we remain very encouraged and bullish on the opportunities that we have in West Michigan.

Tim Crane: We have performed well over various time periods and in different economic environments.

We would expect that to continue our pipelines remained strong our credit approach is disciplined.

Tim Crane: We remained well positioned to build share in our Midwest markets and within our niche businesses.

Tim Crane: And with respect to <unk>, it's still early but our integration activities are on target and we remain very encouraged and bullish on the opportunities that we have in west Michigan.

Unknown Executive: Overall, we'd like our position going into the last quarter of the year and into 2025. And certainly appreciate the support of all of our shareholders. At this point, I'll pause, and we'll take some questions, Latif.

Tim Crane: Overall, we like our position going into the last quarter of the year and into 2025 and certainly appreciate the support of all of our shareholders.

Tim Crane: At this point I'll pause and we'll take some questions Latif.

Unknown Executive: 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.

Latif: Thank you as a reminder to ask a question you will need to press star one one on your telephone.

Latif: To remove yourself from the queue you May press Star one again, please standby, while we compile the Q&A roster.

John Armstrong: Our first question comes from the line of John Armstrong of RBC Capital Markets. Please go ahead, John. Thanks. Good morning, everyone. Hi, John.

Speaker Change: Our first question.

Speaker Change: Comes from the line of John Armstrong of RBC Capital markets. Please go ahead John.

John Armstrong: Thanks, Good morning, everyone.

Speaker Change: Hi, John.

John Armstrong: Timmer, Rich, can you touch down a bit? Can you talk a little bit more about the long-growth outlook and the drivers? Just jotting down notes rich in your comments. You talked about both new customers and higher line utilization. And I think the line utilization is maybe a little bit different than what some of the peer banks are talking about.

John Armstrong: Tim or rich can you.

John Armstrong: You've touched on it but can you talk a little bit more about the loan growth outlook and the drivers.

John Armstrong: Just jotting down notes rich in your comments, you talked about both new customers and higher line utilization.

John Armstrong: And I think the line utilization is maybe a little bit different than what some of the peer banks are talking about so can you break that down a little bit more and talk a little bit more about the mix and the expected drivers of loan growth.

Richard Murphy: So can you break that down a little bit more and talk a little bit more about the mix and the expected drivers of long growth? Yeah. I mean, John, as you know, I think one of the keys for us is just having this really diversified asset portfolio. Because when some things are working, some things may not be working. The good example is during the period of very low interest rates, we saw life finance having very solid growth, and that as rates came up, their growth is more muted. Similarly, over the course of the last year and a half, we saw very strong performance out of our P&C premium finance group.

Tim Crane: I mean, John as you know I think that one of the keys for US is just having a really diversified asset portfolio because.

John Armstrong: Some things are working some things may not be working.

John Armstrong: A good example is.

John Armstrong: During the period of very low interest rates, we saw life finance, having very solid growth in.

John Armstrong: As rates came up and their growth is more muted. Similarly over the course of the last year and a half we saw very strong performance out of our P&C.

Richard Murphy: And so that has been a huge driver. So if you start with that for the course of this year, they were a meaningful part of the increases we saw in the overall loan portfolio. But then, getting back to your specific question, you add on some of these other areas. So we have seen in just the core C&I and core CRE portfolios some incredibly good opportunities just as the competitive landscape in Chicago has changed so much. And so we are seeing, you know, our pipeline right now is probably as full as I've ever seen it in terms of really quality mid market companies in particular.

Premium finance group and so that has been a huge driver.

John Armstrong: So if you start with that for the course of this year.

John Armstrong: We're up.

A meaningful part of the increases we saw in the overall loan portfolio, but then getting back to your specific question.

John Armstrong: And some of these other areas. So we have seen.

John Armstrong: In just the core C&I and core CRE portfolios. Some incredibly good opportunities just as the competitive landscape in Chicago has changed so much and so we are seeing.

John Armstrong: Our pipeline right now is is probably as full as I've ever seen it in terms of really quality mid market companies in particular.

Richard Murphy: Our asset-based team has seen fairly substantial pickup in new opportunities. And then, you know, coupled with that, we've also seen that we talked about it in previous calls. We picked up a warehouse line of credit group out of America that we brought on about just over a year ago. And they've been able to bring over a fairly substantial number of clients that they had. And, as I pointed out in my comments, you know, a fairly substantial increase in those balances as well. You know, leasing has also been a good part of the story for this year.

John Armstrong: Our asset base team has seen.

John Armstrong: Fairly substantial pickup in.

John Armstrong: New opportunities and then coupled with that and we've also seen.

John Armstrong: We talked about it in previous calls we.

John Armstrong: <unk> picked up a warehouse Atlantic credit group.

John Armstrong: Out of Comerica that we brought on about just over a year ago and they've been able to bring over a fairly substantial number of clients that they had.

John Armstrong: And Thats added.

As I pointed out in my comments, a fairly substantial increase in those balances as well leasing has also been a good part of the story for this year and so again, it's just it's not one thing that I would point to but it's a number of these different things that all kind of contribute to the total so.

Richard Murphy: And so, again, it's just, it's not one thing that I would point to, but it's a number of these different things that all kind of contribute to the total. So, you know, the utilization number; we're encouraged by that. We think that, you know, as rates went up, we saw that utilization coming up. So it's possible that, you know, that that may, you know, may not be, you know, a long standing. But I, we would anticipate that utilization rates are probably at a level where we would anticipate them continuing for a while here. So, hopefully they get that what you were, what you were asking them.

John Armstrong: The utilization number we're encouraged by that and we think that is.

John Armstrong: As rates went up we saw that utilization come down so it's possible that.

That may.

John Armstrong: Yes.

John Armstrong: It may not be our long standing but we.

Would anticipate that the utilization rates are are probably at a level, where we would anticipate them continuing for a while here. So.

John Armstrong: Hopefully that gets at what your what you were asking yes.

John Armstrong: Yeah, it does. Okay.

John Armstrong: So, this, this feels like a comfortable pace of growth for the company, what you just put up from an organic perspective. Yeah, no, I think that, that's right. I mean, we're not changing our guidance. We haven't changed our guidance in many years just because, you know, again, when something's working, something else may not. But, you know, when collectively, and I'm all up, it kind of hits in that spot. Okay, good. That's helpful.

Speaker Change: Yes. It does okay. So this feels like a comfortable pace of growth for the company. What you just put up from an organic perspective, yes, no I think that's right I mean, we're not changing our guidance, we havent changed our guidance in many years just because.

Speaker Change: When something's working something else may not but when collectively add them all up it kind of hits in that spot.

Speaker Change: Okay. Good.

David Stoehr: And then Richie, it's either you or Dave on this one, but I appreciate the carve out of the day one Cecil Provision, the 15 and a half million, and we would carve that out to suggest a higher run rate for ETS. But the 6.8 million for call it Legacy Wintrust, the core seemed a little bit lower than we were expecting. So I don't know if you can help us think through what the provision might look like in the fourth quarter. I know that's a little bit granular, but that might help us set expectations a little bit.

Speaker Change: Thats helpful.

Speaker Change: Rich, it's either you or Dave on this one but.

Speaker Change: <unk>.

Speaker Change: Appreciate the carve out of that that day, one provision of $15 5 million.

Speaker Change: We would carve that out ex suggests a higher run rate for EPS, but the the $6 8 million for call. It legacy when trust the core seemed a little bit lower than we were expecting so I don't know if you can help us.

Speaker Change: Through what the provision might look like in the fourth quarter, I know thats, a little bit granular, but that might help us set expectations a little bit is this a new lower core run rate for provision or is there should we think about maybe a reversion to a higher number.

David Stoehr: You know, is this a new lower core run rate for provision, or is there we should we think about maybe a reversion to a higher number? Thanks.

David Stoehr: Well, we gave some detail on site 18 for the changes for the allowance, but you know, from the provision, it was some benefit. The economic, macroeconomic conditions got better. And so some of the forecasts for commercial real estate pricing and some of the other factors that go into the model improved. So that was helpful to keep the provision lower this quarter. Prior quarter, we also had, you know, $9.7 million net more specific reserves. And those were like to some of the charge us that we took over this quarter. So you got ahead of those and then blew that, blew them out.

Speaker Change: Well.

You gave some detail on slide 18 for the changes for the allowance, but from the provision that there was some benefit the economic macroeconomic conditions got better and so.

Speaker Change: Some of the forecast for us commercial real.

Speaker Change: Real estate pricing and some of the other factors that go into the model improved so that was helpful.

Speaker Change: To to keep the provision lower this quarter prior quarter, we also had <unk>.

Speaker Change: $9 $7 million net more specific reserves and those relate to some of the charge offs that we took this quarter. So.

Speaker Change: You got ahead of those and then blew that blew them out.

David Stoehr: So that was beneficial that we didn't have similar specific reserves and actually released some of them this quarter. So I'm not early sure, John, depending on where macroeconomic conditions go, but, you know, we would expect to have that mid to high single digits growth that Rich talked about and have to provide for that. And then, you know, you look at portfolio mix, our criticized classified numbers have stayed very consistent and we don't expect those to necessarily get worse. And they're pretty good right now. So there's not a lot of change there. So I think it's probably just growth that we would provide for going forward and adjusted for whatever, you know, the economists do out there.

Speaker Change: So that was beneficial that we didn't have similar as specific reserves and actually release some of them this quarter.

Speaker Change: So I'm not early sure John depending on where macroeconomic conditions go, but we would expect to have that mid to high single digits growth that rich talked about and have to provide for that.

Speaker Change: And then.

Speaker Change: Look at portfolio mix, our criticized classified numbers have stayed very consistent and we don't expect those to.

Speaker Change: Necessarily get worse and they are pretty good right now so there's not a lot of change there. So I think it's probably just growth that we would provide for going forward.

Speaker Change: Adjusted for whatever.

David Stoehr: But, you know, I don't know if the election will impact a positive or negative for the fourth quarter. But if you would provide growth for mid to high single digits and a standard provision for that, that's probably my best guess because I just don't know which way the economic factors are going to go. Yeah. Okay. I think that gets us there.

Speaker Change: Economists do out there but.

Speaker Change: I don't know if the election will impact positive or negative for the fourth quarter, but.

Speaker Change:

Speaker Change: If you would provide growth for mid to high single digits on a standard provision for that that's probably my best guess, because I, just don't know which way the economic factors are going to go.

Speaker Change: Yes, yes, okay, I think that gets us there.

John Armstrong: And I think you saw Moody's upgraded the banking sector last night. So maybe that helps. But thank you, guys. I appreciate it. Yeah. Thanks. Thanks, John. Thank you.

Speaker Change: I think you saw Moody's upgraded the banking sector last night, so maybe that helps but but.

Speaker Change: But thank you guys I appreciate it.

Speaker Change: Yes, Thanks John.

Unknown Executive: Once again, to ask a question, please press star 11 on your telephone. Again, that star 11 on your telephone to ask a question.

Speaker Change: Thank you once again to ask a question. Please press star one on your telephone again Thats Star one one on your telephone to ask a question.

David Long: Our next question comes from the line of David Long of Raymond James. Your question, please, David. Good morning, David. Good morning, everyone.

Speaker Change: Our next question comes.

Speaker Change: Comes from the line of David Long of Raymond James Your question. Please David.

David Dykstra: Hey, good morning, Dave Good morning, everyone.

David Long: Good morning. Now that we've got a one of a rate cut in out there, how has your deposit cost trended? I mean, what has been your deposit beta since then?

Yeah.

Speaker Change: Now that we've got.

David: One a rate cut in out there.

David: How has your deposit costs trending I mean, what has been your deposit beta since then and how has how have you seen the.

David Stoehr: And how have you seen, you know, the competition react to this first rate cut, both on the commercial side and then maybe on the consumer side, too? Yeah, David Stoehr. So, on the way up, our beta was in mid-60s, and we would anticipate that it would be similar on the way down, and that, in fact, has been our experience with the first cut, which obviously we're not very far into. But what we can't tell you is that since the end of the quarter, and as we start to see more of the cut, you know, work through the portfolio, the reduction in deposit costs and the reduction in loan yields have been about the same, which gives us confidence that the, you know, the spread and ultimately the margin, you know, should be in the same level going forward here.

David: The competition react to this first rate cut both on the commercial side and then maybe on the consumer side too.

Tim Crane: Yes, Dave its Tim.

David: So.

Tim Crane: On the way up our beta was in mid <unk>, and we would anticipate that it would be similar on the way down and that in fact has been our experience with the first cut which obviously, we're not very far into but.

Tim Crane: But what we can tell you is that since the end of the quarter and as we start to see more of the cut work through the portfolio.

Tim Crane: The reduction in deposit costs and the reduction in loan yields have been about the same which gives us confidence that.

The spread and ultimately the margin should be in the same level going forward here.

David Stoehr: With respect to competitors, we've, you know, seen rates come down, promotional type rates from the, you know, low fives and 5% level to the four and a quarter, four and a half level. And, you know, we believe just given the, you know, kind of tepid loan growth that many competitors have had, that as rates trend down, they'll continue to try and move down.

Tim Crane: With respect to competitors, we've seen rates come down promotional type rates from the.

Tim Crane: Low fives, and 5% level to the four in a quarter four and a half level.

Tim Crane: And we believe just given the.

Kind of tepid loan growth that many competitors have had that as rates trend down that they'll continue to try and move down, but obviously thats. The risk is that if we get some strange competitive behavior with respect to loan or deposit pricing that will have to respond.

David Stoehr: But, but obviously that's the risk; is that if we get some strange competitive behavior with respect to loan or deposit pricing, that we'll have to respond. We have not seen that. Got it. Thank you, Tim.

Tim Crane: We have not seen that.

Timothy Crane: And then closing the acquisition of Macatala and Grand Rapids. I know that's still going through the integration process. But as you look forward there, what are your plans for potentially adding veteran bankers and really leveraging that franchise? Yeah, well, they have a terrific team. So number one, we like a lot where we start from. And over time, if we identify opportunities in the market, we will certainly add the resources that they believe are necessary to fully penetrate the market. You know, we are seeing inbound inquiries on ESAP loans and construction loans and other kind of specialty areas that they might not have pursued organically.

Speaker Change: Got it thank you Tim and then Claude.

Claude: The acquisition of macro tower in Grand Rapids, I know thats still going through the integration process, but as you look forward. There what are your plans for potentially adding veteran bankers and really leveraging that franchise.

Tim Crane: Yes, they have a terrific team.

Speaker Change: Number one we like a lot where we start from and overtime as we identify opportunities in the market will certainly add the resources that they believe are necessary to fully penetrate the market.

Speaker Change: We are seeing inbound inquiries on on Aesop loans, and construction loans and others kind of specialty areas that they might not have pursued organically and so we're very encouraged by the early feedback from the market.

Timothy Crane: And so we're very encouraged by the early feedback from the market. Great. Thanks, Tim. You bet.

Speaker Change: Great. Thanks, Tim.

Unknown Executive: Thank you.

Speaker Change: Matt.

Jeff Rulis: Our next question comes from the line of Jeff Rulis of DA Davidson.

Matt: Thank you.

Speaker Change: Our next question.

Speaker Change: It comes from the line of Jeff Realists of D. A Davidson your question. Please Jeff.

Jeff Rulis: Your question, please, Jeff. Thanks. Good morning.

Jeff Rulis: A couple of questions on the credit side.

Jeff Realists: Thanks, Good morning.

Jeff Realists: Hi, Josh.

Richard Murphy: I think you said the majority of the charge jobs came in that CNI segment and particularly one relationship. Could you just remind us, again, the industry there? And is that fully executed? Yeah, it was more than just one, but you know, where, where I would say the most, if I were categorizing the bulk of the losses that we saw in the quarter, were transportation related.

Jeff Realists: On the credit side.

Jeff Realists: I think you said the majority of that the charge offs came in that C&I segment, and particularly one relationship could you just remind us.

Jeff Realists: Again the industry they're in.

Is that fully exited.

Jeff Realists: It was more than just one.

Where we're I would say the most.

Speaker Change: If I were categorizing the bulk of the losses that we saw in the quarter were transportation related.

Richard Murphy: And Rich, hopping over to the office slide, it was increasing that 30 to 89 bucket. Your commentary was, was pretty positive.

Speaker Change: Got it okay.

Speaker Change: And rich hopping over to Deb.

Speaker Change: The office Slide there was an increase in that 30 to 89 bucket. Your commentary was pretty positive I just wanted to see if that increase was largely administrative any any kind of concerns that with that early delinquency number.

Richard Murphy: I just want to see if that increase was largely administrative and any kind of concerns with that early delinquency number. No, you know, it's interesting, and it kind of touches on something that, you know, I kind of have the sausages made. You know, when you're sitting here having these conversations with customers as it relates to, you know, right sizing alone or thinking through, you know, how you how you go about renewing it appropriately. Those conversations don't happen overnight. And so occasionally you will see things go past maturity as we work through those, but ultimately it's time well spent because, you know, we believe strongly that, you know, it's in everyone's best interest to get those repositioned appropriately.

Speaker Change: No.

Speaker Change: It's interesting and it kind of touches on something that.

Speaker Change: Kind of how the sausage is made when you are sitting here, we're having these conversations with customers as it relates to right sizing alone are thinking through how your how you go about renewing it appropriately.

Speaker Change: Those conversations don't happen overnight.

Speaker Change: Occasionally you will see things go vast majority as we work through those but ultimately it's time well spent because we we believe strongly that it's in everyone's best interest to get those repositioned appropriately. So I'm not overly concerned about that I think that periodically that'll happen is as we work.

Richard Murphy: So I'm not overly concerned about that. I think that periodically that will happen as we work with customers to try to make sure we get a good outcome there.

Speaker Change: With customers to try to make sure that we get a good outcome there.

Jeff Rulis: Okay, sounds like the overriding thread was more positive. It's the front end. and just some mechanics.

Speaker Change: Okay. It sounds like the overriding threat.

Speaker Change: It was more positive.

Speaker Change: And just.

David Stoehr: Maybe just one last one if a day, just on the expense run rate, trying to figure out, you know, we've got a full quarter of Marriottahua, maybe some cost saves in there, X-outs, some merger costs.

Speaker Change: Some mechanics.

Speaker Change: Maybe just one last one.

Maybe for Dave just on the expense run rate trying to figure out we've got full quarter of <unk>, maybe some cost saves in there ex out some merger costs. So any any active.

David Stoehr: So, any, any type of discussion about where that settles in and if you could hazard a guess on maybe 25 growth rate, that'd be great. Thanks. Well, as I said in my comments, you know, we had two-thirds of the quarter with McEtaua, roughly 10 million. So, you know, for the fourth quarter, because we have not gotten through the full integration and conversion yet, I would expect that to add another 5 million just as the run rate gets in there. I don't suspect there's much change in the other line items too much, but, you know, plus or minus a couple million dollars.

Speaker Change: Discussions about where that settles in and if you could hazard a guess on maybe 25% growth rate.

Speaker Change: That'd be great. Thanks.

Speaker Change: Well as I said in my comments.

Speaker Change: We had two thirds of the quarter with Macintosh roughly $10 million so for.

Speaker Change: For the fourth quarter.

Speaker Change: We have not gotten through the full integration and conversion yet I would expect that to add another 5 million just as as a run rate.

Speaker Change: Gets in there I don't suspect there's much change in the other line items too much but plus or minus a couple of million dollars I mean, a pretty big company. So you can have some fluctuations here and there, but I would expect sort of adding $5 million plus or minus to the run rate.

David Stoehr: I mean, it's a pretty big company, so you can have some fluctuations here and there, but I would expect sort of adding 5 million dollars plus or minus to the run rate.

David Stoehr: And then, you know, going forward, we've always sort of the last few years sort of been in the sort of the mid single digit expense growth rate, but that's under the assumption we're sort of high single digit deposit long growth rate, so you get some operating leverage, but not necessarily ready to make a call on that. Yeah, we need to see how the mortgage business goes and the like, because I could certainly add some additional commissions and costs if that picks up, but we don't have great visibility to that right now. Okay, that's helpful. Thank you.

Speaker Change: And then going forward, we've always sort of the law.

Speaker Change: Last few years sort of been.

Speaker Change: In the sort of the mid single digit expense growth rate, but thats under the assumption, we're sort of a high single digit deposit and loan growth rates. So you get some operating leverage.

Speaker Change: But not.

Speaker Change: Not necessarily ready to make a call on that yes, we need to see how the mortgage business goes.

Speaker Change: And the like but because that could certainly add some additional commissions and costs at that picks up but we don't have great visibility into that right now.

Speaker Change: Okay.

Jeff Rulis: Thanks, chef.

Speaker Change: That's helpful. Thank you.

Speaker Change: Jeff.

Unknown Executive: Thank you.

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

Thank you.

Our next question.

Speaker Change: Kevin is from the line of Chris Mcgratty of K BW. Please go ahead Chris.

Chris Mcgratty: Please go ahead, Chris.

David Stoehr: Hello, good morning. Dave or team, the capital improvement from the deal, that was any telegraph, but a nice bump up for the growth. As you go into the next few quarters, can you just remind us where you'd like that CT one ratio? David, I believe I believe you have some preferred to get reset. Maybe there's a swap opportunity, but just capital philosophy going into the next year. Well, I think you're right. We picked up some capital with the McAhtawa acquisition. They had a lot of excess capital and not a lot of marks in their portfolio, so that was beneficial to our capital ratios.

Chris Mcgratty: Hi, good morning.

Chris Mcgratty: Dave or team.

Chris Mcgratty: The capital improvement from the deal that was I think telegraph, but a nice bump up for the growth.

Chris Mcgratty: As you go into the next few quarters can you just remind us where you'd like that CET one ratio, Dave I believe I believe you have some preferred they get reset maybe theres a swap opportunity, but just capital philosophy going into next year.

Speaker Change: Well I think you're right we picked up.

Chris Mcgratty: Some capital with the macro tower acquisition, they had a lot of excess capital and not a lot of.

Speaker Change: Marks in their portfolio. So that was it was beneficial to our capital ratios.

David Stoehr: Like we said in the past, you know, we're in a position now where we think our earnings support our mid to high single-digit long growth, so we should build capital steadily going forward. Assuming we don't have outside growth, and I guess that'd be a good problem to have if you had it, but so we would expect that to continue to just grow, and you probably, you know, get it. So you're, you know, our CT one is close to 10% now. That would get into the 10% range sometime during 2025. And then for the preferred, we'll just have to see what the markets like at the time. You know, we're most likely refinanced them out at a lower spread, but there's a lot of time between now and then.

Like we've said in the past.

Speaker Change: We're in a position now where we think our earnings support our mid to high single digit loan growth. So we should build capital steadily going forward.

Speaker Change: Assuming we don't have outsized growth and I guess that would be a good problem to have if you had it but so we would expect that to continue to just grow and you probably get it. So your <unk> is close to 10% now it would get into the 10% range sometime during 2025.

And then for the Preferreds, we will just have to see what the market's like at the time.

Speaker Change: Most likely refinance them.

Speaker Change: But at a lower spread but.

Speaker Change: There's a lot of time between now and then.

David Stoehr: So we'll see what happens, but we have our eye on that, and we can either swap them out, you know, pay some of them down, or make it, but we'll have to make a decision at the time based upon what market conditions and rates are.

Speaker Change: We'll see what happens, but we have our eye on that and we can either swap amount paid some of them down.

Speaker Change: But we will have to make a decision at the time based upon market conditions and rates are.

David Stoehr: Okay, perfect.

David Stoehr: And then maybe a couple housekeeping on the average share count for the fourth quarter and then the tax rate day. Thanks. Yeah, I think the tax rate this quarter is pretty clean. So you probably do that. Macatow had a, you know, 4.7 million shares to the total. And we would have had two thirds of the quarter for that. So you can just do the math on that. Okay, perfect.

Speaker Change: Okay, Perfect and then maybe a couple of housekeeping on the average share count for the fourth quarter and then the tax rate Dave. Thanks.

Speaker Change: Yes, I think the tax rate this quarter was pretty clean so you probably do that math.

Speaker Change: <unk> added four 7 million shares to the total and we would have had two thirds of the quarter for that so you can just do the math on that.

Unknown Executive: Thank you.

Speaker Change: Okay perfect. Thank you.

Terry Mcevoy: Our next question comes from the line of Terry McEvoy of Steven Zink. Please go ahead, Terry. Morning.

Speaker Change: Thank you.

Speaker Change: Our next question.

Speaker Change: Comes from the line of Terry Mcevoy Stephens, Inc. Please go ahead Terry.

Brandon Rudon: This is Brandon Rudon for Terry. Brandon, most of my questions have been asked and answered. Maybe a couple modeling questions. Kind of falling up in the expense question earlier. I heard the mid-sing, mid-sing budget comments. Maybe there's more of a meat, excuse me, a medium or longer term target for expenses. I think historically you've looked at the net overhead ratio. And Dave, today you mentioned the expenses to average assets. Do you have maybe a target you can maybe share for us where you like that either of those ratios to settle out over the medium term?

Speaker Change: Good morning. This is Brandon route on for Terry.

Speaker Change: Hi, Brandon most of my questions have been asked and answered maybe a couple of modeling questions.

Speaker Change: Kind of following up on the expense question earlier I heard the mid to mid single digit comment maybe.

Speaker Change: Maybe just more of a meat meat excuse me a medium or longer term target for expenses I think historically, you've looked at the net overhead ratio.

And Dave you mentioned the expenses to average assets.

Speaker Change: Target you could may be share for us and where you like that you have those ratios to settle out over the medium term.

David Stoehr: Yeah, well, you know, it's hard to do a target on that unless you know what the mortgage business is because when the mortgage business is really strong, that number. The net overhead ratio comes down. You know, we certainly would like it less than 150 basis points to grow into there for the net overhead ratio.

Speaker Change: Yes.

Speaker Change: It's hard to do with target on that unless you know what the mortgage businesses because on the mortgage business is really strong net number.

Speaker Change: The net overhead ratio comes down.

We certainly would like in less than a 150 basis points to grow into there for the net overhead ratio and then we just sort of expect to get continued operating leverage but I don't think we have a long term goal that we have pointed out there there are certain things in the operating expenses like lease at least depreciation expense.

David Stoehr: And then we just sort of expect to get continued operating leverage, but I don't think we have a long-term goal that we pointed out there. There are certain things in the operating expenses like least at least appreciation expense. We hold back goes up because the leasing income goes up on the non-interest income side. So I think we tend to focus for the net overhead ratio more than the expense ratio because some of our non-interest income categories like wealth management and mortgages bring a lot of commissions with them, and we'd like those businesses to grow. But they bring with them operating expenses too.

Speaker Change: We hope that goes up because of the leasing income goes up.

Speaker Change: The noninterest income side. So I think we tend to focus for the net overhead ratio more than the expense ratio because some of our some of our <unk>.

Speaker Change: Noninterest income categories, like wealth management, and mortgages, bringing a lot of commissions with them.

Speaker Change: And we'd like those businesses to grow.

Speaker Change: But they bring with them.

David Stoehr: So we sort of like to look at it as the net overhead ratio, which incorporates both the non-interest income and non-interest expense rather than to have a specific non-interest expense target. And, you know, our growth on the non-interest expenses, that's sort of what we've said the last two years when we would expect just to continue at that pace.

Speaker Change: Operating expenses too so we sort of like to look at it is the net overhead ratio, which incorporates both the non interest income and noninterest expense rather than to have a specific noninterest expense target.

Speaker Change: Our growth on the <unk>.

Speaker Change: Noninterest expenses that sort of what we've said the last two years and we would expect just to continue at that pace.

David Stoehr: Okay. Thank you for that.

Speaker Change: Okay.

David Stoehr: And then just my last one on the mid to high single-digit long growth. I'm sorry if you said this, but where are those incremental yields coming on at, or maybe a spread because of the sofa or something? You know, it really depends on again. We have these different asset categories. So, I mean, they can range all over. I mean, the opportunities that are going to be more mid market deposit heavy, you know, spreads will be, you know, in the low 200 range. You know, but on the P and C side, you know, we're going to get substantially more than that, and everything else is kind of in between.

Speaker Change: Thank you for that and then just.

Speaker Change: My last one on the mid to high single digit loan growth and I'm sorry, If you said this but where are those incremental yields coming on at or maybe a spread proposal to sofa or something.

Speaker Change: It really depends on again, we have these different asset categories. So they can range all over I mean, the opportunities that are going to be.

More mid market deposit heavy spreads will be in the low 200 range, but on the P&C side.

Speaker Change: We're going to get substantially more than that and everything else is kind of in between.

David Stoehr: You know, we continue to be, as we talked about, very, very focused on getting appropriately paid for the risk. And, you know, so far we've been able to hold the line pretty well on price. Thank you very much. Thank you.

Speaker Change: We continue to be as we talked about very very focused on getting appropriately paid for the risk.

Speaker Change: So far we've been able to hold the line pretty well on pricing.

Speaker Change: Got it thank you very much.

Unknown Executive: Once again, to ask a question, please press star 1-1 on your telephone. Again, that star 1-1 to ask a question.

Speaker Change: Thank you once again to ask a question. Please press star one one on your telephone again Thats Star one one to ask a question.

Jared Shaw: Our next question comes from the line of Jared Shaw of Barclays. Your line is open, Jared. Hi, thanks.

Speaker Change: Our next question comes from the line of Jared Shaw of Barclays. Your line is open Jared.

Jared Shaw: Yeah, I think just the last thing I had was the impact of the hedges to margin going forward. I think it was 17 basis points in this quarter. What's the ballpark that we should expect going forward? Sort of the rule of thumb.

Jared: Alright. Thanks.

Jared Shaw: Yes, I think just the last thing I had was the impact of the hedges to margin going forward.

Jared Shaw: I think it was 17 basis points in this quarter, what's the what's the ballpark that we should expect going forward.

David Stoehr: Generally, Jared is for every 25 basis points of a reduction in so for we should benefit by about two and a half basis points. A little bit of timing difference because some of these reset the beginning of the month, etcetera versus, you know, the daily. But I think we're 17 basis point drag in the third quarter. And you know, it should be less than that. So if it goes down, but if you sort of use it, we give all the detail on the slides, but right now the average is about two and a half basis points for a 25 basis point benefit.

Speaker Change: Sort of the rule of thumb generally Jarrett is for every 25 basis points of a reduction in sulfur.

Speaker Change: And we should benefit by about two five basis points.

Speaker Change: A little bit of timing difference because some of these reset at the beginning of the month et cetera versus the daily but.

Speaker Change: I think were 17 basis point drag in the third quarter and.

Speaker Change: It should be less than that so for goes down, but if you sort of use that we give all the detail in the slides, but right now the average is about two five basis points per 25 basis point cut.

Benefit.

Unknown Executive: Great.

Unknown Executive: Thanks a lot.

Speaker Change: Great. Thanks, a lot.

Nathan Race: Thank you.

Speaker Change: Thank you.

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

Speaker Change: Our next question.

Speaker Change: Comes from the line of Nathan race of Piper Sandler. Please go ahead Nathan yes.

Nathan Race: Please go ahead, Nathan. Yeah.

Nathan Race: Hey guys, good morning. Thanks for taking the morning. I apologize. The guy went a little late, but just in terms of the gain on sale, margin compression that we saw this quarter. It was a little bit more so than what we saw for some other larger things to report last week. So just curious if you have any thoughts on maybe starting point for four Q. Yeah, it was a little lower than we'd hope, but the little volatility when rates were falling and some of the secondary market hedging that we do it when we do locks on those.

Nathan Race: Yeah, Hey, guys. Good morning, Thanks for taking good morning Nate.

Nathan Race: I apologize I got in a little way, but just in terms of the gain on sale margin compression that we saw this quarter. It was a little bit more so than what we saw from some other larger banks that reported last week. So just curious if you have any thoughts on maybe a starting point for <unk>.

Nathan Race: Yes.

Speaker Change: It was a little lower than we'd hoped, but theyre a little volatility when rates were falling and some of the secondary market hedging that we do that when we do locks on those.

David Stoehr: We would expect that again, on sale margins would be closer to the 2% range in the fourth quarter. Probably volumes are somewhat similar as Tim said, you know, the rates backed up a little bit. So there's just not a lot of activity there, but we would not expect the gain on sale margin to be that low on the fourth quarter. We'd expect it to pop back up in closer to two.

Nathan Race: We would expect.

Nathan Race: The gain on sale margins are really closer to the 2% range in the fourth quarter.

Nathan Race: Probably volumes are somewhat similar as Tim said the rates backed up a little bit. So there's just not a lot of activity there, but we would not expect the gain on sale margin that would be that low in the fourth quarter, we would expect it to pop back up in.

Nathan Race: Closer to two.

David Stoehr: Okay, great. Very helpful next day. And again, I apologize if you already touched on it, but in terms of an I growth expectations, I know it's kind of a fluid environment in terms of thinking about next year. But, you know, assuming the margin kind of holds in around 350, even if we get another 100 pieces points of Fed cuts next year. Or just any thoughts on just how much an I can grow, you know, assuming balance you grow the means of that mid to high single digit range. Well, I guess it's just math that, right?

Okay, great very helpful. Thanks, David.

Speaker Change: Again, I apologize if you already touched on I touched on it but in terms of NII growth expectations. I know, it's kind of a fluid environment in terms of thinking about next year, but assuming the margin kind of holds in around $3 50, even if we get another 100 basis points of fed cuts next year, just any thoughts on just how much NII can grow assuming balance sheet growth it means that.

Mid to high single digit range.

Speaker Change: Alright.

David Stoehr: If we think the margin is going to be relatively stable and you have mid die single digit asset growth, you'd have the mid die single digit NIA. So that's why we look at it as a relatively stable margin and mid to high single-digit earning asset growth, which should produce net NIA growth. Okay, great. Always helpful just to hear you guys indicate that.

Speaker Change: I guess, that's just math right. If we think the margin is going to be relatively stable and you have mid to high single digit.

Speaker Change: Asset growth you'd have the mid to high single digit NII. So that's the way we look at it as relatively stable margin and mid to high single digit, earning asset growth, which should produce net NII growth.

Speaker Change: Okay, Great always helpful. Just to hear you guys.

David Stoehr: And then, you know, just lastly, just in terms of the. I expect a growth in capital going forward. I think you mentioned you're just going to kind of remain optimistic on the M&A front going forward, but just any of the thoughts and just how you'd like to manage capital. Are you guys just comfortable kind of building access capital over the next several quarters here in order to prefer to be said next year? Yeah, I mean as Dave said, we'll look at the preferred options that exist as we get into the summer next year, but otherwise, absent a lot of loan growth, we should be building capital and are comfortable to kind of gradually continue to improve the company's capital ratios.

Speaker Change: Get that.

Speaker Change: And then just lastly, just in terms of the.

Expected growth and capital going forward I think you mentioned youre, just going to kind of remain opportunistic on the M&A front going forward, but just any other thoughts on just how you'd like to manage capital are you guys comfortable kind of building excess capital over the next several quarters here.

Speaker Change: The preferred reset next year.

Speaker Change: Yes, I mean, as Dave said, they will look at the preferred options that exist as we get into the summer next year, but.

Speaker Change: Otherwise.

Speaker Change: Absent a lot of loan growth, we should be building capital and are comfortable to kind of gradually continue to improve the company's capital ratios.

Nathan Race: Okay, great. Thank you, Nate. Thank you.

Speaker Change: Yes.

Speaker Change: Okay great.

Speaker Change: Okay.

Speaker Change: Thanks, guys, yes.

Thank you Nate.

Timothy Crane: I would now like to turn the conference back to Tim Crane for closing remarks. Let's see, thank you very much, and thank you again for everybody that's joined us on the call. Good questions, and again, I would just characterize this quarter as solid growth organically, as well as the addition of Makatawa; you know, a stable margin, which we believe we've positioned the bank well for going forward. Good credit at the moment. We're not going on wood, as we say that, and then you know continued investment in the franchise's future, and that's in technology and building share in the markets and hiring the right people.

Speaker Change: Thank you I would now like to turn the conference back to Tim Crane for closing remarks, Sir.

Tim Crane: Latif. Thank you very much and thank you again for everybody that's joined us on the call.

Good questions and again I would just characterize this quarter as solid growth organically as well as the addition of <unk>.

In a stable margin, which we believe we've positioned the bank well for going forward.

Tim Crane: Good credit at the moment, we're knocking on wood as we say that and then.

Tim Crane: Continued investment in the franchise's future and Thats in technology and building share in the markets and hiring the right people. So.

Timothy Crane: So we're actually very optimistic going into the fourth quarter and into 2025, and you know we appreciate all of your support and your questions. If there's anything you didn't get answered on the call, please feel free to call us afterwards. Let's see if that's it.

Tim Crane: We're actually very optimistic going into the fourth quarter and into 2025 and we.

We appreciate all of your support and your questions and if there's anything you didn't get answered on the call. Please feel free to call us afterwards.

Unknown Executive: Thank you very much, everybody.

Tim Crane: Let's see if that's it thank you very much everybody.

Unknown Executive: This concludes today's conference call. Thank you for participating.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Unknown Executive: You may now disconnect.

Speaker Change: Okay.

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