Q2 2025 Wintrust Financial Corp Earnings Call
Welcome to win, trust Financial Corporation, second quarter and year to date 2025.
Earnings results will.
Be made sheet executive officer.
David Dura: David Dura, Vice chairman and Chief Operating Officer and Richard Murphy, Vice, chairman and chief lending officer.
David Dura: As part of the reviews, the presenters may make reference to both the earnings press release and the earnings release presentation following their presentation, and there will be a formal question and answer session.
David Dura: Beliefs or similar forward-looking statements.
David Dura: Actual results could differ materially from the results anticipated or projected, in any such forward-looking statements.
David Dura: 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 then the company's most recent form 10K and any subsequent filings with the SEC.
David Dura: Also, our remarks May reference certain non-gaap Financial measures our earnings press release, and earnings release presentation include the reconciliation of each non-gaap Financial measure to the nearest comparable, gaap Financial measure.
As a reminder, this conference call is being recorded. I will now turn the conference call over to Mr. Tim crane
Good morning everyone. Thank you for joining us for the win. Trust Financial second quarter earnings call.
Speaker Change: In addition to the introductions Latif made, I'm joined by our Chief Financial Officer Dave star, and our chief legal officer Kate, bogie.
Speaker Change: I'll begin this morning with some high-level highlights. Dave Dexter will speak to the financial results and ritual, add some additional information on loan activity and credit performance.
Speaker Change: As always following our remarks, we'll be happy to take your questions.
Speaker Change: Our differentiated approach focused on understanding and meeting our client needs continues to deliver consistently strong financial results.
We reported record quarterly, net income of 195.5 million up from 189 million last quarter.
Net interest income. Also, a quarterly record was 547 million.
Speaker Change: Driving the higher net, interest income was second quarter loan, growth of 2.3 billion.
the growth was broad-based and clearly reflects the seasonally strong second quarter in our attractive Premium Finance business,
A good deposit growth during the quarter of over 2 billion dollars in assets grew to 69 billion.
Speaker Change: Going forward. Our pipelines are strong and we expect continued mid to high single digit loan growth for the second half of the year.
Speaker Change: We also expect continued deposit growth that will fund our loan growth. What's particularly important about the deposit growth is that it represents new commercial and consumer households that allow us to continue to grow our franchise.
Speaker Change: Given the strong growth in the quarter. It's important to highlight that we continue to be disciplined in our growth.
Speaker Change: We can and do pass on credit opportunities, where we cannot get comfortable with the pricing or proposed credit structure.
Speaker Change: This approach has served us well and will not change.
Speaker Change: That interest margin for the quarter remained comfortably within our target range at 3.54%.
Speaker Change: Uh, Dave will talk a little bit more about the margin in just a minute.
Speaker Change: Residential Mortgage activity. While up somewhat, this quarter remains muted in the current rate environment, we continue to manage expenses in that business, to protect our current Financial results. While ensuring that we're positioned to capture business, when rates go down and mortgage activity increases,
Speaker Change: We continue to believe that Mortgage business is a core offering and provides a nice Financial hedge against margin pressure in a lower rate environment.
Speaker Change: Credit, quality remains very good. We continue to stay close to the small number of clients experiencing uncertainty in the current economic environment so that we can help get ahead of any challenges. They may face.
Speaker Change: Overall another strong quarter, consistent results in line. With our expectations, let me turn it over to Dave.
Dave Dexter: Great. Thanks Tim. Uh, as as Tim said, we had a strong deposit and Loan growth quarter. Um, the deposit growth was 2.2 billion dollars. Representing a 17% increase over the prior quarter on an annualized basis. The solid loan or the solid deposit growth helped to fund seasonally strong. Second quarter loan growth of 2.3 billion or 19% on the annualized basis for the first half of the year. Loan growth with 3 billion dollars or 12% on an annualized basis.
Dave Dexter: That's other aspects of the balance sheet results. Total assets through by 3.1 billion dollars to 69 billion.
Dave Dexter: Including the impact of the 425 million preferred stock offering, which I will discuss later in my comments.
Dave Dexter: Uh turning to the income statement results. This was a very solid operating quarter producing a record level of quarterly net income and with just a few moving pieces.
Dave Dexter: I'll start off by highlighting what we consider The Uncommon items to be for the quarter which included 2.9 Million, uh of acquisition related costs.
And that security gains is 650,000. Uh, those items are discussed on the first page of the earnings release if you'd like to refer to them later.
Dave Dexter: Our net interest income increased 20.2 million from the prior quarter, as a result of a 1.9 billion dollar increase in average earning assets. And a relatively stable, net interest margin.
Dave Dexter: Uh, this quarter, representative record, high amount of quarterly, net interest income.
Dave Dexter: Uh, given the current interest rate environment. And even with the few rate changes in either direction, we remain confident that our net interest margin will continue to be relatively stable throughout the remainder of 2025.
Dave Dexter: With that stable, net, interest margin Outlook and the projected future growth in average airing assets. We would again expect to increase net interest income in the third quarter.
Dave Dexter: I would note that period end loans for approximately 1.5 billion dollars higher than the average loans for the second quarter. Giving us a good start on a higher, average earning assets for the third quarter.
Dave Dexter: Uh, the slightly lower provision for credit loss is recognized in the second quarter as compared to the prior quarter is primarily attributable to a slightly better set of macroeconomic factors offset somewhat by the aforementioned strong loan growth.
Uh, regarding other non-interest income and non-interest expense sections, the total non-interest income total of 124.1 million in the second quarter, which was up approximately 7 and a half million dollars when compared with the prior quarter.
Although persistently, High mortgage rate stamped in our optimism for a stronger, string spring, buying season The company generated, approximately 2.6 million dollars more in Mortgage Banking Revenue as we experience higher production Revenue due to somewhat higher origination volumes offset by a bit less.
Dave Dexter: Portfolio.
wealth management Revenue increase by 2.8 million in the second quarter, primarily as a result of asset valuation increases during the quarter,
Dave Dexter: the company recorded a variety of smaller changes to other non-interest income categories as shown in the tables in the earnings release, but the changes relative to the prior quarter were not Material or unusual.
As far as non-interest expense categories, go non-interest, expenses total 381.5 million in the second quarter. And we're up approximately 15.4 million from the prior quarter.
Dave Dexter: The primary reasons for the increase were all factors that we projected would occur on last quarter's earning call specifically salaries and employee benefits expense increased by approximately 8 million dollars as compared to the first quarter, due primarily the higher employee benefits expense due to an increased level of health insurance claims higher mortgage and wealth management commissions because of the corresponding higher revenues in those business lines and the second quarter having a full effect of the annual Merit increases that were effective on February 1st.
Dave Dexter: Advertising and marketing expenses increased by 6 and a half million dollars in the second quarter. When compared to the first quarter, as we've discussed many times in the past, this category of expenses, tends to be higher in the second. And the third quarters of the year, due to the expenditures related, to various major and minor league, baseball sponsorships and other summertime sponsorship events held in the communities that we serve.
Dave Dexter: So, the remaining variances and non-interest expense, both positive and negative, we're relatively normal amount to less than $1 million in the Aggregate and don't warrant any additional uh special mention on this call.
We also continue to build our tangible book, value per share during the first half of this year. And as you can see on, slide, 10 of the presentation deck, we have grown tangible book, value per common, share every year, since we've been a public company and we are on track to do. So, again, in 2025,
Dave Dexter: As I mentioned earlier, I'd like to take a moment to discuss the 425 million series of preferred stock issuance, that win. Trust closed on May 22nd.
Dave Dexter: The issuance was to redeem 412.5 million of series D and Series, E, preferred stock that was set to repriced on July 15th 2025, and they were set to reprice at rates higher than the existing Market rates.
Dave Dexter: In fact, win trust, did redeem all the series D and Series E preferred stock on July 5th. And now has only the series, up preferred stock outstanding, because the Redemption of the first stock will impact the earnings per share calculation. In the third quarter, we've included an overview of such impact on slide 24, the presentation deck,
Dave Dexter: Dividends are recorded and and, and declared in the third quarter will be will be larger.
Dave Dexter: Um, than the normal Series, F dividend declaration and there will be no dividends for the series D or Series E.
Dave Dexter: In addition accounting rules required that the prior issuance cost on the series D and Series, E issuances need to be reclassified upon Redemption from Capital, Surplus and recognized for retained earnings. It's just a reclass within the capital section.
Dave Dexter: But the accounting rules require that um reduction to be um recorded through net income available to Common shareholders. IE below the net income line.
Importantly, these amounts will not impact third, quarter operating net income, but will impact their quarterly earnings per share calculations. Again, slide 24 in the presentation deck summarizes this information, but the long and the short of it is the most recent quarters, including the second quarter had roughly 7 million dollars of preferred dividends. So for the past few quarters and and going back 5 years that number spent 7 million dollars in the fourth quarter of this year and going forward for 5 years until they reprice. Again, that number will be 8.4 million
Dave Dexter: The third quarter for all the reasons. I just talked about, will have a slightly higher number due to the issuance costs, uh, of the series DNE Redemption, and the extended uh quarterly dividend payment period.
Uh, so with that um again refer to slide 24 for all the details and if anyone has any questions, I'd be happy to take any calls and walk you through the information.
Dave Dexter: Uh, so with that, Tim I'll conclude my comments and turn it over to Rich.
Speaker Change: Oh, thanks, Dave. As Tim and Dave both noted credit performance continued to be very solid in the second quarter.
Speaker Change: As detailed in.
Dave Dexter: Release.
Dave Dexter: For Property and Casualty Premium Finance group in the second quarter.
Dave Dexter: This past quarter was no exception. As we saw just over 1 billion of growth in this portfolio in line with our forecast.
Dave Dexter: What we have seen some moderation in insurance premium rate increases the overall Market remains firm. In addition, we continue to benefit from new opportunities as a result of consolidation and dislocation within the Premium Finance industry.
Dave Dexter: We also saw a good growth from a number of other segments. Commercial Real Estate Group by 377 million, the mortgage Warehouse team continues to build momentum and grew by 213 million. As we continue to onboard new relationships with come, which also come with some meaningful deposit opportunities.
Dave Dexter: And our leasing team like Premium Finance and Residential Mortgage groups. Also had a very solid quarter.
Dave Dexter: As Tim said, We Believe loan growth for the second half of 2025 will continue to be strong and within our guidance of mid to high single digits for a number of reasons.
Dave Dexter: For cni and CRA pipelines, remain very solid and we continue to benefit from our Market positioning in our core markets of Chicago land, Wisconsin, West Michigan, and Northwest Indiana.
Dave Dexter: In addition, we have very strong moments in our history including and mortgage Warehouse.
Dave Dexter: Last quarter. We spoke of growing uncertainty in economic conditions, as a result of potential tariffs, tax law, changes and funding cuts.
Dave Dexter: Reviewing our portfolio. We have a relatively small number of credits at risk of greatest impacts. And we continue to stay very close to them.
Dave Dexter: Overall, we believe there is greater Clarity on many of these issues, driving that uncertainty. And we believe the impacts on our portfolio, will be very limited given our strong underwriting standards and discipline approach to diversification.
Dave Dexter: We are cautiously optimistic about the overall business environment as we enter the second half of the year.
Dave Dexter: From a credit quality perspective. Uh, as detailed on slide 15, we can continue to see strong credit performance across the portfolio.
This can be seen in a number of metrics.
Dave Dexter: non-performing loans as a percentage of total loans were relatively stable, charge us for the quarter were 11 basis points unchanged from q1
Dave Dexter: We continue to believe that the level of npls and charge us in the second quarter. Reflect a stable, credit environment as evidenced by the chart of historical non-performing asset levels on slide 16 and the consistent level in our special mentioned in substandard loans and slide 15.
Dave Dexter: Finally, we are firmly committed to identifying problems early and charging them down. Where appropriate our goal is always to stay ahead of any credit challenges.
As noted in our last few earnings calls, we continue to be highly focused on our exposure to commercial real estate loans, which comprise roughly 1 quarter of our total portfolio.
Dave Dexter: As detailed on slide, 19, we continue to see signs of stabilization during the first, during the second quarter as CRA npls remained at a very low level, increasing slightly from 0.20% to 0.25%.
Dave Dexter: CRA charge offs. Remain at historically, low levels.
Dave Dexter: We continue to provide enhanced detail of our CRA and office exposure.
Dave Dexter: Currently this portfolio remains steady at 1.6 billion or 12.1% of our total CRA portfolio and only 3.1% of our total loan portfolio.
Dave Dexter: Of the 1.6 billion of office exposure 48% is medical office. Our owner occupied
Dave Dexter: The average size Loan in this office portal, is relatively small at 1.5 million and we have 5 loans over 20 million. Only 2 of which are not MediCal or owner occupied.
Dave Dexter: We continue to perform portfolio reviews regularly in our CRA portfolio and we stay very engaged with our borrowers. As mentioned on prior calls, our CRA credit team regularly updates, their deep dive analysis of every non-owner occupied loan over 2 and a half million, that will be maturing between now and the end of the year, this analysis which covered 84% of all known non-owner occupied CRA loans with touring during this period showed very consistent results compared to Prior quarters
In summary. We continue to be encouraged by our credit performance in the second quarter. And we believe that our portfolio is well positioned that appropriate appropriately. Reserved that concludes my comments on credit and I'll turn it back to Tim.
Tim: Thanks Rich. Um, just a few kind of quick, final thoughts. Um, Midway through the year. We feel very good about our business and the momentum going into the second half of the year. Um, we continue to deliver sophisticated Financial Solutions across all our businesses with a differentiated Client First Focus.
Tim: And what's important to note is that our approach is driving consistent meaningful Financial results. Over the last year. We've produced steady quarterly increases in loans, deposits and net income.
Tim: We manage our expenses thoughtfully while continuing to invest in our business to support our future growth.
As Dave mentioned, the expenses Trend higher in the second, and third quarters and reflect both investments in our business and some of these seasonal fluctuations.
Tim: As always, we work with our clients to help them address.
Tim: Focused on delivering a differentiated experience and our disciplined approach continues to drive real value, for our shareholders.
Tim: With that, I thank you for your time and we'll open the line to questions Latif.
Thank you as a reminder, to ask a question. You will need to press star 1 1 1 on your telephone, to remove yourself from the queue. You may press star 1 1 1 again.
Speaker Change: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of John Armstrong of RBC. Please go ahead John
Speaker Change: Yeah, good morning. Um,
Question for you on um, on the loan growth numbers, uh obviously very strong this quarter.
Speaker Change: um, you mentioned seasonality and expenses and I guess I'm I'm curious about third quarter
Speaker Change: Expectations. You have a higher.
Speaker Change: Period end balance but I think the growth is typically a little slower in the third quarter. Is it, is it fair to look at maybe prior?
Speaker Change: Third quarter Trends from second quarter as a benchmark for what you might expect in Q3, in terms of growth.
Speaker Change: Expense growth or a long growth. John, Long growth, sorry. Sorry.
Speaker Change: Yeah, yeah, long growth. If you look at the third quarter excluding Macatawa and then fourth quarter, I think that if we'd be pretty much in line with what we would anticipate for this year, um, so again in the range but at the higher end of the range
Speaker Change: Yeah, I I think, I think if you we just think mid to high single digits based off of the June 30th balance going forward, right? Half of the year. That's sort of our our view right now.
Speaker Change: Okay. Got it. Um and then uh Tim a question for you on deposits, you guys. Where are you finding the best places to gather deposits? I mean, it looks
Speaker Change: Looks like money markets were strong, but you mentioned commercial.
Speaker Change: Consumer and Warehouse. You just talk a little bit more about where you're finding that kind of deposit growth and and can that keep Pace with loan growth.
ladies and Gentlemen, please stand these are many aligned
Speaker Change: Please stand by.
Speaker Change: You know, we can continue to grow the the commercial growth in deposits is particularly helpful because obviously we get treasury management revenues and other activities related to that. But um, you know, this was a a very solid deposit growth quarter, for us, you know, funding the the seasonal loan growth. Um, continue to think we'll have opportunities but but 2 billion dollars of deposit growth should not be kind of the norm going forward.
Speaker Change: No. Okay.
Speaker Change: Um and then just 1 small 1 anything on the wealth management. Outsourcing uh can you just talk about longer term goal there? And how that's gone?
Speaker Change: Yeah, that that conversion to the LPL platform, which as we've described in Prior calls, was was really an upgrade for the tools and technology for our financial advisors and our our wealth employees um, is largely behind us. And we've, you know, migrated out of conversion mode into, uh, serving our clients and obviously the markets have been pretty terrific for the last month or so here. Uh, we continue to look at the wealth business as an attractive opportunity for us and would look to continue to grow it.
Okay.
Speaker Change: Thank you very much.
Thank you.
Speaker Change: Our next question.
Comes from the line of Chris McGrady of KBW. Your line is open. Chris
Speaker Change: Oh, great morning. Um, hi Chris
Speaker Change: How you doing, uh, in terms of the knee growth, the 4% link quarter, uh, 16 year on year is great numbers. Um, I guess the question if we put the pieces together with earning asset growth loan, growth margin stability.
Does that become a little bit more challenging given the deposit competition that's increasing? Or is this uh, degree of knee growth? I guess over the near term uh, still reasonable. Thanks.
Speaker Change: Oh yeah. I you know, as we said we expect mid to high single digit long growth from here on out and a relatively stable margin. Um, you know, on the 3, you know, we've been roughly the 3502 53 range on average over the uh uh the last few quarters. You know, if we stay in that in the mid, the low 3 range, um, or 350 range, then I I think it's just what, what is your average asset growth and and that's what we're looking at. So if we have that mid to high single digit average asset growth, we should see the mid to high single digit. You know, in that end Christ income growth. It's just simple math. I think, from our perspective, okay? And our our deposit, our deposit pricing, you know, the you know, if if you're growing, you know, as much as we did this quarter,
Um, you know, maybe the pricing was a little high, but as Tim said, the markets are still really good and and we have great position in all those markets. So, we, we think we can fund the growth with with deposits right now. Um, it's it's never easy, but we've always been able to do that and Chris, even with this quarter's, you know, 2 billion dollars worth of growth. Our deposit costs were down slightly and, you know, so our Our Hope, as long as the kind of markets, remain rational, we'll continue to add clients and, and importantly, add the deposits as well.
Speaker Change: Okay, Dave you addressed the earning asset, there's not anything materially, you're going to turn the earning assets, you know, to fund the growth. It's just um,
Speaker Change: Right? There's no material changes. You're doing to the mix of the earning assets.
No. I mean the only odd thing is the second quarter is always really strong on Commercial Premium Finance. Recall. Last couple of years, we sold some in the middle of the year and this year we had more liquidity and more capital and and we had had good deposit growth. So we cut those assets on our balance sheet and funded them internally versus the sale. Like we did a couple years ago but going forward, we're not going to have a billion dollar, you know, uh,
Speaker Change: PNC, Premium Finance, growth quarter, and the third quarter. The second quarter is seasonally high, but other than that, our commercial commercial real estate pipelines are very consistently strong. So we, we would expect to, to have sort of a
Speaker Change: The normal growth absent outside Premium Finance seasonality in the second quarter.
Speaker Change: Great. And and my follow-up, maybe for Tim is, you know, the deregulatory narrative. What does it mean for win? Trust anything. You might be doing differently. Do do deals. Become, you know, you don't need to do a deal. Giving the growth you're putting up. Does that become more of a possibility? Anything you can unpack there on deregulation, thanks?
Speaker Change: Yeah, Chris. I mean, we're we're obviously hopeful that there's, you know, some sort of tailoring or or inflation adjustment, whatever you want to call it to, um, you know, relax the rules for for growth and we we continue to build the foundation for a, a bigger and better Bank.
Speaker Change: Continue to do that.
Speaker Change: Um, we'll continue to look at at acquisition opportunities. It looked like looks like that activity has picked up a little bit. Um, we think we have a strong strong track record there, you know, Macatawa, for example is terrific. Um, so we'll be disciplined, but but opportunistic.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Our next question comes from the line of David long of Raymond James. Please go ahead. David.
David Long: 20 everyone. Uh, thanks for taking my, my questions, the, on the core cni side sentiment across the industry, seemed much lower. When you held your call back in April, as you looked at the growth throughout the quarter did, did it accelerate throughout the quarter, or was it pretty steady throughout the quarter and, and how are your core commercial clients? Um, how's their sentiment now?
David Long: Yeah, you know, it's interesting David. I I think that um I I wouldn't say there was a material difference during the quarter in terms of just production, but I would say sentiment uh, and I touched on it in my comments, if if, if we look back in April, there was just so much noise around all
David Long: All these regulatory changes all the the tariffs you know that we're still not out of the woods obviously there. But I think there's you know more confidence here that the economy is not the bottom side coming out. Um I think you know most customers are feeling, you know again going to the term I use cautiously optimistic about where things are at right now. So um that coupled with you know the market dynamics in in the Chicago Market in particular but you know certainly in our other core markets, you know it feels like you know things are going to be in a pretty good spot and you can see that in our Pipelines
Got it. Thanks Rich. And then the follow-up question, is it relates to the CRA office portfolio on? Slide 20. Do you guys? Highlighted the non-performers within that portfolio? Increased a bit, just just curious. If I can get a little more color on on, what what happened there and, you know, give me a little, you know, now looking for the name of of, of the building or anything like that, but just want to get a little more color around the non-performers on the office side.
Speaker Change: Yeah, you know, it it's really I mean the numbers are so small that all it takes is a couple of of deals and that's what it was here. Um, you know, nothing. Neither of them particularly large but um, you know, combined, when you look at a relative to the total kind of causes a little bit of a blip, nothing that we're overly concerned about we think we're Market appropriately and, you know, we'll get through those relatively quickly. But, you know, I I kind of refer in that portfolio is kind of, you know, because
Speaker Change: The denominator so small. That you know every every new loan makes it look like a a pop but you know, we're just managing through the portfolio like we do every day.
Speaker Change: Great. Thanks, Rich. Appreciate it. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Nathan race. A piper Sandler, please go ahead, Nathan. Hey guys. Good morning. Thanks for taking the questions.
Speaker Change: Hey Nate.
1 of your Midwest, peers this morning, kind of tempered loan growth, expectations setting, some increased competition. So just curious, you know what you guys are seeing from a competitive pricing perspective. Obviously you know loan deals came down a little bit this course. So I'm curious if that's driving, uh, some of that loan yield compression that we saw on the quarter and if you could just comment in particular on the con, uh, Commercial Insurance Premium Finance portfolio. In terms of what new rates on production, look like there are relative to the uh rolloff yield
Speaker Change: Yeah, you know, I'll I'll talk a little bit about um, the core portfolio and and what we're seeing and and some of the the niche portfolios as well. I mean, we uh, we talked about it at the end of the last year, that we would anticipate that Banks. As they continue to try to ramp up their Loan Production would become a little more aggressive and we have seen that. Um, but it's Tim Johnson is opening remarks. You know, we have, um, uh, pretty disciplined approach to where we're going to be on pricing. Um, but has there been margin compression and
Speaker Change: In leasing same thing. Um you know in the the the specifically to your PNC question you know we continue to be in in pretty good shape. I mean prices are coming in you know a little bit tighter on on larger um you know, credit oriented deals. Um but we have a very, very granular portfolio there that we continue to be able to price pretty well.
Speaker Change: And they the, you know, for the second quarter I think a number in the the mid 7s would be about the right range for the PNC loan deal.
Speaker Change: Okay, and then that's pretty close to the roll off field if I heard.
Speaker Change: Yeah, not not too far off.
Okay, great. And then you mentioned on deposit costs, you know, looks like they were kind of stable in the quarter all in, but if I strip out CDs, it looks like you're interested. Period deposit costs are up 6 basis points quarter of a quarter. So just curious as long as the federal remains on hold. Do you think deposit costs kind of hold in there? Or do you think we see kind of a little grind higher from here?
Speaker Change: I I think pretty stable to where we were in the second quarter. I mean, again, we we had to raise 2 billion dollars worth of deposits, which we, we were thrilled to do because it's new customers to us.
Speaker Change: Um, I I think we'll be in the same range and if if we get a cut, obviously, you know, we, we feel reasonably good. That we can handle that without much impact, on the margin.
Great. Um, maybe 1 last 1 for Dave on expenses, you know, going back a couple Kors. I think he guided to kind of the mids single digit increase this year off the 4q, uh, level of last year, you know, just curious, if you still think that holds true, which, you know, I think translates about a billion 5 to a billion, 6 and expenses for this year.
Speaker Change: Yeah, I I you know, I I think maybe the best way to answer that right now is, um, I I I think the level we're at in the second quarter, you know, plus or minus a couple million dollars is probably what we're I think, will happen in the the third and the fourth quarter. So, the low 380s I think, is probably a good thought. But you know, we we had some growth here as we projected last quarter. Um, but we also you know, grew the balance sheet 3 billion. We have some growth from here. So I I think if we can hold this relatively stable in the 0380. So for the last 2 quarters, that's probably the what what we're shooting for right now.
Okay, perfect. I appreciate all the color. Grab some great quarter guys. Thank you.
Yeah, thanks Nate.
Speaker Change: Thank you. Our next question comes from the line of Terry McAvoy of Stephen zinc. Please go ahead. Terry.
Terry McAvoy: Hi thanks. Good morning. Um, maybe just a a question on Western Michigan. Could you just talk about banker and client retention? And is the the broader product offering is it driving some growth in that market?
Terry McAvoy: Yeah, thanks Terry. Um, yes still feel very good about West Michigan. Um I actually spent a couple of days over there with with clients the conversions behind us. Uh you know we're excited to have that part of the equation done and uh number of clients are looking for us to provide more services to them and the prospecting opportunities are very good.
Terry McAvoy: so, um,
Terry McAvoy: feel actually, you know, like we're in the right spot to begin. Accelerating the results unless Michigan.
Terry McAvoy: And then as a follow-up, um, the 456 million of commercial growth, Rich did about half of that occur in the the mortgage Finance portfolio. And, uh, how much volatility would you expect? What's the size of that portfolio today and how much kind of volatility would you expect, um, uh, uh, during the year?
Yeah. Well, there is, I mean, as we talked about, in our own mortgage book, I mean, there is a fair amount of volatility, um, in that book in total. But, uh, generally speaking what we've seen is a lot of onboarding of New Opportunities which is driving the growth in a kind of muted Market. Um, so, um, we are taking share in that portfolio. Um, and so right now that total book, uh, sits at 1.2 billion 1 2 billion,
Speaker Change: Great. Thanks for taking my question. Sure, you bet.
Speaker Change: Thank you.
Speaker Change: All right. Next question.
Speaker Change: Comes from the line of Ben garlinger a city. Please go ahead Ben.
Ben Garlinger: Hey, good morning, guys.
Ben Garlinger: Pretty quickly thereafter. I'm just trying to think about the the behavioral Finance relative to what we just saw and kind of the growth aspect.
Yeah, I I, I think Tim touched on a little bit earlier, but I, I think that the FED cut 25, we would be, um, have the ability to cut 25 on our, uh, discretionary account CDs. Would obviously take time to roll, but a lot of our CD offerings now are certainly less than a year, 7 months, and 11 months term. So, um, I I, I think that we would see a similar deposit cut as we saw in the prior cuts, um, that that we saw a while back that that we could get the full 25 on most, our discretionary accounts
Gotcha, that's helpful. And then oh you just answered the question on the the expense front so that is everything I have appreciate it. Thanks guys.
Ben Garlinger: Thanks man.
Ben Garlinger: Thank you.
Speaker Change: Our next question comes from the line of Casey hair of autonomous. Please go ahead. Casey.
Casey: Yeah, thanks. Good morning, guys. Um, just wanted to follow up on, on a long growth, again, the, so the Premium Finance. It sounds like it's, you know, obviously got great momentum up 17% year-over-year, which I think you said it. It is showing some signs of moderating just wondering where that is, uh, in terms of that that hard Market cycle, like, in terms of, you know,
Casey: later Innings, just, uh, some big picture thoughts on how that, uh,
Casey: how that Tailwind is going.
Casey: Yeah, it's a really good question. Something we look a lot uh at. Um, if you look at our that that portfolio over the last 6 years and on a month-to-month comparison, you know, it's a very consistent growth pattern. Um, fueled by 2 things 1 is um the um, dislocation of other competitors. Um, some, you know, changes in the Dynamics of the individual agents, things like that, but there's just been a lot of opportunity for us to pick up market share so that year-over-year continues to drive, you know, not only dollars but numbers of units. Um, and the other piece to the puzzle is just a market that we saw hardening pretty consistently, um, over the last, uh, 4 or 5 years. So those 2 things have really allowed that portfolio to grow very nicely, plus just great execution on the teams part and and, uh, you know, some Investments we've made in technology that really helped kind of Drive the, the product offering so, um, that put us in in good shape but
Then with the hardening Market things continue to, you know, move up that market, I'd say still in a lot of product, lines continues to be pretty hard and we see some upward momentum, but we are starting to see, you know, some moderation there. So, we use the term firm, um, that the unit, um, the dollar a dollar amounts of units,
Casey: Continues to say pretty consistent. So, um, you know, we feel pretty good overall with where that that portfolio is going and where it it should be for the next year, um, because a lot of those Dynamics continue to be the case. So, um, I guess the only maybe just slight, you know, uh, thought there is maybe not as, uh, uh, and the premium rates. Maybe not with the same upward trajectory, but still solid to, uh, you know, I'd say firm to slightly up.
Gotcha, thank you. And then just, uh, Tim, uh, follow up question. You mentioned m&a, is, is picking up a little bit. Um, you know, just wondering is that, uh, I know Macatawa was was great for you, uh, you guys last year, but it was a little bit bigger than I, than I think. Um, and the market is used to, and it was obviously, you know, outside your course, Chicago for footprint. Just wondering where, you know, size and location wise, and, and what's driving sort of the uptick in terms of, uh, the m&a opportunity.
Well with, with respect to the market you know I think there's a whole host of reasons. I mean, people dealing with succession issues, people feeling like the Market's a little better than it had been a couple of years ago.
Casey: um,
Casey: you know, frankly, as we've talked about it, it gets tougher and tougher to run a small bank, with the expenses attached to
Casey: you know, compliance and Regulatory issues and finance and the like, so I I think you're getting, you know, people
Speaker Change: ladies and Gentlemen, please stand by.
Speaker Change: Ladies and Gentlemen, please remain in your line. Thank you for your patience.
Speaker Change: Can you hear us? Yes, sir. Please proceed Casey. I'm sorry. Somehow. We've got a line dropping somewhere between Chicago and where all of you are. No worries guys.
Speaker Change: Um, so again I I think we feel like we could execute on a wide range of of opportunities, if they became available to us, it just has to fit from a, a cultural standpoint from Market standpoint. Um, but um, again for the reasons I mentioned earlier, I think there is some pickup in kind of Market m&a activity.
Speaker Change: Thank you.
Speaker Change: You bet.
Speaker Change: Thank you.
Speaker Change: Our next question.
Comes from the line of Jeff rules of Da Davidson. Please go ahead Jeff.
Jeff: Thanks, uh, good morning rich. I wanted to Circle back and and not to get too granular, but you touched on the CRA non-performers and and we're off a low base, but maybe same question, on on. Look like a, a little pickup in the in the commercial, um, non-performing loans. If any any specifics to that I'm guessing it's similar answer to Siri it's pretty granular but um, by type or or geography on on cni
Jeff: You know, again, very granular. Um, we had, uh, 1 in particular, uh, credit that just had we'd seen the performance suffer for a little while here over the last couple of quarters. And, you know, finally decided that, uh, you know, this was a credit that we probably is going to need to, you know, more meaningful, remediation and, and just uh, took it to them performing. We think that we've uh, we've got it marked by, um, but again, you know, just kind of a 1 off situation.
and Rich, if you were to flag sort of concern or just, uh, is it is it the small ticket business Arena that you'd say, maybe in this environment, the most pressured or anywhere in cni that you
Jeff: Highlight the most.
Yeah, you know, there's there's nothing that I would necessarily point to specifically. I think, you know, it's more a question of, you know, leveraging the balance sheet, liquidity on, on the balance sheet. Um, you know, just, you know, those are some of the, you know, operate things that we kind of take a look at last year about this time. We were really focused on Transportation. Um, we had, you know, pretty much across the board, a number of Transportation, Transportation related issues, but PNC, leasing course the and I, um, you know, I think we've weathered our way through that. Um, so I think we're feeling better in that space. But right now, it's really more. I think,
Jeff: Event driven than industry driven.
Jeff: Got it. Okay. Yeah. And then I, I'd like to maybe add in there. Jeff. I mean if you look at the total non-performing loan ratio, it's right in the middle of the range. I mean, we range from 35 to 39 basis points, and we're at 37 and it's an awfully low number. So just 1, 1 Credit here or there can can move it a little bit, but again, it's low and right in the middle of our his historical range over the last 5 quarters.
Jeff: Got you. Yeah, good perspective. Um and then just 1 other 1 I I just continue to try to model the
Jeff: The covered call option, sort of the Outlook there. And that's, you know, on a quarterly basis between call 1 to 6 million, a quarter, anything that you could lead us to or drivers of that, plus, or minus as, as what could, you know, a a lower or higher quarter there.
Jeff: No, I sort of really depends on what happens to, uh, you know, we're riding calls on government agencies like F**** Mays. And it was sort of really depends on what that part of the curve does as far as if, if it comes down the security. So we called and we'll rewrite and then it also depends on what volatility is at the time that we buy the security. So my crystal ball isn't, uh, uh, good enough to predict what it's going to be at, at the end of, uh, the third quarter. But if, if rates go down a little bit and and securities get called, then we'll generally have more.
It's really sort of a hedge to down rates for us. Um, it it it supplements Revenue. If rates go down, so if those rates do go down call, option will go up, uh, which will supplement revenue and offset any pressure, you could have on the on margin.
Jeff: Got it. Thanks Dave.
Thank you.
Speaker Change: Our next question comes from the line of Jared Shaw, a Barclays. Please go ahead Jared.
Hey, good morning.
uh, maybe just, uh, any thoughts on on Capital targets as we as we move through the rest of the year here with, um,
with the with what you've done on the, the preferred and just overall in terms of maybe C1 targets.
Speaker Change: Yeah, well C1 I you know, I I we had such good growth this quarter, it came down, you know, a 10th of a percent but we would expect that probably to grow 10 basis points a quarter going forward. If we have the mid to high single digit, um, law growth
Speaker Change: Um and the other categories and we put this in the earnings release or roughly 60 basis points. Higher at the end of of
Speaker Change: Uh, June, uh, because we had both preferred, all preferred issuances outstanding. So we had, you know, the 425 Series F outstanding and the 41 and a half of the series d and e. So somewhat elevated, at the end of June those, those Tier 1 uh, ratios
Speaker Change: Will come, you know, come down, 60 basis points, not the C1 because preferred is not in the common but the, the, the, the total tier ones will come down, but roughly 60 basis points. But we put those numbers in the press release from here on out. We would just expect to gradually grow Capital. You know, 10 basis points or so the, um, uh, with earnings and mid to high single-digit loan growth,
Speaker Change: I guess. What's the are? Would you be comfortable?
Speaker Change: Bringing it back down below. 10%, if there was, if there was a good opportunity, a good deal. Or should we think that 10% cg1 is, is more of a floor for the time being
Speaker Change: Yeah, it gets more of a floor. I, I think. Uh, it's staying at 10% is, is not a bad level to to
indicate a floor, but we'd like to grow that if there was a, a great opportunity and it was was down just
Um, I I I would look at ten as a as a floor in our minds right now.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Comes from the line of David chiaverini of Jeffrey. Please go ahead. David.
David Chiaverini: Hi, thanks. Uh, follow up on loan growth, curious on non-premium finance. So more on the course he and I and CRA sides. Can you talk about borrower sentiment? Are you seeing more borrowers? Come off the sidelines here?
David Chiaverini: um,
you know, as I mentioned before, uh, the the sentiment I think is better than it was, uh, at the last earnings call because there was so much, uh, disruption in terms of, uh, some of the, the challenges coming out of Washington. So I think that there is, you know, more stability. I, I, I don't think it's, um, you know, it was the talk at the end of last year of animal spirits and just, you know, there's a tremendous, you know, uptick in overall, um, uh, business sentiments. I I wouldn't say that I would say, you know, the people continue to be cautiously optimistic. I think that they see that, you know, the clouds are parting a little bit on some of these, these, these issues that may affect their business. So, you know, I, I feel that, you know, in talking to a lot of these customers directly, the people,
Generally feel better than they did last quarter. But there's still I think a fair amount of wait and see wait and see on you know what what these um, you know, the the the tax code changes look are going to look like, seeing what rates are going to do, um, and there's just, there's still a fair amount of questions that are out there. But, you know, we feel pretty good. The other thing we feel good about and we've talked about in Prior calls is just the market positioning that we have.
Speaker Change: Very helpful. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Brendan nosso of hupti group. Please go ahead Brendan
Morning, everybody. Thanks for taking the question. Um, if I look at uh, the ACL calculation on slide 15, you know, looks like the the Baseline macro factors drove an increase, but the macro uncertainty drove a decline, um, just kind of curious. How that, how that shapes up, was that a shift from the uncertainty bucket into the Baseline forecast, or, or maybe just help us kind of square that Circle. Thanks.
Speaker Change: Yeah, I think, that's right. I mean, last quarter, we had about I think a 36. Oh, we, we disclosed about a, I think a 36 million dollar number for macro uncertainty which included the, um, a baa factor and, uh, a market market volatility, uh,
Speaker Change: Uh, the stock market volatility actually factors into some of our models. And, um, we we, we maintain sort of the baa credit spread overlay, but the, the, the market volatility, uh, sort of, uh,
Away this quarter. So probably an overlay in in the low 20s uh million dollar range versus the mid-30s. Uh, so that that's about that million dollar difference that you're seeing in that slide in the far right. And so the macroeconomic um, Baseline actually um increased a bit and the overlay decreased a bit and they generally offset each other.
Speaker Change: Fantastic. Thanks. Thanks. Thank you for watching.
Brandon: And thanks Brandon.
Speaker Change: Thank you.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Nick.
Speaker Change: Hello co of UBS. Please go ahead, Nick.
Speaker Change: Hi, good morning, thanks for taking my question. Um, just 1 for me on the margin, so you've had a ton of success. Stabilizing the margin in this 35 range for about a year now, with the help of the hedges that you have in place and, and your deposit Gathering efforts and Loan growth is obviously trending, very strong. So, how do you think about your appetite or your need to grow that hedging portfolio at a faster? Pace. Alongside your loan growth to keep a similar degree of margin protection Beyond this year. Thank you.
Speaker Change: Yeah, Nick, I I think if you look at the disclosure that we put on slide 25, we list out the collar.
Speaker Change: In place. And we, we feel pretty good for the next year or so, um, then some of them start to mature off. So we'll look to fill out the buckets in 27 and 28, but for the, you know, next year, so we feel pretty good about our our position. Um, and we're just waiting for sort of opportunity times in the market that to add on to those swap positions. But the last few, you can see we did, 1 year forward starts, and then we did them out 4 or 5 years, so just trying and trying to, uh, opportunistically and
and and and not, you know, fill them all up at the same time uh you know from a diverse
Speaker Change: You know, diversification standpoint, uh, add to those as as we go along. But I think you will see us add on to those later maturities over time.
Speaker Change: Thank you.
Thank you. I would now like to turn the conference back to Tim crane for closing remarks sir.
Speaker Change: Thank you very much. And guys, apologize for the technical difficulties. Um, we certainly appreciate your time and interest in win trust. And as you can tell, we feel well positioned for the second half of the year and and actually enter the third quarter with a lot of momentum, um, as always, please don't hesitate to reach out if if there's anything we can do for you or as Dave said if there's any questions on the accounting for the preferreds but uh we appreciate your time this morning. Thank you very much.
This concludes today's conference call, thank you for participating. You may now disconnect