Q2 2025 First Merchants Corp Earnings Call
Operator: second quarter 2025 earnings conference call.
Operator: Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to future performance and financial condition of First Merchants Corporation that involve risk and uncertainty. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAP measures, which are intended to supplement but not substitute for the most directly comparable GAP measures.
Operator: The press release available on the website contains financial and other quantitative information to be discussed today, as well as reconciliation of GAP to non-GAP measures. As a reminder, today's call is being recorded.
Mark Hardwick: I will now turn the conference over to Mr. Mark Hardwick, CEO, and Mr. Hardwick, you may begin. Good morning, and welcome to First Merchants' second quarter 2025 conference call. Thanks for the introduction and for covering the forward-looking statement on page two. We released our earnings yesterday after the close of the market, and you can access today's slides by following the link on the third page of our earnings release. On page three of our slides, you will see today's presenters and our bios, including President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer Michele Kawiecki.
Thank you for standing by and welcome to the First Merchants Corporation, second quarter 2025 earnings conference call. Before we begin, the management would like to remind you that today's call contains 4 looking statements with respect to Future performance and financial condition, of First Merchants corporation that involve risk and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally management May refer to non-gaap measures which are intended to supplement but not substitute for the most directly comparable, gaap measures, the press release available on the website, contains financial and other quantitative information to be discussed today as well as reconciliation of gaap to non-gaap measures. As a reminder, today's call is being recorded. I will now turn the conference over to Mr. Mark Hardwick, CEO and Mr. Hardwick, you may begin.
Good morning and welcome to First. Merchants second quarter 2025 conference call. Thanks for the introduction. And for covering the forward-looking statement on page 2
We released our earnings uh, yesterday after the close of the market and you can access today's slides by following the link, on the third page of our earnings release.
Mark Hardwick: On slide four, we have a map of all 111 of our banking centers and some second quarter financial highlights with a few of the awards that we've received recently. On slide 5, our strong balance sheet and earnings results reflect the type of performance First Merchants shareholders have come to expect. We delivered 9.1 percent annualized loan growth and 98 cents of earnings per share. Return on assets totaled 1.23 percent, and our efficiency ratio was 54 percent, which is consistent with the high performance company we strive to be. Second quarter net income was $56.4 million, an increase of $17 million or 43% from a year ago as credit quality returned to our normal healthy levels.
On page 3 of our slides, you will see today's presenters and our bios, including president Mike Stewart, Chief credit officer, John, Martin, and Chief Financial Officer, Michelle kevi.
On slide 4, we have a map of all 111 of our banking centers and some second quarter financial, highlights it with a few of the awards that we've received recently.
Company, we strive to be.
Mark Hardwick: This improvement supported a significantly lower provision for credit losses of $5.6 million compared to $24.5 million in the second quarter of 2024. Year-to-date net income totaled $111.2 million, an increase of $24.3 million, or 28 percent from the first half of 2024, while earnings per share, totaling $1.92, increased 44 cents, or 30 percent, during the same period. We also repurchased an additional $22.1 million worth of shares this quarter and year-to-date we've repurchased $31.7 million with an average price of $38.68.
Second quarter. Net income was 56.4 Million, an increase of 17 million or 43% from a year ago as credit. Quality returned to our normal healthy levels, this Improvement supported a significantly lower provision for credit losses of 5.6 million compared to 24.5 million in the second quarter of 2024.
Year to date. Net income totaled, 10011.2 million and increase of 244.3 million or 28% from the first half of 2024. While earning earnings per share totaling 1.92 or a $1.92 increase, 44 cents or 30% during the same period.
Mark Hardwick: Our tangible common equity of $8 or 8.92% is above our target level and provides optimal capital flexibility, given the minimal reliance on hybrid equity that's available to us if needed.
We also were purchased an additional 22.1 Million worth of shares this quarter and year to date. We've repurchased 31.7 million with an average price of $38.68.
Mike Stewart: Now Mike Stewart will discuss our line of business momentum. Thank you, Mark, and good morning to all. Our business strategy summarized on slide six remains unchanged. We are a commercially focused organization across all these business segments and our primary markets of Indiana, Michigan, and Ohio.
Our tangible common Equity of $8 or 8.92% is above our Target level and provides optimal Capital flexibility. Given the minimum over Reliance on hybrid Equity that's available to us if needed.
Mike Stewart: Now, Mike Stewart will discuss our line of business momentum.
Mike Stewart: Uh, thank you Mark and good morning to all.
Mike Stewart: So let's turn to page seven. And as Mark stated earlier, this was a great quarter of loan growth across all those segments and across all the markets. It's very pleasing to see our Midwest economies continue to expand, our clients' businesses continue to grow, and see our bankers continuing to win new relationships. $262 million of commercial long growth for the quarter, that's over 10% annualized. $430 million of loan growth year-to-date. That's 9% annual. CapEx financing, increased usage of revolvers, M&A financings, and new business conversion are the primary drivers of all this growth.
Mike Stewart: Our business strategy summarized on slide 6 remains unchanged. We are a commercially focused organization across all these business segments, and our primary markets of Indiana, Michigan and Ohio. So let's turn to pick 7.
Mike Stewart: and as Mark stated earlier, this was a great quarter of loan growth, all those segments in a cross, all the markets,
Mike Stewart: it's very pleasing to see our Midwest. Economies continue to expand our clients businesses continue to grow and see our Bankers continuing to win new relationships.
Mike Stewart: 262 million of commercial loan growth for the quarter. That's over. 10% annualized.
Mike Stewart: 430 million dollars of loan growth year to date. That's 9% annualized.
Mike Stewart: Capex financing.
Mike Stewart: Another pleasing bullet point on this page is the quarter ending pipeline, which is consistent with prior quarter end and gives me optimism that we will be able to maintain loan growth and increasing market share activities through the third quarter. The consumer segment also shared in the balance sheet growth, with residential mortgage, HELOC, and private banking relationships driving the $36 million of loan growth for the quarter. Pipelines for these segments also ended consistent levels to the end of March.
Mike Stewart: Increased usage of revolvers m&a. Financing and new business conversion are the primary drivers of all this growth
Mike Stewart: Another pleasing bullet point on this page is the quarter ending pipeline, which is consistent with prior quarter end and gives me optimism. That we will be able to maintain loan growth and increasing market share activities through the third quarter.
Mike Stewart: The consumer segment also shared in the balance sheet, growth with Residential Mortgage HELOC and private banking relationships driving, the 36 million of loan growth, for the quarter.
Mike Stewart: So we can turn to slide eight and review some deposit activity. The commercial segment was the driver of our deposit growth during the quarter, $347 million in total. Commercial businesses have been using their cash to support their working capital needs, which reduced the core or operating account balances noted under the second bullet point. Increasing revolver usage is the corollary of lower operating account balance. Tax receipt collections were the primary driver of the public fund balance increases noted under the third bullet. For the quarter, our consumer segment experienced declines in both the non-maturity and maturity categories.
Mike Stewart: Pipelines for these segments. Also, ended consistent levels to the end of March.
Mike Stewart: So, we can turn this slide 8.
Mike Stewart: Review some deposit activity.
Mike Stewart: The commercial segment was the driver of our deposit growth during the quarter, 347 million in total,
Mike Stewart: commercial businesses have been using their cash to support their working capital needs, which reduced the core or operating account balance is noted under the second bullet point,
Mike Stewart: Increasing revolver usage is the corollary of lower operating account balances.
Mike Stewart: Tax receipt collections were the primary driver of the public fund. Balance increases noted under the third bullet point,
Mike Stewart: We have continued our pricing discipline within our consumer segment, specifically maturity deposits, and remain hyper focused on relationships versus single product users. Households continue to grow, both during the quarter and year-to-date. And as the next to the last bullet point on the page says, non-maturity deposit balances have increased $108 million year-to-date. This is our lowest cost deposit category. The mix of deposit categories has been the focus of our teams for the past year. It is the focus on primary, core accounts, and the focus of deposit costs in general. So overall, I'm really pleased with the active engagement our teams are having with their clients as we manage the mix and deposit costs.
Mike Stewart: For the quarter, our consumer segment experienced declines in, both the non- maturity and maturity categories.
Mike Stewart: We have continued our pricing discipline within our consumer. Segments specifically, maturity deposits and remain hyper focused on relationships versus single product users.
Mike Stewart: Households continue to grow both during the quarter and year to date. And as the next to the last bullet point on the page, uh, says non- maturity deposit balances, have increased 108 million year to date. This is our lowest cost deposit category.
Mike Stewart: The mix of deposit. Categories has been the focus of our teams for the past year. It is the is the focus on primary core accounts and the focus of deposit cost in general. So overall, I'm really pleased with the active engagement. Our teams are having with their clients as we manage the mix and deposit cost.
Mike Stewart: Come of 1.3 million, we continue to demonstrate exceptional discipline and expense management, which added to the performance. This quarter with an overall result of pre-tax pre-provision earnings of 70.7 million slide 10 shows our year-to-date results lines 1 through 3. At the top of the page show that we continue to grow the balance sheet towards a more favorable earning asset, mix reducing the lower yielding Bond portfolio by 372 million during the last 12 months and growing higher yielding loans by 654 million. Looking at lines 11 through 14, total revenue, grew, nearly 4% When comparing year-to-date 2025 to the same period in 2024. While expenses declined, creating meaningful operating leverage pre-tax, pre-provision earnings totaled 138.1 million reflecting growth of 7.
Mike Stewart: Those earnings fueled. A 2.80 cent increase. In tangible Book, value to 27.99% when compared to the same quarter last year. Slide 11 details of our Investment Portfolio expected cash flows from scheduled principal and interest payments. And bond maturities. Through the remainder of 2025, total 141 million and 202.
Mike Stewart: 82 million. The next 12 months with a rolloff yield of approximately 2.17%, we plan to continue to use this cash flow to fund loan growth, rather than reinvest in bonds, given the loan pipeline is strong. As Mike mentioned in his remarks slide, 12 covers our loan portfolio. The total loan portfolio yield increased by 11 basis points to 6.32%. This increase was primarily driven by loan origination and refis this quarter at an average yield of 7.04% which was up 8 basis points from last quarter, the allowance for credit losses is shown on slide 13 this quarter, we hadn't yet charge offs of 2.3 million and recorded A 5.6 million. Provision The Reserve at quarter end, was 195.3 million and the coverage ratio was 1.47%, consistent, with last quarter. In addition to the AC
Mike Stewart: We have 15.4 million of remaining, fair value marks on acquired loans, when including those marks are coverage ratio is 1.58%, the level of provision was driven by Improvement in non-performing loans changes in the macroeconomic forecasts and robust loan growth slide. 14 shows details of our deposit portfolio. The total cost of deposits increase 7 basis points to 2.3% this quarter reflecting
Mike Stewart: Increasing competitive deposit, dynamics that we experienced in our markets on slide 15, net interest income on a fully tax equivalent basis of 139.2 million increased 2.8 million from prior quarter net, interest margin on line 6 totaled 3.25% and increase of 3 basis points. This quarter. The yield on earning assets increased meaningfully by 11 basis points and was partially offset by the increase in funding costs. Next slide, 16 shows the details of non-interest income, non-interest income totaled, 31.3 million with customer related, fees of 29.4 million customer related, fees increased on a linked core basis. In all categories, with the largest increase from gains on the sale of mortgages, followed by treasury management fees. These fee categories were also 1.6 million higher than the second quarter of last year.
Mike Stewart: Reflecting great momentum from our fee. Based businesses. Moving to slide 17 non-interest expense for the quarter total of 93.6 million. A very modest increase over prior quarter of only 700,000 primarily from higher marketing spend and higher data processing costs which was driven by increased loan origination expense. Our expense discipline, has allowed us to maintain our low efficiency ratio, which was 53.99% for the quarter.
Mike Stewart: Um, these Capital levels along with our robust allowance for credit losses coverage, continue to reflect the safety and soundness of our financial position that concludes my remarks. And I will now turn it over to our chief credit officer John Martin to discuss asset quality. Thanks Michelle and good morning everyone. I'll begin with an overview of our loan portfolio, performance for the second quarter on slide. 19. In Q2 we saw balance loan growth. The portfolio with a 298 million increase quarter over quarter or 9.2% annualized and 654 million year-over-year, or 5.2% cni lending grew by 147 million. This quarter, continuing at strong momentum. Commercial real estate, added 36 million reflecting steady demand and disciplined execution. Our Midwest footprint remains core with 82.7% of borrowers located in our 4 state.
Mike Stewart: Region and we continue to manage CRA exposure. Well, within regulatory limits preserving capacity for Selective high-quality opportunities turning to slide 20 our sponsor Finance portfolio, continues to perform well with 867 million in outstandings across 95 companies in diverse Industries, credit metrics, remains solid. Nearly 8% of borrowers, have senior leverage under 3 times and 70% maintain fixed charge.
Mike Stewart: Coverage, ratios above 1 and a half times. Losses remain minimal with just their 15.3 million over a 10-year history on 1. 9.
John Martin: Turning to slide 21, our investment real estate portfolio now stands at roughly $3 billion. Within the non-owner-occupied office, we continue to monitor our exposures closely. The top 10 loans represent 53% of total office exposure, with a weighted average loan value of 63.6% at origination. The largest office loan is $25 million secured by a single-tenant mixed-use property at 67.2% loan-to-value, with the second-largest being $24.4 million in a medical office facility.
Mike Stewart: Q2 we also continue to manage our shared National Credit exposure prudently with 1.1 billion dollars across 88 borrowers. Primarily in wholesale trade Agriculture and Manufacturing on the consumer side underwriting and credit quality remains solid over 95% of our 710 million in Consumer loans. Had credit scores above 669 at origination similarly, 91% of our 1.9 million Residential, Mortgage portfolio met that same threshold.
Turning this slide 21, our investment real estate portfolio. Now stands at roughly 3 billion dollars within the non-owner occupied office. We continue to monitor our exposures closely the top 10 loans, represent 53% of total Ex Office exposure with a weighted average loan to value of 63.6% at origination.
John Martin: Turning to slide 22, asset quality remains stable. Our net charge-offs were just 0.07% of average loans annualized. The largest non-accruals this quarter include a $12.9 million multifamily construction loan, a $6.8 million brewery, and a $6 million nursing home. These are isolated cases, and we are actively working through resolution strategies.
John Martin: Then finally, turning to slide 23, non-performing assets, we saw a $22 million payoff of our previously non-accrual construction loan. The largest new non-accrual was the $12.9 million multifamily construction loan mentioned earlier. ORE declined by $4.8 million, reflecting continued progress in non-performing asset resolution. And then overall, our credit portfolio continues to perform well with strong underwriting discipline and proactive risk management.
Mike Stewart: The largest office loan is a 25 million is 25 million secured by a single tenant mixed-use property at 67.2% loan to value with the second largest being 24.4 million in a medical office facility. Turning to slide 22 asset quality remains stable. Our net charge offs were just 0.07% of average loans annualized. The largest non-accruals this quarter include a 12.9 million multi-family, construction loan, 6.8 million Brewery and a 6 million dollar nursing home. These are isolated cases and we are actively working through resolution strategies.
Mike Stewart: Then finally turning to slide 23 a non-performing assets, we saw 22 million dollar payoff of our previously non-accrual construction loan. The largest new non-accrual was the 12.9 million multi-family construction loan mentioned earlier or re declined by 4.8 million reflecting continued progress, in non-performing asset resolution.
John Martin: I appreciate your attention.
Mark Hardwick: I'll now turn the call over to Mark Hardwick. Thanks, John. Turning to slide 24, the compound annual growth rate of tangible book value per share on the bottom left continues to grow at a healthy 7% level, both dividends, both buyback, and both acquisitions. Tangible book value per share also increased by 8.5% when adjusting for the impact of unrealized gains and losses of the available-for-sale securities portfolio. Slide 25 represents our total asset CAGR of 11.7% during the last 10 years and highlights how acquisitions have improved our footprint and fueled growth. We believe in a creative M&A, but it's important to note that we focus on organic growth first.
Mark Hardwick: We are very selective when it comes to mergers and acquisitions, and April 1st marked the three-year anniversary of our last acquisition.
Mark Hardwick: As we look forward to the remainder of 2025, we expect more of the same strong performance.
Mike Stewart: And then overall our credit portfolio continues to perform well with strong underwriting discipline and proactive risk management. I appreciate your attention. I'll now turn the call over to Mark Hardwick. Thanks John, turning to slide 24. The compound annual growth rate. Of tangible book, value per share on the bottom left continues to grow at a healthy 7%. Level post dividends post buyback and post Acquisitions. Tangible book value per share. Also increased by 8 and a half percent, when adjusting for the impact of unrealized, gains and losses of the available for sale Securities portfolio. Slide 25 represents our total asset kegger of 11.7% during the last 10 years and highlights how Acquisitions have improved our footprint and fuel growth. We believe in accretive m&a, but it's important to note that we focus on organic growth. First, we are a very selective when it comes to mergers and Acquisitions and April 1st. March, the 3-year anniversary of our last acquisition.
Mark Hardwick: Thanks for your attention and investment in First Merchants, and we are happy to take questions at this time. Thank you, ladies and gentlemen.
Operator: If you have a question or comment at this time, please press star 11 on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star 11 again.
Speaker Change: More of the same strong performance. Thanks for your attention and investment in First Merchants and we are happy to take questions at this time.
Operator: We'll pause for a moment while we compile our Q&A roster.
Speaker Change: Thank you, ladies and gentlemen, if you have a question or a comment at this time, please press star 1, 1 on your telephone. If your question has been answered, you wish to move yourself from the queue. Please press star 1. 1 again, we'll pause for a moment while we compile, our Q&A roster.
Daniel Tamayo: Our first question comes from Daniel Tamayo with Raymond James. Your line is open. Thank you. Good morning.
Daniel tamiyo: Our first question comes from Daniel tamiyo with Raymond James, your line is open.
Michele Kawiecki: You know, I guess maybe we can start on the on the margin, if you don't mind, maybe for you, Michele, the I think you talked about it a little bit, but the funding cost pressure seemed like it was pretty steep in the quarter, driving some increase in funding costs. I'm wondering if you could talk a little bit about that, what you're seeing going forward there in terms of competition and expectation on the funding costs, and then any color guidance you might have on margin overall.
Daniel tamiyo: Thank you. Good morning. Um,
Speaker Change: you know, I guess maybe we can start on the uh, on the margin if you don't mind. Um, maybe for you Michelle the uh,
Michele Kawiecki: Good morning. You know, as Mike mentioned in his remarks, we saw our customers utilizing their cash this quarter and, and we had really strong loan growth to fund. So we did see deposit costs rise a little bit. And I do think that that will put some modest compression and margin in the back half of the year compared to this quarter. Okay. All right. Thank you.
Speaker Change: I think you you talked about it a little bit but the the funding cost pressure seemed like it was um pretty steep in the quarter driving. Some uh some increase in in funding costs. Um, wondering if you could talk a little bit about that, if what you're seeing going forward there in terms of competition and expectation on the, on the, on the funding costs and then any um, any color guidance you might have on on margin overall.
Speaker Change: Yeah, good morning. Um, you know, as Mike mentioned in his remarks, we saw our customers utilizing their cash, this quarter. And, and we had really strong loan growth, uh, to fund. So, uh, we did see deposit costs rise a little bit. And then I do think that that will put some modest compression and margin in the back, half of the year compared to, to this quarter.
Daniel Tamayo: And then, you know, you talked a lot about the about the strong loan growth and the expectations for that to continue. You know, I guess I'm just curious, is that... In your opinion, is a lot of that just kind of core we're back in the environment where, you know, these businesses are investing?
Okay, all right. Thank you. Um, and then, you know, you talked a lot about the um,
Speaker Change: Uh, about the strong loan growth and and the expectations for that to continue. Um, you know, I guess I'm just curious is that um,
Mike Stewart: It sounds like that's the case, but I just want to kind of make sure that that's not pull through from earlier in the year where, you know, some of the borrowers were on hold. That's a good question. I view it as core, working right through Direct client growth in their plans, meeting their expectations. calculated and how they wanted to proceed as they move forward. Maybe there's a little bit of pull through on that but really when you look at the activity as I looked at the activity across the board, it just seemed very normal course.
Speaker Change: In in your opinion, is, is, is a lot of that. Just kind of core, we're back in a, in a, in in the environment where, you know, the these businesses are investing. It sounds like that, that's the case. But um, just want to kind of make sure that that's not pull through from earlier in the year where, you know, some of the borrowers were were on hold
Speaker Change: That's a good question. Um, I view it as core um working right through.
Speaker Change: Direct client uh growth in their plans meeting their expectations. Um,
Mike Stewart: Yeah, and I think Daniel the only other place that when I think about pull through might have been, you know, we saw a little bit higher line utilization where people might have been, you know, drawing down on revolvers or you know, credit facilities to, you know, kind of front end expected tariffs, but that has added a little bit to trout standings in the quarter. Great. Okay.
When I think about your, is there a pull through? You know, we, we did, you know, we did talk about what did potentially, like, the tariffs mean with people, uh, being, oh, calculated in how they wanted to proceed as they move forward? Uh, maybe there's a little bit of pull through in that, but, um, really when you look at the activity, well, as I looked at the activity, across the board, it just seemed very normal course. Yeah. And I, I think, uh, Daniel the, the only other place that I, when I think about pull through, might have been, you know, we saw a little bit higher line utilization where people might have been, you know, drawing down,
Speaker Change: Revolvers.
Speaker Change: Or you know credit facilities to you know kind of front end the expected tariffs but you know that has added a little bit to to outstandings in the quarter.
Daniel Tamayo: Well, I will step back. I appreciate the color.
Great. Okay. Um, well, I will step back, I appreciate the color.
Speaker Change: 1 moment for our next question.
Terry Mcevoy: Our next question comes from Terry McEvoy with Stevens, your line is open. Hi, good morning, everybody. Morning, Terry.
Our next question comes from Terry mackoy with Stevens, your line is open.
Terry Mcevoy: Maybe just a question on fees. One, I noticed just wealth management fees kind of flat year over year and S&Ps up, call it what, 15, 16%.
Terry mackoy: Hi, good morning everybody.
Speaker Change: Morning, Terry.
Michele Kawiecki: And I wonder what the the outlook was for wealth management and overall, Michele, what are your thoughts on on total fee income in the back half of the year? I'll address our expectations on total fee income and maybe let Mike jump in and talk more specifically on wealth management, but I would expect to see non-interest income grow into the mid-single digits in the back half of the year. You know, at the beginning of the year, we thought that we might have a bit more of a favorable rate environment for mortgage borrowers. The decline in mortgage rates has been so modest so far this year, so it hasn't spurred as much activity as we had expected.
Speaker Change: Um maybe just to question on on fees 1. Uh I noticed just wealth management fees kind of flat year over year and s&p's up call it what 1516 percent and wonder what the the aloe was for wealth management and overall Michelle. What are your thoughts on on total fee income in the back half of the year?
Michele Kawiecki: That being said, we do expect to see growth in fees. for the remainder of the year.
Mike Stewart: And to your point, you know, there's four primary categories that are private, the fee categories that our private wealth team works through. And when I think about the investment management and wealth management, which to your point is tied to that, it's all the growth. But when you think about some of the other categories, retirement, retirement plan services, as an example, or private banking, those fees were relatively flat to your point, so it just muted some of those corollary into the market. But like Michele said. you that is still a primary driver of our fee income growth in that category.
Maybe let Mike jump in and talk more specifically on wealth management. Um, but I would expect to see non-interest income grow into the mid single digits, in the back half of the year. You know, at the beginning of the year, we thought that we might have a bit more of a favorable rate environment for mortgage borrowers. But frankly, the decline in mortgage rates has been so modest, so far this year and so it hasn't spurred as much activity as we had expected. But you know, that being said, we do expect to see growth in fees through the remainder of the year.
Terry Mcevoy: Thanks for that.
Speaker Change: Uh, some of those corollary into the market, but like Michelle said, uh, view that is still a primary, uh, driver of our fee income growth in that category, going forward.
Mark Hardwick: And then maybe just taking a step back, Mark, I think last year you completed five technology upgrades. Are there any examples or data points you could point to in the first half of the year where the bank benefited from those actions? And just kind of remind us longer term, what are the benefits of those tech initiatives? Yeah, thanks, Terry. We, you know, we had a big year last year, from the completion of a voluntary early retirement, all the way through the tech projects, and even a restructuring of the commercial bank at the end of the year.
Thanks for that and then maybe just taking a step back Mark I think last year you completed 5 technology upgrades uh are there any examples or data points you could point to in the first half of the Year where the bank benefited from those actions and just kind of remind us longer term? What what are the benefits of those Tech uh initiatives?
Yeah, thanks. Jerry we yeah, we had a, a big year last year uh, from uh the completion of a voluntary early retirement.
Mark Hardwick: And this year, from a tech standpoint, we've deployed some internal technology. So last year was more about customer facing tech, this year is more internal, you think about like a customer 360 view, and, and having dashboards in the hands of our bankers, etc. And, you know, our, the the investment was around making sure we could open accounts faster in the branch network, allowing our teams to be more active calling than just, you know, spending 45 minutes trying to open one account, that's down to five or 10 minutes. Our treasury management platform was a significant upgrade.
Mark Hardwick: And so our calling efforts on the commercial side in the treasury space have been increased, we have a better product to sell. And then on the private wealth side, we invested in a new PWA platform or private wealth platform. And it's it's given that team a much better product to sell. And so I think we're having success, we're continuing to to highlight the products, and we're also doing modest improvements. So we kind of converted all those where it was kind of whatever we had before is kind of how it transitioned over. And I would say there were some enhancements, but now we're going through a checklist of just saying what other feature functionality can we turn on.
Speaker Change: Um, all the way through the tech projects and and even a restructuring of the Commercial Bank, um, at the end of the year, and this year from a tech standpoint, we've deployed some internal, um, technology. So last year was more about customer facing Tech, this year's more um internal you think about like a customer 360 View and and having dashboards in the hands of our Bankers Etc. And um, you know our the the investment was around. Making sure we could open accounts faster in the branch Network, allowing our teams to be more active calling than just, you know, spending 45 minutes trying to open 1 account and that's down to 5 or ten minutes. Um, our treasury management platform was a significant upgrade and so are calling efforts on the commercial side.
Mark Hardwick: And as we turn the feature functionality on, it just gives us even a better product to sell. So, you know, I think our teams are armed with customer platforms that our customers love and it gives our bankers product to sell. And there really are nothing as inferior at this point where we have to go to market and kind of sell through an inferior product. We're selling with a product that's at least on par with everyone else we compete with. So that was, you know, part of how we built the plan and why we still remain bullish across all the segments.
Speaker Change: The treasury space have have been increased, we have a better product to sell and then on the private wealth side. We invested in a new pwa platform or private wealth platform and um it's it's given um that team a much better product to sell. And so I I think we're, we're having success. We're continuing to um, to highlight the the products. And we're also doing modest in Improvement. So we kind of we converted all those where it was um kind of it whatever we had before is kind of how it transitioned over. And I would say there were some enhancements but now we're going through a checklist of just saying what other feature functionality can we turn on? And as we turn the feature functionality on it just gives us even a better product to sell. So, um, you know, I, I've I think, um, our teams are armed with customer platforms that our customers love and it gives our Bankers product to sell and the
Mark Hardwick: Appreciate that, Mark. Thank you.
Speaker Change: There really are. Um, nothing is inferior at this point where we have to go to market and kind of sell through an inferior product. We're selling with the, with a product that's at least on par with everyone else we compete with. So, um, that's was, you know, part of how we built the plan and why we still remain bullish across all the segments.
Terry Mcevoy: And just one for John, the decline in classified sponsored finance loans was noted on my end, just wanted to make that observation. And thanks for providing those details. And thanks for taking my question. Thanks, Jerry.
Operator: One moment for our next question.
Speaker Change: Appreciate that, Mark. Thank you and and and just 1 for John. Um, the decline in classified sponsored Finance Loans was noted on my end, just wanted to make that up for observation and thanks for uh providing those details and thanks for taking my questions. Thanks Jerry.
Speaker Change: 1 moment for our next question.
Brendan Nosal: Our next question comes from Brendan Nosal with Hovde Group. Your line is open. Hey, good morning, everybody. Hope you're doing well.
Speaker Change: Our next question comes from Brandon Nassau with hobday group. Your line is open.
Brendan Nosal: Maybe just starting off here on capital, you folks have been really active on the capital front over the past two years between almost $100 million of sub-debt redemptions and very active use of the buyback. Just to the extent that you continue to generate excess capital even after supporting loan growth, what are your latest thoughts on the play? Yeah, I, you know, we still kind of have the same mindset. We use a third of our earnings to support balance sheet growth, about a third for dividends, and the other third are for kind of, you know, We've been pretty active in buybacks, and we're not opposed to accumulating some additional capital to put to use in an acquisition at a later date.
Brandon Nassau: Hey, good morning everybody. Hope you're doing well.
Speaker Change: Um, maybe just starting off here, uh, on on Capital. Um, you folks have been really active on the Capitol Front over the past 2 years between almost 100 million of sub debt redemptions and very active use of the buyback. Um, just to the extent that you continue to generate excess Capital. Even after supporting loan growth, what are your latest thoughts on deployment?
Mark Hardwick: But at least so far, we feel like there have been great uses for that capital. And as our stock price works its way further north, I think we'll be less aggressive with buybacks.
Speaker Change: Yeah, I, you know, we still kind of had to have the same mindset. We use a third of our earnings to support balance sheet growth about a third for dividends and the other third are for kind of, um, you know, other Capital activities. And it might be, you know, Redemption of subject or purchase of shares, cash, and Acquisitions, Etc. And and so, yeah, you're right, we've redeemed, um, all the sub death that we really have available to us at this point and, and given where the stock was trading. Um, early this year, we've been pretty active in BuyBacks and, and we're not opposed to accumulating some additional Capital to
Speaker Change: To use in an acquisition at a, at a later date. But um, you know, at least so far, we we feel like there have been great uses for that capital and and um you know as our stock price Works its way further north, I think will be less aggressive with BuyBacks.
Brendan Nosal: Thank you for the thoughts there, Mark.
Speaker Change: Okay, all right.
Mark Hardwick: Maybe just turning to the funding base and just looking specifically at brokered funding, I think the total is up to $1.2 billion now, or like 8% of the base. Just kind of curious how high you're comfortable taking use of that funding source, and is there any point at which that starts to become a bit of a constraint on the balance? Yeah, typically, we kind of have an internal threshold of about 10%, and we typically won't go above that on brokereds, and so there's probably a little room there, but, you know, looking at brokereds quarter over quarter, we really didn't have much growth, and, you know, we look to our teams to make sure that they're getting that core funding that Mike mentioned in his remarks.
Speaker Change: Use of that funding source. And is there any point at which that starts to become a bit of a constraint on the balance sheet?
Brendan Nosal: Okay, perfect.
Speaker Change: Yeah, typically we we kind of have an internal threshold of about 10% um and we typically won't go above that on brokerage and so uh, there's probably a little room there. But, you know, looking at broker's quarter over quarter, we really didn't have much growth. Um and you know, we look to our teams to make sure that they're getting that core funding that Mike mentioned in his remarks.
Mark Hardwick: I'm going to sneak one more in there. Just going back to capital, I know you get the M&A question all the time, but I think it's worth asking again, just given the pickup and deal activity we've seen over the past few weeks. So, Mark, I would just love your read on the environment and how much price discovery you think there is between buyer and seller and whether you think the banks or the target size you desire are any closer to raising their hand. Well, there's clearly been movement, and even some speculation across the industry around M&A.
Okay, perfect. Um I'm going to sneak 1 more in there. Um just give me going back to to Capital. I know you get the m&a question all the time, but I think it's worth asking again, just giving the pickup and deal activity. We've seen over the past few weeks. So Mark I would just love your, your read on the environment and and how much price Discovery you think there is between uh, buyer and seller. And and whether you think, you know, the banks or the target size, you desire, are any closer to raising their hands.
Mark Hardwick: Conversations have been robust for a period of time. They're a little easier now because some of the modeling, you know, does produce you know, meaningful gain. or premiums, I guess I should say, for the sellers. And so I think the environment is good for M&A and we continue to just stay close to the ones that we're most interested in.
Speaker Change: Well, there's clearly been, um, movement and even some speculation across the the industry around m&a. Um, the conversations I have been robust for a period of time. They're a little easier now because some of the modeling, um, you know, does produce, you know, meaningful gains.
Mark Hardwick: And like I said in my previous comments, our day job is 100% focused on organic growth and then the inorganic process is there's a lot of... You know, one-on-one time with the executive teams of the banks that we're interested in and just trying to stay close that, if they're ready, that, you know, trying to figure out if there's a price that makes sense that works for both parties.
Speaker Change: Um, or premiums, I guess, I should say for the sellers and so I I think um, the environment is good for m&a, and we continue to just stay close to the ones that we're most interested in. And like I said, in my previous comments were, you know, the our day job is 100% focused on organic growth. And then the inorganic process is is um, there's a a lot of um
Brendan Nosal: Okay, fantastic.
Brendan Nosal: Thanks for taking the questions this morning. Thank you.
Speaker Change: You know, 1-on-1 time with the executive teams of the banks that we're interested in and just trying to stay close that, uh, if they're ready that, um, you know, trying to figure out if there's a price that makes sense, that that works for both parties.
Speaker Change: Okay, fantastic. Thank you for taking the questions this morning.
Speaker Change: Thank you. 1 moment for our next question.
Nathan Race: Our next question comes from Nathan Race with Piper Stanley, your line is open. Yes. Hi, everyone. Good morning. Apologies for that.
Speaker Change: Our next question comes from Nathan race with Piper Sandler, your line is open.
Michele Kawiecki: Michele, going back to your margin commentary, I think you mentioned that, you know, you expect some pressure in the back half of this year, just given, you know, some further expected increases in deposit costs. I guess I was a little surprised just given, you know, how much cash flow is coming off the bond book to redeploy into loans. Sounds like you're still growing loans at a pretty good clip. And it seems like those loans are coming out, you know, 70 basis points above your portfolio yield.
Michele Kawiecki: So we're just curious if you can maybe elaborate a little bit more on the margin commentary and just how you see, you know, the sensitivity of the balance sheet to any Fed cuts in the back half of this year. Yeah, I don't, assuming that we have a flat rate environment, maybe I'll start there, assuming we have a flat rate environment, I wouldn't think that the margin compression, I think it would be fairly modest. You know, it really depends on our deposit competition. We've seen deposit competition really heat up, specials are getting higher, and we have to compete with that, especially if we have 9% loan growth like we did this quarter.
Nathan Race: Yes, hi everyone. Good morning uh apologies for that. Um Michelle going back to your margin commentary. I think you mentioned that you know you expect some pressure in the back half of this year. Um just giving um you know some further expected increases in deposit costs. I guess it was a little surprised just giving you know how much cash flow is coming off the Bondo to redeploy in the loans. Sounds like you're still growing loans at a pretty good clip um and it seems like those loans are coming out. You know, 70 basis points above your portfolio yield so we're just curious if you can maybe elaborate a little bit more on
Nathan Race: Um, the margin commentary and just how you see, um, you know, the sensitivity of the balance sheet to any fed Cuts in the back half of this year.
Nathan Race: Yeah, I I don't.
Michele Kawiecki: We do need to fund it. And so I think it kind of depends a little bit on those market dynamics in terms of the amount of compression just based on growth alone. Now if the Fed does cut rates, you know, we do have still have a bit of an asset sensitive balance sheet. And so I think if with each rate cut on an annualized basis, I would expect about two basis cuts. Impression for each 25 basis point rate. So, you know, if we get a couple rate cuts in the back half of the year from the Fed, there will be a little bit of compression just due to asset repricing a little faster than our deposit.
Michele Kawiecki: Okay, got it.
Nathan Race: Assuming that we have a flat rate environment, maybe I'll start there. Assuming, we have a flat rate environment. I wouldn't think that the margin compression. I think it would be fairly modest. Um, you know, it really depends on our deposit competition. We've seen deposit competition really heat up specials or getting higher. Um, and we have to compete with that, especially with, if we have 9% loan growth, like we did this quarter, um, we do need to fund it and so I think it kind of depends a little bit on those market dynamics, in terms of the amount of compression just based on growth alone. Now if the FED does cut rates, you know, we do have still have um a bit of an asset sensitive balance sheet. And so I think if with each rate cut on an annualized basis that would expect about 2 basis points of compression for each. 25 basis point rate, cut and so you know, if we get a couple rate Cuts in the back half of the Year from the FED, there will be a little bit of compression just due to asset repricing. A little faster than our deposits as well.
Mike Stewart: I apologize, I jumped on a little late, but just curious to get some updated thoughts on just where the pipeline stands and just overall production levels. And I know it's difficult to predict payoffs, but just any thoughts or visibility in terms of how you're thinking about payoffs relative to production levels in the back half of this year. Yeah, we did talk about that a little bit earlier, which The pipeline results in the commercial book of business is consistent with prior quarters, so that's a... C&I is really been kind of a driver of that. Most recently, our real estate production is really good, too.
Okay, got it. Um, I apologize, I jumped on a little late but you know, just curious to get some updated thoughts on just, you know, where the pipeline stands and kind of just overall production levels. And I know it's difficult to predict payoffs, but, you know, just any thoughts or visibility in terms of, you know, how you're thinking about payoffs relative to production levels in the back half of this year,
Mike Stewart: It's just that's what's getting offset with the normal course payoff. So the portfolio isn't necessarily growing on investment real estate like the C&I is, but the production level is really good.
Mike Stewart: The pipelines inside, you know, consumer mortgage and private wealth, they're strong, but that's really not a balance sheet growth driver. That's really more of a fee income, but we'll see some good...
Mark Hardwick: Yeah, can I just jump in for a second? I love what's happening with our balance sheet. We're seeing really nice growth.
Nathan Race: It's just, that's what's getting offset with the normal course payoff. So the portfolio isn't necessarily growing on investment. Real estate like the cni is but the production level is really good there. Um, the the pipeline's inside, you know, consumer mortgage and and private wealth. That's a, they're strong. But that's really not a balance sheet. Uh, growth driver. That's really more of a fee income. But we'll see some good activity there as well.
Mark Hardwick: And even from a margin standpoint, it's like, let's just maintain where we are. You know, and I was thrilled that loan yields were even higher this quarter than they were last quarter. Deposit pressure is real, and our focus is on making sure we're growing our least expensive categories, which is challenging, but it's clearly a focus of our teams. And, you know, as we move forward, I feel like whatever happens on the margin front is going to be modest relative to where we are this quarter. And I feel like the loan growth and deposit growth that's occurring just allows us to continue to grow net interest income.
Nathan Race: Yeah, can I just jump in for a second? I I I love what's happening with our balance sheet. We're seeing really nice growth and even from the margin standpoint, it's like, let's just maintain Where We Are.
Nathan Race: You know, and um, I was thrilled that loan yields were even higher this quarter than they were last quarter. Um, deposit pressure is real and, and, um, our focus is on making sure we're growing our least expensive categories, which is challenging, but it's clearly a focus of our teams and, um, you know, as we move forward, I I feel like whatever happens on the margin front is going to be modest.
Mark Hardwick: So at least that's how we're thinking about it internally.
Mark Hardwick: It's kind of how it's in our plan and the message, I guess, that I would I hope would get across to investors.
Nathan Race: Got it.
Um relative to where we are this quarter and and I feel like the loan growth and and deposit growth that's occurring just allows us to continue to grow net interest income. So um at least that's how we're thinking about in internally. It's going to how it's in our plan and the message. I guess that I would I would hope would get across to investors.
Nathan Race: It's very helpful and appreciate that, Mark and John.
Nathan Race: Got it. It's very helpful and
Nathan Race: Maybe one last one for me. I think you touched on, you know, kind of the income growth outlook going forward, but just curious, you know, within that, you know, how we should think about that other line. I know there's some CRA investment impacts this quarter, but just any thoughts on kind of that other fee income line, just given how much it's fluctuated over the last several quarters. And if you're referring to the non-client related fees, is that what you're looking at, Nate? Yeah, I just want to look at the income statement, you know, it's pretty much zero for other fee income this quarter.
Speaker Change: Appreciate that Mark. Um, and John um, maybe 1 last 1 for me. I think you touched on, you know, kind of the income growth Outlook, um, going forward but just curious, you know, within that, you know how we should think about that other line. I know there are some CRA investment impacts this quarter but just any thoughts on um, kind of that other fee income line just given how much it's um fluctuate over the last couple quarters.
John Martin: I mean I I and if you're referring to the non-client, related fees. Is that what you're looking at? Nate.
Nathan Race: So just any thoughts on that revenue line in particular? I would probably back out the valuation adjustment that we had, which was about $900,000. That's fairly unusual for us to have something like that on a CRA investment. And then on a go-forward basis, I feel like this quarter, in the absence of that, would be a decent run rate to use. Okay, great.
John Martin: Yeah, uh, just want to look at the um income statement, um, you know, is pretty much zero for other fee income, this quarter. So just any thoughts on that Revenue line in particular,
John Martin: yeah, I mean I I would probably back out the
Nathan Race: I appreciate all the color.
John Martin: CRA investment and then um kind of go forward basis. I I feel like this quarter with an absence of that would be a decent run rate to use.
Operator: Thank you, everyone.
Speaker Change: Okay, great. Uh I appreciate all the color.
Operator: One moment for our next question.
John Martin: Thank you, everyone.
Speaker Change: 1 moment for our next question.
Damon Delmonte: Our next question comes from Damon DelMonte with KVW, your line is open. Good morning, everyone. I hope everybody's doing well and thanks for taking my question.
Speaker Change: Our next question comes from David de mate with KBW. Your line is open.
Damon Delmonte: First question on the outlook for expenses. Good job of keeping them in check here in the second quarter compared to the first quarter. Michele, just kind of wondering what your thoughts are here on the back half of the year as far as kind of a quarterly run rate. Our expense levels have been really well managed this year, and I think we'll continue to manage them well through the back half of the year. There may be a very modest increase in expenses in Q3, Q4. I would say maybe 1% to 2% as we refine our incentive accruals and carry out some of our marketing initiatives, things like that.
Speaker Change: Hey, good morning everyone. Um, hope everybody's doing well and thanks for taking my questions. Um, first question on the uh, outlook for expenses? Um, good job of keeping them in check here in the in the second quarter compared to the first quarter. Michelle, just kind of wondering what your thoughts are here on the back half of the year as far as kind of a quarterly uh run rate.
Yeah, our expense levels have been really well, managed this year and I think we'll continue to manage them. Well, through the back half of the year, um,
Michele Kawiecki: But the levels of expense management are going to continue.
Michele Kawiecki: Yeah, we've really some of our optimism in the loan growth of the loan book going forward has, you know, a lot to do with just the addition of bankers.
Speaker Change: there may be a very modest increase in expenses in Q3 Q4, I would say maybe 1 to 2%. Um, as we refine our incentive approvals, and, um, carry out some of our marketing initiatives, things like that. But the levels of expense management are are going to continue
Yeah, we we've really, you know, some of our optimism. Um, in the loan, uh, growth for the loan book going forward has
Mark Hardwick: I mean, we, Mike, you didn't mention it, but we, we brought in what four people out of JP Morgan's asset based lending group. and they've all started, well, three of the four have started this quarter. And we were anticipating an additional hire in the second half of the year. We're kind of at the offer point with someone in our Ohio market. And we just continue to add talent. I think about the folks that we brought in on the private wealth side in Fort Wayne, including the individual we hired to run our small business lending function across the entire franchise.
Speaker Change: You know a lot to do with just the addition of of Bankers. I mean we like you didn't mention it but we we brought in what 4 people out of JP Morgan's asset base Lending Group.
Mark Hardwick: And most of those expenses are embedded, but we've got some that will increase. So as Michele talks about the expense run rate, those are the only areas where I feel like it puts some pressure on us. And the return of some of that is in the future as loan growth occurs after these folks work through non-competes, et cetera. But I feel like that's investment that just gives us incredible confidence about our ability to maintain the growth rates like mid to high single digits, we talk about all the time, not only the second half of this year, but into the future.
Speaker Change: And, um, they've all start, well, 3 of the 4 started this quarter. And, um, we were anticipating an additional higher in the second half of the Year. We're kind of at the offer point with, with someone in, in our Ohio market, and we just continue to add talent. I think about the, the folks that we that we brought in, um, on the private well side in Fort Wayne. Um, the individual, we hired to run our our small business lending function across the entire franchise, you know? And and most of those expenses are embedded, but but we've got some that will increase. So as Michelle talks about the expense run rate, those are the only areas where I feel like it puts some pressure on us and the return of some of that is in the future. As long growth occurs, after they these folks work through non-competes Etc. But, um, you know, I'm, I feel like that's investment that just, um, gives us incredible confidence about our ability to maintain.
Mark Hardwick: I'm glad you brought that up, Mark. Yeah. which is normal for us, but this year has been kind of exceptionally... Business 1 you referenced is really as much a deposit play as anything, so we're retooling some of our approach on the level. Yeah, that small business, we moved it into the consumer bank and it was what 875 million in deposits. Only 30 million or so of loans. I may have the number wrong, but that's about right. And we're excited about what we think the future can be. And to truly optimize it, we just thought that it made sense for us to bring someone in from one of the big regionals.
Speaker Change: digits, we talk about all the time not only is the second half of this year, but into the future,
Speaker Change: I'm glad you brought that up Mark. Yeah really smart key.
Speaker Change: It's many different things.
Speaker Change: Right, which is normal.
Mark Hardwick: And we're thrilled with the momentum, and that's kind of the case in all of the different ones that I mentioned. I probably shouldn't have highlighted J.P. Morgan specifically, but we picked up those four bankers. It was a huge win for us, and we're excited about what it can do for the future. Got it.
Damon Delmonte: I appreciate all that color.
Speaker Change: This year has been kind of exceptionally positive uh and some key areas and the small business 1. You referenced is really as much a deposit play as anything. So we're retooling some of our approach on the low end so it's a wonderful mix of the way, a fee income and balance sheet, you know that small business. We moved it into the consumer bank and it was much 875 million in deposits and only 30 million or so of loans that that may have the number right from right. That's about right. And we're excited about what we think the future can be and to, to truly optimize it, we just thought that it made sense for us to bring someone in from 1 of the big regionals. And, um, and we're thrilled with the momentum and that's kind of the case. And all of the different ones that I mentioned. I've, I probably shouldn't have highlighted JP Morgan specifically, but, um, we picked up those 4 Bankers. It was a huge win for us, um, and we're excited about what it can do for the future.
Damon Delmonte: And then I guess just second question here on, you know, kind of the credit and provision outlook, you know, with the expected growth that you're anticipating here in the back half of the year, do you feel like this quarter's provision level is kind of a good bogey for the next couple quarters? Or do you think this quarter is a little bit higher? I don't know if this quarter is a little bit higher, you know, we had, certainly we're providing for growth, as we've always said, and we'll continue to do that, probably at the level of the coverage ratio that we have today.
Speaker Change: Got it, I appreciate all that color. Um, and then I guess just uh, second question here on on, you know, kind of the credit and provision Outlook, you know, with the expected growth that you you're anticipating here in the back half of the year. Um, do you do you feel like this quarter's provision level is kind of a a good bogey for for the next couple quarters or um do you think this quarter was the a little bit higher?
Damon Delmonte: You know, it just kind of depends on whether the, we've got to make adjustments for the macroeconomic outlook. And so in Q2, of course, the unemployment rate forecast, you know, required more provision, but then that also got offset with some of the asset quality improvement that we saw. And so I think going forward, I presume, presuming that the macroeconomic forecasts are pretty stable, I think we'll just continue to provide for the growth that we see in our balance. Got it. Okay, great.
Speaker Change: I don't know that this quarter is a little bit higher. You know, we had um, certainly we're providing for growth as we've always said, and we'll continue to do that, probably at the level of the coverage ratio that we have today. Um,
Damon Delmonte: That's all that I had. Thanks for all the color.
Speaker Change: You know, it just kind of depends on whether the we've got to make adjustments for the macroeconomic Outlook and so in Q2, of course, the unemployment rate forecast, what um, you know, required more provision but then that also got offset with um, some of the asset quality improvement that we saw. And so, I think going forward I I presume presuming that the macroeconomic forecasts are pretty stable. I think we'll just continue to provide for the growth that we see in our balance sheet.
Speaker Change: Got it. Okay, great. Um, that's all that I had. Thanks for all the caller.
Damon: Thank you, Damon.
Speaker Change: 1 moment for our next question.
Brian Martin: Our next question comes from Brian Martin with Janney. Your line is open. Hey, good morning, everyone. Good morning. Hey, just a couple, Michele, you answered most everything on the margin, but just in terms of, you know, the cost of deposits, I guess, I guess your expectation is that trends up from here. And I guess I understand it may be incremental based on, and that's kind of assuming to you said to your point earlier about no changes in the, from the Fed right now, you know, kind of a stable rate environment. given the long growth, the competitive factors, that should just drift a bit higher in the back half of the year.
Moderator: Our next question comes from Brian. Martin with Janie, your line is open.
Brian Martin: Hey, good morning, everyone.
Speaker Change: Good morning.
Michele Kawiecki: You know, it really depends on, I think, the deposit competition.
Brian Martin: Hey, just uh a couple Michelle, you answered most of everything on the margin, but it's just in terms of, you know, the cost of deposits. I guess, I guess your expectation. Is that Trends up from here and I guess I understand it may be incremental based on and that's kind of assuming you said to your point earlier about no changes in the, from the FED right now, you know, kind of a stable rate environment that that the given the loan growth, the competitive factors that should just drift a bit higher in the back half of the year.
Michele Kawiecki: and you know how we compete in our markets and and that you know it's difficult for us to give you like a real um a real prediction on that. Yeah and I thought I thought this was unique some of our commercial balances declined and our line of credit usage went up which meant we had to go find some funding that was a little more expensive than than what our commercial customers just carrying balances were paying. Gotcha. Okay.
Speaker Change: It could, you know, it really depends on. I think um, the the deposit competition
Speaker Change: And you know, how we compete in our markets and and that, you know, it's the difficult for us to give you like a real, um, a rule prediction on that. Yeah. And I thought, I thought this was unique,
Michele Kawiecki: And then maybe how about just on the fixed rate loan repricing, Michele, can you remind us what that is? Whether, you know, I guess the back half of the year or the next 12 months, what you may have on that front? I'm sorry, I'm just trying to… That's all right.
Speaker Change: Of our commercial balances Decline and our line of credit usage, went up, which meant we had to, to go find some funding. That was a little more expensive than, than what our commercial customers just carrying balances. Were were paying
Gotcha. Okay. Um, and then maybe how about just on the fixed rate loan rate pricing, Michelle? Can you remind us what that is? Whether you know, I guess the back half of the year or the next 12 months, what what you may have on that front?
Brian Martin: I can ask one other question for someone else while you look at it, if you want to.
Brian Martin: I was going to ask, John, just from the tax legislation being passed, some of your optimism on loan growth on the C&I side is, does it stem, you know, I guess you're hearing from your customers on the new tax legislation that gives you more optimism on loan growth as well.
Sorry, I'm just trying to I'm sorry, I can ask 1 of the questions for, uh, for someone else while you look at it, if you want to just, I was going to ask John just if I'm a, you know, the tax legislation being passed, some of your optimism on loan. Growth on the cni side is does it stem? You know, I guess you're hearing from your customers on the new.
Mark Hardwick: And then just, same point, the people, the recent hires you've added, can you just comment or if you said it, you know, kind of when these people were on board, it doesn't sound like they've contributed yet, but just to be clear on that.
Mike Stewart: I'm going to defer. You got kind of half and half, Brian. That was Mike Stewart, Stu, answering the questions about the hires, etc. I think from the optimism through the portfolio look, with the incremental benefits to customers as a result of the bill, it should help to buffer some of the other policy things that have happened as it relates to tariffs and the other moves that have been proposed in the first place. It creates a lot of lack of clarity as to exactly what's going to happen, and so it's hard to tell. There's no question that the bill itself should help and provide optimism to our customers.
Speaker Change: You know, tax legislation that he gives you more optimism on on loan growth as well. And then just the same point, the, the people you the recent hires you've added, can you just comment or if you said it, you know, kind of when these people were on board. It doesn't sound like they've contributed yet, but just to be clear on that.
Speaker Change: And the the other moves that have been proposed in the first half of the year. So,
Speaker Change: it's it's uh, creates a lot of, you know, I'll say
Mike Stewart: Yeah, okay.
Mike Stewart: operating in the Midwest. And the Midwest right now has really good economic growth and we're taking advantage of that. Businesses, clients, business models are growing and they're doing all the right things. We get to review their income statements and their balance sheets and their margins and they seem to be holding up well and they're investing in their business. We take market share, so that helps the growth. And to your last point on people, you're right. Strategic hires have been happening through the course of this year and the keeping connected in this in the whole spectrum of what we think is opportunities for First Merchants Corp.
Clarity is exactly what's going to happen and so it's it's hard to tell. There's no question that the bill itself um should be should help and provide optimism to our customers though.
Speaker Change: Miss right now, has really good economic growth and we're taking advantage of that our
Speaker Change: Clients business models are growing and they're doing all the right things. We get to review their income statements, and their balance sheets, and their margins. And they seem to be holding up well and they're investing in their business.
Speaker Change: Uh we take market share, so that happens the growth and to your last point on people, you're right.
Speaker Change: strategic hires have been happening through the course of this year and the, um,
Mark Hardwick: Yeah, this isn't perfect, but we probably had five meaningful hires on the sales side in the first half, and we have five more in the second.
Mark Hardwick: Gotcha.
Brian Martin: Okay.
Brian Martin: I appreciate that.
Speaker Change: The expected, uh, inputs or the expected gains on what they can bring to our bank have yet to materialize. So that helps us with mix and balance and, uh, keeping connected in this in the whole spectrum of what we think is opportunities for First Merchants. Yeah. And this isn't perfect, but we probably had 5 meaningful hires on the sales side in the first half and we have 5 more in the second half.
Brendan Nosal: Thanks, Mark.
Brendan Nosal: And thanks, Mike.
Michele Kawiecki: Hey, Brian, I do have my notes now on the fixed rate loans. And so in the back half of 2025, we've got about maybe about 200 million of fixed rate loans that are going to reprice that are currently sitting at about 5%. Okay, and probably a similar level as you look out over the 12 months, just kind of double that is kind of what you'd be thinking? Yeah, yes. Okay, gotcha.
Speaker Change: Gotcha. Okay, I appreciate that. Thanks Mark. And thanks Mike.
Brian Martin: Hey, Brian. I do I do have my um,
My notes now on the fixture.
Brian Martin: About 200 million of fixed rate, loans, that are going to reprice that are currently sitting at about 5%.
Michele Kawiecki: And then just the last one for me was just on the tax rate, just housekeeping. Is the current level a good level to think about? It might creep up a little bit. I'd say more, I would plan for it to approach maybe $3,000. Okay, perfect.
Brian Martin: Okay and pi and Pi similar level as you look out 12, you know, they're over the 12 months, I mean, just kind of double that. It's kind of what you'd be thinking. Yeah, yeah. Okay.
Operator: Thank you for taking the questions and congratulations on the successes. Thanks, Brendan. Thank you.
Speaker Change: Gotcha. And then just the last 1 for me was just on uh the tax rate just housekeeping. If if the current level is a good level to think about uh it might creep up a little bit, I'd say more um I would plan for it to approach, maybe 13% in the back half of the year.
Speaker Change: Okay perfect. Thank you for taking the questions and congratulations on this successes.
Mark Hardwick: And I'm not showing any further questions at this time.
Speaker Change: Thank you.
Operator: I'd like to turn the call back over to Mark Hardwick for any further remarks. Yeah, Kevin, thank you for hosting today. We just appreciate all the participation by our analysts and investors and look forward to the second half of the year and talking to you in another 90 days. Thank you.
Speaker Change: And I'm not showing any further questions at this time. I'd like to turn the call back over to Mark Harvick for any further remarks.
This concludes today's conference. Thank you for your participation and have a great day. You may now disconnect.
Speaker Change: yeah, Kevin thank you for hosting today and um we just appreciate all the participation by our analysts and investors and I look forward to the second half of the year and uh talking to you and then in another 90 days
Speaker Change: Thank you, this concludes today's conference. Thank you for your participation and have a great day. You may now disconnect