FIRST MERCHANTS CORP — Call Transcript 2025

Thank you for standing by, and welcome to the First Merchants Corporation Second Quarter twenty twenty five Earnings Conference Call. 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 risks 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. Mr. Hardwick, you may begin. Good morning, and welcome to First Merchants' second quarter twenty twenty five 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 Michelle Kebieski. 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 five, our strong balance sheet and earnings results reflect the type of performance First Merchants shareholders have come to expect. We delivered 9.1% annualized loan growth and $0.98 of earnings per share. Return on assets totaled 1.23% and our efficiency ratio was 54%, which is consistent with the high performance company we strive to be. Second quarter net income was $56,400,000 an increase of $17,000,000 or 43 percent from a year ago as credit quality returned to our normal healthy levels. This improvement supported a significantly lower provision for credit losses of $5,600,000 compared to $24,500,000 in the second quarter of twenty twenty four. Year to date net income totaled $111,200,000 an increase of $24,300,000 or 28% from the first half of twenty twenty four, while earnings per share totaling $1.92 or $1.92 increased zero four four dollars or 30% during the same period. We also repurchased an additional 22,100,000.0 worth of shares this quarter and year to date we've repurchased 31,700,000.0 with an average price of $38.68 Our tangible common equity of 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. 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. 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. $262,000,000 of commercial loan growth for the quarter. That's over 10% annualized. $430,000,000 of loan growth year to date, that's 9% annualized. CapEx financing, increased usage of revolvers, M and A financings and new business conversion are the primary drivers of all this growth. 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 36,000,000 of loan growth for the quarter. Pipelines for these segments also ended consistent levels to the March. 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, $347,000,000 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 balances. Tax receipt collections were the primary driver of the public fund balance increases noted under the third bullet point. For the quarter, our consumer segment experienced declines in both the non maturity and maturity categories. 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 $108,000,000 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 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 costs. So I'll turn the call over to Michelle, and she can review in much more detail the composition of our balance sheet and the drivers on our income statement. Michelle? Thanks, Mike, and good morning, everyone. Slide nine covers our second quarter performance. Total revenues in Q2 were strong with meaningful growth in both net interest income of $2,700,000 and non interest income of $1,300,000 We continue to demonstrate exceptional discipline and expense management, which added to the performance this quarter with an overall result of pretax pre provision earnings of $70,700,000 Slide 10 shows our year to date results. Lines one through three 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 $372,000,000 during the last twelve months and growing higher yielding loans by $654,000,000. 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. Pretax pre provision earnings totaled $138,100,000 reflecting growth of 7.3%. Those earnings fueled a $2.8 increase in tangible book value to $27.9 which is an increase of 11.2% when compared to the same quarter last year. Slide 11 shows details of our business portfolio. Expected cash flows from scheduled principal and interest payments and bond maturities through the remainder of 2025 total $141,000,000 and $282,000,000 for the next twelve months with a roll off 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 originations and refis this quarter at an average yield of 7.04%, which was up eight basis points from last quarter. The allowance for credit losses is shown on slide 13. This quarter we had net charge offs of 2,300,000.0 and recorded a $5,600,000 provision. The reserve at quarter end was $195,300,000 and the coverage ratio was 1.47 consistent with last quarter. In addition to the ACL, we have $15,400,000 of remaining fair value marks on acquired loans. When including those marks, our coverage ratio is 1.58%. The level of provision was driven by improvement in non performing loans, changes in the macroeconomic forecast, and robust loan growth. Slide 14 shows details of our deposit portfolio. The total cost of deposits increased seven basis points to 2.3% this quarter, reflecting increasing competitive deposit dynamics that we experienced in our markets. On slide 15, net interest income on a fully tax equivalent basis of $139,200,000 increased $2,800,000 from prior quarter. Net interest margin on line six totaled 3.25%, an increase of three 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 $31,300,000 with customer related fees of 29,400,000.0 Customer related fees increased on a linked quarter 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 $1,600,000 higher than the second quarter of last year, reflecting great momentum from our fee based businesses. Moving to slide 17, non interest expense for the quarter totaled $93,600,000 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. Slide 18 shows our capital ratios. Over the last twelve months, the tangible common equity ratio has grown 65 basis points to 8.92% while returning capital to shareholders through $36,200,000 in share repurchases and dividends paid of $82,300,000 We remain well capitalized with the common equity tier one ratio at 11.35%. 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 balanced loan growth across the portfolio with a $298,000,000 increase quarter over quarter or 9.2% annualized and $654,000,000 year over year or 5.2%. C and I lending grew by $147,000,000 this quarter, continuing at strong momentum. Commercial real estate added $36,000,000 reflecting steady demand and disciplined execution. Our Midwest footprint remains core with 82.7% of borrowers located in our four state region, and we continue to manage CRE 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 $867,000,000 in outstandings across 95 companies in diverse industries. Credit metrics remain solid. Nearly 80% of borrowers have senior leverage under three times and 70% maintain fixed charge coverage ratios above one and a half times. Losses remain minimal with just $15,300,000 over a ten year history on $1,900,000,000 in funded loans through Q2. We also continue to manage our shared national credit exposure prudently with $1,100,000,000 across 88 borrowers, primarily in wholesale trade, agriculture, and manufacturing. On the consumer side, underwriting and credit quality remained solid. Over 95% of our $710,000,000 in consumer loans had credit scores above six sixty nine at origination. Similarly, 91% of our $1,900,000,000 residential mortgage portfolio met that same threshold. Turning to slide '21, our investment real estate portfolio now stands at roughly $3,000,000,000 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. The largest office loan is $25,000,000 secured by a single tenant mixed use property at 67.2% loan to value, with the second largest being $24,400,000 in a medical office facility. Turning to slide 22, asset quality remained stable. Our net charge offs were just point zero seven percent of average loans annualized. The largest non accruals this quarter include a $12,900,000 multi family construction loan, $6,800,000 brewery, and a $6,000,000 nursing home. These are isolated cases and we are actively working through resolution strategies. Then finally turning to slide 23, our non performing assets. We saw a $22,000,000 payoff of our previously non accrual construction loan. The largest new non accrual was the $12,900,000 multifamily construction loan mentioned earlier. ORE declined by $4,800,000 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. I appreciate your attention. I'll now turn the call over to Mark Hardway. 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 8.5% 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 ten years and highlights how acquisitions have improved our footprint and fuel growth. We believe in accretive M and A, but it's important to note that we focus on organic growth first. We are very selective when it comes to mergers and acquisitions, and April 1 marks the three year anniversary of our last acquisition. As we look forward to the remainder of 2025, we expect 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. Thank you. Our first question comes from Daniel Tamayo with Raymond James. Your line is open. Thank you. Good morning. I guess maybe we can start on the margin, if you don't mind. Maybe for you, Michelle, 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. 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 or guidance you might have on margin overall? Yes, good morning. As Mike mentioned in his remarks, we saw our customers utilizing their cash this quarter, and we had really strong loan growth to fund. So we did see deposit costs rise a little bit, I do think that that will put some modest compression in margin in the back half of the year compared to this quarter. Okay. All right. Thank you. And then you talked a lot about the strong loan growth and the expectations for that to continue. 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 these businesses are investing. It sounds like that's the case, but just want to kind of make sure that that's not pull through from earlier in the year where some of the borrowers on hold? That's a good question. I view it as core, working right through direct client growth in their plans, meeting their expectations. When I think about your say, is there a pull through? We did talk about what did potentially like the tariffs mean with people being calculated in how they wanted to proceed as they move forward. Maybe there's a little bit of pull through in that, but really when you look at the activity, as I looked at the activity across the board, it just seemed very normal course. Yeah, and I think, Daniel, the only other place when I think about pull through might have we saw a little bit higher line utilization where people might have been drawing down on revolvers or credit facilities to kind of front end the expected tariffs, but that has added a little bit to child standings in the quarter. Great. Okay. Well, I will step back. I appreciate the color. Thanks, Danny. One moment for our next question. Our next question comes from Terry McEvoy with Stephens. Your line is open. Hi. Good morning, everybody. Good morning. Good morning, Terry. Maybe just a question on fees. One, I noticed just wealth management fees kind of flat year over year and S and P is up, call it, what, 15%, 16%. And wonder what the outlook was for wealth management. And overall, Michelle, what are your thoughts on total fee income in the back half of the year? Well, 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 noninterest 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. And Mike, do you wanna talk about point, you know, there's 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 Michelle said, view that as still a primary driver of our fee income growth in that category going forward. Thanks for that. 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? Just kind of remind us longer term, what are the benefits of those tech initiatives? Yeah, thanks, Jerry. 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. 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 three sixty view and having dashboards in the hands of our bankers, etcetera. And the investment was around making sure we could open accounts faster in the branch network, our teams to be more active calling than just spending forty five minutes trying to open one account. And that's down to five or ten minutes. Our treasury management platform was a significant upgrade. And so our calling efforts on the commercial side and 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 given that team a much better product to sell. And so I think we're having success. We're continuing to highlight the products and we're also doing modest improvement. So we 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. And as we turn the feature functionality on, it just gives us even a better product to sell. 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 is 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 part of how we built the plan and why we still remain bullish across all the segments. Appreciate that, Mark. Thank you. 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 questions. Thanks, Jerry. One moment for our next question. Our next question comes from Brandon Nussol with Hovde Group. Your line is open. Hey, good morning everybody. Hope you're doing well. Good morning. Maybe just starting off here on capital. You folks have been really active on the capital front over the past two years between almost 100,000,000 of sub debt redemptions and very active use of the buy back. Just to the extent that you continue to generate excess capital even after supporting loan growth, what are your latest thoughts on deployment? Yes. 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 other capital activities and it might be redemption of sub debt, repurchase of shares, cash and acquisitions, etcetera. So, yes, you're right. We've redeemed all the sub debt that we really have available to us at this point. And given where the stock was trading early this year, we've been pretty active in buybacks and we're not opposed to accumulating some additional capital. We'll put to use in an acquisition at a later date, but at least so far we feel like there have been great uses for that capital. As our stock price works its way further north, I think we'll be less aggressive with buybacks. Okay. All right. Thank you for the thoughts there, Mark. Maybe just turning to the funding base and just looking specifically at brokered funding. I think the total is up to $1,000,000,000 now or like 8% of the base. Just kind of curious how high you're comfortable taking use of that funding source? Is there any point at which that starts to become a bit of constraint on the balance sheet? Yeah. Typically, we we kinda have an internal threshold of about 10%, and we typically won't go above that on brokerage. And so, there's probably a little room there, but, you know, looking at brokerage 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. Okay, perfect. I'm going to sneak one more in there. Just maybe going back to capital. I know you get the M and A question all the time, but I think it's worth asking again, just given the pickup in 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 of the target size you desire are any closer to raising their hands? Well, there's clearly been movement and even some speculation across the industry around M and A. The conversations have been robust for a period of time. They're a little easier now because some of the modeling does produce meaningful gains or premiums, I guess I should say for the sellers. And so I think the environment is good for M and 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, day job is 100% focused on organic growth and then the inorganic process is there's a lot of 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 know, trying to figure out if there's a price that makes sense that that works for both parties. Okay. Fantastic. Thanks for taking the questions this morning. Thank you. One moment for our next question. Our next question comes from Nathan Race with Piper Sandler. Your line is open. Hi, everyone. Good morning. Apologies for that. Michelle, going back to your margin commentary, think you mentioned that you expect some pressure in the back half of this year just given some further expected increases in deposit costs. I guess I was a little surprised just given 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 on 70 basis points above your portfolio yield. So we're just curious if you can maybe elaborate a little bit more on that margin commentary and just how you see 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. 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, would expect about two 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. Okay. Got it. I apologize. I jumped on a little late, just curious to get some updated thoughts on just where the pipeline stands and kind of 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 an outlook where I would think that we would continue to grow with our clients as their needs grow or if we're taking market share, in that respect. If you break that down a little further, core C and I has really been kind of a driver of that. Most recently. Real estate production is really good too. It's just that's what's getting offset with the normal course payoffs of the portfolio isn't necessarily growing on investment real estate like the C and I is, but the production level is really good there. The pipelines inside, you know, consumer mortgage and private wealth, that's a 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 activity there as well. Yeah, can I just jump in for a second? I love what's happening with our balance sheet. We're seeing really nice growth. And even from a margin standpoint, it's like, let's just maintain where we are. 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 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. I feel like the loan growth and deposit growth that's occurring just allows us to continue to grow net interest income. So at least that's how we're thinking about it internally. It's kind of how it's in our plan. And the message, I guess, that I would hope would get across to investors. Got it. That's very helpful. And I appreciate that, Mark and John. Maybe one last one for me. I think you touched on kind of the income growth outlook going forward, but just curious within that 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? 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. It was pretty much zero for other fee income this quarter, so just any thoughts on that revenue line in particular? Yeah, I mean, would probably back out the valuation adjustment we had, which was about $900,000 That's fairly unusual for us to have something like that on a CRA investment. And then, a go forward basis, I feel like this quarter, with an absence of that, would be a decent run rate to use. Okay, great. I appreciate all the color. Thank you, everyone. One moment for our next question. Our next question comes from Damon DelMonte with KBW. Your line is open. Hey, good morning, everyone. Hope everybody's doing well, and thanks for taking my question. First question on the outlook for expenses. Good job of keeping them in check here in 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 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. 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. But the levels of expense management are going to continue. 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 of bankers. I mean, we Mike, you didn't mention it, but we we brought in what, four people out of JPMorgan's asset based lending group. Yes. And they've all started well, three of the four 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. Think about the folks that we brought in on the private wealth side in Fort Wayne, the individual we hired to run our small business lending function across the entire franchise. And most of those expenses are embedded, but we've got some that will increase. As Michelle talks about the expense run rate, those are the only areas where I feel like it puts some pressure on us. The return of some of that is in the future as loan growth occurs after these folks work through non competes, etcetera. 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. I'm glad you brought that up, Mark. Some really smart key people additions across many different business units. Right. Which is normal for us, but this year's been kind of exceptionally positive in some key areas, and the small business one you referenced is really as much a deposit play as anything, so we're retooling some of our approach on the low end. It's a wonderful mix across the way of fee income and balance sheet. Yeah, that small business, we moved it into the consumer bank, and it was, what, dollars $875,000,000 of deposits and only $30,000,000 or so of loans. I may have the number wrong. That's right. 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. We're thrilled with the momentum and that's kind of the case in all of the different ones that I mentioned. Probably shouldn't have highlighted JPMorgan 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. I appreciate all that color. And then I guess just a second question here on kind of the credit and provision outlook. 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 of quarters? Or do you think this quarter was 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. You know, it just kinda depends on whether the we've gotta make adjustments for the macroeconomic outlook. And so in q two, of course, the unemployment rate forecast, 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 sheet. Got it. Okay, great. That's all that I had. Thanks for all the color. Thanks, Damon. One moment for our next question. Our next question comes from Brian Martin with Janney. Your line is open. Hey, good morning, everyone. Good morning. Hey, just a couple. Michelle, you answered most everything on the margin, but just in terms of the cost of deposits, 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, as you said, to your point earlier about no changes from the Fed right now, kind of a stable rate environment, given the loan growth, the competitive factors, that should just drift a bit higher in the back half of the year? It could. You know, it really depends on, I think, the the deposit competition and, you know, how we compete in our markets. And that, you know, it's difficult for us to give you, like, a real Yep. A real prediction on that. Yeah, and I thought this was unique, 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 were paying. Gotcha. Okay. And then maybe how about just on the fixed rate loan repricing, Michelle, can you remind us what that is, whether, you know, I guess, the back half of the year or next twelve months, what what you may have on that front? Yeah. Sorry. I'm just trying to That's alright. I can ask one other question for for for someone else while you look at it if you want to. Just I was gonna ask John just from the, you know, the tax legislation being passed, some of your optimism on loan growth on the C and I side is does it stem, know, I guess you're hearing from your customers on the new tax legislation that it gives you more optimism on loan growth as well. And then just same point, the people you, the recent hires you've added, can you just comment if you said it kind of when these people were on board? It doesn't sound like they've contributed yet, but just to be clear on that. I'm gonna defer some of the kind of half and half, Brian. That was Mike Stu answering the questions about the hires, etcetera. I think from the optimism through the portfolio, 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 half of the year. It creates a lot of, I'll say, lack of clarity as to exactly what's going to happen, And so it's it's hard to tell. There's no question that the bill itself, should be should help and provide optimism to our customers, though. Mhmm. Yeah. We're operating in the Midwest, and the Midwest right now has really good economic growth, and we're taking advantage of that. Our our businesses, client 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 expected 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 keeping connected in the whole spectrum of what we think is opportunities for first merchants. Yeah, and this isn't perfect, but we probably meaningful hires on the sales side in the first half, and we have five more in the second half. Gotcha. Okay. I appreciate that. Thanks, Mark. And thanks, Mike. Hey, Brian. I do have my notes now on the rate loans. And so in the back half of twenty twenty five, we've got about maybe about 200,000,000 of fixed rate loans that are gonna reprice that are currently sitting at about 5%. Okay. And similar level as you look out 12 over the twelve months, maybe just double that is kind of what you'd be thinking? Yeah. Yep. Okay. Gotcha. And then just the last one for me was just on the tax rate, just housekeeping. If the current level is a good level to think about? It might creep up a little bit. I'd say it more, I would plan for it to approach maybe 13% in the back half of the year. Okay, perfect. Thank you for taking the questions, and congratulations on the successes. Thanks, Fred. Thank you. And I'm not showing any further questions at this time. I'd like to turn the call back over to Mark Hartwick 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 ninety days. Thank you. This concludes today's conference. Thank you for your participation and have a great day. You may now disconnect.

Speaker 1: Thank you for standing by, and welcome to the First Merchants Corporation Second Quarter twenty twenty five Earnings Conference Call. 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 risks 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. Thank you for standing by, and welcome to the First Merchants Corporation Second Quarter twenty twenty five Earnings Conference Call. thank you for standing by and welcome to the first merchants corporation second quarter twenty twenty five earnings conference call 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 risks and uncertainties. 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 risks and uncertainties Further information is contained within the press release, which we encourage you to review. 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. 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. 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. Mr. Hardwick, you may begin. As a reminder, today's call is being recorded. as a reminder today's call is being recorded I will now turn the conference over to Mr. Mark Hardwick, CEO. i will now turn the conference over to mr mark hardwick ceo Mr. Hardwick, you may begin. mr hardwick you may begin

Speaker 2: Good morning, and welcome to First Merchants' second quarter twenty twenty five 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 Michelle Kebieski. 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. Good morning, and welcome to First Merchants' second quarter twenty twenty five conference call. good morning and welcome to first merchants' second quarter twenty twenty five conference call Thanks for the introduction and for covering the forward looking statement on page two. 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. 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 Michelle Kebieski. 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 michelle kebieski 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 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 five, our strong balance sheet and earnings results reflect the type of performance First Merchants shareholders have come to expect. We delivered 9.1% annualized loan growth and $0.98 of earnings per share. Return on assets totaled 1.23% and our efficiency ratio was 54%, which is consistent with the high performance company we strive to be. Second quarter net income was $56,400,000 an increase of $17,000,000 or 43 percent from a year ago as credit quality returned to our normal healthy levels. This improvement supported a significantly lower provision for credit losses of $5,600,000 compared to $24,500,000 in the second quarter of twenty twenty four. On slide five, our strong balance sheet and earnings results reflect the type of performance First Merchants shareholders have come to expect. on slide five our strong balance sheet and earnings results reflect the type of performance first merchants shareholders have come to expect We delivered 9.1% annualized loan growth and $0.98 of earnings per share. we delivered 9.1% annualized loan growth and $0.98 of earnings per share Return on assets totaled 1.23% and our efficiency ratio was 54%, which is consistent with the high performance company we strive to be. return on assets totaled 1.23% and our efficiency ratio was 54% which is consistent with the high performance company we strive to be Second quarter net income was $56,400,000 an increase of $17,000,000 or 43 percent from a year ago as credit quality returned to our normal healthy levels. second quarter net income was $56,400,000 an increase of $17,000,000 or 43 percent from a year ago as credit quality returned to our normal healthy levels This improvement supported a significantly lower provision for credit losses of $5,600,000 compared to $24,500,000 in the second quarter of twenty twenty four. this improvement supported a significantly lower provision for credit losses of $5,600,000 compared to $24,500,000 in the second quarter of twenty twenty four Year to date net income totaled $111,200,000 an increase of $24,300,000 or 28% from the first half of twenty twenty four, while earnings per share totaling $1.92 or $1.92 increased zero four four dollars or 30% during the same period. We also repurchased an additional 22,100,000.0 worth of shares this quarter and year to date we've repurchased 31,700,000.0 with an average price of $38.68 Our tangible common equity of 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. Now Mike Stewart will discuss our line of business momentum. Year to date net income totaled $111,200,000 an increase of $24,300,000 or 28% from the first half of twenty twenty four, while earnings per share totaling $1.92 or $1.92 increased zero four four dollars or 30% during the same period. year to date net income totaled $111,200,000 an increase of $24,300,000 or 28% from the first half of twenty twenty four while earnings per share totaling $1.92 or $1.92 increased zero four four dollars or 30% during the same period We also repurchased an additional 22,100,000.0 worth of shares this quarter and year to date we've repurchased 31,700,000.0 with an average price of $38.68 Our tangible common equity of 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 repurchased an additional 22,100,000.0 worth of shares this quarter and year to date we've repurchased 31,700,000.0 with an average price of $38.68 our tangible common equity of 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 Now Mike Stewart will discuss our line of business momentum. now mike stewart will discuss our line of business momentum

Speaker 3: 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. 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. Thank you, Mark, and good morning to all. thank you mark and good morning to all Our business strategy summarized on slide six remains unchanged. 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. 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 page seven. 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. 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. $262,000,000 of commercial loan growth for the quarter. That's over 10% annualized. $430,000,000 of loan growth year to date, that's 9% annualized. CapEx financing, increased usage of revolvers, M and A financings and new business conversion are the primary drivers of all this growth. 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. 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 $262,000,000 of commercial loan growth for the quarter. $262,000,000 of commercial loan growth for the quarter That's over 10% annualized. that's over 10% annualized $430,000,000 of loan growth year to date, that's 9% annualized. $430,000,000 of loan growth year to date that's 9% annualized CapEx financing, increased usage of revolvers, M and A financings and new business conversion are the primary drivers of all this growth. capex financing increased usage of revolvers m and a financings and new business conversion are the primary drivers of all this growth 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 36,000,000 of loan growth for the quarter. Pipelines for these segments also ended consistent levels to the March. 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, $347,000,000 in total. 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. 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 36,000,000 of loan growth for the quarter. the consumer segment also shared in the balance sheet growth with residential mortgage heloc and private banking relationships driving the 36,000,000 of loan growth for the quarter Pipelines for these segments also ended consistent levels to the March. pipelines for these segments also ended consistent levels to the march So we can turn to slide eight and review some deposit activity. 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, $347,000,000 in total. the commercial segment was the driver of our deposit growth during the quarter $347,000,000 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 balances. Tax receipt collections were the primary driver of the public fund balance increases noted under the third bullet point. For the quarter, our consumer segment experienced declines in both the non maturity and maturity categories. We have continued our pricing discipline within our consumer segment, specifically maturity deposits, and remain hyper focused on relationships versus single product users. 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. 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 balances. increasing revolver usage is the corollary of lower operating account balances Tax receipt collections were the primary driver of the public fund balance increases noted under the third bullet point. tax receipt collections were the primary driver of the public fund balance increases noted under the third bullet point For the quarter, our consumer segment experienced declines in both the non maturity and maturity categories. for the quarter our consumer segment experienced declines in both the non maturity and maturity categories We have continued our pricing discipline within our consumer segment, specifically maturity deposits, and remain hyper focused on relationships versus single product users. 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 $108,000,000 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 cost in general. Households continue to grow, both during the quarter and year to date. 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 $108,000,000 year to date. and as the next to the last bullet point on the page says non maturity deposit balances have increased $108,000,000 year to date This is our lowest cost deposit category. this is our lowest cost deposit category The mix of deposit categories has been the focus of our teams for the past year. 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 cost in general. it 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 costs. So I'll turn the call over to Michelle, and she can review in much more detail the composition of our balance sheet and the drivers on our income statement. Michelle? 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. 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 So I'll turn the call over to Michelle, and she can review in much more detail the composition of our balance sheet and the drivers on our income statement. so i'll turn the call over to michelle and she can review in much more detail the composition of our balance sheet and the drivers on our income statement Michelle? michelle

Speaker 4: Thanks, Mike, and good morning, everyone. Slide nine covers our second quarter performance. Total revenues in Q2 were strong with meaningful growth in both net interest income of $2,700,000 and non interest income of $1,300,000 We continue to demonstrate exceptional discipline and expense management, which added to the performance this quarter with an overall result of pretax pre provision earnings of $70,700,000 Slide 10 shows our year to date results. Lines one through three 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 $372,000,000 during the last twelve months and growing higher yielding loans by $654,000,000. 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. Thanks, Mike, and good morning, everyone. thanks mike and good morning everyone Slide nine covers our second quarter performance. slide nine covers our second quarter performance Total revenues in Q2 were strong with meaningful growth in both net interest income of $2,700,000 and non interest income of $1,300,000 We continue to demonstrate exceptional discipline and expense management, which added to the performance this quarter with an overall result of pretax pre provision earnings of $70,700,000 Slide 10 shows our year to date results. total revenues in q2 were strong with meaningful growth in both net interest income of $2,700,000 and non interest income of $1,300,000 we continue to demonstrate exceptional discipline and expense management which added to the performance this quarter with an overall result of pretax pre provision earnings of $70,700,000 slide 10 shows our year to date results Lines one through three 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 $372,000,000 during the last twelve months and growing higher yielding loans by $654,000,000. lines one through three 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 $372,000,000 during the last twelve months and growing higher yielding loans by $654,000,000 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. 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 Pretax pre provision earnings totaled $138,100,000 reflecting growth of 7.3%. Those earnings fueled a $2.8 increase in tangible book value to $27.9 which is an increase of 11.2% when compared to the same quarter last year. Slide 11 shows details of our business portfolio. Expected cash flows from scheduled principal and interest payments and bond maturities through the remainder of 2025 total $141,000,000 and $282,000,000 for the next twelve months with a roll off 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. Pretax pre provision earnings totaled $138,100,000 reflecting growth of 7.3%. pretax pre provision earnings totaled $138,100,000 reflecting growth of 7.3% Those earnings fueled a $2.8 increase in tangible book value to $27.9 which is an increase of 11.2% when compared to the same quarter last year. those earnings fueled a $2.8 increase in tangible book value to $27.9 which is an increase of 11.2% when compared to the same quarter last year Slide 11 shows details of our business portfolio. slide 11 shows details of our business portfolio Expected cash flows from scheduled principal and interest payments and bond maturities through the remainder of 2025 total $141,000,000 and $282,000,000 for the next twelve months with a roll off yield of approximately 2.17%. expected cash flows from scheduled principal and interest payments and bond maturities through the remainder of 2025 total $141,000,000 and $282,000,000 for the next twelve months with a roll off 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. 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 originations and refis this quarter at an average yield of 7.04%, which was up eight basis points from last quarter. The allowance for credit losses is shown on slide 13. This quarter we had net charge offs of 2,300,000.0 and recorded a $5,600,000 provision. Slide 12 covers our loan portfolio. slide 12 covers our loan portfolio The total loan portfolio yield increased by 11 basis points to 6.32%. the total loan portfolio yield increased by 11 basis points to 6.32% This increase was primarily driven by loan originations and refis this quarter at an average yield of 7.04%, which was up eight basis points from last quarter. this increase was primarily driven by loan originations and refis this quarter at an average yield of 7.04% which was up eight basis points from last quarter The allowance for credit losses is shown on slide 13. the allowance for credit losses is shown on slide 13 This quarter we had net charge offs of 2,300,000.0 and recorded a $5,600,000 provision. this quarter we had net charge offs of 2,300,000.0 and recorded a $5,600,000 provision The reserve at quarter end was $195,300,000 and the coverage ratio was 1.47 consistent with last quarter. In addition to the ACL, we have $15,400,000 of remaining fair value marks on acquired loans. When including those marks, our coverage ratio is 1.58%. The level of provision was driven by improvement in non performing loans, changes in the macroeconomic forecast, and robust loan growth. Slide 14 shows details of our deposit portfolio. The reserve at quarter end was $195,300,000 and the coverage ratio was 1.47 consistent with last quarter. the reserve at quarter end was $195,300,000 and the coverage ratio was 1.47 consistent with last quarter In addition to the ACL, we have $15,400,000 of remaining fair value marks on acquired loans. in addition to the acl we have $15,400,000 of remaining fair value marks on acquired loans When including those marks, our coverage ratio is 1.58%. when including those marks our coverage ratio is 1.58% The level of provision was driven by improvement in non performing loans, changes in the macroeconomic forecast, and robust loan growth. the level of provision was driven by improvement in non performing loans changes in the macroeconomic forecast and robust loan growth Slide 14 shows details of our deposit portfolio. slide 14 shows details of our deposit portfolio The total cost of deposits increased seven basis points to 2.3% this quarter, reflecting increasing competitive deposit dynamics that we experienced in our markets. On slide 15, net interest income on a fully tax equivalent basis of $139,200,000 increased $2,800,000 from prior quarter. Net interest margin on line six totaled 3.25%, an increase of three 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. The total cost of deposits increased seven basis points to 2.3% this quarter, reflecting increasing competitive deposit dynamics that we experienced in our markets. the total cost of deposits increased seven basis points to 2.3% this quarter reflecting increasing competitive deposit dynamics that we experienced in our markets On slide 15, net interest income on a fully tax equivalent basis of $139,200,000 increased $2,800,000 from prior quarter. on slide 15 net interest income on a fully tax equivalent basis of $139,200,000 increased $2,800,000 from prior quarter Net interest margin on line six totaled 3.25%, an increase of three basis points this quarter. net interest margin on line six totaled 3.25% an increase of three 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. 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. next slide 16 shows the details of non interest income Non interest income totaled $31,300,000 with customer related fees of 29,400,000.0 Customer related fees increased on a linked quarter 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 $1,600,000 higher than the second quarter of last year, reflecting great momentum from our fee based businesses. Moving to slide 17, non interest expense for the quarter totaled $93,600,000 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. Slide 18 shows our capital ratios. Non interest income totaled $31,300,000 with customer related fees of 29,400,000.0 Customer related fees increased on a linked quarter basis in all categories with the largest increase from gains on the sale of mortgages followed by treasury management fees. non interest income totaled $31,300,000 with customer related fees of 29,400,000.0 customer related fees increased on a linked quarter 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 $1,600,000 higher than the second quarter of last year, reflecting great momentum from our fee based businesses. these fee categories were also $1,600,000 higher than the second quarter of last year reflecting great momentum from our fee based businesses Moving to slide 17, non interest expense for the quarter totaled $93,600,000 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. moving to slide 17 non interest expense for the quarter totaled $93,600,000 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. our expense discipline has allowed us to maintain our low efficiency ratio which was 53.99% for the quarter Slide 18 shows our capital ratios. slide 18 shows our capital ratios Over the last twelve months, the tangible common equity ratio has grown 65 basis points to 8.92% while returning capital to shareholders through $36,200,000 in share repurchases and dividends paid of $82,300,000 We remain well capitalized with the common equity tier one ratio at 11.35%. 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. Over the last twelve months, the tangible common equity ratio has grown 65 basis points to 8.92% while returning capital to shareholders through $36,200,000 in share repurchases and dividends paid of $82,300,000 We remain well capitalized with the common equity tier one ratio at 11.35%. over the last twelve months the tangible common equity ratio has grown 65 basis points to 8.92% while returning capital to shareholders through $36,200,000 in share repurchases and dividends paid of $82,300,000 we remain well capitalized with the common equity tier one ratio at 11.35% These capital levels, along with our robust allowance for credit losses coverage, continue to reflect the safety and soundness of our financial position. 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. that concludes my remarks and i will now turn it over to our chief credit officer john martin to discuss asset quality

Speaker 5: 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 balanced loan growth across the portfolio with a $298,000,000 increase quarter over quarter or 9.2% annualized and $654,000,000 year over year or 5.2%. C and I lending grew by $147,000,000 this quarter, continuing at strong momentum. Commercial real estate added $36,000,000 reflecting steady demand and disciplined execution. Thanks, Michelle, and good morning everyone. thanks michelle and good morning everyone I'll begin with an overview of our loan portfolio performance for the second quarter on Slide 19. i'll begin with an overview of our loan portfolio performance for the second quarter on slide 19 In Q2, we saw balanced loan growth across the portfolio with a $298,000,000 increase quarter over quarter or 9.2% annualized and $654,000,000 year over year or 5.2%. in q2 we saw balanced loan growth across the portfolio with a $298,000,000 increase quarter over quarter or 9.2% annualized and $654,000,000 year over year or 5.2% C and I lending grew by $147,000,000 this quarter, continuing at strong momentum. c and i lending grew by $147,000,000 this quarter continuing at strong momentum Commercial real estate added $36,000,000 reflecting steady demand and disciplined execution. commercial real estate added $36,000,000 reflecting steady demand and disciplined execution Our Midwest footprint remains core with 82.7% of borrowers located in our four state region, and we continue to manage CRE 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 $867,000,000 in outstandings across 95 companies in diverse industries. Credit metrics remain solid. Nearly 80% of borrowers have senior leverage under three times and 70% maintain fixed charge coverage ratios above one and a half times. Losses remain minimal with just $15,300,000 over a ten year history on $1,900,000,000 in funded loans through Q2. Our Midwest footprint remains core with 82.7% of borrowers located in our four state region, and we continue to manage CRE exposure well within regulatory limits, preserving capacity for selective high quality opportunities. our midwest footprint remains core with 82.7% of borrowers located in our four state region and we continue to manage cre 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 $867,000,000 in outstandings across 95 companies in diverse industries. turning to slide 20 our sponsor finance portfolio continues to perform well with $867,000,000 in outstandings across 95 companies in diverse industries Credit metrics remain solid. credit metrics remain solid Nearly 80% of borrowers have senior leverage under three times and 70% maintain fixed charge coverage ratios above one and a half times. nearly 80% of borrowers have senior leverage under three times and 70% maintain fixed charge coverage ratios above one and a half times Losses remain minimal with just $15,300,000 over a ten year history on $1,900,000,000 in funded loans through Q2. losses remain minimal with just $15,300,000 over a ten year history on $1,900,000,000 in funded loans through q2 We also continue to manage our shared national credit exposure prudently with $1,100,000,000 across 88 borrowers, primarily in wholesale trade, agriculture, and manufacturing. On the consumer side, underwriting and credit quality remained solid. Over 95% of our $710,000,000 in consumer loans had credit scores above six sixty nine at origination. Similarly, 91% of our $1,900,000,000 residential mortgage portfolio met that same threshold. Turning to slide '21, our investment real estate portfolio now stands at roughly $3,000,000,000 Within the non owner occupied office, we continue to monitor our exposures closely. We also continue to manage our shared national credit exposure prudently with $1,100,000,000 across 88 borrowers, primarily in wholesale trade, agriculture, and manufacturing. we also continue to manage our shared national credit exposure prudently with $1,100,000,000 across 88 borrowers primarily in wholesale trade agriculture and manufacturing On the consumer side, underwriting and credit quality remained solid. on the consumer side underwriting and credit quality remained solid Over 95% of our $710,000,000 in consumer loans had credit scores above six sixty nine at origination. over 95% of our $710,000,000 in consumer loans had credit scores above six sixty nine at origination Similarly, 91% of our $1,900,000,000 residential mortgage portfolio met that same threshold. similarly 91% of our $1,900,000,000 residential mortgage portfolio met that same threshold Turning to slide '21, our investment real estate portfolio now stands at roughly $3,000,000,000 Within the non owner occupied office, we continue to monitor our exposures closely. turning to slide '21 our investment real estate portfolio now stands at roughly $3,000,000,000 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. The largest office loan is $25,000,000 secured by a single tenant mixed use property at 67.2% loan to value, with the second largest being $24,400,000 in a medical office facility. Turning to slide 22, asset quality remained stable. Our net charge offs were just point zero seven percent of average loans annualized. The largest non accruals this quarter include a $12,900,000 multi family construction loan, $6,800,000 brewery, and a $6,000,000 nursing home. The top 10 loans represent 53% of total ex office exposure with a weighted average loan to value of 63.6% at origination. the top 10 loans represent 53% of total ex office exposure with a weighted average loan to value of 63.6% at origination The largest office loan is $25,000,000 secured by a single tenant mixed use property at 67.2% loan to value, with the second largest being $24,400,000 in a medical office facility. the largest office loan is $25,000,000 secured by a single tenant mixed use property at 67.2% loan to value with the second largest being $24,400,000 in a medical office facility Turning to slide 22, asset quality remained stable. turning to slide 22 asset quality remained stable Our net charge offs were just point zero seven percent of average loans annualized. our net charge offs were just point zero seven percent of average loans annualized The largest non accruals this quarter include a $12,900,000 multi family construction loan, $6,800,000 brewery, and a $6,000,000 nursing home. the largest non accruals this quarter include a $12,900,000 multi family construction loan $6,800,000 brewery and a $6,000,000 nursing home These are isolated cases and we are actively working through resolution strategies. Then finally turning to slide 23, our non performing assets. We saw a $22,000,000 payoff of our previously non accrual construction loan. The largest new non accrual was the $12,900,000 multifamily construction loan mentioned earlier. ORE declined by $4,800,000 reflecting continued progress in non performing asset resolution. These are isolated cases and we are actively working through resolution strategies. these are isolated cases and we are actively working through resolution strategies Then finally turning to slide 23, our non performing assets. then finally turning to slide 23 our non performing assets We saw a $22,000,000 payoff of our previously non accrual construction loan. we saw a $22,000,000 payoff of our previously non accrual construction loan The largest new non accrual was the $12,900,000 multifamily construction loan mentioned earlier. the largest new non accrual was the $12,900,000 multifamily construction loan mentioned earlier ORE declined by $4,800,000 reflecting continued progress in non performing asset resolution. ore declined by $4,800,000 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. I appreciate your attention. I'll now turn the call over to Mark Hardway. And then overall, our credit portfolio continues to perform well with strong underwriting discipline and proactive risk management. and then overall our credit portfolio continues to perform well with strong underwriting discipline and proactive risk management I appreciate your attention. i appreciate your attention I'll now turn the call over to Mark Hardway. i'll now turn the call over to mark hardway

Speaker 2: 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 8.5% 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 ten years and highlights how acquisitions have improved our footprint and fuel growth. We believe in accretive M and A, but it's important to note that we focus on organic growth first. Thanks, John. 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. 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 8.5% when adjusting for the impact of unrealized gains and losses of the available for sale securities portfolio. 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 ten years and highlights how acquisitions have improved our footprint and fuel growth. slide 25 represents our total asset cagr of 11.7% during the last ten years and highlights how acquisitions have improved our footprint and fuel growth We believe in accretive M and A, but it's important to note that we focus on organic growth first. we believe in accretive m and a but it's important to note that we focus on organic growth first We are very selective when it comes to mergers and acquisitions, and April 1 marks the three year anniversary of our last acquisition. As we look forward to the remainder of 2025, we expect 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. We are very selective when it comes to mergers and acquisitions, and April 1 marks the three year anniversary of our last acquisition. we are very selective when it comes to mergers and acquisitions and april 1 marks the three year anniversary of our last acquisition As we look forward to the remainder of 2025, we expect more of the same strong performance. as we look forward to the remainder of 2025 we expect 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. thanks for your attention and investment in first merchants and we are happy to take questions at this time

Speaker 1: Thank you. Our first question comes from Daniel Tamayo with Raymond James. Your line is open. Thank you. thank you Our first question comes from Daniel Tamayo with Raymond James. our first question comes from daniel tamayo with raymond james Your line is open. your line is open

Speaker 6: Thank you. Good morning. I guess maybe we can start on the margin, if you don't mind. Maybe for you, Michelle, 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. 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? Thank you. thank you Good morning. good morning I guess maybe we can start on the margin, if you don't mind. i guess maybe we can start on the margin if you don't mind Maybe for you, Michelle, 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. maybe for you michelle 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 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? 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 or guidance you might have on margin overall? And then any color or guidance you might have on margin overall? and then any color or guidance you might have on margin overall

Speaker 4: Yes, good morning. As Mike mentioned in his remarks, we saw our customers utilizing their cash this quarter, and we had really strong loan growth to fund. So we did see deposit costs rise a little bit, I do think that that will put some modest compression in margin in the back half of the year compared to this quarter. Yes, good morning. yes good morning As Mike mentioned in his remarks, we saw our customers utilizing their cash this quarter, and we had really strong loan growth to fund. as mike mentioned in his remarks we saw our customers utilizing their cash this quarter and we had really strong loan growth to fund So we did see deposit costs rise a little bit, I do think that that will put some modest compression in margin in the back half of the year compared to this quarter. so we did see deposit costs rise a little bit i do think that that will put some modest compression in margin in the back half of the year compared to this quarter

Speaker 6: Okay. Okay. okay All right. Thank you. And then you talked a lot about the strong loan growth and the expectations for that to continue. 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 these businesses are investing. It sounds like that's the case, but just want to kind of make sure that that's not pull through from earlier in the year where some of the borrowers on hold? All right. all right Thank you. thank you And then you talked a lot about the strong loan growth and the expectations for that to continue. and then you talked a lot about the strong loan growth and the expectations for that to continue 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 these businesses are investing. 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 these businesses are investing It sounds like that's the case, but just want to kind of make sure that that's not pull through from earlier in the year where some of the borrowers on hold? it sounds like that's the case but just want to kind of make sure that that's not pull through from earlier in the year where some of the borrowers on hold

Speaker 3: That's a good question. I view it as core, working right through direct client growth in their plans, meeting their expectations. When I think about your say, is there a pull through? We did talk about what did potentially like the tariffs mean with people being calculated in how they wanted to proceed as they move forward. Maybe there's a little bit of pull through in that, but really when you look at the activity, as I looked at the activity across the board, it just seemed very normal course. That's a good question. that's a good question I view it as core, working right through direct client growth in their plans, meeting their expectations. i view it as core working right through direct client growth in their plans meeting their expectations When I think about your say, is there a pull through? when i think about your say is there a pull through We did talk about what did potentially like the tariffs mean with people being calculated in how they wanted to proceed as they move forward. we did talk about what did potentially like the tariffs mean with people being calculated in how they wanted to proceed as they move forward Maybe there's a little bit of pull through in that, but really when you look at the activity, as I looked at the activity across the board, it just seemed very normal course. maybe there's a little bit of pull through in 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 5: Yeah, and I think, Daniel, the only other place when I think about pull through might have we saw a little bit higher line utilization where people might have been drawing down on revolvers or credit facilities to kind of front end the expected tariffs, but that has added a little bit to child standings in the quarter. Yeah, and I think, Daniel, the only other place when I think about pull through might have we saw a little bit higher line utilization where people might have been drawing down on revolvers or credit facilities to kind of front end the expected tariffs, but that has added a little bit to child standings in the quarter. yeah and i think daniel the only other place when i think about pull through might have we saw a little bit higher line utilization where people might have been drawing down on revolvers or credit facilities to kind of front end the expected tariffs but that has added a little bit to child standings in the quarter

Speaker 6: Great. Okay. Well, I will step back. I appreciate the color. Great. great Okay. okay Well, I will step back. well i will step back I appreciate the color. i appreciate the color

Speaker 4: Thanks, Danny. Thanks, Danny. thanks danny

Speaker 1: One moment for our next question. Our next question comes from Terry McEvoy with Stephens. Your line is open. One moment for our next question. one moment for our next question Our next question comes from Terry McEvoy with Stephens. our next question comes from terry mcevoy with stephens Your line is open. your line is open

Speaker 7: Hi. Good morning, everybody. Hi. hi Good morning, everybody. good morning everybody

Speaker 2: Good morning. Good morning. good morning

Speaker 3: Good morning, Terry. Good morning, Terry. good morning terry

Speaker 7: Maybe just a question on fees. One, I noticed just wealth management fees kind of flat year over year and S and P is up, call it, what, 15%, 16%. And wonder what the outlook was for wealth management. And overall, Michelle, what are your thoughts on total fee income in the back half of the year? Maybe just a question on fees. maybe just a question on fees One, I noticed just wealth management fees kind of flat year over year and S and P is up, call it, what, 15%, 16%. one i noticed just wealth management fees kind of flat year over year and s and p is up call it what 15% 16% And wonder what the outlook was for wealth management. and wonder what the outlook was for wealth management And overall, Michelle, what are your thoughts on total fee income in the back half of the year? and overall michelle what are your thoughts on total fee income in the back half of the year

Speaker 4: Well, 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 noninterest 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. And Mike, do you wanna Well, I'll address our expectations on total fee income and maybe let Mike jump in and talk more specifically on wealth management. well 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 noninterest income grow into the mid single digits in the back half of the year. but i would expect to see noninterest 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. 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. but you know that being said we do expect to see growth in fees through the remainder of the year And Mike, do you wanna and mike do you wanna

Speaker 3: talk about point, you know, there's 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 Michelle said, view that as still a primary driver of our fee income growth in that category going forward. talk about point, you know, there's there's four primary categories that are private the fee categories that our private wealth team works through. talk about point you know there's 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. 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. 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. so it just muted some of those corollary into the market But like Michelle said, view that as still a primary driver of our fee income growth in that category going forward. but like michelle said view that as still a primary driver of our fee income growth in that category going forward

Speaker 7: Thanks for that. 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? Just kind of remind us longer term, what are the benefits of those tech initiatives? Thanks for that. thanks for that And then maybe just taking a step back, Mark, I think last year you completed five technology upgrades. 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? 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 Just kind of remind us longer term, what are the benefits of those tech initiatives? just kind of remind us longer term what are the benefits of those tech initiatives

Speaker 2: Yeah, thanks, Jerry. 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. 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 three sixty view and having dashboards in the hands of our bankers, etcetera. Yeah, thanks, Jerry. yeah thanks jerry 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. 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 And this year from a tech standpoint, we've deployed some internal technology. 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. so last year was more about customer facing tech this year is more internal You think about like a customer three sixty view and having dashboards in the hands of our bankers, etcetera. you think about like a customer three sixty view and having dashboards in the hands of our bankers etcetera And the investment was around making sure we could open accounts faster in the branch network, our teams to be more active calling than just spending forty five minutes trying to open one account. And that's down to five or ten minutes. Our treasury management platform was a significant upgrade. And so our calling efforts on the commercial side and the treasury space have been increased. We have a better product to sell. And the investment was around making sure we could open accounts faster in the branch network, our teams to be more active calling than just spending forty five minutes trying to open one account. and the investment was around making sure we could open accounts faster in the branch network our teams to be more active calling than just spending forty five minutes trying to open one account And that's down to five or ten minutes. and that's down to five or ten minutes Our treasury management platform was a significant upgrade. our treasury management platform was a significant upgrade And so our calling efforts on the commercial side and the treasury space have been increased. and so our calling efforts on the commercial side and the treasury space have been increased We have a better product to sell. 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 given that team a much better product to sell. And so I think we're having success. We're continuing to highlight the products and we're also doing modest improvement. So we converted all those where it was kind of whatever we had before is kind of how it transitioned over. And then on the private wealth side, we invested in a new PWA platform or private wealth platform. and then on the private wealth side we invested in a new pwa platform or private wealth platform And it's given that team a much better product to sell. and it's given that team a much better product to sell And so I think we're having success. and so i think we're having success We're continuing to highlight the products and we're also doing modest improvement. we're continuing to highlight the products and we're also doing modest improvement So we converted all those where it was kind of whatever we had before is kind of how it transitioned over. so we 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. And as we turn the feature functionality on, it just gives us even a better product to sell. 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 is 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. 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 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. and as we turn the feature functionality on it just gives us even a better product to sell Think our teams are armed with customer platforms that our customers love and it gives our bankers product to sell. 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 is inferior at this point where we have to go to market and kind of sell through an inferior product. and there really are 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 a product that's at least on par with everyone else we compete with. we're selling with a product that's at least on par with everyone else we compete with So, that was part of how we built the plan and why we still remain bullish across all the segments. So, that was part of how we built the plan and why we still remain bullish across all the segments. so that was part of how we built the plan and why we still remain bullish across all the segments

Speaker 7: Appreciate that, Mark. Thank you. 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 questions. Appreciate that, Mark. appreciate that mark Thank you. thank you And just one for John. and just one for john The decline in classified sponsored finance loans was noted on my end. the decline in classified sponsored finance loans was noted on my end Just wanted to make that observation, and thanks for providing those details. just wanted to make that observation and thanks for providing those details And thanks for taking my questions. and thanks for taking my questions

Speaker 2: Thanks, Jerry. Thanks, Jerry. thanks jerry

Speaker 1: One moment for our next question. Our next question comes from Brandon Nussol with Hovde Group. Your line is open. One moment for our next question. one moment for our next question Our next question comes from Brandon Nussol with Hovde Group. our next question comes from brandon nussol with hovde group Your line is open. your line is open

Speaker 8: Hey, good morning everybody. Hope you're doing well. Good morning. Maybe just starting off here on capital. You folks have been really active on the capital front over the past two years between almost 100,000,000 of sub debt redemptions and very active use of the buy back. Hey, good morning everybody. hey good morning everybody Hope you're doing well. hope you're doing well Good morning. good morning Maybe just starting off here on capital. maybe just starting off here on capital You folks have been really active on the capital front over the past two years between almost 100,000,000 of sub debt redemptions and very active use of the buy back. you folks have been really active on the capital front over the past two years between almost 100,000,000 of sub debt redemptions and very active use of the buy back Just to the extent that you continue to generate excess capital even after supporting loan growth, what are your latest thoughts on deployment? Just to the extent that you continue to generate excess capital even after supporting loan growth, what are your latest thoughts on deployment? just to the extent that you continue to generate excess capital even after supporting loan growth what are your latest thoughts on deployment

Speaker 2: Yes. 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 other capital activities and it might be redemption of sub debt, repurchase of shares, cash and acquisitions, etcetera. So, yes, you're right. We've redeemed all the sub debt that we really have available to us at this point. Yes. yes We still kind of have the same mindset. 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 other capital activities and it might be redemption of sub debt, repurchase of shares, cash and acquisitions, etcetera. 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 other capital activities and it might be redemption of sub debt repurchase of shares cash and acquisitions etcetera So, yes, you're right. so yes you're right We've redeemed all the sub debt that we really have available to us at this point. we've redeemed all the sub debt that we really have available to us at this point And given where the stock was trading early this year, we've been pretty active in buybacks and we're not opposed to accumulating some additional capital. We'll put to use in an acquisition at a later date, but at least so far we feel like there have been great uses for that capital. As our stock price works its way further north, I think we'll be less aggressive with buybacks. And given where the stock was trading early this year, we've been pretty active in buybacks and we're not opposed to accumulating some additional capital. and given where the stock was trading early this year we've been pretty active in buybacks and we're not opposed to accumulating some additional capital We'll put to use in an acquisition at a later date, but at least so far we feel like there have been great uses for that capital. we'll put to use in an acquisition at a later date but at least so far we feel like there have been great uses for that capital As our stock price works its way further north, I think we'll be less aggressive with buybacks. as our stock price works its way further north i think we'll be less aggressive with buybacks

Speaker 8: Okay. All right. Thank you for the thoughts there, Mark. Maybe just turning to the funding base and just looking specifically at brokered funding. I think the total is up to $1,000,000,000 now or like 8% of the base. Okay. okay All right. all right Thank you for the thoughts there, Mark. thank you for the thoughts there mark Maybe just turning to the funding base and just looking specifically at brokered funding. maybe just turning to the funding base and just looking specifically at brokered funding I think the total is up to $1,000,000,000 now or like 8% of the base. i think the total is up to $1,000,000,000 now or like 8% of the base Just kind of curious how high you're comfortable taking use of that funding source? Is there any point at which that starts to become a bit of constraint on the balance sheet? Just kind of curious how high you're comfortable taking use of that funding source? just kind of curious how high you're comfortable taking use of that funding source Is there any point at which that starts to become a bit of constraint on the balance sheet? is there any point at which that starts to become a bit of constraint on the balance sheet

Speaker 4: Yeah. Typically, we we kinda have an internal threshold of about 10%, and we typically won't go above that on brokerage. And so, there's probably a little room there, but, you know, looking at brokerage 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. Yeah. yeah Typically, we we kinda have an internal threshold of about 10%, and we typically won't go above that on brokerage. typically we we kinda have an internal threshold of about 10% and we typically won't go above that on brokerage And so, there's probably a little room there, but, you know, looking at brokerage quarter over quarter, we really didn't have much growth. and so there's probably a little room there but you know looking at brokerage 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. 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 8: Okay, perfect. I'm going to sneak one more in there. Just maybe going back to capital. I know you get the M and A question all the time, but I think it's worth asking again, just given the pickup in 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 of the target size you desire are any closer to raising their hands? Okay, perfect. okay perfect I'm going to sneak one more in there. i'm going to sneak one more in there Just maybe going back to capital. just maybe going back to capital I know you get the M and A question all the time, but I think it's worth asking again, just given the pickup in deal activity we've seen over the past few weeks. i know you get the m and a question all the time but i think it's worth asking again just given the pickup in 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 of the target size you desire are any closer to raising their hands? 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 of the target size you desire are any closer to raising their hands

Speaker 2: Well, there's clearly been movement and even some speculation across the industry around M and A. The conversations have been robust for a period of time. They're a little easier now because some of the modeling does produce meaningful gains or premiums, I guess I should say for the sellers. And so I think the environment is good for M and 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, day job is 100% focused on organic growth and then the inorganic process is there's a lot of 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 know, trying to figure out if there's a price that makes sense that that works for both parties. Well, there's clearly been movement and even some speculation across the industry around M and A. well there's clearly been movement and even some speculation across the industry around m and a The conversations have been robust for a period of time. the conversations have been robust for a period of time They're a little easier now because some of the modeling does produce meaningful gains or premiums, I guess I should say for the sellers. they're a little easier now because some of the modeling does produce meaningful gains or premiums i guess i should say for the sellers And so I think the environment is good for M and A and we continue to just stay close to the ones that we're most interested in. and so i think the environment is good for m and 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, day job is 100% focused on organic growth and then the inorganic process is there's a lot of 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 know, trying to figure out if there's a price that makes sense that that works for both parties. and like i said in my previous comments day job is 100% focused on organic growth and then the inorganic process is there's a lot of 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 know trying to figure out if there's a price that makes sense that that works for both parties

Speaker 8: Okay. Fantastic. Thanks for taking the questions this morning. Okay. okay Fantastic. fantastic Thanks for taking the questions this morning. thanks for taking the questions this morning

Speaker 2: Thank you. Thank you. thank you

Speaker 1: One moment for our next question. Our next question comes from Nathan Race with Piper Sandler. Your line is open. One moment for our next question. one moment for our next question Our next question comes from Nathan Race with Piper Sandler. our next question comes from nathan race with piper sandler Your line is open. your line is open

Speaker 9: Hi, everyone. Good morning. Apologies for that. Michelle, going back to your margin commentary, think you mentioned that you expect some pressure in the back half of this year just given some further expected increases in deposit costs. I guess I was a little surprised just given how much cash flow is coming off the bond book to redeploy into loans. Hi, everyone. hi everyone Good morning. good morning Apologies for that. apologies for that Michelle, going back to your margin commentary, think you mentioned that you expect some pressure in the back half of this year just given some further expected increases in deposit costs. michelle going back to your margin commentary think you mentioned that you expect some pressure in the back half of this year just given some further expected increases in deposit costs I guess I was a little surprised just given how much cash flow is coming off the bond book to redeploy into loans. i guess i was a little surprised just given 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 on 70 basis points above your portfolio yield. So we're just curious if you can maybe elaborate a little bit more on that margin commentary and just how you see the sensitivity of the balance sheet to any Fed cuts in the back half of this year. Sounds like you're still growing loans at a pretty good clip, and it seems like those loans are coming on 70 basis points above your portfolio yield. sounds like you're still growing loans at a pretty good clip and it seems like those loans are coming on 70 basis points above your portfolio yield So we're just curious if you can maybe elaborate a little bit more on that margin commentary and just how you see the sensitivity of the balance sheet to any Fed cuts in the back half of this year. so we're just curious if you can maybe elaborate a little bit more on that margin commentary and just how you see the sensitivity of the balance sheet to any fed cuts in the back half of this year

Speaker 4: 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. Yeah. yeah I don't assuming that we have a flat rate environment, maybe I'll start there. 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. 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. you know it really depends on our deposit competition We've seen deposit competition really heat up. 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. 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, would expect about two basis points of compression for each 25 basis point rate cut. Specials are getting higher, and we have to compete with that, especially if we have 9% loan growth like we did this quarter. specials are getting higher and we have to compete with that especially if we have 9% loan growth like we did this quarter We do need to fund it. 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. 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. 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, would expect about two basis points of compression for each 25 basis point rate cut. and so i think if with each rate cut on an annualized basis would expect about two 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. 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. 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

Speaker 9: Okay. Got it. I apologize. I jumped on a little late, just curious to get some updated thoughts on just where the pipeline stands and kind of 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? Okay. okay Got it. got it I apologize. i apologize I jumped on a little late, just curious to get some updated thoughts on just where the pipeline stands and kind of just overall production levels. i jumped on a little late just curious to get some updated thoughts on just where the pipeline stands and kind of 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? 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

Speaker 3: 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 an outlook where I would think that we would continue to grow with our clients as their needs grow or if we're taking market share, in that respect. If you break that down a little further, core C and I has really been kind of a driver of that. Most recently. Real estate production is really good too. 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. 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 an outlook where I would think that we would continue to grow with our clients as their needs grow or if we're taking market share, in that respect. so that's an outlook where i would think that we would continue to grow with our clients as their needs grow or if we're taking market share in that respect If you break that down a little further, core C and I has really been kind of a driver of that. if you break that down a little further core c and i has really been kind of a driver of that Most recently. most recently Real estate production is really good too. real estate production is really good too It's just that's what's getting offset with the normal course payoffs of the portfolio isn't necessarily growing on investment real estate like the C and I is, but the production level is really good there. The pipelines inside, you know, consumer mortgage and private wealth, that's a 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 activity there as well. It's just that's what's getting offset with the normal course payoffs of the portfolio isn't necessarily growing on investment real estate like the C and I is, but the production level is really good there. it's just that's what's getting offset with the normal course payoffs of the portfolio isn't necessarily growing on investment real estate like the c and i is but the production level is really good there The pipelines inside, you know, consumer mortgage and private wealth, that's a they're strong, but that's really not a balance sheet growth driver. the pipelines inside you know consumer mortgage and private wealth that's a 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 activity there as well. that's really more of a fee income but we'll see some good activity there as well

Speaker 2: Yeah, can I just jump in for a second? I love what's happening with our balance sheet. We're seeing really nice growth. And even from a margin standpoint, it's like, let's just maintain where we are. And I was thrilled that loan yields were even higher this quarter than they were last quarter. Yeah, can I just jump in for a second? yeah can i just jump in for a second I love what's happening with our balance sheet. i love what's happening with our balance sheet We're seeing really nice growth. we're seeing really nice growth And even from a margin standpoint, it's like, let's just maintain where we are. and even from a margin standpoint it's like let's just maintain where we are And I was thrilled that loan yields were even higher this quarter than they were last quarter. 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 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. I feel like the loan growth and deposit growth that's occurring just allows us to continue to grow net interest income. So at least that's how we're thinking about it internally. It's kind of how it's in our plan. And the message, I guess, that I would hope would get across to investors. 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. 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 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 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 I feel like the loan growth and deposit growth that's occurring just allows us to continue to grow net interest income. i feel like the loan growth and deposit growth that's occurring just allows us to continue to grow net interest income So at least that's how we're thinking about it internally. so at least that's how we're thinking about it internally It's kind of how it's in our plan. it's kind of how it's in our plan And the message, I guess, that I would hope would get across to investors. and the message i guess that i would hope would get across to investors

Speaker 9: Got it. That's very helpful. And I appreciate that, Mark and John. Maybe one last one for me. I think you touched on kind of the income growth outlook going forward, but just curious within that how we should think about that other line. Got it. got it That's very helpful. that's very helpful And I appreciate that, Mark and John. and i appreciate that mark and john Maybe one last one for me. maybe one last one for me I think you touched on kind of the income growth outlook going forward, but just curious within that how we should think about that other line. i think you touched on kind of the income growth outlook going forward but just curious within that 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? 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? 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

Speaker 4: If you're referring to the non client related fees, is that what you're looking at, Nate? If you're referring to the non client related fees, is that what you're looking at, Nate? if you're referring to the non client related fees is that what you're looking at nate

Speaker 9: Yeah, I just want to look at the income statement. It was pretty much zero for other fee income this quarter, so just any thoughts on that revenue line in particular? Yeah, I just want to look at the income statement. yeah i just want to look at the income statement It was pretty much zero for other fee income this quarter, so just any thoughts on that revenue line in particular? it was pretty much zero for other fee income this quarter so just any thoughts on that revenue line in particular

Speaker 4: Yeah, I mean, would probably back out the valuation adjustment we had, which was about $900,000 That's fairly unusual for us to have something like that on a CRA investment. And then, a go forward basis, I feel like this quarter, with an absence of that, would be a decent run rate to use. Yeah, I mean, would probably back out the valuation adjustment we had, which was about $900,000 That's fairly unusual for us to have something like that on a CRA investment. yeah i mean would probably back out the valuation adjustment we had which was about $900,000 that's fairly unusual for us to have something like that on a cra investment And then, a go forward basis, I feel like this quarter, with an absence of that, would be a decent run rate to use. and then a go forward basis i feel like this quarter with an absence of that would be a decent run rate to use

Speaker 9: Okay, great. I appreciate all the color. Thank you, everyone. Okay, great. okay great I appreciate all the color. i appreciate all the color Thank you, everyone. thank you everyone

Speaker 1: One moment for our next question. Our next question comes from Damon DelMonte with KBW. Your line is open. One moment for our next question. one moment for our next question Our next question comes from Damon DelMonte with KBW. our next question comes from damon delmonte with kbw Your line is open. your line is open

Speaker 10: Hey, good morning, everyone. Hope everybody's doing well, and thanks for taking my question. First question on the outlook for expenses. Good job of keeping them in check here in 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 run rate. Hey, good morning, everyone. hey good morning everyone Hope everybody's doing well, and thanks for taking my question. hope everybody's doing well and thanks for taking my question First question on the outlook for expenses. first question on the outlook for expenses Good job of keeping them in check here in second quarter compared to the first quarter. good job of keeping them in check here in 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 run rate. michelle 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

Speaker 4: 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. 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. But the levels of expense management are going to continue. 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. 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 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. 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 But the levels of expense management are going to continue. but the levels of expense management are going to continue

Speaker 2: 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 of bankers. I mean, we Mike, you didn't mention it, but we we brought in what, four people out of JPMorgan's asset based lending group. 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 of bankers. 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 of bankers I mean, we Mike, you didn't mention it, but we we brought in what, four people out of JPMorgan's asset based lending group. i mean we mike you didn't mention it but we we brought in what four people out of jpmorgan's asset based lending group

Speaker 3: Yes. Yes. yes

Speaker 2: And they've all started well, three of the four 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. Think about the folks that we brought in on the private wealth side in Fort Wayne, the individual we hired to run our small business lending function across the entire franchise. And they've all started well, three of the four started this quarter. and they've all started well three of the four started this quarter And we were anticipating an additional hire in the second half of the year. 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. we're kind of at the offer point with someone in our ohio market And we just continue to add talent. and we just continue to add talent Think about the folks that we brought in on the private wealth side in Fort Wayne, the individual we hired to run our small business lending function across the entire franchise. think about the folks that we brought in on the private wealth side in fort wayne the individual we hired to run our small business lending function across the entire franchise And most of those expenses are embedded, but we've got some that will increase. As Michelle talks about the expense run rate, those are the only areas where I feel like it puts some pressure on us. The return of some of that is in the future as loan growth occurs after these folks work through non competes, etcetera. 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. And most of those expenses are embedded, but we've got some that will increase. and most of those expenses are embedded but we've got some that will increase As Michelle talks about the expense run rate, those are the only areas where I feel like it puts some pressure on us. as michelle talks about the expense run rate those are the only areas where i feel like it puts some pressure on us The return of some of that is in the future as loan growth occurs after these folks work through non competes, etcetera. the return of some of that is in the future as loan growth occurs after these folks work through non competes etcetera 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. 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 3: I'm glad you brought that up, Mark. Some really smart key people additions across many different business units. I'm glad you brought that up, Mark. i'm glad you brought that up mark Some really smart key people additions across many different business units. some really smart key people additions across many different business units

Speaker 2: Right. Right. right

Speaker 3: Which is normal for us, but this year's been kind of exceptionally positive in some key areas, and the small business one you referenced is really as much a deposit play as anything, so we're retooling some of our approach on the low end. It's a wonderful mix across the way of fee income and balance sheet. Which is normal for us, but this year's been kind of exceptionally positive in some key areas, and the small business one you referenced is really as much a deposit play as anything, so we're retooling some of our approach on the low end. which is normal for us but this year's been kind of exceptionally positive in some key areas and the small business one you referenced is really as much a deposit play as anything so we're retooling some of our approach on the low end It's a wonderful mix across the way of fee income and balance sheet. it's a wonderful mix across the way of fee income and balance sheet

Speaker 2: Yeah, that small business, we moved it into the consumer bank, and it was, what, dollars $875,000,000 of deposits and only $30,000,000 or so of loans. I may have the number wrong. Yeah, that small business, we moved it into the consumer bank, and it was, what, dollars $875,000,000 of deposits and only $30,000,000 or so of loans. yeah that small business we moved it into the consumer bank and it was what dollars $875,000,000 of deposits and only $30,000,000 or so of loans I may have the number wrong. i may have the number wrong

Speaker 5: That's right. That's right. that's right

Speaker 2: 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. We're thrilled with the momentum and that's kind of the case in all of the different ones that I mentioned. Probably shouldn't have highlighted JPMorgan specifically, but we picked up those four bankers. That's about right. that's about right And we're excited about what we think the future can be and to truly optimize it. 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. we just thought that it made sense for us to bring someone in from one of the big regionals We're thrilled with the momentum and that's kind of the case in all of the different ones that I mentioned. we're thrilled with the momentum and that's kind of the case in all of the different ones that i mentioned Probably shouldn't have highlighted JPMorgan specifically, but we picked up those four bankers. probably shouldn't have highlighted jpmorgan 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. It was a huge win for us, and we're excited about what it can do for the future. it was a huge win for us and we're excited about what it can do for the future

Speaker 10: Got it. I appreciate all that color. And then I guess just a second question here on kind of the credit and provision outlook. 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 of quarters? Or do you think this quarter was a little bit higher? Got it. got it I appreciate all that color. i appreciate all that color And then I guess just a second question here on kind of the credit and provision outlook. and then i guess just a second question here on kind of the credit and provision outlook 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 of quarters? 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 of quarters Or do you think this quarter was a little bit higher? or do you think this quarter was a little bit higher

Speaker 4: 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. You know, it just kinda depends on whether the we've gotta make adjustments for the macroeconomic outlook. And so in q two, of course, the unemployment rate forecast, 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 sheet. I don't know if 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. 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 You know, it just kinda depends on whether the we've gotta make adjustments for the macroeconomic outlook. you know it just kinda depends on whether the we've gotta make adjustments for the macroeconomic outlook And so in q two, of course, the unemployment rate forecast, know, required more provision, but then that also got offset with, some of the asset quality improvement that we saw. and so in q two of course the unemployment rate forecast 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 sheet. 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 sheet

Speaker 10: Got it. Okay, great. That's all that I had. Thanks for all the color. Got it. got it Okay, great. okay great That's all that I had. that's all that i had Thanks for all the color. thanks for all the color

Speaker 4: Thanks, Damon. Thanks, Damon. thanks damon

Speaker 1: One moment for our next question. Our next question comes from Brian Martin with Janney. Your line is open. One moment for our next question. one moment for our next question Our next question comes from Brian Martin with Janney. our next question comes from brian martin with janney Your line is open. your line is open

Speaker 11: Hey, good morning, everyone. Hey, good morning, everyone. hey good morning everyone

Speaker 2: Good morning. Good morning. good morning

Speaker 11: Hey, just a couple. Michelle, you answered most everything on the margin, but just in terms of the cost of deposits, 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, as you said, to your point earlier about no changes from the Fed right now, kind of a stable rate environment, given the loan growth, the competitive factors, that should just drift a bit higher in the back half of the year? Hey, just a couple. hey just a couple Michelle, you answered most everything on the margin, but just in terms of the cost of deposits, I guess your expectation is that trends up from here. michelle you answered most everything on the margin but just in terms of the cost of deposits 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, as you said, to your point earlier about no changes from the Fed right now, kind of a stable rate environment, given the loan growth, the competitive factors, that should just drift a bit higher in the back half of the year? and i guess i understand it may be incremental based on and that's kind of assuming as you said to your point earlier about no changes from the fed right now kind of a stable rate environment given the loan growth the competitive factors that should just drift a bit higher in the back half of the year

Speaker 4: It could. You know, it really depends on, I think, the the deposit competition and, you know, how we compete in our markets. And that, you know, it's difficult for us to give you, like, a real It could. it could You know, it really depends on, I think, the the deposit competition and, you know, how we compete in our markets. you know it really depends on i think the the deposit competition and you know how we compete in our markets And that, you know, it's difficult for us to give you, like, a real and that you know it's difficult for us to give you like a real

Speaker 11: Yep. Yep. yep

Speaker 4: A real prediction on that. A real prediction on that. a real prediction on that

Speaker 2: Yeah, and I thought this was unique, 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 were paying. Yeah, and I thought this was unique, 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 were paying. yeah and i thought this was unique 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 were paying

Speaker 11: Gotcha. Okay. And then maybe how about just on the fixed rate loan repricing, Michelle, can you remind us what that is, whether, you know, I guess, the back half of the year or next twelve months, what what you may have on that front? Gotcha. gotcha Okay. okay And then maybe how about just on the fixed rate loan repricing, Michelle, can you remind us what that is, whether, you know, I guess, the back half of the year or next twelve months, what what you may have on that front? and then maybe how about just on the fixed rate loan repricing michelle can you remind us what that is whether you know i guess the back half of the year or next twelve months what what you may have on that front

Speaker 4: Yeah. Sorry. I'm just trying to Yeah. yeah Sorry. sorry I'm just trying to i'm just trying to

Speaker 11: That's alright. I can ask one other question for for for someone else while you look at it if you want to. Just I was gonna ask John just from the, you know, the tax legislation being passed, some of your optimism on loan growth on the C and I side is does it stem, know, I guess you're hearing from your customers on the new tax legislation that it gives you more optimism on loan growth as well. And then just same point, the people you, the recent hires you've added, can you just comment if you said it kind of when these people were on board? It doesn't sound like they've contributed yet, but just to be clear on that. That's alright. that's alright I can ask one other question for for for someone else while you look at it if you want to. i can ask one other question for for for someone else while you look at it if you want to Just I was gonna ask John just from the, you know, the tax legislation being passed, some of your optimism on loan growth on the C and I side is does it stem, know, I guess you're hearing from your customers on the new tax legislation that it gives you more optimism on loan growth as well. just i was gonna ask john just from the you know the tax legislation being passed some of your optimism on loan growth on the c and i side is does it stem know i guess you're hearing from your customers on the new tax legislation that it gives you more optimism on loan growth as well And then just same point, the people you, the recent hires you've added, can you just comment if you said it kind of when these people were on board? and then just same point the people you the recent hires you've added can you just comment if you said it kind of when these people were on board It doesn't sound like they've contributed yet, but just to be clear on that. it doesn't sound like they've contributed yet but just to be clear on that

Speaker 5: I'm gonna defer some of the kind of half and half, Brian. That was Mike Stu answering the questions about the hires, etcetera. I think from the optimism through the portfolio, 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 half of the year. It creates a lot of, I'll say, lack of clarity as to exactly what's going to happen, And so it's it's hard to tell. There's no question that the bill itself, should be should help and provide optimism to our customers, though. I'm gonna defer some of the kind of half and half, Brian. i'm gonna defer some of the kind of half and half brian That was Mike Stu answering the questions about the hires, etcetera. that was mike stu answering the questions about the hires etcetera I think from the optimism through the portfolio, 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 half of the year. i think from the optimism through the portfolio 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 half of the year It creates a lot of, I'll say, lack of clarity as to exactly what's going to happen, And so it's it's hard to tell. it creates a lot of i'll say lack of clarity as to exactly what's going to happen and so it's it's hard to tell There's no question that the bill itself, should be should help and provide optimism to our customers, though. there's no question that the bill itself should be should help and provide optimism to our customers though

Speaker 11: Mhmm. Yeah. Mhmm. mhmm Yeah. yeah

Speaker 3: We're operating in the Midwest, and the Midwest right now has really good economic growth, and we're taking advantage of that. Our our businesses, client 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. We're operating in the Midwest, and the Midwest right now has really good economic growth, and we're taking advantage of that. we're operating in the midwest and the midwest right now has really good economic growth and we're taking advantage of that Our our businesses, client business models are growing, and they're doing all the right things. our our businesses client 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 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. 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 expected 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 keeping connected in the whole spectrum of what we think is opportunities for first merchants. And to your last point on people, you're right. and to your last point on people you're right Strategic hires have been happening through the course of this year, and the expected inputs or the expected gains on what they can bring to our bank have yet to materialize. strategic hires have been happening through the course of this year and the expected 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 keeping connected in the whole spectrum of what we think is opportunities for first merchants. so that helps us with mix and balance and keeping connected in the whole spectrum of what we think is opportunities for first merchants

Speaker 2: Yeah, and this isn't perfect, but we probably meaningful hires on the sales side in the first half, and we have five more in the second half. Yeah, and this isn't perfect, but we probably meaningful hires on the sales side in the first half, and we have five more in the second half. yeah and this isn't perfect but we probably meaningful hires on the sales side in the first half and we have five more in the second half

Speaker 11: Gotcha. Okay. I appreciate that. Thanks, Mark. And thanks, Mike. Gotcha. gotcha Okay. okay I appreciate that. i appreciate that Thanks, Mark. thanks mark And thanks, Mike. and thanks mike

Speaker 4: Hey, Brian. I do have my notes now on the rate loans. And so in the back half of twenty twenty five, we've got about maybe about 200,000,000 of fixed rate loans that are gonna reprice that are currently sitting at about 5%. Hey, Brian. hey brian I do have my notes now on the rate loans. i do have my notes now on the rate loans And so in the back half of twenty twenty five, we've got about maybe about 200,000,000 of fixed rate loans that are gonna reprice that are currently sitting at about 5%. and so in the back half of twenty twenty five we've got about maybe about 200,000,000 of fixed rate loans that are gonna reprice that are currently sitting at about 5%

Speaker 11: Okay. And similar level as you look out 12 over the twelve months, maybe just double that is kind of what you'd be thinking? Okay. okay And similar level as you look out 12 over the twelve months, maybe just double that is kind of what you'd be thinking? and similar level as you look out 12 over the twelve months maybe just double that is kind of what you'd be thinking

Speaker 4: Yeah. Yep. Yeah. yeah Yep. yep

Speaker 11: Okay. Gotcha. And then just the last one for me was just on the tax rate, just housekeeping. If the current level is a good level to think about? Okay. okay Gotcha. gotcha And then just the last one for me was just on the tax rate, just housekeeping. and then just the last one for me was just on the tax rate just housekeeping If the current level is a good level to think about? if the current level is a good level to think about

Speaker 4: It might creep up a little bit. I'd say it more, I would plan for it to approach maybe 13% in the back half of the year. It might creep up a little bit. it might creep up a little bit I'd say it more, I would plan for it to approach maybe 13% in the back half of the year. i'd say it more i would plan for it to approach maybe 13% in the back half of the year

Speaker 11: Okay, perfect. Thank you for taking the questions, and congratulations on the successes. Okay, perfect. okay perfect Thank you for taking the questions, and congratulations on the successes. thank you for taking the questions and congratulations on the successes

Speaker 4: Thanks, Fred. Thanks, Fred. thanks fred

Speaker 2: Thank you. Thank you. thank you

Speaker 1: And I'm not showing any further questions at this time. I'd like to turn the call back over to Mark Hartwick for any further remarks. And I'm not showing any further questions at this time. and i'm not showing any further questions at this time I'd like to turn the call back over to Mark Hartwick for any further remarks. i'd like to turn the call back over to mark hartwick for any further remarks

Speaker 2: 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 ninety days. Yeah. yeah Kevin, thank you for hosting today. 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 ninety days. 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 ninety days

Speaker 1: Thank you. This concludes today's conference. Thank you for your participation and have a great day. You may now disconnect. Thank you. thank you This concludes today's conference. this concludes today's conference Thank you for your participation and have a great day. thank you for your participation and have a great day You may now disconnect. you may now disconnect