Earnings call transcript Q2 2023

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Operator

Good day, and thank you for standing by. Welcome to the First Merchants Corporation Second Quarter 2023 Earnings. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

Merchants would statements remind future with financial of management call that performance begin, risks condition forward-looking involve contains respect First we like you to today's and and Before uncertainties. that Corporation to the release, contained review. you press we encourage Further information the which is within to

quantitative intended financial available most non-GAAP to Additionally, GAAP directly of information management are measures. may and on not as but The reconciliation non-GAAP to supplement, refer release the measures. comparable contains website substitute other which press today as discussed measures, to for be the well to GAAP

I Hardwick. would to Please conference a Mark the over to now like proceed. Officer, Chief Executive hand

Mark Hardwick

the page good for introduction quarter Merchants and second call. two. the for Well, to XXXX statement forward-looking the and covering morning, on First Carmen, welcome conference thank you

going approximately of We today's access the by you our today released earnings the earnings our a.m. release our second Eastern, and link can X by Investor Relations following to on page website section. the through slides at or

see you Kawiecki. Credit to Chief bios President page and include three, our and Stewart, today's John Financial presenters Officer, Mike Martin, Chief Michele Officer, On will

you map geographic of well representing XXX On see locations of as page financial as banking XX the centers, highlights few of XXXX. will our a as four, June a X/XX,

and our slide base. I'm client and meet remains continue teams happy our our strong, five, to and to communities Turning demands to performance report our healthy that the of

of last We to second to of when of quarter per acquisition a adjusted $X.XX reported $X.XX per extraordinary of One. year quarter second XXXX, XXXX in items, the our earnings couple share share include Level compared or $X.XX for

totaled tangible return million, or for over on Return XX.XX%, X.XX% quarter. assets $X.XX Year-to-date, income million totaled $XXX $XX common just the share. per earned the for Net and we've quarter. on was equity

modest XXs manage continued margin through We what's left loan of and efficiency continued we as to of through low remain mid single-digit XXXX our growth remainder compression. ratio committed the

Now, Michele small sheet more on and in be see respective insight I will balance Mike provide John uptick John know our include cover and did to their in Mike? Stewart sale, detail. an We that non-accruals a loan will will non-core covering areas.

Mike Stewart

Mark, unchanged a of all. these our durability morning map to of if you, and results Thank the business these serve. states, and four, is represent operate remains financial you Midwest. within reminder markets the six And Slide Yes. primarily we the our visualize that model within heart on slide we good three the

and with and Our markets include Columbus, Detroit, Indianapolis, cities communities many in mid-sized growing between. metropolitan like cities

consumer the bullet markets. we stable point As metro in the last under serve diverse banking header rural states, locations

to First resilient customer segments. continuing optimize Merchants to banking seek of remained and granular derived XXXX, Through from deposits operations. these economic the rates four to with environment with of markets ways their a broad base diverse stable unemployment have these the and listed expand quarter loans second and and has businesses

technology of platforms, to and remain to our team, growth, financial our invest to invest strategy, We our continuing in we and organic to business committed our direction strategic continuing in remain top-tier metrics. committed

of of annualized total seven, X.X% units. business second X.X% quarter loan if growth months turn growth the loan the the was page the XXXX. to core a by top for So, our of The six offers first we for breakdown page and

not a those noted to million depository cross-sell clients. our $XXX no that As loan to there was we relationship from banking the page, sell or core balances expectations, was commercial on portfolio ability gain as chose to

sell. allowed secondary an market over valuation for aggregated through been bank had effective had origination. direct through acquisitions portfolio managed the centrally and years and The was that That portfolio a

Moreover, for the when adjusting quarter adjusting as X.X% was of So right XXXX. loan growth was sell, the versus segment for sell, the and six footnote when decline quarter the that annualized X.X% our the second X.X% loan for on for top the the X.X% commercial slide. states, months the hand million of growth $XXX first side

within quarter small generation loan XX% decline. the of industrial sale million commercial non-relationship over portfolio and commercial adjusting during the new our loan estate portfolio showed year-to-date. represents was total segment before a investment over we've approximately when sector the real for All the our that The $XXX as as about growth the $XXX quarter was loan loan during million and commercial talked

While was clientele. contracted than the X.X%, quarter by our this consumer private was this $X within less that dollar and that decline page segment amount million, banking on all

the during in growth to million last discussed to of modified back and portfolio pivoted have an originating target have we loans, mortgage and with model approximately was approach rate XX% our of originations adjustable $XX quarter a sale The sold. be quarter, as we mortgage

the XX, growth that income. fee cell highlights Page gain on non-interest page reflects income continued in

to generation. commercial loan new the spreads overall, and get So continue the growth our segment engine be bank, on continues we loan of higher the to

estate widen similar Within spreads strategies, continue XX up second a and C&I of points with on basis and widened profile the basis XXXX strong on the within the XX deposits, to up investment emphasis space, points a real to fees. have half to relationship segment, from the risk spreads

quarters. the ended consistent The at consumer quarter levels prior commercial and loan pipelines to

are with prospective clients. committed before, our So we organic to growth like clients loan and continued with I said

disciplined expectation moving that for and economic affirms remains my commercial of growth. of consistent positioned growth with driving our overall loan pipelines the is coupled current through and XXXX growth sheet our loan our all of across The with underwriting bulk environment forward balance single-digit Our that markets.

but of annualized which deposits, nearly the a balance bottom quarter, second XXXX, first the that roughly six Deposit an little talk half through rate Let the me months X% have deposits contracted about for of grown page. on is total on bit X%.

their primarily to decline to their consumer debt excess and structures. minimize to using capital capital liquidity capital optimize commercial The their or usage within working clients is cycles due plans or their

been and wealth specifically On clients. in have excess basis, that unit to commercial and clients a taking our throughout the grow deposits year-to-date. quarter advantage we households and rates, market and have money active These private with municipalities continue consumer of clients CD the

in call drivers Michele to more the our to balance review of our over the and composition of turn I'll Michele? income the statement. sheet detail

Michele Kawiecki

eight Thanks, nine. our Mike. results on second slide that year-to-date followed results, quarter the is and covers by Slide

in Mike loan As on quarter, stated growth million $XXX.X which of his growth quarter. $XX.X $XXX.X loans, the netted of of totaled by touched sale for remarks, offset loan the million was to our this million which

by $XXX.X declined deposits to the were deposit reduce this broker million million. million flat kept and which included able bonds sales million, totaling advances The loan home quarter. a quarter, investment we portfolio of federal $XXX.X Despite $XXX of during decline $XXX bank

tightening. this liquidity All to customers' management sheet ability of the and support demonstrates our despite good balance the while needs, industry's liquidity credit maintaining

slightly assets reflects pre-tax pre-provision loan-to-deposit quarter. on Our was strong was compared to quarter. and return this to XX.X% equity totaled the increased quarter, strong profitability X.XX%, prior Pre-tax in Pre-tax on of pre-provision ratio pre-provision XX.X% million metrics. this $XX.X a earnings return which all XX.XX%,

The share loss XX. I million of years. Tangible over the last mentioned year. duration and $XX.XX, totaled prior a stable resulted of slide realized $X.XX of portfolio of in quarter, our sale disclosed an book $X.XX on Details X.X%. bonds effective $XXX investment portfolio are increase The that million, value per or of in remained at $X.X over the X.X

end, remainder in interest million. maturities cash continue through $XX approximately have quarter of principal we see XXXX from scheduled and flows creating cash bonds and we opportunity, to bond totals $XXX flow. Since payments the will sold sell bonds, we and Expected million additional where

XX and loan show allowance and meaningfully, portfolio up details our XX XX portfolio our losses. credit X.XX%. some of Slides points loan basis to The total yield increased for

and XX loan points X.X% for New three-point increase from an yields basis quarter. quarter, last renewed or averaged the of

overall Xs low were yields Xs. locked rate in Mortgage the with higher a loan new commercial yield. high environment loan are offset New and in that construction commercial higher impacting loan yields, those lower yields generally loans the

our or are and loans, billion rate, three the portfolio months. XX% variable X.X with of of one month repricing portfolio, repricing in of in XX% XX%

year. loan of throughout continue to the benefit repricing will we from remainder So the

along remains to growth, fair quality The allowance provision determine in on but not economic the future. any forecast with quarter, XX value this credit for monitor of expense did provision remaining. loan of to credit million accretion $XX.X book needs total we'll slide robust We X.X% and loans, at changes, losses continue

XX details portfolio. our of Slide deposit showed

have to percentage The core less. strong deposit uninsured balance declined or is of a XX% points basis continue X base XX.X%, a We yielding and with reflecting only to diversified of deposit franchise. deposits account deposits deposit $XX,XXX, average the

quarter, deposits the the at were non-interest the in of XX% was shift end quarter, commercial bearing customers. reflecting the Our down our which driven by prior continued from of mixed XX% total deposits

million $XXX Although were have XXth. down million they by deposits end, at total quarter since June $XXX increased

this quarter, X.XX% basis total environment. of deposits XX the cost increased points pricing to Our competitive reflecting

betas end was Our last Note interest include at up from date bearing our to which beta deposit quarter deposit time XX%, do XX% deposits. cycle quarter. was that

expect we will cost Although quarter. to what year, remainder the increase slower continue through deposits experienced the pace to of be we've the this expect we the than of

notable slide cover will I interest income beginning items, XX. some statement Next, net on with income

basis million of higher was second the on $X.X but prior than Net income interest million quarter, the $X.X of a XXXX. fully quarter $XXX.X tax-equivalent declined from million

X.XX% interest six. The stated offset on decline quarter, the for costs yield line XX net asset experiencing, a margin the of with on was seven interest funding as the in higher line line we're income margin basis totaled five compression earning on resulting reflects shown rising decline net shown points. The

slide primarily we in in Despite loans. income at back on a June driven the mortgage the margin of half by XX the X.X%. in $X.X the sale of margin see stability $X.X million on increased million, ending increase decline, with gains did some Non-interest quarter,

are about mortgage only but previous production flipped that a gains XX% approximately higher forward. will of XX%, In level portfolioing XX%, to now portfolioing were so the has selling production selling quarters, and we mortgage XX% be and going of and able we sustain we sale of

to the of in slide XX, total and million, QX QX an thereby and to decreased million with due lower that to $XX.X were expenses for recorded elevating incentives in annual quarter totaled guidance quarter. compared $X.X our line $X.X benefit was and Salaries expenses. million benefits expense expense prior plan Moving

FDIC of increased million assessment this $X.X cost total to a million $X.X quarter.

the assessment million we now year. have of We rate given all run half in next recognized credits of assessment $X.X expect our of to quarter FDIC our FDIC the to normalize a first costs

is strong for of quarter funding XX.XX% is rising ratio continued operating the that we right the efficiency investments continue to core leverage the business. which slide, and year-to-date, shows in XX.XX% costs reflected our and low Our despite in top achieve

XX Slide shows ratios. our capital

quarter. Our growth The to on valuation loss all despite the basis common in quarter this points increased the portfolio due ratios. internal expansion our for the increased X.XX% back available totaling XX equity unrealized in tangible target strong to rates drove of capital earnings ratio impact during changes sale

in our now was communicate total of comments portfolio. risk-based reflecting unrealized losses equity impact ratio capital and X is Tier the highlights XX.XX% the at the our ratios The the of common strength in ratio after XX.XX%. bond capital quarter The for

Overall, pleased is strength our we are sheet QX our of and the our sustainability with reflected in model as results. business balance

to balance direction in mix into trend the quarter a well-positioned is of Our continues company. asset support favorable heading growth feel sheet we the earning to our and our third

it will to That Martin, chief credit discuss turn now concludes my remarks. to officer, John And asset I quality. our over

John Martin

quality the to good call non-performing Michele, review before XX. slide touch the role back asset the on asset slides, the start and Mark. portfolio morning. on insight expanded loan I'll My Thanks, remarks turning portfolio, highlight and

the regional X, of banking $XX So banking Stewart portfolio million XX mentioned out, annualized. reflects X.X% term $XXX Backing the regional loan this turning to C&I, earlier. million, sale slide by grew Mike roughly B line that on

was to assets $XXX,XXX portfolio B and liquid the loan to The decision nature liquidate was these related non-relationship The of entire with a the portfolio of nature the the liquidated portfolio. gain. term

who finance $XXX payoffs management, market. slower market by being the given sponsor and increased expected sponsors patient driven than are million, C&I relationship coverage grew from

We continue to consistent and pricing. have loan maintained stable underwriting improved to see

we the to historical discussed loans we We've $XX slowed return origination the to our Moving adjusting portfolio the to growth million quarter. levels. added sheet down last balance to rates to transition quarter four slide loan with by mortgage completed in nine, of strategy, family one

C&I XX. classification Turning the slide transparency. occupied insight slide to as with included sponsor In CRE and to provide space, finance the business. well updated the as I've associated portfolio includes the additional commercial owner

of our portfolio has manufacturing. XX% is in C&I and representative markets Our concentration a

remains line increasing $XXX commitments consistent XX% Our utilization with current million. around

is opportunities down are industries We last participate national shared we million term from B various roughly $XXX access in where across of have revenue quarter loan there beyond with the exposure. and management million generally just a relationships and $XXX to credits the taken mentioned. sale position associated These credit

key million In I also with roughly to times. of sponsor a continue relationships highlight one SBA portfolio, half coverage having charge XX% are loans. ratio finance fixed We XX metrics. of a There have and $XX portfolio guaranteed the

trended down platform but loan equity companies compared the is still Borrowers are firms X.X% This to costs, portfolio with of classified an current X.X% with owned of with quarter. higher the eventual private expectation by healthy as borrowing sale. prior

the cash flow, including We condition. leverage, review relationships individual for borrower and changes quarterly coverage,

finance, are to primarily development construction limited through four individual exposure residential we we have to one family our Moving focused residential on construction non-tracked and mortgage department. to build loans

to a construction. multifamily have continue towards we construction, bias commercial For

to non-owner occupied give detail continue We portfolio. commercial our estate into real

concentration total in X.X% other multifamily of while segments. being we exposure focused Since CRE with outside the projects the and and of highest out represents have Office medical. recession, on office broken the adding great is lending loans general selectively chart

historical of the type the and much The portfolio the by a well performed From has office diversified rest portfolio like geographic portfolio. is perspective, well, tenant mix.

periodically larger the to exposures and continue review view exposures our office conditions. mitigated current acceptable the We given market and as

XX, the days, increased greater accounting this due basis XX larger change. XX slide quarter. million than position, had of past I which XX relationships quality NPAs to two much our trends We points moved highlight asset totaling commercial and and for On non-accrual $XX.X current loans days

The credit that was term I asynchronous impacted to borrower's our ability would repay. by a first fraud what caused

the a a the the market industrial by focused. second segment in borrower driven While construction was which in pullback of in

decline past not to due separate I mentioned. days of in two immediately related quarter from first million On the XX relationships resulted following the resolution $X.X X, the and line relationships were just the

remain charge-offs, Then days slide ORE out again the due. to points six finishing have $X.X I rolled and loans or migration net XX, of Classified on stable the X.XX% levels. we pre-pandemic and historical quarter. slide, And had XX charge-offs basis loans, below this at loans, million of forward moving of where for nonperforming past

of past resulted million XX, million. due a quarter, the non-accruals line plus from which days to Dropping on of X loans $X.X reduction a accrual new charge-offs million past of and we gross up NPAs down X the line from or $X.X added for $XX.X XX decreased payoffs XX reduction line For in mentioned, million quarter. just due on non-accrual including in $XX.X changes status $X.X days million, the I

turn over your attention. I to the Mark back appreciate And Hardwick. I now call will

Mark Hardwick

transparency the Mike Michele. our hear John, just you, we the We you and to story. share value investors, appreciate all Thanks, that Great. from tell time the that time our level and of

of If XX vision, team's our we and the for you our turn a And slide returns. reminder strategic decision-making. that we comparatives to slide XX-year growth our XX, along CAGRs highlight and our and statement have on guide with mission XX,

happy We do attention. And appreciate to your time at we're this questions. and point, take

Operator

line of And Thank you. proceed. Gerlinger [Operator All Hovde in right. Ben with Please Group. Instructions]

Ben Gerlinger

Hey, good everyone. morning,

Mark Hardwick

Ben. morning, Good

Ben Gerlinger

It curious any give starting of deposits. pain space, quarter over second then, bank was of July end past, touch just have curious then how like in of things to the if half. towards not like call on you was could in XX back base costs? most I it days let's the is terms deposit and if clarity could the trended pricing? probably the the quarter we amount it's seems I if alleviate the across And

Michele Kawiecki

give you some can give I Ben, and Yes. information. start you off

were X.X%. So, our interest bearing June deposit costs

here of back that particularly a there slow already gives quarter. feels felt be half and has on. deposit pressure like that like of through hopefully will we do but it's expect think So the slowing We it costs, through bit kind the you on do It that still some will color. some from

Ben Gerlinger

a of credit? makes why or on to the the perspective, you puts of are guys everything a And potential pulling saying, a That what in curious, entirely on it is frustrations lot little they fine. of was probably from be seems or is clients a you. not sense. Got to some this loan like itself reins lending? back just credit But might pristine Or bit year. little are I takes your the growth adhere that the half just softer is back and bit

Mike Stewart

point that. I'll relationships. on Stewart. to try view focused a We've Mike of on been Its our give very you

to very our to we So, clients. willing continue were with work

non as nice a to underwriting sure prospective and about our Our that sell, around continuing talked and noted we're a relationship that that. get we clients relationship that's think to our a I've formation We be pricing like of balance about make this of clients. not really view capital during to of period on active we core hasn't time in changed. so our willingness point continue And

or capital increases, got pressures capacity statement of their to cover assure that have structure they've clients, the be through business to absolute might increases but interest inflationary not repayment and sure that absent only interest a clients prospective in rates. work can that got they that So in the they've rate can now make income

of doing I a and with the and estate need equity capital businesses transactions judicious because want more view So, think all return their combination our require if willing evaluating an and acquisition. real same. their to really get point use, -- they the to are you're is, you're standards those. that there's our in use be investment our But really the balance of underwriting loans real on right on to sheet Might is if extend or structures

Ben Gerlinger

That's you. Got helpful.

enough. just average of Michele, back looking the If versus when of quick. X.XX it you your the think year, on deposits you of to like reference, at just, doesn't about sheet half the that circle balance the sorry, cost real just much seem back

portion But think months, or next the drives top even think -- potentially you the we people six or XX do biggest that at the that beyond it higher, the the alright, just you mix do you it's here when about here. with the -- think waiting are shift the months rate hikes. for some there's is hopefully, So we're of Fed worst

me the little really and a cost. a could at you CD that outside shift bit rate Or possibly I'm get the also think drive getting it Let and best its could a factor do at are mix chop more it time Like, what that pricing peak? be that loan? just can deposit of the pricing of --

Michele Kawiecki

to and that It's here do Yes. going raise two. forecasts given question probably is doing have the another a good Fed them some

And tick peak, not. up think to rate feel I I getting still whether a more there like tonight. be that know, CDs customers so be may we're you or for that that drives some still looking a and some may

have think part I shift too. a of the will it mix

through I getting but. feel combination that a closer it we're think do peak. a be be all might the we're like end could things. I think, We think a of more just like peak those pressure of don't year, I like at said, there bit the just I the feel we But to yet,

John Martin

also routines clients that of our deposit a slow. just pricing of around daily I The maximizing assuring with working The pace deposit bankers are point and the conversations to play, also pricing has that. clients. give started on their

we're we that bank deposit we're might getting general be the same at of So there. level a where markers, is kind think channel and all and pricing the at all I where within environment

Ben Gerlinger

certain some experience. in It thus feels At far Right. the way. commentary that least

the luck the half latter and on Good year. the insights. appreciate So, of color

Mike Stewart

this quarter. the July Ben, based half least for the you. of we're But on the in end And were of optimistic see encouraged kind second now kind does love getting results process. to we August. I'd feel same to at Yes, and We of of the by June. thank that

Operator

Piper it Thank comes One Please Nathan of our Race the moment from question proceed. with Sandler. next for line And you. please.

Nathan Race

morning. Yes. Hi, Good everyone.

Mark Hardwick

Hi, Nat.

Nathan Race

going some Question of on growth the just expectations deposit forward.

indicated Michele thus deposits X% XQ. up that think, far about I in were

portfolio if growth could size securities loan future flow future So combination and up And loan could is par growth? maybe if of of portion be the of a that's support plan sold for just also some off securities to there's, funding you portfolio, deposit cash that maybe future curious a growth? near also the coming

Michele Kawiecki

our think growth. loan Yes, I we'll that's do the fund way

I this will still million. do we good the as good think sell securities. million. In so opportunities QX to portfolio. growth able think continue deposit where would well combination that We range quarter. In get expectation to that of from be some $XXX it of be say cash $XXX QX, a QX, I'd flows We And we QX, sold a securities that we be within we as we'll a pricing. sold sold going XX forward. find far

Nathan Race

of XQ of if Okay, just slowing? to great. the I think June XQ? Is your we it margin that kind of given the to you compression kind possible and remarks? prepared of June. expect the in that can Is maybe coming quarter, future of size And up ahead pressure out was could just kind And expect what was alluded the that in margin

Michele Kawiecki

through of do potential assuming We year. another the deposit see rest that through curve, Sure. bearing net And margin points the the suggesting interest in XX cumulative well. our higher decline we slow margin beta could maybe of the expect interest that's to basis year. the a are of models the bit forward as compression see just beta, we that deposit Using end

Nathan Race

Okay, in great. controlled very thought was then expenses, the on it quarter. And just well

XX terms XQ forward. rate this going quarter. for in thinking XX the to hold year? were last the Does run think of to and We I XQ still that

Michele Kawiecki

of reinforce quarterly to year. XX remainder guidance I the quarter that for Yes, XX probably we on the that basis expense on of the the gave would a last side

Nathan Race

I tied moved if charge-offs that other great. particular, we fraud on credit. some to credit that that one non-accrual additional in there the Okay, related the quarter. there And any more in in XQ? then any And just think? details sounds in just be thinking finance to like specialty ask credit It could I credit that about on Are was company

John Martin

Yes.

this has that So fully identified relationship loan the of content been at and that potential loss not point.

saw what establish and quarter. next to continue related that. this quarter, little in the bit probably third quarter We we'll than review a the to reserve that the in -- more the the we our in against happened situation saw see quarter But in we second name first specific into -- what

Mike Stewart

quarter interesting. we're while Yes, late fraudulent layers takes so, situation to it that and some And loss found but have it we And situation, it stand. this to all still anticipating trying the pretty point, in a we're we actively We was was in establish out a where the QX, the peel about at number. back given a don't

Nathan Race

where And kind understood. more above out on few within of just Okay, kind thoughts then that stay forward. Or of to that a average maybe a maybe bottoms loans the going coming you quarters? operating guys there broadly or reserve or level of from that above on ACL the well to are you Obviously, level the second is next quarter. over want context? NBLs relative anything Any

Michele Kawiecki

threshold. a Yes. think I line have bright don't we like

economic of is And we just just determine systemic then deterioration, balancing see we to we'll any also monitor continue by take charge-offs I into or to not. our any going take loan that don't decide quarter informs but level think now, monitor model the account the all Right that provision have to a in quarter, of scenarios have. and growth. credit the think we to I the whether information which to good, just we're that how book we'll taking, changes along with on

Nathan Race

understood. Yes,

Mike Stewart

have tend think you or CECL to is talked we've we've but at that gone the in to and reserve Performance that Indicators [ph] And the I it still we about above, sure look to and make Key get our back KPIs, works. but just X.XX at prior models our past, through the all this staying quarters. answered

Nathan Race

Great. Makes sense.

Thank had. the I for you all That's Okay. color.

Michele Kawiecki

Thanks.

Operator

of moment comes for James. proceed. Tamayo Raymond our it One Please from next line please. the with question, And Daniel

Daniel Tamayo

Everyone, morning. Good now. thanks good I my Hey, afternoon, taking questions. for guess

my bit?? you down And wealth fee have there number outlook, missed jumped had asked on any so a for an may of I But been on related just that apologize to brought little that quarter I curious but if the income this. point, questions was where at business I the if if most So, this that anything in unusual a idea that go? late, the

Michele Kawiecki

related a was to a really would to don't quarter's mortgage last able was we I -- of and this good little plus. maintain I level higher quarter, that really forward. Yes. had overall that over I gains think think it this fee of think say business. definitely wealth was fee But unusual a had our there like anything we'll income, We've income and the mortgage a rate. level going I gains is things. run level few The quarter But be

I run this rate to a is think So, good use.

John Martin

of pleased where we been, Just a to XX% And fee-for-service of color. sales, portfolio portfolio fee that does using to had is change back more the We're we've dynamic XX% from that made getting shift to which the get historically little income more so the a income statement. model. really

Daniel Tamayo

all it. Got I appreciate that color. That's I had. Thank you.

John Martin

Danny. Thanks,

Michele Kawiecki

Thanks, Danny.

Operator

of line next Inc. Please our Stephens question the it with And you. from proceed. moment Alright. Terry comes for McEvoy One Thank please.

Terry McEvoy

Hi, good morning, everyone.

Mark Hardwick

Terry. Hi,

Mike Stewart

Terry. Hey,

Terry McEvoy

updated thoughts possibility of portfolio, how million or on the having next appraisals the are mature $XXX First reserves higher of the interest will office question, be much six charge-offs on what that on to portfolio and XX, XX months? your Page rates taken? of that And overall to and either over impact

Mike Stewart

Yes.

largest look a portfolio, I or when So, that names Terry, I'll call at primary relationship. office portfolio the relationships in have it tenant is, the who

So than half. occupied-ish, owner it's they but occupy kind of less

sort downtown is a of total. metropolitan building a configuration. where It's it's of the an a So, a we've not portion in higher that's occupied got location tenant office that suburban

good But gone reappraisal or the see low. what pretty have in portfolio about that so. the we've through kind portfolio on as of write-down relatively matures been we've feel maturity So, last is and the next actual a and over a don't I year through year what concern there. we in the

Terry McEvoy

And rate hike, a deposits, throughout get that all for we second question the interest equal. the Michele, margin? interest things of bearing XX non the if positive did point slow Thanks for Is Did that outflow basis you. for being And quarter? the that. negative net a or

Michele Kawiecki

and the And looking second far what even non-interest the even fact, well it just remix. so it So, did bearing in slow some at as has slowed that bearing, in July, quarter. seen through non-interest on we've June's

at haven't fact, In seen change July, the we really in remix all.

So, your would deposit we're I see the But through be we would -- reprice. great. some our bit our I second loan is increasing, and when to we given of in question, I say end would a I will slowness margin. could year. area, rates which that of rates of still And think part see your we call the of of have as that starting that expect see on would a think with that increase, kind think I is portfolio remix. of we the that that to theme, two-thirds the -- benefit the slowness the of the Typically, we've

Terry McEvoy

then new loans, credits. them national accrual one quick And Two Michele. either Thanks, shared of one. non last

Mark Hardwick

national Where were. No, they neither of them shared credits?

Terry McEvoy

Thanks taking Great. my Have questions. day. a for good

Mark Hardwick

Terry. Thanks,

Operator

our moment One comes you. please. of Thank with Janney. Please the from for Brian proceed. next Martin question, line it And

Brian Martin

Hey, good afternoon, everyone. morning. Good

Mark Hardwick

Brian. Hi,

Mike Stewart

Brian. Hey,

Brian Martin

joined sequentially can the follow-up, think the half, hike here. half? second But in I the of on just even in and I assumption I the margin, there NII the in NII second the margin your guess, you you and is is, for outlook. comments Michele guess, kind bit missed I Hey, I'd just guess the meeting if at dropping, margin, late, expectation dollars mean, one is But the growth the I assumes with next on a if -- -- about here another expectation grow I growth outlook your the so the as my you guidance, of look declining all of dollars loan that any that was guess the rate

Michele Kawiecki

in about the where a to income. quarter-to-quarter determining a basis into there That and it's And been margin of decline -- right is compression try lot think net interest to I going see, really model see. margin from about the XX would and bit think I are go think mean, point challenge we'll are be. be net a determine all pretty that. us we a assumptions that of I of it with us interest now, things there's to our the what declining, we models we could -- telling

today. are assumptions our what that's but So,

Brian Martin

then you're for, on Shared But on? one a areas today, is thought. and on well as I just out I UR, closer And I Credits. up at everything bit you're just just Shared look still more just anything guess attention the John, else holding the one kind of concern mean, the that one on I know should maybe you looking anything that National that when here? or I the maybe where attention credit credit was side question have But the guess, there really focusing we there numbers perfect. Credits National of guess, Okay, on side, more be paying to

Mark Hardwick

portfolio. perspective. at Yes. Good macroeconomic rates look Brian. And construction real the It's a with and costs question, quarter. lot the commercial portfolio there nothing a look have estate time there's portfolio focus -- We borrowers we interesting. borrowing higher different Interest I spend of We investment at from in lot. the real each cuts with estate the impacted commercial a and

adjust to through rents to far, borrowers or absorb been have interest increased higher able able been the rates And higher the so costs. just to either

only say. really that's about I But thing the would

good senior living this have where pretty but to point feel at well through I pretty portfolio, really and had in the that's well it now. as We a We've at point. about worked that have hashed

respond So, to that. that's how I'd

Brian Martin

you. Got

maybe general. if just Okay. and listen loan go just level if pipelines if, I I to And or through the or back just back don't Mike, can know the outlook If in transcript? you high quickly missed it's I comments. it, that growth run can just not, the just

Mike Stewart

the them sale the segment the adjust the commercial over loan pipeline quarter, coming portfolio. for bulk digit single it's you for of run same is quarter. We commercial The we pipeline through did, going as balance No. growth year grew our rate. that When annualized mid bit a the be that target little X% commercial to-date, the that. And in a really little will into I'll at over the this this the portfolio that year hit again. of X% in

feel our the continue bank So, mid see I commercial We'll balance good willingness relationship that continue and to growth and really digit run rate. our to single the extend in be business sheet. a that to

John Martin

trying the we're for make entire of credit. the this There environment, getting no sure we're We're and that paid Yes. There extension is no absence demand. relationship is gaining in to absence of that clearly

strong. are recognizing with still we're changed so, relationships very And pretty has the optimistic we're customers. just little. The communication environment and having a the about

Brian Martin

sense. Yes. make That

questions. I Well, Okay. guys. appreciate taking nice the quarter guys And you

John Martin

you, Thank Yes. Brian.

Operator

Thank you. Please KBW. One moment comes it from with And for our next question DelMonte please. of the line proceed. Damon

Damon DelMonte

asked a put have brokered color just average dates? today. as, those like, What's doing been Hope Hey, of far the on looking most Pretty for as everybody. answered, CDs on? the but and little well maturity you guys my much, of term the questions everybody's

Michele Kawiecki

the to be on tend the end shorter They of more curve.

Damon DelMonte

So less than generally, year? like a

Michele Kawiecki

less a year Yes, years. or than two

Damon DelMonte

of Okay. question And modeling one kind just here. then,

gain guys you think you had noted that much you Could BOLI was? how a out quarter? call this I

Michele Kawiecki

Yes. a couple of actually ones. Well, it just small was very

I think of was And it gains. so, BOLI under XXX,XXX

Damon DelMonte

Perfect. Okay.

else that Okay. answered. That's asked I was all and had. Everything

So thank you very much.

Michele Kawiecki

Damon. you, Thank

Operator

concludes the to to for closing I Hardwick session. over like turn Mark would now this And you. Thank the Q&A call remarks.

Mark Hardwick

everyone Thank your participation. you, Carmen. Thanks for

margin. can time it's as tell, XXXX, we the have portfolio first of lag for way you the variable and absolute yes, kind In quarter to margin It were all did our history. And to at to We're an we an rate a from interesting were rapidly, looked X.XX. loan was rates and X.XX ability interest in give rising increase rates. benefiting deposit As But our of our net point. back inflection at hard guidance. just it's

deposits. changed And the And paying to we eventually, more aggressive failure after Valley that we were Silicon occurred. for that start and had additionally

net additional But Because us say, quarter, on June. QX up. margin And going know the through to that so, rate modest the causes and to really It's next looking there's of hey, still We've out we for hard interest we some run kind got having to forward. a at landed think deposits. rate pressure forward X.XX a we think establishes go increase the come quarter. getting X.XX margin we for number

appreciate and models the we different all working through as you're your And know I So, time. component. forecasts, it's key a

in forward look and next your talking investment quarter you Thank appreciate First to So you. Merchants. we to

Operator

thank for now that, the with This you you participating. concludes conference and may And disconnect. all

First Merchants (FRME) 25 Jul 232023 Q2 Earnings call transcript