Q1 2024 First Merchants Corp Earnings Call

Participants

Mark Hardwick; Chief Executive Officer, Director; First Merchants Corp

Michael Stewart; President; First Merchants Corp

Michele Kawiecki; Chief Financial Officer, Executive Vice President; First Merchants Corp

John Martin; Executive Vice President, Chief Credit Officer; First Merchants Corp

Damon DelMonte; Analyst; Keefe, Bruyette, & Woods, Inc.

Nathan Race; Analyst; Piper Sandler & Co.

Brian Martin; Analyst; Janney Montgomery Scott LLC

Daniel Tamayo; Analyst; Raymond James & Associates, Inc.

Terry McEvoy; Analyst; Stephens Inc.

Presentation

Operator

Thank you for standing by, and welcome to First Merchants Corporation's first quarter 2024 earnings conference call. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the 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 -- actual. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most direct comparable GAAP measures. The press release available on the website contains financial or other quantitative information to be discussed today as well as of reconciliation of GAAP to non-GAAP measures.
As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr. Mark Hardwick, Chief Executive Officer. Mr. Hardwick, you may begin.

Mark Hardwick

Good morning, and welcome to the First Merchants first quarter 2024 conference call. Thanks for the introduction and recovering the forward-looking statement on page 2. We released our earnings today at approximately 8:00 AM Eastern time. You can access today's slides by following the link on the third page of our earnings release.
On page 3, of our slides, you will see today's presenters and our bios to include President, Mike Stewart; Chief Credit Officer, John Martin, and Chief Financial Officer, Michelle Kawiecki.
On page 4, we have a few financial highlights for the quarter to include total assets of $18.3 billion, $12.5 billion of total loans, $14.9 billion of total deposits and $8.3 billion of assets under advisement.
On slide 5, if you look at bullet point 1 under our first quarter results, you will note that margin is stabilizing and new and renewed loan yields for the quarter totaled 8.15%. You will also notice on bullet point 5 that we were active during the quarter, repurchasing $30 million of shares in First Merchants and redeeming $40 million of sub-debt, which recently repriced to just over 9%.
On bullet point 6, we reported first quarter 2024 earnings per share of $0.8 or $0.85 when adjusted for $3.5 million of noncore items incurred during the quarter.
On the last bullet point, I would also note that three of our four major technology initiatives were deployed during the first four months of the year to include the rollout, have a new in-branch account opening platform called Terafina, our new online and mobile platform for more than 150,000 consumer customers that converted to Q2, and our new Private Wealth Platform converted to [SSNC's NO] Trust platform.
As you can imagine, these projects require a significant amount of time and resources and require heightened customer focus during implementation.
Now Mike Stewart will discuss our line of business momentum.

Michael Stewart

Thank you, Mark, and good morning to all. I'm on page 6 and our business strategy remains unchanged. We are a commercially focused organization across all these business segments and across our primary markets of Indiana, Michigan and Ohio.
And as we enter 2024, we have remained focused on executing our strategic imperatives, organic loan growth, deposit growth, fee growth, attracting, retaining and engaging our team, investing in the digitization of our delivery channels and delivering top-tier financial and risk metrics.
So if you go to turn, slide 7, the first quarter continues a choppy trend of loan growth from quarter-to-quarter. I highlighted the 8% annualized loan growth during the fourth quarter of 2023, which followed a relatively flat third quarter of less than [one-half] of 1%.
The first quarter balance decline in the commercial portfolio was attributed to the seasoning of numerous real estate projects that had stabilized and were refinanced into the secondary market. This is normal course for most construction projects and with the current inverted yield curve, it is advantageous for the client to take advantage of lower long-term fixed interest rates.
Commercial balances were also affected by the seasonal nature of our agribusiness clients. John Martin has more detailed information with in his portfolio summary, which also highlights the growth within the commercial and industrial portfolio of over 5.5% on an annualized basis during the first quarter.
So short-term interest rates have affected the velocity of new investment real estate projects, but we have remain active with well capitalized projects. The commercial and industrial growth is building as existing clients continue to finance normal course capital expenditures, complete strategic acquisition or as we add market share.
Our Michigan commercial banking team has built very good momentum. That's the former Level 1 in Monroe Bank entities and was our strongest region of C&I growth, our investment in people and our brand, our building in Michigan.
The third bullet point further emphasizes the future growth potential within our C&I portfolio. The pipeline ended the quarter strong with and the commercial segment will continue to be the primary driver of our asset growth.
The consumer portfolio is comprised of residential mortgage, key lock installment and private banking relationships. And during the first quarter, that portfolio declined 0.8%. And in dollars that represented less than $6 million.
Our Private Banking portfolio was the primary driver of that decline as high net worth clients reduced higher-cost borrowings with excess liquidity. Well, the overall economic environment, the Midwest inclusive of the competitive landscape firms, my expectations of mid to single -- mid single digit growth for the balance of the year with improving loan yields. Mark highlighted that our new loan yields exceeded 8% during the quarter, and Michelle has more detail to share on those trends.
On the bottom half of that page, the quarter saw total deposits growing by 1.7% on an annualized basis. The consumer portfolio grew over [$155 million] during the quarter and is inclusive of both the branch network and our private banking team's efforts.The branch network continues to deliver the consistent granular, low-cost deposit base that we enjoy.
The commercial deposit client during the quarter was primarily from the public funds portfolio as the C&I relationships so growth. Like we discussed during last earnings call, both our consumer and commercial teams have been actively managing our interest expense. As we now have separation from the Silicon Valley Bank event last year, our bank's liquidity remains ample, so our 2024 efforts will be focused on our margin through interest expense management.
As Mark stated in the press release, we are pleased to see our net interest margin stabilizing. And again, as we enter 2024, we're positioned for that continued organic growth. Our team is positioned for that growth, and our underwriting remains supportive consistent and disciplined.
So I'm going to turn the call over to Michele, so she can review in more detail the composition of our balance sheet and the drivers on our income statement. Michele?

Michele Kawiecki

Thanks, Mike. Slide 8 covers our first quarter results. Pretax pre-provision earnings when adjusted for the non-core charges of $3.5 million that were incurred during the quarter totaled $60.2 million. Adjusted pretax pre-provision return on assets was 1.31%, and adjusted pretax pre-provision return on equity was 10.75%, all of which continue to reflect strong profitability metrics.
To arrive at our core operating results, we excluded charges recorded this quarter, which included $1.1 million for the increased FDIC special assessment and $2.4 million in digital platform conversion costs incurred from the projects, Mark covered in his opening remarks.
Tangible book value per share increased to $25.7 at March 31, an increase of $2.14 or 9.3% compared to the same period of prior year. Details of our investment portfolio are disclosed on slide 9. Securities yield increased 2 basis points to 2.58% as lower yielding securities continue to run-off. Expected cash flows from scheduled principal and interest payments and bond maturities in the remaining nine months of 2024 totaled $217 million with a roll-off yield of 2.22%.
Slide 10 shows some details on our loan portfolio. The total loan portfolio yield declined 3 basis points quarter-over-quarter, which was simply due to a lower day count. Yield on new and renewed loans continues to increase. That yield climbed 14 basis points to 8.15% this quarter compared to 8.01% last quarter.
The bottom right shows that 2/3 of our loan portfolio is variable rate. Although some of that is priced at or near our new loan yield, we still have over $1 billion of average earning assets that will reprice from a current weighted average rate of just 5%, which will create some good incremental interest income throughout the remainder of the year.
The allowance for credit losses on slide 11 remained stable compared to last quarter at 1.64% of total loans. We recorded net charge-offs of $2.3 million, which was offset by provision for credit losses on loans of $2 million, resulting in a reserve at quarter end of $204.7 million. In addition to that, we have $21.8 million of remaining fair value marks on acquired loans. Our coverage ratio, when including those marks, is 1.82%.
Slide 12 shows details of our deposit portfolio. We continue to have a diversified core deposit franchise with a low uninsured deposit percentage, 36% of our deposits yield five basis points or less. Our total cost of deposits only increased 6 basis points to 2.64% this quarter, slowing dramatically compared to last quarter, where we had experienced an increase of 26 basis points.
Our total cost of deposits increased to 2.69% in February and then declined 1 basis point to 2.68% in March due to some private deposit pricing actions that we took during the quarter, which Mike mentioned in his remarks to reduce deposit costs ahead of the Fed rate cuts.
We expect those actions to ensure stability in the cost of deposits next quarter as well as margins, although we did see a slight decline in non-interest bearing deposits this quarter, our overall funding mix continued to improve as we reduced brokered deposits, wholesale funding and sub-debt and grew core consumer and commercial deposits. We paid down $40 million of sub-debt at the end of January and we'll pay down an additional $25 million of sub debt at the end of April.
Overall, liquidity is very well positioned to support growth in the coming quarters on Slide 13. Net interest income on a fully tax equivalent basis of $132.9 million declined $3 million from prior quarter. As I mentioned earlier, yield on average earning assets on line four was impacted by the number of days in the quarter, yet still increased by one basis point. That increase was offset by the increase in funding costs on line five, reflecting stated net interest margin on line 6 of 3.10%, a decline of 6 basis points from prior quarter.
Next slide, 14 shows the details of noninterest income. Overall noninterest income increased by $200,000 on a linked quarter basis. Customer related fees declined $1.2 million, reflecting a $900,000 decline on the gain on sales of mortgage loans and lower derivative hedge fees. First quarter is always a seasonal low for our mortgage business, but we were encouraged by this quarter's activity because the $3.3 million of gains this quarter included a $500,000 loss on the sale of some nonaccrual loans.
Excluding that loss gains on the sales of mortgage loans would have been $3.7 million, which is a $1.3 million increase over the first quarter of last year. This increase in year-over-year production is what gives us confidence that we will see an increase in noninterest income in the coming quarters.
Moving to slide 15. Noninterest expense for the quarter totaled $96.9 million and as previously mentioned, included $3.5 million in non-core charges. Core noninterest expense beat expectations and totaled $93.4 million, a decrease of $2 million from last quarter's core noninterest expense of $95.4 million.
Managing expenses continues to be a point of emphasis for us this year and the results of Q1 demonstrate that commitment.
Slide 16 shows our capital ratios. We continue to have a strong capital position with common equity Tier 1 at a robust 11.25% coupled with the dividend payout ratio of over 40% over the last 12 months. The slight decline in each of the ratios shown reflects the $40 million redemption of sub-debt and $30 million of stock buybacks in the quarter. These stock buybacks, coupled with $20 million in dividends paid this quarter, provided a great return to our shareholders. These actions reflect our prudent management of excess capital, ensuring top quartile profitability metrics.
That concludes my remarks, and I will now turn it over to our Chief Credit Officer, John Martin, to discuss asset quality.

John Martin

Thanks, Michele, and good morning. Putting my remarks start on Slide 17, I'll highlight the loan portfolio touch on the updated Insight slides, review, asset quality and the nonperforming asset roll-forward before turning the call back over to Mark.
Turning to Slide 17, where I've highlighted the various portfolio segments. Growth in the commercial and industrial loans on lines one and two was offset by cooling investment real estate activity. We came off a strong origination quarter at the end of the year, as Mike mentioned, with modest growth in the first quarter, while investment real estate and construction on lines four and five slowed for the quarter. We continue to hold underwriting standards for new construction opportunities, which is resulting in higher levels of capital required contribution. This combined with higher borrowing costs, has slowed new growth in this segment.
Then on slide 18, the portfolio insights slide helps to provide transparency into the portfolio. As mentioned on prior calls, the C&I classification includes sponsor finance as well as owner-occupied CRE associated with the business. Our C&I portfolio has a 20% concentration in manufacturing. Our current line utilization has remained consistent and was up for the quarter to 42%, with line commitments lower by $68 million. We participate in roughly $755 million of shared national credits across various industries. These are generally relationships where we have access to management and revenue opportunities that go beyond the credit exposure in the sponsor finance portfolio, I've highlighted key credit portfolio metrics. There are 86 platform companies with 53 active sponsors in an assortment of industries. 68% of those have a fixed charge coverage ratio greater than 1.5 times based on year end borrower information. This portfolio generally consists of single bank deals for platform companies or private equity firms as opposed to large widely syndicated leveraged loans traded across banks. We review this and we review the individual relationships quarterly for changes in borrower condition, including leverage and cash flow coverage.
Turning to Slide 19, where we break out our investment or non-owner-occupied commercial real estate. Our office exposure is detailed on the bottom half of the slide and represents 2% of total loans with the highest concentration outside of general office and medical office space. We have a chart on the bottom right details office portfolio maturities. Loans maturing in less than a year represent 11.3% of the portfolio or $28 million.
The office portfolio is well diversified by tenant type and geographic mix. We continue to periodically review our larger office exposures and view the exposure is reasonably mitigated through a combination of loan to value guarantees, tenant mix and other considerations on slide 20 are the asset quality trends and current position NPAs and 90 days past due loans increased $11.6 million to 56 basis points of loans and ROE. While up for the quarter, the change was largely driven by a single $12 million new hospitality related credit, which we expect to resolve in the third quarter. Online three 90-day delinquent loans were up $2.8 million, with one borrower comprising $1.2 million of the increase. We view this relationship as well secured in the process of collection. Classified loans ended the quarter at 2.24% of loans up from 1.94% from the prior quarter. Then down in line nine, net charge-offs were seven basis points of annualized average loans.
Moving to slide 21, where I've again rolled forward. The migration of nonperforming loans, charge-offs are really 90 days past due. For the quarter, we added nonaccrual loans on line two of $17.7 million, driven by the hospitality credit I just mentioned previously, our reduction from payoffs or changes in accrual status of $5.6 million on Line three, aided by a $2.1 million nonperforming mortgage loan sale and a reduction from gross charge-offs of $3.2 million, dropping down to line 1190 day delinquent loans increased by $2.6 billion, which resulted in NPAs plus 90 days past due ending at $70.2 million for the quarter. So summarizing asset quality was marginally down in the quarter. Net charge-offs for the quarter were seven basis points, while non-accruals and classified loans were marginally higher.
I appreciate your attention, and I'll now turn the call back over to Mark Hardwick.

Mark Hardwick

Thanks, John. Turning to slide 22, we show our track record of shareholder value and there are a number of really positive trends. But I would just highlight one in particular, if you look at the top right-hand portion of the page, we show our 10-year earnings per share kegger and it totals 10.2%. And also we just have a continued focus on growth of tangible book value per share. And we're and we're proud of these numbers on slide 23, and it represents our total asset care of 12.6% during the last 10 years and highlights meaningful acquisitions that have materially added to our demographic footprint to help fuel our growth.
There are no edits to Slide 24. So at this time, I'd like to thank you for your attention and your investment, and we are happy to take questions.

Question and Answer Session

Operator

Thank you. (Operator Instructions)
Damon DelMonte, KBW.

Damon DelMonte

Hey, good morning, everyone. Hope you're all doing well today and just wanted to start off with a question on margin from the show. Can you just give us a little insight as to kind of how you're seeing the cadence over the next few quarters. It sounds like you guys are intently focused on reducing the funding component of it, the cost of funding related to the margin and kind of with new loan production coming on at at rates that are over 8%. Just kind of wondering how you're thinking about the margin at this point.

Michele Kawiecki

Yes. So our quarterly margin for Q1 was [310]. In March, our margin was 311. So it actually ticked up a basis point when you just isolate March. And the reason why we have some optimism around it. I think it's of the things that you just stated. And so we do believe that margin will be stable from next quarter and then potentially even growing out depending on how the how the market fares through the remainder of the year.

Damon DelMonte

And can you just remind us if there are rate cuts in the back half of the year, what your anticipation is for a 25 basis point cut?

Michele Kawiecki

Yes. Our model tell us that for each 25 basis point cut, but our margin declined three basis points. And so the actions that we're taking to manage our funding costs can hopefully reduce some of that impact. But that is what our model tells us, given that we have asset sensitivity.

Damon DelMonte

Got it. Okay, great. Thank you. And then with regards to the outlook for loan growth, I think Mike said that he is still optimistic in the was it mid to mid single or mid to high single digits after first quarter's results?

Michael Stewart

That kind of standard of that, then I think I said mid to high single feel good, especially given where we are already through April, I tried to highlight that our C&I growth is really strong right now, but the continued maturity of the real estate project.
But overall, yes, mid-single high for the year.

Damon DelMonte

Got it. Okay, helpful. Thank you. And then just lastly on capital management, you guys did $30 million of buybacks this quarter. I guess first, how much buyback is remaining under the current authorization? And what's your thoughts on additional appetite going forward?

Michael Stewart

We're around [40] -- $45 million remaining and continue to be active. It's going to be a meaningful part of our May seventh Board meeting sharing capital planning and thinking about the future. So we're convinced that if our stock price is going to continue to trade, it has done, I guess multiples that are now sub 10. And when we historically have traded 12 to 13, we feel like it's some prudent to be active with buybacks and our tangible common equity continues to be above 8%. And all the other capital ratios are well above our target. So in this environment, we feel like it's the right prudent call to make.

Damon DelMonte

Great thanks for the color, and I'll step back.

Operator

Thank you.

Michael Stewart

Thank you.

Operator

One moment for our next question, please.
And next question will come from the line of Nathan Race with Piper Sandler. The line is now open.

Nathan Race

Yes, hi, everyone. Good morning. Thanks for taking the questions. I just wanted to clarify on the margin commentary to the earlier question on the three basis points or so of impact to the downside. That's not under a static rate environment that doesn't necessarily contemplate, you know, continued redeployment of excess liquidity come off the bond book into loans, is that correct?

Michele Kawiecki

It does contemplate some things that that excess liquidity into earning assets.

Nathan Race

Okay. Got it. Thank you. And then just on fee income, I think last quarter were talking about a run rate of around 30 or so per quarter. Is that still a reasonable expectation going forward?

Michele Kawiecki

We are actually expecting this may be a touch lower, maybe more like 2020, 29 per quarter last quarter when we provided that guidance, that was virtually based on the fact that we expected more rate cuts during the year and whenever we do get rate cuts that really invigorate our mortgage business and so gain on sale of mortgage loans, it goes higher. And so given that we're expecting less rate cuts at this point and probably adjust that down slightly.

Nathan Race

Got it. Okay, great. And then just turning to expenses. I think last quarter we're talking about 0% to 2% growth off the 4Q annualized level, is that still a good proxy to use going forward for 2024?

Michele Kawiecki

I think our expense has been offset a little bit of the reduction of noninterest income that I just talked about, we had a really good expense discipline this quarter and so I would expect it to run a little lower than the guidance that was provided. I think I would add, Nate, that we will have some additional digital platform. Conversion costs in Q2 just as a reminder, should run about $2.5 million. So that will be on top of that core run rate.

Nathan Race

Okay, got it. And then just turning to credit quality, it doesn't sound like there was a yes, any major surprises definitely in terms of the Verizon classified and nonaccrual. So John, is it fair to assume that you're not seeing anything systemic across the portfolio?
It's more so just ongoing normalization that the broader industry is encountering these days and just generally kind of how you think about charge-off levels going forward?

Michael Stewart

So I do look at it as more of a normal return to more of a normalized credit environment. The charge-off rate, I think we said last quarter, we come under it from the last couple of quarters, but it's I think about it in that 15 to 20 basis point range.

Nathan Race

And then assuming a stable macro environment, I know it's a kind of a fluid situation and are seasonal, but to what extent do you guys see a need to provide for a mid to high single digit growth, just given that your reserve is still Solveigh above peers?

Michele Kawiecki

Well, I think where our coverage ratio is today is largely where we will become, assuming that, you know, the economic scenario doesn't change again, I think we would want to keep our coverage ratio somewhere within that can be where it's at today to cover for any new growth. It will change.

Nathan Race

Okay, great. I appreciate the color. Thank you.

Operator

Thank you. One moment for our next question, please.
Our next question will come from the line of Brian Martin with Janney Montgomery Scott. Your line is now open.

Brian Martin

Good morning.

Michael Stewart

Good morning, Brian.

Brian Martin

Hey, Michelle just want to ask you on you talked about taking some action on the deposit side to help on the funding costs. Can you just elaborate on what you did or I guess is there more of that to come? Is that kind of done at this point or given this focus on managing the funding costs?

Michael Stewart

Hey, Brian. Yes, we've actually just had our asset liability committee meeting yesterday and walk through every line of business, consumer and commercial private wealth and are continuing to look at strategies really across the board where we can make modest rate reductions that we think can take some of the pressure off. And so we're not doing anything in a really big way like we're not making 25 basis point reduction, but we're finding ways to pick up five basis points in a number of different places that we think I've kind of get ahead of our rate reduction and continue to allow us to have a really healthy liquidity position at the right price.

Brian Martin

Got you. Okay. So there's a little bit more of that. It's ongoing. It's not launching just do it incremental along the way to pick that up?

Michael Stewart

Yes, that's correct, yes.

Brian Martin

Okay. And then one, maybe just for Mike, you talked about the particular strength in C&I this quarter and anything special driving that, I guess you believe is sustainable?

Michael Stewart

Yes, I do believe it's sustainable at some of the drivers is the investments that we've done in the Michigan market. The new markets that we have at a level one couple of years ago, retain the brand reaching out to the market, taking advantage of the other competitive landscape. There's that will pay dividends.
Generally, C&I, corporate executives still feel good about their businesses. So they are investing again, whether it's plant and equipment and our doing some strategic acquisition. We play really well into that space. And I just I can attribute to probably is the fact that the Midwest still feels pretty insular to the other headwinds that their coast might have. And we're pretty active.

Brian Martin

Got you. Okay. That's helpful. And then just the last two, I think, CTV, like I think you talked were down a little bit this quarter. I guess, do those feel like they're beginning to stabilize in them.
Secondly, just as Peter also talked about some further redemption of some debt, maybe another $25 million is still the plan. And then Q2?

Michael Stewart

Yes, Brent, yes, we are paying down the remaining $25 million at the end of this month, but I didn't catch the first part of your question.

Brian Martin

And then other non-interest bearing deposit trends. Just kind of I know they're down a little bit this quarter, but just beginning to see those stabilize, is that kind of what you're seeing underneath?

Michele Kawiecki

We were expecting the decline in that to moderate down. And so we may see a little bit more compression there, but it's largely going to tail off, I think.

Brian Martin

Okay, perfect. Thank you for taking the question.

Operator

Thank you.

Michael Stewart

Thank you.

Operator

One moment for our next question, please.
Our next question comes from the line of Daniel Tamayo with Raymond James. Your line is now open.

Daniel Tamayo

Thank you. Good afternoon. I suppose we're at now here and I guess most of my questions have been asked already, but a couple cleanup questions. First, I guess, John, on the classifieds, if you can provide a little more detail on and where the increase came from, if it was kind of C&I or CRE or what you're seeing there?

Michael Stewart

Yes, it was I'd say it was probably two-thirds C&I, one-third CRE, a combination of different types of asset classes within the CRE across the industries within the C&I, I would describe it as kind of normal inflows and outflows with individual issues with C&I borrowers and just addressing issues as it relates to CRE, higher interest rate cap. And it has had on CRE. And as much as there's conversions there that are challenging. We're just kind of addressing them. So.

Daniel Tamayo

Terrific. Thank you. And then I don't know if I missed this or not, but did you provide or do you have the amount of the office loans that are in central business districts?

Michael Stewart

I don't have it by central business district. I've got it split within that slide about as granular as I have it.

Daniel Tamayo

Okay.

Michael Stewart

With that, I think it's on Slide 18. Maybe I have been open for just a moment

Michele Kawiecki

2019

Michael Stewart

Slide 19.

Daniel Tamayo

Yes, the breakdown of type tenant and geography.

Michael Stewart

I will say that anecdotally and when I when I think about that office portfolio, we're not a central districts business district type lender of downtown Indianapolis, Chicago or something? Or is it mostly suburban related to, you know, developers who have done projects?
We've made good progress there. Don't have that much bookings.

Daniel Tamayo

Okay. Probably answers my question.
Yes. And then just quickly on deposit expectations. Obviously, there's a lot of moving parts there. But do you expect to kind of fill the gaps on the funding side to keep the loan deposit ratio similar to where it is now given your loan growth?

Michael Stewart

Yes. I mean, we have a desire to see the loan deposit ratio tick up slightly, and it's and it's a fun time. The business, honestly, we're actively pursuing new client relationships. On the lending side, we expect to have mid-high single digit growth. And it feels like we're getting back to what would be more of a historical level where you tend to grow loans in the mid-high single digits in deposits in the mid to low single digits and up and I think it creates a little more efficient, an effective operating model.

Daniel Tamayo

Okay, great. Thanks, Mark, and thanks, everyone else appreciate.

Operator

Thank you.

Michael Stewart

Thank you.

Operator

Our next question comes from the line of Terry McEvoy with Stephens. Your line is open.

Terry McEvoy

Good morning, everyone or good afternoon. Michelle, you mentioned the $1 billion of repricing, was that specifically out of the loan portfolio over the next three quarters? And I mean, out of the 34% of the portfolio that's fixed today, it's mostly out of the bond portfolio?

Michele Kawiecki

Yes, it's a total earning asset number. So to also include the securities that are going to be maturing this well. But unfortunately, loan and it's a mix of services that are fixed as well as some variable frequency.

Terry McEvoy

Perfect. And then just taking into consideration your loan growth commentary, deposit costs and margin, it sounds like net interest income bottomed in the first quarter and should grow from here. Would you would you agree with that, Michelle?

Michele Kawiecki

I would think that the guidance that we gave out our outlook last quarter was that we thought second quarter would stabilize and then we see some growth in the back half of the year. And I think that's largely what our expectation.

Terry McEvoy

And then just one last question when I look at the largest component of nonowner-occupied CRE and multifamily, so do you have any comments on kind of vacancy trends, new supply rent growth, particularly within some of those larger metro markets in Indiana and Michigan?

Michael Stewart

Yes, we're still seeing rent growth, but it has slowed. It's kind of tapered from what was a breakneck speed earlier in the cycle to a more modest level. And really that the multifamily that we've had has been, as Mike mentioned earlier, been able to stabilize and move to the permanent market. So we still feel pretty good about that space, although obviously new opportunities are going to get more challenging with at a higher rate.

Terry McEvoy

Thanks for taking my questions.

Operator

Thank you.

Michael Stewart

Thank you, Terry.

Operator

I'm currently showing no further questions at this time, I'd like to turn the call back over to Mr. Mark Hardwick for closing comments.

Mark Hardwick

Yes, I really don't have much other than just again, an expression of our appreciation for your interest in our company and the continued investment and the teams are working hard to deliver our results for the remainder of the year.
So thank you again for your attention.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect, and everyone have a wonderful day.