Financial Data and Key Metrics Changes - The company reported net income of $22.6 million or $1.39 per diluted share for Q2 2025, compared to $18.8 million or $1.17 per diluted share for Q2 2024, reflecting a strong year-over-year growth [13] - Net income for the first half of 2025 totaled $42.2 million or $2.6 per diluted share, compared to $40.3 million or $2.5 per diluted share for the same period in 2024 [13] - Interest income on loans increased by $3.1 million during Q2 2025 compared to the prior year, driven by strong loan growth [15] - Average loans grew to $4.7 billion in Q2 2025, a nearly 7% increase from $4.4 billion in Q2 2024 [14] - The net interest margin declined by 14 basis points in 2025 compared to Q2 2024, impacted by a 100 basis point decline in the federal funds rate [17] Business Line Data and Key Metrics Changes - Mortgage banking income increased by 23.4% in 2025 compared to 2024, with a significant reduction of $50 million in residential mortgages on the balance sheet [6][8] - Service charges on accounts grew by 18.1%, reflecting growth in the deposit base and increased activity levels [8] - Payroll services revenue increased by 15.2%, indicating a successful high-service model [8] - Credit and debit card income grew by 3.7%, while interest rate swap income recovered significantly in Q2 2025 compared to Q1 2025 [9] Market Data and Key Metrics Changes - The company experienced a 13% increase in local deposits as of June 30, 2025, compared to the same date in 2024, which helped reduce the loan-to-deposit ratio from 107% to just under 100% [9] - The strategic partnership with Eastern Michigan Bank is expected to enhance deposit gathering activities and provide entry into new markets [10] Company Strategy and Development Direction - The company announced a strategic partnership with Eastern Michigan Bank, which is expected to provide cost savings and enhance balance sheet liquidity [10][11] - The transition to a new core provider, Jack Henry, is scheduled for early 2027, with expected cost savings and improved service delivery [11] - The company aims to grow its loan portfolio, particularly in mortgage banking and larger commercial loans, leveraging the strengths of Eastern Michigan Bank [34] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current economic uncertainty, with expectations of loan growth of 1% to 2% in Q3 and 3% to 5% in Q4 2025 [21] - The company is focused on maintaining a strong balance sheet and minimizing the impact of changing interest rates on net interest margin [18] - Management noted that customers continue to report strong results despite the challenging operating environment [8] Other Important Information - The company recorded a provision expense of $1.6 million in Q2 2025, reflecting increased allocations on specific financially stressed lending relationships [18] - The effective tax rate for Q2 2025 was about 13%, significantly lower than the projected rate of 19%, due to the acquisition of transferable energy tax credits [19] - The total risk-based capital ratio was 13.9% as of June 30, 2025, indicating a well-capitalized position [20] Q&A Session Summary Question: Can you provide details on cost savings related to the core system change? - Management expects cost savings of approximately $5.5 million, with about 50% realized in 2026 and over 90% in 2027, following the core conversion [28][30] Question: What are the growth opportunities in the Eastern Michigan loan portfolio? - The loan book is of high quality, and management sees opportunities to grow in mortgage banking and larger commercial loans [34] Question: How does the company plan to manage deposit and loan growth? - The company aims for loan growth of 5% to 8% annually and will continue to focus on local deposit growth to support this [42][44] Question: What is the outlook for fee income in the second half of the year? - Management anticipates a step down in fee income from strong Q2 results, particularly in mortgage banking and interest rate swaps [54] Question: What is the expected timing for the closing of the Eastern Michigan Bank acquisition? - The acquisition is expected to close in the back half of Q4 2025, likely around November 30 or year-end, pending regulatory approval [55] Question: Are there additional M&A opportunities on the horizon? - Management remains open to pursuing additional M&A opportunities if they find a partner with similar strengths as Eastern Michigan Bank [64]

Financial Data and Key Metrics Changes - Operating earnings were reported at $0.59 per share, with an operating return on assets of 1.04%, both showing solid improvements from the previous year [4] - Loans grew at an annualized pace of just over 5%, while deposits also grew at an annualized rate of 5% [4] - The net interest margin increased by 10 basis points over the fourth quarter, driven by lower deposit costs [4][13] Business Line Data and Key Metrics Changes - The loan portfolio saw a 7% annualized growth in commercial and industrial (C&I) loans, including owner-occupied commercial real estate [10] - The Navitas book experienced a 15% annualized growth, while home equity line of credit (HELOC) loans grew by 13% annualized [10] - Non-interest income decreased by $4.8 million from the previous quarter, but the run rate of fee income remained flat when excluding notable items from the last quarter [14] Market Data and Key Metrics Changes - Deposit growth was strong, with $309 million in deposits or 5.3% annualized growth, despite approximately $85 million in seasonal public fund outflows [8] - The cost of total deposits improved by 15 basis points during the quarter, with a total deposit beta of 30% [9] Company Strategy and Development Direction - The company is well-positioned to succeed despite economic uncertainties, with a focus on maintaining strong client relationships and adapting to market changes [7] - The acquisition of American National Bank is set to close on May 1, marking a strategic expansion into South Florida [18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current economic environment, noting that consumer spending and employment in their markets remain strong [7] - There are concerns regarding potential impacts from tariffs, but management believes that clients are adapting quickly to maintain margins [7][29] Other Important Information - The Common Equity Tier 1 (CET1) ratio increased to 13.3%, indicating a strong capital position [12] - The total capital ratios remain above peers, allowing the company to be opportunistic in capital use [12] Q&A Session Summary Question: Margin expectations going forward - Management expects margins to increase by 5 to 10 basis points next quarter, driven by lower deposit costs and a shift in the mix between loans and securities [23][24] Question: Borrower behavior and pipelines - There has not been a negative impact on pipelines, with Q2 expected to be similar to Q1 [38] Question: SBA and fee income challenges - The company is a preferred lender for SBA loans, which mitigates potential headwinds in gaining approvals [40] Question: Operating expenses outlook - Operating expenses are expected to remain in the low single-digit growth range, with some seasonal increases anticipated [41] Question: Capital priorities and share repurchase - Management indicated a preference for share buybacks over M&A at current stock prices, viewing it as a low-risk investment [46] Question: Loan loss reserves and economic scenarios - The company uses Moody's scenarios for loan loss reserves, balancing economic forecasts with actual portfolio performance [51][52] Question: Deposit growth drivers - Strong deposit growth was attributed to the maturity of CDs and a focus on money market accounts [60][61] Question: M&A environment outlook - Conversations regarding M&A continue, but management does not expect significant activity in the next 12 to 18 months due to market conditions [66] Question: Navitas loan sales outlook - Management indicated that they may not sell Navitas loans in the second quarter, focusing on maintaining high-quality credit on the balance sheet [72]