First Merchants Corporation

Q4 2020 Earnings Conference Call


spk_0: that afternoon and welcome to the first merchants fourth quarter twenty and twenty earnings call the participants will be in a listen only mode should you need assistance please signal a conference specialist by pressing the thirty followed by zero after today proven nation building an opportunity to us question to ask a question you may prefer than one on a touchstone form to withdraw your question please press door been to
spk_1: this presentation contains forward looking statements made pursuant to the safe proper provisions of be private security firm education reform act of nineteen ninety five much for i would looking statements can often but not array of be identified by the youth of work like believe continue pattern estimate project in pinned and perfect they'd expect and similar expressions are future or conditional were positive will would shoot could might can may or similar expressions be forward looking statements include but are not limited to the statement relating to first merchants go and pensions and expectations statements regarding the first merchant business plan and growth strategy eight month regarding the at the quality of for a merchant known and investment portfolio and estimates of first martian threat and future crops and benefit looking statements are subject to significant risks assumptions and uncertainty that it may clouds results to differ materially from both flip flip and forward looking statements including among other things possible train different economic and business conditions the existence or exacerbation of know
spk_0: rule two your political instability and be the effects of a pandemic or other unforeseeable event the ability of for to merchant to integrate recent acquisitions and attract new customers possible changes in monetary and fiscal policy and laugh and regulations the effects of
spk_1: even restrictions on participants in the financial services industry because ann arbor effects of legal and administrative cases possible to increase in the creditworthiness of customers and a possible impairment of collectability of known fluctuations in market rate of interest computer are factors in the banking industry changes in the banking legislation or regulatory requirements of federal and state agencies applicable to bankrolling companies and banks like for merchants a food bank continued availability of earnings and exist capital for for the level and prudent the corner of evidence came to fun market economic operational liquidity created an interest rate risk associated with the first merchants business and or birth and factors identified in each of for merchants filings with the securities and exchange call mission for merchants underpaid no obligation to update any forward looking statements were the written or old relating to the matter this growth in the group edition or press release in addition the company past rebirth of operations to not necessarily indicate anticipated future those please note this event is being recorded i would nowhere to turn the conference over to mark hardwick the oh please go ahead
spk_2: oh good afternoon and welcome to the bush no chance you're to government water droplets goal where will return to their to partner with a job after an old where you all on your way to be bored with inflation but if not you connected with bored by bowl and the wake of a but vegetable or relief the snobby trial blue bird you for the production and for governor detail the board will but we we may have to find a way to shorten at it looked like fun a story you'll see today's presenters and alive include much to are newly born in brooklyn john more or to grow from georgia the up there are newly appointed chief financial service on page four where the want a snapshot of those margin a few my life and accomplishments for your review good job board by really want to start today by introducing or new with or new vision damon the all that we believe imperative that we dated be burbage and is to and have the financial almost of the worst movies with her but what the way to introduce the higher calling of financial well as into our daily work i'm through to officially add diversity and tour banks vision statement to appropriately reflect our values and increasing remember in a blue to officially boring community but the community back into the community bank this version will influence or we are the markets which are and how we a bit and strive to meet the needs of our client base not to mention driving or philanthropic efforts it's exciting to offer a boy division statement that improve the lives of our customers to the value proposition that we have offered no like to or cover the remainder like five and like that a mark and good afternoon to all i do what has been my time on the wide and the next update you on the maturation of our go to market strategies and offer insights to the markets we serve drug commercial banking or commercial banking team of continue to invest in our capabilities to match the need with enough markets leveraging the thought that were balance sheet to build out segment capabilities with in public banana structured finance which is working with or private equity sponsors at that they've learned the and a vindication platform have complimented are the real estate middle market treasury services and small business effort michelle john will offer additional insight to work or organic growth but achieving a ten percent and whoa whoa growth rate and the fourth quarter is directly attributed to our bankers are market and are expanding commercial bank product capability and we in the twenty twenty one point one remains that lp level beyond even the round to ppp were engaged in now and we can discuss that further later our consumer banking team had been leveraging our personal service approach to birther educate and activate our digital and online banking products the well as kobe environment we have seen an acceleration of the use adobe products and as now last month we went further be the best in a new and enhanced by capabilities mark we'll talk more about the specific but the banking center consolidation denounced in december clear your book is to rebuild our employee quite a different approach that will be supported by the additional investment in platform john where were you are consumer mortgage activities where refinancing a new purchases remain role but in the midwest and proposed merger or private will payment not fully integrated into each of our markets investing in town across all that markets like columbus in indianapolis months or a shirt we can grow in a balanced service bag approach michelle offer additional insight to the growth of this be generating on a business you could see with the map on page six it represents both the demographics of a growing economic environment the heart of them midwest that drive dog growth and a stable sort of talent i lead are built his upwards aren't that within our commercial consumer private wealth mind the businesses have been received well with than all of our markets i'm excited for you to listen to michelle common about or balance she growth are improving margin and operated metrics john will share the sound of our portfolio and upwards around the berlin current ppp activities and mark will offer more insight to or a plant investment in our digital journey market and about you
spk_3: great things like
spk_2: now if he returned to have like seven but my own the press release date we're really proud of our two thousand and twenty results given the headwinds the world and the country encountered during the year or front line back office employees guided over five thousand two hundred customers through the paycheck protection program and encrypt loans by nine point two percent more girl and the bothered by fifteen and i have percent or fourth quarter core alone growth of eleven point two percent and the announcement of a definitive agreement to higher than that to acquire the your drug company will provide strong top line momentum heading into two thousand and twenty one we've been opened a new banking center in the art of indianapolis during two thousand and twenty as we while dark financial plan for two thousand and twenty one not only did we announce the confederation of seventy banking centers but we also laid out a three year road map to digitize the bank we're making significant investments and people antic malady to meet the ever changing demands of our customer base and it's exciting were we also filed an ak at the into business yesterday i lining or receipt of federal reserve and first merchants board approval of a new one hundred million dollar share repurchase program with an eye towards driving top or tile were turns on equity throughout the day presentation you will see strong financial results that ultimately produced one hundred and forty nine million dollars net income two dollars and seventy four sense of earnings per share and a one point seven percent pretax pre provision return on assets moreover i like the else or capital liquidity and reserve position while sharing our two thousand and twenty financial results
spk_4: thanks marked my comments will begin on flight eight we are pleased to report earnings per share for the fourth quarter totally and eighty three cents which is shown on line twenty two and increase of fifteen cents over the prior quarter mark mentioned the branch consolidation announcement in his remark charges of four point five million will go courted this quarter related to the disposition of assets another costs associated with that announcement excluding those one time charges the efficiently racial for the quarter with a low fifty one point six percent net interest income or nine eleven totaled one hundred and two point three million for the quarter increasing nine point four million on linked corner basis ppp long be the counted for five point five million of the quarter over quarter increase the two hundred and forty million and ppp loans were forgiven causing deferred fee income associated with the phone to be recognized and earnings so three point nine million of be increased with coordinate interest income growth reflecting strong commercial on pretty option like nine show highlights of our investment portfolio the total portfolio grew two hundred and thirteen point five million in the fourth quarter or didn't twenty nine percent annual life as we continue to put excess liquidity from growing deposit to work the yoga been the portfolio remain stable quarter over quarter earnings to point seven eight percent which continues to be above pure your cash more roll off for the next twelve months total of four hundred and eighty eight million at one point seven eight percent yield the current purchase field is one point six five percent for the overall portfolio yield could decline a couple basis points over the course of the year depending on whether and but like conditions remain the same applied can in the bottom left corner you will feel of fourth quarter alone the deal with a strong four point two percent excluding the impact of ppp loans and bone yield with three point nine six percent you are new and renewed bone from the fourth quarter averaged three point four to pay percent on the bottom right in the long right mix which showed that sixty two percent of our loan portfolio with variable and thirty eight percent respect with seven percent of the fixed rate loans been ppp alone flight eleven showed to record of our lounge the on martha's ballot throughout the year our intention was to adopt faithful on december thirty first two thousand and twenty with a day one adjustment measured on january one two thousand and twenty in the amount of fifty two point two million recorded through equity on december twenty seven the two thousand and twenty one consolidation of creation that was signed into law which prompted the fcc to reconsider the data banks could adopt ultimately on january thirteenth the a the amount the bank could adopt under semper thirty first two thousand and twenty or january first two thousand twenty one however the time we called or books january one two thousand and twenty one what the date being considered for fcc approval therefore the fourth quarter allowance and provision extent was measured using the and curb boss method on the top right you can that we had a beginning balance at one hundred and twenty six point seven million we incurred net charge off of six hundred thousand during the fourth quarter and recorded four point five million and provision them bringing the and dean allowance for home office balance to one hundred and thirty point six million the resulting allowed to coverage ratio is one point for one person but one fifty two when excluding ppp mom on the bottom half of the plight of like to walk you through our by on day one adoption impact interestingly the ftc indicated that one adopting faithful and january one two thousand and twenty one the day one adoption entry recorded direct what he should be measured as of january one two thousand and twenty one of the poet to two thousand and twenty because the current economic forecast have the impact to the pandemic in it and it's not about domestic it the forecast that we used on january one two thousand twenty which was creepy pandemic or day one impact increased from fifty two point two million to seventy four point three million which the fifty seven percent increase over the your and allowance balance this will bring the allow him to launch coverage racial to two point two two percent or either for unfunded commitments and the amount of twenty point five million will also be recorded and other liability the impact the capital of the adoption will be a decline of approximately seventy basis points to total respect capital and fifty basis points and tangible common equity we feel that robust allowed coverage reflecting a cautious posture or position and very well heading into the new year and we're equal to get the for adoption behind us applied twelve you will see the favorable deposit make shown in the graph on the top left with very low level of time deposit them broker deposit in the fourth quarter we continued to see dollars and time deposit shipped to money market and other non time deposit product on the bottom left you will see the cost of the part continues it's downward trend to twenty of and basis points in the fourth quarter this is a ninety two point decline from the third quarter and seventy bases point declined from the fourth quarter of two thousand and nineteen department balances grew on and on a on an annualized basis over the third quarter contributing to are exceptionally strong liquidity position line one i'm flight thirteen shows fourth quarter net interest and come on a pulley track for quinlan basis of one hundred and seven hundred and seven million or and nine point seven million over last quarter dated meant interest margin of mine thick totaled three point three percent for the quarter adjusting for fair value or korea asian and the impact of ppp lawn sprinklers to a cornet interest margin of three point thirteen percent which is one basis point higher than the third quarter core margin of three point twelve percent looking forward to two thousand twenty one we expect called march and to remain stable and in line with cute three and queue for revolt unplug fourteen non interest income totaled twenty seven point five million with total customer related fields of twenty three point three million service charge of found the part and continue to recover incrementally totally five point five million and queue for compared to the low a four point three million in the second quarter dirt david of hedge these in a quarterly high of two point three million and que four games on the failed mortgage mon total record eighteen point three million for the year with production at seven hundred and fifty seven million and loan wealth management fees were also exceptionally strong for the year and twenty three point seven million offsetting the growth in these speeds with the impact of durban in the back kept of two thousand twenty which reduced card payment feet by two to two and a half million per quarter of a corpse flight increased more than ten percent in the back half of two thousand and twenty compared to the first half of the year so we're optimistic about card usage going into two thousand and twenty one on like fifteen total expenses for the quarter total seventy two point five million which included branch consolidation charges a four point five million which i mentioned earlier salaries and benefits were elevated and the fourth quarter due to and or cool the and an increase in health insurance costs of betting the increases with an oreo gain a one point point seven million on a senior living facility that john martin will discuss further and his remarks flight think shows the strength of our capital portfolio or capital ratios with the tangible common equity dated at nine point six five percent but as nine point nine nine percent without the impact of the ppp loans would feel the combination of strong capital ratios along with robust allowance coverage to loans demonstrate that outstanding balance sheet during flight seventeen summarized with the financial results for the full year of twenty twenty as well as prior years total ethic grow shown on mine one with exceptional at one point six billion or twelve point nine percent over two thousand and nineteen a reflection of the great momentum we had and moan and deposit production through the end of the
spk_5: here the stated efficiency ratio with fifty one point seven one for the year and a low fifty point eight excluding the branch consolidation charges exhibiting found operating leverage finally i'd like to point out the tangible book value per share growth on line twenty three which increased of healthy eleven percent over prior year that concludes my remark that will now turn it over to our cheap credit officer john martin by for show aired dog good afternoon
spk_2: i'll begin my comments on flight eighteen by reviewing the loan portfolio and glued in our industry concentrations are provided an update on loan modifications took a little on the code sensitive industries and portfolios with a brief update on the ppp loan program and chloe by highlighting our year and a half quality position turning to flighty jane or in the quarter that we had two hundred thirty four million overblown growth led by a roughly one hundred and ten million dollar increase in commercial industrial loans like activity was stronger across the regions and line to build up your mortgage loan demand and production remain strong in the quarter walk again on feel as we shall the just mention emperor the year with continued low rates and of stronger that historical gain on sale percentage but for the year the payroll protection program was a driver of fear i production early on the year with roughly nine hundred billion dollars originated and two hundred and thirty four million dollars for given in the fourth quarter during the flight nineteen are broken out the field i portfolio to highlight of you have diversified nature a relative granularity within the overall commercial loans we continue to grow lines of credit relatively faster than balances with lower line utilization rate compared to the prior year our we would expect to the increase outstanding balance it as economic activity increases in working capital demands return to historical levels are turning to fly twenty ii and touching on are relatively limited kobe sensitive industry oh three areas that we are focused on includes senior housing hotel and to a lesser extent restaurant food service senior living with than area heading into the pandemic that we were already focused on with some march that markets reaching saturation with the impact of the pandemic it led certain projects to experience occupancy and then payment difficulties the restaurant portfolio and thus far continued relatively well i believe that ppp program combined with the industry the ability to a just as well of the nature of our portfolio be skewed towards limited service restaurants has enabled the portfolio to perform relatively well and a challenging environment as far as hospitality give the hospitality and accommodations or concerned or please turn to fly twenty one where i drilled in further on the portfolio we continue to perform quarterly portfolio reviews and it's portfolio and stay close to the operators we are eighty three million dollars of hotel the pearls have some form
spk_5: this could be principal an interest or principal only depending on the individual situation we continue to leverage the accounting treatment allowed for under the care as act which was extended through twenty twenty one under the economic aid act that said we when we extend payment relief beyond a period of temporary delay
spk_2: we have been ordering updated appraisal to support values and the a cruel accounting with he declined in values but overall values have been home i holding up reasonably well while hotel lending is not a significant portion of our portfolio or thesis prior to the pandemic had been to finance projects where there were two man drivers for the project like universities convention centers or other inherent sources of demand with the slowdown in economic activity related to the pandemic these projects have understandably been and for affected as a result we have continued to work with borrowers as they employ a number of different strategies to generate revenue and dole occupancy so turning to fly twenty two you can see the disproportionate level of remaining to pearls concentrated in the hotel portfolio with other modifications spread across a variety of it industries and portfolios wrapping up my comments around the pandemic we continue participate in the ppp program that might just mention with roughly two hundred and forty million dollars forgiven at year end our six hundred sixty seven million dollars left to go the forget that the application change should help our changes that have come out should help to the the process going forward and we are adjusting are processing software accordingly
spk_5: we have also begun taking applications for the second drop ppp loans with fairly strong demand but not at the same level of the national forest draw program so turning it's like twenty three where i cover acid quality overall after quality remained stable in the quarter with a four point eight million dollar increase in on a with a thirteen million dollar loan for a senior living facility moving to nonaccrual on the quarter online to we sold a senior living facility
spk_2: from other the real estate own which had a book balance of by point nine million dollars that resulted in the one point seven million dollar game that michelle just mentioned a minute ago clapper by loans that line seven were stable at two point seven percent of loans down two point eight million dollars charges were six hundred thousand dollars or three bases point of told loans for the quarter and eight point three million dollars or nine basis points for the year on the fly to the point of clarification of like to make on line nine the three point one million dollars and for que nineteen and eight point three million dollars that i just mentioned in for que twenty represent four year charge jobs while the three que twenty were charge offs for the entire third quarter so then moving forward how sure the ass quality roll forward and fly twenty four that connects to the after quality florida just discuss which reconciles these changes i would and by just summarizing that charge out have remained low for the quarter and for the year after qualities stabilize
spk_6: just at year end good classified out that leveling out
spk_2: there have been increases in the performers are performing loans related to senior housing by believe for now and not thing that thing to get change we have her arms around the magnitude of the issues and finally i would close by thing that we have our resources focused on delivering new business across regions and business line that might just mentioned delivering ppp loans and working with our borrowers but been affected by the pandemic of thanks for your attention i'll turn a call back over to mark great thanks john if you turn replied twenty five who it highlights ten years of a number of measures compare on the owner annual growth rate and total returns representing what we feel are are very high levels of performance and you know i know my crack in is tuned in to today's call and he should be really proud of the scoreboard and who leadership you know the back of year that we had and a heck of a ten year run plus for mike in all of us all four was presented today are really pleased to have played a role in their success and we're excited about moving that they are moving of company forward pb turn to page twenty six another the better than i and like that i talk about on a regular basis that i that tub i'm just going to continue to repeat i think it'll be helpful to understand our organization and you know it's it's really just as a management team we believe our job is to grow organic loans and the mid i think did it's on an annual basis and it's also our job to deliver an efficiency ratio in the low fifties and and were convinced that if we make that happen we believe the market will will ward off with competitive trading multiples and competitor multiples will sort of the currency premium that required to augment organic growth with smart well priced acquisitions much like the one blunt much like the ones you see on page twenty six like twenty seven it highlights and priorities that will help guide us over the next three to five years know i'm not going to walk through all the than detail when we have an opportunity to prove are the folks during a best called know types of things maybe we can dig into those details and i look forward to doing that
spk_0: in introducing you to this entire management team a little more fully
spk_7: the but you know you can peruse through those and and i wrap you take questions from and left as well but first i would you say i'm enthusiastic about our team of professionals are ability to deliver results and the future it offers all of our stakeholders so thank you for your attention monday your investment in person merchants and at that point out were happy to take questions
spk_8: we will now picking the question and answer session to ask a question you know trump tar than one on your touched on phone of you using a speaker phone please pick up your handset before personality
spk_9: at any time your question has been addressed and you would like to withdraw your question please press star and to
spk_10: time the path momentarily to a humbler roster
spk_11: the first question come from scott pacman power plant please go ahead of move or thanks for taking the question
spk_2: with the i think the first one that i wanted to ask was around ppp it i think you've got somewhere around six hundred fifty million of first on ppp loans left
spk_12: how long it would your expectation for how long it'll take to work that balance down to just that like a negligible level in other words when i guess would we expect to see net loan growth again and you how sustainable is that double digit ah
spk_2: and you like growth x ppp the chad this quarter yeah got things further their question when am i think john going to will answer the first question about what we think of pay offs look like of the forgiveness brought up and then why i'm like to talk about the the growth on top of that good god i think i'll take the ppp part as marx mentioned are you know we are really in the fourth quarter saw significant pick up in beer the forgiveness and that kind of the rate we're looking now i would expect it to be in the first half of the year probably more waited to the the second quarter than the first
spk_5: a would would be my response we seen get we've got a lot of the links out to the borrowers a and we've got a handful right now not handle got a number by about half of the remaining number
spk_13: at that you know cut haven't even begun says going to be some part that gets forgiven
spk_5: probably again ward loaded to the first half of the year and even of those
spk_2: probably you know it's gonna probably actually be more likely split evenly between the two quarters but as i think about it or moving make you got a i've got my to what your own article about the organic growth perspective and you remember from the third quarter we really didn't show any organic growth and then you feel really but for kruger so when mark talks about and we've talked about for a long time that mid earth single digit growth rate that i do believe over annexed a period of time not absolute quarter to quarter is a very achievable a prospective that we've been able do it and i referenced early on that even with the robust commercial closings in the fourth quarter are pipeline said today at a nice level or that makes me feel confident that the first quarter economic activity engagement level or bankers
spk_14: and be interested in our or capital solutions will got us into those levels
spk_2: and breakdown in our how a job the job point yet be a have to get the application finalized for forgiveness on the under hundred fifty thousand which would just happened last week so that's why i think we can see a speed up of them now
spk_11: are part of it to is we're going to have it the next wave of ppp that second drop ppp kind of coming on as well we've seen about
spk_4: today couple hundred ninety nine hundred ninety million dollars of second drop ppp activity thus far perfect and that thank you for elder color and then just a separate questions time on the expense paid and what what's your expectation for where things go from the quarters roughly fifty eight million or so in now been core expenses
spk_15: yeah i think capital michelle the that run rate that were looking out for two thousand and twenty one is probably somewhere between sixty to seventy million a quarter the going around a little bit higher than are two thousand and twenty quarterly average because we're investing more in corporate social responsibility items such as an expanding our down payment
spk_2: assistance and and expanding our team to increase our service to the mall low income mortgage lending space and the same and that we will have from closing our branches is going to be reinvested back into the business for digital investments which mark can talk a little bit more about but that that's the run rate i would you perfect current thank you very i haven't got to on the digital run right word on really excited about what we're both again we have bomb several technologies and know that wasn't specific to your question but
spk_15: now where were are of taking a recommendation to our board on february night for a new online account origination platform that were excited about
spk_16: the on the heels of that we're updating our in and branch platform and and following your part of for your journey that we talked about will be a complete upgrade our
spk_17: online and mobile banking systems well while the entire time will be working towards automating not only does not front in customer experience but also the back the back office experience trying to get that rebook but all away from of the customers fingers and to the core system so i'm not a number of dollar that people investment and technology advancements that are the reason we're not allowing the that might have branch consolidation announcement to just drop straight to the bottom line
spk_18: yeah get that perfect thank you yeah because
spk_17: thank god
spk_4: but like come from kenya mile run i'm in pain please go ahead oh everyone now or maybe if we start on the on the for adoption and kind of what that done the to the reserves no have very strong reserves yards you mentioned around to an app for center or so or even higher depending on what what are you include
spk_19: so how are you thinking about the the eventual
spk_18: decreasing have a good source and the path of that back to work more normalized love overtime
spk_19: yeah and good question you know more it two point twenty two percent with our day one a judgment which is healthy although we do acknowledge this took quite a bit of uncertainty in the market until it kind of reflect our cautious nature
spk_18: you know in terms that provision through the ear mean that's really going to be dependent upon we we we use our moody's forecast in order to develop our models and are allowance range and thought it would depend on you know what touch with their forecast and how much improvement they feature the year
spk_2: i think loan growth will will grow into that as well i think our actual bongo for kind of naturally bring that percentage down also but i mean i'd probably share with you mean our biases not to book negative provision you know our model it our model dictate that that's what we need to be doing we will but hopefully that can be a little bit a color or and how we feel pretty thousand and twenty one yeah that's helpful nice and then switching gears will that here the the buyback that you not yesterday how are you thinking about utilization of that terms of timing andorra kind of priority
spk_18: there are our intention is to be opportunistic more guy that we have it available
spk_20: we want to use it now widely
spk_16: men manner in our view generally as well as long as we're trading below our historical averages of bright earnings are price to block it sort of so good time to be in the market and when we're trading above the level that it's probably a good time for the to stand back and and know and be more opportunistic joe
spk_21: it's it's a good number for it's on the heels of a seventy five million dollar or purchase program that we completed in the first quarter of of last year so i would rather have another one in place and dumb
spk_2: note that that lisa were thinking about using it at the time and our intention is to communicate with our board once a quarter and kind of reestablish our our views going forward
spk_5: okay great appreciate the god
spk_2: thank you don't know
spk_22: connect with gross income from home i can i wrote tea please go ahead
spk_2: i good afternoon iran her maybe just start with with john you're really not seeing much of anything and i long growth how of your peers and i know you kind of said it was broad base last quarter but i was hoping you could expand any markets that stand out or any specific injury industry send out in terms of what was behind the growth from the fourth quarter the out like can actually point out my stewart who is been a really the driver of that business you know i look at some of the origination that we had nearly came out across the about the region's public finance the sponsor business the and you are you want to contribute kind of the games rather than they are day and a broad base
spk_23: execution and in some of that back to john fly nineteen when you see a couple hundred million dollars of the line commitment growth livable nation doesn't increase your getting a pack up and that coming from cold water on middle market on the bottom laundry credit and
spk_2: when that didn't often because of their own
spk_24: copper of what to get your business models need dog
spk_22: additionally we were optimistic with a winning on the bad guy around one of ppp will plummet a larger banks that stumbled on their execution
spk_2: a company that chose worse merchant and their next generation bank when we put together the sponsor group structured finance that group was really slow this time last year as we went into the pope environment but capital and access to their capital
spk_21: in their views inside acquisition strategy or the execution on on those really picked up in the fourth quarter particular and do looks good we put that at that be lindy overlay capability how we were afraid that actually a while ago position ourselves little country or into a market downturn and for those companies that need access to greater a bank capital who might not have the traditional under perspective we got an ability to meet their needs as well or in the
spk_25: with real estate
spk_2: the only been very focused and inconsistent and that underwriting of that markedly really really found but we have a lot of construction projects that are disciplined enough so get it brought by broad blushed and across the board and market thanks for that mike and then maybe a question for mark
spk_26: it seems like there could be a real opportunity for first merchants in michigan
spk_27: given the potential for market disruption
spk_0: given the pending merger in any plans on playing more often seen in either southeast michigan or maybe expanded bit more in the state
spk_28: are we definitely have plans to
spk_29: could be at all fence we were acquired a a really nice franchise and monster and the anna earn for concert in monroe michigan
spk_11: the worked over a billion dollars of core deposits but we think there's a a great opportunity for us to continue the strategy that we really put in place at the time of the acquisition to grow the commercial management team
spk_4: and then from an everyday perspective you know we'd we'd love to have our acquisitions may of close to home as possible we think it allows for greater execution and so the michigan market is one that we continue to look out for ways to augment what the franchise that we've that we've already acquired and are continuing to build and the michigan market
spk_30: that's great thanks everyone
spk_28: in theory thank you
spk_4: the next question comes from boom and gomati with t v w please go ahead that afternoon and one hope every their well today
spk_28: on my first question
spk_4: yeah my first question regarding the either the margin outlook again of michelle's wondering if you could just kind of revealed that your comment than and some of the puts the run the application than the core margin had to go forward sure yeah so you know i'm in low rate are challenging and we certainly are march drop and twenty twenty as a result but i think core margin and twenty twenty one should be stable a him in the competition continue to be rational with loan pricing
spk_31: it's dated march and however you know will move around depending on you know the ppp fee income recognition and fair value accretion but you know we ended at three thirteen per core margin this quarter in i feel like that something we should be able where we were going to work hard to defend and twenty twenty one
spk_28: okay
spk_32: and they did you say that you are
spk_1: make the cats were coming up with security portfolio that we're going around to the four hundred and something nine
spk_11: yeah four hundred and eighty million is that the cash will roll off in over the next twelve months the method of pretty low yield fortunately it one seventy eight and info other we're not we're buying one sixty five today
spk_15: you know we still won't see much erosion there
spk_4: bad get an egg on with the got your outlook on the come on to develop perspective on on your on your thoughts on that
spk_33: yeah certainly you know i thank you for the income is a good read run rate for twenty twenty one the increase to it will be the acquisition of hoosier trust and so think the hoosier trust acquisition will close
spk_4: maybe the beginning of the second quarter and fill you know i think annual lived be from who's your trust should be one and a half million and so obviously that will be a little bit lower in twenty twenty one for a truncated here got it okay
spk_34: the thought i had with you very much
spk_11: you're welcome like they were they
spk_4: the next question of a follow up from car thief earth with papworth familar please go ahead
spk_2: are your thoughts are taking the follow new michelle a lot of move or him in the margin and it or make sure i'm working toward the the right place what would you go to consider sort of a steady state reserve that will be working back down toward are you sort of a post people but
spk_4: no pre koga had tied to level and other words once we get through that the pandemic where did the the reserves sort of thought about his plan alone no you know i mean a reserve pre pandemic can even priests eat so i think you know that historic run rate once we get past the pandemic it's probably what we would look to as being normal life
spk_11: and so i mean i'd probably use that as a guide even with fetal you know we'd have always looked at the economy and and taken that into consideration in developing ah reserve
spk_15: perfect though
spk_35: then is get you guys were down around with rum one person and in fourth quarter and nineteen would go will go down that low orders as the soldier structurally keep it keep an higher
spk_5: oh i think people will structurally keep it a bit higher yeah big where you have to feel like we're in new entering twenty twenty one early say other one one where the really strong healthy reserve after the day one adjustment and you up or open of the economy continues to improve and that we very little pressure for provisioning moving forward yeah and and i will say one of other just point of information in a wheel we run a you know a number of the movie scenarios and we ran the baseline scenario which is kind of what we anchor to i mean we did when into the
spk_2: i'll be in our day when we did been a little heavier on a downside scenario to develop that day one just because of all the uncertainty in a movie did you know factored in unpacked the militant different things like that and so did i think that the good data point and a out we see things clear up i think that will get pick and pressure off of us to feel like
spk_5: we have to maintain the for levels
spk_11: now
spk_36: and then where i am not really don't like there's not a not a lot of fall
spk_2: need for a provision almost period and hundred now but where where do you see net charge offs trusting and and when would that be that sort of second half of twenty twenty
spk_5: peak how are you guys think about that
spk_37: yeah got i think
spk_38: get some probably coming what some of the not a cruel thier facilities that we have we got
spk_0: reserves again
spk_39: those names that i think will
spk_40: float through so i did gonna be right now i feel frightened because the concentrated the first half the year first quarter we'll probably have a slightly elevated charge off and just from what i can see maybe
spk_41: beating a little bit more in the second quarter
spk_42: who can then i mean i guess weren't given the your your offs are you're basically zero what the room
spk_41: read or write to think about
spk_2: well you know i wouldn't say based on what are curb provisioning levels are which that we did what five million for foreigner toward a half million dollars in the in the fourth quarter it's probably at that about that level maybe hire where you have a lower but what i can see today you know so yeah makes sense okay great thank you
spk_41: thank god the next question come from brian martin group tranny please go ahead
spk_2: a good afternoon good afternoon brian just a couple of years he wants her majesty is gone back to credit for one but for jolly good defender
spk_43: the criticized level will with your any material chain their in the quarter john and on that
spk_42: yeah we did see actually a couple of things we did see an increase in the criticized levels of things moved out of the the standard car category and actually upwards and we did have some of the names that as we divert it
spk_11: did some different room actively moving grades downward as well so we have a fair amount that i'm gonna migrated into that category but
spk_2: it kind of just what you would expect out of appropriate reading with respect to deferrals and you know the activity we're seeing related to go covert okay perfect and and then just left to japan maybe from mark or whomever been done kind of the capital deployment in and a talk about the by back to a commentary at all on your your model being in organic and emanate kind of emanate discussion today or just how how activity is on that front for you guys today activity that is okay and we know out there are ample bank so to like it was important to to reach out to give him the change and and leadership were bad but they're just relational know i i do or mean obviously you can see there are more acquisitions being an hour then so feel like the markets beginning to open up and that we'd love to think that wicked an l something and twenty twenty one i have our time imagining that or whatever and with find something that would close that quickly but job no it's always been part of our strategy and more continue to be part of strategy on ago for basis
spk_44: that to okay i and then just made me laugh
spk_45: the cut alone pipeline and i get that maybe people like me benefit because they have any comic an epic kind of i know your goal i get kind of the stated goal that is kind of where the pipeline are today a relative to their with they have bet your let quarter to
spk_2: yeah the i'd like to down the mormons a pipeline is remained that an all time record
spk_5: that at a positive consumer is pretty darn flat
spk_2: to where one of the time last year it didn't have received more approach the commercial flight while down from where we were at the in didn't killer to order in off when you look at things on a year with your bases in confined quarters but the onto that's why build comfortable with the know where we would be heading in the first quarter and we track a little bit earlier pipeline
spk_46: in the commercial be his to or did to give him more forward looking that really pipeline a remedial them
spk_2: the really high level score so
spk_0: the the pull through and to get the structure correct at it again and find out that and i i get a bit photo by the by myth that i don't
spk_2: yeah you know you might want to look at why page ninety you'll see in the bottom right hand side get the commercial
spk_1: on up on the consumer portfolio in our he locks i think that we know the utilization on the computer or phone down to forty two percent in historical your high forty eight

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