Mercantile Bank Corporation

Q4 2021 Earnings Conference Call


spk_0: the morning and welcome to the mercantile think corporation fourth quarter twenty twenty one earning result conference call all parts of the movie in with the only length should you need assistance please sigmoid conference specialist preference for key followed both a room after today's presentation there will be an opportunity to ask question to ask a question you hit a story than one on your telephone keypad to withdraw your question or stolen to please note this event is being recorded i would know that were the conference over the cake prof whale part investor relations create go ahead
spk_1: good morning everyone and think it would join doing work and helping operation conference call and webcast to the company's financial results for the fourth quarter twenty twenty one twenty me today are members of morgantown management team including fuck minsky president and chief executive officer for christmas executive vice president and chief financial officer related keep operating officer and president of the bank will begin the car with management prepared remarks and presentation to view the players results then open call up for question before turning the cobra management is my responsibility to inform you that this call may involve certain forward looking statements such as production the revenues earning and capital structure as well as statement on the plans and a justice of the company says the company's actual results could differ materially from any for looking statements made today did it affect you described in the company's latest theories and exchange commission filings the company soon no obligation to update any forward looking statements me during the pile if anyone do not already have a copy of the fourth quarter twenty twenty one press release and presentation that issued by mercantile today you can access it at the company's website www dot most bank dot com at this time i would like to turn the call over to mercantile president and chief executive officer but kaminsky
spk_2: the boy everyone the a cure for join your car today or company strong fourth quarter rounded out there was an excellent year i laid by steady upward in for all it's continued organic logo and very phone app a quality metrics or result and twice what a little based on the ford foundation that we have built and driven by a relentless because our children our clients and committee at the i love it we accomplish this by any value as a trusted advisor to our customers look at our in the order to deliver an exceptional service to our customers building relationships and deeply the earth regime of our markets or for for and for your toy performance reflects the country successful that approach we weren't for the or net income okay point three million dollars or seventy four cents per share for the for your toy twenty one that income told that the nine million dollars eight thirty three point seven percent increase over twenty twenty or is for sure we're three dogs and sixty nine cents an increase of more than thirty six point two percent from the per year excluding the your an initial funding information formation of the look at bank own nation as a new vehicle for charitable giving a of vestments fps would have grown to ninety four cents per share in the fourth quarter and readers in a license for the or your toy twenty one we also announced today the declaration of a vivid and of thirty one them for share for the first quarter twenty twenty two a chuckle provide you detail comments on or for your toy twenty one and the poor poor performance including more power revenue expenses and capital position we believe a key differentiator for mercantile is or level of sustain organic low road polo the three point four five billion dollars or up eight percent year over year as we continue to build are new and existing markets by adding talented and market lenders to make them i go organic commercial old girl excluding paycheck protection program laws as a nothing short of stellar up an annualised forty seven percent in the fourth quarter and twenty percent and twenty twenty one compared to the prior year ray will provide you with a court date on the performance of a loan portfolio but a short based on the strength of our thing health of our customers businesses and the five or alone headlines we expect to continue demonstrate strong organic commercial one girl wrote it appears or really we took steps them or quarter to bolster our capital position issue in seventy five million dollars of subordinated notes that will provide support for the stuff for the strong long demand we're expecting importantly organic growth is coming from all of our mortgage led by the grand rapids the west michigan region we are confident that our ability to continue our success given the trends and i'll look for primary mission markets where the economy and rules the condition continue to be healthy are ongoing focus on proper underwriting and pokery with commercial bowers with proven business acumen is reflected in our exceptional affleck quality as we continue to report low levels of path to loans and nonperforming efforts well for the game to see excellent results with a residential mortgage function a mortgage banking income told six point nine million dollars for the fourth quarter and thirty billion dollars for the full year the success as possible because of our ongoing strategic initiatives to increase market share with the growing focus on the purchase and purchase financing as opposed to the refinance market our team continues to build our robust pipeline and maintain strong by and despite seasonality in the winter months we continue to position are marked ourselves for greater mortgage banking production and this extraordinary how the market as evidenced by our strategic fires of lenders and new office openings in cincinnati oh
spk_3: ohio
spk_4: and middle and epitaph the michigan
spk_2: bob already begun income is a large component of are not interest income we are pleased with the growth in all all other key fee income category during the year including our commercial loan interest rates while program interest and introduced and late twenty twenty real provide more color on this than his comments and i touched on earlier or launch of them look at debate foundation during the fourth quarter impacted expenses for the quarter and the year ended december thirty first y twenty one worker dollars strongly committed to sound environmental social and governance practices and our foundation on able to better supporter or could all communities and the markets we serve the labels of to more consistently distribute grants and other investments in the committee's over time enabling the company to more efficiently and effectively allocate on the into the foundation in closing or operating performance and twenty twenty one illustrate the effectiveness of our strategic initiatives or entrepreneur focus and our culture have the right towel and strategies employees to continue to deliver high level performance including steady profitability and a commitment to excellence were extremely proud the efforts from our mercantile team throughout the entire year and remain focused on the country are continuing to deliver exceptional financial results serving our existing and future clients support our communities and reward our shareholders if my introductory remarks about from the call over the right
spk_5: i but today or or commercial for around three topics and evidence in the twenty twenty one year and results strong core commercial long road strategic growth and sustainable manner interesting from instability in operational efficiency first call commercial long road from for former we're report in court martial on growth of one hundred eighty four million dollars representing a twenty seven percent annualized rate room for your core commercial growth is four hundred eighty two million dollars representing an increase of twenty percent this group is been possible due to the efforts of a commercial you and focus on relationship building and the business community bank value proposition the pandemic of the ppp program give us an opportunity to prove an action what we have marketed in cancer namely that would compel as capability and technology to serve them along with time with local decision making and exceptional service we ponder stand first program and recognition of the fact of the strong local growth and quarters roma careful support or backlog remains consistent with protrusions as we found this impressive level of corn growth but currently strategic growth and sustainable man interesting during twenty twenty one ported managers income of fifty five point two million dollars method game on a branch sale compared to forty five point two million dollars last year an increase of twenty two percent and turned nine hours a remake the case of this is sustainable performance swap income account for six million dollars on the ground and swat program was to me customer demand for for streets without taking on the balance sheet risk of a conventional fixed rate which is very important margins the inability in the present from or trimmed of funding has been nearly fifty percent fixed over a long period of time and we do not expect the mix change meaningfully or mortgage banking income was relatively flat for the year increasing than six million dollars or two percent over the prior year that are to go production from a hundred and sixty four million dollars last year nine hundred and fifty two million dollars wish the case for sustainability in this business disappointed by the fact that last years by represented a mix of thirty four percent purchase activity to sixty six percent refinance activity or the protein your max is fifty two percent to forty eight percent split between purchase and refinance activity and of course purchase activities for a more sustainable the rich man's activity what's or but important contributors to than an interesting composure by the role of service charges not accounts and credit and debit card and income which increased by eleven percent and twenty six percent respectively for the year refer reflecting growth in the number of relationship served as well as increased activity within the accounts as he kevin he recovers from the pandemic and some that interesting comment a twenty percent total revenue for fiscal twenty twenty one up from twenty three percent in the prior year as income from swat debit and credit cards and service charges overshadow relatively flat income for more than jacob it is compared to the prior year final topic of my comments relates to stability and operational efficiency and disinflationary where are you today we're reporting enough efficiency ratio fifty nine point three percent when adjusted to exclude the impact of the foundation expense compared to fifty eight point nine percent for the comparable period last you are consistent spending and technology own of years of served as well on our customers to utilize numerous digital channels as alternatives to visiting a branch and providing the ability to real reality resources toward further enhancements to an already up to date digital platform it is worth noting that during this period of robots loan and then interest income growth or f t increased by only six from the prior year to a total of six hundred and twenty so that concludes my college now turn the college or like trade as noted on flights twenty five the for the we're not not a comet beloved point six million dollars or seventy four cents per diluted share for the fourth quarter of two thousand and twenty one compared to forty point one million or eighty seven cents per diluted share the respective prior period
spk_2: net income for the for your two thousand twenty one full of fifty nine million dollars or three dollars and sixty nine cents per diluted share compared to forty four point one million dollars for two dollars and seventy one cents per diluted share for twenty twenty
spk_5: costs related to the initial funding and formation of the mercantile be foundation degrees that a calm during the fourth quarter of two thousand to one and both year two thousand and twenty one by approximately three point two million dollars or twenty cents per diluted share excluding the costs diluted or a for share increase the
spk_2: insects or eight percent for the fourth quarter of two thousand to one and one dollar eighty cents for over forty three percent for the full year two thousand twenty one compared with respected twenty twenty periods
spk_5: to five twenty six interesting come on loan three the three it's on one two thousand to one period declined from the respective prior year period
spk_2: as lower ppp loan the accretion and a lower interest rate environment of that growth in core commercial loans and residential mortgage loans
spk_5: interesting come on securities in the fourth quarter of two thousand and twenty one was forty four percent higher compared to the same period twenty twenty in large part reflecting growth in a secure his portfolio over the past four months to meet internal policy guidelines and play a portion of the absolutely liquid funds position
spk_6: the carried interest income common the for your two thousand to one increased about seven percent from twenty twenty if accelerated the discount accretion on call us government aid of coupons and twenty twenty is excluded in total interesting called for the most recent quarter decreases your point six million dollars from the fourth quarter of
spk_2: twenty twenty and went down four point eight million dollars for the full year two thousand to one as compared to four year twenty twenty
spk_5: interest expense the decline remain to be unchanged and virtually all categories during two thousand to one period compared to the prior year period with the reductions reflecting the low interest rate barb in total interest expense declined one point three million dollars during the fourth quarter of two thousand to one compared to the fourth quarter of twenty twenty and without six point six million dollars between the full years or twenty twenty one and twenty twenty
spk_2: that interesting cause they treated zero point seven million dollars for the court or of two thousand and two one compared to the for score of twenty twenty and went up one point eight million dollars for the full year of twenty twenty one compared to the prior year
spk_5: we recorded a negative provision expressed the three point four million dollars for the fourth quarter twenty twenty one compared to provision expense of two point five million dollars for the prayer fourth quarter for all of two thousand and twenty one recorded a negative provision expensive four point three million dollars contract compared to provision expense of fourteen point one million dollars in twenty one it the negative provision expense recorded during the twenty twenty one target made me reflect reduced allocation associated with the economic and business conditions environmental factor
spk_6: if they've been improvement and both current and forecasted economic conditions
spk_2: and recording of that low recoveries which more than offset required reserve allocation necessitated by that growth and core commercial loans the economic and business conditions environmental factor was upgraded during both the second and fourth quarters of two thousand twenty one resulted in aggregate reserve balance reduction of approximately seven point three million dollars not long recovery full of one point three million dollars for the fourth quarter of two thousand and twenty one and one point seven million dollars for the or year
spk_5: the relatively large provision expense recorder during point twenty five gotta reflected the distress tradition way to the corona virus pandemic included two separate downgrade of the economic and business conditions environmental factor the introduction of the called with eighteen pandemic environmental factor to address the unique challenges and uncertainties resulting from the had done it and certainly commercial loan downgrade we're likely to postpone the adoption of cecil until january one of twenty twenty two based on preliminary results without bail them for methodology will be about five million to six million dollars lower than average or balance as of your and twenty twenty one as determined using the incurred loss methodology the difference measure between six point five million dollars and seven million dollars as of the previous two quarter and the primary difference between the two reserve bottles over the last few quarters is related economic forecasts as part of the calculation under cecil employed economic forecasts has shown significant improvement under the current model our view of economic and business conditions is generally positive in improving but less so than what is reflected in market economic forecasts it's in a landslide twenty eight as enough in late december and reference earlier or big made an initial four million dollar contribution to the newly formed the mercantile being foundation excluding it's contribution overhead costs during the fourth quarter of two thousand twenty one a priest three point four million dollars when compared to the fourth quarter your last year while increasing eight point three million dollars for the all your two thousand and twenty one prepare to for year twenty twenty if the nick a significant portion of the increases were recorded in the salaries and benefits line item
spk_6: salary increase two point four million dollars and all of two thousand and twenty one compared go to twenty twenty primary to reflect the annual merit and market adjustments along the promotions in regard to the bone is programmed we expense four point five million dollars in two thousand and twenty one to go to three point two million dollars
spk_5: twenty twenty reflected a strong year of operating results during the first three quarters of twenty twenty one we had expense zero point eight million dollars each quarter based on a lower bonus the right that of cruel was increased to two point one million dollars in the fourth quarter to reflect action result and final call his calculations as determined by the compensation committee in regard to the stock based compensation programs we expect three point eight billion dollars in two thousand forty one compared to two point three million dollars and twenty twenty during the first three quarters of two thousand and twenty one we had exposed to zero point six million dollars each quarter
spk_2: that a cool with increased to two million dollars in the fourth quarter to reflect right side in adjustments to the from performance based restricted stock awards taken into account actual two thousand twenty one operating results and updated two thousand and twenty two and two thousand and twenty three forecasts
spk_6: we recorded a one point one million dollar increase in health insurance costs related to increase to get claims of two thousand and twenty one compared to twenty twenty primarily reflecting services associated with krona buyers
spk_2: we also recorded in aggregate zero point nine million dollar increase and liability and as the insurance costs as far as two thousand and twenty two overhead costs we are currently projected a quarterly run rate of between twenty six million and twenty seven million dollars
spk_5: it's in iran slide twenty nine or net interest margin was two point seven four percent during the fourth quarter of two thousand and twenty one of three basis points from the third quarter and within the range of two points other one percent to two point seven seven percent for the four quarters of two thousand and twenty one but from the three percent level the during the fourth quarter of twenty twenty
spk_6: compared to the year ago fourth quarter you learn early enough that features forty three betas point while the corporate bonds decline seventeen basis points
spk_5: are you about loans has been relatively consistent over the past six quarters except there in the fourth quarter of twenty twenty when we recorded larger than typical ppp be income accretion
spk_6: if we refer back to slide twenty four
spk_5: that ppp be a a ship two point three million dollars from the fourth quarter was down from he called the average of about two point eight million dollars during the first three quarters of twenty twenty one and well below the five point four million dollars recorded during the fourth quarter of twenty twenty as the buren twenty twenty one on recognized not ppp fee income total one million dollars virtually all of which is related to ppp round number two on these assuming ppp forgiveness friends remain unchanged we expect the large majority of remaining on recognize net ppp being gone to we recorded a calm during the first quarter twenty twenty two armitage editor marjorie continues to be negatively affected by significant volume of excess of beyond shit liquidity effected by low you'll be the pagans with a federal reserve baker chicago
spk_6: the accepts fund our product of increase with the positive which are primarily a product of federal government stimulus program as well as lower business and consumer investing and spending
spk_5: total local the positive sweet balances increased seven hundred and seventy four million dollars or twenty two percent three two thousand and twenty one and or up one point six billion dollars or sixty percent since year and two thousand and nineteen
spk_2: almost one half of the growth and local the pop from zero two thousand and nineteen is comprised of increase managers very checking account failed
spk_5: overnight the positives average seven hundred and thirty eight million dollars or the fourth quarter and six hundred and seventy one million dollars or it all of two thousand and twenty one substantially higher than archetypical average bounced around seventy five million dollars this excess liquidity lowered our net interest margin during the fourth quarter and all of two thousand and twenty one by about forty to forty five basis points while they expect the level of access overnight fun to decline in might have continued long girl and hotel and maturity we expect the level of overnight the pub the elevated well into the or the about future
spk_6: given the asset sensitive nature of our belushi any increases the short term interest rates would have a positive impact on another just margin and that interesting cause
spk_5: we remain in a strong and walk of life the for chapel dish our and the base to one leverage cavalry shall continue to be affected by the ppp local polio and i thought the quantity although there is no similar impact on the tourists beach capital ratios as both components are fighting zero percent risk way both archer one beverage gallery show in our refers cavalry should have also been impacted by the strong core commercial long rolled over the past summer quarters
spk_6: or total risk base camp or racial and all of our banks were the tory cavalry shows were amended in december with our seventy five million dollar issue and of subordinated notes of with the bathroom during the funds were downstream the bank as a capital injection and as you might have seen last friday we clothes on and on fifteen billion dollars you and all of which was provided to the bank
spk_5: as if euro two thousand twenty one are totally spaced capital was forty percent compared to twelve point five percent as of september thirty two thousand and two one
spk_2: our based photo respects gallery show was one hundred and forty seven million dollars above the minimum threshold to be categorized as well capitalized a year and two thousand and twenty one
spk_5: we repurchased about forty seven thousand shares for one point six million dollars at a weighted average cost of thirty three dollars and thirty five cents per share during the fourth quarter of two thousand twenty one bringing about a year to date total up to about six hundred and eighty three thousand shares for twenty one point four million dollars at a weighted average call for thirty one dollars and twenty nine cents per share a year to a weighted average cost equate to about one hundred and twenty five percent of average tangible book bag
spk_6: as if you're and two thousand twenty one we have six point eight million dollars available in our reports about were given the recent stock price and prospects for additional dollar loan girl we do not plan to repurchase additional shares at least in the near term
spk_5: a cozy we are very pleased with are operating results for all of two thousand twenty one and financial condition of the around and believe we are well positioned to continue to navigate through the unprecedented economic environment greeted by the throat kroner virus pandemic and other events those are my prepared remarks about from the call back over the but
spk_2: they be just like will close measures presentation on all the call to questions and answers
spk_0: now bigger question and answer session to ask a question and they pressed star that work on your telephone keypad if you're a fan of your headset before pressing a king to withdraw your question authority to at the time will pass momentarily to assemble the roster that our first question will come from all of a percent like please go ahead
spk_7: hegemonic area
spk_8: for bridge and good to you
spk_5: if the the start off here on the side of things and i think ten given the the corner guide you you provided that kind of implies roughly one hundred and six million dollars of a full your costs that their the midpoint of that range which i think will be pretty much flat with their record sensible you guys
spk_7: put up and twenty twenty one is given august one inflationary environment and to with from the get a pretty good revenue opportunity environment for you folks you have you guys can keep a lid on costs and twenty twenty two and hold the flat there
spk_5: the couple things going on and i think you're right for some a little bit with are operating efficiency and our ability to continue to grow the company without a growing corresponding growth in our operating environment
spk_6: a part of that is we have excess capacity them are utilizing
spk_2: i think it's also very important point and rail for brought this up his we have always stay very current on technology ah so why we definitely increase our technology spend every year or there's nothing outsize year over year in doing that approach so please about that i think another part of our years we are expecting a reduction in mortgage banking and with that will cause a reduction in associated on
spk_9: commission expense
spk_7: that that's helpful commentary and in one more for me just turning to the longer recommend typically i think of mercantile his had upper single digit growth on average but obviously with the a much different environment you're cute feeling better opportunities here as shown by two
spk_5: percent correlate with this year for his help of side up how you think about the potential for from loan growth in twenty twenty two this is ray and be the potential is that is is pretty robust is our backlog had not fallen off appreciably as we find it all this growth enjoy that the think about the caviar your asset sales and business sales by our customers which shirt can offset the road
spk_10: but the news
spk_5: are well positioned to to continue to grow into the future in the have a number of relationships that are moving from prospects dad is to customers that is our customers or i continued to do well in their business and and i also think that the inflationary environment will lead to our customers carrying higher levels of receivables an inventory which will lead to higher funding needs from the back so i think all those factors together makers fairly polish on the gross level and mean that level depends a lot on
spk_10: which businesses sell or wrong
spk_5: you know reduce loan balances from some those nine control factors that we face everyday the year
spk_2: they were know at what reflexes the of the success of the relationship building that we continue to do in the during the pandemic when there was a lot of distraction with focus are being shifted to rod that around to pee pee pee helping customer navigate the some of their challenges but our are came in canada prospect of a list of of of businesses that they wanted to bring our border mercantile in some cases with talked about previously were able to help both prospects for their ppp long that i built for the good well and so what's your say now with pipelines as rate that that continued to be reply there is just the the effect of that with as new lending intel to our team that that is opening a new doors or us in terms of of other opportunities in the community that that a week hadn't had previous oh your were so all at together really up make us feel very confident about the ability to continue the robot long road of and twenty twenty two
spk_5: i prefer to thank you for taking questions
spk_11: back when it
spk_0: that question comes from fame at the heart of kbw you please go ahead
spk_12: a more guys have already done well today
spk_13: ah no our electorate
spk_12: great great so our first question on just kind of closed loop on the the long growth outlook of in are you company that you can keep a double digit pace i know the score this year twenty percent x p p p and and raise you know you said it's very robust outlook but i mean i you did you like something in the like tend to twelve percent range or you think you could repeat something like you saw sire this past year
spk_6: it is a struggle take a swing at it
spk_5: for less
spk_2: that guy think you're my put his stamp wayward a pretty high single digits
spk_14: i think is raymond said the one wow heart goes out there is a off was told that we encourage as part of our your loan portfolio administration or as we don't we see from time to time the selling of the business selling of the ah the underlying collateral oh that stuff that's one it's always difficult to predict
spk_6: of basically
spk_5: it it's impossible to predict with any degree of accuracy
spk_12: your the pipeline's remain very strong answer me indicative of ongoing grow it ah but we also want to be at least from put thursday and point do i take into account the arctic the unknown but expected pay off
spk_2: that against the top of thanks and on part of the up or that the the that situation when the type of lending that we do that time is everything and relationships maybe rise the bag in terms of the funding of those opportunities may vary from korea the car quarter to quarter you have a bunch of so finding than some other quarters that there's a lack felt i think overall with felt really good about the ability to do those high single digits in the way of growth is a suggest suggested but retained record a corridor cabbage and choppiness
spk_12: by the end though the long haul i think out the staying growth as what will continue to demonstrate yeah i appreciate the color on and then with regard to like kind of the poor margin chalk on to the how can walk as through that like
spk_6: and know me to the dollar amount think and the the ppp impact buccaneers go back through like that the ppp impact on the on the margin as well as the drag from the liquidity yeah i think gun yeah from a margin that if a loaded question you got there a little up as the a lot of different the for tentacles to it
spk_2: you know we we we give the the information about the tpp we got a million dollars remain he left than that
spk_6: your i expect a vast majority of the remaining ppp find either be paid off for the fee and can be fully a treated by them in this quarter so it will get a million dollars our that mostly in the first quarter so that will be yeah i hope to this quarter the first quarter here
spk_5: the actress liquidity oh it's all about of african you live that efforts liquidity ah
spk_2: the others that we have we expect some deposit movements are within their ah we're doubt we live in our whole cell phones run off hello that they measured approach fragile throughout the year
spk_5: so that will take some time are we just talk about long road certainly we've loved is oliver excess liquidity for longer than we do need to be followed low growth but hard to tell that exactly from that saw it i get everybody can put their countless the korea's what they want to say or how far down those are active the political by the end of the year when make up your a majority of it will be gone by the end of the year on but it will be gradual given our latter approach to wholesale funding and are i'm going longer all throughout the year you know obviously it looks like the federal reserve is going to start regime the short term interest rates were dublin out that a bank if nothing else and their nine hundred million dollars and but at that will have our course of the expectation was that would we prices they choose on that of their to change by federal funds rate
spk_6: you know from a commercial standpoint commercial stamp what which course dominate their balance sheets
spk_2: just under three billion dollars at the end of the year about thirty five percent of that is floating rate
spk_5: either tied to with thirty day live or or wall street journal prime the course no reason so for superpower
spk_6: ah for thirty five percent of that
spk_5: we do have floors
spk_15: that obviously helped us during when rates are going down but of course will result in some way as rates go up
spk_5: the government data here for you about half the that floaty rate portfolio of a little over eight hundred million dollars will reprise immediately with any change after the first forty five basis points are we got to about seventy percent of our floating rate portfolio
spk_6: after fifty basis points we get about eighty percent after seventy five basis points rough about ninety percent and then the rest falls and after that so a little bit of a leg especially with that first one and maybe the second one
spk_15: but are low profile gets into a fully price or almost fully repricing are stamped way not too far down the road
spk_5: to that we have been a bit there
spk_6: our security for bowlers pretty much latter out of maturity basis i will see where that goes over the years
spk_2: for the next big question comes is the deposit rates and your courses always unknown was gonna how the bacon industry and are enough to specifically our competitors are going to react to increase in interest rates on your rates are incredibly low right now and the deposit side they have been for quite awhile
spk_5: i think for the most part of the partners are pretty much indifferent i would say that is especially true oh for interest rate checking account and savings account
spk_2: the your rates are very very low even if you're raise them and fifteen even twenty five basis points or it's not overly noticeable
spk_5: so my fit my guess would be and those are to deposits there will be a lag increase in interest rates their i'm a fake it be more susceptible to increase rates when you look at money market rates and then you're offered city rates
spk_6: i think the one backdrop that we have this time which is unique is the incredible amount of liquidity that natalie mercantile has put the industry has and i would say most bake sale on years two reasons why rates go up and down one officer you deposit rates go up or down what is the interest rate by minutes south of the other demand and a clearly
spk_5: list of features or mercantile but again i think this is most banks we don't have a huge lead to go out there any time soon and raise additional the past on long drawn out of he said that we are still trying to raise the pilots we know that it's efforts liquidity is relatively short term in nature on we expect our long road to be solid as we move forward and we want to continue to grow or deposits that a big part of our money in approach and trying to drive our low growth was see and i and owner occupied opportunity those are the ones that are bringing the deposits that's also of course important for liquidity result of very very important for the income initial at that rate talked about whether it's treasury income payroll card income flop income all those things are really relying on us continuing to grow our tonight book and bring it in those deposits so we shouldn't expect some the powerful drug and what the puck drop off from from those activities ah but your if we just the rates going up which it looks like we're going to i think that least initially a deposit increases will be you did by the position that we're all in ah but that's yeah that's just my guess my expectations we'll just see i think part of it has to depend on the the magnitude and the timing of what effect does if you are they very very aggressive the box which some people are starting to just or is it more of just a gradual your one twenty or twenty five base when increased each quarter or which maybe we'll grab the attention of the password as much as of about as much more aggressive than that
spk_6: so i think that's probably daemon i said the great question it's one that i it we scratch or has more try to put together at the how that's going to come out though i don't need to be amazed that but
spk_12: there's a lot of unknowns there and i would say probably the most unknown is that a pop those like good color thank you are analogous to lastly and that could quickly on the not interesting come on know if you've as he made an investment in mortgage banking talk about the and the know the focus on did purchase mockingbird the believe by that had been eating than one that i'm in albany inspecting the material pullback for me
spk_6: this year's result of you know and he can give a little perspective on what you were you think he has to do and twenty five future
spk_2: better than him and i'm from a buyer's the employ just more production were perpetrated about twenty five percent decline ah that's all made up of refund yeah we actually expect for two weeks back we bring me down more than twenty five percent will respect our purchases to be up to mitigate that to some degree or but overall it twenty five percent reduction in by of our also rejected weren't we we haven't been some a reduction in the game rape the option of the market after the be a little bit of a had when associated with that one arm certainly will continue to endeavor to try to as much of our product has be an arm historically and even currently are we basically fell fixing keep floating on i'm sure you've seen that our on bail she bounces have been going up and residential mortgage loan and that is something that were taken a pretty strong look at right now on do we want to start selling a rate mortgages are that the question that we have that were asking ourselves that would you already have forty rate are sellable into secondary market is just been our approach to keep tabs on the belt cheap
spk_12: but that's just part of our ongoing analysis of our balance sheet the the composition of the won't to be as well as our goals in regards to mortgage income
spk_16: that others are thought to have been also limit
spk_0: they were welcome again if you would like to ask a question but door that one
spk_17: and on that question will come from female to of avoid in jail
spk_18: go ahead the more you guys ages the just a touch on the the swap been going and and he talked about it earlier in the in the her comments but why does he gets i missed it what were your expectations going forward and know the m the of that lower abs are of
spk_2: but he didn't you know if with you end up in a rising rate environment which is like really where do you see that and gonna run rate or for swap between for thing
spk_6: yeah there was a shocker another difficult for cancer
spk_2: but some the i think one thing that do want to highlight is that twenty twenty one of that that the a very strong
spk_5: he come on flat for us and we've we've we've we are introduced the just a little over a year ago i think from of course the of way with a really good about the fact that this is going to be an ongoing product for us ah we're certainly going to want to push the product on those customers at lot longer term fixed rate financing bomb and the lenders are doing a really good job of of by expressing that desire out on their calls and in their current efforts are so you're gonna regard and you certainly would rate changed will be some impact on flop activity but we do expect that this to be a core part of our offering on a commercial side one of the things that benefit from two thousand twenty one
spk_6: is that some alone that we put into the slot program or refinances of existing fixed rate loan
spk_5: and virtually all of our fixed rate loan have became a few out and in those cases in this is especially true in the third quarter or we did a handful of loans that winning the thought program that had repayment be a basically the customer can go ahead and pay those speeds in cash
spk_6: which is how you feel typically quarter prepayments the or we've allowed them to roll that prepayment be into the software basically embed that the into the rate that were glued on the swap and as a vast majority cases they the like to do the latter ah
spk_2: the one that doesn't feel it gives us you're were going to caught with be one way or the other it's just a matter to be recorded an interesting come loan to they pay in cash
spk_5: or is again reported in the spot be if they have better in the spot so one where the other that she's going to show up we're talking about flat be used on you youtube we buy you a little bit on for the buddies or prepayment these new our budget of what not to the degree that we saw last year
spk_19: so i think if you cut it if you can extrapolate that third quarter our little bit
spk_18: for my comments i think they'll give you what we think will be a pretty good run rate for this product as we move forward okay great thank you and i finally just i know credit quality
spk_17: the reserves continue to come down you've talked about
spk_18: the a covert environmental factor
spk_2: how much of that is die yet i think he he talked about it but he just and remind me how much of the covert environmental factor is remaining in and i mean what kind of impact at that may have on where reserves land as we as get through can't be and of ever get back to normal face here yeah sure so we introduce the colbert back in two thousand and i think all banks did it in various ways that they did it with within newer models and are we to simply edited is another environmental factor is included in our current model and it's also included in our super model exactly the same way to the impact of the same
spk_5: i'm like all base because the you're really strong as a quality food the great recession
spk_2: a significant portion of reserve balances are supported by environmental measures because the bait last rates are relatively low given the low level of charges you over last decade or so
spk_5: i'm so did you fly in our in our fourth quarter even our second quarter is when we do it when we do change and environmental don't have a relatively large impact on on always bill the the covert itself on a little over six million dollars is the current impact were reserve on we have never been as we introduce that are we have not change that that really even if you will have it's at it's highest rates of their at the ability and probably likelihood knock on wood that were able to start reducing that on i don't think i'll be at all or nothing
spk_2: i think over time we'll probably start like we did economic conditions in two thousand twenty one my expectations that we would start reducing their call that number of as we move forward on i got a quarter by corner bases
spk_20: ha and slowly and hopefully will be that your other we all want that that environmental factor to go away
spk_0: by they go be a gradual approach and not are you an overnighter one quarter approach
spk_2: like them
spk_0: texture that after special effect the time apartment back over to game for the whole thing thank you very much for interested our company we hope by you in your family contains stay healthy and safe will for the speaking with you again in april at the end of the first quarter was called girl thank you

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