Q3 2019 Earnings Call
Good day and welcome to the first merchants Corporation third quarter earnings Conference call. All participants will be in listen only mode. So you need assistance. Please signal conference specialist by pressing the star <unk> followed by zero. After today's presentation, there will be an opportunity to acts questions to actually question. You May Press Star then one on your telephone keypad towards Joy.
A question. Please press Star then too. Please note that this event is being recorded I would now like to turn the conference over to Michael Reckon, President and CEO . Please go ahead Sir.
Thank you Chuck a walk into earnings conference call and webcast for the third quarter ending September Thirtyth 2019, joining me today are Mark Hardwick, our Chief Financial Officer in Chief operating Officer.
John Martin, our Chief Credit Officer.
First merchants released earnings in our press release. This morning at approximately eight o'clock eastern time, and our presentation speaks to material from that release the directions. The point to the webcast were also contained at the backend of the release and my comments begin on page four.
Slide titled Third quarter 2019 highlights.
Four quarters signature event was the legal closing of the acquisition of mineral Bank and Trust MBT financial Corp., which was completed in September . The first 2019, so the third quarter results that all caliber and John and Mark as well capture one month.
Their results within first merchants Corporation.
So the front end of the release then contained several of the detailed financial results, including the company, having earned $36.8 million, a net income or 71 cents per share.
The results include acquisition related expenses totaling 11.2 million or 17 cents per share.
Total asset to the company totaled 12.3 billion and grew by 25.9% over the ended the third quarter 2018.
Our annualized organic loan growth for the quarter was 3.1% in our annualized organic deposit growth, 16.4% I look to speak more about our balance sheet activities near the call then.
The bottom of page four.
Our tangible book value per share of $21. In 26 cents is an annualized 15% increase since the fourth quarter or 2018, Mark's going to walk us through in greater detail the financial results for the quarter. Thanks, Mike and good afternoon, everyone. My portion of the presentation will begin on slide six.
Our total assets on line seven increased by 2.4 billion or 32.9% on an annualized basis.
This year now totaled $12.3 billion.
Total loans online to have increased by 1.1 billion this year or 99, 19.9% on an annualized basis.
Acquired loans totaled 731 million as organic growth totaled 6.4%.
Investments on line, one increased 856 million or nearly 70% and your licensure and due to strong deposit growth and acquired liquidity.
Additionally, online for goodwill and other intangibles increased by 110 million net of amortization due to the purchase of mineral Bank and trust on September 1st of 2019.
The composition of our 8.3 billion dollar loan portfolio shown on the left slot left side of slide seven continues to produce strong yield of 5.28%.
5.15%, excluding fair value.
As the graph on the right illustrates 65% of our loans are variable demonstrating the asset sensitivity of our bank.
Gross portfolio mix is very similar to our core loan portfolio with a slightly larger concentration and owner occupied real estate and mortgage loans and a slightly more fixed rate biased.
On slide eight our investment portfolio has us has a longer than duration than peer duration, which is a good offset to our variable rate loan portfolio.
During the year, we've increased the portfolio to $2.5 billion from 1.6 billion at year end 2018 to deploy excess liquidity entered and to protect the bank against falling interest rates.
As of December 31, 2018, or unrealized loss in the portfolio was $8 million over the first three quarters of 2019 as rates have fallen the unrealized loss has become an unrealized gain of 75.8 million.
On slide nine total deposits increased by 2 billion year to date Monroe Bank and trust accounted for 1.1 billion of the growth while organic deposit growth totaled 905 million or an annualized 15.6%.
Common equity online seven has increased $341 million year to date.
Beyond normal earnings dividends and OCI fluctuation.
The all stock purchase or Monroe Bank and trust increased equity by three <unk> 230 million.
As we repurchased 19 million of stock through the announced share repurchase program in September .
On slide 10 second quarter interest bearing deposit costs totaled 1.33%.
One basis point from the second quarter of 2019.
Worried of 1.32%, we feel that deposit cost of finally peaked and we're looking forward to a full quarter over quarter with Monroe, given their low cost of funds.
Now on slide 11, all regulatory capitals are above the regulatory definition, well capitalized and our internal targets. We believe the strength of our 9.95% tangible common equity ratio and or 14.37% total risk based capital ratio will continue to provide optimal flexibility into the future.
[noise] the corporations net interest margin on slide 12 declined by nine basis points inline with our guidance from last quarter's call. We also suggested that we could continue to grow net interest income despite margin compression through balance sheet growth and we have both organically and through M&A.
Looking ahead, given the addition of an ROE we feel net interest margin will stabilize in the fourth quarter, assuming no further rate cuts. If we do have more reductions in the fed funds rate <unk> rate, which many are predicting our interest rate simulation suggests that we will lose a three to four basis points per 25 basis point cut.
Non interest income on slide 13 increased again this quarter.
The trending customer related fees, a if you total lines one through six is on our as on a very nice trend line and increasing from 16.3 million in Q1 of 19 to 17.7 in Q2 and now totaled 20.1 in the third quarter of 2019.
Non interest expense.
On slide 14 increased during the quarter by 9.7 million merger related expenses accounted for 11.2 million of the increase offset by a net reduction of FDIC expense quarter over quarter of 1.4 million.
Due to a assessment credits issued for meeting the FDIC is target minimum reserve ratio.
On slide 15.
Yes totaled 71 cents for the third quarter as previously stated our merger related expense totaled.
17 cents per share.
And we're also pleased by our sub 50% quarterly efficiency ratio when adjusted for merger related costs.
On slide 16, Oh, we have highlights of our positive trend lines, including tangible book value.
Per share that is over $21 per share post merger.
Slide 17 highlights our dividend trends and our double digit compound annual growth rate of tangible book value per share dating back to 2010, we're proud of our growth and tangible book value per share during this time period.
As or has it also includes eight acquisitions during that timeframe.
Thanks for your attention now John Martin will discuss our loan composition and related asset quality trends.
Alright, Thanks, Mark and good afternoon.
Again, my comments on slide 19 with changes in the long portfolio now review asset quality and the asset quality roll forward.
Cover the allowance and provisioning and then close with some summary remarks.
So turning to slide 19.
In the third quarter the loan portfolio grew $59 million are a little less than 3.1% annualized as Mike mentioned earlier loan production was a little lighter this quarter coming off a strong second quarter that saw the loan portfolio grow at an annualized 12% Ray.
With the exception of CRT non owner occupied loans in AG lending on lines, four and six respectively. All other areas of the portfolio as opposed to increase as.
We've seen strong demand for investment real estate in the secondary market, which has resulted in early payouts and refinancing in the CRT non owner occupied book.
Despite this we continue to see good demand for commercial industrial credit, including owner occupied commercial real estate as well as private banking where portfolio Moger Joe's crew $16 million on line nine.
The M B T loan portfolio contributed $731 million to the balance sheet with a similar composition to the existing loan portfolio and results in total loans at the end of the quarter of $8.3 billion.
And finally on the bottom of the slide our concentration our construction concentrations continue to hover around 50% of risk based capital with the investment real estate concentrations hovering around 220% of risk based capital. These levels give us ample concentration room for real estate growth as a opportunities.
Resent themselves.
Turning to the asset quality on slide 20.
Asset quality remained stable and healthy.
Line, one nonaccrual loans decreased.
In the pre MBT portfolio for the quarter by $8.4 million to 17.2 million.
Or 23 basis points of loans with other real estate owned increasing $5.9 million.
Therefore, nonaccrual loans relationships greater than $1 million at the end of the quarter, which makes for a remaining granular nonperforming loan portfolio.
[noise] with both renegotiated and 90 day delinquent loans down $100000 Npis 90 day past due loans out of line five were down $2.7 million or roughly 11%.
Turning to slide 21, which reconciles the migration of the nonperforming assets, including that changed from the N. B T portfolio. We started the corridor and the column titled Q3, 19, the third column from the right, which excludes MBT loans with $28 million an NPL.
Ladies and 90 day delinquencies.
Summarizing we added $2 million of new nonaccrual loans in the quarter resolved $2.1 million of the same on line three was $6.4 million of new Ori online for from the for closure of a participation as senior living facility.
Stepping down to the other real estate owned changes on line seven through nine where we added $6.4 million.
Nonaccrual loans, we sold $400000 of other real estate and had $100000 I've already write downs.
Which resulted in an increase in Oreo a $5.9 million.
This leaves us with total Npis 90 day delinquent loans of $24.9 million pre Mb cheap.
Sliding over column. We include the impact of the M. B of MBT, where we acquired $5.5 million nonaccrual loans and $100000 of our Ray.
We ended the quarter then with combine NPK is a 90 day delinquent assets of $30.5 million or roughly 37 basis points of total which is roughly 37 basis points a total loans.
Moving to slide 22, which highlights the a triple at all and fair value summary.
We began the quarter with an allowance of $8.3 million or 1.08% of loans in the quarter charge offs exceeded provision expenses expense line, two and three resulting in a decrease in the allowance to $700000 ending the quarter at $80.6 million.
The percentage decline in the allowance to loans from 1.0, a 2.97% is reflected on line eight in correlates to both the addition of the M. B T 731 million dollar loan portfolio and continue and continued improvement in credit quality.
As highlighted on line six what the allowance now covering nonaccrual loans at 355% up from 317% last quarter.
Finally, dropping down to I know and we started the quarter with $25.6 million in fair value adjustments, we booked 18.4 million dollar and fair value adjustments for MBT accreted $2.5 million from.
Our chew up $2.5 million with $200000 of offset charge offs, ending the quarter with $41.3 million in fair value adjustments.
[noise] then summarizing I'm on slide 23, you know we.
Experienced further improvement in credit quality metrics for the quarter, while keeping an eye on what is happening on a regional national and global level.
Yeah, there are number threats to the economy that will keep watching while communicating with our borrowers but for the time being we continue to see low unemployment low inflation and low interest rates, which have made for a stable credit environment.
Third quarter loan growth of 3.1% annualized is coming off of prior quarter at 12% annualized and we continue see loan growth.
With respect to M. B T. I feel we are possession, well to integrate the sales and underwriting teams and view the existing portfolio mix and credit culture is a nice organizational mesh.
And finally, the credit and sales teams are working well together early on with consumer and commercial monitoring and servicing in place for most whatever the economy might bring [noise].
Thank you for your attention and I'll turn the call over to Mike Reckon.
Thank you John .
Since our last call on July the 25th.
We had a legal closing on September the first as we mentioned, we announced a stock buyback program.
We made material advances in our seasonal modeling for implementation next year and we completed the quarter of financial results. So we feel very positive about the results that Mark and John just spoke to and as Mark covered you know, we kind of we're able to outrun the net interest margin pressure to grow net interest income independent of MBT.
We had strength in several fee categories stronger maybe even than the totals that are depicted on page 13, and that bond gains were down and the third quarter and we had a six figure vendor rebates in the second quarter that we had to normalize from our client centric fees in the third quarter really grew nicely.
Service charges wealth management fees gain on sale of mortgages and our customer derivatives sales were all up and while derivative sales are probably leased easy to forecast going forward. The other categories. I mentioned continued strengthen our wealth business our service charges through the use of.
Client facing technology, and our mortgage business clearly look like they're gonna stay strong here in the near term.
Our expense management I think was strong it was highlighted well in the release and then marks comments in all of the opportunity. We saw an expense savings relative to men ROE appear to be there many of which have been realized in some of which will come to us on the back end of.
The current quarters integration activities.
John spoke to the asset quality of both on the overall portfolio really stable and I think actively manage Dan I also feel like as he said we have a great understanding of the new Monroe portfolio that joins ours, both in the mix of it and the asset quality based on the managers that company, who still do their work with us.
So.
Moving to a couple of the other bullet points on page 25.
We like Monroe Bank and trust for several reasons every bit as much as the tail end of last year. When we first talked out loud about it for instance, the raw franchise expansion. We think is a great opportunity for us to move the company a little bit north in a little bit east the funding we've touched on a couple of times.
They have market share that gives them pricing power and it shows itself in their funding costs, which is really attractive for us.
The management additions are really compatible they've got some strength and the way that they ran that business that are going to flow into first merchants were excited about and that speaks somewhat but I'll just explicit more of a supposedly said that there is a cultural fit that we like early on so we're going to get off to a good start there the the integration active.
Devotees themselves next month or its more than data and technology, it's more of the cultural sharing and a lot of training. That's really heavy right now I think thats going to pay off we have a historical capability and doing a nice job with the clients through the integration period, and that's clearly in our playbook for next month and.
Through the balance of the calendar year ending 2020.
The remaining bullet points on the page of somewhat touched on whether it's in the third quarter or not but we need a if we feel like the deposit costs have crested and Ken in fact potentially come down but if another margin can stabilize then with the continued growth of earning assets I look for our net interest income to continue to tick.
Grow a that obviously requires some pricing discipline, we're trying to sharpen our 2020 operating plan, which calls for.
Crisp execution on loan and deposit pricing.
Going to enter the year with I think a terrifically flexible balance sheet lots of liquidity off the capital and asset quality obviously.
Have a pipeline that would suggest we ought to really be inline with our annualized growth targets I was a somewhat surprised to see that we came in at a number of 3% annualized because we closed the auto loan we went into the quarter with a nice pipeline. We continue to have one I would tell you that are.
2 billion dollar 2.1 billion dollar.
See an eye portfolio, we actually had 2% less.
Utilization on so when I think about the number of loans in the the new fundings that when it was offset by our clients not having the same high level of.
Utilization on their committed lines, 2% down as I mentioned.
So we look forward to next year really optimistically that last bullet point on the page speaks to our desire to formalize a what we do across the company against the needs all the communities. We serve as we've got some great ideas there to.
Take our brand in a tangible way out into the marketplace to improve.
The economies that we actively participate in.
So those are my thoughts and Chuck at this point if there are folks on the line for question, we're happy to take them.
All right. We will now begin the question and answer session to actually question. You May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset pressing the keys to withdraw your question. Please press Star then to at this time, we'll pause momentarily to assemble roster.
And our first question will come from Scott Siefers of Sandler O'neil. Please go ahead.
Hi, guys.
Yes, good Scott how are you.
I'm good thank you.
A question maybe marks start out with you if you could walk us through where your rate sensitivity. Stan now I think from my perspective, you know the margin decline, but consistent with what you had said in July and if anything the rate environment got a lot tougher in the interim.
And versus person now so I would've expected if anything worse. So maybe just any changes in your rate sensitivity and then last quarter you had sort of suggested the same three to four basis point hit the from.
Each 25 basis point Cod as you articulated a moment ago, but at the time. It seemed that you might have thought something like five basis points was more realistic I think that was predicated on still deposit pricing pressures feels like you might be a little more confident that three to four now how are you thinking about those dynamics as well.
Yeah, we were anticipating I know, we've we've set our last call that we thought the third quarter margin would be down around 10 basis points and was down nine on a reported basis 10, if you back out fair value.
So we feel good about now the guidance that we had in the third quarter. This is the first time that that we feel like deposit costs have finally peak towards the first time, we're really been confident in that.
As we've had increases in prior quarters of.
12, 16, 14, nine just kind of going back backwards and so it was good.
See our interest expense on interest, earning deposits only up one basis point and that was with Monroe just for one month of the three and they help stabilize our interest expense on deposits even more going forward.
We know that as the prime rate comes down we're we're still asset sensitive not as much as we we were four or five quarters ago. As we have taken some steps primarily in the bond portfolio.
Just extend term.
And they're the assets the loans that we acquired from an ROE are a little more fixed rate than the rest of our balance sheet. So I do feel like instead of it being more like five basis points, a declining rate environment that we'll be able to to.
I have better success on the deposit side and keeps a net interest margin compression more to like three or four basis points.
Okay perfect. That's helpful. Thank you and maybe a more ticky tack one on the purchase accounting benefits expectation.
Going forward.
Nine basis points helped the margin this quarter what would be your best guess as we look into subsequent quarters.
Yeah.
I think.
We have to kind of model led the way it is.
The way.
Current run rate nine or 10 basis points and we have had experience in the path where immediately after an acquisition that seems to ramp up a little.
But nine to 10 basis points I think is still the right guidance and the right modeling.
Perfect and then if I can slip one final one in there the expense base came in quite a bit better than I would've thought another some noise with the FDIC stuff, but maybe or.
So expanded thoughts on exactly what happened that allowed them to stay so low and your outlook going forward.
Yeah, I think if you go back to our second quarter of 19, just excluding Monroe.
And a normalize FDIC expense level. We were we were close to 58 million and when you include Monroe on a go forward basis, we think that Monroe for an entire quarter is more like seven and a half million dollars of expensed.
So we we think if you look at those two together that gets to be closer to what the run rate should be on a go forward basis and yet in the fourth quarter. We've still have some FDIC benefit that will recognize so.
We had an income of 700000 this quarter next quarter, the number should be zero and so.
That will help US again, the fourth quarter and then we get back to it a run rate that is more kind of third quarter, plus the seven and a half million dollars of Monroe expenses.
This particular quarter, we only had Monroe for one month and it was a strong quarter and partially because our acquisition closed a little later than what we traditionally have happened in most announced murders and and we've been able to take out quite a bit of the expense already.
So even though the integration is scheduled for this in the fourth quarter.
Remember, we don't have as much of a benefit to to recognize post merger a lot of that has already been done.
Okay perfect. So it sounds like expenses sort of low 60 millions per quarter going forward on an all in basis.
Yeah, Yeah, we think low to mid Sixtys is kind of the go forward level.
Because of the FDIC <unk> and FDIC will be the biggest variable.
In the fourth quarter, and then again next year as it increases as part of the large bank acquisition costs.
Yeah got it. Thank you very much appreciate the color.
Thanks Scott.
The next question will come from Terry Mcevoy of Stephens. Please go ahead.
Good afternoon, everyone.
Hi, Terry.
Maybe a question on just the liquidity your excess liquidity the loan to deposit ratio went from 90 to 85.
After the closing of the acquisition just what are your thoughts on managing liquidity that loan to deposit ratio over time is 90 closer to the targeted level you'd like to operate at.
Yeah. We think 90 is an optimal level so to operate at and I think we have a nice track record.
Acquisition to acquisition of ramping up the the growth, though the momentum that comes out of each market that we require that ultimately uses the acquisition the liquidity that is on the balance sheet. So.
No we feel great about the position and where we stand today, but.
On an organic basis, our loan growth always exceeds deposit growth, especially over time.
And then just as a follow up you mentioned, you repurchased $19 million of stock in September .
Do you have the just the period and share count I didn't see that never lease I'm just to kind of be helpful. For the fourth quarter shares in our model and then what are your thoughts on additional repurchase activity from here.
Yeah, we and we announced 75 million.
We have seen an uptick in the price the last week or so which is obviously good for shareholders.
And then we're just going to be.
Opportunistic.
As we use the remaining amount of of that.
55 $56 million.
And the period in share count I'll get for you in just a moment.
Yeah, it's in our press release.
On the balance sheet 55 million.
345670 to 95 million 345 672.
Okay. Okay.
Thanks, Mark appreciate it.
Welcome. Thank you.
Our next question will come from Nathan.
Jaffray. Please go ahead.
Hey, guys good afternoon.
Okay.
My curious to get your thoughts on just kind of loan growth outlook from here a little softer production seasonally perhaps your threeq you curious kind of where the pipeline stands if you anticipate any run off.
Being chief.
And if you think last quarter, you kind of talked about some of the disruption in some of them.
So I'm just curious if theres been a hires to date to speak of.
Yeah, let me speak to the dollar volumes first at the front end. Your question. So yeah on in terms of a period end of period end.
Loan growth.
I thought it might have trended a little bit higher our loan closings in the quarter would have supported a higher number in that the pipeline. The commercial pipeline that we headed in the last quarter about $460 million, we had a lot of closings.
In a predominantly in those business lines that stick to our balance sheet like consumer lending and our structured finance group and and traditional commercial banking. We also had a lot of loan closings in a strong mortgage business like most entities that are in residential mortgage.
I mentioned in my earlier remarks to we had line utilization down a couple of percent on $2 billion is about $40 million.
I don't know if that's tariff related I really don't have a good understanding of the borrower by borrower other than it tends to move in a fairly tight number our pipeline going forward is even stronger than the 460 million commercial pipeline, we had a quarter ago, what's actually about $100 million higher 550 million.
In dollars and it's broad based it's in our structured group.
It's in Ohio is in Indianapolis, and so that when I think about Marcus disruption it didnt necessarily manifest itself for us and people ads because I like the team that we have.
It really just plays into more opportunity more chances to share term sheets, and our ideas and while the third quarter might've been a little bit less so than I expected, we're off to a fast October start so any of the annualized numbers in that 6% to 8% range that we use we continue to feel good about it.
Independent of what takes place in mineral we don't know that marketplace like the bankers do that joined US. So there are obviously going to be leading their efforts, taking our hopefully I'll call them through the integration period to let them get used to us, but we clearly have the horsepower to.
Make their growth plans happened and we look again, we'd like to talent level. The bankers that are joining us. So we feel good about it and then client feedback we're getting about their 2020 plan.
It's also upbeat so we're ending the year confident.
Got it that's great color. So it doesn't sound like you're expecting any runoff, perhaps intentional on the a and B T F side of things.
No we really don't John identified some of those specific nonaccrual numbers, which are really quite modest I think there are $5 million, but behind that there are to your point there is not a list of.
Names.
That have an asset quality profile that suggests.
We shouldn't be serving them anymore. So no they're going to <unk>, they're not really starting out at all the yellow light, it's kinda green once we get the integration activities completed.
That's great to hear if I could just ask one more housekeeping question. The tax rate was a little light this quarter Mark fair to expect just go back closer to 17%.
Yeah. We think you know 15 in three quarters. The 16 is there's a little more normal [noise].
Okay, Great I appreciate the color guys.
Thank you.
The next question will come from Kevin Reevey of D.A. Davidson. Please go ahead.
Good afternoon, and how you.
Great Kevin how are you good right so.
First question is a earlier in your prepared remarks, you mentioned that you were going to remain disciplined with respect to pricing.
I'm just curious how comfortable do you feel that you couldn't go loans and be able to you know more than offset margin compression given the competitive environment and paydowns, while still maintaining pricing discipline.
[noise] well I think it's out there Kevin I, when we look at what's coming through our well we call early stage pipeline, where we get to share ideas as to how we think first merchants capital gets deployed inside of our customers. We put a price on it that we think is fair and obviously, we don't when all of those.
Mark mentioned, just a moment ago that historically, our loan growth has been higher than our organic deposit growth in for the most part that's true that last.
12 months might be a little bit different than that because we were taking advantage.
Without an acquisition through 2018 and trying to make sure we fortified our funding and so we did go into some institutional deposits that were expensive.
Relative to our core funding costs.
And now with the addition of.
In ROE the funding cost the resultant loan to deposit ratio that mark cited that 85%. It just allows us to really apply our best a market knowledge on incremental credit and incremental funding.
And then what's your question no. That's that's perfect and I'm, just curious where are you in terms of deposit pricing and your mark to market.
Hi Arena the Lauren.
Currently.
Well.
It you know I got to tell you it differs a little bit market to market in Ohio, we've been on the aggressive aside from a funding cost because our presence there is a newer than it is through large parts of our company in our most mature markets, where we have the greatest pricing power or whether that's a our headquarters and muncie or the new.
Just market in Monroe, we're definitely moving away from a C.D. led pricing, we're trying to keep our attraction points in the money market categories, but trying to be market smart about everything else, if you're asking me our Wi high middleware, although I would say we're in the middle we were.
We're trying to lead the declines down based on the markets, where we have pricing power.
And then lastly, how should we think about quite Oh provisioning and credit cost going forward.
Kevin This is John and I would say that what we've been doing historically about that 600000 to a million dollars. It's been kind of our run rate I think we've said historically about a million a million too, but we've been running the last several core.
There is less than that so our provision expense. That's that's what I would use say 600 demand. The other thing too is with Cecil into next year things are going to change so that.
May have an impact on what your model.
Okay. Thank you very much appreciate it.
Thanks, Kevin.
Our next question will come from Damon Delmonte of KBW. Please go ahead.
Hi, Good afternoon, guys has gone today.
Oh, well Damon thanks.
Great just to kind of follow up on that last question regarding C. So have you guys are.
Finalized your expectations for the increase the loan loss reserve.
You know the third a what we've done thus far I'm Damon has we've gone through an exercise of acquiring the software we built our models.
We are conducting at this point parallel runs.
And really into the fourth quarter were working with a third party to validate our model so really any adjustments to the models.
As a result of the Validators, they're going to happen in the fourth quarter and really be able to give you more clarity into January of next year at this point really don't have.
A number other than to know that.
You know with the acquisition of Monroe, there's going to be $1.4 billion and purchase loans. So.
That are included in the allowance calculation under cease all that is not incurred or excuse me included in the incurred loss method. Today. So we know that the allowance under seasonal obviously will increase its about as much clarity I think that I can give you at this point.
Got it okay. Thank you and then my next question, Mike I think you mentioned that your utilization rates on on seen I loans are down like 2% this quarter.
Any color on what maybe was was the reason for that you know there are there any concerns from your borrowers that you're hearing anecdotally about trends in the economy any concerns about.
The prolonged impacts from the trade or slow down and manufacturing anything anything you could provide on that.
Dan It's all anecdotal when it gets to me and I'm talking about.
No a nearly 2.2 billion dollar aggregation of Cnine lines is right in between 2.1 $2.2 billion and so when it goes down.
2% I don't really get great clarity around it.
[noise], if there's anything that I hear that people need employees and so they are toplines var clients would probably be growing if we had more talent for them to access cash flows are strong and so they've just been relying on us a little bit left for working capital.
Okay. So no no no kind of you know impacts from the <unk> manufacturing sector and Theres been some data points that haven't been as strong as I have in the past.
No I mean, we're logistics center you know a in the Crossroads of America out here in the state of Indiana, and so we have a lot of transportation related industries that has if you read tractor trailer sales have softened a little bit but the commitments. The when I mentioned the denominator of for the utilization.
You know between 2.1 or 2.2 billion ours. That's growing two are seeing eye commitments actually grew $110 million through the quarter. The utilization overall is down.
Got it Okay. That's helpful. I saw that have had everything else was asked and answered. Thank you.
Thank you down.
The next question will come from Brian Martin of Janney Montgomery. Please go ahead.
Hey, good afternoon guys.
Hello, Brian how are you doing good. Thanks. So just a couple from me guys just Mark I go back to buy back for a minute I know you said you opt out to mystic that you can that continue to do some I guess do you intend to use the full authorization or is that kind of subject to the pricing as you mentioned.
Well, we intend to use the full 75 million, there's just been enough price volatility that we're trying to take advantage of some of the low points.
Got you Okay I just wanted a modeling perspective, Okay and then just your comment on the FDIC assessments as zero in Fourq, you and then yes, I guess can you give I guess does it go back to a higher level you know with the large organization and just kind of any any clarity on kind of where that where that how that shapes out.
Yeah, it's been a obviously, there's a lot of volatility we've we were anticipating higher rates in 2020 and now as these assessment credits at some you know it makes for a pretty dramatic change from 19 to 20.
So we we were at a 1.4 billion I'm in the second quarter 1.4 million in the second quarter of expense.
Weve because of the credits it becomes a 700000 dollar benefit to us in the third quarter should be flat in the fourth quarter and then increases.
The next year to a an annualized rate of five five and a half million dollars. So the credits go away and then we have increased pricing.
And so.
Yeah.
Oh, it's a so.
A big swing year over year.
Okay. Okay, just want to make sure I'm clear on that net and that full annualized run rate begins into Q is that how to think about that.
Should begin.
One mostly.
It really one Q.
Yeah.
Okay perfect. That's helpful. Thanks, Mark and just the last two is just maybe one for Mike or whomever just on that kind of M&A I know with mineral closing I know you're still integrating it but just kind of where do you guys stand on your outlook on M&A I guess or there are discussions that are they active <unk> you know more focused on at least in a short term on getting Monroe integrated.
Getting the benefits realized out of that before you progress if there's something else that comes up.
No I would think we would be ready to engage a should a great opportunity take place. So we're not in the middle of anything.
We are focused on the integration we are focused on getting off to a great started you know it's been a protracted closing period in 2019, so were kind to ready I would say the frequency of the conversations is kinda constantly.
It's kind of stable, there's always something taking place in the three or four or five state area that we pay very close attention to we're always feeling like we're having dialogues where they are well intended and a good use of each other's time. So we continue to believe in the power of scaling it would be looking for a franchise how when you.
<unk>.
Okay and would you say you outlook today, Mike is getting over that 10 billion larger deals versus smaller or no.
Oh.
No preference at this point just.
Well I think you have to move you're targeting up a little bit for the magnitude of the effort that goes into it and so if you think about the last handful of companies that have joined first merchants. We've had a couple of smallish ones, you know well beneath a half a billion dollars I don't see those as being a great fits for us at this point, but.
Certainly companies the size of men Roe or more sizeable we clearly feel like we have the capital for in the capability to execute against so probably to answer your question more succinctly, probably moving our appetite up a little bit.
Got you, Okay and last one Mark was just on your commentary I appreciate the commentary on the margin just see if we assume there's you know I know you're initially talked about maybe maybe being stable with no rate cuts, but if you Wanna get three cuts in their fair to just think about you know that cuts impacting as you go.
Forward equal amounts and they wouldn't decline. So if you do assume three it means the next three meetings you'd be looking to see the margin be.
Nine to 10 call it 10 basis points lower than where it sits today on the core side.
Yeah, I think that probably had there has to be the case, we would see compression given our asset sensitive position.
And so if we.
Nine to okay, nine to 12 basis points.
Yeah, and indeed remind me do you guys have floors on the loan portfolio or is it a small portion.
Yeah, not not really we know it really does pretty close to zero because they are okay. I appreciate the color guys. Thanks, so much.
Thanks for your interest Brian .
No.
Our question and answer session I would like to turn the conference back over to Michael Reckon for any closing remarks. Please go ahead Sir.
Thanks, Chuck My only remark would be I appreciate people's attention to our results.
Hope that if theres follow up questions you can get them to us, but appreciate the attention and look forward to talk into at the end of the following the end of the year talk to them.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.