Q3 2021 Horizon Bancorp Inc Earnings Call

Yeah.

Good morning, everyone and welcome to Horizon Bancorp Conference call to discuss financial results for the three months ended September 30th 'twenty 'twenty. One all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. Please note. This event is being recorded after.

Today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.

Please limit yourself to one question and one follow up if you have further questions you may reenter the question queue.

Before turning the call over to management. Please remember that today's call may contain statements that are forward looking in nature.

These statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those discussed including those factors noted in the slide presentation. Additional information about factors that could cause actual results to differ materially is contained and horizons current 10-K and later filings in addition.

Management may refer to certain non-GAAP financial measures that are intended to help investors understand horizon's business. Reconciliations for these measures are contained in the presentation. The company assumes no obligation to update any forward looking statements made during this call. If anyone does not already have a copy of the.

Press release, and supplemental presentation issued by Horizon yesterday, you can access it at the company's website Www Dot Horizon Bank Dot com, representing horizon today are chairman and Chief Executive Officer, Greg threat, and Executive Vice President and Chief Financial Officer, Mark Peter They will be.

Joining for the question answer session by President, Jim Neff, Executive Vice President and Chief commercial Bank.

Banking officer, Dennis Kuhn, and senior Vice President for customer banking, knowing the car.

Okay.

At this time I'd like to turn the call over to Horizon's, Chairman and CEO Greg duet. Please go ahead.

Thank you Emily.

Good morning, and thank you for participating in Horizon Bancorp third quarter earnings Conference call.

Our comments today will follow the Investor presentation, We published yesterday October 27th.

Horizons third quarter exemplifies that we are a company on the move and represents perhaps the busiest quarter in our company's 148 year history.

We consolidated 10 offices during the quarter acquire.

Acquired 14, Michigan branches and sold our Aesop trustee accounts as we focus on more profitable growth opportunities.

Horizons third quarter represents our efforts to allocate resources and capital to where we can achieve better returns and the results are proving to be successful with organic loan growth and record earnings during the quarter.

So my momentum taking us into 2022 and 2023 is due in part to the new associates and customers. We welcomed from the 14th Michigan branches, we acquired on September 17th.

This logical extension of our franchise includes adding approximately 50000, new households, three commercial lenders and low cost and stable core deposits.

Horizon has already proven that the mass and scale work to drive shareholder value and our recent branch acquisition only contributes to that momentum.

In addition, the 10 branches we closed on August 27th is a continuation of our ongoing effort to maximize the efficiency of our retail franchise. This focus results in our consistently low noninterest expense to average asset ratio, which was just 2.09% in the third quarter down from 2.18% in the second.

We expect to continue to improve efficiency, even as we redeploy employees from the closed branches to fill open positions and reinvest much of the savings into technology designed to enhance sales and customer experience.

As far as building for the future we increase the number of commercial lender since December 2020 by approximately 20% with additional offers pending.

We've added capacity to our in market indirect auto lending program, and our new Michigan footprint.

<unk> is well positioned to seize upon future opportunities and increase returns as we shift earning assets from the investment portfolio into higher yielding loans.

Starting on slide four company highlights horizon completed the third quarter reporting record quarterly earnings at 23 million or 52 cents per share.

Driving the quarterly results were record net interest income organic commercial and consumer loan growth and continued focus on efficiency.

Given the size of our balance sheet highly efficient operations and talented workforce. We believe horizon is well positioned to capitalize on significant organic and strategic growth opportunities within our attractive Midwestern markets.

So why invest in horizon.

Our investment thesis is simple we are a high performing company in growth markets Horizon has a disciplined operating culture, we accomplish goals get things done. This is best represented by our return on average assets of 1.41% and our return on average equity of $12 six 4% for the quarter.

And in fact, we continue to focus on efficiency as evidenced by consolidating 35 branches over the past six years.

Horizon has a compelling value play is represented by treating trading multiples at quarter end, a 1.51% price to tangible book value and 9.2 times price to earnings for the trailing 12 months.

We operate in attractive Midwest markets, because we like to say we are on the right side of Chicago.

Our British profile is lower than most Midwest banks as our operating model and loan mix consistently performs well in varying economic cycles.

As you'll see on slides seven and eight.

We are clearly demonstrating consistent growth over the last 18 years compounded annual growth rate for total assets 13.5 per cent and compounded annual growth rate Brett net income 18, 8%.

For the past five years 2016 through 2020, the compounded annual growth rate for access was 18%, which is 5.5 times the rate of change to our gross domestic product and two nine times the average growth rate for community banks Horizon is a growth company.

On slide nine we remind you that horizon's expansion that growth has occurred primarily in college and University towns in the state or county government seats. Therefore, a majority of our footprint has an economic base that is traditionally more stable than other areas of Indiana and Michigan.

Our recent branch acquisition expands our presence into college towns and in eight of the 11 counties, where the acquired branches are located in horizon will either be number one two or three in deposit market share.

Horizon remains positioned well to take advantage of the outbound migration from Illinois, which continues to increase as consumers and businesses exit dense living spaces high taxes increase in crime rates in the high cost of living.

Both the Indiana, and Michigan continued to show improving economies as evidenced by our low unemployment rates.

And an increase in total workforce.

As a result of the tight labor market, we are starting to see some wage inflation.

On Slide 10, you will see highlights the primary markets, where we are engaged in some exciting economic events, creating new business opportunities for horizon.

Well, we don't have to moving on to digital transformation Horizons average monthly transactions continue to shift away from branches towards digital and virtual channels.

As of last month, 76% of all transactions took place through our digital channels compared to 44% in 2018.

The good news is that since our branch networks second reopening in January 2021, the online activity has stayed relatively constant.

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Embrace this shift before the pandemic, which of course accelerated the trend. It was a key consideration in our annual branch review and the consolidation of 10 branches in August.

Horizon is focus on our retail networks efficiency has helped increase our average deposit per branch over the last four years from 46 million to $72 million.

Horizon manages and deploys its capital well as evidenced by our recent acquisition stock buybacks for the quarter, an increase in our quarterly dividend year to date, we increased our quarterly dividend twice for an aggregate year to date increase of 25% and a dividend yield of 3.3% at quarter end.

Now for the financial updates my privilege to introduce you horizon Bank's executive Vice President and Chief Financial Officer, Mark C core Mark.

Thank you Craig.

Horizon had its second consecutive quarter of record net income with New records for net interest income and pretax pre provision net income.

We're very pleased with these results and the positive core trend as demonstrated in the third quarter.

Turning to slide 15, the company's third quarter results were impacted by two one time events the transaction costs for the branch acquisition and the sale of the Aesop trustee accounts.

We recorded a 2.4 million dollar gain for the sale of the Aesop trustee accounts and recorded a two point it recorded $2 8 million of transaction costs from the branch acquisition.

Those include direct transaction costs, and one time credit loss expense for the acquired loans.

The record net interest income was partially due to a higher level of interest, earning assets with cash continuing to move to the investment portfolio, along with maintaining a steady net interest margin.

Continuing to grow net interest income is still one of horizon's key objectives.

Noninterest income reflected an increase over last quarter, primarily due to the $2.4 million gain on sale of lease up trustee accounts and also a recovery of 867000 from an acquired charged off loan. These were partially offset by lower mortgage revenue.

We had a 1.1 million are expensive credit or we we had a 1.1 million dollar expense for credit loss compared to a $1.5 million release from the allowance for credit losses in the linked quarter.

The day, one credit losses, Alec allocated to the acquired loans was $2 million.

Without that transaction there would have been another small release of the allowance for credit losses.

We see continued strong credit performance low net charge offs and improving econometrics. We continue to believe we are appropriately reserved given the current state of our portfolio the recovering economy and our seasonal modeling.

Slide 16.

The adjusted margin declined only one basis point during the quarter and was positively impacted by 16 basis points from P. P. P income as net deferred fees were recognized for loan forgiveness.

This was offset by 16 basis points of margin compression from high cash balances held during the quarter.

The 13 basis point increase in the loan yield in the seven basis point decrease in the cost of funding helped manage the impact of the increase in average balances in the increase in the average balance of lower yielding investments during the quarter.

Earning assets averaged 6 billion during the third quarter and reached 7 billion at September 32021.

Starting the fourth quarter with an additional 1 billion in earning assets is expected to contribute to an increase in net interest income.

But may also put pressure on our margin as the majority of the earning assets and an increase in lower yielding assets.

Slide 17.

Colonial increased for the third consecutive quarter to 4.56% due to P. P. P loan income recognized and the reduction in the loan mix of lower yielding P. P P and mortgage related loans.

Without the impact from P. P. P loan income recognized during the quarter. The loan yield would have decreased five basis points compared to the second quarter loan yield without the impact of P. P. P loan income.

As loans continue to reprice, the remaining PPP loan forgiveness or loan fees are recognized.

And new product is originated at lower rates additional downward pressure on the loan yield is expected in the fourth quarter and going into 2022.

Slide 18.

That's in portfolio was $2 4 billion at the end at the quarter end and has increased 1.1 billion since the end of 'twenty 'twenty.

$630 million of this growth is directly related to the low cost liquidity on boarded with our September branch acquisition.

During the quarter deposits grew 1.2 billion, which included $846 million from the branch acquisition and 352 million organically.

With $972 million of cash on the balance sheet at the end of the third quarter and additional purchases of investments are expected as we continue to focus on increasing net interest income.

Slide 19.

Margin compression was tempered by our continued improvement in funding costs, which reflect horizons valuable and growing core deposit franchise.

The Cds portfolio, a 15 basis point decrease in pricing reduced total funding cost is higher cost term deposits matured during the quarter.

162 million of Cds with an average cost of 50 basis points will mature during 2021 and continue to reduce our cost of funds.

The 4% growth in non interest bearing deposits also contributed to lower funding costs in the third quarter.

In addition, the acquired deposits from the branch acquisition will help to reduce deposit costs as their average cost is lower than ours.

As total deposits continue to grow we are also strategically pricing deposits to manage liquidity instant inflows from transactional in transient sources.

This of course is balanced against our commitment to stand by our long standing customers customer relationships and high potential new opportunities in our growth markets in Indiana and Michigan.

Slide 20.

Mortgage revenue from gain on sale of mortgage related income continued to support noninterest income, but at a lower level than in the third quarter.

'twenty 'twenty.

Year to date gain on sale of mortgage related income was $2 1 million higher than the same period in 2020.

As last year's mortgage servicing right impairment was partially offset by a mortgage servicing right recoveries. So far this year.

The continued high level of mortgage production with 61% coming from purchase activity and strong percentage gains are the primary contributors to our noninterest income for the quarter.

Based on our local and national refinancing activity, we expect strong line contributions to continue from the mortgage business in 2021 and into 2022.

Slide 21 during the third quarter operating expenses increased as we had 799000 of transaction related costs and an increase in salary and benefits costs.

Reflecting our investments in talent and higher bonus expense accruals as our team continues to achieve incentive targets.

Core operating expenses continue to be leveraged as we saw noninterest expense to total average assets declined to 2.09% or 2.05% when excluding transaction costs.

We anticipate with the ability to leverage the asset growth from the branch acquisition that we will be under 2% of noninterest expense to average assets in the fourth quarter or on into the first quarter of 2022.

Now for some additional comments on our loan portfolio with I'll turn it back over to Craig.

Thank you Mark.

Recent branch acquisition increased horizons, low cost deposits and lowered our loan to deposit ratio from 85% as of December 31, 2020% to 61% as of September 32021, and horizons previous 10 years, our average loan to deposit ratio was 91 point fiber set so we do know how to manage for them.

One growth is.

As a result of this competitive pricing advantage with the new branch acquisitions Horizon's focus for the next two years will be loans loans in more loans.

Looking at the chart on slide 'twenty Horizon $3.7 billion in total loans are well diversified with 59% in commercial and 41% in residential mortgage and consumer the.

The table on the right provides the granularity within our commercial loan portfolio, which itself is well diversified our single largest sector is the residential multifamily housing loans at 6% of total loans in this segment continues to perform well.

All pandemic related distress business sectors have seen considerable improvements over the prior year's operating results, including the hotel restaurant hospitality and leisure industries Horizons.

Horizon is non owner occupied real estate portfolios also exhibit strong cash flow and low delinquency rates.

Horizon's consumer loan portfolio continues to reflect strong underwriting standards as evidenced by low delinquency at 38 basis points at quarter end and year to date net charge offs at four basis points.

Consumer loans for the quarter, excluding acquired loans increased by $11 1 million or one 7% for the quarter.

Looking ahead in the consumer loan areas well positioned for continued growth as we added 34, new indirect dealerships and our expanded Michigan footprint and we experienced an increase in home equity line Utilizations for the first time this year as consumer spend through their stimulus money.

Horizon's commercial loan portfolio continues to reflect strong underwriting standards as evidenced by quarter in low delinquency at two basis points and year to date net charge offs at one basis point commercial loans reflect a 9% annualized growth rate for the third quarter as a result of new loan volume increase in line of credit utilization.

<unk> and a slowdown in payoffs.

The addition of new lenders during the year in growth markets in Western and Eastern Michigan in Northwest, Indiana is beginning to show results and we expect our lending team to a significant impact in the quarters ahead.

We were also pleased to report that Horizon's commercial pipeline is robust with $133 million in loans approved not yet closed and it's the highest level for printing closings in 2021.

Hotels represent 3.9% of total loans in this segment has been a significant pick up in the occupancy and average daily room rates through the third quarter of 2021 compared with the first quarter as.

As of August 2021, the occupancy rate was 70% for our borrowers which reflects a 19, 6% of Horizon's total hotel loan dollars outstanding and is an increase over August 2020 occupancy rates of 55%.

Hotel occupancy gains are primarily attributed to increase in consumer release, your travel along with a smaller increase in business travel.

Horizon's Hotel portfolio was primarily located along Interstate highways and resort locations frequented by the consumer travelers.

We're not located in entertainment or convention venues, such as large metropolitan areas.

To summarize horizon Banquettes key franchise highlights we are positioned well for earnings growth going into 2022 and 2023 as a result of our recent acquisition of 14 new branches.

Branch closures are pick up in loan demand and increase in commercial loan officers and expansion of our consumer loan dealer network and leveraging excess capital.

We have a seasoned management team, who has a history of not managing through multiple economic cycles, and delivering girl with far exceeding the banking industry's average growth rates we.

We have a robust capital position and excess cash at the holding company in excess of $120 million, which gives us considerable future optionality.

Horizon has maintained a solid historical compounded annual earnings growth rate of 18% over the past 18 years.

And the company has paid 30 years plus of uninterrupted cash dividends on our common shares and raised the dividend for the second time this year for an aggregate increase year to date of 25%.

We conclude our prepared remarks today by the asking that you save the date for Horizons virtual Investor day on Thursday December 2nd.

Our senior operations credit commercial and consumer leaders will be sharing their perspectives on horizon 2022 growth plans. The integration of our recent branch acquisition and Truing up the forecast in our bank's retail experience we.

We'll publish details on how to access the two hour virtual event, and we hope that you'll be able to join us for the Investor day.

With that I'll ask the operator to please open the lines for questions. Thank you.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your headset before pressing the keys.

To withdraw your question. Please press Star then two please limit yourself to one question and one follow up if you have further questions. You may reenter. The question queue. At this time, we will pause momentarily to assemble our roster.

Yeah.

The first question comes from Nathan race from Piper Sandler. Please go ahead.

Yeah, Hi, everyone. Good morning.

Good morning Nate.

Thanks for taking the questions maybe just to start off on the outlook for loan growth in the fourth quarter, if it could be a mortgage warehouse and the ongoing T. P. P. Runoffs and I. Appreciate you guys to put a lot of pieces in place in terms of.

Personnel additions on the commercial lending side of things over the last 18 months or so so how should we be thinking about you know the.

I'll look for additional commercial banker hires going forward and just the expectations for loan growth ex those items in the fourth quarter and into 2020 two as well.

No you Didnt. Thank you for the question Oh.

Jim Neff and should the outlook for mortgage warehousing and Dennis Kuhn talk about the commercial loan Oh look as well, whereas the P. P program.

Jim.

Thank you Greg good morning, everyone.

On the mortgage warehouse side, we expect that to track with the M. B a refinance sportscast.

And as you've seen our our balances are tracking down a quarter by quarter or normalized level, we feel will be somewhere between the 140 and 160 million is where it will normalize.

Going into 2022.

Okay.

And good morning. This is Dennis Kuhn with regard to commercial and P. P. P. Again as Craig had mentioned, we're entering the quarter and our strongest pipeline position.

At over $130 million that is building I can say on a weekly basis. So we're seeing really good activity, including or newer additions to the lending staff.

I will note that our.

Three of those joined in the last 60 days, so again, they've got to get in get acclimated and these are all highly experienced connected lenders in their markets. So we expect to see it.

The continued ramp up in those pipelines through the balance of the year and certainly into 'twenty two.

From Us P. P P standpoint.

We will continue to process forgiveness. So you know we're hopeful that most of that will be completed in the fourth quarter. So again going into 'twenty two that noise will.

Quiet down.

Yeah.

Okay. Thank you.

Yeah, So perhaps just to clarify just on the commercial side alone and excluding the Triple B run off is it kind of a low to mid single digit outlook or do you guys feel more like in the mid single digit range is a reasonable expectation to think about for commercial ex you're going toward.

Well again, I think based on our third quarter performance that over 9% annualized I expect to see that continue right right in that range nine two to maybe hit a hit 10% in that range. So again, we feel real good about a the Moe.

Men them, where we're seeing in some really good growth markets, including Grand Rapids, Troy in Holland in particular, and then an Indiana South Bend in Lake County, So good strong markets and we've built our presence there and expect to see continue.

Growth.

Got it that's great to hear and if I could just ask one more on just the operating expense outlook, obviously, there's some more.

Moving pieces to think about with the legacy branch consolidations that were completed in the quarter. Then you also have the.

Locations coming on board from Tcs, So mark maybe any thoughts on just kind of the near term operating expense run rate from about 33 and a half.

Millions that we saw in the third quarter, and how that trajectory into the fourth quarter and perhaps into early 'twenty two as well.

Yeah Nate.

We're going to see some increase because of the additional costs from the branches and I think that's then been modeled in for you in the past the well, while we anticipate seeing because of the way that the the savings comes from the branches that we closed the 10 branches.

Okay.

<unk> assets for our expenses.

Okay, great well step back from now you should get thinking of questions and all that.

They can eat.

Our next question comes from Damien del Monte from K B W. Please go ahead.

Hey, good morning, guys hope everybody's doing well today.

When you do the first question.

First question regarding the margin you know marked I think your your commentary kind of pointed to some you know additional headwind in the margin given liquidity in lone yield for new production with kind of still below the portfolio, how close to you to the that that gap closing on the new production and current portfolio.

[laughter].

No I think it's gonna take some time, yet some portfolios will adjust quicker consumer portfolios adjust quicker just because their their duration is less [laughter], but they are closing in it was the new new prices are getting closer to to the portfolio I I don't know the timing of.

That Damon it's gonna, it's gonna take at least through next year I would anticipate as we.

Is the loans mature repriced [laughter].

But the margin is going to have the pressure I mean, ending the quarter with an over 900 million of cash. We you know we had an average caches, maybe somewhere in the $300 million for the quarter. So just having that mix is going to impact the margin here in this quarter.

Okay, and then how quickly do you think you could take that.

You know 900 million and kind of.

Reinvest that into security to pick out get somebody you'll pick up there.

Yeah, you know, we're not gonna be able to reinvest [noise].

All of it we anticipate some cash flows coming out we.

We're trying to determine what some of the the especially the munificent municipal side some of the core. So we anticipate we're going to have to hold some of the cash and reinvest portion of it but we'll get that we'll we'll get what we want done with that here over this quarter and starting next in the next year, what what I don't know.

Is you know we had still strong deposit growth just organically. So we're not seeing the runoff. So if we continue to see deposit growth. That's just gonna be fighting to get that cash balance down [laughter] right right right. Okay. I've been just the the second question no credit Yeah, obviously.

Very very strong. So you guys Uhm you reserve level is still three times pretty neutral. So you know how do we think about the provision level going forward cause like if you look at this quarter absent D. P. C. So I would've been a release so can we expect to release here on the fourth floor.

The name of the the.

Releases will probably come through in the fourth quarter of next year. The level, we're not sure we're being cautious because of the pandemic still exists and is ongoing in there for a good portion of our reserve is set aside for it general losses in the distressed sectors and I think this winter is going to be.

The time to tell where they they did build up cash during the summertime those sectors, but right now like by example, restaurants industries, having a challenge getting people to work in their their industry and to serve tables into clean bus tables et cetera, So we're still being cautious and not releasing reserves aggressively at least.

This year [noise].

The other part of our historical loss rates continually to fall overall, and then our econometrics continue to improve so those two factors play into the released discussion going forward.

Great I appreciate the caller, thank you very much.

Thank you David.

Once again, if you have a question. Please press stars N. One our next question comes from.

Carrying the Cowboys from Stevens. Please go ahead.

Good morning, everyone. This is Daniel Thomas on the line for Terry Mcevoy.

My first question. My first question is in the press release, you guys I mentioned that the operating cost savings coming from the branch closures back in August and not even redeployed into tech technology investments I was wondering if you guys could expand on that a little bit in terms of those taken bathroom investments and maybe we can see some potential efficiency gain.

From this thank you.

Yeah. This year, we have deployed a new mortgage software system called encompass which is you know cradle degree for the customers the customer's insight into the process. It works with vendors et cetera, So our mortgage team and the has more capacity without increasing staff, they're more efficient with their mortgage loan.

Origination teams as well ear before that we added our new technology for the consumer loan platform. That's similar and both platforms are are best in class. They can go to mobile to online banking in 2022, we're looking at commercial platform.

We added a data warehouse last year as well that gives us improve information and reporting we added a new financial reporting package. It streamlines, our financial reporting as well from a customer enhancement perspective, we've added a chat last year improve the boss this year.

Their answering of over 85% of all inquiries through the box today, we continue to do outreach efforts both from a digital channel in our direct channels getting customer satisfaction surveys back where scoring you know in the 80 per cent tile range of saddest customer satisfaction, but for both or.

Digital in in person. So things are working we continue invest things that we have to add would be improvement in our customer service platform, which will be added next year, it's not as efficient as we like to see in our whole strategy is our direct branch platforms are aligned with our digital platform.

They're using the same platforms to open accounts Ah transfer into Internet banking et cetera. So we're just trying to wine all the platforms up until next year, but yeah. The investment continues annually, we conduct a gap analysis of technology would compare yourself to best in class, which is typically the big banks indoors Pentech and then we can.

Compare ourselves to other community banks of are similar size, we compare very wilt or other community banks, both in Treasury management platforms and in the retail platform. So thank you for the question.

That's great. Thank you I appreciate the detail on that and then just one second question moving to capital do you guys have a targeted capital level that you're trying to get to and it should be expected buybacks to continue thank you.

You know, we don't publish a targeted capital ratio, we continue to focus on being well capitalised with some cushion to it stock buybacks it depends on the price to our tangible value and if we think there's a value their will by going to market if not we'll hold back both or can.

And you'd cumulation of cash and are strong performance from an earnings perspective, I I would assume buybacks, we'd come back in and vote again.

<unk> 20th.

Yeah, I was just going to comment that you know, we we obviously leveraged capital over the years and would you like a little bit here with this transaction. However, when you look on a risk and we talk about this regularly to look at at risk basis. When you have $2.4 million of investments right now, which.

Obviously isn't the normal design, but it's what we're given because of the liquidity in the market.

We we we think that we have a lot less risky profile and having the I think tangible capital levels that were at so we kind of balance all of that.

[noise] got it that's really helpful. Thanks, guys appreciate it.

Yeah. Thank you.

Our next question comes from Pine Marten from Jenny [noise] Montgomery. Please go ahead.

Hey, good morning, everyone.

Morning, Brian.

Hey, Mark can you, maybe just give a little thought on I appreciate the color on the on the margins just thinking about the the amount of cash you guys have today and just kind of how to think about a frame up you know the dollars of net interest income maybe just into next quarter just to kind of understand where you're thinking here I mean, I guess it seems like you know the margin comes down but the dollars of NII them in it.

It'd be kind of strip out the P. P P.

Think about the dollars of NII, just continuing to create increase sequentially. The next three to four quarters, just kind of on a on a clean basis and you know focus on that you know given all the efforts you are going to be taken to put this cashed your.

Right I think that's the right direction I mean with two two events you know we didn't pick up over $200 million of loans. Then the end of the third quarter with the transaction. So that's going to generate continued net interest income and we we still.

Had some settlement of securities and plus we were silk in the market for some securities. So.

We're gonna see more morning assets coming on.

Again.

I think you're on there I have you on the track is what we want you to see is that we want to continue to see that steady income of net interest income after the growth of commercial and they will is going to also shifts some of that cash and again. They the the thing that we don't know and once he is what's gonna be the in floor outflow of deposits and how that's gonna impact.

The the cash in the margin.

Okay. So a steady increase in there and I guess, how are you seeing you know into the corner now into the fourth quarter deposit flow slowing at all or are they stabilizing.

It seems to have stabilized a little bit, but it's also a seasonal cause of tax season for the municipalities, but from a consumer and commercial side.

We'll see it come down and then we'll see it come back up and the trajectory has been all through the quarter of continued growth [laughter]. So I I don't mean, they changed this quarter, we may start seeing more outflows, but at this point that's not what we're seeing.

Okay. Okay, and then maybe just be a follow up for me was just people maybe if if you can just give a little thought on you brought up someone brought the point about the buyback, but just as far as deployment of capital. The you know the potential Craig maybe for you know Howard discussions on on the M&A side or is it you know given all the opportunities you've talked about organically maybe is that.

A priority you know you know at least here in the near term and it's an outlook on for Dennis maybe on the mortgage the gain on sale liner Mark how we think about that it sounds like it's still strong and carries into next year, maybe a similar type of level.

Yeah, Brian M&a's have less focused initially next year of primary be the momentum we have going into 2022. However that said we are looking at.

Opportunities for increasing the loan growth in or leasing would be two primary sectors were looking at so obviously, we don't need another deposit franchise. So.

If we can acquire alone growth franchise that would become type of mine.

Uh-huh.

Okay and then.

Oh, sorry.

But on the mortgage side I'll I'll make a comment and see Jim as a.

What the comment I made about.

Two nine month periods that we have 2 million more of a mortgage revenue from gain on sale and are servicing an impairment cause last year. We saw that impairment hit. So you know we've actually seen an increase through nine months now fourth quarter of last year was really strong so.

That will catch up here, but Jim out and if you want to comment on the volume might've been fairly steady.

You know the volume has been very very study seasonality will come into play I think we'll see some decrease and with the refinance activity rates do creep up next year, we're gonna see overall production down, but I think it's still gonna be a very strong level for next year.

Okay I appreciate the feedback thanks guys.

Thanks, Brian Thank your birth.

This concludes our question and answer session I would like to turn the conference back over she cranked Hawaii.

For closing remarks. Please go ahead.

Yeah. Thank you for participating in today's earnings call and we look forward to speaking with you again on December 2nd for Investor Day. So please sign up and soon December 2nd. Thank you have a good day.

Uh-huh.

This conference has now concluded. Thank you for attending today's presentation you made out disconnect.

[noise].