Q3 2021 First Merchants Corp Earnings Call
Okay.
Good afternoon, and welcome to the first merchants Corporation, three Q2021 earnings conference call.
All participants will be in listen only mode.
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Before we begin management would like to remind you that today's call contains forward looking statements with respect to the future performance and financial condition of first merchants Corporation that involve risks uncertainties. Further information is contained within the press release, which we encourage you to review it.
Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures.
The press release available on the website contains the financial and other quantitative.
Information to be discussed today as well as reconciliation of GAAP to non-GAAP measures.
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 note. This event is being recorded I would now like to turn the conference over to Mark Hardwick CEO. Please go ahead.
Anthony Thank you for your diligence the introduction and for covering the forward looking statement on page two.
Good afternoon, and welcome to first merchants third quarter of 2021 Conference call. We released our earnings today at approximately eight a M. Eastern standard time, hopefully you have all found your way.
Slide presentation, but if not you can access the slides by following the link on the second page of our earnings release.
On page three you'll see today's presenters and our bias to include President, Mike Stewart, Chief Credit Officer, John Martin.
Chief Financial Officer, Michelle caveat ski.
Page four is the one page snapshot of the first merchants geographic footprint and a few relevant financial highlights for your review, we feel our year to date return on assets of 143% and return on tangible common equity of 16.65% reflect the strength of first.
Merchant overall balance sheet and earnings model.
Our Moody's investment grade of eight three was reaffirmed during the quarter on September 20.
Or.
'twenty one.
This investment grade is important to us as we focus on the level of process formality and sustainability that exist within our company.
Now if you would turn to slide five.
As my quote in the press release States, we were having a record year powered by strong balance sheet growth and high levels of profitability.
Net income for the quarter totaled $52 8 million or <unk> 98 per share and.
In addition year to date earnings totaled $157.8 million or $2 92 per share.
During the first nine months of the year.
Typically our are tactically I should say, we had a busy quarter represented by three bullet points on the top half of page five.
We are pleased with our quarter to date, Andy year to date loan growth and you'll hear more about that later in the call and we also completed the successful rollout.
Of our new online account origination platform powered by chair of Pheno and NCR product.
And we opportunistically repurchased nearly $21 million of first merchants stock in the open market. During Q3 now Mike Stewart will provide some color on our lines of business, but for Michele and John will review the financials and our credit statistics.
Thank you Mark and good afternoon to all.
As you look at the next two slides I plan to provide an update on our line of business results and their contributions within the quarter.
So it's nothing has changed within our strategy and key lines of businesses, which is on page six I want to focus on page seven titled region and line of business third quarter results highlights.
The top of the page offers a breakdown of the core loan growth by our business units. Overall, we grew total loan portfolio by an annualized rate of 6%.
With each business group contributing to the growth all these percentages exclude the balances the P. P P loans and have been annualized.
Private wealth and consumer groups grew at an 11% and 28% rate, respectively, as compared to a 4% and 5% growth rate in the second quarter.
And as we talked about last quarter, our private wealth team is now fully integrated into each of our markets and their connectivity with the commercial team continues to drive our growth in PWA relations and that loan activity.
Our consumer loan balances grew in the quarter based on increases of in branch originations of around 5%.
And that's from both units dollars and increases in utilization rates.
This growth was a small consumer HELOC purchase of nearly $40 million all combine the annualized growth rate was 28%, which is a little higher than normal. This is the second consecutive quarter of organic growth as our consumer spending.
<unk> remains robust as the consumer spending means more best in stimulus deposits are being spent.
For our mortgage portfolio, we continued to experience increases in construction and purchase volumes, which drove the balance sheet growth of 2% the pipeline for mortgage originations remained strong at the end of the September and even with the recent increases of the 10 year Treasury rates volume remains strong.
Our total non P. P. P commercial loan portfolio grew in the quarter by a 4% rate, 4% rate and if you remember last quarter that growth rate was in excess of 10%. What is interesting in this quarter was the C&I segment, which grew more than 10% with the investment real estate footings declining during the quarter.
The C&I growth is coming from several factors.
The new commercial bankers that have joined first merchants across our markets. We continue to add smart talented bankers in each of our four primary states with upper middle market asset based in Investor real estate being a focus.
Commercial and industrial businesses are now expanding plant and equipment to meet the growing demand and their line of credit utilization is also increasing in this quarter.
Succession events through dividend recaps, Aesop's and strategic partnerships are driving M&A activity, and we have expertise and our connectivity with all those events.
The investment real estate, new business generation has remained strong, but it's being offset with the liquid secondary market. The low cap rates low interest rates and tax considerations quickening, the pace of refinances and asset sales.
Overall, the economic and business climate in all of our markets is good companies are navigating supply chain and labor issues. Our team remains engaged with and prepared for the capital needs of the businesses as we continue to outwork our competition.
In summary, again after adjusting for P. P. P. The total loan growth for the third quarter of the banks portfolio was 6% and the pipeline looks to be able to deliver continued growth in subsequent quarters and affirms my expectations on that mid to high single digit annual growth rate that we talked about over time.
A few comments on deposits growth in the quarter overall, our deposit balances grew around 5% annualized down from the 8% in the second quarter the growth of the commercial deposit base of nearly 6% outpaced the declining consumer deposits in both segments were primarily influenced by the various economic stimulus.
Rams.
Consumers were not users of prior quarter's economic impact payments and municipalities and other public institutions continue to be net recipients of stimulus dollars.
As Michelle will highlight next our deposit cost continue to decline again in the quarter nearly sure our shared nearly equally between both our consumer and commercial business units.
So you go back to the map on the top left side of the page of seven.
That map represents the demographics of the growing economic environment, the heart of the Midwest that drives our growth and a stable source of talent to lead our business efforts across all of our business lines and again like I shared last quarter I've continued to visit our markets and have witnessed the reemergence and acceleration of the business activities are back.
<unk> and our communities and the business climate remains good.
Let's turn the call over now to Michelle who will provide a more complete review of the quarter results and operating metrics before John walks us through the soundness of our portfolio. Thank you Mike My comments will begin on slide eight.
We had another quarter of meaningful balance sheet growth, which you can see on lines one through four as total assets increased to $137 6 million or three 7%.
Profit growth of 145 million, coupled with P. P. P loan forgiveness created liquidity of 370 million of which 125 million. When you used to fund the loan originations and the remaining liquidity was invested in the bond portfolio.
You will see on line 17 that net income declined $2 8 million from the second quarter.
Call that the second quarter included one time gains and a large sale of mortgage loans totaled $2 9 million.
Taking that into consideration along with the P. P. P fee income declined from last quarter reveals another good quarter of core incremental earnings growth.
As a result led to a strong efficiency ratio for the quarter of 51.18%.
Slide 18 through 20.
So our profitability ratios, which are showing a nice upward trend starting from the third quarter of last year.
Return on tangible common equity this quarter at $16 three 3%.
Slide nine shows our year to date result.
923 shows year to date earnings per share of $2 $92.92.
1.01 increase over the same period in the prior year the efficiency ratio for the first three quarters of 2021 was a low 50 point 10%.
Now I'll move on to slide 10, which shows highlights of our investment portfolio.
Right graph shows the trend in the portfolio yield.
On the portfolio declined only three basis points during the quarter, so yield compression has slowed.
The portfolio contributed $26 3 million of interest income on a fully tax equivalent basis. This quarter, an increase of $2 2 million over prior quarter.
The current tax equivalent purchase you noted in the bottom left is approximately 2.2%.
What's the roll off yield for the remainder of 2021 and throughout 2020, Tito averaging at 2%, we shouldn't see any additional margin pressure from the investment portfolio S. You mean by yields hold up.
Slide 11 contains the highlights of our loan portfolio.
In the bottom left corner, you will see the stated third quarter loan yield increased two basis points over last quarter to 4.07%.
Excluding the impact of P. P. P loans loan yield was 377% a decline of only one basis point compared to last quarter.
Yield on new and renewed bounce this quarter averaged 3.23%.
Our loan portfolio continues to remain approximately two thirds variable.
Slide 12 shows the details related to our allowance for credit losses on loans.
On the bottom left of the slide is a roll forward of our allowance balance.
During the quarter, we had charge offs of 600000 and recoveries of 800000, which on a net basis increase the allowance balance modestly and we did not book any provision expense. This quarter. Therefore, the ending allowance for credit losses on loans was right at 200 million.
The coverage ratio trend as shown on the graph on the top left our coverage ratio at the end of Q3 is to point to 1% up from $2, one 9% from the prior quarter. Excluding P. P. P loans the coverage ratio is 2.26% down from 2.29%.
Last quarter.
Now I'll move on to slide 13.
On the bottom left you will see our company's cost of deposits declined another basis point this quarter, averaging 18 basis points. This is half the cost of the deposits in Q3, 2020, which were at 36 basis points we.
We generated average deposit balance growth of 225 million on a linked quarter basis net interest expense from deposits continues to modestly decline.
Slide 14 shows the trending of our net interest margin.
One shows net interest income on a fully tax equivalent basis at $110 million when.
When you back out noncore interest income items, such as fair value accretion on line two and the impact of PPP loans shown on line three our core net interest income totaled 100.3 million.
Compared to the prior quarter total of 97 million the increase in core net interest income was $3 3 million.
Stated net interest margin on line six totaled three 2% for the quarter.
Adjusting for fair value accretion and the impact of P. P. P loans brings us to a core net interest margin of 299%, which is only down one basis point from last quarters core NIM of 3%. So we are seeing stability in our margin.
On slide 15 now.
Noninterest income totaled $28 5 million for the quarter with total customer related fees of $23 2 million, which was down $3 7 million and due to the large one time gain on the sale of mortgage loans recognized last quarter that I mentioned earlier.
This quarter. We also recorded a large book gain of $1 3 million, which is reflected in other income and saw continued recovery on service charges on deposits.
Moving to slide 16 total expenses for the quarter totaled 71, 4 million, which is $2 1 million more than Q2 expenses of $69 3 million in the bar graph on the far right you see the increase in salaries and benefits, which is driven by higher base salary expense.
And incentive accruals booked during the quarter the increase in other expenses totaled $13 2 million and is largely due to higher marketing spend and contributions made during the quarter.
Slide 17 shows the strength of our capital ratios.
The tangible common equity ratio at the top of the page is stated at 8.94%, but is 8.82% without the impact of P. P. P loans, which is in line with our internal TCE target.
At the bottom you will see the common equity tier one ratio and the total risk based capital ratio remain at high levels, reflecting the safety and soundness of our organization.
That concludes my remarks, I will now turn it over to our Chief Credit Officer, John Martin to discuss asset quality.
Thanks, Michelle and good afternoon, my comments start with slide 18.
Where I will review the loan portfolio, including the industry concentrations.
And the PPP loan program I'll provide an asset quality update and then close with an asset quality roll forward before turning the call back over to Mark.
Turning to slide 18 for the quarter the portfolio experienced continued loan growth as Mike Stewart mentioned in his earlier remarks total loans grew $126 million when factoring in the $218 million in PPP loan forgiveness in the quarter, excluding the changes in PPP loans.
<unk> grew at a <unk>.
6% annualized pace led by the C&I portfolio, which encompasses on this slide lines, one through three CRE construction and home equity loans.
Driving C&I growth was the number of new relationships for the quarter as well as an increase in C&I line utilization from 38, 4% to 39, 7% or an increase of roughly $115 million, while utilization continues to remain lower compared to pre pandemic levels, where you are.
Utilization was in the mid 40% range.
We did feel some headwinds in the investment real estate portfolio as Mike mentioned as the demand from the permanent market was strong and resulted in a number of our mini perm loans being taken out early.
On line nine through 12, we had growth in our consumer and mortgage portfolio up $60 million in both first lien and HELOC as both the purchase and refinance market remains strong.
And then on line 14, we ended the quarter with $198 million or roughly 1600 of the P. P. P loans remaining that represent either loans that have been converted to amortization or a weight a forgiveness request or processing.
Slide 19 highlights our asset quality trends continue to be stable to improving with NPA is plus 90 days past due on line five down $6 $2 million.
This left 90 days plus or excuse me NPA is plus 90 day loans to loans plus or R E lower at 58 basis points.
Classified loans on line seven or those with a well defined weakness they continued to decline this quarter down $39.1 million ending the quarter at one 6% of loans.
Driving that change in classified loans were both changes in C&I as well as the resolution of two nonperforming senior living credits exiting the portfolio.
And finally net charge offs on line nine resulted in a small net recovery in the quarter as we were paid out of an approximately $200000 balance from a former a b T. D are left from the recession, the great recession with modest offsetting charge offs.
And finally at the bottom of this slide the remaining Covid deferrals have declined $14 $6 million or for commercial loans as the borrower.
Deferments and.
The terms of these deferrals will either end in the fourth quarter be resolved in these on these names in due course in summary asset quality remained stable and improving during the quarter and while the operating environment.
On the other side of the pandemic remains challenging with supply chain issues and labor and hiring challenges we are seeing companies quickly adjust.
Then finishing up on slide 20 again include the asset quality roll forward, which reconciles changes to asset quality.
Two we resolved the two aforementioned senior living nonaccrual credits totaling $23 $4 million, having fully reserved for the loss in prior quarters well on line three we added two significant non accrual credits of $20 million. The first borrower is a commercial contractor rolla.
<unk> is an agribusiness related.
Company to grain storage and marketing, we have specifically reserved roughly $3 million on each credit.
Dropping down to line 13, these changes accounted for virtually all of the $6 $2 million in asset quality for the quarter with only minor changes in the other categories across.
Non performers.
That's all I have mark I'll turn it back over to you.
Great. Thanks, John.
You'll see in the in the deck slides 21, and 'twenty two are consistent with prior quarters and they just show a nice track record going back a little over 10 years of first merchants performance.
And and then if you look at slide 23, it's a document that highlight some of our priorities.
As you think about having a vision and emissions and kind of strategic imperatives. This is a good list of the things that we're focused on that should carry us through the next several years and at year end all I'll cover these in more detail.
So at this point, we're really ready to take questions and Anthony you can open up the line for us.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to somewhat roster.
Our first question comes from Daniel Tamayo of Raymond James You.
You May go ahead.
Yeah.
Hi, good afternoon, everyone.
Maybe I will start on expenses.
You know what.
We're seeing a lot of obviously wage inflation I'm hearing a lot about that impacting.
Hiring practices.
And dollars.
What are you seeing there and how.
How do you think that's going to impact your expense growth next year without.
Maybe talking about guidance, but just kind of high level. Thanks.
Yes, Thank you Daniel.
But wage inflation and the pressure related is real.
We are.
Definitely feeling it in more of our entry level positions.
There is.
Increased vacancy rates and.
We've increased our minimum wage to $15. We have some insurance adjustments that are going to take effect. The first of next year.
That are trying to provide some relief in and will allow us to.
Two.
Attract talent.
Some of the entry level position, so it's real and were feeling it but I would say as we forecast into next year, we still have in mind kind of a 2% to 4% growth rate for expenses in 2022.
And.
Yeah, we're we're finding ways to be more efficient in other areas.
As we just adjust and adapt to this new environment that also includes an increased.
Digital transactions et cetera. So that's a good question and it's real and I just think its part of the job that we have to manage the company in the most efficient way possible.
Thanks Mark.
As a follow up to that.
Assuming in 2022 that we do have some you mentioned finding other ways to cut costs, but assuming that that might run a little bit higher than normal.
And that we do not get an increase in interest rates. You think you can still maintain an efficiency ratio in the low fifties as you've done in the past.
Yeah, we do we're pretty far along in the in the budget process. This year.
We've met with every line of business and every Atlanta administrative unit to review their their strategies or tactics for the year.
We've we've drafted our plan in and.
No I mean, we feel like our efficiency ratio.
Consistent with our strategy is going to stay in the low fifties.
Great I'll step back thanks for answering my questions.
Yeah. Thank you.
Our next question comes from Terry Mccomb Mckay.
Stephens you May go ahead.
Hey, good afternoon, everyone.
Hi, Jerry.
Maybe a question for Michele how should we think about the size of the securities portfolio and an overall your thoughts on managing excess liquidity.
Well you know this quarter we saw.
Liquidity crops slowing some and so although we Mike Stewart said, we are seeing some stimulus money still come into public entities. We think overall, that's going to slow and our growth on deposits is going to normalize and when that happens that excess liquidity that we have all day program back into loan growth and so we don't anticipate.
Paint a whole lot more growth in the investment portfolio from excess liquidity going forward.
And then as a follow up maybe just a follow up on that last question on expenses.
In the third quarter. They came in call. It a one $5 million above the high end of the range that was talked about three months ago and Michel I think you said something about marketing and maybe some other items that drove the third quarter increase I guess what are your thoughts specifically on the fourth quarter was $68 million to $70 million. The right way to think about that or has there been a bump.
Up that in the third quarter that will trend or continue into the fourth quarter.
I think the wage inflation will have it running more towards the third quarter levels of 71 to 72 million.
Great. Thank you.
Youre welcome.
Our next question comes from Damon Delmonte from K B W.
Oh go ahead.
Hey, good afternoon, everyone hope everybody's doing well today.
Thanks, Kevin.
Good to hear good there. So first question you know the commentary around the margin was part it was pretty positive.
Michelle are you feeling comfortable that you guys can kind of hold this line here, the 299% to 3% for the core margin level.
Or are you, even maybe more little bit more optimistic that you could see a little bit of a rise as we go through the end of 'twenty one into 'twenty two.
Our outlook is that the margin will be stable you know a lot of the pressure that we saw in the previous quarters was due to all of that excess liquidity and with that liquidity coming to more normalized levels. We think it will be stable.
You know I would probably be a little shy to say that I think that it could increase just because we're still seeing quite a bit of competition.
Competition on loan pricing, but we feel good about where we're at.
Okay great.
And then I think John was given the commentary on the commercial line utilization rate and I didn't quite catch all of that if you could just repeat the percentage of this quarter versus last quarter that'd be great.
Sure.
Sure.
So the line utilization so it's basically foray in the line utilization, it's a 38, 4% to 39, 7%.
Which.
Given our commitments resulted in $115 million.
Lift for the quarter.
In C&I alone.
Yeah, let's see in Ireland, Okay, perfect and then I guess, just lastly, kind of bigger picture Mark.
Love to hear your updated thoughts on M&A, there's been some decent size deals across the Midwest in the last few months and kind of what your thoughts are on.
Are you in a better position to.
Try to capitalize from market disruption or do you think there's other.
Smaller community regional banks that you guys do partner with them to be to make yourselves a larger entity.
Thanks.
Yeah, I don't think our opinion on has really changed.
Mike Stewart spends every day focused on organic growth.
It seems like the rest of us spend.
Every day, making sure our efficiency ratio stays intact, because we think those two things are ultimately what drive higher performance.
M&A is a part of what we've done historically you see the track record.
No I would say maybe things are a little more active in the second half of the year like they normally are I think if you're a banker went back and tried to plot. The M&A activity I think it's always heavier in the second half of the year.
But my.
My view in my opinion of it is really the same as it's always been we focus on organic growth efficiency performance and M&A is an organic strategy.
Has to be opportunistic in and has to provide shareholder value. So no real change in <unk>.
In our view.
Okay, great. Thanks, I appreciate the color. Thank you.
Thank you Nathan.
Our next question comes from Scott Cyphers of Piper Sandler You May now go ahead.
Hey, guys. Thanks for taking the question.
I just wanted to go back to the loan growth commentary I think in some of your earlier prepared remarks that you noted.
Some hirings that had helped to generate some of that growth how much of the growth would you say is coming from that increased line utilization that you referred to a couple of times and how much from from new hires and what is the market in your view for attracting new talent.
Mike Stewart here its a good question.
I'll start backwards.
Mark I would say for us is pretty attractive in some of our core markets.
There are disruptions that still happen with some of the larger banks or some of the other M&A activity and with our reputation and our.
Growth in our global commercial product set it's been a good place for those commercial bankers to Linda could be asset based lenders investor real estate lenders upper middle market lenders taken advantage of our syndication capabilities now so we've been able to add those type of quality bankers in like I referenced in each of our four.
States. They are contributing once they get on board. It usually takes I would say two quarters and they start to contribute in a pretty <unk>.
Consistent manner, you asked specifically, how much would that growth come from that or the organic growth from that versus the line utilization and I think if you take the line utilization out.
But some of that line utilization comes from new names, which these bankers are contributing as well.
It's a good question I have to do a little bit more work to give you the percent and I can also.
Provide a little bit of additional color our commitments for the quarter, which come from new names increased from $2 75 billion to $2 $98 billion. So call. It a couple hundred million dollar increase in our line commitments. So that's being generated by new names.
New commitments to existing customers generated by bankers.
It's not just purely.
Existing lines existing draws.
Perfect.
Thank you very much.
Yeah, that's great and then Michelle you had made a comment a moment or two ago regarding loan pricing competition in response to a question on the margin what was hoping that you guys might be able to speak to.
And just a bit more detail to sort of the intensity of pricing competition and what what's your bankers are telling you about pricing.
Pricing versus competition on on structure and stuff like that.
Yeah, It's Mike Stewart again, I'll speak to that too because connected to it in a very intimate way.
I would say all of our banking competitors realized at asset growth is.
Utmost importance so competition on price in Israel.
And.
We see it in all different forms and functions and I would say that we've been able to in general not have to compete on structural aspects.
At sometimes I'm wondering you know in any certain deal specific if that's true but on a on a global point of view.
It is still from a competitive point of view pricing. That's why I think Michelle would be hesitant to answer. The other question with would we see margin increasing I just think that we're going to stay very active.
Price accordingly, we like to use incentive based pricing. So if if the risk profile has changed over time, the pricing would adjust accordingly, we try to stay.
Relatively short on our types of.
Tenor so we get to take a look at those so we can rebalance, though when time goes on but I think that's it's just competitive.
Yep.
Okay perfect. Thank you guys very much.
Thanks Scott.
Our next question comes from Brian Martin of Janney Montgomery You May now go ahead.
Hey, good afternoon, everyone. Just a couple for me just Marc Marc just going back to your M&A point or just capital just maybe just kind of your appetite you talked about the buyback maybe just the appetite for buyback and then just on M&A. Just separately you know I guess when you look at the opportunities that are out there today, whether it be something like Hoosier or more of the bank side.
Is anyone.
And then one more active on your front or you know I guess on that front and then just on the buyback.
Well, we are active in the buyback space.
The opportunity and have a real kind of stated goal to keep tangible common equity at our target.
Of 9% to drive higher returns on tangible common equity. So I think we've been successful there.
On the M&A front I'm not sure if I totally heard the question, but I would just say if something.
<unk>.
Where the progress we have interest in using cash in the transaction as part of the capital management, maybe Thats, where you were headed.
Yeah I was just more just what is it a whole bank deal or are you more interested in doing something like he did with who is your trust and on that side.
Oh, Yeah, no more traditional.
Here's your trust was a unique opportunity.
But I don't think we will see those types of opportunities as frequently as we as we might call bank opportunities.
So.
So they are still focused on transactions that look really similar to what we've done in the past.
Okay and then the last two familiar with just maybe one for John just on PPP just the the recognition of the remaining fees is it you know the bulk of that probably comes fourth quarter have you seen some of that slow down.
Yeah, we would expect that the bulk of the remaining is going to come in the fourth quarter.
Got you, Okay, and then maybe just one for Michele was just on the on the outlook for margin. Just you know I guess can you remind us from an asset sensitivity standpoint, how you guys would with the I guess, just what you what your thoughts would be on how the margin dynamics might change from what you mentioned earlier.
Well, we look out over the next 12 months, we're assuming that margin will be stable and we are asset sensitive certainly our balance sheet always has been but were still looking for stability with.
That there could be some increase.
Okay, and just remind me I mean, the percentage of loans that are variable rate that would move.
Two thirds.
Okay perfect. Okay. Thank you for taking the questions.
Youre welcome. Thank you Brian.
Our next question comes from Daniel Tamayo of Raymond James You May now go ahead.
Hello, again, just a couple of follow ups for me.
First on.
On the deposit service charges.
Nice little increase in the quarter obviously after.
They felt they fell off during the pandemic, but how.
How are you thinking about that line going forward with potential regulatory changes and.
Just what are your thoughts it would be great. Thank you.
Yeah, and the component that is N S F and O D. We just continue to make sure that we're kind of taking the lowest risk approach.
Kind of every year looking for ways to make sure that were as conservative as possible.
Outside of that I think there are service charges that are clear.
Clearly just connected with the core deposits that we have.
The focus of our organization.
I think we talk all the time about growing commercial loans.
And growing core deposits and core deposits come with some level of service charges. So.
But yes there is.
Definitely some risk in the <unk> space and we're just trying to make sure every practice we have.
Yes.
Low risk as possible.
And inside that service charges is a lot coming through with the form eight foreign ATM usage as well. So there are both increasing.
Yeah.
Alright, Great and then last one for me for Michelle here.
So.
Commented in the past of bias to keep.
Loan loss provision at zero or above given the outlook for credit is very strong at this point in reserve still remain comfortably over 2% any update to that or.
I think that will remain.
Our focus going forward. Thanks.
This remains the same.
Knowledge that you know we could be under some pressure in the near term depending on what the unemployment rate is in the Moody's outlook, but.
At this point, we would still it would still be our bias is to grow into that number.
Alright, that's all I.
I appreciate it.
Thanks, Daniel Thank you.
This concludes our question and answer session I would like to turn the conference back over to Mark Hardwick for any closing remarks.
Anthony Thank you Andrew.
All of our participants we always appreciate your interest your connectivity.
Your willingness to listen to and to our performance and most of all your investment.
So youre engagement as I appreciate it.
Look forward to talking to you next quarter. Thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.