Q4 2024 Mercantile Bank Corp Earnings Call
Good morning, and welcome to the Mercantile Bank Corporation 'twenty 'twenty four fourth quarter earnings Conference call.
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Speaker Change: I would now like to turn the conference over to Nicole Clatter first Vice President Chief Marketing Officer of Mercantile Bank. Please go ahead.
Speaker Change: Happy new year, everyone and thank you for joining us.
Speaker Change: Today, we will cover the company's financial results for the fourth quarter of 'twenty 'twenty four.
Ray Reitsma: The team members joining me. This morning include Ray Reitsma, President and Chief Executive Officer, as well as Chuck Christmas Executive Vice President and Chief Financial Officer.
Ray Reitsma: Our agenda will begin with prepared remarks by both rate and Chuck and will include references to our presentation covering this quarter's results.
Ray Reitsma: You can access a copy of the presentation as well as the press release sent earlier today by visiting both bank Dot com.
Ray Reitsma: After our prepared remarks, we will then open the call to your questions.
Before we begin it is my responsibility to inform you that this call may involve certain forward looking statements such as projections of revenue earnings and capital structure as well as statements on the plans and objectives of the company's business.
Ray Reitsma: The company's actual results could differ materially from any forward looking statements made today due to factors described in the Companys latest Securities and Exchange Commission filings.
Ray Reitsma: Company assumes no obligation to update any forward looking statements made during the call.
Ray Reitsma: Let's begin right.
Ray Reitsma: Nicole My comments will focus on the changes that have been made to the funding side of our balance sheet and the resulting impacts on the income statement as well as our strong loan growth excellent asset quality and growing noninterest income.
Ray Reitsma: Taken together these performance traits have allowed us to compile attractive compounded annual growth rates for the benefit of our shareholders.
Ray Reitsma: From the year end 2021 to year end 2023, commercial and mortgage loan growth was strong and while deposit growth was solid did not keep pace with loan growth the outflow of deposits from the banking system post Covid contributed to this trend as a result, the bank's loan to deposit ratio increased from 100 and temporary increase to 102.
Ray Reitsma: 10% at year end 2023.
Ray Reitsma: The 'twenty 'twenty four we focused on reducing this ratio with the goal to strengthen our on balance sheet liquidity and overall financial profile.
Ray Reitsma: As described in previous calls we undertook our three pronged approach to building our deposit base with the objective of reducing the loan to deposit ratio into the mid 90% range over time.
Ray Reitsma: To reiterate first we broadened our focus on business deposits, including S teams that have limited or no borrowings.
Ray Reitsma: Second we plan to grow in the governmental and public realm through strategic personnel additions with existing relationships in this space.
Ray Reitsma: And third we are growing the retail customer focused based on total balances as opposed to activity hurdles such as transactions or card usage.
Ray Reitsma: These efforts led to an increase in local deposits in 2024 of $816 million a growth rate of more than 20% local deposits grew $216 million during the fourth quarter alone.
Ray Reitsma: The growth in local deposits not only funded our strong loan growth, but also allowed reduction in wholesale funding sources for the year, including an $81 million reduction in EF H L. B, I advances and a $19 million reduction in broker deposits.
Ray Reitsma: Commercial loan growth for the fiscal year end was 292 million or eight 5% over the prior year end and was $59 million for the fourth quarter custom.
Ray Reitsma: Customer reductions in loan balances from excess cash flow or sale of assets of $88 million during the fourth quarter impacted our commercial loan totals.
Ray Reitsma: The pipeline stands at $296 million in commitments to fund commercial construction loans totaled $245 million, which is slightly increased from the prior quarter and taking these factors into account, we expect commercial loan growth in the immediate future to approximate the pace of the recent past.
Ray Reitsma: Mortgage loans on the balance sheet have grown substantially and the increasing rate environment experienced over the past few years as borrowers have opted for arms, which reside on our balance sheet rather than fixed rate loans, which are sold in the secondary market. We have successful successfully executed changes within our portfolio of mortgage programs.
Ray Reitsma: Bolting and a greater portion of our mortgage production being sold rather than placed on our balance sheet.
Positive outcomes include a 62% increase in mortgage banking income during fiscal 2024 compared to fiscal 2023, and a nominal decrease in mortgage loans on our balance sheet.
Ray Reitsma: Our mortgage team continues to build market share despite a challenging rate environment, allowing results that diverged from average in the market.
Ray Reitsma: While mortgage banking is certainly rate dependent the level of earnings from this activity that can be considered core or somewhat independent of the rate environment is increasing.
Ray Reitsma: The 22% growth in local deposits, coupled with the 7% growth in the loan portfolio drove our loan to deposit ratio from 110%.
Ray Reitsma: You're in 2023% to 98% at year end 'twenty 'twenty, four and contributed to a reduction in our reliance on wholesale funding from 14% at fiscal year end, 2023% to 10% at fiscal year end 2024.
Ray Reitsma: Asset quality remains very strong as nonperforming assets sold $5 $7 million at year end or nine basis points of total assets, consisting primarily of residential real estate and non real estate commercial loans. There is only $42000 in commercial real estate representation among nonperforming.
Ray Reitsma: It.
Ray Reitsma: Past due loans in dollars represents 16 basis points of total loans and there is no outstanding Ori.
Ray Reitsma: We remain vigilant in our underwriting standards and monitoring to identify any deterioration within our portfolio. Our lenders are the first line of observation in defense to recognize areas of emerging risk a risk rating model is robust with a continued emphasis on current borrower cash flow, providing perhaps sensitivity to any.
Ray Reitsma: Emerging challenges within our borrowers within our borrowers finances that said our customers continue to report strong results to date and have not begun to experience impacts of a potential recessionary environment in any systematic way.
Ray Reitsma: Total noninterest income grew 26% during 2024 compared to 2023 with gross reported in several categories.
Ray Reitsma: Banking income grew 62% based upon the strategies outlined earlier and the resulting ability to sell a greater portion of originations in the secondary market service charges on accounts grew 38%, reflecting higher activity levels and customer growth and less earnings credit offset charges based on reduced.
Ray Reitsma: Bounces in transaction accounts.
Ray Reitsma: Payroll services grew 22% as our offerings continue to build traction in the marketplace finally credit and debit card income grew 2% when adjusted for the receipt of a one time payment from visa associated with a contract renewal in the second quarter of 2023.
Ray Reitsma: Income from interest rate swaps declined 18% as demand by borrowers for interest rate protection shifted with borrowers.
Ray Reitsma: Future rate expectations.
Ray Reitsma: The results for 'twenty 'twenty four described above contribute to a solid five year track record of compounded annual growth rates across key metrics, including total loans of 10% total deposits of 11, 8% earnings per share of 10, 1% intangible book value per share of eight 4% that can.
Ray Reitsma: Cruise my remarks, and I will now turn the call over to Chuck.
Chuck: Thanks, Ray and good morning to everybody. This morning, we announced net income of $19 $6 million or $1.22 per diluted share for the fourth quarter of 2024, compared with net income of 20.0, a million dollars or $1.25 per diluted share for the respective prior year period.
Chuck: Net income for the full year, 2024 totaled $79 $6 million or $4.93 per diluted share compared to $82.2 million or $5 13 per diluted share during the full year 2023, while noninterest income increased dream.
Chuck: Periods net income was negatively impacted by expected lower net interest income and increased noninterest expense.
Chuck: Interest income on loans increased during the fourth quarter of 2024 compared to the respective prior year period, reflecting strong loan growth that more than offset a lower yield on loans.
Chuck: Average loans totaled $4 five $7 billion during the fourth quarter of 2024 compared to $4.18 billion during the fourth quarter of 2023.
Chuck: Our yield on loans during the fourth quarter of 2024, well was 12 basis points lower than the fourth quarter of 2023, largely reflecting the aggregate 100 basis point decline in the federal funds rate during the last four months of 2024.
Chuck: Interest income on loans increased during the full year 2024 compared to the full year 2023.
Chuck: Reflecting strong loan growth and a higher loan yield.
Chuck: Average loans totaled $4.43 billion during 2024 compared to $4.05 billion in 2023.
Chuck: The yield on loans was 36 basis points higher in 2024 than it was in 2023, primarily reflecting the aggregate 100 basis point increase in the federal funds rate during the first seven months of 2023, which more than offset the aggregate 100 basis point decline in the federal funds rate that are in the lab.
Chuck: Two four months of 2024.
Chuck: Interest income on securities increased during the fourth quarter and full year 2024 compared to the respective prior year periods, reflecting growth in the securities portfolio and a higher interest rate environment.
Chuck: Interest income on interest, earning deposits a vast majority of which is comprised of funds on deposit with the Federal Reserve Bank of Chicago also increased three in the 2024 periods compared to the prior year periods, largely reflecting a higher average balance in total interest income was $8 $7 million.
Chuck: And $51 million higher during the fourth quarter and full year 2024, respectively compared to the respective prior year claim periods.
Chuck: We recorded increased interest expense on deposits during the fourth quarter and full year 2024 compared to the respective prior year periods.
Chuck: Primarily reflecting a higher interest rate environment and growth in money market and time deposit products are.
Chuck: Our cost of deposits was 42, and 92 basis points higher during the fourth quarter and full year 2024 compared to the respective prior year periods.
Chuck: Average deposits totaled $4.52 billion during the fourth quarter of 2024 compared to $3 8 billion $8 billion. During the fourth quarter of 2023, while average deposits totaled $4 to $3 billion during the full year of 2024 compared to 3.76.
Chuck: Billion dollars during the full year 2023.
Chuck: Interest expense on federal home loan bank of Indianapolis advances during the fourth quarter of 2024 was similar to that of the fourth quarter of 2023, reflecting an offsetting lower average balance and higher average cost interest expense on federal home loan bank of Indianapolis advances during the full year 2024.
Chuck: <unk> was higher than during the full year 2023, reflecting a higher average balance and average rate.
Chuck: Interest expense on other borrowed funds during the 2024 periods was similar to the respective prior year periods.
Chuck: In total interest expense was 9.0, a million dollars and $52 $6 million higher during the fourth quarter and full year 2024 compared to the respective prior year time periods.
Chuck: Net interest income declined zero point $3 million and $2 $5 million during the fourth quarter and full year 2024 compared to the respective prior year time periods.
Chuck: Impacting our net interest margin was our strategic initiative to lower the loan to deposit ratio, which generally entails deposit growth exceeding loan growth and using the additional monies to purchase securities. A large portion of the deposit growth was in the higher costing money market and time deposit products, while the purchase securities.
Chuck: Abide a lower yield than loan products.
Chuck: Our net interest margin declined 51 basis points during the fourth quarter of 2024 compared to the fourth quarter of 2023.
Chuck: Our yield on earning assets declined 14 basis points during that time period, largely reflecting the aggregate 100 basis point decline in the federal funds rate there in the last four months of 2024, while our cost of funds was up 37 basis points, primarily reflecting an increased mix of higher costing money market and time deposits.
Our net interest margin declined 47 basis points during the full year 2024 compared to the full year 2023, while our yield on earning assets increased 34 basis points during that time period, our cost of funds was up 81 basis points.
Chuck: Well, we experienced rapid growth in our earning asset yield during the period of March of 2022 through July of 2023.
When the federal reserve raised the federal funds rate by 525 basis points meaningful increases in our cost of funds did not begin to materialize until the latter part of 2022 when competition for deposit balances increased deposit rates and depositors' began to move funds from NAU and lower costing deposits.
Chuck: Types to higher cost in deposit products.
Chuck: Our net interest margin peaked during the latter part of 2022 and early stages of 2023.
Chuck: While loans increased $297 million during 2020 for almost 7% the privates grew $797 million or over 20% there at the same time period.
Chuck: Providing a net surplus of funds totaling $500 million we.
Chuck: We use that net surplus funds to grow our securities portfolio by $113 million and reduce our federal home loan bank of Indianapolis advances by $81 million.
Chuck: Majority of the remainder of the net surplus of funds is on deposit with the Federal Reserve Bank of Chicago.
Chuck: We recorded a provision expense of $1 $5 million and $7 $4 million during the fourth quarter and full year 2024, respectively.
The fourth quarter of 2020 for provision expense, primarily reflects an increased allocation for slower prepayment speeds on residential mortgage loans and allocations necessitated by net loan growth.
Chuck: The provision expense recorded during the full year 2024 also includes specific allocations for two nonperforming non real estate related commercial loan relationships that were established during the first and second quarters, along with allocations necessitated by net loan growth.
Chuck: Noninterest expenses were $3 $9 million and $10 $5 million higher than the fourth quarter and full year 2024 compared to the respective prior time periods.
Chuck: The increase is largely reflect higher salary and benefit costs, including annual merit pay increases market adjustments higher residential mortgage lender commissions lower residential mortgage loan deferred costs salary cost and increased medical insurance costs higher.
Chuck: Higher data processing costs also comprised a notable portion of the increased noninterest expense levels, primarily reflecting higher transaction volumes and software support costs, along with the introduction of new cash management products and services.
Chuck: Contributions to the Mercantile Bank foundation totaled $1.0 million and $1 $7 million during the fourth quarter and full year 2024, respectively compared to zero point $3 million and zero point $7 million during their respective prior year periods.
Chuck: We remain in a strong and well capitalized regulatory capital position, our bank's total risk based capital ratio was 13, 9% at the end of 2024 about $214 million above the minimum threshold to be categorized as well capitalized we did not repurchase shares during two.
Chuck: 24, we have $6 $8 million available in our current repurchase plan.
Chuck: On slide 23 of the presentation, we share our assumptions on the interest rate environment and key performance metrics for 2025 with the caveat that market conditions remain volatile making forecasting difficult.
Chuck: This forecast is predicated on no changes in the federal funds rate during 2025.
We project loan growth in a range of 5% to 7%.
Chuck: And we are forecasting our net interest margin to be in a range of three 3% to three 4% during all time periods.
Chuck: Expected results for noninterest income and noninterest expense as well as our federal income tax rate are also provided for your reference in closing we are very pleased with our 2024 operating results and financial condition and believe we mean, we will remain well positioned to continue to successfully navigate through.
Chuck: The myriad of challenges faced by all financial institutions.
Chuck: That concludes my prepared remarks, I'll now turn the call back over to Ray.
Speaker Change: Thank you Chuck that concludes our prepared remarks from management, we will now move to the question and answer portion of the call.
Speaker Change: We will now begin the question and answer session to.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
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Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our first question is from Brendan Nosal with Hockey Group. Please go ahead.
Speaker Change: Hey, good morning, guys John on for Brendan.
Speaker Change: Good morning.
Speaker Change: So I wonder if we could just start with the margin I know you're your guide calls for no changes in short term rates can you maybe just add some color on how the margin outlook would change if we end up getting say one to two rate cuts this year.
Chuck: Yeah sure this is Chuck.
Chuck: As you would expect we've been through a lot of different scenarios as we put our budget together for the year and if we are looking at a one or two declines in the fed funds rate during the first half of this year, we'd be looking at somewhere a margin of about five basis points lower.
Chuck: What we're projecting if rates don't change.
Chuck: For the whole year has stick very helpful. Okay, well that's very helpful.
Chuck: And then maybe just pivoting to loan growth the outlook looks pretty healthy and definitely keeping with what you generated in 2024 can you maybe just offer a little bit of detail on where you might be seeing pockets of strength in and maybe areas of weakness.
Ray Reitsma: So the this is ray the areas of weakness of the automotive suppliers that we bank are coming out of the weakness that we've identified in prior quarters.
Ray Reitsma: But I'd say, there's still under their average state of being so I'd say, that's probably the the area that we're watching the closest but they do report.
Ray Reitsma: That they picked up work and that the outlook is improving and then everything.
Ray Reitsma: Everything else is fairly even CNI opportunities around transition in ownership and and alike continue to be strong and.
Ray Reitsma:
Ray Reitsma: The real estate markets that we serve are you know pretty firm as well. So I'd say, there really isn't much change to what we've experienced in the recent past.
Speaker Change: Fantastic that's all for me and congrats on the quarter.
Ray Reitsma: Thank you.
Speaker Change: The next question is from Daniel Tamayo with Raymond James. Please go ahead.
Daniel Tamayo: Thank you good morning, guys.
Daniel Tamayo: Or.
Speaker Change: Yeah, maybe we start just on the on the loan deposit initiative Ray our guys have really made some some significant progress there and are not a lot of time and gotten the loan deposit ratio down to 98% already so curious I know you've talked about in the past getting that's a mid nineties range.
Daniel Tamayo: If that's still the goal.
Daniel Tamayo: And then.
Daniel Tamayo: You know as we think about that bigger picture is there any impact that that's having on loan growth.
Daniel Tamayo: And in your mind, and and as you get or approach that that goal.
Daniel Tamayo: Is there is there some kind of change in the way that you would be thinking about loan or deposit growth following that.
Daniel Tamayo: Yeah I appreciate the question.
Daniel Tamayo: What we've tried to do is focus on our deposit base in a way that is not to the detriment of long growth and one of the key components of that is the rather artful way that our mortgage department has continued to meet the needs of the community in an increasing way an increase.
Daniel Tamayo: Market share.
Daniel Tamayo: Yeah.
Daniel Tamayo: Fewer of those on the balance sheet. So we ended up in a position, where we actually shrunk the portfolio slightly and in this environment on the commercial side, we really haven't talked about reining in at all but it's more of a shift in focus to.
Daniel Tamayo: Our clients that have stronger deposit characteristics than average are in our prospecting efforts and as a result, we've been able to you know make the mathematical moves that you see in this entire year the first quarter of next year.
Daniel Tamayo: Seasonally challenging one for us as a tax payments and bonuses flow all of our commercial clients accounts.
But we expect to continue the progress that we've made in the mid Ninety's is still the goal.
Daniel Tamayo: Great and then do you have thoughts on on what you expect to achieve or or think is a reasonable number for deposit growth.
Daniel Tamayo: Yeah.
Daniel Tamayo: I think that to repeat this year is a tall order so probably something you know in the low double digits are would be more along the lines of expectations certainly won't stop our efforts there, but that's where our expectations are.
Daniel Tamayo: Terrific.
Daniel Tamayo: And then just one more for me on CRE concentration. So you had to the mix shift in the loan portfolio that that caused that that concentration to go up a little bit I mean, you're still not.
Daniel Tamayo: At or near 300 per cent, but you're closer does that enter your mind as you.
Daniel Tamayo: Ah think about loan growth I'm, just curious how you guys I mean, you've got a slide on it but just curious how you're how you're thinking about that in the overall.
Daniel Tamayo: Yeah. The way, we haven't thought of it the way we think about it hasn't changed at all and C&I was up a little bit less AR at the end of this year, but we don't expect that to necessarily persist. We think our mix will remain fairly consistent in the 50 545.
Daniel Tamayo: <unk> sort of split that we've shown for a large number of years and yeah. This is Doug I'll add something else as well, it's still relatively significant our volume up construction loans to fund as we sit here today compared to what was you know 12 to 18 months ago was down quite a bit I would say about 100 to 120 million.
Daniel Tamayo: So it's still a significant number I think overall, it's a fund.
Daniel Tamayo: But it's not as significant because in 2024, we funded a lot of that and.
Daniel Tamayo: The pipeline just isn't quite as strong as it was in the past so long long way of saying that the the growth in the CRE will be a little bit lesson because of less funding of construction loans.
Daniel Tamayo: And in general.
Daniel Tamayo: Housing stock is in short supply in the markets that we serve and that's really what pushed that number slightly up.
Daniel Tamayo: And.
Daniel Tamayo: I think that that's still a true statement about our markets that they're short on housing stock but.
Daniel Tamayo: We expect our proportions to follow what we've shown historically.
Daniel Tamayo: Terrific. Thanks Ray Thanks Chuck.
Daniel Tamayo: You're welcome.
Speaker Change: The next question is from Nathan race with Piper Sandler. Please go ahead.
Nathan Race: Guys. Good morning, we're seeing more lately.
Speaker Change: Thanks.
Speaker Change: Just a question on kind of the size of the securities portfolio going forward. Obviously, you know you've grown it here in <unk> and you have you know still pretty strong deposit growth aspirations going forward. So just curious how youre thinking about the size of the securities portfolio going forward, and what you're seeing or expecting in terms of us and.
That's been rates there.
Speaker Change: Yeah. This is Chuck we're expecting continued growth in our securities portfolio. This year as it is a recipient of the additional funding with deposits exceeding loans I would expect in the long term that that probably kind of goes up to maybe the 15 16, perhaps the 17% range and Thats, where we would be.
Speaker Change: <unk> with a loan deposit ratio in the mid nineties are so I would expect that you know if we keep loan and deposits around the mid nineties, which is likely our expectation at least in the near term on the securities portfolio.
Speaker Change: Portfolio will be somewhere in that 15% to 17% range part of that is how much money. We just we continue to keep at the Federal reserve when we look at on balance sheet liquidity and look at the environment.
Speaker Change: Regulatory encouragement [laughter] those types of things, if we bring that down and I might add another basis point or two to the securities portfolio, but at least in the short term say 2025, we expect our on balance sheet liquidity, primarily that balance at the fed that to remain relatively high.
Speaker Change: Got it that's helpful.
Speaker Change: And just going back to the margin discussion you know curious how would you kind of think about the trajectory of loan yields just given what youre seeing in terms of new loan pricing. These days, assuming the fed remains on pause at least over the next quarter or two.
Speaker Change: Yeah, I think you know we continue to be very village.
Speaker Change: <unk> and how we price loans, that's a it's absolutely learned during the great recession that we needed to be vigilant in making sure that we're getting paid for the risk and obviously taking into account our cost of funds. So I think our loan pricing when we look at our spreads which a lot of that's driven by the loan grade obviously as well as competition I think we can.
Speaker Change: As we employ that formula and we maintain our discipline I think we've continued to get the loan rates that are commensurate with the risk as well as what's going on with market rates. So really no concern on how we're pricing loans and then on the deposit side, especially with growth a lot of our loans are floating rate.
Speaker Change: As we talk about a lot, but what we have seen is on the deposit side that deposit structure, especially with the growth in the money market, which in large it's not legally or very little of it's legally tied to fed funds rate, but the way we manage it will.
Speaker Change: It will be tied to fed funds rate, we get some really good strong matching.
Regardless of what rates do.
Speaker Change: And again our goal is to be is it interest rate agnostic as we possibly can to.
Speaker Change: To build our balance sheet that whether rates go up or down or sideways whatever they do.
Speaker Change: That has a nominal impact on our net interest margin and then really you know.
Speaker Change: I think that that's that's that's our strategy and we think that that makes sense and I think what we've seen over the last couple of years, especially in 2024 are that that is a successful strategy for us.
Okay, great. Thanks, and then trucking.
Maybe one last one for me just curious how comfortable you guys are allowing capital levels to build over the course of this year before maybe before maybe contemplating some more significant deployment of excess capital. So just any thoughts on just kind of a comfort range for maybe TCE or some of the other.
Speaker Change: Capital levels is a 2025 progresses.
Speaker Change: Yeah, I think I don't really foresee any significant change in our capital the way that we've been managing that certainly in 2024, and I would say before that.
Speaker Change: A year or two.
Speaker Change: We wanted to be very judicious in maintaining I would say relatively strong capital ratios.
Speaker Change: For most of that is just to make sure we're supporting our loan growth of.
Speaker Change: 5% to 7% loan growth is still a very solid number and of course, it takes capital to manage that.
Speaker Change: We do we have and we announced today that we continue to increase our cash dividend.
Speaker Change: Typically do that twice a year and don't have any plans to change that notwithstanding obviously anything that's going on with our performance or anything in the marketplace. So.
Speaker Change: So I would say if you looked at our capital position, we look at our growth rate in our overall earnings expectations is that our capital will remain relatively steady as we go forward that are retained earnings basically supports our capital girl.
Speaker Change: Oh, excuse me, our loan growth and overall asset growth and we're pretty comfortable with where the capital ratios are at currently.
Okay, Great I appreciate all the color thanks, guys Youre welcome.
Speaker Change: Again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Damon Delmonte with K B W. Please go ahead.
Damon Delmonte: Hey, Good morning, guys Hope you guys are all doing well and then new year's off to a good start I'm just a couple of quick follow ups here and you know as we think about credit and provisioning.
Damon Delmonte: I'm, obviously very strong credit trends with a very low npls and it seems like the underlying trends continue to support that kind of outlook. So how Chuck could you give us a little insight on how to think about the provision going forward.
Damon Delmonte: It seems like it will just be driven by the pace of loan growth is that a fair way to look at it.
Damon Delmonte: That's the way we're looking at Damon is that a large percent of the provision that we're excited for 2025.
Damon Delmonte: Is necessitated by loan growth we.
Damon Delmonte: We think the economic environment will be will remain relatively stable knock on wood. So we don't see a lot of provision in one way or the other because of great changes and those types of trends that we might see in the loan portfolio and yeah. We're budgeting.
Damon Delmonte: As what we have seen from this company for a decade now has relatively low loan losses, and we think that that well looking at our or our current asset quality again on an expected steady economic environment and at least in the near term, we expect a pretty low level of net charge offs for 2002.
Damon Delmonte: Five.
Damon Delmonte: Okay, Great and then I know, there's seasonality here through the winter months with mortgage banking, but could you just give us an update on the mortgage banking pipeline and kind of you know with the shift in the approach to that business line kind of what the outlook is for 25.
Damon Delmonte: So are the current state of our pipeline is I'd say seasonally strong Ah it's held up quite.
Damon Delmonte: Quite well through this quarter and in spite of a material deterioration in the weather and AR and the ability to view a home that you consider purchasing and I think I'll, let Chuck speak to how we view that.
Speaker Change: Factored into next year, Yeah, I think if you look at our you know the guidance that we gave on page 23, I think when you look at that change quarter to quarter in fee income that really is reflective of the seasonality of the mortgage operation.
Damon Delmonte: Got it okay.
Damon Delmonte: Great and then I guess, just lastly kind of a modeling.
Damon Delmonte: Modeling question here for that.
Damon Delmonte: Your guidance for the tax rate is 19% next year or this quarter was was lower AR was it just some year end true up items that caused the lower tax rate this quarter.
Damon Delmonte: Mostly some true up and it was really related to what we started about 18, almost 24 months ago.
Damon Delmonte: Is are our activity associated with low income housing tax credits and historical tax credits.
Damon Delmonte: That operation has gone fantastically, we're very very happy with the trends that we see and those types of things take a while before they start settling into our income statement and we saw some of that happening in 2024, but really didn't book much of that until the last quarter as we made sure that we understood.
Damon Delmonte: The entries in the performance of the activities that we're engaged in we think that that will continue to be an increasing impact on our overall profitability and we see that with a tax rate of stay that was 20% over the last few years are getting down to 19% and we're hopeful that as we go forward in that operation continues to be.
Damon Delmonte: Successful that we can bring that rate down even more but for the for the fourth quarter. There was definitely some true up and most of that was related to those activities.
Damon Delmonte: Got it great. That's all that I had a nice quarter. Thank you.
Damon Delmonte: Thanks, Tim and thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Ray Reitsma for any closing remarks.
Speaker Change: Thank you for your participation for your participation in today's call and for your interest in the bank that concludes today's call.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Right.
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