Below is transcript of the Mercantile Bank Corp. (NASDAQ:MBWM)’s 4th Quarter 2014 Earnings Result Conference Call, held on January 20, 2015, at 10:00 a.m. EST. Castine Capital Management, Elizabeth Park Capital Management and Renaissance Technologies was among Mercantile Bank Corp. (NASDAQ:MBWM) shareholders at the end of the third quarter.
Mercantile Bank Corp. (NASDAQ:MBWM) is a bank holding company. The Company owns Mercantile Bank of Michigan (the Bank). The Bank is a state banking company. The bank, through its seven offices, provides commercial banking services primarily to small-to medium-sized businesses and retail banking services in and around the Grand Rapids, Holland and Lansing areas.
Company Representatives:
Michael H. Price – President and Chief Executive Officer
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary.
Analysts:
Damon Demachi – KBW
Matthew Forgotson – Sandy O’Neill & Partners
John Rhodes – FIG Partners
Daniel Cardenas – Raymond James
Steven Galson – TA Davidson
Operator
Good morning and welcome to the Mercantile Bank Corporation 4th Quarter 2014 earnings result conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by “0”. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1, on your touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded. I would now like turn the call to Robert Burton with Lambert Edwards. Please go ahead.
Robert Burton:
Thank you Andrew, good morning everyone and thank you for joining Mercantile Bank Corporation Conference Call and Webcast to discuss the company’s financial results for the fourth quarter and full year 2014. I’m Bob Burton with Lambert Edwards, from Mercantile’s Investor relations fund and joining me are members of their management team including Michael H. Price – President and Chief Executive Officer, Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary and Charles E. Christmas – Senior Vice President, Chief Financial Officer. We will begin the call with management’s prepared remarks and then open the call up to questions. However, before we begin today’s call, 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.
The company’s actual results could actually differ materially from any forward-looking statements made today, due to the important factors described in the company’s latest Securities and Exchange Commission Filings. The company assumes no obligation to update any forward looking statements made during the call. If anyone does not already have a copy of the press release issued by Mercantile today, you can access it at the company’s website www.mercbank.com. At this time I would like to turn the call over to Mercantile’s President and Chief Executive Officer. Mike Price. Mike?
Michael H. Price – President and Chief Executive Officer
Thank you Bob, good morning everyone, thank you for joining us to discuss our fourth quarter at full year 2014 results for Mercantile Bank Corporation. I’ll be followed by our CFO Charles E. Christmas who’ll provide details on our financial results, followed by COO Robert B. Kaminski Jr, who’ll read comments regarding group initiatives, merger emigration and essay quality. Hopefully, you’ve all had a chance to review the quarterly performance which was highlighted by return to solid logo, as well as through the progress, that our successful immigration of our first break operations. The fourth quarter results concluded a truly transformational year for our company. As part of our strong capital position, commitment to share will be returned; we also here announced a quarterly cash to the meta 14 times per share. Which was a two cent per share or 17 percent increase from last quarter’s dividend. Looking forward to 2015, we see opportunity to participate in the continuing economic recovery of Michigan as Michigan’s premiere community bank. Our business activity levels report the overall continued gains in employment in through the sixth financial which have been reported for Michigan, particularly the Grand Rapids Market.
Third quarter study of our regional economy found that employment in Michigan grew 5.3 %, but the end of nearly 2500 jobs. An increase in goods producing and government employment, the area of economic indicator was positives, suggesting job growth will continue to the top of the coming months. Letting note that the strength of positive, I will also point out that they are only modestly so. Mercantile growth in the fourth quarter improved from the third quarter, but remains below the gains we saw earlier in the year. We remained very competitive in the market at a rational and disciplined basis. As our emphasis, our relationship banking provides us with a competitive advantage that allows us to gain market share. Our expanded market area as the result of merger also provides us with new opportunities over the coming year. We look for continued low growth in the mid to upper single digits over the coming year. The overall environment continue pressure on the U curve will continue to affect this in several ways. Pressures are met at margins is fact for all banks and we’re no exception. Our outlook is that, for a steady margin over the coming year. Mercantile’s fortunate that our cost of funds to earning assets is reflecting the expected benefit of a merger with First Bank. This ratio stabilize the .44% for both the third and fourth quarters of 2014 ,significantly below Mercantile’s .84 % in 2013 and as a consequence. we’re getting the full earnings that we expected.
At this competitive day and this enhancers have spread with which we can do more business in the future. likewise, reflecting continued pressure on yield for it making it rebound in the fourth quarter of 2014 approving more than 20 %, but continues to run at a rate where the First Bank and Mercantile combined which is a year earlier. Our markets continue to be externally competitive, but we are encouraged that our pipe wire belongs remain strong that I will discuss in a moment. We have a great team placed and look forward to new activity as the year progresses. At this time I’d like to turn the call over to Chuck.
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer
Thanks Mike and good morning everybody. This morning we announced net income of 6.3 million dollars for the fourth quarter of 2014. And net income was 17.3 million for all of 2014. At a deluded earning per share basis, we are in 37 cents per share during the first quarter and a dollar twenty-eight per share during all of last year. Our fourth quarter in the earnings result have been significantly affected by the merger with First Bank Corporation which was consummated a fact of June 1st. In addition to our earnings results reflecting several months of operations of the combined organization, we recorded relatively merger related cost during 2014. Merger related cost total 0.4 Million dollars during the fourth quarter and 5.4 million dollars during all of 2014. And after tax basis that equates to 0.2 million or penny per average deluded share during the fourth quarter and about 3.89 dollars or 28 cents per average deluded share for all of 2014. We do not expect any further significant merger related costs in future periods.
We are pleased with our financial conditions and earnings performance and believe we are very well positioned to take advantage of landings and market opportunities and deliver success as a strong community bank for our shareholders. Our net interest market continues to reflect the benefit of the First Bank Merger. We recorded a net interest margin of 3.79 % during the fourth quarter of 2014 and an average of 3.87 % during the third and fourth quarter. This compares to the first and second quarter of 2014 averaged at interest margin of 3.52%. In majority of the improvement reflects First Bank’s lower cost of funds and purchase economy entries relating to fair value adjustments associated with the merger. Our net interest margin during the fourth quarter of 2014 declined compared to the third quarter of 2014. Primarily reflecting a higher volume of low yielding overnight investments. In addition, our third quarter net interest margin was possibly affected by the collection of higher commercial loan repayment fees and the receipt of interest on a loan that fully paid off during the quarter. We recorded loan discount discretion totaling 1.5 million dollars during the fourth quarter and 3.2 million dollars since June 1st, based on our most recent evaluations, we currently expect to record further loan discount discretion totaling about 1.2 million dollars per quarter during 2015. Actual creation amounts recorded in future periods may vary due to a variety of reasons including periodic re-estimations and the payment performance of the acquired loan portfolio.
We recorded time and at the top of advance amortizations totaling 0.6 million dollars during the fourth quarter of 2014 and 1.4 million dollars during since June 1st. We expect to record further amortizations totaling 0.6 million, during the first and second quarter of 2015 and 0.2 million dollars during the third quarter of 2015. As we know that in prior merger related FSC filings, these particular thorough adjustments will be completed at the end of July this year. We have also recorded trust preferred security amortization since the merger was consummated, totaling 0.2 million dollars during the first quarter and about 0.4 million dollars since June 1st. Unless, we call all or part of our trust preferred securities which currently we have no plans to do, we expect to record further amortizations totaling 0.2 million dollars per quarter into the year 2036. We expect our net interest margin to be in a range of 3.80 to 3.85% during the first and second quarters of 2015 and then decline slightly to a range of 3.75 percent to 3.80 per cent during the third and fourth quarter of 2015.
The primary reason for the anticipated decline is due to the elimination of the time deposit and average of the advanced amortizations in July. While the ongoing very low interest rate environment continues to exert constant pressure on our net interest margin, we expect to use low-yielding excess overnight investments and cash flows from monthly pay downs on lower yielding mortgage backed securities and periodic maturities and calls on lower yielding U.S government agency and masco bonds to fund a large portion of our expected loan growth throughout 2015. Reflecting, the market’s current 2015 interest rate forecast which includes a 25 basis point increase in the federal funds in prime rate during the third and fourth quarter; we have modeled such increases as part of our 2015 budget process. Prior or budget income simulations has grows prior from 10k using 10ks and it is confirmed in our budget process.
The forecasted increases in short term interest rates are expected to have only a nominal impact on our interest margin. Our loan portfolio, combined with recoveries of prior period loan charge offs and the eliminations of and reductions in many specific reserves had produced a positive impact on our loan loss reserve calculation and allowed us to make no or negative provisions in eight consecutive quarters and ten out of last eleven quarters. We recorded no provision expense during the fourth quarter of 2014. A negative provisions totally in 3.0 million dollars during our off 2014. Gross loan charge-offs totaled 0.5 million dollars during the first quarter and 1.5 million dollars during all of 2014.
Recoveries of prior pre-loan loan charge-offs totaled 0.1 million and 1.7 million during the same time periods respectively and for all of 2014 we recorded net recovery of 0.2 million dollars. Our low lance reserve was 20 million dollars at the end of the fourth quarter or 1.54 percent of total originated loans that remained higher than our historical average system. We recorded non-interest income of 3.3 million dollars during the fourth quarter of 2014. A fifteen percent improvement over the third quarter. We recorded improvement in virtually every fee income category with a 21 percent improvement in mortgage banking income leading the way. Knowing that mortgage banking income can be difficult to forecast, we currently expect non-interest income to come in around 3.0 million to 3.3 million in third quarter in 2015.
Non-interest expenses during 2014 were significantly impacted by merger related cost totaling 0.4 million dollars during the fourth quarter and 5.4 million dollars for the whole year. As noted earlier, we expect no further significant merger related cost in future periods. As originally projected, we expect to realize savings over practically 5.5 million dollars annually. We realized the portion of the costings during the third quarter and we realized a vast majority of them by the end of the fourth quarter. We expect to realize a 100 percent of the estimate for all of 2015. We are currently projecting quarterly non-interest expenses to total in arrange of 18.7 million to 19.0 million during 2015. Our effective tax rate for 2015 is expected to be around 31-32 percent. We remain a well capitalized making organization. As of December 31 our bank’s total risk based capital is 14.4 percent and a dollar worth a price 101 million dollars higher than a 10 % minimum required be categorized as well capitalized. Those are my prepared remarks on and I will now turn the call over to Bob.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary
Thank you Chuck and good morning everyone. In the fourth quarter Mercantile returned to the net growth position in its loan portfolio with funding of over 90 million dollars of loans to new and existing customers. The relationship development approach employed by our call in officers continues to resonate positively with clients and potential clients. We remain steadfastly committed to the mutually beneficial value add style banking as opposed to focusing mainly on price and has been the primary tactic of many of our competition. With our knowledgeable staff and bankers worry of generating comprehensive banking packages with cash managing products including our payroll processing to service all of our clients financial needs.
Fourth quarter funding was generated in a fashion over a wide range of loan types not occupied real estate, owner occupied real estate and commercial and industrial lending. Mercantile should benefit with a good tail wing for construction funding over the course of 2015 as we presently have about 150 million dollars in commitments where the billing construction has begun and advances have start to fund. Our old pipeline remains strong as we enter 2015 and we are projecting net loan growth in the range of 180-200 million dollars for the year.
Well, we expect long growth in all of our markets we anticipate the most significant opportunities will be available in Grand rapids, Kalamazoo, Lansing but meaningful growth also Mount Pleasant and Cadillac. Our competition remains quite intense in these and all of our markets that continue to be encouraged and are calling them as energized by the response to our client outreach efforts. But the significant part of the merger integration and transition complete we are now embarking on some major revenue enhancement, expense mitigation and business e initiatives. One tremendous opportunity we are receiving merger with the introduction of our full swing of treasure projects in our new markets. Our staff is identifying clients who benefit from these products, and our reach has been well received. Another project focuses on leveraging retail mortgage opportunities, especially in our largest market in Grand Rapids.
We are also looking at potential sources of new non-interest income involving fee structure and frequency with a special focus on relationship based pricing on various products. Additionally, we have an initiate that focuses on gaining efficiency and all our areas of organization including revisiting processes and procedures, then are relations and supply procurement as well as facility maintenance issues. Finally, we are exploring new customer sales opportunities resulting from customer dislocation and some of our competitive banks have been recently acquired in our markets. Although my prepared comments, I would be happy to answer questions during the Q and A and turn it back over to Mike now.
Michael H. Price – President and Chief Executive Officer
Thank you Bob and also thank you Chuck for your comments. Andrew its time we’d like to open up the conference for questions.
Operator:
We will now begin the question and answer session. To ask a question you may press star then 1 on your touch tone phone. If you are using a speaker phone please pick up your handset before pressing the keys. To withdraw your question please press star and then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Damon Demachi of KBW. Please go ahead.
Damon Demachi – KBW:
Good Morning guys, how are you? The last thing that was being discussed regarding the, like looking up facilities and things like that. Is that a more a broad day expansion that you are looking to employ in 2015?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary
We are looking at how we manage our facilities on a global basis, because in parts of the merger our facilities were handled different manners throughout the organization. Centralize everything, it is done consistently in a manner that’s consistent throughout the company and it will take some of those responsibilities away from the people that are on the front line and allow them to do more positive things such as selling to customers, so taking some of those back from function and centralizing them for gain in efficiency.
Damon Demachi – KBW:
Okay, and would that include the actual physical location of the branches of the foot prints? Do you have any intention of you know doing some sort of branch optimization?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary
We are looking at a wide range of opportunities within how we do business in our branches and making sure that it’s consistent, so customer has a consistent experience as they go to any of our locations and, so the mission is broad ranged and we look at a wide variety of potential opportunities for our inefficiencies.
Michael H. Price – President and Chief Executive Officer
It’s really focused on the operational part rather than looking at you know branch by branch profitability, however that clearly is always on our radar from time to time review. The Real focus is not just particular initiative is the general role operating efficiency of the bank.
Damon Demachi – KBW:
Got it okay thank you. A question on the margin price for Chuck, you know if I look at the yield on loans quarter of a quarter they went from 503 down to 490. I know you mentioned some prepayment incoming last quarter results. How much of that 13 basis point decline was related to the access commercial income from loan paths.
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer
You know, the reason why you see that decline Damon was as you mentioned the prepayment penalties that we collected during the third quarter and we also had a non-accrual loan that paid off in full that had a pretty sizable accrued interest bounce that obviously, we wanna accrue in for but the customer owed us and that accounts for virtually all of it. That actually covers a vast majority of it. The other reason as we just talked about and I’m sure all the banks are talking about is the low rate environment and when you know we put in loans on they are typically at a rate that’s lower than what our average rate is and certainly, I think Mike touched on it briefly. It’s very competitive out there and we are obviously trying to stick to our policies and our guidelines. It does put pressures on the loan rates that we give and we’re putting new deals on the books.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
I mean there’s one other contributor to that and as we did put a large loan on that I believe in the fourth quarter.
Damon Demachi – KBW:
Yeah that was gonna be my next question. Could you give a bit more color around that relationship? I think around 22 million dollars.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
That’d be correct, It’s obviously one of the larger credits we have in the bank. It has been struggling yet. There are some of kind things stabilizing a little bit. But you know obviously, we don’t expect that type of an event to happen again. This quarter we won’t have any on on our lights and that looks sizable at all going out to the medical bump and such. It has been an active workout situation which is a cooperative situation between the customer and our sales personnel. We hope to have a fairly positive revolution to it, but it may take some time as credits super size.
Michael H. Price – President and Chief Executive Officer:
And just you know from the numbers perspective, that was about two basic points of our margin for the 4th quarter. And it was third if we could put a nine a crew at the end of November or early December.
Damon Demachi – KBW:
Okay. Was that disclosed as a TDR in the queue per chance?
Michael H. Price – President and Chief Executive Officer:
Yeah, that was disclosed as a performing TDR as of September 30th. And it was turned to third quarter that we put that in the TDR status per skill. So the change in the 4th quarter was to actually put it on that.
Damon Demachi – KBW:
So you’re saying it wasn’t additional?
Michael H. Price – President and Chief Executive Officer:
Right.
Damon Demachi – KBW:
Okay, good to know. That’s all I had for now. Thank you.
Michael H. Price – President and Chief Executive Officer
Thank you
Operator:
The next question comes from Matthew Forgotson of Sandy O’Neill & Partners. Please go ahead.
Matthew Forgotson – Sandy O’Neill & Partners:
Hi, Good morning everybody. Just to follow up, on the non-performer, can you give us a sense that is this one paying that degree right now and you know have you charged any of the rafts today? Just trying to get a sense of overall exposure.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Sure, to answer your question, when we put the wall 9 a cruel, it was with current with payments. As we go forward, we may change the pane of structure to give the company some relief. And some of its cash flow issues. But that would be a positive thing because that means that we’re still working by them and we think we see light at the end of the tunnel, so yeah it was current when we put it on cool ad just very conservative in the treatment. Have we charged anything off? No we haven’t. Like all loans there is a reserve against it but as you can imagine being on a cool loan at reserve is a larger than the general population of loans. Do we have an estimated lot to decide? You’ll get the call to see from the stand-point of this company that some options available to it. The distribution company and the agricultural business and there is quite a bit of interest in people purchasing either the company as a whole or purchasing the assets or the company returning to profitability. That makes some significant changes in the operating structure that could make this return to an operating loan. So, it’s kind a like really in the early stages of the rather significant workout situation, but we like the way its heading.
Okay so, not gonna press but it does sound that you wanna volunteer a dollar amount for this specific reserve held against this long.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Well, I’m not sure we’ll be actually helpful but you saw I could not agree when I was gonna lose 22 million dollars, you know if anybody thinks that this is that big of an extortion. But it’s really hard probably for a week to week changing dynamic depending on how the company is being managed and how its relationship is with us. But I would secure it for rises and I’m much concerned about it today than I was a month ago. But, it’s still you know an active workout situation.
Matthew Forgotson – Sandy O’Neill & Partners:
Okay, and then just how many other loans you have in the portfolio? You know just let’s call it north of you know 20 million, and I know they’re all performing, but you know any granularity they’ll be helpful?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Sure, we’d think that the loans will come in a handful that are north of 20 million. One of the things that we spend a lot of time doing and what we did recently for our board as we discussed, we put the merger together. Our deal lending limit is massive and we don’t go anywhere near where that number is. But one of the things we did you know back to the great recession and analyze the portfolio and look at our largest 20 credits and how they performed recently during the rest of the portfolio. But while they have the same uptake in percentage delinquency and locks as a whole those larger loans could perform significantly better than the portfolio as a whole. Again, that should be that way because loans tend to have better quality cash flow, better quality management and stronger guarantees and stronger collateral. But, we keep an eye on that protocol. And from a stand point of larger strides for the bank, and diversity, the types of credit and the types of loans that are comprising the biggest credits in that bucket.
Matthew Forgotson – Sandy O’Neill & Partners:
Okay and lastly and then I will hop out, just trying to get a sense here of earning assets now that we come across 15, it sounds to me that you’re gonna continue to re-deploy cash, cash flows from security and cash into loans. Does that mean that earning asset growth will be relatively muted across 15?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Yeah, we’re looking for growth and earning assets of probably around one, one and a half percent in that. So yeah as I mentioned as alluded to the vast majority of the net long growth we do get, it expected to come from the reallocation of the earning assets. That you know sort supports stabilized margin.
Matthew Forgotson – Sandy O’Neill & Partners:
Okay, thank you.
Operator:
The next question comes from John Rhodes of FIG partners. Please go ahead.
John Rhodes – FIG partners:
Good Moring Guys. This might be question for you Bob, could you just talk about the level of pay-downs you saw during the fourth quarter relative you know to prior quarters?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
You know the level of pay-downs probably takes up in the 4th quarter and eluded some of the gross we wanted to see otherwise. Past and a variety of reasons but there weren’t any paths that left the bank because they were the part of the bank. But they cut the asset of the company or entity, trust defying of the secondary market. Financing with insurance. So a variety of reasons and you know we’re trying to get our arms around them`. And trying to pop up unexpected situation but, I think people can manage that process and encouraged by the growth we did based on out net basis. And before, what happened to the pipeline right now, you know I’m sure we’ll have some paths in 2015. There’s nothing on the horizon right now that looks like it’s a huge detractor from the globe but sometimes things are a little unexpected.
John Rhodes – FIG partners
Okay, and can you talk a little more about the new lenders and the grand rapids and lancing market and whether they’re from bigger banks or smaller banks?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Yeah, it’s probably from a variety of different banks from a variety of different situations. You see some that come over from bigger banks, competitor banks. Some others that may come from smaller banks but they have extensive time with the larger banks and the course of their career, but we’re looking for any type of lender employee is a good well built person that you can teach how we do business in market banks and we’ve got some exhibitions with these folks. That makes contact list through years of banking in our various markets and are encouraged by what the potential for them holds for 2015 and beyond.
John Rhodes – FIG partners
Okay, and hey mike another question Mike, your thoughts on the M & A environment, you know obviously there continues to be some deals in your Michigan markets and where do you think Merkenteel stands today as the ability to do deals going forward?
Michael H. Price – President and Chief Executive Officer:
Good question John, there clearly is a line and I know you know it is. It’s made people have a lot of M & A activity going on in Michigan. There’s some fairly happy prices which one of the reasons why went along without it, which we have. The neat thing about us is when you look at our capital position, the success we’ve had in immigrating the merger equals and where we stand in the average number of Michigan banks. We continue to participate in the M & A activity or not or we continue to focus on the organic picture which is always our favorite way of growing or a bit of both. So, where we are right now, we listen, we’re active participants, and we see what’s going on out there but we try to be just like we built our organic portfolio. Very disciplined, and making sure we protect our share holders in any dissolution that we may expose them to as a proper earn back. And a proper result in the company is properly strong enough to justify doing it. So, we’re in the listening mode and sometimes a talking mode. But, if we did do the deal and spent 16-17 years doing this job then at Merkentol, if we didn’t do deal that wouldn’t surprise me. But if we did one, that wouldn’t surprise me either. Hopefully, you don’t think that’s too evasive but that’s exactly where we’re at.
John Rhodes – FIG partners
I hear what you’re saying, and maybe just one final question for you Chuck just to follow up on the one large credit that you moved to non-performing. You said that’s still paying as agreed as you structured?
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer:
Yeah, I think as mike noted it was paying at the beginning as we put it and I think what we’re trying to say is that as we work with the borrower, we may from time to time re-structure. What they do have to pay to us, you know and try to help them wipe the shift if you will, but they continue to make it’s interesting that they continue to make so it’s still coming in but again we’ve taken the contributive post and put it down. And any payments that we do get from the book stand point; we’re putting a 100% of the principal balance.
John Rhodes – FIG partners
Okay, fair enough, thanks guys
Operator
The next question comes from Daniel Cardenas of Raymond James. Please go ahead:
Daniel Cardenas – Raymond James
Hey good morning guys. A quick quality question. If you could just give me the balance of your TERs at the end of the quarter?
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer:
Yeah, I got that Dan. Performing TDRs were 22.1 million. And our non-performing TDRs were 24.9.
Daniel Cardenas – Raymond James
Great and then in terms of loan work that you saw, could you maybe give us a little bit of color as to what line utilization look like this quarter and how they compare to Q3?
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer:
Yeah, I think you know when you continue to look at the lines of credit we’re not seeing any major changes the percentage that are borrowed using the line. But we’re going because a lump of the nice percentage of that growth is what I’ve seen in our businesses. But overall we don’t see any major changes to the degree that companies are using their lines.
Daniel Cardenas – Raymond James
Okay great and just last question, if you could talk about competitive pressures and if there’s been any shift in terms of where those pressures are coming from? Are they coming more from the larger banks or is it just kind of a cross board?
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer:
You know generally, you see it comes from across the border obviously some of the credits that we’re working with 10-12 of the larger competitors as we’ve seen a lot of cases from them. But, it’s okay to see competition from small banks and credit unions that come in and work hard to take some of the smaller loan transactions. As I said my comments about banking as well as relationships and offering competitive price to the customers could be a mutual beneficial relationship. Time and time again, our customers are gonna work with us and it’ll provide a lot of intangible benefits that they’ll see that they can obtain by banking mercantile and can have and at the same time we’re seeing a competitive package for all their loans and all their financial services. They’ll see it in the track of opportunity for them to work with the bank that they can have a partnership with us for a long time.
Daniel Cardenas – Raymond James
Okay great, thanks guys.
Operator
Once again, if you have a question please press star then 1, on a touch-tone phone. The next question comes from Steven Galson of TA Davidson. Please go ahead.
Steven Galson – TA Davidson
Hey good morning. Can you give some interesting commentary about the outlook for the long growth and the loans that you’ll generate in the 4th quarter? I guess we are 90 million, looking at 2015, do you expect a pull through to pick up in 2015 and pay downs to decline the considering the pay downs may not be as high in 2015 at ongoing basis as it were, as they were in the half of 2014. So do you feel comfortable that the pull-through in your loans is like the pickup in 2015?
As, we look at our budgeting process for 2015, working with our Head Loan people and line lenders trying to get a sense as to which loan situations might be at risk for a variety of reasons that we talked about for 2014. We tried to package that into the numbers that we’re putting forth into as far as we see for potential net loan growth for 2015 and it is obviously this enactment and sometimes something you think might get somewhat higher might come out low because it is such an uncertain situation that I think we get a good job at this point at trying to identify the ones that may be at risk for paying off and obviously have a continued intense effort to drive down, watch credits and net worth credit from the bank and solve that factor into it as well, as well as some of the reasons why clients love 2014 so, what we’re seeing is that we have a strong pipeline and while somewhat muted by loan pay-offs in course we’re projecting some good traction and what we’re seeing drops at the bottom line in terms of net portfolio growth, I think.
Steven Galson – TA Davidson
OK, very good. And then, one last question. Just curious about, I know it’s a kind of a tough number to give and it varies across whatever kind of comes into the bank but as far as an average reserve at your establishment for new loans, can you kind of give us what that has been in the last, say, quarter or two?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Yeah, that’s an interesting question Steven, as we go to our migration and we see less and less chart drops which obviously, it’s a good problem to have and I should back up and say that. It’s a good problem to have but you know as our chart drops continue to be very nominal and we continue to get a lot of recoveries actually that does from a migration standpoint push down our allocation factors that we utilized specially for our commercial loan program that’s divided into five segments and we got allocation factors by grade. You know it’s gotten to the point that some of these even get it up to grade 4s and even 5s now and from the segments show a 0 allocation and then obviously adding some environmental to that but for those cases just to show everybody we did put in some of the minimalist amounts. So, long answer to your short question, but we’re probably somewhere in the 40 to 70 basis points, if I had to venture a guess for you know a day average product that we’re booking.
Steven Galson – TA Davidson
OK great, thanks again.
Operator:
The next question comes from Matthew Forgotson follow up from Sandler O’Neill & Partners. Please go ahead.
Matthew Forgotson – Sandler O’Neill & Partners
Gentlemen just one last question of the 13 FTE’s you added this quarter, I know some of your lenders, but can you just give a complexion, you know say, front-line versus back-office, you know revenue producing versus non revenue producing of those 13 FTE’s.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Yeah, Matt a vast majority of those increases have to reflect the fact that we had some of our openings at the end of September that were filled during the course of the fourth quarter so most of them would be stack into this backroom as you called it. Positions, they’re not new positions they were just vacancy’s that we had at the end of the third quarter that we have instilled.
Matthew Forgotson – Sandler O’Neill & Partners
Do you expect to continue to add to the back-office in the 15s or in perhaps 10s to take off as well?
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
No, the only thing that we continue to do is just fill in the vacancies that we have, you know having gone through the merger and over the last several months and obviously a lot of planning before that has the right people in the right jobs obviously like any company any business any enterprise continue to on an on-going basis who you got doing and how they’re doing it and you obviously wanna try and find some of the efficiencies and I’ve already spoke to that but over all we do not expect to hire any new staff, again just replacing the vacancies that may come about.
Charles E. Christmas – Senior Vice President, Chief Financial Officer and Treasurer:
And now, that we’ve merged for a while, a better picture emerges as to the proper allocation of FTEs and you know Bob talked about that earlier, that one of the key parts of the possibility initiatives that we’re taking a look at, is do we have the right people in the right places, are we doing things the way that are most efficient. I’m sure we will find some opportunities there but we really are getting into that now because you might imagine when we put an M.O.E together in the middle of the year the first thing you gotta protect is your customer base and your operational integrity and we’ve done a real good job at that, it’s a great staff it’s really hard to do that. And now we’re getting into more, ok, how do we act, how do we do why, are there opportunities there, how do we best do it. This is what we’re really now adding to the staff other than, as Chuck said, that we will replace folks that do leave or retire whatever. And we may not replace work for work we may be able to find some efficiency that we like so that’s kind of where we’re at.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Yeah, a lot of what the practice involves is going back and looking at some of the assumptions that we made in preparing for the merger now that the merger’s occurred and up and settling to look back and see how are the efforts that we made, are there some scope adjustments that we can make to retrieve more efficiency, are there some opportunities to shift some job responsibilities around top make sure the people’s skills are matched with the job that they’re doing and we all believe that there’s some opportunities there that’s why we’re excited about that potential where to begin to tune the machines and make sure the efficiencies are such that there’s a good match with skills and jobs and it’s running in a way that doesn’t grow the operational expenses.
Matthew Forgotson – Sandler O’Neill & Partners
Thank you.
Robert B. Kaminski Jr. – Executive Vice President, Chief Operating Officer and Secretary:
Thank you.
This concludes our question and answer session, I would like to turn the conference back over to Michael Price, President and CEO for the closing remarks.
Michael H. Price – President and Chief Executive Officer:
Thank you Andrew, and thank you to all of you for your interest in our company and we look forward to talking again with you next quarter. With this, I will end the call.
Operator:
The conference is now concluded, thank you for attending today’s presentation. You may now disconnect.
