Tim Crane: A little bit. And our expenses, to Dave’s point earlier, tend to trend up a little bit in the second and third quarter generally related to marketing. But in the insurance portfolios, we are very efficient. And so, incremental volume, while it has an expense impact, is not a big driver. And so, I would think you would expect modest changes, not kind of trajectory changes with strong loan growth.
Terry McEvoy: Great. Thanks for taking my questions.
Tim Crane: You bet.
Operator: Thank you. Our next question comes from the line of Nathan Race of Piper Sandler. Please go ahead, Nathan.
Nathan Race: Yeah. Hi, guys. Good morning.
Tim Crane: Good morning, Nathan.
David Dykstra: Good morning.
Nathan Race: [Can you] (ph) kind of talk about credit trajectory for you guys maybe in terms of charge-offs? I mean, you guys have obviously had excellent credit trends for several years now. So, just curious how you kind of think about kind of a normalized charge-off rate for you guys going forward in a higher for longer environment.
Tim Crane: Yeah. Go ahead.
David Dykstra: I’ll chime in and then Rich can chime in. But we’re in the 21 basis point range or so this quarter and in the teens generally before a couple of quarters in the singles. But I think we generally think that we write to sort of a 20 basis points to 25 basis points of the loss rate. And we haven’t been there for a number of years, right? So, we keep thinking things will normalize over time. But we think if you’re in that 20 basis point or less — 20 basis point, 25 basis point or less, it’s sort of a reasonable range to be in. And so, I think 20 basis points to 25 basis points is what we think of as normal. And over the course of the year, we haven’t seen that recently, but a little trend up in this quarter. We had some larger ones, but as we talked about, we fully reserved for most of those in prior quarters. So, just kind of clearing them out and be proactive, but…
Richard Murphy: No, I think I would agree with everything Dave said. And the other thing I would just kind of keep in mind is it’s not necessarily linear. As you see with a lot of other banks, there’s one-off. So things just happen. So periodically, you could have something higher, but I think you’ll see a lot lower, too. So — but if you take a look over time, I think what Dave said is exactly true around that 20 basis point to 25 basis point range.
Nathan Race: Okay, great. And then I noticed the office CRE portfolio grew a good amount in the quarter. Just curious in terms of what type of opportunities you’re seeing both in terms of the type of office and also in what geographies as well?
Richard Murphy: Yeah. Good catch. Right now, as you can imagine, there is very little appetite out there for office. But we have seen — as we’ve talked about on other calls, we have seen some opportunities out there where they’re owner-occupied, well-tenanted, and in this case, these were medical office situations, but you can really get very good structure in terms of just overall equity contribution and pricing as well. So, we look at it and we don’t think that our exposure here is — we’re certainly not overweight in that category. And we think we have some room not that we’re out there trying to actively grow that portfolio, but when you see those opportunities, and it’s great to be out in that market and still have availability.
Tim Crane: I mean, not that we’re looking for office deals, but consistency matters to our clients and it’s important for us to be in the market. And as others sort of sit on the sidelines, we think we’re getting terrific opportunities.
Richard Murphy: Yeah. From a — to your geography question, generally speaking, our portfolio, it tends to be more Midwest-focused not exclusively, but in this case, this was a Midwestern-based opportunity.
Nathan Race: Okay. Great. And then maybe just one last one, if I could for Tim. In light of the acquisition announcement earlier this week, you guys are — it seems like that should be accretive to your capital ratios going forward. So just curious to hear kind of the appetite for additional acquisitions over the next year or so, particularly as you maybe look to fill in up towards the Grand Rapids area potentially.
Tim Crane: Sure. Number one, we think we’re reasonably good at acquisitions. So, we’re confident that we’ll get this integrated and moving the right direction quickly. And we start from a terrific bank place because this is a really good bank. We’re not going to try to do several at the same time. So, we’re probably on the sidelines for a little bit here, but we’re having conversations and continuing to look at what makes the most sense for us going forward.
Nathan Race: Okay. Great. I appreciate the color. Thanks, guys. Congrats on the great quarter.
Tim Crane: You bet. Thanks, Nate. Appreciate it.
Operator: Thank you. Our next question comes from the line of Ben Gerlinger of Citi. Please go ahead, Ben.
Ben Gerlinger: Hey. Good morning, everyone.
Tim Crane: Hey, Ben.
Ben Gerlinger: Just kind of touch base on what major aspect — just if you could just give us a little bit of background. I know that you guys have a presence, it’s just not a branch footprint in the Western Michigan area. Like why do this deal now? It seems like you have a good growth this year. I mean, to be honest, I think your high-single digits probably going to end up looking conservative, you’re probably closer to like 12% growth. Surely it’s not just deposits and liquidity, but why did this deal now kind of at the risk of potentially taking your eye off the ball for what could be or likely to be a really healthy year for growth organically?
Tim Crane: Well, I don’t think we think we’re taking our eye off the ball. We think this is part of our strategy to grow in the Midwest and to take good care of clients. And as you say, we do not have a footprint in the area right now, but we do have material business in both Northern Indiana and West Michigan. We just opened a new location in Crown Point less than a month ago. And so, great market. And at this point, if the question was, do you wait for something different to come along? We think Macatawa is a terrific fit for us. The growth opportunities in West Michigan are good. It’s a well-run bank. It’s a committed leadership team. We just feel like this was the right franchise at the right time.
Ben Gerlinger: Got you. That’s helpful. And then for the accretion perspective, like it’s a very efficient bank, like you said to begin with like other than just kind of mixing the two balance sheets, is there expense synergies to be had in ’25, or is it largely just the pro forma one plus one equals more than two?
Tim Crane: Well, there’s — Dave can add to this, too. I mean, there’s likely some overlap type activity, but we think and I think they think that we’ll bring capabilities to them that will be productive in the market in terms of both existing clients and new opportunities. So, whether it’s treasury services or digital banking services or expertise in certain lending areas, I think there’s a lot of synergy here and a lot of upside.
David Dykstra: Yeah. You always get some cost synergies. We should be able to leverage our buying capacity in a fashion where we can probably drive things like insurance costs and DP costs and those sort of costs are lower. And so, there will be some cost saves, but we aren’t closing any branches. There’s no plan to close branches. We plan to grow in that market area. So, there are public companies, so some of those public company costs will go away. We won’t need a separate audit, et cetera. So, there are cost savings there, but this is not a — this is a, get a partnership with a great franchise in a great market and grow like we’ve done our entire life with banks. So…
Ben Gerlinger: That makes a lot of sense. I appreciate the color. Congrats. You got a pretty solid year ahead of you here.
Tim Crane: Thank you.
David Dykstra: Thank you.
Operator: Thank you. Our next question comes from the line of Jeff Rulis of D.A. Davidson. Your question please, Jeff.
Jeff Rulis: Thanks. Good morning. Just a couple of credit follow-up questions. On the pickup in non-performing loans in the P&C segment, anything timing-related? We’ve talked a lot about credit normalization, but just wanted to see if there’s anything specific in that segment that drove the increase?
Richard Murphy: No, as I mentioned, transportation tends to be a little bit of a issue right now. Just obviously, that’s no news to anybody. Freight rates are down. Revenue is down in that segment and causes for more stress on those borrowers. And as a result, cancellations have ticked up. But I don’t think ultimately, it is a material concern of mine. I think our teams are working to make sure that we’re very efficient on collection. They’re working as we go forward on structuring those deals a little bit tighter. But again, given the level of late fees and overall rates that we earn on those, it’s still a good trade for us.
David Dykstra: Yeah. And the other thing, Jeff, I would chime in there with is they’re listed as non-performing, but when they go into non-performing status, if we’re short on collateral, we’ve already taken the charge-off. So, we’re generally just waiting for that return premium to come to us from the carrier. So, it’s not really an indication of larger losses that come down the pike because if we’re short on collateral, we’ve already taken the loss. We’re just waiting for the money to come back from the carriers.
Jeff Rulis: Understood. Thanks. And then just a similar question on the charge-off side, the C&I front. I know you mentioned in Q4 a lot was reserved for, but within the C&I bucket, are you seeing any commonalities vintage or business category? I don’t recall what kind of came on for what you reserved for in Q4, but just looking at the C&I bucket, what was charged off?
Richard Murphy: Yeah. In the C&I category, we had some exposure in our franchise group that was — that we recognized. But I think that was largely kind of more of a one-off type situation. If there was one area that I would point to again, it would be transportation. We don’t have a huge amount of exposure there, but it definitely is an area that we’re just seeing not only in the P&C side, but in the core portfolio just having more stress. So — but as it relates to the charge-offs, it was largely focused on some existing CRE exposure that we reserved and a little bit of just miscellaneous C&I and a little bit of franchise exposure.
Jeff Rulis: Thanks, Rich. And a housekeeping on the sale of the retirement advisor business, is there a go-forward impact on fees and expense, or is that roughly a wash? Just trying to see if we need an adjustment there.
Tim Crane: It’s modest. The fees generally go down a little bit as we have a partner and we also lose some expenses, but it’s very modest. And I don’t think it’s going to move your numbers.
Jeff Rulis: Okay. And maybe I’ll squeeze in just one last one. On the about a five-month pause here on hedges, you think you’re largely in good shape there, I guess, borrowing running into maturities of those? Do you feel like we hold or probably an active conversation, but just wanted to see if we got an extended pause here?
Tim Crane: Yeah. No, we talk about it a lot. And we just are kind of watching for the time being. I mean, we’ll certainly kind of as we get closer to when some of these roll-off be more active or could be more active. But the rate environment right now is uncertain and we’re seeing people talk about either rates higher for longer or rates up as opposed to rates down. So I think we’re happy with where we are right now.
Jeff Rulis: Okay. Thank you.
Operator: Thank you. Our next question comes from the line of Jared Shaw of Barclays. Please go ahead, Jared.
Jared Shaw: Hi, good morning. Thanks for the questions. I just wanted to circle back on the deal in terms of the timing that seems like a great timeline for closing. With the commentary sort of coming out of regulators recently, it sounds like deals for banks will be more difficult. Do you feel that there’ll be an opportunity for you to do more deals going forward after you integrate this? You seem pretty optimistic in the outlook there.
Tim Crane: Well, we hope so. We’re a community-oriented high-quality bank. We think Macatawa is same in terms of their profile. And so, we’ll go through the process, but we hope that this gets approved rapidly. And as we talked about earlier, we’ll continue to have conversations and look for other opportunities. But I can tell you, again, no hesitation on our part with respect to Macatawa. We think this is exactly the right fit in a very good market right now.
