Thank you for standing by, and welcome to First Merchants Corporation's Second Quarter 2024 Earnings Conference call. 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 risk and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management may refer to non-GAAP measures, which are intended to supplement but not substitute for the most direct comparable GAAP measures. The press release available on the website contains financial or other quantitative information to be discussed today, as well as a reconciliation of GAAP to non-GAAP measures. As a reminder, today's call is being recorded. I would now like to turn the conference over to Mr. Mark Hardwick, Chief Executive Officer. Mr. Hardwick, you may begin.

Good morning, and welcome to the First Merchants second quarter 2024 conference call. Thanks for the introduction and for covering the forward-looking statement on Page 2. We released our earnings today at approximately 8 AM Eastern time. You can access today's slides by following the link on the third page of our earnings release. On Page 3 of our slides, you will see today's presenters and our bios, including President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer Michele Kawiecki. On Page 4, we have a few financial highlights for the quarter, including total assets of $18.3 billion, $12.7 billion of total loans, $14.6 billion of total deposits, and $9.3 billion of assets under advisement. On Slide 5, net interest margin and net interest income increased during the quarter. Net interest margin increased by six basis points, and net interest income increased by $1.5 million. We also had meaningful improvements to non-interest income and non-interest expense that, when coupled with net interest margin improvements, helped push our efficiency ratio below our key performance indicator of 55%, totaling 53.84% during the quarter. Loan growth totaled 6.1% for the quarter, and we have now substantially completed all four of our major technology initiatives for the year. On a less positive note, our provision expense totaled $24.5 million for the quarter. We previously financed the sale of a business from one long-time owner and his second-in-command based on a substantial and consistent EBITDA. Due to competition and the renegotiation of material contracts, the business has experienced significant deterioration in its performance, which ultimately resulted in our 10-Q subsequent event footnote on May 1st and this quarter's charge-off. Despite the heightened level of provision expense this quarter, our earnings power produced growth of capital and tangible book value per share. Our capital position allowed for the repurchase of another $20 million of stock and the redemption of $25 million in expensive sub debt. Earnings per share totaled $0.68 per share in Q2, and through six months, EPS totaled $1.48 per share. Now Mike Stewart will discuss our line of business momentum.

Thank you, Mark, and good morning everyone. Our business strategy outlined on Slide 6 remains consistent. We are dedicated to a commercial focus across all sectors and our key markets of Indiana, Michigan, and Ohio. As we move into 2024, we are concentrating on our strategic goals, particularly the organic growth of clients through loans, deposits, and fees, as well as engaging, rewarding, and retaining our team members, and investing in the digitization of our delivery channels. These priorities will guide us for the remainder of 2024. Now, let's look at Slide 7. The second quarter shows ongoing fluctuations in loan growth, with over 6% annualized growth in Q2, following stagnant performance in Q1 and 8% growth in Q4 2023. This quarter, the commercial portfolio saw robust growth in commercial and industrial (C&I) loans, exceeding 13%. This growth was distributed across regions, with Indiana and Ohio contributing alongside Michigan and sponsor teams, driving year-to-date growth into the high single digits. Our commercial focus has consistently propelled the growth of our balance sheet, with C&I representing 50% of the total First Merchants loan portfolio and two-thirds of the commercial segment. Business owners in our markets are actively pursuing their operational goals, needing more working capital, equipment, and acquisitions. Our commercial bankers are supporting these companies with both capital and treasury solutions. We continue to capture market share through both client retention and prospect conversions. Economic growth and market share expansion are crucial for the ongoing C&I growth. However, strong C&I growth has been somewhat offset by the decline in the investment real estate portfolio. The stabilization of construction projects continues, with clients opting to sell projects to exploit attractive cap rates or refinance into the permanent market to benefit from low long-term interest rates. We have seen an above-average runoff in 2024, particularly in the multifamily sector. The timing of numerous stabilization projects this year is a key factor. Many projects that started after the pandemic had to adjust to higher interest rates while also achieving increased rents. These payoffs are typical for construction projects, with increased activity expected in 2024. New project volumes are healthy. Our investment real estate team has successfully earned future project mandates through consistent underwriting and strong syndication efforts. Clients value our steady underwriting approach through all cycles, and the newly awarded construction projects mainly focus on multifamily, industrial, and warehouse asset classes. This new volume will help establish a foundation for investment real estate levels for the rest of the year, with growth anticipated into 2025. The next point highlights the growth potential in our commercial portfolio, with both C&I and investment real estate (IRE) pipelines ending the quarter at levels higher than those at the end of March and June 2023. I want to highlight our fee income from the commercial sector, especially treasury management fees, which grew over 10% this quarter compared to the previous year. Several factors contribute to this growth, including new client conversions and the successful launch of our new treasury platform in Q2. We have enhanced fee structures moving through the upgraded product platform, with additional rollouts planned for Q3. The loan outlook for the rest of the year is expected to remain in the high single-digit range, with fee income increasing at a double-digit rate. The consumer portfolio includes residential mortgages, HELOCs, installment loans, and private banking relationships, and grew over 10% in dollars this quarter, totaling a $75 million increase. The Private Banking portfolio was the main contributor to this growth, alongside consumer mortgage and small business increases. The consumer loan pipeline remains strong as we approach the third quarter. Regarding deposit balances this quarter, the overall decline reflects a mix of typical seasonal trends and interest rate management. Traditionally, Q2 sees the lowest deposit balances, with growth continuing through year-end. I mentioned last quarter that following the separation from the Silicon Valley event, and our bank's ample liquidity, we would focus on margin, with interest expense driving that focus. Given the increasing expectations of a Fed rate cut in late 2024, we initiated reductions in our money market CD specials and shortened the duration of new CDs. The largest decline occurred in time deposits. Additionally, with shorter maturities, we plan to reprice time deposit books in line with any Fed rate reductions. Notably, consumer deposits have increased over 4% year-over-year. While total deposit balances from the previous year remain flat, notable growth occurred in July due to seasonal trends and continued organic growth. I will now hand the call over to Michele to provide a more detailed review of our balance sheet composition and the drivers of our income statement.

Thanks, Mike. Slide 8 covers our second quarter results. Pre-tax, pre-provision earnings totaled $68.5 million. Pre-tax, pre-provision return on assets was 1.49%, and pre-tax pre-provision return on equity was 12.43%, all of which reflect strong profitability metrics. We continue to grow tangible book value per share, which increased to $25.10 at June 30. Slide 9 shows the year-to-date results with pre-tax pre-provision earnings totaling $128.7 million. Pre-tax, pre-provision return on assets of 1.4 percent and pre-tax, pre-provision return on equity at 11.58% year-to-date. Tangible book value per share increased by $1.76, or 7.5% compared to the same period of the prior year. Lines 1 through 3 at the top of the page show that we continue to grow the balance sheet and remix earning assets, reducing the lower-yielding bond portfolio by $138 million since June 30 last year and growing higher-yielding loans by $374 million. Details of our investment portfolio are disclosed on slide 10. The securities yield increased by 3 basis points to 2.61% as lower-yielding securities continue to run off. Expected cash flows from scheduled principal and interest payments and bond maturities in the next 12 months totals $286 million, with a roll-off yield of approximately 2.14%. Slide 11 shows some details on our loan portfolio. The total loan portfolio yield increased by 4 basis points to 6.72%. We've been able to maintain a high yield on new and renewed loans at 8.13%. That yield was 8.15% last quarter. The bottom right shows that two-thirds of our loan portfolio is variable rate. Although some of those loans are priced at or near our new loan yield currently, we still have loans continuing to reprice up, creating good incremental interest income throughout the remainder of the year. The allowance for credit losses is shown on Slide 12. This quarter, we recorded net charge-offs of $39.6 million, which was offset by provision for credit losses on loans of $24.5 million, resulting in a reserve at quarter-end of $189.5 million. In addition to that, we have $20.3 million of remaining fair value marks on acquired loans. Our coverage ratio declined from 1.64% in the prior quarter to 1.5% this quarter and is 1.66% when including those loan marks. Although the coverage ratio declined some, we are still more than adequately reserved as our allowance remains well above peer levels. Slide 13 shows details of our deposit portfolio. We continue to have a diversified core deposit franchise with a low uninsured deposit percentage. Notably this quarter, our yield on interest-bearing deposits was flat compared to the prior quarter at 3.16%, and the cost of total deposits only increased 2 basis points to 2.66% this quarter, reflecting the pricing actions we took in the last 6 months that Mike Stewart mentioned earlier. Additionally, non-interest bearing deposit balances and deposit mix were stable quarter-over-quarter. Although we did leverage some wholesale borrowing, we paid down another $25 million of high-cost sub debt at the end of April, which helped reduce the overall funding cost of the company. On slide 14, net interest income on a fully tax-equivalent basis of $134.4 million is an increase of $1.5 million from the prior quarter, which was the result of growth in interest income and a decline in interest expense. Yield on average earning assets on line 4 increased by 4 basis points. Funding costs on line 5 declined by 2 basis points, resulting in the expansion of stated net interest margin of 6 basis points. Next, Slide 15 shows the details of non-interest income. Overall, non-interest income increased by $4.7 million on a linked quarter basis. Customer-related fees increased by $3.3 million, reflecting higher gains on sales of mortgage loans and private wealth fees. The Q1 of each year is always seasonally low for our mortgage business, and the production rebounded in Q2 as expected. We believe the Q2 mortgage production levels will continue throughout the coming quarters. Included in non-interest income was a $1.4 million increase in the valuation of CRA investments that were recorded in other income. Even when excluding that valuation adjustment, our core non-interest income results were slightly above the guidance we provided last quarter. Moving to slide 16. Non-interest expense for the quarter totaled $91.4 million, beating expectations and improving operating leverage. Workforce cost declined by $6.1 million, which was driven by savings generated from the voluntary early retirement program that we announced in Q4 of last year, as well as lower incentive accruals. FDIC assessments were also lower this quarter due to the inclusion of an increase to the FDIC special assessment accrual booked in the prior quarter. Slide 16 shows our capital ratios. We continue to have a strong capital position, with common equity Tier 1 at 11.02%, which included a dividend increase to shareholders declared in the second quarter and a dividend payout ratio of over 40%. The slight decline in each of our ratios since year-end reflects the $65 million redemption of sub debt and $50 million of stock buybacks since the beginning of the year. These capital actions demonstrate prudent capital management and provide a good return for shareholders. That concludes my remarks, and I will now turn it over to our Chief Credit Officer, John Martin, to discuss asset quality.

Thanks, Michele, and good morning. My remarks start on Slide 18. I'll begin by highlighting the growth in our loan portfolio, discussing the updated insights slide, reviewing asset quality, and the non-performing asset roll forward before passing the call back to Mark. On Slide 18, we experienced significant growth in commercial and industrial loans, including owner-occupied commercial real estate, which more than compensated for the decline in construction and non-owner occupied investment real estate. This growth in commercial and industrial loans was supported by new loan requests and higher utilization of existing lines. Our investment real estate strategy continues to focus on providing construction finance through stabilization and offers various permanent financing options. We remain well below regulatory concentration levels for commercial real estate and stay active in new originations. This quarter, we noted a shift from construction loans to our portfolio. About 75% of the decline in construction and non-owner occupied categories was due to refinances into bridge or agency products, reflecting strong market demand for our underwriting. Moving to Slide 19, the loan portfolio insights slide aims to give clarity on the portfolio. As previously mentioned, the commercial and industrial classification includes sponsor finance and owner-occupied CRE linked to businesses. Our commercial and industrial portfolio has a 20% concentration in manufacturing. Current line utilization has increased from 42% to 45.3%, translating to approximately $236 million in new balances with line commitments rising by around $200 million. We are engaged in around $830 million of shared national credits across various industries, which allows us to access management and revenue opportunities beyond merely credit exposure. In our sponsor finance portfolio, there are 84 platform companies overseen by 52 active sponsors across different sectors, with 65% maintaining a fixed charge coverage ratio above 1.5 times based on Q1 borrower information. This portfolio typically consists of single bank deals for platform companies of private equity firms, as opposed to widely syndicated leveraged loans from larger banks. We evaluate individual relationships quarterly for any changes in borrower conditions, including leverage and cash flow, all of which relate to commercial and industrial customers owned by private equity firms. On Slide 20, we detail the investment or non-owner occupied commercial real estate portfolio, with office exposure outlined in the lower half. This represents 1.9% of total loans, slightly down from 2% last quarter, with the highest concentration in medical office space outside of general office. The wheel chart on the bottom right shows office portfolio maturities, with loans maturing in less than a year accounting for 16.3% of the portfolio, or $39.6 million. Our office portfolio is well-diversified across tenant types and geographical areas. We continuously review our larger office borrowers and believe our exposure is reasonably mitigated through various factors such as loan-to-value ratios, tenant mix, and other considerations. Slide 21 presents the asset quality trends and position for the quarter. Non-accrual loans, other real estate owned, and loans 90 days past due all saw a decrease this quarter, dropping from $70.2 million to $68.4 million due to significant charge offs. Net charge offs totaled $39.9 million for the quarter, primarily from two relationships. The first was related to a previously disclosed event involving a loan in a larger two-bank club deal, where First Merchants was the lead bank financing a management buyout. We had been monitoring the borrower's progress regarding various freight hauling contracts with the U.S. government. Unfortunately, lower contract renewal rates and cancellations led the borrower to inform us post-last quarter's call of their intention to stop principal and interest repayments. This situation prompted our disclosure and analysis of the anticipated loss. Despite some collateral backing the loan, the underwriting was based on consistent cash flow and the organization's enterprise value. The unexpected revenue drop due to contract cancellations severely impacted the company's value, culminating in a $27.5 million charge. The second borrower, a home decor manufacturing company, has faced challenges since the pandemic and announced plans to cease operations. We had already set aside reserves for this potential loss and recorded an $8.6 million charge off in the current quarter. Now, moving to Slide 22, I’ve again detailed the migration of nonperforming loans, charge offs, other real estate owned, and loans 90 days past due. This quarter, we added non-accrual loans totaling $51.6 million, influenced by the transportation manufacturing company mentioned earlier. We also saw a reduction of $11.2 million from payoffs and changes in accrual status, along with a decrease of $40.9 million from gross charge offs. On Line 11, the figure for loans 90 days past due dropped by $1.1 million, leading to a total of $68.4 million for non-performing assets plus 90-day delinquent loans. In summary, we experienced solid C&I loan growth this quarter. While commercial real estate is affected by higher interest rates, our underwriting continues to effectively transition construction loans into the portfolio and the permanent market. Lastly, the net charge offs this quarter appear to be isolated incidents rather than indicative of a broader trend. Thank you for your attention, and now I'll hand the call back to Mark Hardwick.

Thanks, John. Turning to Slide 23. On the top right, you can see our 10-year earnings per share compound annual growth rate totals 10.2%, and on the bottom left, our tangible book value per share, excluding accumulated other comprehensive loss, now totals $28.71. Slide 24 represents our total asset CAGR of 12.3% during the last 10 years and highlights meaningful acquisitions that have materially added to our demographic footprint that fuel our growth. There are no edits to Slide 25 as we continue to live both our vision and our strategic imperatives. We're looking forward to a stronger Q3 led by balance sheet and net interest income growth and normalized levels of provision expense. Thank you for your attention and your investment in First Merchants, and now we're happy to take questions.

Our first question comes from Daniel Tamayo from Raymond James.

Thank you. Good afternoon, guys. Maybe actually, we'll leave the credit questions for others, but just starting on the margin, Michele, I'm looking at the commercial loan yields being relatively stable over the last couple of quarters. Just curious where the new loan yields are in that book and then if you see any kind of incremental increase going forward absent rate cuts? And then follow on that one is just curious like the fixed rate book versus new yields, what may be the potential opportunity for loan yields as a whole to increase over time? Thanks.

Yes. It's good to hear from you, Danny. So for our loan yields, our new and renewed loan yields this quarter were 8.13%. So we've kind of reached some stabilization at a really nice high yield, I think. We do have, I think, some opportunity for the book to reprice up just a bit. We've got probably about $450 million of fixed rate loans yet that would reprice in 2024, and they're averaging somewhere between 5% and 6%, so I still think there's some opportunity to gain some interest income on that repricing and potentially push the overall portfolio yield up a bit.

Okay, great. And then I guess on the other side of the balance sheet, curious for any opportunity to reduce borrowings further and then your deposit costs basically stabilized in the quarter, which is great. You talked through the reductions that you had in the money market book, but just curious kind of how you're thinking about funding costs going forward and I guess overall then if you have thoughts on where the margin can move, I guess independent of rate cuts and then what the impact from rate cuts would be?

We were pleased with the results related to deposit costs this quarter, as we even saw a decrease in these costs. This improvement is the result of our interest rate management efforts with our deposit customers. I believe that work is now complete, and moving forward, it will be important to monitor the competition until the end of the year. I expect our deposit costs to remain stable. Regarding margin through the end of the year, in a flat rate environment, I anticipate some margin expansion; it should at least remain stable and may increase. While we have CDs that are repricing, the rate at which they are repricing is either comparable or slightly higher than our current promotions, meaning we don’t face challenges in that area. Overall, I believe margins should remain steady or improve in a flat rate environment.

Great. And just remind us, if you will, on how you think rate cuts would impact that forecast?

Yes. So our models tell us that with each 25 basis point rate cut, we would have a decline of about 3 basis points in margin.

Thank you. One moment for our next question. Our next question comes from the line of Damon DelMonte from KBW.

Hey, good morning everyone. Hope you're all doing well and thanks for taking my questions. Just wanted to start off on expenses, Michele. You noted the decline in the salary benefits line item reflected the impact of some voluntary retirement and other items. Do you think that this kind of low $52 million range is sustainable? Or would you expect kind of some normalization there and see that creep back up to maybe the $55 million range?

No, I would expect the expenses to be somewhere between where we landed this quarter to maybe up 2%, somewhere in that range, and we had great expense discipline this quarter, and I think we'll continue to do so through the remainder of the year.

Okay, and that's for total expenses, not just the salary and benefits line?

Correct.

Okay. Great, and then with regards to fee income, you know, if you back out the CRA adjustment that you had or realized gain there, do you think you can kind of keep the fee income in that low $31 million to $32 million range kind of in the back half of the year?

Yeah. I do think that's a good run rate.

Okay. Great, and then just lastly on just more on the provision versus the overall credit. You know, do you feel comfortable with the reserve? Obviously, $150 million is pretty healthy. Do you think that you're going to see some natural drift there over the back half of the year and that the provisioning would kind of go back to what we've seen the last couple of quarters, excluding this quarter?

Yes, we will definitely be preparing for loan growth to ensure we have good coverage for any growth. We'll have to assess how the forecast affects our approach, but we expect the provision to normalize this quarter, as this situation was quite unique.

Thank you. Our next question comes from the line of Terry McEvoy from Stephens Inc.

Hi, good morning, everyone. John, I know you used the word idiosyncratic to talk about the credit events last quarter, though transportation is your third largest non-accrual and was behind the charge off. So could you talk about a recent review of the portfolio? I think it's about 4% of C&I loans or transportation warehouse and what your thoughts are going forward in terms of the underlying risk?

I've noted that the transportation concentration stands at 4%. While I don't have specific details on the criticized or classified loans in that area, I can say that aside from a significant credit issue, most of our lending in this sector is secured and primarily related to non-transactional leveraged or buyout finance. The remaining amounts mainly consist of trailers and PTOs tied to trucking operations. The freight hauling industry has been under some pressure recently due to declining rates. However, this specific situation pertains to an idiosyncratic freight hauler with government contracts, which differs from the overall industry trends. The customer faced some challenges after contract renewals, which were certainly unexpected from their viewpoint. Therefore, this case is unique in contrast to my assessment of the broader transportation segment in our portfolio.

Thanks, and then, Mike, just Slide 18, just so I'm clear, on Lines 4 and 5, the decline in construction and development and non-owner occupied CRE, that's more of a reflection of kind of market conditions versus a strategic decision to reduce those portfolios? And did you say you'd expect some growth to balances to move higher in the back half of 2024?

You're correct. There was no strategic change in how we're managing an investment real estate book. It was just all the way the normal process went for us and where the concentrations were with the maturities inside that portfolio. Our IRE activity, quite frankly, for the first six months of the year has been very, very strong with good sound projects in that space, and you're just not seeing that come through footings yet, and that's what I was saying. I think that we're probably at putting that floor in on IRE footings that will then put in growth into next year in that sector, but it's not a strategic change, consistent underwriting. Our key clients continue to come to us with their projects and capitalize them well, and we like the underwriting.

Maybe one last question for Mark. I don't want to overlook the last major technology initiative of the year was completed last quarter. Could you maybe talk about how much of that was self-funded through the reduction in real estate and employees, etc.? And I guess, strategically, how does that better position First Merchants in the marketplace to grow organically and service customers?

The final item was the conversion of our online and mobile platform for commercial customers, and we are excited to finally have upgraded to more advanced technology. Previously, we relied on FIS and waited for an upgrade to their core system, but ultimately decided to hire a third-party vendor to assist us. Although we are primarily a commercial bank, our treasury management product was somewhat lacking. As Mike mentioned, we've increased our fees and enhanced the product, giving us a significant opportunity to succeed in this area like never before, which is very exciting. The funding for this upgrade came from the savings achieved by discontinuing our payments to FIS. The expenses related to using our core provider, the traditional bank in the box model, were similar. The online and mobile platform with FIS incurred some costs related to the conversion, which we identified as one-time expenses in the last quarter with a small amount carried over into this quarter. I didn't think it was necessary to go into it further, but we are thrilled to have completed four major technology initiatives. Mike will have a bit more to add as well.

That's a good question. I'm glad you asked. Mark talked about the commercial side, which we talked about. On the consumer side, the platform investments and bringing the technology into a new place has enabled us to continue to, as we monitor where our clients are utilizing our physical infrastructure, our banking centers; we do consolidate banking center locations. This technology and these enhancements continue to allow us to open new accounts and serve their needs, and we continue to analyze that infrastructure and then on the private wealth side, that new technology platform built some synergies in and there were some people eliminations along the way. So to Mark's point, they were self-funded on a technology point of view. Some of them turned into true revenue generation, and some of them also had expense reductions associated with them, and we're on the back half of that or the backside of that.

Perfect. Thanks for taking my questions.

Thank you. Our next question comes from the line of Nathan Race from Piper Sandler.

Yes. Hi, everyone. Thanks for taking my questions. Just wanted to clarify on Michele's comments around the margin following each Fed cut. I think you said 3 basis points, but we're just curious if that's under a static scenario or does that kind of contemplate some improvement in mix just as you redeploy securities portfolio cash flow into loan growth?

Yes, that's actually assuming a static balance sheet.

Okay, great. So theoretically the pressure should be less than that 3 basis points, what it sounds like?

Yes. That would be what we would expect.

Yes. Internally, we've talked about how that remix could happen or also just what does competition do. We've been living in an inverted yield curve environment for a couple of years. I'd like to think if we have a rate reduction that across the industry we're making deposit rate reductions.

Got it, and John, can you just clarify just in terms of the $51.6 million in new non-accruals in the quarter, it sounds like the bulk of that came from the transportation C&I loan that we talked about. Is there anything else worth calling out that drove that increase?

No, the $51.6 million, yes, it was a combination of that and the other manufacturer that I mentioned. Those are the two biggest drivers of that number.

Okay, got it, and then just maybe lastly, just thinking about the opportunity or appetite for additional repurchases in the back half of the year, obviously activity stepped up nicely here in Q2 and you guys are still sitting with really strong capital levels and have a nice organic growth runway in front of you, but just curious on how you guys are thinking about that appetite going forward?

Yes, we were active early in this quarter. I think we'll probably wait to see how the market stabilizes. We were active late Q1 and early Q2, and we'll just see how the quarter plays out. But we don't intend to be active right now, I guess that's the best way to put it.

Okay, got it. And then actually just one last one, obviously there's been some increased chatter on the M&A front recently. There was a deal announced in Michigan earlier today, so just curious kind of what the appetite and interest is in acquisitions going forward?

Yes, I reviewed that this morning. Combining those two factors in Michigan has created a significant franchise. Conversations have increased, and there’s clearly more interest from sellers. With stock prices slightly up and the expectation that interest rates might decrease or at least not continue rising, this has prompted additional discussions. I have a few banks in mind that we're very keen on, specifically about three or four. Timing will be crucial, and we’ll see if anything develops with those banks soon. In the meantime, we are focused on managing the company, driving organic growth, maintaining efficiency, and optimizing our capital.

Okay. That sounds great. I appreciate all the color.

Thank you. Our next question comes from the line of Brian Martin from Janney Montgomery Scott.

Hey, good morning, everyone. That was well said, Mark. Just one last one on the M&A. Just if you think about where First Merchants would consider opportunities kind of in footprint, out of footprint, just high level, not saying anything is imminent by that front, but just understanding where geographies are important to you today?

Yes. We're very focused on Indiana, Ohio, and Michigan. Those are the markets that have where we're actively communicating with potential partners, and I think that kind of is the extent of it, to be honest. We've always had some interest in Kentucky. The profile, the number of institutions, especially kind of in the Louisville market, are incredibly limited. So the majority of our communication and prioritization are in the states of Indiana, Ohio, and Michigan.

Is it more about entering a new market or achieving greater scale, or does it not matter?

I mean, they both have, it depends. If we could create scale and really have a meaningful expense cost or expense or cost takeout, it's interesting to us, and if there were a market where we could help accelerate our future growth rate, that's important as well. So I guess just trying to balance the two. And as much as anything, make sure that it's the right market with the right culture and that we believe at the end of the day we can create real shareholder value.

Yes. And I guess timing is everything like you said. So it could be what you want versus what's available. So got you. And then maybe just one for John on credit. John. Was there anything in terms, I know you gave the classified number, but it didn't sound like anything much, but in terms of special mention, any trends upward or downward are pretty stable in the quarter?

It has generally been quite stable, and from a balance or commitment perspective, there was a slight decline. Overall, it seems to be stable at this point, except for those two specific cases.

Yes. Okay, and then just the last one or two maybe for Michele. Just on Michele, the bond book, it sounds like that as far as where that bond book lands as far as kind of using the cash flows to fund loan growth, where do you expect to settle in on moving that portfolio down in size? Where do you want to see that trend to?

Well, our historical investments to assets ratio has been somewhere between 15% to 18%, and you know, for us, I think that still would be a more appropriate landing spot in terms of having an earning asset, a go-forward earning asset mix, and so we'll continue to let it drift. Last year, we looked for opportunities to sell bonds. We'll continue to do that as well.

Got you. Okay. And you did say that I mean, I was going to ask as well on that 3 basis points. I guess when you get to the out cuts after the first potential couple cuts, it seems like you've got more ability to work on that deposit beta and get maybe have that lessen that up a little bit. That's kind of the way they view it. There are successive cuts, the later ones are less impactful in terms of the 3 basis points?

Yes. Well, I think in our deposit base, we do have about $2.5 billion of deposits that are indexed, and so there's certainly there's opportunity to reduce some cost with those first couple of cuts.

Thank you. That concludes today’s conference.