Welcome to the First Merchants Corporation Third 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 involves risks 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 directly comparable GAAP measures. The press release available on the website contains financial and 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 will now turn the conference over to Mr. Mark Hardwick, CEO. Mr. Hardwick, you may begin.

Good morning, and welcome to First Merchants' Q3 2024 conference call. Thanks for the introductions and for covering the forward-looking statement on Page 2. We released our earnings today at approximately 8 AM Eastern Time, and you can access the 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 in our bios, including President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer, Michele Kawiecki. We are pleased with our Q3 results and the focused momentum that we are building. The pending sale of five non-core Illinois branches, restructuring of the securities portfolio, and successful completion of our four major technology initiatives provide us with the opportunity to reprioritize our core markets and introduce innovative customer acquisition strategies. We are well-positioned for organic growth in 2025 and any well-priced inorganic growth opportunity that may be available in the future. On Page 4, we have a few financial highlights for the quarter, including $18.3 billion of total assets, $12.7 billion of total loans, $14.4 billion of total deposits, and $5.6 billion of assets under advisement. Our map also highlights the five Chicago area branches we announced we were selling in August. We expect that transaction to close in December of this year, and we now have regulatory approval. On Slide 5, you can see earnings per share for the quarter totaled $0.84 or $0.95 per share after adjusting for a $9.1 million loss we recorded from a third quarter sale of securities. We are anticipating a $20 million to $25 million gain on the sale of our Chicagoland branches in Q4, and we took advantage of favorable market conditions to restructure a small portion of the securities portfolio. We plan to use the remainder of the gain in the fourth quarter to support additional balance sheet restructuring that we believe will position us for higher earnings in the future. Our tangible common equity ratio has continued to build and is now 8.76%. Third quarter tangible book value per share, which is reported on Slide 11, was $26.64 per share and has increased by $4.21 per share or 19% over the last 12 months and $7.38 per share or 38% over the last two years. Adjusted net interest margin also improved by 7 basis points Q3 over Q2 and helps drive PPNR growth, which supported a sub 55% efficiency ratio for the quarter. Earnings per share for the nine months ended September 30, 2024 totaled $2.31 per share or $2.48 per share when adjusted for the loss from the sale of securities. Now, Mike Stewart will discuss our line of business momentum. Mike?

Yes. Thank you, Mark, and good morning to all. Our business strategy summarized on Slide 6 remains unchanged. We are a commercially focused organization across all these business segments and our primary markets of Indiana, Michigan, and Ohio. Throughout 2024, we have remained focused on building earnings momentum by executing our strategic imperatives of organic loan, deposit, fee income growth, and increasing market share by engaging, rewarding, and retaining our teammates and investing in the technology platforms of our delivery channel. As Mark noted on the prior slide, we have now completed all four of our major technology initiatives. We have upgraded our digital channels in our consumer, commercial, and private wealth segments, which is essentially touching our entire client base. Therefore, we have improved client experiences and enhanced tools for our sales teams to leverage as we grow the fee-based businesses and compete for a larger share of wallet. So let's turn to Slide 7. The third quarter continues the choppy trend of loan growth we've experienced over the past year. Total loans grew 0.5% on an annualized basis during the quarter, which followed last quarter's 6% growth. Year-to-date, total loans have grown at an annualized rate of 1.9%. The $9.6 billion commercial segment was essentially flat during the third quarter, but within this segment, the C&I portfolio continues to be the primary driver of our growth, growing 1%. Last quarter, the C&I portfolio grew at nearly 13%, and year to date, C&I has grown over $250 million or nearly 4.5% annualized. The C&I growth has been shared across all the regions with Indiana, Michigan, and our sponsor teams driving the bulk of the increase. The strong C&I growth has been offset by the contraction within the investment real estate portfolio. The stabilization of construction projects has continued, and our clients have chosen to either sell their projects to take advantage of attractive cap rates or refinance their projects into the permanent market to benefit from the low long-term interest rates. The investment real estate portfolio has declined over 11% throughout 2024, which is nearly $150 million. During the third quarter, the decline slowed to just over $20 million. As I highlighted last quarter, I believe the investment real estate portfolio is close to or at its bottom. Why? Because new project financings are at healthy levels. The investment real estate team continues to win mandates for future multifamily, industrial, and warehouse construction projects, and our clients continue to appreciate our consistent approach to underwriting through cycles and our record of successful syndications. Our commercial focus has always been the primary driver of our balance sheet growth, and the commercial and industrial sector is our largest portfolio. C&I comprises 50% of our total loan portfolio and two-thirds of our commercial portfolio. The business owners within our markets continue to execute their operating plans with growing working capital, equipment, or acquisition needs. Our commercial bankers continue to support these companies not only with capital solutions but also with treasury solutions. Overall, we continue to gain market share with existing and new clients. Those two attributes, organic growth and market share growth, are the primary drivers of our balance sheet. Continued growth expectations are supported by strong pipelines for both C&I and investment real estate ending at very strong levels. The consumer portfolio is comprised of residential, mortgage, HELOC, installment, and private banking relationships. During Q3, the consumer portfolio grew more than 1.5% with the private banking and HELOC portfolios as the primary drivers of that increase. As noted, the consumer loan pipeline remained strong heading into Q4 with mortgage up over 15% at the end of June and more than double from the beginning of the year. Let's turn to Slide 8 and a few comments on deposits. The story of this slide is mix and managing deposit costs. Michele will be reviewing the improvement of our net interest margin, and this slide represents the work our teams have accomplished in managing and building core deposit relationships while reducing deposit costs on public funds and time deposit categories. For the quarter, total deposits grew at a 2.3% annualized rate, while for the full year, our total deposits have declined by only 1.5%. The commercial segment grew deposits during the quarter after a reduction of over $170 million of public fund balances. Public funds are one of our highest cost depository categories and have been a focus of our efforts to balance relationship strategy with our pricing tiers. Overall, I am pleased with the growth of the non-public fund balances within the commercial segment, which is approximately $255 million. We also continued our pricing discipline within our consumer segment, specifically time deposits. We began to reduce our money markets and CD specials while reducing the tenors of new CDs earlier this year. The consumer deposit decline during the quarter was primarily within the time deposit category. We expect 50% of the time deposits that will reprice in Q4 to be at lower rates than the current weighted average rate. So for the year, total consumer deposit balances are essentially flat. Overall, I'm pleased with the active management our teams are having with their clients. Stable loan yields and reducing deposit costs should continue to build the earnings momentum of our balance sheet. I will turn the call over to you, Michele, and you can review in more detail the composition of our balance sheet and the drivers of our income statement.

Thanks, Mike. Slide 9 covers our Q3 performance. Net interest income on line 11 has grown for the second straight quarter with an increase of $2.5 million sequentially. Non-interest income on line 13 was reduced by the $9.1 million loss on bond sales that Mark mentioned earlier, and when normalized for that loss totaled $34 million, also reflecting an increase for the second straight quarter. As a result, pretax pre-provision earnings grew linked quarter by nearly $2 million, totaling $70.5 million reflecting strong core franchise performance. Slide 10 shows year-to-date results with pretax pre-provision earnings totaling $199.3 million. Tangible book value per share of $26.64 benefited from strong earnings and AOCI recapture resulting in an increase of $4.21 or 19% compared to the same period of the prior year and an increase of $7.38 over the same period of 2022. Slide 11 shows details of our investment portfolio. The available-for-sale securities we sold had a book value of $158.9 million and were sold for a loss of $9.1 million. The bonds had a weighted average yield of 2.85% and an average life of 5.6 years. We took the opportunity to reposition the securities portfolio in anticipation of the gain expected in the fourth quarter from the sale of our Illinois branches expected to close in December. Expected cash flows from scheduled principal, interest payments, and bond maturities in the next 12 months totaled $298 million with a roll-off yield of approximately 2.28%, which will have a positive impact on our overall portfolio yield along with the sale of lower-yielding securities. Slide 12 shows some details of our loan portfolio. The loan portfolio yield increased meaningfully by 14 basis points to 6.86%. New and renewed loans, albeit a little lower than last quarter, were still at a respectable 7.7% yield. The bottom right shows that two-thirds of our loan portfolio is variable rate. As the Fed cuts rates, the repricing of our variable rate portfolio is certainly a headwind, but the new loan yield along with fixed-rate loan repricing should help offset the impact in the near term. The allowance for credit losses is shown on Slide 13. This quarter we recorded net charge-offs of $6.7 million, which was offset by a provision for credit losses on loans of $5 million, resulting in a reserve at quarter end of $187.8 million with a coverage ratio of 1.48%. In addition to the ACL, we have $18.8 million of remaining fair value marks on acquired loans. When including those marks, our coverage ratio is 1.63%. Overall, we are still more than adequately reserved for our allowance and it remains well above peer levels. Slide 14 shows details of our deposit portfolio. The total cost of deposits was relatively flat, increasing by just 3 basis points to 2.69% this quarter. Deposits included in the sale of the Illinois branches of $287.7 million were reclassed to held for sale, causing the decline in total deposits given they are not reflected in the total deposit balance at quarter end. When normalizing for the reclass, deposits grew organically by $83.7 million or 2.3% annualized linked quarter. Slide 15, net interest income on a fully tax equivalent basis of $137 million increased $2.6 million from the prior quarter. This was driven by earning asset yields shown on line four, which increased 13 basis points linked quarter outpacing funding costs on line five, which increased 6 basis points. The result was a meaningful expansion of stated net interest margin of 7 basis points and an increase of 13 basis points from the first quarter. Next slide 16 shows the details of non-interest income. Non-interest income totaled $24.9 million, and when normalized for the realized loss on securities was $34 million, an increase of $2.6 million or 8.4% over the prior quarter. Customer-related fees increased $2 million, primarily reflecting higher gains on sales of mortgage loans. Mortgage production was slightly lower than last quarter but produced more salable loans driving the increase in mortgage gains. We expect mortgage gains to be lower in Q4 due to seasonality, given that activity tends to slow a bit around the holidays. Included in non-customer related income was a $1.5 million BOLI claim. Even when excluding that BOLI gain, our non-interest income results were slightly above the guidance we provided last quarter. Moving to Slide 17, non-interest expense for the quarter totaled $94.6 million, an increase of $3.2 million over the prior quarter. Workforce costs increased driven by higher incentive accruals due to better quarterly performance. Slide 18 shows our capital ratios. We continue to have a strong capital position with common equity Tier 1 climbing to 11.25% this quarter. The tangible common equity ratio increased 49 basis points due to strong earnings and improvement in the valuation of the available-for-sale securities portfolio reflected in AOCI. 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 19. I'll begin by highlighting loan portfolio growth, touch on the updated insight slides, review asset quality and the non-performing asset roll forward before turning the call back over to Mark. Turning to Slide 19, we had continued strong commercial and industrial loan growth shown on line 12 that was offset by the continued decline in construction and CRE, not owner-occupied or investment real estate on lines 45. Our C&I growth came primarily from new loans rather than increased line utilization. This quarter, we saw some leveling of the construction portfolio on line four with the mini perm and permanent portfolio on line five down $70 million. As mentioned on prior calls, our investment real estate strategy is to provide construction finance through stabilization with many perm financing options. This can lead to changes between the two categories. We continue to remain well below the regulatory CRE concentration levels and remain active in new originations despite softer demand resulting from elevated interest rates. Our loan portfolio insights on Slides 20 and 21 are intended to provide transparency into the portfolio. As mentioned on prior calls, the C&I classification shown on Slide 20 includes sponsor finance as well as owner-occupied CRE. 21% of our C&I loans support manufacturing businesses. Our current line utilization decreased for the quarter after three consecutive quarters of increase from 45.3% to 45%, although balances still increased roughly $15 million on higher commitments of roughly $65 million. We participate in roughly $887 million of shared national credits across various industries. These are generally relationships where we have access to management and revenue opportunities that go beyond the credit exposure. In the sponsor finance portfolio, I've highlighted key credit portfolio metrics. There are 89 platform companies with 51 active sponsors in a variety of industries, 66% have a fixed charge coverage ratio of greater than 1.5x on Q2 borrower information. This portfolio generally consists of single bank deals for platform companies of private equity firms as opposed to large widely syndicated leveraged loans from money center bank trading desks. We review the individual relationships quarterly for changes in borrower condition, including leverage and cash flow. On Slide 21, we break out the investment or non-owner-occupied commercial real estate portfolio. Our office loans are detailed on the bottom half of the slide and represent only 2.1% of total loans with the highest concentration outside of general office in the medical office space. The wheel chart on the bottom right details office portfolio maturities, loans maturing in less than a year represent 14.4% of the portfolio or $37.5 million. The office portfolio is well diversified by tenant type and geographic mix. We continue to periodically review our larger office borrowers and view the exposure as reasonably mitigated through a combination of loan-to-value guarantees, tenant mix, and other considerations. On Slide 22, I highlight this quarter's asset quality trends and position. Non-accrual loans were down $2.8 million, while 90 days past due loans saw a significant increase resulting from a $13 million matured relationship. The relationship was renewed shortly after quarter end bringing $13 million of the $14.1 million and 90 days past due current. Net charge-offs were $6.7 million for the quarter, resulting largely from a $5.6 million charge-off related to the second quarter trucking company loss. We continue to liquidate the remaining exposure and expect to have the relationship largely resolved by the end of Q4. Then moving to Slide 23, I've again rolled forward to mitigate our migration of non-performing loans, charge-offs OREO, and 90 days past due. For the quarter, we added non-accrual loans on line two of $13.2 million, a reduction from payoffs or changes in accrual status of $7.9 million on line three and a reduction from gross charge-offs of $7.6 million. Dropping down to line 11, 90 day delinquent loans increased $12.4 million due to the matured and renewed relationship resulting in NPAs and 90 day delinquent loans ending the quarter at $78.4 million. So to summarize, C&I growth was good for the quarter. Commercial real estate continues to refinance and pay off with construction lending balances leveling and asset quality stabilizing after further digesting last quarter's loss. I appreciate your attention. I'll turn the call back over to Mark Hardwick.

Thanks, John. Turning to Slide 24, the 10-year compounded annual growth rate of our earnings per share totals 10.2% and has helped support the 8.7% growth rate that we've seen in tangible book value per share. Slide 25 shows our total asset CAGR of 12% during the last 10 years and highlights meaningful acquisitions that have materially added to our footprint and fueled our growth. There are no changes in Slide 26, as we continue to live out both our vision and strategic imperatives. So in summary, we're very pleased with the growth that we've seen in capital and tangible book value per share, which has resumed its historical trajectory of up and to the right. We're also optimistic about the momentum we're seeing in our performance, thanks in part to active deposit and interest rate management. Our net interest margin is expanding, and we feel we have the opportunity to outperform expectations into the foreseeable future. Thanks for your attention and your investment in First Merchants. And at this point, we're happy to take questions.

And our first question comes from Terry McEvoy with Stephens.

Maybe if I could start with a question for Michele. When you think about 2025 in net interest income, do you think the positive impact from the security sales, both that just occurred and the one you talked about in Q4, will that offset the impact of lower interest rates in terms of keeping net interest income flat to possibly higher next year?

We're still in the process of budgeting for 2025, so I'll be able to provide more detailed guidance during the January call. Even aside from the portfolio restructuring we've mentioned, in a declining rate environment, we typically experience a slight margin compression for each quarter-point reduction from the Fed due to our asset sensitivity. However, we remain focused on growing our net interest income and maintaining that momentum, even if our net interest margin decreases. Our loan yields have consistently shown strong pricing discipline, and irrespective of the environment, we believe we can continue to perform well. The bond restructuring is beneficial for our margin, despite selling some lower-rate deposits. The bonds we sold yielded 2.85%, which will positively impact our margin. While this does exert some pressure on net interest income, the overall financial picture from the sale is quite neutral when considering cost savings as well. Therefore, this decision to sell those branches was not merely a short-term financial move; it was a strategic decision for the long term.

Yes. Michelle, I'd love to just add, Terry, that the bond sale that we actually did was really late in the quarter. So, I was proud of the margin enhancement that we saw this quarter that came from actions that we really have been taking inside the existing book. I’m just pleased that all the effort that we're putting into deposit pricing and loan yields has resulted two quarters in a row in an increasing margin. And then just the longer-term strategy of being out of Illinois. I feel like you have to have significant share to make a difference. It was a market where we felt we were just below scale, and we had to kind of go one direction or the other. I'm really pleased that we found a great partner and we're able to liquidate those locations and deposits in a way that I think will be good for them and good for First Merchants.

And maybe, Mark, could you just expand on your comment in the release when you mentioned earlier the completion of the technology initiatives, reprioritization of core markets, and new types of customer acquisition strategies. What area of the banks are you talking about? And maybe as an outsider, what type of metrics can we look at over the next several years to see that progression and growth that you're hinting at?

Mike mentioned the progress we’re making, particularly with the Terafina rollout, which has significantly reduced the account opening time from around 45 minutes to under 10 minutes. The implementation of Q2 has allowed us to improve our online and mobile services for customers, and we're now shifting our focus to growing core deposit accounts. Core accounts tend to be cheaper since they serve as operating accounts rather than being excess funds in search of the highest yield. We're placing less emphasis on areas like public funds, CDs, and promotional money markets, and concentrating on our primary deposit accounts. So far, we've introduced three of the four digital technologies: Q2 for consumer and commercial accounts, Terafina for in-branch operations, and the SS&C platforms Innotrust and Black Diamond for our private wealth sector. We believe there is substantial growth potential in our private wealth business, where we aim for balanced performance across all markets. We have a strong position in Indiana but less visibility in Detroit, where we’re working to expand our presence. We believe our technology platform will meet customer demands in 2024 and provide us with an excellent opportunity to grow fee income and adjust our business strategy because we now have improved offerings.

And John, just a real quick one for you. The liquidation of the trucking relationship in the fourth quarter. Any sense for what that charge-off could look like just to frame up expectations when we're all talking three months from now?

Yes. We've got less than $4 million still outstanding related to the relationship. We have a specific reserve assigned to that relationship at the end of the quarter of roughly $1 million. We continue to work through auctions and the sale process. It will be somewhere probably between that $1 million and $2 million mark.

I would add because I know we've had separate conversations with investors that, last quarter we felt like we had the loss behind us. As we were working through the liquidation process, we have just been unable to achieve the valuations we originally expected.

And our next question comes from the line of Nathan Race with Piper Sandler.

Just curious how you guys are thinking about loan growth in the fourth quarter. Mike, I think you mentioned the C&I and investor commercial real estate pipelines are strong heading into Q4, but just curious how you think all that's going to translate into loan growth into Q4 and just any maybe initial thoughts on loan growth expectations in 2025?

Yes. When I look at the pipeline reports and as a matter of fact, I'm looking at results through October already, I continue to see the positive side of my comment around choppiness. So growth is in the C&I. I think that's going to be in Q4 in a solid outcome at mid-single digits. Investment real estate, our production is still really strong but the production is on new projects. New projects are typically construction, and the equity goes in first, so the draws come in later. That's what I'm trying to forecast or really get my hands around: when is the footage really going to be at its bottom as payoffs from really good projects hit the secondary market that we originated 2, 2.5 years ago. I think that we're going to continue to see a little more decline in our outstandings of real estate offset by growth within the commercial C&I segment continuing in the fourth. In 2025, I really feel like the outlook still should be in that mid-digits. Is that helpful? I mean, the mortgage portfolio probably stays pretty flat growing because we do use our balance sheet on construction and purchases when they make sense with our private wealth group.

And Nate, we have historically said mid to high-single digits, and over the last quarter or two, we've been talking about more mid-single digits like 5% or 6%, mostly, as Mike mentioned, because of some of the investment real estate pay downs, which has made it a little more difficult for us to be as bullish when you start thinking about trying to get to a 7%, 8%, or 9% level.

Yes, we do plan to be proactive in managing our deposit costs as the Fed cuts rates with the intention of really driving stability in the NIM. So a stable NIM is what we're internally expecting, and I think that bond sale will be supportive of that as well.

I do, yes. I’m really hopeful that the Fed takes a more measured approach. The more measured or, I guess, time they put in between rate cuts certainly helps us manage margin. The more aggressive they are, kind of one, back-to-back to back, it makes it a little more difficult to manage the deposit costs. But if things settle in where we do have rate cuts, but they're not quite as aggressive as we were thinking a couple of months ago, it does help.

And then maybe a question for John. I was just curious if you can shed any more light on the increase in classified loans.

Yes, sure. Nate, I did an analysis. It was up for the quarter. We were historically at a low point for us anyway. When you look at some of the results we've had leading into the run-up in interest rates. The areas that it really came into were the investment real estate area. We've got a couple of larger projects, $10 million $15 million that have been impacted by the higher rates. It's distributed between that and some pressure within the C&I portfolio as well with higher rates. We've got a number of names that have come in for the quarter and then it's just a lot of smaller names that are being affected. From my perspective, I look at it and feel good about where that level is at this point. It's just higher rates have slowed things down.

Maybe one last one for me. I was a little surprised to see the shared national credit balances up about 7% compared to last quarter. I'm curious if those are deals that you guys are agenting or just any other color on that growth in 3Q?

Yes, we don't agent many shared national credits. Those are generally the relationships that we're picking up in our footprint that have locations that we participate with a lead bank and are trying to get at other ancillary revenue.

I might add into that, Nathan. We really formalized a dedicated team we called upper middle market that's focusing on that segment in Ohio, Indiana, and Michigan. So we have direct calling efforts on companies of size, where we can have access to management, and then look at their capital structure, and then what John said didn’t backfill with other relationship strategies. So it's direct calling and active in our markets.

And our next question comes from the line of Damon DelMonte with KBW.

Start off with a question probably for Michele on expenses and kind of the outlook here going into the fourth quarter and kind of how 2025 is shaping up? Any guidance here on what to expect during the fourth quarter?

I think for the fourth quarter, I would expect this quarter's expense level probably to be a good rate to use. For 2025, like I mentioned to Terry, we're in our planning right now and so we'll probably be able to give you a little bit more guidance on what to expect for 2025 in our January call.

And then, similarly on the fee income side, if you back out the securities loss and the BOLI gain, I think you're close to $32.5 million on an operating basis. Obviously, you commented mortgage banking will probably come down a little bit for seasonality. But outside of that, do you feel comfortable with the other trend?

Yes, I do. I think the different pieces that you've highlighted to back off of are the right ones. The guidance I gave for the back half of 2024 was that would be somewhere between that 30 to 32 range, and I think that's still probably a reasonable expectation, and that sounds like that's where you're landing.

And then just lastly, circling back on the credit and the trucking relationship, so it sounds like you'll need to provide a little bit more for the remaining charge-off there. Was that what I should take away from that, John?

Yes. I don't know about the provision expense because it'll depend on what happens within the portfolio and other relationships on their names. I'm just simply saying that we've got a specific reserve at $1 million and depending on where we end the quarter, will drive whether we need to replace that or not.

And that specific assumes that we're going to cover whatever loss we have and it's already provided for. We’ll learn more, but we think we're in a good spot. I wanted to jump in about the expense level as well. It's just on my mind how focused we are on delivering high-performance growth in 2025. I look at our company post voluntary early retirement that we did in Q4 of last year. We had about a year's worth of age on it, and we've done some restructuring of the company because of it. That has all settled in. We've completed these four major tech initiatives. The focus of our executive management team is about driving results from here. We had a handful of items we wanted to do that we thought were worth the investment that would make First Merchants a better company, and they have been incredibly distracting. They require a ton of time and energy, but our customers deserve it, and the future of the bank deserves it. As we put together our plan for next year, Michele talks about sharing more information later and expectations that this quarter is a good run rate to think about. Our focus is on maintaining this expense level and driving results into 2025.

And our next question comes from the line of Daniel Tamayo with Raymond James.

Maybe just a question on capital. Obviously, you have the impact from the restructuring in the third quarter and then potentially in the fourth quarter as well. But I think you were considering a sub-debt redemption in January. Just curious about how you're thinking about any potential deployment here in the near term of capital?

Our sub-debt has been fully redeemed.

No, we do have a piece of sub-debt that we got from the level 1 acquisition that is still outstanding.

Our view is to ensure we're optimizing our capital. We're really glad to see that it's increased from the mid-7s to over 8%. We want to deploy the capital and growth in our balance sheet, ideally with some cash that may be involved in M&A if the right transaction comes our way. If not, then I'd like to be active in buybacks and ensure that we're putting the capital to work versus sitting on it into the future.

Is there a limit on the valuation you would consider for a buyback, or would you prefer to maintain a reasonable level of capital?

No, I just think about historical trading levels. I mean, it's interesting today, and I’ll show a little frustration that we're a growing business. We produced our return on assets that adjusted for the one-time sale of bonds were at 1.23%, and we're trading at less than 10 times forward earnings and 1.35x book. Those levels are materially below our historical averages. If that's the case, then I want to be active in supporting the purchase of our shares. It's not our highest priority. I’d rather use the capital to grow our balance sheet, add customers to our company, and I’d love to think about cash in an acquisition that we would be excited about that was appropriately priced. If it isn't, we're going to stay focused on performing organically.

And our next question comes from the line of Brendan Nosal with Hovde Group.

Just one for me here. Most sales have been asked and answered. Just on the M&A question, it clearly sounds like there's an appetite and ability to do deals with capital where it is today. Just curious what your read of the environment is today, the pace of conversations. And then just refresh us on what you're seeking in a potential partner, whether it's geography, size range, financial metrics, things like that.

Yes. I've said this multiple times, so it's probably going to sound like a repeat. I'm interested in banks that are in Indiana, Iowa, and Michigan that are less than 25% of our assets. Most of the time, they're challenged as it relates to growth and efficiency, and they may have an executive that is looking forward or looking towards retirement. I'm interested if we're trading at a level that allows us to win that transaction and to solve all three of those challenges, where post-consolidation we have enough cost takeout that it becomes highly efficient. I feel like it's a market we can add resources to start growing the bank, mostly on the commercial and private wealth side, and where we think we have the leadership to either leverage the existing leadership in the bank, or we feel like we have someone inside our company that can step in and help provide leadership in that marketplace. That tends to be our focus. I'm very aware that with our stock at the levels I just mentioned, it makes M&A more challenging. Today's comments about M&A and capital use isn’t as if we have something already lined up. That is not the case. But we are positioned for our next acquisition. We have all of our tech projects behind us, a really capable, talented team, and we have a number of banks that we're interested in. We’ll see if those happen or not. If they don’t, we’re going to stay focused on performing organically.

And our next question comes from the line of Nathan Race with Piper Sandler.

Just a couple of housekeeping questions. Michele, can you help us with the impact on intangibles with the branch sale planned in Q4?

If you're referring to any impact on goodwill, we don't have any impact.

That's great. And then just any thoughts on the tax rate going forward?

Yes. In fact, this quarter's tax rate, I think I would expect it to be between 13% and 14% on a go-forward basis.

And I'm showing no further questions. So, with that, I'll hand the call back over to CEO, Mark Hardwick for any closing remarks.

Well, thank you. I enjoyed the Q&A today. You guys ask great questions, and it gives us a chance to share our passion for the business beyond just our written comments. Thank you for your investment. We're excited about the future. We have a team of 2,100 people strong that are actively getting after our vision statement of the diverse communities we serve and our tagline of helping you prosper. We're making a difference in our communities. We're excited about it. So, thank you for your investment.

This concludes today's conference. Thank you for your participation and have a great day. You may now disconnect.