Q1 2021 Horizon Bancorp Inc Earnings Call

Good morning, everyone and welcome to the Horizon Bancorp Conference call to discuss final financial results for the three months ended March 31st 2021.

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Before turning the call over to management. Please remember that today's call may contain statements that are forward looking and the nature of these statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those discussed including those factors noted the news.

Slide presentation.

Additional information about factors that could cause actual results to differ materially is contained in horizon.

The current 10-K and later filings.

In addition, the management may refer to certain non-GAAP financial measures that are intended to help investors understand horizon business.

Reconciliations for these measures are contained in the presentation the.

The company assumes no obligation.

To update any forward looking statements made during the call.

The one taken out already have a copy of the press release and supplemental presentation issued by Horizon mustard day.

You can access it at the company's website.

Www Dot Horizon Bank Dot com.

Representing horizon today, our chairman and Chief Executive Officer, Craig Dwight and Executive Vice President and Chief Financial Officer, Mark C Corp. They will be joined by executive Vice President and Chief Commercial banking Officer, Dennis Kuhn for.

The question and answer session.

At this time I would like to turn the call elephant talk too.

Horizon, Chairman and CEO Craig Dwight.

Yeah.

Thank you Debbie and good morning.

Thank you for participating in the Horizon Bancorp first quarter's earnings conference call. Our comments today will follow the Investor presentation, We published yesterday April 28.

Starting on slide for company highlights horizon and completed the first quarter with over $6 billion in total assets strong profitability as evidenced by a return on average assets of 1.4 per cent and return on average equity of 11, 8%.

Key drivers for the quarter were good expense control modest provision expense further reductions in deposit cost and continued improvements in key asset quality metrics.

Given the size of our balance sheet, how old the efficient operations and talented work force. We believe horizon is well positioned to capitalize on significant organic and strategic growth opportunities within our attractive Midwestern markets.

As you see on slide six we've completed 12, new organic market expansions in 14 mergers and acquisitions during this time period.

We are of company on the move and we continue to look for new opportunities in our current and adjacent Indiana, and Michigan markets with a proven track record as the successful consolidator and the pressures that other banks are facing related to the succession planning low interest rates and the challenging operating environment, we are seeing a pickup in merger and acquisition.

The discussions.

Slide seven clearly demonstrates horizon track record for achieving our well established long term goals. They include meaningfully outpacing GDP and the industry growth and achieving balanced growth with the approximately 50% organic and 50 per cent through mergers and acquisitions.

In 2020 horizon grew the balance sheet by 8%, excluding the P. P P loans.

As we've shared with you since the last fall.

Expectations for the full year 2021 is that total assets will remain relatively stable compared to the prior year with significant opportunities for merger and the acquisitions and organic growth starting in late 2021 and continuing through 2022 as the economy continues to recover.

On slide eight we remind you that horizon expansion and growth has occurred primarily in colleges and University towns.

The state or county government seats.

Therefore, a majority of our footprint as an economic base that is traditionally more stable than the other areas of Indiana and Michigan.

Coming off of a record year of residential lending we were very pleased with mortgage activity and fee income and what has historically been our seasonally lightest volume during the first quarter.

In addition, our commercial pipeline of of proved and unfunded loans and lines of credit.

Coupled with the disposition of the businesses and communities, we are serving and drawing the Indiana and Michigan markets.

It leads us to anticipate improving demand from customer investments in planning the equipment logistics and distribution infrastructure and other financing needs and a recovering economy.

Yeah.

Horizon footprint is also positioned well to take advantage of the outbound migration from Illinois, which continues to increase as consumers and businesses exit the dense living space high taxes and high cost of living.

Both the Indiana, and Michigan continue to show improving economies as evidenced by reductions in the unemployment rates as of March Indiana as the unemployment rate of three 9% was well below the nationwide rate of unemployment of 6%.

Well Michigan's overall unemployment rate was five 2% five two per cent of considerable decrease from December 31st rate of $6 seven per cent.

Many of the regions, we serve in the western and central parts of the state of Michigan are reporting even lower levels, including for 0.3 per cent in Ann Arbor for 7% and Grand Rapids, and 5% in Lansing.

All well below the U S national unemployment rate for the same time period.

Horizon of diverse footprint helps you geographically dispersed credit risk with 61 per cent of our loans in Indiana and 39 per cent in Michigan.

Slide nine highlights for the primary markets, where we are engaged in some exciting economic events, taking place, which we believe will give and improve horizons of opportunities for growth.

We go into the digital transformation Horizons of average monthly transactions have shifted away from branches towards digital and virtual channels as of last month <unk> 74 per cent of all transactions took place toward digital channels compared to 57 per cent in 2019.

And in March 'twenty, 'twenty 177 per cent of all checking accounts for active online banking users an increase from 68 per cent at year end.

Since we reopened our lobbies for walk in traffic in the first quarter. The digital transaction counts have remained stable.

As a result of our investments made in technology over the prior years Horizon was well prepared for this increase in digital banking activity.

Now for the financial update let me turn it over to our Chief Executive Officer, or Chief Financial Officer in the executive Vice President of to more of C Corps Mark.

Thank you Craig.

Horizon as first quarter results demonstrated our ability to realize strong operating results and earnings positioning us for opportunities that we might see become available when the recovering economy.

Turning to slide 12, the company's strong first quarter results were supported by stable core earnings.

Several activities during the first quarter impacted these results compared to the fourth quarter of 'twenty 'twenty Rerecorded lower P. P. P income from fewer loans forgiven lower purchase accounting income and a reduction in average loans, primarily attributed to the mortgage warehouse lending non.

Noninterest income reflected a record first quarter mortgage gain on sale income, which nonetheless declined from the historic levels recorded at the end of 'twenty 'twenty.

First quarter results benefited from lower credit expense due to continued strong credit performance and low charge offs. We continue to believe we are appropriately reserved even given the current state of our portfolio. The recovering economy additional governor sitting government stimulus and our seasonal modeling.

Slide 13 the.

27 basis point decrease in the adjusted margin during the quarter was positively impacted by 10 basis points from the P. P. P income as the net deferred fees for recognized for loan forgiveness. The.

This compares to the positive impact of 18 basis points in the fourth quarter.

The addition, excess liquidity compress the margin of an additional 16 basis points compared to seven basis points in the fourth quarter.

We also saw lower rates on the investment portfolio as well as more competitive loan pricing.

This was expected and will continue to negatively impact the margin as we focus on maximizing net interest income with the liquidity, we continue to see increasing by continuing to invest the excess funding, while creating adequate cash flows for future loan demand in reinvestment.

Moving on to slide 14.

In the first quarter the loan yield was positively impacted from the PPP loan fees recognized during the quarter, adding six basis points to the yield compared to the positive 15 basis points in the fourth quarter.

The lower purchase accounting income recognized and lower loan fee income in the first quarter compared to the fourth also negatively impacted the loan yield.

The change in the mix of the loans with the decrease in mortgage warehouse lending and the pricing pressures also contributed to lower your loan yields.

The loans continue to reprice and new product is originated at lower rates additional downward pressure on asset yields.

As expected, resulting in additional margin pressure during 2021 has the opportunities to lower funding costs are realized.

Slide 15 margin compression was tempered by our continued improvement in funding costs, which reflect horizons valuable core deposit franchise the.

C. D portfolio was 12 basis point decrease in pricing reduced total funding cost is high cost of term deposits matured during the quarter three.

359 million of Cds with an average cost of 90 basis points will mature during 2021 and continue to reduce our cost of funds.

We are also strategically pricing deposits to manage liquidity instead of inflows from transactional or transit sources.

This of course is balanced against our commitment to stand by our long standing customer relationships and high potential new opportunities in our growth markets in Indiana and Michigan.

The 2% growth in noninterest bearing deposits and one basis point drop in interest bearing deposit costs also contributed to the lower funding costs in the first quarter.

Slide 16.

Mortgage revenue from the gain on sale in mortgage related income continue to support in noninterest income as we also started to see some recovery of noncash impairment charges in the quarter.

The continued high level of mortgage production and strong percentage gains are the primary contributors to our noninterest income for the for the first quarter.

Based on local and national refinancing activity, we expect strong top line contributions to continue from the mortgage business in 2021, though not at the historic levels, we saw last year.

Slide 17.

During the first quarter, we saw operating expenses decrease from the fourth quarter of salary and benefits costs reflected more normalized accrual for performance based compensation as you may recall in the first and second quarters of 2020, we recorded nominal bonus accruals given the uncertainty at the outset of the pandemic.

Ultimately, we rebounded with record results for the year the bonus accrual is catching up in the fourth quarter.

For 2020, one we expect performance based compensation expense to be more evenly distributed throughout the year.

We continue to review branch restaurant rationalization of customer habits have changed.

The more digital channels are being used any actions that might be planned isn't being reviewed along with all other potential opportunities of the company may have to ensure we properly manage the capacity of our teams for successful execution.

Looking ahead, we intend to continue our record of maximizing the efficiency and scalability of our retail franchise, while further leveraging the investments we've already made in digital mobile and remote banking as well as our call centers.

Slide 18, with stable credit losses, and improving economic trends of 159000 dollar of reserve build in the first quarter was primarily driven by allocations for sectors of the loans with potentially higher risk due to losses of the.

Due to lost to the nature and characteristics of these portfolios the per se.

Any of the allowance to total loans was 1.56% at March 31st or 1.67%. When you exclude P. P. P loans the balance of $11 3 million remains for discounts on acquired loans.

For all we are very pleased with our financial performance for the first quarter. In this environment. We believe we are well positioned from a credit liquidity and capital perspective, and look forward to refining our operating model to further improve our results in the quarters ahead.

For some initial comments on the loan portfolio I'm going to turn it back over to Craig.

Thank you Mark looking at the chart on slide 'twenty horizon $3 $7 billion in total loans are well diversified with 59% in commercial and $40 one per cent in residential mortgage and consumer loans at horizon, we liked the slow index as the Diversifies, our credit risk and provide the.

He just managing our net interest margin.

The table on the right provides the granularity within our commercial loan portfolio, which itself is well diversified and our single largest sector is in residential multifamily housing loans at 6% of total loans in the segment continues to perform well.

The other key points, two horizons risk profile horizon managers of capital at risk by maintaining an in house lending limit of $30 million, which is well below our legal lending limit of approximately $80 million.

The granularity is further enhanced by the fact that horizons of average commercial loan is less than 400000, excluding P. P. P loans.

As of March 31st Horizon's loan deferrals continued to decline to 2.5% of total loans are primarily in our commercial loan portfolio.

Consumer and mortgage loan deferrals remain low at less than one per cent of total loans.

The number of commercial loans on payment deferral as of March 31 totaled only 36 down from year end a total of 55.

Horizon's commercial lending team has been diligent in meeting with our business customers to update their financial plans into place the loans back on our regularly scheduled payment.

Of the commercial loans and deferral of 93 per cent of the dollars are making interest only payments and only three loans or seven per cent of the total modified loans are making principal and interest deferred principal and interest.

The three principal and interest deferrals include two hotels with the same sponsor and one restaurant. The two hotels are in various stages of construction of remodeling with strong sponsors and we expect they will resume full payments during the second quarter.

The restaurant loans with the strong liquid sponsored and is expect to resume full payments in the second quarter.

Horizon is it is the traditional regional bank of warfarin. The standard lineup of commercial loan products through an experienced and seasoned team of lenders and credit administration staff.

We have a history and culture of prudent commercial loan underwriting we are primarily in the end market lender require of recourse on most of our loans from the principal business owners and.

In addition, commercial loans asset quality metrics continue to be favorable at quarter end.

Nonperforming commercial loans declined to 59 basis points of total commercial loans down from 65 basis points at year end <unk>.

Commercial loan delinquency at your at the end of first quarter continue to remain low at 11 basis points.

Horizon continues its elevated monitoring of those loans segments with higher payment deferrals over the past year.

At the end of the first quarter of the majority of horizon payment deferrals or made the hotels with the other non essential business has seen considerable improvement the.

The portfolio segments that we continue to monitor include hotels.

Non owner occupied retail restaurants, and leisure and hospitality.

On slide 24, you'll see of map that exhibits the locations of horizons the loan secured by hotels.

As you can see the vast majority of the hotels that we financed are located along an interstate highway or of resort community.

Hotels, located along the Interstate highways of rebounding faster than those hotels located in metropolitan areas.

[noise] hotel payment modifications continue to be the highest percentage of any sector at 57 per cent of the total hotel loan portfolio as of March 31 down from 72 per cent it you're in.

This decline is due to a considerable improvement in occupancy and average daily room rates during the first quarter, specifically, our Indianapolis hotels benefited considerably from the N C double a bad College basketball tournament, and we expect continued improvement in the second quarter from the running of the Indianapolis 500.

Overall this portfolio of strong sponsors capitalize on utilization of the pay check of protection program to bridge lower occupancy rates and all of the Smart service highway property sector, which is exhibiting the most improvement nationwide.

All of hotel loans in our portfolio of open for business with average occupancy rates improving from December at 34 per cent to average occupancy rates for the month of March at 58 per cent the.

The low occupancy rates at year end were due to the second wave of COVID-19.

And the considerable improvements at the end of the first quarter, a result of the increased retail travel.

And the entertainment venues starting to reopen and expand the services.

Okay.

Horizon continues to report strong asset quality metrics in the first quarter, we reported low total net charge offs over the last five quarters of less than five basis points.

Credit loss provision expense declined in the first quarter 2021 as a result of improved econometrics lowest oracle charge offs and reduction of allocation to the restaurant and non owner occupied loans sectors due to improved financial results buyer of borrowers.

Horizon as total nonperforming loans to total loan ratio improved as well for the second consecutive quarter two of low and manageable 68 basis points at March 31st we expect nonperforming loans to continue to reduce in the second quarter.

Our allowance for credit losses of 1.56% of total loans, which is in line with the other community banks that have adopted Cecil if we exclude P. P. P loans the loans for credit losses to total loans was one point of six 7%.

To summarize horizon of Bancorp key highlights we are of seasoned management team, who has managed through multiple economic cycles and has a history of delivering growth far exceeding the banking industry's average growth rates.

Excellent geographic diversification strong credit culture high quality, and well diversified balance sheet robust capital position and the excess cash of the whole company with an improving outlook to deploy said capital and cash through a merger or acquisition.

Of the historical earnings run rate of 30 years of uninterrupted dividends paid in common stock in the dividend increase for the last quarter.

This concludes today's first quarter earnings presentation. So operator, please open the lines for questions, we'll now take questions.

We will now begin the question and answer session to ask the question you May Press Star then one on your telephone keypad. If you were using a speakerphone. Please pick up your handset before pressing the team.

To withdraw your question. Please press Star then two please.

Please limit yourself to one question and one follow up you have if you have for their questions. You may reenter the question queue.

At this time, we will pause momentarily to assemble our roster.

Yeah.

The first question comes from Nathan race with Piper Sandler.

Please go ahead.

Yeah, Hi, guys good morning.

Hi, good morning.

Craig I was maybe hoping to expand on kind of your outlook for the back half of this year from of loan growth perspective, ex PPP in the warehouse and it sounds like there's some optimism and you guys are seeing kind of increased activities.

Across your footprint lately. So just hoping you can kind of frame up your expectations of the kind of in the low single digit range. If you exclude those items that are more volatile nature, and obviously transitory in the piece of.

A couple for you.

Yeah, Nathan the first of all thanks for the question, Indiana and Michigan are.

The top three or four manufacturing states in the country and manufacturing is doing extremely well across our footprint of their challenge right. Now is hiring of employees as most of our customers are doing our pipelines are very strong and I mean of turn that come with over two or of executive Vice President senior commercial lineal I'm sure Dennis.

Kuhn to give you some more detail, but we also had some pay downs from sub standard and nonperforming assets. The first quarter that were pretty high debt. We were glad to see get paid off our debt did the slower growth rates in the first quarter. So Dennis you want to add to that.

Thank you Craig.

Again, as Craig mentioned, our second quarter pipeline outlook is very positive and the increase quite significantly from first quarter.

When we originated 92 million and a commercial funded about $54 million of that that's pretty consistent from a percentage standpoint of close versus funded if you look over prior periods.

And again, we see our second quarter outlook is favorable with approved.

The pipe approved pipeline pending closing.

<unk> of about $115 million. So again activity generally is picking up you know certainly first quarter a couple of items of note as Craig mentioned.

Elevated pay offs.

But mud a significant portion of that was a watch list credits, both substandard and watch.

So again those are.

Work out activities coming to fruition. The other thing we continued to see in the first quarter was a reduction in revolving line of credit usage.

Down another $12 million and if you look at.

First quarter 'twenty, one versus the first quarter 'twenty.

Revolving line usage is down by $48 million. So again customers have benefited from P. P. P. Either their balance sheets are in good order and and certainly that's showing on our deposit side as well.

Yeah, Nathan just on the consumer and mortgage side, we are still having the.

The robust mortgage production activity.

Although the mortgage bankers Association is predicting that should fall off later this year.

We're about 65 per cent, a refinanced 35 per cent purchases.

The consumer activity, we actually had record volume in home equity lines last year. The challenge has been the payoffs due to first mortgage refinancing cash out to reduce the line balances are in the stimulus from when it coming in but with that said, we're seeing a pickup in remodeling projects in the do it yourself products with free.

We are hopeful the.

Fall back into the usage of those lines of credit.

Thank you for your question.

Yes.

That's great tolerant of encouraging commentary, particularly on the commercial side.

Going forward.

Here's a little bit as of my follow up question, you guys put up a pretty strong profitability of corner you know excess capital levels are continuing to build and I expect that we'll.

Persist over the next few quarters here any updated thoughts on capital deployment priorities of sounds like you guys are having an increase in the M&A discussions.

Just curious if you know your increased optimism for an acquisition.

Perhaps later this year would preclude you guys from being maybe more active on share repurchases in the near term or other capital deployment.

The options in terms of returning capital to shareholders.

Yeah, Nathan the again thanks for the question as you are aware of we have a repurchase plan in place, but we have not used it for 2021 of some of our thought process one of its better to deploy our capital through of mergers and acquisitions.

At the current time versus the price of our stock it's not hitting some of our hurdle rates of for stock buyback with that said, if we cannot deploy the capital through of emergent acquisitions, we will use of excess cash at the holding company for some stock buybacks.

Okay.

Okay, Great I appreciate you guys, taking the questions and all of the color. Thank you.

Thank you.

Again, if you have a question. Please press Star then one of.

The next question comes from Terry Mcevoy with Stephens. Please go ahead.

Good morning, everyone.

Good morning, Jerry.

I guess first of all of thanks for providing the the online kind of active users and the digital data.

I guess my question is and Mark I think you hinted at this of the call.

If you look at the branch footprint do you think there's opportunities to reduce the number of of locations and any cost savings would that fall to the bottom line or do you think you would the invested in other areas, particularly on the technology side.

Yeah. Thanks, Terry Yeah, we definitely think theres some opportunity on the branch side too.

To to reduce branches and also redeploy some of the technology that we have an I T and to better.

Utilizing and be better and more efficient.

And with those savings as we might as we might see a we would expect our part part of that to drop the bottom line. We do look to reinvest we might look to reinvest in some of the growth markets, where there's more opportunity coming so so that that is.

The plant we didn't whereas the.

As I said, we're managing what our capacity is from our team's perspective to make sure we execute on all of these properly and make sure we're successful.

Thanks, and then just as a follow up the increase in the reserve for the commercial portfolio.

Didnt quite follow you Mark in terms of what was behind that or those call. It COVID-19 impacted portfolios that you just felt the need to add a bunch of reserves or was it something different I think the go to clear that up for me.

Yeah.

Any increase that we saw in the the reserves on the commercial side would be related to those.

Companies impacted the through through COVID-19, specifically of hotel industry, where we want to make sure that we are adequately reserved for any of it yet.

The losses.

That's great. Thank you very much I appreciate it.

Yeah.

Yeah.

And the next question comes from Brian Martin with Janney. Please go ahead.

Hey, good morning.

Good morning, Brian for you Brian.

Just mark could you just give a little more color surrounding kind of just eight of the margin and just kind of the deployment I know you talked about the asset yield pressure test the in the cost of funds not having much more room, but just the the excess liquidity in the deployment of that and just kind of how you're thinking about that and then the margin for the balance of the year.

Yeah. Thanks, Brian you know the.

And it has so much noise in it as we all know we have movement in P. P P fees and our purchase of counting.

And.

So and then the mix. So you know the growth is going to be in the investment portfolio in the short run them and we continue to analyze what do we think of the surge of deposits are going to stay how long do we want to invest.

That's for them to increase interest net interest income and that that is our focus is net interest income the margins going to continue to have pressure not only some pricing pressures out there and lower interest rates, but just the mix as we grow the investment portfolio.

So are we are we had deployed a 200 million in the end of the fourth into the first quarter of of investments or out of cash into investments and we're currently working on another 303 hundred $50 million as we've seen these deposits grow and not run off of inexpensive.

For those to be there, but like I said, where the strategy, we're making the strategy. So that we will have cash flows coming off of the portfolio to to help fund the loan growth and also make sure. We are all of it can reinvest as we anticipate some day.

The rates will go up [laughter].

Gotcha Okay.

Okay.

And then just one other kind of like mine.

What was the round to origination and just kind of what rate are you expecting on those.

Okay.

Round two year to date are 128 million.

Originated.

Okay and the.

Yeah of what the rate is on the I don't know if.

I can follow up.

The rate.

You mean, the fees of Brian are the yeah, yeah, yeah, yeah, he kind of the yields you're expecting on net.

Well I think all of the when we look at a yield on those it's as of the amortization of the fees. It's always been in the 2.6 of $2 seven range per cent range.

Okay, Alright, thank you mark as the appetite.

Until they pay off and then we get the rest of the fee pickup I got you. Okay. Thanks for taking the question.

Thanks, Brian.

Next we have a follow up question from Nathan race with Piper Sandler.

Yeah, Hi, guys. Thank you for taking the follow up question just a question on fee income mortgage.

Little over 30% on the gain on sale basis in the first for them, that's a little higher than.

Some other job so far in the first quarter.

So I'm just curious do you kind of get your outlook on just mortgage income so revenue over the next couple of quarters of two or was there maybe some of unique drivers that kind of brought down that margin.

In the first quarter and just kind of what are your expectations for.

Mortgage genome so revenue from 'twenty to 'twenty, one relative to expectations for I think of the 15% to 20% drop off in volume industry wide. This year.

Okay.

Nathan Thanks for the question.

We expect a strong second quarter in mortgages, it's the third and fourth quarter I think what the industry is expecting to drop off as far as the gain on sale decline as a percent of what took place for their if you recall in the first quarter. There was some rising rates and in the mortgage portfolio before they fell back down again and the debt.

Does impact of our pipeline and the ore again and so.

The ratio come back down the second quarter.

Okay.

Okay, Great and then just.

Following up on the.

Margin discussion Mark.

The P. P. P revenue do you have any kind of I mean for margin estimate in the first quarter here.

The.

The excluding P. P P and I exclude to try to get to the core exclude this excess what we see as excess cash sitting at the sitting there.

Yeah, and excluding those two pieces of it would've been about 3.23 of the core margin.

Which is down from Oh from the fourth quarter and the same for the same relationship for the fourth quarter would have been $3 three three so about 10 basis points.

And if you were to include the excess liquidity ex PPP any sense of where that would shake out.

Yeah the the.

The excess liquidity was the.

Putting a drag of about 16 basis points, so you'd add that back or take that back from the $3 23 and the <unk>.

In the fourth quarter or yeah, it was seven 7% or seven cents.

Seven per cent.

Okay got it.

And it sounds like the expectation or at least from what you guys are seeing today that you know the excellence of liquidity levels are building, perhaps not at the rate that we saw over the course of the last year, but as with everything that you're seeing today.

Liquidity levels are likely to persist at least over the next quarter or two.

Yeah, definitely and then theres going to be additional stimulus coming in to the municipalities through the the last cares Act. So we anticipate to even see more dollars that will be coming in from that sector, which we really haven't seen to this point.

So.

We anticipate the elevated liquidity sort of a good portion of this year.

Okay.

And it sounds like you know you guys are always focused on kind of redeploying some of that in both securities and.

To the earlier discussion just in terms of a pick up in the commercial loan growth expectations as well entering Q2 of them into the back half of the of.

Of the 2021 as well it sounds like.

Correct correct.

Okay, great. Thanks for taking the follow up question.

Yeah.

The next is the follow up question from Terry Mcevoy with Stephens.

Go ahead.

Hi, Thanks, I really like slide like that then.

Terms of just the asset growth, that's going back 20 years.

Your your outlook. This year is for flat and I'm just wondering how does that impact your view of M&A and do you think you'd be targeting maybe larger opportunities the kind of fill that void given the lack of organic growth and maybe just remind me what's your sweet spot in terms of accounts.

The potential M&A targets. Thanks, Craig.

Yeah. Thank you Terry for the question.

We have certain hurdle rates that our EPS is meaningful to our completed M&A. So it does move our targets assets up you know two of $500 million and above.

The lower or smaller banks of 500 million of the west we're seeing the increase in credit Union acquisition of activity.

Which has picked up considerably over the last three years in both the Indiana and Michigan wishes taken I think the small deals out of the market anyway for for a moment the most.

Most acquirers, but the we have moved the harder part of target of.

Great. Thanks again.

You're welcome.

Yeah.

Next is the follow up question from Brian Martin with Janney. Please go ahead.

Hey, Thanks, guys for taking the follow up just one on theories and then my question, but it just it's Craig back to the M&A geography Wise I think you said kind of pause.

Last quarter the quarter before the you were no longer looking in Illinois is that I guess is it primarily Indiana and Michigan today is that kind of of the focus on that.

Brian, Yes, that's correct, Indiana, Michigan in North West, Ohio.

Northwest, Ohio, Okay, and then maybe just my other my follow up was really just on the the reserve outlook just given the improvement you guys talked about in the classified the.

The positive trends youre seeing and maybe.

It's a muted growth here, maybe picking up now, but how should we think about that reserve over time, I mean should we start to see of trend back toward the of pre pandemic levels, given the improving economic conditions and your you know really strong credit.

Okay.

Yeah, Brian the Oh look for the kind of metrics just continues to be strong. So that it holds our historical loan loss rates are low as well. So the unknown factor is the use of gonna be another COVID-19 waves, so until we get through and settle down.

It's really hard to predict.

Due to the uncertainty of but if we get through that uncertainty, yes, you're right. There would be of release of the credit loss reserve at some point in time, how about it.

I'm, a little cautious about the of the pandemic right now.

Okay. Thank you very much.

Thank you Brian.

This concludes our question and answer session I would like to turn the conference back over to Mr. Dwight for any closing remarks.

Yes. Thank you for participating in todays earnings call and we look forward to speaking with you again in the near future hopefully in person as we get through the end of this pandemic. Thanks for your question today have a good day by day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

Okay.