Michael Rechin - CEO, President, Director Mark Hardwick - CFO, COO and EVP John Martin - Chief Credit Officer and EVP.

Kevin Reevey - D.A. Davidson & Co. Erik Zwick - Stephens Inc. Damon DelMonte - KBW Brian Martin - FIG Partners.

Welcome to the First Merchants Corporation First Quarter 2017 Earnings Call and Webcast. [Operator Instructions]. We will be using user-controlled slides for our webcast today.

Slides may be viewed by following the URL instructions noted in the First Merchants news release dated Thursday, April 27, 2017 or by visiting the First Merchants Corporation shareholder relations website and clicking the webcast URL hyperlink. The corporation may make forward-looking statements about its relative business outlook.

These forward-looking statements and all other statements made during this meeting that do not concern historical facts are subject to risks and uncertainties that may materially affect actual results.

Specific forward-looking statements may include, but are not limited to, any indications regarding the financial services industry, the economy and future growth of the balance sheet or income statement.

Please refer to our press release -- press releases, Form 10-Ks and Form 10-Qs concerning factors that could cause actual results to differ materially from any forward-looking statements. Please also note, this event is being recorded. I would now like to turn the conference over to Michael Rechin, President and CEO. Please go ahead, sir..

Thank you, Laura. Welcome, everyone, to our earnings conference call and webcast for the first quarter ending March 31, 2017. Joining me in the room today are Mark Hardwick, our Chief Operating Officer; and John Martin, our Chief Credit Officer.

First Merchants released our earnings and our press release approximately 10:00 this morning Eastern daylight savings time and the presentation we're about to cover speaks to the material from that release.

The directions that point to the webcast were also contained at the back end of the release and my comments will begin on Page 3, a slide that's titled First Quarter 2017 Highlights. So we're excited to be with you today. We feel like we had a really successful first quarter.

Included, as you can see in some of the bullet points, our earnings per share up 30% over last year's first quarter of $0.43 up to $0.56 in the current quarter. We earned $23.2 million in net income of like 31.1% increase over the first quarter of last year.

Our total assets as the third line goes, without M&A included in that 12-month period, grew 7.8% to $7.3 billion in total and included in that would be our first quarter's loan growth of 2.6% on a stand-alone basis from year-end '16.

We have high-performance ratios that come out of those numbers, including just under 1.3% return on average assets, 1.29% to be specific and a 10.15% return on average equity which corresponds with a really nice efficiency ratio of 52.61%, reflecting both the strength in growing revenues while managing our expenses.

In addition to the financial results, we announced investments for our future. And so we're excited about the 2 definitive agreements that are listed at the bottom of this page.

Each of these were covered in discussions in the second half of last year and are getting to be more of the front burner for us, including the Arlington Bank where that definitive agreement was announced on the 25th. And we're planning for a second quarter close as is listed in the release.

And you may recall that the combination from that release, the combination of Arlington Bank with our current Ohio business produces $1 billion in asset concentration covering that in a more diversified way which would include there our commercial orientation coupled with the retail configuration we have and now our really strong mortgage business has been one of the earning engines for the Arlington Bank historically.

As I've mentioned, things are on track for a second quarter closing and at the back end of my comments, some minutes from now, I will talk about our integration plans as well.

And then on February 17, for a announcement that -- which we held a call, we announced a definitive agreement signed with Independent Alliance Banks which I may refer to as IAB from time to time or my colleagues may.

But a really nice performing bank in contiguous markets in Indiana's second largest city, highlights a growing market and an economy that's really balanced and moving forward.

I'll have comments on that as well towards the end, but we're excited about these moving forward additions to the company and what they'll do for all of us, including our shareholders. So at this point, I was going to turn more discussion of the first quarter results to Mark..

Thanks, Mike. Everyone, my comments will begin on Slide 6, where our total assets on line 8 increased from the first quarter of 2016 to the first quarter of 2017 by $527 million or 7.75% and our annualized Q1 growth from year-end totaled 6.3%. On line 3 organic loan growth totaled $565 million or 12% for the past 12 months.

And our first quarter growth from year-end 2016 of $135 million is a 10.5% annualized growth rate. The composition of our $5.3 billion loan portfolio on Slide 7 continues to be reflective of the commercial bank and it continues to produce strong loan yields.

The portfolio yield for the first quarter of 2017 totaled 4.63% compared to an annual 2016 yield of 4.58%. On Slide 8, our bond portfolio continues to be high performing. Our 3.88% yield is better than current investment rates and our annualized gain now totals $24.2 million of unrealized gain.

2017's remaining investment maturities totaled $91 million with the over 3.51% and 2018 maturities total $120 million with the over 3.49%. The variable nature of our loan portfolio was $2.7 billion repricing daily, is resulting in expansion in our loan yields and net interest margins as prime and LIBOR increase. Now on Slide 9.

Non-maturity deposits on line 1 represents 79% of total deposits, an increase from the first quarter of 2016 to the first quarter of 2017 by $286 million or 6.9%. Since year-end 2016, our first quarter growth is coming primarily from customer time deposits on line 2.

The annualized growth rate on line 2 since year-end is 22.5%, reflecting our more aggressive pricing strategies in this category. Loan growth of more than 10% throughout last year in the first quarter of 2017 required growth in brokered deposits, the brokered CDs and borrowings on line 3 and 4.

We're implementing more aggressive CD pricing strategies to both expand our deposit gathering efforts in Columbus, Ohio and to add liquidity. As I've previously mentioned, the mix to our deposits on Slide 10 continues to improve and our total 2017 cost of deposits was just 39 basis points.

Our regulatory capital ratios on Slide 11 are above the regulatory definition of well capitalized and our internal targets. We believe the strength of our 9.5% tangible common equity ratio and our 14.24% total risk capital ratio will continue to provide optimal liquidity and capital flexibility into the future.

The corporation's net interest income on a fully taxable equivalent basis on Slide 12 totaled $64.9 million, up $7.3 million or 12.7% from the first quarter of '16. Adjusted for fair value accretion, net interest income is up $5.5 million or 10%, while net interest margin also improved from this time last year by 15 basis points and totaled 3.98%.

Net interest margin on a core basis also increased 6 basis points during the same period. Total noninterest income on Slide 13 decreased by $900,000 from the first quarter of 2016 to the first quarter of 2017.

The declines occurred in three categories, cash surrender value of life insurance declined by $600,000 due to the absence of claims during the quarter and gains on the sale of mortgage loans and securities declined by $200,000 and $400,000, respectively.

Noninterest expense on Slide 14 totaled $43.1 million for the quarter, down from $46.4 million in the first quarter of '16. The $3.3 million decline is a result of continued streamlining of our operations and is reflective of full integrations of our recent acquisitions. Now on Slide 15.

Net income totaled of $23.2 million and EPS grew by $0.13 per share or 30% to $0.56 per share. $0.02 per share came from the required adoption of FASB's Accounting Standards Update 2016-09 which resulted in decreased tax expense of $770,000 for the quarter.

On Slide 16, you'll notice our trends in both the efficiency ratio -- actually on Slide 15, you'll notice the trends of our efficiency ratio and earnings per share trajectory continue to be very strong. On Slide 17, our growth in dividends and tangible book value per share are represented on this slide.

And as of last night's close, we're very pleased to be trading in the respectable 255% of tangible book value. Thanks for your attention and now John will discuss our loan portfolio composition and the related asset quality trends..

Okay. Thanks, Mark and good afternoon. I'll be updating the portfolio trends, kind of the usual quarterly-drill, review the asset quality summary and reconciliation, discuss fair value and allowance coverage and then end with a few comments on the portfolio. I'm going to start on Slide 18.

In the first quarter, we saw a continuation of the strong organic loan growth experienced in the fourth quarter and full year 2016, increasing toward loans $135 million or 2.6%. The growth continues to be driven by commercial and industrial loans on line 1 and construction and nonowner occupied investment real estate on lines 2 and 3.

C&I loans on line 1 grew $64 million or 5.4% while the combined construction and investment real estate on lines 2 and 3 grew by $69 million or 4.1%. In the quarter, we had a number of projects that were moved to amortization or were completed which resulted in the change on line 2.

And then on lines 12 and 13, we continue to remain below the 100% of construction loans to capital and the 300% of investment real estate in total to capital for both regulatory concentration guidelines. So turning to the asset quality summary on Slide 19.

Asset quality continues to improve with first quarter total nonperforming assets and 90-day delinquent loans declining by $6.6 million on line 5 or roughly 15.1%.

Nonaccrual loans, other real estate owned and renegotiated loans on lines 1 through 3 were all down in the quarter with 90 days past due on line 4 at less than 1 basis point or roughly $100,000.

We continue to work at further reducing all nonperforming assets through carefully analyzing time to resolve against eventual sale price to ensure that we maximize return. And then turning to Slide 20 which reconciles the quarterly migration of the nonperforming assets.

In the gold shaded column on the right of the slide titled Q1 '17, we began the quarter with $43.8 million, added $2.5 million of new nonaccruals and resolved through either pay downs, transfers to OREO or charge-offs, $4.6 million. This resulted in the net decrease in nonaccrual loans by $2.1 million on line 6.

Dropping down to line 10, Other Real Estate declined by $700,000, 90 days past due were unchanged with a decline of $3.8 million in renegotiated loans. So the improvement in NPAs and 90 days delinquent loans resulted in a $6.6 million change, ending the quarter at $37.2 million. Now turning to Slide 21.

As the allowance on line 1 continues to grow, we have the growth of loans in the non-purchased portfolio of the fair value adjustments continued to decline with a decline in purchase balances. This resulted in total ALLL plus fair value going from $101 million to $99 million on line 6.

Lines 10, 11 and 12 highlights the rate of transition between the purchase accounting and allowance accounting, specifically the allowance to non-purchase loans continues to decline on line 10 at the same time that the allowance to loans increases on line 11.

This is a result of the growth in the non-purchase loan portfolio replacing pay downs in the purchase loan portfolio. Regardless of the level of the allowance and fair value adjustments and borrowing the unforeseen, I would expect the provision expense to follow loan growth in the non-purchase portfolio at current allowance to loan levels.

So summarizing on Slide 2 -- or 22, excuse me. I would conclude by saying that we continue to find opportunities in both the C&I and investment real estate areas without the concern of concentrations I mentioned earlier.

This would include some minor reductions, actually, in real estate concentration thresholds when considering both IAB and the Arlington Bank. Asset quality continues to trend favorably with nonperforming assets at 70 basis points and provision expense continues to be used primarily to support loan growth rather than issues related to asset quality.

So with that, I'll turn the call back over to Mike Rechin..

Thanks, John. And I've got some comments on Page 24 before we take questions.

Let's start with the top bullet point which I really feel is going to get a lot of our focus here through the balance of the year and it speaks to the 2 acquisitions that have been referenced several times as I like our process for prudently adding to the company through our M&A business, both in terms of pricing process and execution.

And so that's what the top bullet point speaks to is the closings in the second and third quarter, I highlighted earlier, coupled with integration plans for Arlington Bank in the third quarter and IAB in the fourth quarter, obviously subject to the closing's proceeding on plan. But they're going well. We have some lessons learned from the past.

We've got some practices that are going to serve us well and in each of these cases are picking up leadership from each of these banks.

Tom Westfall and Rod Lake, in particular, are going to be with us from the Arlington Bank joining in our Ohio business and then Will Thatcher is going to lead that portion of our franchise from IAB into new First Merchants. And so we're excited about that, both the CEOs of those companies and the leadership, some of whom I've mentioned.

It's really helping us along on a process that seems to be going smoothly. And it's a competency heavily rooted in planning which is well underway. Second bullet point, winning in our marketplace.

Organic growth for us, I've said it before, is job 1 and the management of that growth and by way of some of the ideas that John mentioned that just a moment ago. We have a focus on growing our fee income down into the third bullet point. We've got opportunity, we feel and increased penetration into our existing commercial client base, in particular.

To use some of our treasury management, we've had a nice increase in that. Going back 2 years from the time of that investment and yet I still feel like we have significant upside so that all of our customers enjoy the technology we have available for them. Our efficiency ratio, we're really pleased with how low we've been able to get it.

I think the operating leverage has really shown up. There could obviously be continued room there should we stay on the revenue growth rates we have. So we're excited to watch prior projects manifest themselves and really well-managed expense levels.

Our specialty business is, at this point which I would list as our municipal lending business, our sponsor finance business and a younger asset-based lending business, have traction because of our ability to write the policy we need to be successful, coupled with great targets and then the talents to run those businesses.

And then I'll drop down to the last bullet point where I talk about preparing to successfully cross the $10 billion threshold. That's another planning exercise.

To be clear, we may get questions, that's a 2018-or-beyond likelihood, but the understanding of the requirements and the expectations, coupled with some investment along the way and lots of planning, I think will put us in position for that when that time comes.

So we're really enthused about getting off to a fast start in 2017 and I hope there's some agreement that the results would reflect the continuation of what we achieved in 2016, early into this year. I was pleased that our pipeline and our activity increases were really late in the first quarter.

And for those of you that have followed us over the last several years, you would know that our annualized growth targets have been pretty consistent, but that the first quarter is typically our slowest. And so this is a little bit of an aberration of a positive variety.

And at this point, Laura, happy to take questions from those that you might have on the phone..

[Operator Instructions]. And our first question comes from Kevin Reevey of D. A. Davidson..

So first question's related to commercial loan growth which is very, very strong.

Is there any particular industry where you're seeing growth coming from, manufacturing or the like? And then from a geographic standpoint, is most of the growth coming from Indianapolis or is it coming more from other markets outside of Indy?.

It's really -- I'm pleased, Kevin, that's a good question. I think it's balanced in terms of the source and balanced in terms of the geographies. And so yes, the economy in the Midwest, I think, may do a little bit better than what's on the 6:00 news. And we've been a beneficiary of that. We did have some bill in the usage of our construction pipeline.

John might have reference that, but that took place. But it's really fairly broad-based. I mentioned on our last call that we were beginning to get some of the volume out of the, what we call the Lakeshore region. Going back several months that was consistent with the opportunity and consistent with the investment that we made up there.

And so that has continued early into this year. It's kind of broad-based. It makes us feel good that the processes are working and our market coverage model seems to be well received..

And then as you prepare to cross that $10 billion asset threshold mark, is that something that you intend to do through a large acquisition and kind of grow significantly over the $10 billion? Or is it more of a kind of do smaller deals and kind of creep up to it in preparation for preparing for that day?.

Kevin, this is Mike again. And I mentioned, we're looking at some of the expectations and preparing for them, but the actual opportunity that would have us get there, whether it's organic growth or some combination of additional M&A, is not clear to us.

We're mindful of other companies that have gone through that threshold and with the relative success has been deemed to be both in terms of cost absorption, revenue give up or the ability to afford it to make it more of a shorter term adaptation. But we don't have the right strategy yet, because I've got to be honest, it's not this year.

We're going to focus on our business for this year with the only possible exception being something completely unforeseen. We're taking advantage of 2016's planning all of this year and probably much of next year for that eventuality..

And our next question will come from Erik Zwick of Stephens..

First, maybe a bit of a follow-up on Kevin's question about the strength in loan growth during the quarter. I'm curious if you could provide some color with regard to demand across your different kind of market areas. And then secondarily, kind of where the pipelines stand today versus 3 months ago..

Yes, I'll -- the balanced answer, if you want to call it that, that I offered Kevin is kind of the truth. It's other than the Lafayette market which has been a little slow, we've had nice pipeline contribution and then closings from those pipelines in every other market that I referenced our capital markets businesses in my earlier remarks.

And those have been a nice addition on to the kind of mid-single digits guidance we've offered in the past. And while we seem to be on the higher end of that mid to high single digits, we're really pleased with it, but it's coming in the fairly broad-based way.

When you get more quantitatively to the second half of your questions about our pipelines, well, it seems to me like we're a little bit of a quarter ahead of where we might have been this time in 2016, meaning we ended 2015 with relatively light backlog which produced a relatively lower growth 2016's first quarter.

So this year we took more pipeline and we had more loan closings. We had significantly more loan closings in the first quarter of this year even with the mortgage business being slightly down.

But when you get to the absolute levels of pipeline, our pipeline for the end of this quarter is $430 million commercially which is up a little bit from the end of the fourth quarter of '16 and yet a little bit below the end of the first quarter of '16 when we, in fact, had a significant increase in the second quarter, if you're following all those time frames.

So I feel like when I look at all of the components of our pipeline, whether it's commercial banking, retail banking, mortgage banking and our debt capital markets business, they speak, in my mind, really well to that continued guidance of kind of 6% to 8% annualized growth, despite the fact that the first quarter would argue for something higher than that.

And that may prove to be the case, but based on what we see in the growth in the marketplaces themselves, I still feel like that 6% to 8% range feels great to us and if we surprise ourselves on the upside, it ought to stay strong through the summer months which traditionally have been strong for us..

That's great color. And maybe a question for Mark. Looking at the core net interest margin, it was flat quarter-over quarter despite the December fed funds rate increase. I maybe would have expected a little bit of uptick there, given your asset sensitivity.

Just any thoughts on that as well as what you'd expect from the March fed funds increase?.

I understand where your comment's coming from. We've been looking at it really closely. And one of the pieces is definitely just what commercial loans and the way they pay every day and the month matters. And so February cost us a couple of basis points every first quarter of the year.

So we felt like the results were a little stronger than they just show on the reported number, fourth quarter versus first quarter. We've been a little bit more aggressive on, like I said, on some of the CD pricing which is a really small impact.

But we still feel like with each of the fed funds moves and the improvement in prime rate that we're going to pick up somewhere between 3, 4, 5 basis points. So we still expect to see that kind of positive result into the second quarter of 2017..

Okay. And then looking at the average non-interest-bearing deposits, they were down quarter-over quarter, but period and balances were up almost nicely almost 8% linked quarter.

Just curious kind of what you saw in the back end of the quarter with the non-interest-bearing deposits?.

I may have to get back to you on that. That's typically just public money, but I hadn't noticed that fluctuation. So I can reach back out to -- Erik and get back to you that response. But I believe that's -- when we see that kind of volatility, that's typically where it's coming from..

Makes sense. And then maybe just one last one and I'll step aside. The cost of borrowings was down 20 basis points quarter-over quarter, it's about 1.87%. The average balances up about $130 million.

Just curious kind of any actions that you took in the quarter that affected those metrics?.

It's just some of the run off of some higher costing-borrowings replacement at a lower level. And we had some borrowings in the past that were longer term, that were a little bit more expensive and at the time we did that, it's really for an asset liability play.

With the growth that we've been having over the last 2 or 3 years, really, are -- is primarily in the variable rate space. So we've had nice improvement and a nice growth in loans tied to prime and loans tied to LIBOR which allow for that asset sensitivity and allow us to stay a little bit shorter on the liability side..

[Operator Instructions]. And our next question will come from Damon DelMonte of KBW..

My first question, just kind of looking at the run rate on noninterest income and noninterest expense.

Mark, were there any items in there that were kind of one-time in nature that we would kind of exclude as we look to project future quarters?.

The noninterest income items that were down are kind of the common area where we see some volatility. We feel like the core numbers were consistent with nice growth in the core. Gains on sale in mortgage loans, gain on sale of securities, cash surrender value of life insurance, there can be some volatility there.

So I'm not -- I don't have great predictions of those 3 items each quarter, just because it's not core run rate. On the expense side, we probably had about $0.5 million of lesser noninterest expense than maybe we were anticipating.

And we think we may have going forward as our OREO expense was down primarily related to the sale of some of the facilities that came through acquisition. We transfer those into OREO and then liquidate them. So we had a little bit of a lower expense level because of the liquidation prices of those categories, but that was about it.

Pretty calm quarter..

It's Mike. I was just going to add a thought, if you don't mind, Damon. So Mark referenced a couple of what we think of as the lesser controllable nonclient captions within noninterest income. A couple other ones that we think are much more parallel with the client activity we're pretty pleased with.

Our treasury management fees which are within the service charges commercially were up 9% year-over-year and our wealth business which I think you can see in the release coupled with our brokerage business had strong first quarters. So we feel good about those.

As Mark mentioned, our bank life insurance is a big part of the decline from the $1 million in gross decline from last year due to the claims that took place in the prior period. So we kind of like the complexion of those and for the couple that I referenced, look for additional progress through '17..

Okay. Great.

So as we kind of look at the -- a baseline to go off of, so for -- if you pick up securities gains, you're around $14.2 million, $14.3 million, can we kind of grow that up a little bit in the upcoming quarters, given the seasonality of some of those items going away?.

Yes, I mean, usually, the gain on sale of mortgage loans improve during the summer months and so I would expect to see some improvement in the second and third quarter in those numbers.

And we'll probably -- we've been doing modest gains on the sale of securities each quarter which we'll probably continue to do and then cash render, the 900 there is a run rate if you exclude claims..

Okay.

And then same on the expenses, kind of that $43 million is a good run rate to go forward with?.

Yes, I've mentioned maybe $0.5 million aggregate. So $43.5 million or so is probably a good number..

Okay. Great. And then with regards to the accretive yield this quarter, you came, I think, at $4.3 million which was probably a little bit higher than what we've seen the last couple of quarters.

What are you guys scheduling for upcoming quarters?.

It was strong. Our traditional amortization of that area is more, I think, it's, what, $2.75 million is actually what we have in the budget..

Okay. Great. And then my last question, Mike, I think you mentioned about some deposit growth strategies, particularly in the Columbus, Ohio market.

Can you just talk a little bit about you guys are doing there to try to build up some market share?.

Well, we're just trying to -- the branding, the rebranding of what used to be Commerce National Bank in the First Merchants is two years old at this point. And so the introduction of Arlington as First Merchants, we want to get off to a great start. They've got a -- it's a high-performing bank, Arlington is.

And so customers that have gotten great service, we want to offer them that great service. We want to make sure that their first impressions around deposit products and deposit pricing are favorable. So we're using it as an opportunity to highlight those across the whole market.

Obviously, they're not being offered to the Arlington clients yet because we haven't closed. But it's a great way to market our appetite to grow our share there in anticipation of that.

So it's really just what we consider to be a smart, quick start, knowing that we're going to continue to grow that market rapidly and that the Arlington clients are going to see more product from us, so we'd like to give the impression externally that we're going to pay fairly for deposits.

The balance of it across the rest -- and I didn't mean to interrupt. The balance across the rest of the franchise is just to take full advantage of the demand deposit opportunity that comes with extending credit that we're pretty good at.

I still feel like we have the ability through the service enhancements to expect higher level of self-funding out of our commercial lending activities. I know there's upside there because we've been doing it consistently. That ought to continue..

And the next question comes from Brian Martin of FIG Partners..

Mike or and I guess maybe, John, just -- Mike, you talked about maybe getting off to a little bit of a stronger start on the loan growth side and that the pipelines are -- it sounds as though they're pretty good levels.

What would give you thought that maybe the levels do back off a little bit from where they are? I mean, is there any indications out there that suggests that things could get -- things could go lower at this point that you're seeing? Or is it just maybe you're just being more cautious on your part, given that seasonality is -- usually seems to help on the loan momentum as you go through the years? Just curious as to your take on that..

No. If you're picking up on my comment that I don't want to increase the size of our annualized growth expectation in light of a 2.5% quarter, there is no real connection there. It's just that it's we're really pleased with the spike.

The pipelines I covered a moment ago, Brian, would speak to a continuation of the high end of that range and that kind of is our expectation. But given that we were so easy to predict slow first quarters going back the last 4 years and to have an outlier like this, I don't want to have it completely reframe what we expect. The economies feel strong.

John's on the call, obviously, but the only thing we're keeping an eye on is we've seen other institutions, whether it's in credit cards or auto lending, begin to see early ticks on credit warning and those aren't categories for us at all. But if there's a signal to be gleaned from it, we'll be paying attention..

Okay. Perfect. Okay and then just the -- maybe just a question on the margins. Just with -- Mark was talking about, maybe the not seeing the impact in the core number but maybe just being a day's issue.

The benefit, are you guys feeling any pressure on the funding side or maybe you covered that and I missed it, but at this point, with the increases and I guess if you're not, when would you anticipate to start to feel a little bit more pressure on the funding side from a competitive standpoint?.

Yes, we really haven't felt any pressure competitively on the deposit side. I mean, in terms of a need to raise rates which has been great. Just, I mentioned, balancing the liquidity with loan growth at a higher rate than deposit growth. But that's why it's part of the reason that our M&A strategy makes so much sense for us.

So with both of these acquisitions, we picked up nice liquidity and it allows us to continue to be disciplined pricers on the deposit side..

Okay. Just the likelihood of maybe any further rate increases beyond the one that's out there, maybe having less of a benefit going forward if people do get more competitive.

It's just nothing you're seeing now, but I guess when you get into '18, if you get more increases, I guess, that will be the thought you would anticipate the rate increases being a little bit less benefit to the margin going forward?.

I guess it just depends how the yield curve responds. Right now, we're really just seeing increases in the short end. And which doesn't feel like it's putting pressure or requiring us to make increases in our non-maturity deposits and the longer end of the curve, where you traditionally have to move faster and we haven't seen as much uptick in rates..

Okay. All right, that's helpful. Just maybe the last two things from me, maybe one for John on credit.

Just anything that you're seeing out there that gives you any pause, John, as far as whether it be Ag or just other areas that you're watching or you're more cautious on today, other than, I think it was Mike who mentioned maybe you have indirect softness out there, but anything that you guys are seeing specifically?.

So, Brian, when I think about what could be on the horizon, I think some of the areas that we or there might be an issue, we don't really have exposure to. I think about the indirect, the auto, we're just not in at business.

I think that it would any issue in terms of Ag portfolio would just be how long the industry would continue to experience the challenges that it has experienced over the last, call it, 24 months. But quite frankly, in 2016, it seems to have leveled out and it's just an area that we just continue to monitor, make sure that we have oversight over.

But outside of Ag, there's nothing that necessarily we're focused on or trying to pull back from..

Okay. All right. And then just lastly, Mark, with just the tax rate going forward.

Any -- it sounds like, I guess, kind of a revert to back to kind of, I guess, the 25%, 26% level in the coming quarters? Is that fair?.

Yes, the way the accounting has worked for the stock options and RFAs, it's a first quarter item when our shares vest. And we'll have the same thing happen in the first quarter of next year at some level. It all depends how much the stock price moves relative to the issue price of those shares.

But for the remaining quarters of '17, I would expect it to revert back or you can exclude the $770,000 out of the run rate..

It is at 26%, normalized now..

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

Thanks, Laura. I really don't have any, other than the appreciation for the attention and look forward to talking again 90 days from now. Have a good afternoon..

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