Good afternoon, and welcome to the First Merchants Corporation 3Q 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Before we begin, management would like to remind you that today's call contains forward-looking statements with respect to the future performance and financial condition of First Merchants Corporation that involve 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 reconciliation of GAAP to non-GAAP measures. After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mark Hardwick, CEO. Please go ahead.
Anthony, thank you for your diligence, the introduction, and for covering the forward-looking statement on Page 2. Good afternoon, and welcome to First Merchants third quarter 2021 conference call. We released our earnings today at approximately 8 A.M. Eastern Standard Time. Hopefully, you have all found your way to our slide presentation, but if not, you can access the slides by following the link on the second page of our earnings release.
On Page 3, you'll see today's presenters and our bios to include President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer Michele Kawiecki. Page 4 is a one-page snapshot of the First Merchants geographic footprint and a few relevant financial highlights for your review.
We feel our year-to-date return on assets of 1.43% and return on tangible common equity of 16.65% reflect the strength of First Merchants' overall balance sheet and earnings model. Our Moody's investment grade of A3 was reaffirmed during the quarter on September 24th, 2021.
This investment grade is important to us as we focus on the level of process, formality, and sustainability that exists within our company. Now, if you would turn to Slide 5. As my quote in the press release states, we are having a record year powered by strong balance sheet growth and high levels of profitability. Net income for the quarter totaled $52.8 million or $0.98 per share.
In addition, year-to-date earnings totaled $157.8 million or $2.92 per share during the first nine months of the year. Tactically, I should say, we had a busy quarter represented by three bullet points on the top half of Page 5. We are pleased with our quarter-to-date and year-to-date loan growth, and you'll hear more about that later in the call.
We also completed the successful rollout of our new online account origination platform powered by Terafina and NCR product. We opportunistically repurchased nearly $21 million of First Merchants stock in the open market during Q3. Now, Mike Stewart will provide some color on our lines of business before Michele and John review the financials and our credit statistics.
Thank you, Mark, and good afternoon to all. As you look at the next two slides, I plan to provide an update on our line of business results and their contributions within the quarter. Since nothing has changed within our strategy and key line of businesses, which is on Page 6, I want to focus on Page 7, titled Region and Line of Business Third Quarter Results Highlights.
The top of the page offers a breakdown of the core loan growth by our business units. Overall, we grew total loan portfolio by an annualized rate of 6%, with each business group contributing to the growth. All these percentages exclude the balances of PPP loans and have been annualized. The private wealth and consumer groups grew at an 11% and 28% rate respectively.
This compared to a 4% and 5% growth rate in the second quarter. As we talked about last quarter, our private wealth team is now fully integrated into each of our markets, and their connectivity with the commercial team continues to drive our growth in PWA relations and that loan activity. Our consumer loan balances grew in the quarter based on increases of in-branch originations of around 5%, and that's from both units, dollars, and increases in utilization rates.
Augmenting this growth was a small consumer HELOC purchase of nearly $40 million. All combined, the annualized growth rate was at 28%, which is a little higher than normal. This is the second consecutive quarter of organic growth as our consumer spending remains robust and stimulus deposits are being spent.
For our mortgage portfolio, we continued to experience increases in construction and purchase volumes, which drove the balance sheet growth of 2%. The pipeline for mortgage originations remained strong at the end of September, and even with the recent increases of the 10-year Treasury rates, volume remained strong.
Our total non-PPP commercial loan portfolio grew in the quarter by a 4% rate. If you remember last quarter, that growth rate was in excess of 10%. What is interesting in this quarter was the C&I segment, which grew more than 10% with the investment real estate footings declining during the quarter. The C&I growth is coming from several factors. The new commercial bankers that have joined First Merchants across our markets.
We continue to add smart, talented bankers in each of our four primary states, with upper middle market, asset-based, and investment real estate being a focus. Commercial and industrial businesses are now expanding plant and equipment to meet the growing demand, and their line of credit utilization is also increasing in this quarter.
Succession events through dividend recaps, ESOPs, and strategic partnerships are driving M&A activity, and we have expertise and are connecting with all those events. The investment real estate new business generation has remained strong, but it's being offset with the liquid secondary market, the low cap rates, low interest rates, and tax considerations quickening the pace of refinances and asset sales.
Overall, the economic and business climate in all of our markets is good. Companies are navigating supply chain and labor issues. Our team remains engaged with and prepared for the capital needs of the businesses as we continue to outwork our competition.
In summary, again, after adjusting for PPP, the total loan growth for the third quarter of the bank's portfolio was 6%. The pipeline looks to be able to deliver the continued growth in subsequent quarters and affirms my expectations on that mid to high single-digit annual growth rate that we talk about over time.
A few comments on deposits growth in the quarter. Overall, our deposit balances grew around 5% annualized, down from the 8% in the second quarter. The growth of the commercial deposit base of nearly 6% outpaced the decline in consumer deposits, and both segments were primarily influenced by the various economic stimulus programs.
Consumers were net users of prior quarters economic impact payments, and municipalities and other public institutions continue to be net recipients of stimulus dollars. As Michele will highlight next, our deposit costs continue to decline again in the quarter, shared nearly equally between both our consumer and commercial business units.
You go back to the map on the top left side of Page 7. That map represents the demographics of the growing economic environment, the heart of the Midwest, that drives our growth and a stable source of talent to lead our business efforts across all of our business lines.
Again, like I shared last quarter, I've continued to visit our markets and have witnessed the reemergence and acceleration of the business activities, our bankers, and our communities, and the business climate remains good. I'm gonna turn the call over now to Michele, who will provide a more complete review of the quarter results and operating metrics before John walks us through the soundness of our portfolio.
Thank you, Mike. My comments will begin on Slide 8. We had another quarter of meaningful balance sheet growth, which you can see on Lines 1 through 4 as total assets increased $137.6 million or 3.7%. The deposit growth of $145 million, coupled with PPP loan forgiveness, created liquidity of $370 million, of which $125 million was used to fund loan originations, and the remaining liquidity was invested in the bond portfolio.
You will see on Line 17 that net income declined $2.8 million from the second quarter. You will recall that the second quarter included one-time gains on a large sale of mortgage loans that totaled $2.9 million.
Taking that into consideration, along with the PPP fee income decline from last quarter, reveals another good quarter of core incremental earnings growth. This result led to a strong efficiency ratio for the quarter of 51.18%. Lines 18 through 20 show our profitability ratios, which are showing a nice upward trend starting from the third quarter of last year, with the return on tangible common equity this quarter at 16.33%.
Slide 9 shows our year-to-date results. Line 23 shows year-to-date earnings per share of $2.92, a $1.01 increase over the same period in the prior year. The efficiency ratio for the first three quarters of 2021 was a low 50.10%. Now I'll move on to Slide 10, which shows highlights of our investment portfolio.
The top right graph shows the trend in the portfolio yield. The yield on the portfolio declined only 3 basis points during the quarter, so yield compression has slowed. The portfolio contributed $26.3 million of interest income on a fully tax equivalent basis this quarter, an increase of $2.2 million over prior quarter.
The current tax equivalent purchase yield noted in the bottom left is approximately 2.2%. With the roll-off yields for the remainder of 2021 and throughout 2022 averaging at 2%, we shouldn't see any additional margin pressure from the investment portfolio assuming buy yields hold up.
Slide 11 contains the highlights of our loan portfolio. In the bottom left corner, you will see the stated third quarter loan yield increased 2 basis points over last quarter to 4.07%. Excluding the impact of PPP loans, loan yield was 3.77%, a decline of only one basis point compared to last quarter. Yield on new and renewed loans this quarter averaged 3.23%. Our loan portfolio continues to remain approximately two-thirds variable.
Slide 12 shows the details related to our allowance for credit losses on loans. On the bottom left of the slide is a roll forward of our allowance balance. During the quarter, we had charge-offs of $600,000 and recoveries of $800,000, which on a net basis increased the allowance balance modestly, and we did not book any provision expense this quarter. Therefore, the ending allowance for credit losses on loans was right at $200 million. The coverage ratio trend is shown on the graph on the top left.
Our coverage ratio at the end of Q3 is 2.21%, up from 2.19% from the prior quarter. Excluding PPP loans, the coverage ratio is 2.26%, down from 2.29% last quarter. Now I will move on to Slide 13. On the bottom left, you will see our company's cost of deposits declined another basis point this quarter, averaging 18 basis points.
This is half the cost of the deposits in Q3 2020, which were at 36 basis points. We generated average deposit balance growth of $225 million on a linked quarter basis, yet interest expense from deposits continues to modestly decline. Slide 14 shows the trending of our net interest margin. Line one shows net interest income on a fully tax equivalent basis of $110 million.
When you back out non-core interest income items such as fair value accretion on line two and the impact of PPP loans shown on line three, our core net interest income totals $100.3 million.
Compared to the prior quarter total of $97 million, the increase in core net interest income was $3.3 million. Stated net interest margin on line six totaled 3.2% for the quarter. Adjusting for fair value accretion and the impact of PPP loans brings us to a core net interest margin of 2.99%, which is only down 1 basis point from last quarter's core NIM of 3%. We are seeing stability in our margin.
On Slide 15, non-interest income totaled $28.5 million for the quarter, with total customer related fees of $23.2 million, which was down $3.7 million and was due to the large one-time gain on the sale of mortgage loans recognized last quarter that I mentioned earlier. This quarter, we also recorded a large BOLI gain of $1.3 million, which is reflected in other income and saw continued recovery on service charges on deposits.
Moving to Slide 16, total expenses for the quarter totaled $71.4 million, which is $2.1 million more than Q2 expenses of $69.3 million. In the bar graph on the far right, you see the increase in salaries and benefits, which is driven by higher base salary expense and incentive accruals booked during the quarter.
The increase in other expenses totaled $13.2 million, and is largely due to higher marketing spend and contributions made during the quarter. Slide 17 shows the strength of our capital ratios. The tangible common equity ratio at the top of the page is stated at 8.94%, but is 8.82% without the impact of PPP loans, which is in line with our internal TCE target.
At the bottom, you will see the common equity tier one ratio and the total risk-based capital ratio remain at high levels, reflecting the safety and soundness of our organization. That concludes my remarks. I will now turn it over to our Chief Credit Officer, John Martin, to discuss asset quality.
Thanks, Michele, and good afternoon. My comments start with Slide 18, where I will review the loan portfolio, including the industry concentrations, and the PPP loan program. I'll provide an asset quality update and then close with an asset quality roll forward, before turning the call back over to Mark.
Turning to Slide 18, for the quarter, the portfolio experienced continued loan growth, as Mike Stewart mentioned in his earlier remarks. Total loans grew $126 million when factoring in the $218 million in PPP loan forgiveness in the quarter. Excluding the changes in PPP, loans grew at a 6% annualized pace led by the C&I portfolio, which encompasses on this slide Lines 1 through 3, CRE construction and home equity loans.
Driving C&I growth was a number of new relationships for the quarter, as well as an increase in C&I line utilization from 38.4% - 39.7%, or an increase of roughly $115 million. Line utilization continues to remain lower compared to pre-pandemic levels, where utilization was in the mid-40% range.
We did feel some headwinds in the investment real estate portfolio, as Mike mentioned, as the demand from the permanent market was strong and resulted in a number of our mini-perm loans being taken out early. On Lines 9 through 12, we had growth in our consumer and mortgage portfolio, up $60 million in both first lien and HELOCs, as both the purchase and refinance market remain strong.
On Line 14, we ended the quarter with $198 million or roughly 1,600 of the PPP loans remaining that represent either loans that have been converted to amortization or await a forgiveness request or processing.
Slide 19 highlights our asset quality. Our trends continue to be stable to improving with NPAs plus 90 days past due on Line 5, down $6.2 million. This left NPAs + 90-day loans to loans plus ORE lower at 58 basis points. Classified loans on Line 7 are those with a well-defined weakness. They continued to decline this quarter, down $39.1 million, ending the quarter at 1.6% of loans.
Driving that change in classified loans were both changes in C&I as well as the resolution of two non-performing senior living credits exiting the portfolio. Finally, net charge-offs on Line 9 resulted in a small net recovery in the quarter as we were paid out of an approximately $200,000 balance from a former ABL TDR left from the recession, the Great Recession, with modest offsetting charge-offs.
Finally, at the bottom of the slide, the remaining COVID deferrals have declined $14.6 million or four commercial loans as the borrower deferments end. The terms of these deferrals will either end in the fourth quarter or be resolved on these names in due course. In summary, asset quality remained stable and improving during the quarter.
While the operating environment on the other side of the pandemic remains challenging with supply chain issues and labor and hiring challenges, we are seeing companies quickly adjust. Finishing up on Slide 20, I again include the asset quality roll forward, which reconciles changes to asset quality.
On Line 2, we resolved the two aforementioned senior living non-accrual credits totaling $23.4 million, having fully reserved for the loss in prior quarters. While on Line 3, we added two significant non-accrual credits of $20 million. The first borrower is a commercial contractor, while the second is an agribusiness-related company to grain storage and marketing. We have specifically reserved roughly $3 million on each credit.
Dropping down to Line 13, these changes accounted for virtually all of the $6.2 million in asset quality for the quarter, with only minor changes in the other categories across nonperformers. That's all I have, Mark. I'll turn it back over to you.
Great. Thanks, John. You'll see in the deck, Slides 21 and 22 are consistent with prior quarters, and they just show a nice track record going back a little over 10 years of First Merchants' performance. Then if you look at Slide 23, it's a document that highlights some of our priorities.
As you think about having a vision and a mission and kind of strategic imperatives, this is a good list of the things that we're focused on that should carry us through the next several years. At your end, I'll cover these in more detail. At this point, we're really ready to take questions. Anthony, you can open up the line for us.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Daniel Tamayo of Raymond James. You may go ahead.
Hi. Good afternoon, everyone. Maybe I will start on expenses. You know, we're seeing a lot of, obviously, wage inflation, hearing a lot about that impacting hiring practices and dollars. What are you seeing there, and how do you think that's gonna impact your expense growth next year without maybe talking about guidance but just kind of high level? Thanks.
Yeah. Thank you, Daniel. Wage inflation and the pressure related is real. You know, we are definitely feeling it in more of our entry-level positions. There's an increased vacancy rates and, you know, we've increased our minimum wage to $15.
We have some insurance adjustments that are going to take effect the first of next year that are trying to provide some relief and will allow us to you know, attract talent at some of the entry-level positions. It's real and we're feeling it. I would say as we forecast into next year, we still have in mind kind of a 2%-4% growth rate for expenses in 2022.
You know, we're finding ways to be more efficient in other areas as we just adjust and adapt to this new environment that also includes increased digital transactions, et cetera. It's a good question. It's real, and I just think it's part of the job that we have to manage the company in the most efficient way possible.
Thanks, Mark. As a follow-up to that, assuming in 2022 that we do have some, you mentioned finding other ways to cut costs, but assuming that might run a little bit higher than normal, and that we do not get an increase in interest rates, do you think you can still maintain an efficiency ratio in the low 50s as you've done in the past?
Yeah, we do. You know, we're pretty far along in the budget process this year. We've met with every line of business and every administrative unit to review their strategies or tactics for the year. We've drafted our plan and I mean, we feel like our efficiency ratio, consistent with our strategy, is going to stay in the low 50s.
Great. I'll step back. Thanks for answering my questions.
Yep, thank you.
Our next question comes from Terry McEvoy of Stephens. You may go ahead.
Good afternoon, everyone.
Hi, Terry.
Maybe a question for Michele. How should we think about the size of the securities portfolio and overall, your thoughts on managing excess liquidity?
Well, you know, this quarter we saw the liquidity growth slowing some. Although we, as Mike Stewart said, we are seeing some stimulus money still come into public entities. We think overall that's gonna slow and our growth on deposits is going to normalize. When that happens, that excess liquidity that we have will be plowed right back into loan growth. We don't anticipate a whole lot more growth in the investment portfolio from excess liquidity going forward.
As a follow-up, maybe just a follow-up on that last question on expenses. In the third quarter, they came in, call it $1.5 million above, kind of the high end of the range that was talked about three months ago. Michele, I think you said something about marketing and maybe some other items that drove the third quarter increase. I guess what are your thoughts specifically on the fourth quarter? Is $68 million-$70 million the right way to think about that o r has there been a bump up in the third quarter that will trend or continue into the fourth quarter?
I think the wage inflation will have it running more towards the third quarter levels of $71 million-$72 million.
Great. Thank you.
You're welcome.
Our next question comes from Damon DelMonte from KBW. You may now go ahead.
Hey, good afternoon, everyone. Hope everybody's doing well today.
We are. Thanks, Damon.
Good to hear. First question, you know, the commentary around the margin was pretty positive. You know, Michele, are you feeling comfortable that you guys can kind of hold this line here at the 2.99%-3% for the core margin level o r are you even maybe more, a little bit more optimistic that you could see a little bit of a rise as we go through the end of 2021 and into 2022?
Our outlook is that the margin will be stable. You know, a lot of the pressure that we saw, the previous quarters was due to all that excess liquidity. With that liquidity coming to more normalized levels, we think it will be stable. You know, I'd probably be a little shy to say that I think that it could increase just because we're still seeing quite a bit of, competition on loan pricing, but we feel good about where we're at.
Got it. Okay, great. I think John was giving the commentary on the commercial line utilization rate. I didn't quite catch all that. If he could just repeat the percentage of this quarter versus last quarter, that would be great.
Sure. Thank you. The C&I line utilization is basically 40% [inaudible]. It's 38.4%-39.7%, which, given our commitments, resulted in a $115 million lift for the quarter in C&I alone.
Got it. In C&I alone. Okay, perfect. Then I guess, just lastly, kind of bigger picture, Mark, you know, love to hear your updated thoughts on M&A. You know, there's been some decent-sized deals across the Midwest in the last few months. Kind of what your thoughts are on, are you in a better position to try to capitalize on market disruption o r do you think there's other, you know, smaller community regional banks that you guys could partner with to make yourselves a larger entity? Thanks.
Yeah, I don't think our opinion on it has really changed. You know, Mike Stewart spends every day focused on organic growth. Seems like the rest of us spend every day making sure our efficiency ratio stays intact because we think those two things are ultimately what drive higher performance.
You know, M&A is a part of what we've done historically. You see the track record. You know, I would say maybe things are a little more active in the second half of the year like they normally are. I think if a banker went back and tried to plot M&A activity, I think it's always heavier in the second half of the year. You know, my view and my opinion of it is really the same as it's always been.
We focus on organic growth, efficiency, performance, and M&A is an organic strategy that, you know, has to be opportunistic and has to provide shareholder value. So no real change in our view.
Okay, great. Appreciate the color. Thank you.
Thank you, Damon.
Our next question comes from Scott Siefers of Piper Sandler. You may now go ahead.
Hey, guys. Thanks for taking the question. I just wanted to go back to the loan growth commentary. I think in some of your earlier prepared remarks, you noted some hirings that had helped to generate some of that growth. How much of the growth would you say is coming from that increased line utilization that you referred to a couple times, and how much from new hires? What is the market, in your view, for attracting new talent?
This is Mike Stewart here. A good question. I'll start backwards. The market, I would say, for us is pretty attractive. In some of our core markets, there are disruptions that still happen with some of the larger banks or some of the other M&A activity. With our reputation and our growth in our global commercial product set, it's been a good place for those commercial bankers to lend.
It could be asset-based lenders, investor real estate lenders, upper middle market lenders taking advantage of our syndication capabilities now. We've been able to add those type of quality bankers in, like I referenced, in each of our four states. They are contributing.
Once they get on board, it usually takes, I would say, two quarters, and they start to contribute in a pretty consistent manner. You asked specifically how much would that growth come from that or the organic growth from that versus the line utilization. I think if you take the line utilization out, but some of that line utilization comes from new names, which these bankers are contributing as well. It's a good question. I'll have to do a little bit more work to give you the percent.
I can also provide a little bit of additional color. Our commitments for the quarter, which come from new names, increased from $2.785 billion - $2.98 billion. Call it a couple hundred million dollar increase in our line commitments. That's being generated by new names, new commitments to existing customers generated by bankers.
Yep.
It's not just purely...
Line usage
...existing lines, existing draws.
Yep. Perfect.
Okay. Thank you very much Siefers .
Yeah, that's great. Michele, you had made a comment a moment or two ago regarding loan pricing competition in response to a question on the margin. I was hoping that you guys might be able to speak to in just a bit more detail to sort of the intensity of pricing competition and what your bankers are telling you about pricing versus competition on structure and stuff like that.
Yeah, it's Mike Stewart again. I'll speak to that too because connected to it in a very intimate way. I would say all of our banking competitors realize that asset growth is of utmost importance, so competition on pricing is real. We see it in all different forms and functions. I would say that we've been able to, in general, not have to compete on structural aspects.
At some times I'm wondering, you know, on any certain deal specific if that's true. On a global point of view it is still from a competitive point of view pricing. That's why I think Michele would be hesitant to answer the other question with would we see margin increasing. I just think that we're gonna stay very active and price accordingly.
We like to use incentive-based pricing. If risk profiles change over time, the pricing would adjust accordingly. We try to stay relatively short on our types of tenor, so we can rebalance when time goes on. I think it's just competitive.
Yep. Okay, perfect. Thank you guys very much.
Thanks, Scott.
Our next question comes from Brian Martin of Janney Montgomery Scott. You may now go ahead.
Hey, good afternoon, everyone. Just a couple for me. Just Mark, going back to your M&A point or just capital, just maybe just kind of your appetite. You talked about the buyback, maybe just the appetite for buyback. Just on the M&A, just separate, you know, I guess when you look at the opportunities that are out there today, whether it be, you know, something like Hoosier or more of the bank side, is anyone more active on your front o r, you know, I guess on that front and then just on the buyback.
We're active in the buyback space, opportunistically and have a real kind of stated goal to keep tangible common equity at our target of 9% to drive higher returns on tangible common equity. I think we've been successful there.
On the M&A front, I'm not sure if I totally heard the question, but I would just say if something, you know, were to progress, we have interest in using cash in the transaction as part of capital management. Maybe that's where you were headed.
Yeah. Is it a whole bank deal, or are you more interested in doing something, you know, like you did with Hoosier Trust in on that side?
Oh, yeah. No, more traditional. I mean, Hoosier Trust was a unique opportunity that I don't think we'll see, you know, those types of opportunities as frequently as we might whole bank opportunities. Just still focused on transactions that look really similar to what we've done in the past.
Yep. Okay. Then the last two for me were just maybe one for John, just on PPP, just the recognition of the remaining fees. Is it, you know, the bulk of that probably comes fourth quarter, or have you seen some of that slow down?
Yeah. We would expect that the bulk of the remaining is gonna come in the fourth quarter.
Gotcha. Okay. Maybe just one for Michele, just on the outlook for margin. Just, you know, I guess can you remind us from an asset sensitivity standpoint I guess just what your thoughts would be on how the margin would, you know, dynamics might change from what you know, mentioned earlier?
Well, when we look out over the next 12 months, we're assuming that margin will be stable, and we are asset sensitive, certainly. Our balance sheet always has been. But we're still looking for stability with hope that there could be some increase.
Okay. Just remind me, I mean, the percentage of loans that are variable rates that would move
2/3.
2/3. Okay, perfect. Okay, thank you for taking the questions.
You're welcome.
Thank you, Brian.
Our next question comes from Daniel Tamayo of Raymond James. You may now go ahead.
Again, just a couple of follow-ups for me.
Yeah.
First, on the deposit service charges, we had a nice little increase in the quarter, obviously after they fell off during the pandemic. How are you thinking about that line going forward with, you know, potential regulatory changes and just what are your thoughts there? That would be great. Thank you.
Yeah. I mean, the component that is NSF and OD, we just continue to make sure that we're kind of taking the lowest risk approach. Kind of every year looking for ways to make sure that we're as conservative as possible. You know, outside of that, I think there are service charges that are, you know, clearly just connected with the core deposits that we have.
That is a focus of our organization. I mean, we think we talk all the time about growing commercial loans and growing core deposits. Core deposits come with some level of service charges. Yeah, there's definitely some risk in the OD space, and we're just trying to make sure every practice we have is as low risk as possible.
Inside that service charges, there's a lot coming through from ATM usage as well. They're both increasing.
All right, great. Last one for me for Michele here. You've commented in the past of a bias to keep the loan loss provision at zero or above, given the outlook for credit is very strong at this point and reserves still remain comfortably over 2%. Any update to that or if that'll remain the focus going forward? Thanks.
Yeah. I think our bias remains the same. We acknowledge that, you know, we could be under some pressure in the near term, depending on what the unemployment rate is and the Moody's outlook. At this point, we would still or it would still be our bias just to grow into that number.
All right. Thank you. That's all I had. Appreciate it.
Thanks, Daniel.
Thank you.
This concludes our question and answer session. I'd like to turn the conference back over to Mark Hardwick for any closing remarks.
Anthony, thank you. To all of our participants, we always appreciate your interest, your connectivity, your willingness to listen to our performance and most of all, your investment. Your engagement is appreciated. We look forward to talking to you next quarter. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.