First Merchants Corporation

Good day and welcome to the First Merchants Corporation Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. 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 financial and other quantitative information to be discussed today, as well as reconciliation of GAAP to non-GAAP measures. I would now like to turn the conference over to Mark Hardwick, CEO. Please go ahead.

Good afternoon and welcome to the First Merchant's second quarter 2021 conference call. We released our earnings today at approximately 8 a.m. Eastern 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 the earnings release. Betsy, thanks for the introduction and for covering the forward-looking statement on page two. On page three, you'll see today's presenters and bios to include President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer Michelle Kaviesky. Page four is a nice one-page snapshot of First Merchant's geographic footprint and a few relevant financial highlights for your review. We feel our year-to-date return on assets of 1.45 percent and return on tangible common equity of 16.82 percent reflect the strength of First Merchant's overall balance sheet and earnings model. Now, if you return to slide five, As my quote in the press release states, we are pleased with our record-setting second quarter net income totaling $55.6 million in earnings per share of $1.03 per share. In addition to earning $105 million and $1.94 in earnings per share during the first six months of the year, we've consolidated 17 banking centers and fully integrated our Hoosier Trust Company acquisition. Mike Stewart will now provide some color on our strong balance sheet growth to include our second quarter loan growth of 6.7%. Thank you, Mark, and good afternoon.

As you look at the next two slides, I want to provide an update on our line of business results and their contributions within the quarter. Michelle and John's comments and slides will provide you greater detail. And since nothing has changed with our strategy and key lines of business, which is page six, I want to focus on page seven, the line of business balance sheet highlights. On the top of the page offers a breakdown of the core loan growth by our business units. All these percentages exclude the balances of the PPP loans. The private wealth and consumer groups grew at 4% and 5% respectively. As 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 relationships and the loan activity. Our consumer loan balances grew in the quarter based on increases in origination, both in units and dollars, over the prior quarter. The growth was further augmented by a slight increase in HELOC utilization, moving from 40 to 41 percent in the quarter. This is the first increase in organic growth the consumer group has experienced in five quarters. As noted on top of the page, we chose to sell $76 million of the longer-term fixed rate on balance sheet mortgage loans. During the quarter, we experienced an increase of construction and purchase volumes, which will position the balance sheet for growth over the next several quarters. And the pipeline for mortgage originations remains strong at the end of June, and with the recent decline of the 10-year Treasury rates, refinance volumes should increase. Our core non-PPP commercial loans grew in the quarter 14% on an annualized basis. The growth was a result of several factors, but primarily the strong pull-through of the pipeline as of the end of March. Post-Round 2 of PPP, the economic and business climate in all of our markets has been good. We have previously discussed a decreasing line of credit utilization rates, which increased this quarter by approximately 1%. With PPP in the rearview mirror, businesses have been active in financing new plant and equipment for their growth, new acquisitions have kept pace, and the growth in working capital has improved. Our investment in growing our commercial banking team across all the markets continue to drive new client conversion. All of our commercial bankers remain engaged with and prepared for the capital needs of businesses as they outwork our competition. In summary, after adjusting for PPP, the 76 million mortgage portfolio sale, organic growth for the second quarter was 10%. The pipeline looks to be able to deliver continued growth in subsequent quarters and affirms my expectation on mid- to high-single-digit annual growth rates over time. A few comments on deposit growth for the quarter. Overall deposit balances grew around 8%. the growth of the commercial deposit base of nearly 30% outpaced the decline of the consumer deposits, but 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, like universities, were net recipients of stimulus dollars throughout the quarter. As Michelle will highlight next, our deposit costs continue to decline again in the quarter, being nearly equally shared between the consumer and commercial business units. The map you see on page seven represents the demographics of a 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 lines of businesses. Over the past quarter, I've continued to visit these markets and have witnessed the reemergence and acceleration of business activities by both our bankers and our communities, and I believe this business climate remains good. I will now turn the call to Michelle, who will provide the complete review of the quarter results and operating metrics before John shares the soundness of our portfolio.