First Merchants Corporation

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 risk 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 two, good afternoon and welcome to First Merchant's 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 three, you'll see today's presenters and our bios to include President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer Michelle Kaviesky. Page 4 is a one-page snapshot of the first merchant's geographic footprint and a few relevant financial highlights for your review. We feel our year-to-date return on assets of 1.43% and return on tangible common equity of 16.65% reflect the strength of first merchant's overall balance sheet and earnings model. Our Moody's investment grade of A3 was reaffirmed during the quarter on September 24th. 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 five, 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. Typically, or tactically, I should say, we had a busy quarter represented by three bullet points on the top half of page five. 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. And we also completed the successful rollout of our new online account origination platform, powered by Terrafina, an NCR product. And we opportunistically repurchased nearly $21 million of first merchant stock in the open market during Q3. Now, Mike Stewart will provide some color on our lines of business before Michelle 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 six, I want to focus on page seven, title 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. And 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 as the 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 origination 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. And if you remember last quarter, that growth rate was in excess of 10%. What is interesting in this quarter was the CNI segment, which grew more than 10%, with the investment real estate footings declining during the quarter. The CNI 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%. And 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 Michelle will highlight next, Our deposit costs continue to decline again in the quarter, shared nearly equally between both our consumer and commercial business units. So you go back to the map on the top left side of the page of seven. 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. And 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. So I'm going to turn the call over now to Michelle, who will provide a more complete review of the quarter results and operating metrics before John walks us through the soundness of our portfolio.