First Merchants Corporation

Good day, ladies and gentlemen. Welcome to First Merchants Corporation's first quarter earnings. 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 a reconciliation of GAAP to non-GAAP measures. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host of today's conference, Mark Hardwick, Chief Executive Officer. Thank you. Please go ahead.

Good morning, and welcome to the First Merchants First Quarter 2022 conference call. Blue, thanks for the introduction and for covering the forward-looking statement on page two. We released our earnings this morning at approximately 8 a.m. Eastern Standard Time. and hopefully you have the slide presentation. If not, you can access the slides by following the link on the second page of the 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 four is a snapshot of the first merchant's geographic footprint and some relevant financial highlights for your review. Our Q1 return on assets of 1.26% and return on tangible common equity of 15% continue to be reflective of a high-performing and sustainable business model. Now, if you would turn to slide 5. Net income totaled $48.6 million, or 91 cents per share, equaling the same total as Q1 of 2021. However, excluding PPP income, our Q1 2022 earnings per share totaled 88 cents compared to 78 cents from last year, an increase of nearly 13%. Loan growth, excluding PPP, totaled 7.2%, and deposit growth totaled 5.4% for the quarter. Our acquisition of level one closed on April 1 of 2022 and our system integration is planned for the third quarter of this year. Consistent with our vision statement of enhancing the financial wellness of the diverse communities we serve, we introduced a new tagline, helping you prosper. Our testing of various options resulted in this final version due to the primary emotion of curiosity that it sparked in our test audience. So we were excited to have rolled that out and to start using it consistently throughout the footprint. Now, Mike Stewart will provide some color on our lines of business and level one before Michelle and John review our financial and credit data.

Thank you, Mark, and good morning to all. As you look at the next two slides, I'll provide an update on our line of business results and their contributions within the quarter. Since our business strategy remains unchanged, which is page six, how about we focus on page seven, business highlights. So the top of that page offers a breakdown of the core loan growth by our business units. It was another solid quarter of active engagement with our clients and prospects that delivered the annualized growth rate of more than 7%, excluding the PPP loans. The growth rate was 8.5% over the past 12 months. Within that chart, you see the consumer portfolio contracted by 1%, but has increased throughout the past year by 2.5%. The quarterly decline can be attributed to HELOC product, where the increasing home values coupled with first mortgage refinances, SPED repayments, and reduced utilizations. Our consumer clients, though, continue to have strong credit profiles and good liquidity, and as shown in the bottom chart, deposits balances grew in the quarter by 7% as we continue to gain accounts through both traditional banking centers and digital capabilities. At the end of March, the consumer loan pipeline is up 6% from the end of 2021 and up over 25% from a year ago. Back on the top of that chart, the mortgage portfolio grew near a 20% annualized rate. The drivers of this increase come from continued strength in construction and purchase volumes with more of our clients choosing our on-balance sheet variable rate pricing options given the rise in the 10-year treasury and the resultant rise in fixed rate alternatives. Michelle's going to review the non-interest income to tell whether you see the mortgage gain on sale was at a low point as overall mortgage originations are down. The pipeline for a mortgage team end of the quarter modestly higher than the end of December and slightly down from the prior year. Purchase and rehab volumes are nearly 60% of the current pipeline, which is up 30% from a year ago, reinforcing that macro slowdown in refinance volumes. Our total non-PPP commercial loan portfolio grew at 6% annualized rate within the quarter. As noted in those bullet points down below that chart, the CNI growth rate was 10% on an annualized rate. The total commercial growth was muted by refinancings within our investment real estate segment. Investment real estate footings have been choppy the past four quarters based on the current historically low cap rates and liquidity in the secondary market. Our real estate clients are taking advantage of these values and monetizing projects for their liquidity or taking the project to the secondary market to lock in those long-term fixed rates. Our team continues to deliver new project financing, and with construction draws picking up pace during the spring and summer, growth in this segment is expected for the balance of the year. The CNI segment remains the growth engine in this quarter and for the past four quarters, for that matter. The primary drivers in this segment continue to be our team and our markets. Like I've mentioned before, our commercial team is actively engaged in winning new clients, taking market share, along with providing additional senior debt and treasury services to our existing clients across all the geographic markets you see represented on the map. Within those geographies, Businesses are expanding plant and equipment to meet growing demand. We have continued to see capital plans for new equipment and expanded manufacturing sites to meet their growth plans or to onshore more of their production capabilities. Another driver of the CNI loan growth is the increased revolver commitments and utilization rates. Both are growing to support the working capital associated with the increasing sales and inventory levels. During the quarter, revolver commitments increased over $125 million to new and existing clients, and the utilization rates of the revolvers moved closer to 45%. This compares to line utilization of 38% in the first quarter of 2021, which was the nadir of the past four years. Revolver commitments have increased nearly $600 million over the past four quarters. So overall, businesses have deployed their PPP liquidity, and therefore, their line usage and deposit levels are moving back towards normal levels. The quarterly decline in deposit, which is noted on the bottom of the chart, declined, yet the total commercial deposits over the prior year continues to increase. Last, for the commercial industrial segment, succession planning events within the ownership of middle market companies continue to be a driver for our sponsor finance teams or through dividend recaps and ESOP transactions. We have expertise with all these strategic capital events. The economic and business climate across those markets is very good. We continue to see the resiliency in the management teams of companies we serve. They have solid business plans. they have solid balance sheets, they are well positioned for growth, and they continue to effectively navigate supply chain and labor issues. Our teams remain poised to respond to their capital needs, and the commercial pipeline remains stable from prior quarters and should be a harbinger for continued C&I loan growth. Overall, The map you see on the top left portion of the page also represents the demographic of a growing economic environment. It's the heart of the Midwest that drives our continued growth and offers a stable source of talent to lead our business efforts across all of our lines of business. As Mark said earlier, I want to make a few comments about our new Level 1 teammates and the markets they serve across southeast Michigan and Grand Rapids. I continue to to spend time in their market with their teams and with their clients. I really get energized each time I go there. I was there last week. They have a strong culture and a demonstrated track record of winning. Terry Cable has moved to Farmington Hills to lead the integration efforts and build on the synergies between the Level 1 franchise and our existing Michigan franchise in Monroe. Terry is an accomplished executive who most recently led our Fort Wayne team post our IAB acquisition five years ago when she joined First Merchants from Chicago. Greg Wernette, who led Level 1's commercial banking effort, will continue his leadership role as region president of that geography and work directly with Terry. I have witnessed Greg and his commercial bankers in action, again, meeting with their clients and prospective clients, and they are an impressive group. They're like many a first merchant's commercial team. They're smart, they're active, they're engaged, they want to win, they're connected in their communities, and they're truly ready to leverage the larger balance sheet offered by our partnership. Their commercial loan business grew over 7% the past quarter, and they have a healthy pipeline heading into the second. The level one mortgage team is building early synergies with the legacy FMB mortgage team. So if you remember, Level 1's mortgage results were of similar size to First Merchant's. Tim McKay is now fully engaged as president of First Merchant's Mortgage, the combined team. Tim served as Level 1's president and offers the stability to the Level 1 mortgage team and brings the enhanced processes and platforms to the First Merchant's team. Tim is off to a great start. The consumer team is eager to gain access to the enhanced product sets currently offered by First Merchants and are making headway towards the August integration event. Renee Marino will continue as the market leader of the 17 banking centers. She is well respected with her current level one team and within the First Merchants consumer leadership team. Renee is also off to a great start. So the collective organizations, we've got a lot of work to do between now and integration. But that said, we have a stable core of banking professionals leading our daily efforts and are poised to continue winning in Southeast Michigan. So with that, I'll turn it over to Michelle, who can provide you more complete review of our quarter results, and John can share the soundness of our portfolio. Michelle.