First Merchants Corporation

Thank you for standing by and welcome to the First Merchants Corporation's fourth quarter 2023 earnings conference call. 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 involves risk and uncertainties. Further information is contained within the press release, which we encourage you to review. Additionally, management would refer to non-GAAP measurements, 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 or other quantitative information to be discussed today as well as reconciliation of GAAP to non-GAAP measures. As a reminder, today's call is being recorded. I will now turn the conference over to Mr. Mark Hardwick, Chief Executive Officer. Mr. Hardwick, you may begin.

Good morning and welcome to the First Merchants Full Year 2023 conference call. Thanks for the introduction and for covering the forward-looking statement on page two. We released our earnings today at approximately 8 a.m. Eastern, and you can access today's slides by following the link on the third page of our earnings release. On page three of our slides, you will see today's presenters and our bios to include President Mike Stewart, Chief Credit Officer John Barton, and Chief Financial Officer Michelle Kevieski. On page four, We have a few highlights of the year to include final total assets of $18.3 billion, $12.5 billion of total loans, $14.8 billion of total deposits, and $7.3 billion of assets under advisement. On slide five, if you look at the bullet points under our fourth quarter results, we grew loans during the quarter by 6.6% annualized with a new and renewed loan yield of 8.01%. We also increased deposits by 4.8% during the same period, and we reported Q4 2023 EPS of 71 cents per share, or 87 cents when adjusted for several one-time expense items incurred during the quarter. Those items include 12.7 million in one-time charges, that include the FDIC special assessment due to several bank failures in March of 23, severance expense related to a voluntary early retirement incentive plan that we offered to employees in the fourth quarter of 2023, and the write-off of a lease agreement due to our Indianapolis Regional Headquarter move. Moving down to the bottom half of the page, you will see year-to-date bullet points. We've delivered net income of $221.9 million and produced $3.73 of earnings per share for the year. When adjusted for the same one-time expenditures, that EPS totaled $3.89. During a year where safety and soundness became the highest priority of stakeholders, we effectively repositioned our balance sheet to prioritize cash liquidity and capital. The company's liquidity position improved by $585 million as cash increased $300 million and borrowings declined $285 million. Our tangible common equity increased by $222 million during the year, driving our TCE ratio up from 7.37% one year ago to 8.44% at year end. We maintain strong credit quality and top decile allowance for loan losses totaling 1.64%. I'm proud of our team of driven collaborative and high character employees for rising to the call to deliver an enhanced and resilient balance sheet while also adding high quality risk aware loans at a clip of just over 5% and for delivering net deposit growth of 3% for the year before handing Over the presentation, I would just like to thank our 2,000-plus colleagues for tackling a turbulent 2023 head-on and for delivering top quartile results that we can all be proud of.

Mike? Yeah, thank you, Mark, and good morning to all. Our business strategy that is outlined on slide six remains unchanged and is a reminder that the financial results we deliver represent the durability of our business model within the primary markets of Indiana, Michigan, and Ohio. We serve diverse locations in both stable rural markets and in growing metro markets. We are a commercially focused organization across all these business segments, and collectively, the First Merchants team is actively engaged in all of our communities, delivering the solutions listed on this page. Throughout 2023, we have remained committed to our business strategy of organic growth of loans, deposits, and fee income, attracting, retaining, and building our team, investing in technology platforms that enhance the client experience, and delivering top-tier financial metrics. Let's turn to slide seven. This slide validates our ability to deliver organic growth of both loans and deposits. The annualized total loan growth for the fourth quarter was 6.6%, highlighted by the 8% growth in commercial portfolio. During our last quarter call, I noted the strong commercial pipeline, and that pipeline did materialize from our CNI-focused regional bankers and from our investment real estate team. John has more detail to share around the portfolio mix. And his detailed analysis showed that nearly 70% of our total loan growth in 2023 comes from the commercial segment, which is consistent with our global portfolio mix of 75% commercial and the rest consumer. Within the consumer portfolio, we have residential mortgage, HELOC, installment, and private banking relationships. And during the fourth quarter, that portfolio grew at a 2.7% annualized rate. So again, for 2023, the total loan portfolio grew at 5.1%. Mid to high single-digit loan growth is the expectation moving forward in 2024. While the commercial loan pipeline ended the year lower than the third quarter, the current pipeline is sufficient to achieve our expected organic growth goals. As you know, loan growth can be choppy throughout any given period. The quarterly commercial loan growth trends have gained momentum since April, post the Silicon Valley bank crisis. We were purposeful in how we navigated our bank through those uncertain times. A loan portfolio sale and liquidity management are some examples. But the commercial loan growth improved each quarter since March, with the fourth quarter at its high watermark for the year. The overall economic environment in the Midwest, inclusive of the competitive landscape, affirms my expectation of mid to high single-digit loan growth with improving loan yields. Mark highlighted that our new loan yields exceeded 8% during the quarter, which is an increase of 13 basis points from the prior. And Michelle has more detail to share on the positive trends in loan yields and loan types. The quarter saw total deposits growing 4.8% annualized and 3.1% for the full year 2023. The consumer deposit portfolio showed continued strong growth at over 11% annualized. This growth is inclusive of both the branch network and our private banking team. The consumer team continues to deliver consistent low-cost depository base. The commercial deposit growth during the quarter was also strong. This was the only quarter throughout 2023 that commercial deposits grew. So both teams are focused on relationship banking and building market share. And again, this page demonstrates that the fourth quarter delivered balance sheet growth. As Mark stated in the press release, our bank's liquidity improved throughout 2023. We have a strong capital position. Our team built a resilient balance sheet. So we enter 2024 positioned for continued growth. Our team is positioned for that growth and our underwriting remains supportive, consistent, and disciplined. So I'll turn the call over to Michelle to review in more detail the composition of our balance sheet and the drivers of our income statement. Michelle?