First Merchants Corporation

Thank you for standing by and welcome to the First Merchants Corporation's fourth quarter 2024 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 of 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 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. As a reminder, today's call is being recorded. And now I'd like to hand the program over to Mr. Hardwick. CEO. Mr. Hardwick, you may begin.

Good morning and welcome to the first merchants fourth quarter 2024 conference call. Thanks for the introduction and for covering the forward-looking statement on page two. We released earnings today at approximately 8 a.m. Eastern time. 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 her bios, including President Mike Stewart, Chief Credit Officer John Martin, and Chief Financial Officer Michelle Kaviesky. Please turn to page four. We're quite pleased with our fourth quarter results and the focused momentum that we're building. 2024, in many respects, was a great year for the bank. We certainly had our challenges, but the team was resilient and stayed focused on the many tasks at hand. During 2024, And in order, we completed our voluntary early retirement program, the upgrade to our in-branch account origination platform to Terrafina, the upgrade of our online and mobile platform for both consumer and then commercial clients. We upgraded our private wealth platform to SS&C InterTrust and Black Diamond. We completed the sale of five non-core Illinois branches. and the corresponding restructure of a portion of our securities portfolio. And even though the work slipped into the first quarter of 2025, we just upgraded our wire platform to a real-time system powered by Finastra. You will notice on the branch map that we are now down to 110 locations, and we're highly focused on delivering top quartile financial results in 2025 with minimal or no distractions. The tighter focus on our core markets, Indiana, Ohio, and Michigan will drive new and innovative customer acquisition strategies which are proving to be rewarding and fun. On slide five, you can see our earnings per share for the quarter totaled $1.10 or $1 even per share after adjusting for $20 million gain on the sale of the Chicago branches, offset by an $11.6 million bond loss related to security sales. Loan growth totaled 6% for the quarter, consistent with our 2025 expectations. Net interest margin also improved by five basis points, Q4 over Q3, and helped drive PPNR growth of 4% on a length basis. and again supported a sub-54% efficiency ratio for the quarter. Our tangible common equity ratio has continued to build and is now 8.81%. Fourth quarter tangible book value per share, which is reported on slide 10, was $26.78 per share and has increased by $5.33 per share, or 25% over the last two years. Net income totaled $200 million for the full year of 2024, and earnings per share totaled $3.41. Our Q3 and Q4 momentum is very satisfying, and we feel like we are now back to pre-Silicon Valley performance metric levels. Now, Mike Stewart will discuss our line of business momentum. Mike?

Thank you, Mark, and good morning to all. Our business strategy, which is summarized on slide six, remains unchanged. We're a commercially focused organization across all these business segments and our primary markets of Indiana, Michigan, and Ohio. And throughout 2024, we remained focused on building earnings momentum by executing our strategic imperatives of organic loan deposit, fee income growth, and taking market share. by engaging and rewarding and retaining our teammates, and by implementing the new technology platforms that Mark talked about that have enhanced our client experience. So as you heard Mark summarize on slide four, we delivered on this earnings momentum throughout the year. Let's turn to slide seven. Loan growth was strong for the fourth quarter across both the commercial and consumer segments, reaching nearly 6% on an annualized basis and bringing the full-year growth to 3%. The $9.7 billion commercial segment was the primary driver of the growth by increasing $148 million during the quarter, with the CNI portfolio growing 66 million, or 3%, and the investment real estate portfolio growing over 80 million. For the full year, our commercial segment grew over $250 million, or 3%, with the CNI portfolio growing over $300 million, offsetting the decline that we've talked about throughout the year in the investment real estate portfolio. Another pleasing bullet point on this page is the year-end pipeline. It's at a consistent level from the prior quarter after such a strong balance sheet growth. The growth has been shared across all the regions, with Indiana, Michigan, and the sponsor teams driving the bulk of the increase. Some of the consistent trends across the CNI spectrum are generally evident, like the M&A and CapEx spending, which was slow during the first three quarters of 2024, but has begun to thaw, particularly as it relates to acquisition and or ownership transitions. That activity drove quite a bit of commercial lending during the last two months of the year and carried into the pipelines. Fed rate reductions have had a positive impact on loan demand, specifically with investment real estate projects. New production for our investment real estate team has been strong and the end of the year pipeline demonstrates some of that as well. All of these are positive indicators for future balance sheet growth. What about the benefits of easing inflationary pressures are also benefiting our clients. In particular, the stability of auto trends and orders, along with solid demand for workers in construction and infrastructure industries. So far, the response to proposed tariffs hasn't had a significant impact on inventory or margins. Having said that, revolver usage is up across most industries, along with the use of cash reserves. The agribusiness segment remains a little challenged. While commodity prices have reverted to more historic levels over the past four years, input costs have not declined as much, and equipment purchase remains soft. FMV carries almost no exposure to the impacts of the bird flu, as the bulk of our focus has been on crop production. Our commercial focus has always been the primary driver of our balance sheet growth, and the commercial and industrial segment is the largest part of our portfolio. CNI comprises 50% of the total first merchant's loan portfolio and two-thirds of the commercial. A few comments on the consumer portfolio, loan portfolio. Year-to-date growth reached $125 million, with the on-balance sheet residential portfolio driving over 50% of that increase, or $65 million. We utilize CNI. our balance sheet for variable rate, short-term fixed rate, or construction loans. As the 10-year treasury has continued to decline during the quarter, our mortgage production has remained strong throughout. Michelle will review the year-over-year growth our mortgage team delivered through the gain-on-sell activities. We have a really strong team of mortgage bankers throughout our footprint helping us continue that growth. Let's turn to slide eight, deposits. The story of this slide is mixed, a mix of our product set and our goal of managing deposit costs. Michelle will be reviewing the improvement of our net interest margin, and this slide represents the work our teams have accomplished in managing and building core deposit relationships while reducing deposit costs on public funds and maturity deposit categories. So for the quarter, total deposits grew at a 4.4% annualized rate, and for the full year, our total deposit balances were essentially flat. The commercial segment grew deposits during the quarter by $50 million, with the non-public fund balances, what we would call operating accounts, growing $27 million. Year-to-date commercial deposit balances declined 1%, but the non-public fund account balances or operating accounts grew by 1% or $87 million. Public fund balances declined 6% throughout 2024. Public funds are an important segment, yet one of our highest cost of depository categories. The overall story is we improved our mix of commercial deposits throughout the year by growing operating accounts. We also continued our pricing discipline within our consumer segment, specifically maturity deposits or CDs. The chart at the top states that consumer deposit balances declined during the quarter 22% on an annualized basis, which they did. But the maturity deposit balance decline was essentially the entirety of it at $346 million. So core, or primary consumer account deposit balances were flat during the quarter, but grew 127 million in 2024, or roughly 2%. Maturity deposits, CD balances, declined over 430 million through 2024. The mix of deposit categories has been a focus of our teams, a focus on primary accounts and a focus on deposit costs. So overall, I'm pleased with the active engagement our teams are having with their clients as we manage the mix and deposit costs. So I'm going to turn the call over to Michelle so she can review in more detail the composition of our balance sheet and the drivers of our income statement. Michelle?