[Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) This section presents the unaudited consolidated condensed financial statements and management's discussion and analysis for First Merchants Corporation [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated condensed financial statements, including balance sheets, income, comprehensive income, equity, and cash flows, with explanatory notes [Consolidated Condensed Balance Sheets](index=5&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) Total assets reached **$18.0 billion** at September 30, 2023, driven by loan growth, with deposits increasing and borrowings decreasing Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$17,996,648** | **$17,938,306** | | Net Loans | $12,065,640 | $11,780,617 | | Investment Securities (AFS & HTM) | $3,713,724 | $4,263,788 | | **Total Liabilities** | **$15,904,004** | **$15,903,536** | | Total Deposits | $14,646,576 | $14,382,745 | | Total Borrowings | $1,024,586 | $1,313,945 | | **Total Stockholders' Equity** | **$2,092,644** | **$2,034,770** | [Consolidated Condensed Statements of Income](index=6&type=section&id=Consolidated%20Condensed%20Statements%20of%20Income) Q3 2023 net income decreased to **$56.4 million** due to higher interest expense, while nine-month net income increased to **$181.3 million** Q3 Financial Performance (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Interest Income | $133,383 | $140,306 | | Provision for credit losses | $2,000 | $0 | | Noninterest Income | $27,842 | $29,617 | | Noninterest Expenses | $93,854 | $96,378 | | **Net Income** | **$56,366** | **$63,752** | | **Diluted EPS** | **$0.94** | **$1.08** | Nine Months Financial Performance (in thousands, except per share data) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Net Interest Income | $415,337 | $371,247 | | Provision for credit losses | $2,000 | $16,755 | | Noninterest Income | $79,158 | $83,791 | | Noninterest Expenses | $280,167 | $266,016 | | **Net Income** | **$181,307** | **$151,329** | | **Diluted EPS** | **$3.03** | **$2.62** | [Consolidated Condensed Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Condensed%20Statements%20of%20Comprehensive%20Income%20(Loss)) Q3 2023 comprehensive loss was **$32.9 million**, primarily due to unrealized losses on available-for-sale securities, partially offset by net income Comprehensive Income (Loss) Summary (in thousands) | Component | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net income | $56,366 | $63,752 | | Other comprehensive income/(loss), net of tax | $(89,306) | $(115,533) | | **Comprehensive income/(loss)** | **$(32,940)** | **$(51,781)** | [Consolidated Condensed Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Condensed%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity increased to **$2.09 billion** by September 30, 2023, driven by net income, partially offset by dividends and comprehensive loss - For the nine months ended September 30, 2023, total stockholders' equity increased by **$57.9 million**, from **$2,034.8 million** to **$2,092.6 million**[14](index=14&type=chunk) - Key changes in equity for the nine months ended September 30, 2023 included: net income of **$181.3 million**, other comprehensive loss of **$68.1 million**, and cash dividends on common stock of **$59.7 million**[14](index=14&type=chunk) [Consolidated Condensed Statements of Cash Flows](index=10&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) Nine-month cash flow saw **$172.7 million** from operations, **$86.8 million** used in investing, and **$83.3 million** used in financing, resulting in a **$2.6 million** net increase Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $172,698 | $144,684 | | Net cash used in investing activities | $(86,775) | $(257,629) | | Net cash provided (used) by financing activities | $(83,344) | $65,331 | | **Net Change in Cash and Cash Equivalents** | **$2,579** | **$(47,614)** | [Notes to Consolidated Condensed Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) Provides detailed explanations of accounting policies and financial activities, covering recent standards, acquisition details, loan portfolio, credit quality, and regulatory capital [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 and nine-month 2023 financial performance, highlighting **$55.9 million** net income, **4.6%** annualized loan growth, and a **11.26%** CET1 ratio - Q3 2023 net income available to common stockholders was **$55.9 million** (**$0.94** per diluted share), down from **$63.3 million** (**$1.08** per diluted share) in Q3 2022[183](index=183&type=chunk)[184](index=184&type=chunk) - Total loans grew by **$406.0 million** (**4.6%** annualized) since December 31, 2022, excluding non-relationship based commercial loan sales[183](index=183&type=chunk) - Total deposits increased by **$263.8 million** (**2.4%** annualized) since December 31, 2022[183](index=183&type=chunk)[192](index=192&type=chunk) - The Common Equity Tier 1 (CET1) Capital Ratio remained strong at **11.26%** as of September 30, 2023[183](index=183&type=chunk) [Net Interest Income](index=52&type=section&id=Net%20Interest%20Income) Q3 2023 FTE net interest margin compressed to **3.29%** due to rising interest costs, while the nine-month FTE margin increased to **3.42%** Net Interest Margin (FTE) | Period | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin (FTE) | 3.29% | 3.55% | 3.42% | 3.30% | - The increase in interest income for Q3 2023 was driven by organic loan growth and the FOMC's cumulative **525 basis point** rate hikes since March 2022[210](index=210&type=chunk) - Total cost of funds rose to **292 basis points** for Q3 2023, compared to just **76 basis points** in Q3 2022, reflecting the higher interest rate environment and competition for deposits[212](index=212&type=chunk) [Noninterest Income](index=56&type=section&id=Noninterest%20Income) Q3 2023 noninterest income decreased **6.0%** to **$27.8 million**, mainly due to lower life insurance gains and AFS securities losses, partially offset by loan sale gains Noninterest Income Comparison (in millions) | Period | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Total Noninterest Income | $27.8 | $29.6 | $(1.8) | | Gains on life insurance benefits | $0.6 | $5.3 | $(4.7) | | Net realized (losses) gains on AFS securities | $(1.7) | $0.5 | $(2.2) | | Net gains and fees on sales of loans | $5.5 | $2.5 | $3.0 | [Noninterest Expense](index=56&type=section&id=Noninterest%20Expense) Q3 2023 noninterest expense decreased **2.6%** to **$93.9 million** due to the absence of acquisition charges, while nine-month expenses rose **5.3%** - Q3 2023 noninterest expense was **$93.9 million**, down from **$96.4 million** in Q3 2022[225](index=225&type=chunk) - The decrease in Q3 expenses was primarily due to the absence of **$3.4 million** in acquisition-related charges from the Level One merger recorded in Q3 2022[225](index=225&type=chunk) - For the nine months ended September 30, 2023, noninterest expense increased by **$14.2 million** year-over-year, largely due to a **$13.2 million** increase in salaries and employee benefits related to the Level One acquisition[227](index=227&type=chunk) [Capital](index=57&type=section&id=Capital) The Corporation maintained strong capital, exceeding 'well-capitalized' standards with a **11.26%** CET1 ratio, and no share repurchases in the first nine months Regulatory Capital Ratios (Corporation) | Ratio | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | CET1 Capital Ratio | 11.26% | 10.65% | | Tier 1 Capital Ratio | 11.43% | 10.83% | | Total Risk-Based Capital Ratio | 13.66% | 13.08% | | Tier 1 Leverage Ratio | 9.63% | 9.10% | - The Corporation did not repurchase any shares of its common stock during the nine months ended September 30, 2023. Approximately **2.7 million** shares remain available for repurchase under the current program[235](index=235&type=chunk) [Loan Quality and Provision for Credit Losses on Loans](index=61&type=section&id=Loan%20Quality%20and%20Provision%20for%20Credit%20Losses%20on%20Loans) Nonperforming loans increased to **$53.1 million**, while ACL decreased to **1.68%** of total loans, with Q3 provision of **$2.0 million** driven by **$20.4 million** in charge-offs - Nonperforming loans (NPLs) increased to **$53.1 million** at September 30, 2023, up from **$42.5 million** at December 31, 2022[254](index=254&type=chunk)[258](index=258&type=chunk) - The allowance for credit losses on loans was **1.68%** of total loans at September 30, 2023, compared to **1.86%** at December 31, 2022[262](index=262&type=chunk) - Q3 2023 net charge-offs were **$20.4 million**, primarily due to two large commercial and industrial loan charge-offs totaling **$19.1 million**, one of which was related to alleged fraud at a syndicated specialty finance company[263](index=263&type=chunk)[264](index=264&type=chunk) [Liquidity](index=63&type=section&id=Liquidity) The Corporation maintained strong liquidity, supported by core deposits, cash flows, **$1.5 billion** in AFS securities, and **$702.7 million** FHLB borrowing capacity - The most stable source of liquidity is the core deposit base[268](index=268&type=chunk) - Available-for-sale securities provided **$1.5 billion** in liquidity as of September 30, 2023[268](index=268&type=chunk) - The Bank had an available borrowing capacity of **$702.7 million** from the FHLB and access to the Federal Reserve's BTFP, with no outstanding balance[269](index=269&type=chunk)[270](index=270&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk disclosures refer to MD&A sections, with interest rate sensitivity analysis projecting a **1.5%** NII increase for a **+200 bps** rate rise and **1.1%** decrease for a **-100 bps** fall Net Interest Income Sensitivity | Scenario | Change from Base Case (Sep 30, 2023) | | :--- | :--- | | Rising 200 basis points | +1.5% | | Falling 100 basis points | -1.1% | [Item 4. Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective[287](index=287&type=chunk) - There were no changes in internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[288](index=288&type=chunk) [Part II. Other Information](index=69&type=section&id=Part%20II.%20Other%20Information) This section provides additional information including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material legal proceedings beyond routine litigation incidental to ordinary business operations - There are no pending material legal proceedings against the Corporation or its subsidiaries outside of ordinary business litigation[290](index=290&type=chunk) [Item 1A. Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) New risk factors include potential adverse developments in the financial services industry and anticipated new regulations and increased FDIC insurance premiums - New risk factor: Adverse developments in the financial services industry, such as recent bank failures (e.g., Silicon Valley Bank), could create uncertainty and liquidity concerns that materially affect operations[292](index=292&type=chunk) - New risk factor: Potential new regulations and increased FDIC insurance premiums resulting from recent industry events could increase expenses and reduce profitability[292](index=292&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased under the stock repurchase program in Q3 2023; **40,311** shares were acquired for employee tax obligations - No shares were repurchased under the publicly announced stock repurchase program during Q3 2023[294](index=294&type=chunk) - The company acquired **40,311** shares during the quarter, which were related to satisfying employee tax obligations on vested restricted stock awards, not open market repurchases[294](index=294&type=chunk) [Item 3. Defaults Upon Senior Securities](index=69&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities occurred during the reporting period - None[295](index=295&type=chunk) [Item 4. Mine Safety Disclosures](index=71&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Corporation's operations - Not Applicable[296](index=296&type=chunk) [Item 5. Other Information](index=71&type=section&id=Item%205.%20Other%20Information) No other information to report, specifically noting no director or officer adopted or terminated a Rule 10b5-1 trading arrangement - During Q3 2023, no director or officer of the Corporation adopted or terminated a Rule 10b5-1 trading arrangement[296](index=296&type=chunk) [Item 6. Exhibits](index=72&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL data files - Lists exhibits filed with the report, including CEO/CFO certifications (Exhibits 31.1, 31.2, 32) and XBRL data (Exhibit 101 series)[298](index=298&type=chunk)

First Merchants Corporation (NASDAQ:FRME) Q3 2023 Earnings Conference Call October 26, 2023 11:30 AM ET Company Participants Mark Hardwick - Chief Executive Officer Mike Stewart - President Michele Kawiecki - Chief Financial Officer John Martin - Chief Credit Officer Conference Call Participants Terry McEvoy - Stevens Damon DelMonte - KBW Nathan Race - Piper Sandler Brian Martin - Janney Operator Thank you for standing by. Welcome to the First Merchants Corporation Third Quarter 2023 Earnings Conference Cal ...

FMB: 25 Yrs Chief Financial Officer ▪ Total deposits increased $65.4 million or 1.8% annualized on a linked quarter basis ▪ Strong deposit growth continued for the quarter and year to date. ▪ As noted on slide 5, the Municipal deposits decline was the driver for the Commercial deposit decline of 1.9% noted above. Adjusting for the seasonal decline in Municipal deposits, Commercial deposits grew at a 5.1% annualized rate. ▪ Consumer line of business showed strong growth in both the branch network and private ...

[Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The financial statements present the consolidated financial position, results of operations, and cash flows for First Merchants Corporation, showing total assets increased to $18.0 billion and net income rose to $60.9 million in Q2 2023 [Consolidated Condensed Balance Sheets](index=5&type=section&id=Consolidated%20Condensed%20Balance%20Sheets) As of June 30, 2023, total assets slightly increased to $17.97 billion, driven by a $268.5 million increase in net loans, funded by a $198.4 million increase in total deposits and a reduction in investment securities Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Item | June 30, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$17,968,412** | **$17,938,306** | **$30,106** | | Net Loans | $12,049,086 | $11,780,617 | $268,469 | | Total Investment Securities | $3,891,491 | $4,263,788 | ($372,297) | | **Total Liabilities** | **$15,822,847** | **$15,903,536** | **($80,689)** | | Total Deposits | $14,581,155 | $14,382,745 | $198,410 | | Total Borrowings | $1,027,277 | $1,313,945 | ($286,668) | | **Total Stockholders' Equity** | **$2,145,565** | **$2,034,770** | **$110,795** | [Consolidated Condensed Statements of Income](index=6&type=section&id=Consolidated%20Condensed%20Statements%20of%20Income) For the second quarter of 2023, net income available to common stockholders increased 56.8% to $60.4 million, primarily due to a $9.2 million rise in net interest income from higher interest rates Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | YoY Change | 6 Months 2023 | 6 Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $137,835 | $128,661 | +7.1% | $281,954 | $230,941 | +22.1% | | Provision for credit losses | $0 | $16,755 | -100% | $0 | $16,755 | -100% | | Non-Interest Income | $26,319 | $28,277 | -6.9% | $51,316 | $54,174 | -5.3% | | Non-Interest Expenses | $92,593 | $97,313 | -4.8% | $186,313 | $169,638 | +9.8% | | **Net Income** | **$60,862** | **$38,991** | **+56.1%** | **$124,941** | **$87,577** | **+42.7%** | | **Diluted EPS** | **$1.02** | **$0.63** | **+61.9%** | **$2.09** | **$1.54** | **+35.7%** | [Consolidated Condensed Statements of Comprehensive Income (Loss)](index=7&type=section&id=Consolidated%20Condensed%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Comprehensive income for Q2 2023 was $41.8 million, a significant improvement from a $75.2 million loss in Q2 2022, primarily due to a much smaller net unrealized loss on available-for-sale securities Comprehensive Income (Loss) Summary (in thousands) | Component | Q2 2023 | Q2 2022 | 6 Months 2023 | 6 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $60,862 | $38,991 | $124,941 | $87,577 | | Other Comprehensive Income/(Loss), net of tax | ($19,050) | ($114,164) | $21,187 | ($253,669) | | **Comprehensive Income/(Loss)** | **$41,812** | **($75,173)** | **$146,128** | **($166,092)** | [Consolidated Condensed Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Condensed%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased from $2.03 billion at year-end 2022 to $2.15 billion as of June 30, 2023, driven by net income and an improvement in other comprehensive loss - For the six months ended June 30, 2023, stockholders' equity increased by **$110.8 million**, driven by **$124.9 million** in net income and a **$21.2 million** improvement in other comprehensive income, net of tax, partially offset by **$39.4 million** in common stock dividends and **$0.9 million** in preferred stock dividends[14](index=14&type=chunk) [Consolidated Condensed Statements of Cash Flows](index=10&type=section&id=Consolidated%20Condensed%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2023, net cash provided by operating activities was $113.7 million, while net cash used in financing activities was $126.0 million, resulting in a $13.6 million net decrease in cash and cash equivalents Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $113,731 | $95,064 | | Net cash used in investing activities | ($1,330) | ($131,896) | | Net cash provided (used) by financing activities | ($126,020) | $82,245 | | **Net Change in Cash and Cash Equivalents** | **($13,619)** | **$45,413** | [Notes to Consolidated Condensed Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Condensed%20Financial%20Statements) The notes provide detailed disclosures on accounting standards, the Level One Bancorp acquisition, investment and loan portfolio composition, allowance for credit losses, goodwill, derivatives, fair value measurements, and regulatory capital - The Corporation adopted ASU 2022-02, which eliminated accounting guidance for Troubled Debt Restructurings (TDRs) and enhanced disclosure requirements for loan modifications to borrowers experiencing financial difficulty[29](index=29&type=chunk)[31](index=31&type=chunk)[33](index=33&type=chunk) - On April 1, 2022, the Corporation acquired Level One Bancorp, Inc., issuing **5.6 million shares** of common stock and paying **$79.3 million** in cash, resulting in **$166.6 million** of goodwill and **$18.6 million** of other intangible assets[38](index=38&type=chunk)[39](index=39&type=chunk)[45](index=45&type=chunk) - As of June 30, 2023, the investment securities portfolio had gross unrealized losses of **$269.8 million** on available-for-sale securities and **$360.3 million** on held-to-maturity securities, primarily attributed to changes in interest rates, not credit quality[49](index=49&type=chunk)[52](index=52&type=chunk)[59](index=59&type=chunk) - The Allowance for Credit Losses on Loans was **$221.1 million**, or **1.80%** of total loans, as of June 30, 2023, with no provision for credit losses recorded in the first six months of 2023[102](index=102&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Corporation's financial performance for Q2 and H1 2023, highlighting strong net income and EPS growth driven by an expanding net interest margin, a strategic shift from investment securities to loans, stable credit quality, and robust capital and liquidity [Highlights for the Second Quarter of 2023](index=49&type=section&id=Highlights%20for%20the%20Second%20Quarter%20of%202023) The second quarter of 2023 demonstrated strong profitability with net income of $60.4 million and diluted EPS of $1.02, alongside annualized loan growth of 1.5% and a robust Common Equity Tier 1 (CET1) ratio of 11.07% - Diluted EPS for Q2 2023 was **$1.02**, compared to **$0.63** in Q2 2022[189](index=189&type=chunk) - Total loans grew by **$46.7 million** during the quarter, an annualized rate of **1.5%**, or **5.4%** excluding **$116.6 million** in non-relationship based commercial loan sales[189](index=189&type=chunk) - The Common Equity Tier 1 (CET1) Capital Ratio stood at a strong **11.07%**[189](index=189&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) For the six months ended June 30, 2023, net income available to common stockholders increased to $124.0 million, with total assets reaching $18.0 billion, reflecting a strategic shift from investment securities to loan growth, and an increase in deposits offset by a decrease in borrowings - Total assets reached **$18.0 billion** as of June 30, 2023, a modest increase of **$30.1 million** from December 31, 2022[188](index=188&type=chunk) - The investment portfolio as a percentage of total assets declined to **21.7%** at June 30, 2023, down from a peak of **29.3%** at December 31, 2021, reflecting a strategic shift towards loan growth[189](index=189&type=chunk)[208](index=208&type=chunk) - Total deposits increased by **$198.4 million** since year-end 2022, while total borrowings decreased by **$286.7 million** over the same period[193](index=193&type=chunk)[195](index=195&type=chunk) [Net Interest Income](index=52&type=section&id=Net%20Interest%20Income) Net interest income, the primary driver of earnings, increased due to higher asset yields in a rising interest rate environment, with the fully taxable equivalent (FTE) net interest margin for Q2 2023 at 3.39%, up 11 basis points year-over-year Net Interest Margin (FTE) Comparison | Period | Q2 2023 | Q2 2022 | Change (bps) | | :--- | :--- | :--- | :--- | | Net Interest Margin (FTE) | 3.39% | 3.28% | +11 bps | | Period | 6 Months 2023 | 6 Months 2022 | Change (bps) | | :--- | :--- | :--- | :--- | | Net Interest Margin (FTE) | 3.48% | 3.16% | +32 bps | - The increase in FTE asset yields of **178 basis points** in Q2 2023 (YoY) was driven by the FOMC's rate hikes and the variable-rate nature of the loan portfolio (**66.1% variable**)[211](index=211&type=chunk) - Total cost of funds rose to **1.97%** in Q2 2023 from **0.30%** in Q2 2022, reflecting deposit pricing pressure and a mix shift from noninterest-bearing to interest-bearing products[213](index=213&type=chunk)[219](index=219&type=chunk) [Non-Interest Income](index=56&type=section&id=Non-Interest%20Income) Non-interest income for Q2 2023 decreased by 6.9% to $26.3 million compared to Q2 2022, primarily due to a $1.4 million net loss on the sale of available-for-sale securities - The primary driver for the decrease in non-interest income was a **$1.4 million** net loss on the sale of available-for-sale securities in Q2 2023, versus a **$0.09 million** gain in Q2 2022[222](index=222&type=chunk) - For the six-month period, a **$3.0 million** net loss on securities sales was the main reason for the year-over-year decline in non-interest income[224](index=224&type=chunk) [Non-Interest Expense](index=56&type=section&id=Non-Interest%20Expense) Non-interest expense for Q2 2023 decreased by 4.9% to $92.6 million compared to Q2 2022, mainly due to the absence of significant one-time acquisition-related charges from the Level One acquisition in the prior year - Q2 2023 non-interest expense benefited from the absence of **$10.0 million** in one-time acquisition-related charges recorded in Q2 2022 (**$7.0 million** in professional services and **$3.0 million** in salaries)[227](index=227&type=chunk) - For the first six months of 2023, salaries and employee benefits increased by **$13.7 million** year-over-year, primarily due to the full-period inclusion of staff from the Level One acquisition[229](index=229&type=chunk) [Capital](index=57&type=section&id=Capital) The Corporation maintained a strong capital position, with all regulatory capital ratios exceeding 'well-capitalized' thresholds, and the tangible common equity to tangible assets ratio improving to 7.99% Regulatory Capital Ratios (Corporation) | Ratio | June 30, 2023 | Dec 31, 2022 | Basel III Minimum Required | | :--- | :--- | :--- | :--- | | CET1 Capital Ratio | 11.07% | 10.65% | 7.00% | | Tier 1 Capital Ratio | 11.24% | 10.83% | 8.50% | | Total Risk-Based Capital Ratio | 13.48% | 13.08% | 10.50% | | Tier 1 Leverage Ratio | 9.40% | 9.10% | 4.00% | - The tangible common equity to tangible assets ratio increased to **7.99%** at June 30, 2023, from **7.34%** at December 31, 2022, partly due to an improvement in the mark-to-market value of the available-for-sale securities portfolio[247](index=247&type=chunk) - No shares were repurchased during 2022 or the first six months of 2023, with approximately **2.7 million shares** remaining available for repurchase under the existing program as of June 30, 2023[237](index=237&type=chunk) [Loan Quality and Provision for Credit Losses on Loans](index=60&type=section&id=Loan%20Quality%20and%20Provision%20for%20Credit%20Losses%20on%20Loans) Credit quality remained stable despite an increase in non-performing loans to $69.2 million, primarily due to a single $15.9 million commercial loan, with the allowance for credit losses at $221.1 million and no provision recorded in the first half of 2023 - Non-performing loans increased by **$26.7 million** since year-end 2022 to **$69.2 million**, largely due to a **$15.9 million** commercial loan placed on non-accrual status because of a potential fraud[254](index=254&type=chunk) Allowance for Credit Losses (ACL) on Loans | Metric | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | ACL on Loans | $221.1 million | $223.3 million | | ACL as % of Total Loans | 1.80% | 1.86% | - The Corporation recorded no provision for credit losses for the six months ended June 30, 2023, compared to a **$16.8 million** provision in the same period of 2022, which was related to the Level One acquisition[263](index=263&type=chunk) [Liquidity](index=62&type=section&id=Liquidity) The Corporation maintained a strong liquidity position, supported by core deposit growth, cash flows from loans and investments, and access to wholesale funding, including $1.7 billion in available-for-sale securities and $721.1 million in FHLB borrowing capacity - The market value of available-for-sale securities, a key source of liquidity, was **$1.7 billion** at June 30, 2023[268](index=268&type=chunk) - The Bank had an available borrowing capacity of **$721.1 million** from the Federal Home Loan Bank (FHLB) as of June 30, 2023[269](index=269&type=chunk) - The Corporation has access to the Federal Reserve's Bank Term Funding Program (BTFP) but had no outstanding balance as of June 30, 2023[270](index=270&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's management of interest rate risk, projecting that an immediate 200 basis point increase in rates would increase net interest income by 2.1% over 12 months, while a 100 basis point decrease would reduce it by 1.4% Net Interest Income Sensitivity Analysis | Interest Rate Scenario | Change in Net Interest Income (12-Month Horizon) | | :--- | :--- | | Rising 200 basis points | +2.1% | | Falling 100 basis points | -1.4% | [Controls and Procedures](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective, with no material changes to internal control over financial reporting identified during the last fiscal quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures are effective[287](index=287&type=chunk) - No material changes in internal control over financial reporting occurred during the last fiscal quarter[288](index=288&type=chunk) [Part II. Other Information](index=67&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=67&type=section&id=Item%201.%20Legal%20Proceedings) The Corporation is not a party to any material legal proceedings outside of litigation incidental to the ordinary course of business, with no expected material adverse impact on financial position or results - There are no pending material legal proceedings, other than litigation incidental to the ordinary course of business[290](index=290&type=chunk) [Risk Factors](index=67&type=section&id=Item%201A.%20Risk%20Factors) The company has added new risk factors concerning potential adverse effects from bank failures or liquidity concerns and the possibility of new regulations, such as higher FDIC insurance premiums, following recent financial industry events - A new risk factor highlights that adverse developments in the financial services industry, such as the bank failures in March 2023, could materially affect operations due to concerns about liquidity and deposit stability[292](index=292&type=chunk) - Another new risk factor notes that potential new regulations arising from recent industry events could increase costs, such as higher FDIC insurance premiums, and reduce profitability[292](index=292&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Corporation did not repurchase any equity securities during the three months ended June 30, 2023, with approximately 2.7 million shares remaining authorized for repurchase under the existing program - No shares were repurchased by the company during the three months ended June 30, 2023[294](index=294&type=chunk) [Other Information](index=69&type=section&id=Item%205.%20Other%20Information) The Corporation reports that no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2023[297](index=297&type=chunk) [Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL documents

First Merchants Corporation (NASDAQ:FRME) Q2 2023 Earnings Conference Call July 25, 2023 11:30 AM ET Company Participants Mark Hardwick - Chief Executive Officer Mike Stewart - President Michele Kawiecki - Chief Financial Officer John Martin - Chief Credit Officer Conference Call Participants Ben Gerlinger - Hovde Group Nathan Race - Piper Sandler Daniel Tamayo - Raymond James Terry McEvoy - Stephens Inc Brian Martin - Janney Damon DelMonte - KBW Operator Good day, and thank you for standing by. Welcome to ...

INVESTOR UPDATE Second Quarter 2023 NON-GAAP FINANCIAL MEASURES Executive Management Team Banking: 25 Yrs Chief Executive Officer FMB: 16 Yrs FMB: 15 Yrs John Martin FMB: 8 Yrs ants Corporation 6 | --- | --- | --- | |--------------------------|-------------------|--------| | | 2Q23 Balance ($B) | Growth | | Commercial | $7.3 | (2.1)% | | Consumer | $6.1 | (3.7)% | | Total Deposit Growth QTD | | (3.3)% | | Total Deposit Growth YTD | | 2.8% | Year-to-Date Financial Results 1See "Non-GAAP Financial Information ...

FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _______ to _______ FIRST MERCHANTS CORPORATION (Exact name of registrant as specified in its charter) | Indiana | | | --- | --- | | (State or other jurisdiction of incorporation) | ...

First Merchants Corporation (NASDAQ:FRME) Q1 2023 Earnings Conference Call April 25, 2023 10:30 AM ET Company Participants Mark Hardwick - Chief Executive Officer Mike Stewart - President Michele Kawiecki - Chief Financial Officer John Martin - Chief Credit Officer Conference Call Participants Brian Martin - Janney Damon DelMonte - KBW Scott Siefers - Piper Sandler Ben Gerlinger - Hovde Group Terry McEvoy - Stephens Operator Good day, and thank you for standing by. Welcome to the First Merchants Corporation ...

Track Record of Shareholder Value | --- | --- | --- | --- | --- | --- | --- | --- | |-------------------------------|--------------------------------|---------------------|---------------------|--------------------------|-----------------------------------|--------------------------------------|-----------------------------| | 2000 \nDecatur Bank & Trust | 2002 \nLafayette Bank & Trust | 2008 \nLincoln Bank | 2013 | Citizens Financial Bank | 2015 \nCooper State Bank Ameriana | Bank | 2019 \nMonroe Bank & Tr ...

Credit Losses and Allowances - The allowance for credit losses increased by $27.9 million during the twelve months ended December 31, 2022, primarily due to $16.6 million from PCD loans acquired in the Level One acquisition and an additional $14.0 million for non-PCD loans [136]. - The balance of the allowance for credit losses at December 31, 2022, was $223.3 million, compared to $195.4 million at the end of 2021 [136]. - The allowance for credit losses (ACL) on loans was $223.3 million as of December 31, 2022, reflecting an increase from $195.4 million in 2021 [355]. - The allowance for credit losses on investment securities held to maturity was recorded at $245,000 based on historical credit loss rates [378]. - The allowance for credit losses on off-balance sheet credit exposures is a liability account representing expected credit losses over the contractual period, with no allowance recognized if the Corporation has the unconditional right to cancel the obligation [398]. - The allowance for credit losses by loan segment as of December 31, 2022, included $102.2 million for commercial loans, $46.8 million for commercial real estate, $29.0 million for construction loans, and $45.3 million for consumer and residential loans [500]. - The corporation recorded net charge-offs of $2.7 million for the twelve months ended December 31, 2022 [500]. - The allowance for credit losses on loans was $11,512 million as of December 31, 2022, reflecting the Corporation's best estimate of current expected credit losses [487]. Financial Performance - Total charge-offs for 2022 amounted to $6.6 million, a decrease from $11.9 million in 2021, while total recoveries increased to $3.9 million from $2.6 million in 2021 [131]. - Net income for 2022 was $222,089,000, compared to $205,531,000 in 2021, representing an increase of 8.0% [362]. - Basic earnings per share for 2022 was $3.83, a marginal increase from $3.82 in 2021 [361]. - The company reported a comprehensive loss of $72,175,000 in 2022, contrasting with a comprehensive income of $185,808,000 in 2021 [362]. - Total interest income for 2022 was $605,006,000, an increase of 35.5% from $446,632,000 in 2021 [361]. - Net interest income after provision for credit losses was $503,448,000 in 2022, up from $410,680,000 in 2021, reflecting a 22.6% increase [361]. - Non-interest income totaled $107,941,000 in 2022, slightly down from $109,323,000 in 2021, indicating a decrease of 1.3% [361]. - Total non-interest expenses rose to $355,715,000 in 2022, a 27.4% increase from $279,213,000 in 2021 [361]. - The net cash provided by operating activities increased to $268,045,000 in 2022 from $207,382,000 in 2021, reflecting a growth of 29.2% [366]. - The company reported other comprehensive income (loss) of $(294,264,000) for the year ended December 31, 2022, compared to $(19,723,000) in the previous year [364]. Assets and Liabilities - Total assets increased to $17.94 billion in 2022, up from $15.45 billion in 2021, representing a growth of approximately 16% [359]. - The Corporation's total borrowings increased significantly to $1.31 billion in 2022 from $634.3 million in 2021, reflecting a growth of over 106% [359]. - The balance of commercial loans in the allowance for credit losses was $102.2 million, representing 38.4% of total loans as of December 31, 2022 [136]. - The Corporation's cash and cash equivalents decreased to $122,594,000 at the end of 2022 from $167,146,000 at the end of 2021 [366]. - The Corporation's total collateral pledged for repurchase agreements as of December 31, 2022, was $167.4 million in U.S. Government-sponsored mortgage-backed securities [528]. Loans and Lending Activities - Net loans reached $11.78 billion in 2022, compared to $9.05 billion in 2021, indicating a significant increase of about 30% [359]. - The loan portfolio increased to $12,003,894 thousand as of December 31, 2022, up from $9,241,861 thousand in 2021, reflecting a significant growth in commercial and industrial loans [467]. - Total loans originated for sale decreased to $(251,306,000) in 2022 from $(548,742,000) in 2021 [366]. - Total past due loans increased to $51.0 million as of December 31, 2022, up $16.3 million from $34.7 million on December 31, 2021 [474]. - The Level One acquisition added $1.6 billion in loans, including $43.5 million of Paycheck Protection Program (PPP) loans [467]. - The corporation had $4.7 million of PPP loans as of December 31, 2022, down from $106.6 million in the previous year [467]. Acquisitions and Goodwill - The Corporation acquired Level One Bancorp, Inc. for a total purchase price of $341.7 million, which included 5.6 million shares issued and $79.3 million in cash [431]. - Goodwill increased to $712.0 million as of December 31, 2022, from $545.4 million in 2021, with $166.6 million attributed to the Level One acquisition [514]. - The Corporation allocated $18.6 million of the purchase price for Level One to other intangible assets, with $17.2 million designated for a core deposit intangible [437]. - The Level One acquisition on April 1, 2022, resulted in $11.8 million in additions to premises and equipment [509]. - Core deposit intangibles from the Level One acquisition amounted to $17.2 million, with total core deposit and other intangibles at $35.8 million as of December 31, 2022 [517]. Deposits and Funding - Total deposits rose to $14.38 billion in 2022, an increase of 12.9% from $12.73 billion in 2021 [359]. - Noninterest-bearing deposits grew to $3.17 billion in 2022, up from $2.71 billion in 2021, representing a growth of approximately 17% [359]. - The organic deposit decline was $280.6 million, or 2.2 percent, primarily due to a decrease in non-maturity deposits of $513.5 million, offset by an increase in maturity deposits of $232.9 million [525]. - The Corporation's non-interest bearing deposits exceeded federally insured limits by approximately $54.0 million as of December 31, 2022 [443]. Interest Rates and Borrowings - The weighted average interest rate on total short-term borrowings increased to 2.4% at December 31, 2022, from 0.7% in 2021 [145]. - The Corporation's interest payments on subordinated debentures and trust preferred securities are made quarterly, with the next adjustments expected after June 30, 2023, due to the LIBOR transition [531]. - The total available remaining borrowing capacity from the Federal Home Loan Bank (FHLB) at December 31, 2022, was $617.6 million, with outstanding advances having interest rates ranging from 0.35% to 4.92% [528]. Investment Securities - The fair value of investment securities held to maturity was $2.29 billion, compared to $2.18 billion in 2021, showing a slight increase [359]. - The Corporation's investment securities available for sale decreased to $1.98 billion in 2022 from $2.34 billion in 2021, indicating a decline of about 15% [359]. - The total gross unrealized losses on investment securities available for sale were $297,125 as of December 31, 2022, representing 96.7% of the Corporation's investments available for sale [459]. - The fair value of investment securities available for sale was $1,910,508 as of December 31, 2022, down from a historical cost of $2,207,633 [459]. - The Corporation did not record an allowance for credit losses on its investment securities available for sale, as unrealized losses were attributed to changes in interest rates rather than credit quality [451].