First Financial Bancorp.(FFBC) - 2018 Q4 - Annual Report

FORWARD-LOOKING STATEMENTS This report contains forward-looking statements regarding financial projections, plans, objectives, and future economic performance, identified by specific terminology - The report contains forward-looking statements, including projections of financial items, plans, objectives, and future economic performance, identified by words like 'believes,' 'anticipates,' and 'expects'[6] - These statements are protected by the 'safe harbor' provisions of the Private Securities Litigation Reform Act of 1995, but actual results may differ materially due to various factors and events, particularly those identified in 'Item 1A. Risk Factors' and 'Management's Discussion and Analysis of Financial Condition and Results of Operations'[7][8] PART I Item 1. Business First Financial Bancorp. operates as a regional bank holding company through its subsidiary, offering diverse banking services and expanding its market presence through strategic acquisitions, all while navigating extensive federal and state regulations - First Financial Bancorp. (the Company) was formed in 1982 and operates as a mid-sized, regional bank holding company headquartered in Cincinnati, Ohio, through its wholly-owned subsidiary, First Financial Bank, founded in 1863[12][13] - The Company provides commercial lending, real estate lending (residential and commercial), consumer financing, deposit products (interest-bearing, noninterest-bearing, time deposits, cash management), and a full range of trust and wealth management services[14] - Specialized lending activities include equipment and lease financing through First Financial Equipment Finance LLC, and secured commercial financing across the U.S. through Oak Street Funding LLC (insurance, investment advisors, CPAs, indirect auto finance) and First Franchise Capital Corporation (restaurant franchisees)[15][16][17] - In April 2018, First Financial Bancorp acquired MainSource Financial Group, Inc. in a stock-for-stock transaction. MainSource had approximately $4.5 billion in assets and 88 offices in Indiana, Ohio, Illinois, and Kentucky at the time of the merger[28] - At December 31, 2018, First Financial and its subsidiaries had 2,131 full-time and part-time employees[26] - The Company operates a community banking business model, serving metropolitan and non-metropolitan markets primarily in Indiana, Ohio, Kentucky, and Illinois, and competes with a wide range of financial and non-financial institutions[29][30][33][34] - The Economic Growth, Regulatory Relief and Consumer Protection Act (May 25, 2018) provides regulatory relief, including exempting bank holding companies with assets under $100 billion from enhanced prudential standards and allowing banks under $10 billion to satisfy capital standards with a community bank leverage ratio between 8% and 10%[42][43] - The Bank met the capital ratio requirements to be deemed 'well-capitalized' under Basel III guidelines as of December 31, 2018, with minimum ratios of Common Equity Tier 1 (6.5%), Total Risk-Based (10.0%), Tier 1 Risk-Based (8.0%), and Leverage (5.0%)[57] - The Durbin Amendment, applicable after First Financial's assets exceeded $10 billion, is expected to result in an approximate $13.0 million annual decline in noninterest income from debit card interchange fees, starting in Q3 2019[60] - The FDIC's designated reserve ratio (DRR) reached 1.36% on September 30, 2018, leading to the cessation of the surcharge on banks with assets of $10 billion or more with the first assessment invoice in 2019[68] Supervision and Regulation First Financial and its subsidiaries operate under extensive federal and state regulatory oversight, encompassing capital adequacy, consumer protection, and dividend limitations, with recent legislative and accounting changes impacting compliance - First Financial is a financial holding company subject to the Bank Holding Company Act (BHCA) and supervision by the Federal Reserve Board, requiring prior approval for significant acquisitions and adherence to restrictions on tie-in arrangements and affiliate dealings[35][36][37] - The Bank, as an Ohio state-chartered bank and Federal Reserve Bank member, is supervised by the Federal Reserve Board and the Ohio Division of Financial Institutions (ODFI), with deposits insured by the FDIC[47] Basel III Capital Requirements and Status (as of Dec 31, 2018) | Capital Ratio | Minimum Requirement | Well-Capitalized Requirement | Bank's Status (Dec 31, 2018) | |:--------------------------|:--------------------|:-----------------------------|:-----------------------------| | Common Equity Tier 1 | 4.5% | 6.5% | Met | | Tier 1 Capital | 6.0% | 8.0% | Met | | Total Capital | 8.0% | 10.0% | Met | | Leverage Ratio | 4.0% | 5.0% | Met | - The Economic Growth, Regulatory Relief and Consumer Protection Act (2018) introduced a community bank leverage ratio (8-10% tangible assets to average consolidated assets) for banks under $10 billion, allowing them to be considered 'well capitalized' under prompt corrective action[43] - The Company expects a $13.0 million annual decline in noninterest income due to the Durbin Amendment's debit card interchange fee limitations, effective from Q3 2019[60] - The FDIC's deposit insurance surcharge for banks with assets over $10 billion ceased in 2019, as the Designated Reserve Ratio (DRR) reached 1.36% by September 30, 2018[68] - The Bank is subject to various consumer protection laws, including the Community Reinvestment Act (CRA), Equal Credit Opportunity Act, Truth in Lending Act, and privacy provisions of the Gramm-Leach-Bliley Act, and received a 'satisfactory' CRA rating[71][72][73][74][75][82] - The CFPB's 'Payday Rule' (effective Jan 2018, compliance Aug 2019) addresses consumer loan underwriting and payment withdrawals, though the CFPB has proposed delaying compliance and rescinding certain provisions; the Company does not expect a material financial impact[77][78][79] Item 1A. Risk Factors First Financial faces diverse risks from economic and market conditions, including real estate and interest rate fluctuations, alongside business-specific challenges like credit quality, intense competition, operational failures, and regulatory changes - Weakness in the economy and real estate market, particularly within the Company's geographic footprint, could adversely affect loan loss provisions, loan values, and overall financial condition[98][99][100][101][102][103] - Changes in market interest rates or capital markets can significantly impact net interest income, asset/liability valuations, demand for loans, and the cost/availability of capital, with the transition away from LIBOR posing additional risks[105][106][107][108][109][110][111] - The credit quality of the loan portfolio is a significant risk, as the allowance for loan and lease losses may prove insufficient, and regulators may require increases, impacting operating results[118][121][122][125][126] - The Company faces intense competition from various financial and non-financial institutions, which could lead to loss of business or reduced margins[130][131] - Operational risks include reliance on third-party infrastructure, potential system failures, employee misconduct, fraud, and cybersecurity breaches, which could lead to financial loss, reputational damage, and regulatory actions[140][141][142][143][146][147][148][149][150][151] - Liquidity is heavily dependent on dividends from subsidiaries, which are subject to regulatory restrictions, and the ability to access capital markets, which could be disrupted by market turbulence or credit rating downgrades[159][160][161][162][164][165][167][168] - Changes in accounting policies or standards, such as the adoption of CECL in Q1 2020, could materially affect financial reporting, potentially increasing credit loss allowances and decreasing retained earnings and regulatory capital[181][182] - The Company is subject to ongoing tax examinations and changes in tax laws, which could result in material adjustments to tax liabilities or adversely affect performance[193][194][195][196][197][198] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC regarding the Company's filings - The Company has no unresolved staff comments[199] Item 2. Properties As of December 31, 2018, First Financial operated 159 banking centers, with its core markets in Ohio, Indiana, Kentucky, and Illinois Banking Center Locations (as of Dec 31, 2018) | State | Number of Banking Centers | |:---------|:--------------------------| | Ohio | 67 | | Indiana | 73 | | Kentucky | 16 | | Illinois | 3 | | Total| 159 | - 37 of the 159 banking centers are leased facilities[201] - The executive office is a leased facility located in Cincinnati, Ohio[201] Item 3. Legal Proceedings First Financial is involved in various litigation matters, including loan-related claims and routine business activities, but anticipates no material impact on its financial position or operations, with appropriate reserves established - The Company is engaged in various litigation matters, including claims of improper or fraudulent loan practices, lending violations, and routine business activities[202] - While ultimate liability is uncertain, the Company believes damages are not likely to be material to its consolidated financial position or results of operations, and reserves are established as appropriate[202] Item 4. Mine Safety Disclosures Mine Safety Disclosures are not applicable to First Financial Bancorp - Mine Safety Disclosures are not applicable[203] Supplemental Item. Executive Officers of the Registrant This section details the executive officers of First Financial Bancorp. as of February 21, 2019, outlining their key leadership positions and relevant business experience Executive Officers of First Financial Bancorp. (as of Feb 21, 2019) | Name | Position with First Financial Bancorp | Age | |:---------------------|:------------------------------------------------------|:----| | Claude E. Davis | Executive Chairman | 58 | | Archie M. Brown, Jr. | President and Chief Executive Officer | 58 | | James M. Anderson | EVP, Chief Financial Officer | 47 | | Anthony M. Stollings | EVP, Commercial Banking | 64 | | Catherine M. Myers | EVP, Consumer Banking | 57 | | John M. Gavigan | EVP, Advanced Solutions and Digital Banking | 40 | | Karen B. Woods | EVP, General Counsel and Chief Risk Officer | 50 | | William R. Harrod | EVP, Chief Credit Officer | 51 | | Amanda N. Neeley | EVP, Chief Marketing Officer | 38 | | Scott T. Crawley | Corporate Controller and Principal Accounting Officer | 38 | - Claude E. Davis became Executive Chairman on April 1, 2018, previously serving as CEO since 2004[207] - Archie M. Brown, Jr. was appointed President and CEO on April 1, 2018, following the acquisition of MainSource Financial Group, Inc., where he previously served as President and CEO[208] - James M. Anderson became CFO on April 1, 2018, also following the MainSource merger, having served as MainSource's CFO since 2006[209] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities First Financial's common shares are listed on NASDAQ, with approximately 4,339 shareholders of record, and the company manages equity compensation plans and share repurchase programs - First Financial's common shares are listed on The NASDAQ Global Select Stock Market® under the symbol 'FFBC'[223] - As of February 21, 2019, there were approximately 4,339 shareholders of record[224] Equity Compensation Plan Information (as of Dec 31, 2018) | Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance | |:-----------------------------------------------|:------------------------------------------------------------------------------------------|:----------------------------------------------------------------------------|:-------------------------------------------------------------| | Equity compensation plans approved by security holders | 62,410 | $9.08 | 1,882,484 | | Equity compensation plans not approved by security holders | N/A | N/A | N/A | - No shares were repurchased in the fourth quarter of 2018 under the publicly announced share repurchase program or stock plans[229][230] - A stock repurchase plan approved in October 2012 authorized the purchase of up to 5,000,000 common shares, with 1,490,867 shares repurchased under this plan as of December 31, 2018[231] - In January 2019, the Board of Directors approved a new stock repurchase plan authorizing the purchase of up to 5,000,000 shares[231] Item 6. Selected Financial Data Selected financial data is incorporated by reference from Table 1 of the Management's Discussion and Analysis section in First Financial's 2018 Annual Report to Shareholders - Selected Financial Data is incorporated by reference from Table 1 of the Management's Discussion and Analysis section in First Financial's 2018 Annual Report to Shareholders[233] Item 7. Management's Discussion and Analysis of Financial Condition and Results Of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations, including forward-looking statements, is incorporated by reference from First Financial's 2018 Annual Report to Shareholders - Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated by reference from First Financial's 2018 Annual Report to Shareholders[234] Item 7A. Quantitative and Qualitative Disclosure About Market Risk Quantitative and Qualitative Disclosures about Market Risk are incorporated by reference from the Market Risk section and Table 14 of the Management's Discussion and Analysis section in First Financial's 2018 Annual Report to Shareholders - Quantitative and Qualitative Disclosures about Market Risk are incorporated by reference from the Market Risk section and Table 14 of the Management's Discussion and Analysis section in First Financial's 2018 Annual Report to Shareholders[235] Item 8. Financial Statements and Supplementary Data The consolidated financial statements, reports of the independent registered public accounting firm, and quarterly financial and common stock data are incorporated by reference from First Financial's 2018 Annual Report to Shareholders - The consolidated financial statements and reports of the independent registered public accounting firm are incorporated by reference from First Financial's 2018 Annual Report to Shareholders[236] - The Quarterly Financial and Common Stock Data is incorporated by reference from First Financial's 2018 Annual Report to Shareholders[237] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[237] Item 9A. Controls and Procedures First Financial's CEO and CFO concluded that the disclosure controls and procedures were effective as of the end of the fiscal year - First Financial's chief executive officer and chief financial officer concluded that the disclosure controls and procedures were effective as of the end of the fiscal year[238] - Management's Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm are incorporated by reference[239] - There were no material changes in First Financial's internal control over financial reporting during the fiscal quarter ended December 31, 2018[240] Item 9B. Other Information There is no other information to report in this section - There is no other information to report[240] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 'Supplemental Item. Executive Officers of the Registrant' in this Form 10-K and specific sections of First Financial's Definitive Proxy Statement for the Annual Meeting of Shareholders - Information concerning executive officers is provided in the 'Supplemental Item. Executive Officers of the Registrant' section of this Form 10-K[243] - Additional information on directors, corporate governance, and shareholder nominations is incorporated by reference from First Financial's Definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 28, 2019[243] Item 11. Executive Compensation Information regarding executive compensation, including discussions, reports, and interlocks, is incorporated by reference from specific headings in First Financial's Proxy Statement - Information on executive compensation, including discussions, reports, and interlocks, is incorporated by reference from First Financial's Proxy Statement[244] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership of certain beneficial owners and management, as well as related stockholder matters, is incorporated by reference from Part II, Item 5 of this report and specific headings in First Financial's Proxy Statement - Information on security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from Part II, Item 5 of this report and First Financial's Proxy Statement[245] Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions is incorporated by reference from Note 13 – Loans to Related Parties in the Notes to Consolidated Financial Statements of First Financial's 2018 Annual Report and the 'Corporate Governance-Transactions with Related Parties' section in First Financial's Proxy Statement - Information on certain relationships and related transactions is incorporated by reference from Note 13 – Loans to Related Parties in the 2018 Annual Report and the 'Corporate Governance-Transactions with Related Parties' section in First Financial's Proxy Statement[246] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the 'Independent Registered Public Accounting Firm Fees' heading in First Financial's Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 'Independent Registered Public Accounting Firm Fees' section in First Financial's Proxy Statement[247] PART IV Item 15. Exhibits, Financial Statement Schedules This section details consolidated financial statements and schedules incorporated by reference from First Financial's 2018 Annual Report, alongside a comprehensive list of filed exhibits - The consolidated financial statements (Balance Sheets, Statements of Income, Comprehensive Income, Changes in Shareholders' Equity, Cash Flows) and reports of the independent registered public accounting firm for the years ended December 31, 2018, 2017, and 2016 are incorporated by reference from First Financial's 2018 Annual Report[250] - Financial Statement Schedules required by Regulation S-X are omitted as not required or inapplicable[250] - A comprehensive list of exhibits, including purchase and merger agreements, articles of incorporation, indentures, stock incentive plans, and employment agreements, is provided[250][251][253][255][256][258] Item 16. Form 10-K Summary There is no Form 10-K Summary provided in this report - No Form 10-K Summary is provided[260] SIGNATURES The report is duly signed on behalf of First Financial Bancorp. by its President and Chief Executive Officer, Archie M. Brown, Jr., and other executive officers and directors, affirming compliance with the Securities Exchange Act of 1934 - The report is signed by Archie M. Brown, Jr., President and Chief Executive Officer, and other executive officers and directors, on February 22, 2019[264][265][266][267][268]