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First Financial Bancorp.(FFBC) - 2019 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION Item 1 - Financial Statements The company presents its unaudited consolidated balance sheets, income statements, and cash flows as of March 31, 2019 Consolidated Balance Sheets Total assets grew slightly to $14.07 billion, driven by an increase in investment securities available-for-sale Consolidated Balance Sheet Summary (in thousands) | Metric | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $14,074,263 | $13,986,660 | | Net Loans and Leases | $8,752,479 | $8,767,672 | | Goodwill | $879,727 | $880,251 | | Total Liabilities | $11,943,844 | $11,908,411 | | Total Deposits | $10,133,897 | $10,140,394 | | Total Borrowed Funds | $1,593,838 | $1,611,430 | | Total Shareholders' Equity | $2,130,419 | $2,078,249 | Consolidated Statements of Income Net income for Q1 2019 rose to $45.8 million, driven by a significant increase in net interest income post-acquisition Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Interest Income | $121,515 | $75,812 | | Provision for Loan and Lease Losses | $14,083 | $2,303 | | Noninterest Income | $26,827 | $16,938 | | Noninterest Expenses | $78,499 | $52,288 | | Net Income | $45,839 | $30,506 | | Net Earnings Per Share - Diluted | $0.47 | $0.49 | Notes to Consolidated Financial Statements Notes detail key accounting policies, including the adoption of new lease standards and the MainSource acquisition impact - Adopted ASU 2016-02 (Leases) on January 1, 2019, resulting in the recognition of a Right-of-Use (ROU) asset of $60.2 million and a lease liability of $65.8 million34 - The acquisition of MainSource Financial Group (MSFG) was completed for a total purchase consideration of $1.1 billion, resulting in goodwill of $675.6 million177179 - The Allowance for Loan and Lease Losses (ALLL) was $56.7 million, with a Q1 2019 provision of $14.1 million driven by higher net charge-offs9294 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes Q1 2019 performance, focusing on the MainSource merger's impact on income, asset quality, and capital - Q1 2019 net income was $45.8 million, or $0.47 per diluted share, compared to $30.5 million, or $0.49 per diluted share, in Q1 2018, with the increase driven by the MainSource acquisition192 - Net interest margin on a fully tax equivalent basis increased by 26 basis points to 4.10% in Q1 2019 from 3.84% in Q1 2018200 - Nonperforming assets decreased to $83.9 million (0.60% of total assets) at March 31, 2019, from $88.2 million (0.63% of total assets) at year-end 2018216 - Net charge-offs were $13.9 million in Q1 2019, significantly higher than $1.9 million in Q1 2018, due to a $10.0 million charge-off on a single franchise lending relationship262 Overview of Operations and Business Combinations The company's Q1 2019 results reflect the expanded scale following the $1.1 billion acquisition of MainSource Financial Group Q1 2019 Performance Metrics | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income | $45.8 million | $30.5 million | | Diluted EPS | $0.47 | $0.49 | | Return on Average Assets | 1.33% | 1.40% | | Return on Average Equity | 8.88% | 13.31% | - The merger with MainSource Financial Group, completed in April 2018, involved a total purchase consideration of $1.1 billion and significantly expanded the company's footprint190 Financial Performance Analysis Q1 2019 performance was marked by strong growth in net interest and noninterest income, reflecting the larger post-merger base - Net interest income increased by $45.7 million (60.3%) YoY, driven by a $61.4 million increase in interest income199 - Noninterest income grew by $9.9 million (58.4%) YoY, with notable increases in service charges, bankcard income, and loan sale gains207 - Noninterest expense increased by $26.2 million YoY, primarily due to a $16.8 million rise in salaries and employee benefits208 - The effective tax rate for Q1 2019 was 17.8%, down from 20.1% in Q1 2018, due to favorable state tax resolutions209 Balance Sheet Analysis The balance sheet remained stable with total loans at $8.8 billion and total deposits at $10.1 billion as of quarter-end - Total loans were $8.8 billion at both March 31, 2019, and December 31, 2018, as an 8.4% increase in loan production was offset by prepayments212 - The investment portfolio totaled $3.4 billion (24.1% of total assets) at quarter-end, with $3.1 billion in available-for-sale securities222 - Total deposits were stable at $10.1 billion, as growth in CDs offset seasonal declines in demand deposit accounts226 Liquidity and Capital The company maintained a strong liquidity position and capital ratios well above regulatory "well-capitalized" minimums Regulatory Capital Ratios (Consolidated) - March 31, 2019 | Ratio | Actual | Minimum Required (Well-Capitalized) | | :--- | :--- | :--- | | Common Equity Tier 1 Capital | 12.03% | 7.00% (incl. buffer) | | Tier 1 Capital | 12.43% | 8.50% (incl. buffer) | | Total Capital | 14.24% | 10.50% (incl. buffer) | | Leverage Ratio | 9.84% | 4.00% | - At March 31, 2019, the company had $219.2 million in liquidity on hand and an additional $3.0 billion in unused wholesale funding capacity237 - A stock repurchase plan authorizing up to 5,000,000 shares was approved in January 2019; no shares were repurchased in Q1 2019251 Risk Management Credit risk was highlighted by a large single-loan charge-off, while market risk remains moderately asset-sensitive - The ALLL was $56.7 million, or 0.64% of period-end loans, as of March 31, 2019260 - Q1 2019 net charge-offs were $13.9 million, or 0.64% of average loans, driven by a $10.0 million charge-off on a single franchise lending relationship262 Interest Rate Sensitivity Analysis (as of March 31, 2019) | Rate Shock Scenario | NII Change (Year 1) | EVE Change | | :--- | :--- | :--- | | -100 bps | (6.13)% | (4.55)% | | +100 bps | 3.63% | 2.20% | | +200 bps | 6.24% | 3.66% | Item 3 - Quantitative and Qualitative Disclosures about Market Risk This section incorporates by reference the market risk disclosures provided within the MD&A section - The report refers to the 'Market Risk' section within the MD&A for its quantitative and qualitative disclosures on this topic282 Item 4 - Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective285 - No material changes were made to internal controls over financial reporting during the first quarter of 2019286 Part II - OTHER INFORMATION Item 1 - Legal Proceedings There have been no material changes to legal proceedings since the company's 2018 Annual Report on Form 10-K - The company reports no material changes to its legal proceedings since its 2018 Form 10-K filing289 Item 1A - Risk Factors There have been no material changes to risk factors since the company's 2018 Annual Report on Form 10-K - The company refers to the Risk Factors section of its 2018 Form 10-K, indicating no material changes290 Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the public plan in Q1 2019, following the approval of a new 5 million share authorization - A new stock repurchase plan was announced on January 14, 2019, authorizing the repurchase of up to 5,000,000 shares295 - No shares were repurchased under the publicly announced plan during the first quarter of 2019294 Item 6 - Exhibits This section lists the exhibits filed with the Form 10-Q, including required CEO and CFO certifications