First Financial Bancorp.(FFBC) - 2022 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION Item 1 - Financial Statements Unaudited consolidated financial statements for Q1 2022 are presented, detailing key financial positions and the Summit acquisition Consolidated Balance Sheets Assets decreased to $16.01 billion, and equity declined to $2.14 billion due to unrealized investment losses Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $16,009,150 | $16,329,141 | | Net loans and leases | $9,117,487 | $9,156,307 | | Investment securities available-for-sale | $3,957,882 | $4,207,846 | | Goodwill | $999,959 | $1,000,749 | | Total Liabilities | $13,871,705 | $14,070,199 | | Total deposits | $12,818,908 | $12,871,954 | | Total Shareholders' Equity | $2,137,445 | $2,258,942 | | Accumulated other comprehensive income (loss) | ($142,477) | ($433) | Consolidated Statements of Income Net income for Q1 2022 decreased to $41.3 million, primarily due to lower net interest income and higher noninterest expenses Income Statement Summary - Three Months Ended March 31 (in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net interest income | $106,346 | $113,876 | | Provision for credit losses | ($5,815) | $3,988 | | Noninterest income | $41,293 | $40,322 | | Noninterest expenses | $102,805 | $92,506 | | Net income | $41,301 | $47,315 | | Net earnings per share - diluted | $0.44 | $0.48 | Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss of $100.7 million in Q1 2022, driven by unrealized losses on debt securities from rising interest rates Comprehensive Income (Loss) - Three Months Ended March 31 (in thousands) | Item | 2022 | 2021 | | :--- | :--- | :--- | | Net income | $41,301 | $47,315 | | Other comprehensive income (loss) | ($142,044) | ($30,563) | | Comprehensive income (loss) | ($100,743) | $16,752 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased to $2.14 billion, primarily due to a $142.0 million other comprehensive loss despite net income - Total shareholders' equity decreased by $121.5 million during the first quarter of 2022, from $2,258.9 million to $2,137.5 million[15] - The decrease was primarily driven by an other comprehensive loss of $142.0 million, which overshadowed the $41.3 million in net income for the period[15] - The company declared and paid cash dividends of $0.23 per share, totaling $21.6 million[15] Consolidated Statements of Cash Flows Operating activities provided $143.8 million in cash, while financing activities used $216.2 million, leading to a $10.4 million net cash increase Cash Flow Summary - Three Months Ended March 31 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $143,815 | $147,034 | | Net cash provided by (used in) investing activities | $82,823 | ($366,100) | | Net cash provided by (used in) financing activities | ($216,241) | $198,203 | | Change in cash and due from banks | $10,397 | ($20,863) | Notes to Consolidated Financial Statements Detailed notes cover the Summit acquisition, loan portfolio, investment unrealized losses, and commitments, providing key financial disclosures - Business Combination (Note 18): The company completed its acquisition of Summit Funding Group, Inc. on December 31, 2021, for approximately $127.1 million. This added a significant equipment financing operation, contributing $62.2 million in goodwill[206][207][222] - Allowance for Credit Losses (Note 5): The ACL for loans and leases decreased to $124.1 million from $132.0 million at year-end 2021. A provision recapture of $5.6 million was recorded for the quarter, reflecting improved economic forecasts and credit outlook[100][101] - Loans and Leases (Note 4): As of March 31, 2022, the company held $21.2 million in PPP loans, down from $55.6 million at year-end 2021. Total Troubled Debt Restructurings (TDRs) were $24.2 million[43][61] - Investments (Note 3): The investment portfolio had gross unrealized losses of $171.9 million as of March 31, 2022, a significant increase from $31.6 million at year-end 2021, primarily due to rising interest rates. The company does not intend to sell these securities and has not recorded an allowance for credit losses on them[34][38] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial results, highlighting net income decline, Summit acquisition impact, improved asset quality, and capital ratio changes Overview of Operations Q1 2022 net income was $41.3 million ($0.44 diluted EPS), with a return on average assets of 1.03% Quarterly Performance Summary | Metric | Q1 2022 | Q4 2021 | Q1 2021 | | :--- | :--- | :--- | :--- | | Net Income (in millions) | $41.3 | $46.9 | $47.3 | | Diluted EPS | $0.44 | $0.50 | $0.48 | | Return on Average Assets | 1.03% | 1.16% | 1.20% | | Return on Average Equity | 7.53% | 8.31% | 8.44% | Net Interest Income Analysis Net interest income decreased to $106.3 million, and NIM compressed to 3.17% due to lower prepayment and PPP loan fees - Net interest income decreased by 4.0% from the linked quarter (Q4 2021) and 6.6% from the prior year quarter (Q1 2021)[244][247] Net Interest Margin (FTE) | Period | NIM (FTE) | | :--- | :--- | | Q1 2022 | 3.17% | | Q4 2021 | 3.23% | | Q1 2021 | 3.40% | Noninterest Income and Expense Analysis Noninterest income decreased to $41.3 million, while noninterest expense fell to $102.8 million, influenced by the Summit acquisition - Noninterest income decreased by $4.4 million compared to Q4 2021, primarily due to moderation in foreign exchange income and client derivative fees[255] - The Summit acquisition contributed $6.1 million in leasing business income and $3.9 million in leasing business expense in Q1 2022[255][258] - Noninterest expense decreased by $6.8 million from Q4 2021, which had included a $3.3 million legal settlement and $6.1 million of tax credit investment write-downs[258] Financial Condition and Asset Quality Asset quality improved with nonperforming assets declining to $53.6 million, leading to a $5.6 million provision recapture for credit losses - Nonperforming assets decreased by $6.5 million to $53.6 million, or 0.33% of total assets, at March 31, 2022[280] - The Allowance for Credit Losses (ACL) as a percentage of total loans was 1.34%, down from 1.42% at year-end, reflecting an improved credit outlook[287] - The company recorded a provision recapture of $5.6 million for loans and leases in Q1 2022, compared to a provision expense of $3.5 million in Q1 2021[291] Capital and Liquidity The company remains well-capitalized, though tangible common equity decreased to 6.95% due to unrealized investment losses Key Capital Ratios | Ratio | March 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Common Equity Tier 1 | 10.87% | 10.84% | | Total Capital | 13.97% | 14.10% | | Leverage Ratio | 8.64% | 8.70% | | Tangible Common Equity | 6.95% | 7.58% | - The decline in the tangible common equity ratio was primarily driven by the decline in accumulated other comprehensive income due to higher unrealized losses in the investment portfolio[318] - A new stock repurchase plan for up to 5,000,000 shares was approved in January 2022. No shares were repurchased during the first quarter[323][324] Market Risk The company is asset sensitive to interest rate risk, with a +100 bps rate increase projected to boost net interest income by 9.76% Interest Rate Sensitivity Analysis (as of March 31, 2022) | Rate Shock | NII - Year 1 (% Change) | EVE (% Change) | | :--- | :--- | :--- | | +200 bps | +19.37% | +8.52% | | +100 bps | +9.76% | +4.54% | | -100 bps | -6.86% | -5.85% | - The company's interest rate risk models utilized a weighted average deposit beta of 35% as of March 31, 2022[335] Item 3 - Quantitative and Qualitative Disclosures about Market Risk This section incorporates by reference the market risk disclosures from Item 2, Management's Discussion and Analysis - The report refers to the 'Market Risk' section within 'Item 2-Management's Discussion and Analysis' for its quantitative and qualitative disclosures about market risk[352] Item 4 - Controls and Procedures Disclosure controls were effective, excluding the recently acquired Summit Funding Group, with no material changes to internal control - The CEO and CFO concluded that disclosure controls and procedures were effective at a reasonable assurance level[355] - The internal control over financial reporting for the newly acquired Summit Funding Group, Inc. was excluded from the evaluation due to the timing of the acquisition[356] Part II - OTHER INFORMATION Item 1 - Legal Proceedings No material changes to legal proceedings were reported since the 2021 Form 10-K - No material changes to legal proceedings were reported since the 2021 Form 10-K[360] Item 1A - Risk Factors No material changes to risk factors were reported since the 2021 Form 10-K - No material changes to risk factors were reported since the 2021 Form 10-K[361] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds A new 5 million share repurchase plan was authorized, but no shares were repurchased in Q1 2022 - The company did not purchase any shares under its new 2022 Repurchase Plan in the first quarter of 2022[362] Item 6 - Exhibits This section lists exhibits filed with the report, including SOX certifications and XBRL data files - Lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data[364]