First Financial Bancorp.(FFBC) - 2023 Q4 - Annual Report

PART I Item 1. Business First Financial Bancorp. is a regional bank holding company offering diverse banking services, emphasizing human capital and strategic growth in a regulated Midwest market Company Overview First Financial Bancorp. (FFBC) is a regional bank holding company operating through its Ohio state-chartered subsidiary, First Financial Bank, founded in 1863 - First Financial Bancorp. (FFBC) is a regional bank holding company operating through its Ohio state-chartered subsidiary, First Financial Bank, founded in 1863[14][15] Banking Services First Financial offers commercial, real estate, and consumer lending, deposit products, cash management, wealth management, and specialized foreign exchange services - First Financial offers commercial, real estate, and consumer lending, deposit products, cash management, and wealth management services[16] - Specialized lending includes equipment and lease financing through First Equipment Finance and Summit, and secured commercial financing for niche industries (insurance, investment advisors, CPAs, indirect auto finance, restaurant franchisees) via Oak Street and First Franchise[17][19] - Foreign exchange hedging and advisory products are provided through Bannockburn Global Forex, focusing on small- and middle-market clients[25] Human Capital As of December 31, 2023, First Financial had approximately 2,165 employees, emphasizing wellbeing, competitive compensation, engagement, and diversity initiatives - As of December 31, 2023, First Financial had approximately 2,165 employees across Ohio, Indiana, Kentucky, and Illinois[28] - The company's "Wellbeing Program" saw 57% of eligible employees qualify for benefits in 2023, supporting physical, financial, social, community, and purpose aspects[29] - First Financial provides a 5% annual company-paid, fully-vested, and portable allocation to the First Financial Pension Plan for all eligible employees[30] - Employee engagement increased significantly in 2023, supported by surveys, training, town halls, and BRGs, with DEI prioritized through Board oversight and a dedicated council[31][32] Subsidiaries A complete list of First Financial's subsidiaries is available in Exhibit 21 of the Form 10-K - A complete list of First Financial's subsidiaries is available in Exhibit 21 of the Form 10-K[33] Business Combinations This section details the Summit Funding Group acquisition in December 2021, including total consideration and its components Summit Funding Group Acquisition (December 2021) | Metric | Value | | :----- | :---- | | Total Consideration | $127.1 million | | Cash Component | $113.5 million | | Common Stock Component | $10.0 million | | Earn-out Payment | $3.6 million | Market and Competitive Information First Financial operates a community banking model in the Midwest, facing intense competition from diverse financial institutions, necessitating adaptation in pricing, products, and technology - First Financial operates a community banking model in Indiana, Ohio, Kentucky, and Illinois, focusing on local markets and long-term client relationships[35][38] - The company faces intense competition from diverse financial institutions, including large banks, credit unions, online lenders, and FinTechs, necessitating adaptation in pricing, products, and technology[40][147][148] Supervision and Regulation First Financial and its subsidiaries are extensively regulated by federal and state authorities, covering capital, permissible activities, credit loss allowances, interest rates, consumer protection, and anti-money laundering - First Financial and its subsidiaries are extensively regulated by federal and state authorities (Federal Reserve Board, FDIC, SEC, CFPB, ODFI) to protect consumers, depositors, and the banking system[41][51][170] - Regulations cover capital, permissible activities, credit loss allowances, interest rates, consumer protection, and anti-money laundering (Patriot Act)[41][100] - As a financial holding company, First Financial is subject to specific rules regarding acquisitions and financial activities[42][43] Item 1A. Risk Factors First Financial faces diverse risks including economic sensitivity, credit quality, foreign exchange, operational and cybersecurity threats, liquidity, competition, and regulatory changes Risks Related to Economic and Market Conditions Economic and political conditions, including inflation, recession, unemployment, and interest rate changes, significantly impact First Financial's deposit levels, loan demand, borrower repayment ability, and collateral values - Economic and political conditions, including inflation, recession, unemployment, and interest rate changes, significantly impact First Financial's deposit levels, loan demand, borrower repayment ability, and collateral values[104][106] - A 100 basis point increase in the target fed funds rate in 2023 led to a $108.6 million increase in net income for First Financial due to its asset-sensitive balance sheet[110] - The value of the loan portfolio, heavily secured by real estate, is vulnerable to market conditions and economic downturns, potentially increasing loan defaults and foreclosures[111][112] Risks Related to Our Business Lending is a primary business activity, and the credit quality of the portfolio significantly impacts earnings, requiring subjective judgments for estimating credit losses, which may be insufficient - Lending is a primary business activity, and the credit quality of the portfolio significantly impacts earnings, requiring subjective judgments for estimating credit losses[114][115] - Inaccurate or incomplete client information, or unforeseen events like fraud, can increase default risk and negatively affect business[116][117] - The allowance for credit losses, based on the CECL model, may be insufficient; in 2023, a $43.1 million provision expense was recorded due to loan growth, increased net charge-offs, and rising interest rates[118][120] Risks Related to Our Foreign Exchange Business Bannockburn Global Forex faces concentration, market, operational, credit, liquidity, regulatory, legal, and political risks due to reliance on large clients and currency fluctuations - Bannockburn Global Forex faces concentration risk from reliance on a few large clients, market risk from currency, interest rate, and commodity price fluctuations, and operational, credit, liquidity, regulatory, legal, and political risks[121][126] Risks Related to Our Business Infrastructure and Cybersecurity Heavy reliance on third-party vendors creates risks of service disruptions and data breaches, while evolving cybersecurity threats pose severe risks of reputational damage, litigation, and regulatory fines - Heavy reliance on third-party vendors for business infrastructure creates risks of service disruptions, data breaches, and financial losses[123][124] - Cybersecurity threats are severe and evolving, with no system offering absolute protection against sophisticated attacks, human error, or misconduct[99][128][132] - Security breaches could result in reputational damage, litigation, regulatory fines, and operational disruptions[127][129] Risks Related to Liquidity and Funding Liquidity is highly dependent on subsidiary dividends, subject to regulatory limits, and reliance on wholesale capital markets means turbulence or credit rating downgrades could restrict funding access and increase costs - Liquidity is highly dependent on subsidiary dividends, especially from the Bank, which are subject to regulatory limits[134] Bank's Available Dividends (as of December 31, 2023) | Metric | Amount | | :----- | :----- | | Available Dividends (without prior regulatory approval) | $248.7 million | - Reliance on wholesale capital markets and other borrowings means turbulence or credit rating downgrades could restrict funding access and increase costs[135][141] - Client migration from bank deposits to alternative investments could lead to higher funding costs[137][138] Risks Related to Capital Markets Access Disruptions in capital market access due to declining confidence or credit rating downgrades could severely impact capital resources, liquidity, and business - Disruptions in capital market access due to declining confidence or credit rating downgrades could severely impact capital resources, liquidity, and business[141] Indebtedness (as of December 31, 2023) | Metric | Amount | | :----- | :----- | | Total Indebtedness | $1.3 billion | Risks Related to Business Initiatives and Strategies Inaccurate projections for new business initiatives could lead to significant expenses without corresponding revenue growth - Inaccurate projections for new business initiatives (e.g., new branches, products) could lead to significant expenses without corresponding revenue growth[145] Risks Related to Mortgage Loans Repurchase or indemnification obligations for mortgage loans due to breaches, fraud, or defaults pose risks to liquidity and financial performance - Repurchase or indemnification obligations for mortgage loans due to breaches, fraud, or defaults pose risks to liquidity and financial performance[146] Risks Related to Competition Intense competition from diverse financial institutions, including FinTechs and credit unions, could result in business loss, reduced margins, increased costs, and talent challenges - Intense competition from diverse financial institutions, including FinTechs and credit unions, could result in business loss, reduced margins, increased costs, and challenges in attracting/retaining talent[147][149] Risks Related to Customer Behavior Shifts in customer behavior towards non-bank transactions or online-only deposits could reduce fee income, client deposits, and increase funding costs - Shifts in customer behavior towards non-bank transactions or online-only deposits could reduce fee income, client deposits, and increase funding costs[151][152] Risks Related to Wealth Management The wealth management business, with $3.5 billion in assets under management, is exposed to investment and market risks, where volatility can impact asset values and earnings - The wealth management business, with $3.5 billion in assets under management, is exposed to investment and market risks, where market volatility can impact asset values and earnings[153] Assets Under Management (as of December 31, 2023) | Metric | Amount | | :----- | :----- | | Assets Under Management | $3.5 billion | Risks Related to Reputation Negative public opinion from misconduct, product failures, governance issues, or regulatory actions could harm reputation, leading to client loss, litigation, regulatory intervention, and stock price impact - Negative public opinion from misconduct, product failures, governance issues, or regulatory actions could harm reputation, leading to client loss, litigation, regulatory intervention, and stock price impact[154] Risks Related to Dividends Common share dividends are discretionary and subject to Board approval, operating results, financial condition, and regulatory restrictions, with potential market price impact from reductions - Common share dividends are discretionary and subject to Board approval, operating results, financial condition, and regulatory restrictions on subsidiary dividends, with potential market price impact from reductions[155] Risks Related to Goodwill Impairment Significant declines in market capitalization relative to book value could indicate goodwill impairment, which relies on subjective judgments and estimates that can materially affect financial results - Significant or sustained declines in market capitalization relative to book value could indicate goodwill impairment, which relies on subjective judgments and estimates that can materially affect financial results[156][157] Risks Related to Credit Rating A credit rating downgrade could increase funding costs, limit access to liquidity and capital, and reduce investor confidence, negatively impacting growth, profitability, and financial condition - A credit rating downgrade could increase funding costs, limit access to liquidity and capital, and reduce investor confidence, negatively impacting growth, profitability, and financial condition[158] Risks Related to Acquisitions Acquisitions and business expansions carry risks such as integration difficulties, unknown liabilities, asset quality issues, management distraction, loss of key personnel, and potential shareholder dilution, all subject to regulatory approval - Acquisitions and business expansions carry risks such as integration difficulties, unknown liabilities, asset quality issues, management distraction, loss of key personnel, and potential shareholder dilution, all subject to regulatory approval[159][160][161] Risks Related to Accounting Policies and Standards Financial reporting depends on critical accounting policies requiring subjective judgments; changes in GAAP or regulatory guidance can materially affect reported results and may necessitate restatements - Financial reporting depends on critical accounting policies requiring subjective judgments; changes in GAAP or regulatory guidance can materially affect reported results and may necessitate restatements[162][163][166] Risks Related to Disclosure Controls Disclosure controls, despite being designed for reasonable assurance, have inherent limitations and may not prevent all errors or fraud due to human factors or circumvention - Disclosure controls, despite being designed for reasonable assurance, have inherent limitations and may not prevent all errors or fraud due to human factors or circumvention[167][168] Risks Related to Investment Securities Investment securities revenues are volatile, subject to interest rate and capital market risks, impacting financial condition and potentially requiring impairment charges - Investment securities revenues are volatile, subject to interest rate and capital market risks, impacting financial condition and potentially requiring impairment charges[169] Risks Related to the Legal and Regulatory Environment Extensive regulatory oversight can lead to restrictions, fines, and increased costs, impacting competitiveness and liquidity, with increasing scrutiny on ESG practices imposing additional risks - Extensive regulatory oversight can lead to restrictions, fines, and increased costs, impacting competitiveness and liquidity[170] - Increasing scrutiny on ESG practices from stakeholders and regulators may impose additional costs and risks[171][172] General Risk Factors Systemic risks from other financial institutions, adapting to evolving technologies, fiscal and monetary policies, and changes in tax laws all impact the company's financial performance and market position - Systemic risks from weaknesses in other financial institutions can affect funding and lead to losses[173] - Adapting to evolving industry standards and new technologies (FinTech) is crucial for market share, potentially requiring significant capital investment[174] - Fiscal and monetary policies, especially Federal Reserve Board actions on interest rates, significantly impact net interest margin, asset values, and borrower default risk[175] Net Interest Margin and AOCI Changes (2023) | Metric | 2023 Value | 2022 Value | Change | | :----- | :--------- | :--------- | :----- | | Net Interest Margin (FTE) | 4.40% | 3.77% | +0.63% | | Earning Asset Yields | N/A | N/A | +206 bps | | Total Cost of Interest-Bearing Liabilities | N/A | N/A | +190 bps | | Accumulated Other Comprehensive Loss | $309.8 million | $358.7 million | -$48.9 million | - Changes in federal, state, and local tax laws can materially affect the company's financial performance and customer demand for loans and deposits[176] Item 1B. Unresolved Staff Comments First Financial Bancorp. reported no unresolved staff comments from the SEC - There are no unresolved staff comments[178] Item 1C. Cybersecurity First Financial's cybersecurity program, led by an experienced CISO, continuously enhances controls against threats, with Board oversight and an incident response plan, reporting no material incidents Risk Management and Strategy First Financial's cybersecurity program, led by an experienced CISO, focuses on continuously enhancing controls against sophisticated threats, utilizing various tools and undergoing regular cyber diligence for critical vendors - First Financial's cybersecurity program, led by a CISO with over 20 years of experience, focuses on continuously enhancing controls against sophisticated cyber threats[179][180] - The CISO reports quarterly to the Cyber ERM Committee, ERMC, and Board Risk Committee, monitoring operational capability, risk assessments, program maturity, and audit results[180] - The company employs employee training, phishing simulators, incident response tabletops, cybersecurity insurance, and business continuity planning, with critical vendors undergoing regular cyber diligence[180][181] - No cybersecurity incidents have materially affected the company's business, operations, or financial condition to date[182] Governance The Board of Directors, via the Board Risk Committee, oversees cybersecurity risk management, setting risk tolerance and ensuring adequate resources, with an incident response plan for severe cyber incidents - The Board of Directors, via the Board Risk Committee, oversees cybersecurity risk management, setting risk tolerance and ensuring adequate resources and awareness[183][188] - The Board Risk Committee Chair possesses extensive cybersecurity experience and certifications (CISSP, CRISC)[184] - An incident response plan details escalation from information security to a crisis management team and the Board for severe cyber incidents[184] Item 2. Properties As of December 31, 2023, First Financial operated 130 banking centers, mostly leased, across Ohio, Indiana, Kentucky, and Illinois, with its executive office in Cincinnati - As of December 31, 2023, First Financial operated 130 full-service banking centers (24 leased) across Ohio (57), Indiana (58), Kentucky (12), and Illinois (3)[185] - The executive office is leased in Cincinnati, Ohio, and a Commercial Finance division operates from an Indiana location[185] Item 3. Legal Proceedings First Financial is involved in various litigation, but believes potential damages are not material to its financial position or operations, with appropriate reserves established - First Financial is involved in various litigation, but believes potential damages are not likely to be material to its financial position or results of operations, with reserves established as appropriate[186] Item 4. Mine Safety Disclosures This section states that Mine Safety Disclosures are not applicable to First Financial Bancorp - Mine Safety Disclosures are not applicable to the company[187] Supplemental Item - Executive Officers of the Registrant This section lists First Financial's executive officers as of February 21, 2024, including their positions, ages, and professional experience summaries - The section provides a list of executive officers as of February 21, 2024, including their positions, age, and business experience[189] Executive Officers of First Financial Bancorp (as of February 21, 2024) | Name | Position | Age | | :--- | :--- | :--- | | Archie M. Brown | President and Chief Executive Officer | 63 | | James M. Anderson | EVP, Chief Financial Officer and Chief Operating Officer | 52 | | Richard S. Dennen | EVP, Chief Corporate Banking Officer | 57 | | Karen B. Woods | EVP, General Counsel and Chief Administrative Officer | 55 | | William R. Harrod | EVP, Chief Credit Officer | 56 | | Amanda N. Neeley | EVP, Chief Consumer Banking and Strategy Officer | 43 | | Gregory A. Harris | President, Yellow Cardinal Advisory Group | 55 | 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 future dividends discretionary and a new stock repurchase plan authorized for up to 5,000,000 shares Market Information, Holders, Dividends First Financial's common shares are listed on NASDAQ under 'FFBC,' with approximately 3,660 shareholders of record, and future cash dividends are discretionary - First Financial's common shares are listed on The NASDAQ Global Select Stock Market® under the symbol "FFBC"[201] - As of February 21, 2024, there were approximately 3,660 shareholders of record[201] - Future cash dividends are discretionary and subject to various factors, including regulatory limitations[202] Stock Performance Graph The stock performance graph is incorporated by reference from the 2023 Annual Report to Shareholders - The stock performance graph is incorporated by reference from the 2023 Annual Report to Shareholders[203] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported - No unregistered sales of equity securities or use of proceeds were reported[203] Issuer Purchases of Equity Securities A new 2024 Stock Repurchase Plan authorizes the purchase of up to 5,000,000 common shares, with no shares purchased under the prior plan in Q4 2023 - A new 2024 Stock Repurchase Plan, effective January 1, 2024, authorizes the purchase of up to 5,000,000 common shares[203] - No shares were purchased under the 2022 Stock Repurchase Plan in the fourth quarter of 2023[203] Item 6. Selected Financial Data This item is reserved and contains no specific financial data - Item 6, Selected Financial Data, is reserved[204] 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 is incorporated by reference from the 2023 Annual Report to Shareholders - Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated by reference from the 2023 Annual Report to Shareholders[204] Item 7A. Quantitative and Qualitative Disclosure About Market Risk Quantitative and Qualitative Disclosure About Market Risk is incorporated by reference from First Financial's 2023 Annual Report to Shareholders - Quantitative and Qualitative Disclosure About Market Risk is incorporated by reference from the 2023 Annual Report to Shareholders[205] Item 8. Financial Statements and Supplementary Data Consolidated financial statements and independent auditor reports are incorporated by reference from the 2023 Annual Report to Shareholders - Consolidated financial statements and independent auditor reports are incorporated by reference from the 2023 Annual Report to Shareholders[206] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure First Financial Bancorp. reported no changes in or disagreements with accountants regarding accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[207] Item 9A. Controls and Procedures Management concluded First Financial's disclosure controls were effective at a reasonable assurance level, with no material changes in internal control over financial reporting Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective at a reasonable assurance level, though control systems inherently provide only reasonable assurance - Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of the end of the reporting period[208] - Control systems provide only reasonable, not absolute, assurance against errors or fraud due to inherent limitations[207] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the reporting period - No material changes in internal control over financial reporting occurred during the reporting period[209] Item 9B. Other Information No officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the fourth quarter of 2023 - No officers or directors adopted or terminated Rule 10b5-1 trading arrangements during the fourth quarter of 2023[210] Item 9. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to First Financial Bancorp - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections is not applicable[210] PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement for the May 28, 2024 Annual Meeting - Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement for the May 28, 2024 Annual Meeting[212] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from First Financial's Proxy Statement - Executive compensation information is incorporated by reference from the company's Proxy Statement[213] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and management is incorporated by reference from the Proxy Statement, with 2,400,802 securities available for future issuance under the 2020 Stock Plan Equity Compensation Plan Information As of December 31, 2023, no outstanding options, warrants, or rights existed, with 2,400,802 securities available for future issuance under shareholder-approved equity compensation plans Equity Compensation Plan Information (as of December 31, 2023) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted-average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) (1) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 0 | $0.00 | 2,400,802 | | Equity compensation plans not approved by security holders | N/A | N/A | N/A | - The 2,400,802 securities available for future issuance are under the First Financial Bancorp. 2020 Stock Plan, approved by shareholders[216] Item 13. Certain Relationships and Related Transactions Information on related party transactions and director independence is incorporated by reference from the 2023 Annual Report to Shareholders and the Proxy Statement - Information on related party transactions and director independence is incorporated by reference from the 2023 Annual Report to Shareholders and the Proxy Statement[217] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the company's Proxy Statement[218] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules, including consolidated financial statements and auditor reports, incorporated by reference from the 2023 Annual Report or prior SEC filings - This section lists all exhibits and financial statement schedules, including consolidated financial statements and auditor reports, incorporated by reference from the 2023 Annual Report to Shareholders or prior SEC filings[220][221] Item 16. Form 10-K Summary This item indicates that there is no Form 10-K Summary provided - Item 16, Form 10-K Summary, is not applicable[231] Signatures The report is duly signed by First Financial Bancorp.'s President and CEO, CFO and COO, Principal Accounting Officer, and various directors as of February 22, 2024 - The report is signed by the President and CEO, CFO and COO, Principal Accounting Officer, and directors as of February 22, 2024[234][235]