First Financial Bancorp.(FFBC) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements of First Financial Bancorp. and its subsidiaries for the period ended March 31, 2024, including balance sheets, income statements, comprehensive income, changes in shareholders' equity, cash flows, and detailed notes to these financial statements Consolidated Balance Sheets The Consolidated Balance Sheets provide a snapshot of First Financial Bancorp.'s financial position, showing a slight increase in total assets and deposits, alongside a modest rise in shareholders' equity from December 31, 2023, to March 31, 2024 Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | Change (QoQ) | % Change (QoQ) | |:---|---:|---:|---:|---:| | Total Assets | $17,599,238 | $17,532,900 | $66,338 | 0.38% | | Total Loans and Leases | $11,205,120 | $10,933,176 | $271,944 | 2.49% | | Total Deposits | $13,457,148 | $13,360,797 | $96,351 | 0.72% | | Total Liabilities | $15,312,235 | $15,264,926 | $47,309 | 0.31% | | Total Shareholders' Equity | $2,287,003 | $2,267,974 | $19,029 | 0.84% | Consolidated Statements of Income First Financial Bancorp. reported a decrease in net income for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to higher interest expense on deposits and borrowings, and increased losses on investment securities sales, despite growth in total interest income Consolidated Statements of Income Highlights (Three Months Ended March 31, Dollars in thousands, except per share data) | Metric | 2024 | 2023 | Change (YoY) | % Change (YoY) | |:---|---:|---:|---:|---:| | Total Interest Income | $240,686 | $208,581 | $32,105 | 15.39% | | Total Interest Expense | $91,946 | $49,263 | $42,683 | 86.64% | | Net Interest Income | $148,740 | $159,318 | $(10,578) | -6.64% | | Provision for credit losses - loans and leases | $13,419 | $8,644 | $4,775 | 55.24% | | Total Noninterest Income | $46,512 | $55,543 | $(9,031) | -16.26% | | Total Noninterest Expenses | $122,355 | $116,693 | $5,662 | 4.85% | | Income Before Income Taxes | $61,737 | $87,689 | $(25,952) | -29.59% | | Income Tax Expense | $11,048 | $17,286 | $(6,238) | -36.09% | | Net Income | $50,689 | $70,403 | $(19,714) | -27.99% | | Net Earnings Per Common Share - Basic | $0.54 | $0.75 | $(0.21) | -28.00% | | Net Earnings Per Common Share - Diluted | $0.53 | $0.74 | $(0.21) | -28.38% | Consolidated Statements of Comprehensive Income (Loss) The Consolidated Statements of Comprehensive Income (Loss) show a significant decrease in comprehensive income for the three months ended March 31, 2024, compared to the prior year, primarily driven by unrealized losses on debt securities and derivatives Consolidated Statements of Comprehensive Income (Loss) Highlights (Three Months Ended March 31, Dollars in thousands) | Metric | 2024 | 2023 | Change (YoY) | % Change (YoY) | |:---|---:|---:|---:|---:| | Net Income | $50,689 | $70,403 | $(19,714) | -27.99% | | Unrealized gain (loss) on debt securities arising during the period | $(7,186) | $30,485 | $(37,671) | -123.57% | | Change in retirement obligation | $288 | $115 | $173 | 150.43% | | Unrealized gain (loss) on derivatives | $(4,091) | $0 | $(4,091) | -100.00% | | Unrealized gain (loss) on foreign currency exchange | $(301) | $4 | $(305) | -7625.00% | | Other comprehensive income (loss) | $(11,290) | $30,604 | $(41,894) | -136.90% | | Comprehensive income (loss) | $39,399 | $101,007 | $(61,608) | -60.99% | Consolidated Statements of Changes in Shareholders' Equity The Consolidated Statements of Changes in Shareholders' Equity show an increase in total shareholders' equity from January 1, 2024, to March 31, 2024, driven by net income and share-based compensation expense, partially offset by cash dividends and other comprehensive losses Consolidated Statements of Changes in Shareholders' Equity Highlights (Dollars in thousands) | Metric | Balance at January 1, 2024 | Net Income | Other Comprehensive Income (Loss) | Cash Dividends Declared | Share-based Compensation Expense | Balance at March 31, 2024 | |:---|---:|---:|---:|---:|---:|---:| | Common Stock | $1,638,972 | - | - | - | - | $1,632,971 | | Retained Earnings | $1,136,718 | $50,689 | - | $(21,941) | $5,866 | $1,166,065 | | Accumulated Other Comprehensive Income (Loss) | $(309,819) | - | $(11,290) | - | - | $(321,109) | | Treasury Stock | $(197,897) | - | - | - | - | $(190,924) | | Total Shareholders' Equity | $2,267,974 | $50,689 | $(11,290) | $(21,941) | $5,866 | $2,287,003 | Consolidated Statements of Cash Flows First Financial Bancorp. experienced a decrease in net cash provided by operating activities and an increase in net cash used in investing activities for the three months ended March 31, 2024, compared to the prior year, while financing activities shifted from net cash used to net cash used Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, Dollars in thousands) | Metric | 2024 | 2023 | Change (YoY) | % Change (YoY) | |:---|---:|---:|---:|---:| | Net Cash Provided by (Used in) Operating Activities | $31,931 | $172,206 | $(140,275) | -81.46% | | Net Cash Provided by (Used in) Investing Activities | $(43,330) | $(57,491) | $14,161 | 24.63% | | Net Cash Provided by (Used in) Financing Activities | $(2,253) | $(122,381) | $120,128 | 98.16% | | Change in Cash and Due from Banks | $(13,652) | $(7,666) | $(5,986) | -78.09% | | Cash and Due from Banks at End of Period | $199,407 | $199,835 | $(428) | -0.21% | Notes to Consolidated Financial Statements The Notes to Consolidated Financial Statements provide detailed disclosures on significant accounting policies, recent accounting standards, investment securities, loans and leases, allowance for credit losses, leases (lessee and lessor), goodwill and other intangibles, borrowings, accumulated other comprehensive income, derivatives, commitments and contingencies, income taxes, employee benefit plans, revenue recognition, earnings per common share, fair value disclosures, and business combinations - The notes are an integral part of the unaudited consolidated financial statements, providing context and additional detail necessary for a complete understanding of the company's financial position and performance[25] - The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions, and judgments that affect the reported amounts[26] NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the basis of presentation for First Financial Bancorp.'s consolidated financial statements, confirming its status as a financial holding company, the consolidation of its wholly-owned subsidiary, and adherence to GAAP, which necessitates the use of management estimates - First Financial Bancorp. is a financial holding company primarily serving Ohio, Indiana, Kentucky, and Illinois, with consolidated financial statements including its wholly-owned subsidiary, First Financial Bank[24] - The interim financial statements are unaudited and prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, requiring management to make estimates, assumptions, and judgments[25][26] NOTE 2: ACCOUNTING STANDARDS RECENTLY ADOPTED OR ISSUED This note details the adoption of new accounting standards, including ASU 2023-02 for tax credit structures and ASU 2022-02 for credit losses, and discusses upcoming standards like ASU 2023-07 on segment reporting and ASU 2023-09 on income tax disclosures, none of which are expected to materially impact the company's results of operations - Adopted ASU 2023-02 (Investments—Equity Method and Joint Ventures) on a modified retrospective basis, resulting in a $0.6 million net increase to retained earnings as of January 1, 2024, for the cumulative effect[27][28] - Adopted ASU 2022-02 (Financial Instruments—Credit Losses) which eliminated TDR guidance and amended vintage disclosures, without materially impacting results of operations[29] - ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) are effective for future periods and are expected to result in additional disclosures but not materially impact results of operations[30][31] NOTE 3: INVESTMENTS First Financial's investment portfolio includes both available-for-sale (AFS) and held-to-maturity (HTM) securities. During Q1 2024, the company sold $212.0 million of AFS securities, realizing $0.4 million in gross gains and $7.9 million in gross losses, and sold remaining Class B Visa shares for $11.6 million with $2.2 million in gains. The portfolio continues to hold significant unrealized losses, primarily due to interest rate fluctuations, but no credit loss reserves were recorded - For the three months ended March 31, 2024, sales of AFS securities totaled $212.0 million, resulting in $0.4 million gross realized gains and $7.9 million gross realized losses[32] - The sale of remaining Class B Visa shares in Q1 2024 generated $11.6 million in proceeds and $2.2 million in gross realized gains[32] Investment Securities Summary (Dollars in thousands) | Category | March 31, 2024 (Fair Value) | December 31, 2023 (Fair Value) | |:---|---:|---:| | Held-to-maturity | $70,850 | $71,688 | | Available-for-sale | $2,850,667 | $3,021,126 | | Total Unrealized Loss (AFS) | $(372,847) | $(365,320) | | Total Unrealized Loss (HTM) | $(8,763) | $(8,763) | - As of March 31, 2024, 721 out of 970 investment securities were in an unrealized loss position, primarily due to fluctuations in current market yields[39] - No allowance for credit losses (ACL) was recorded for AFS or HTM securities as of March 31, 2024, or December 31, 2023, as the Company does not intend to sell these securities prior to maturity or recovery of recorded value[38][41] NOTE 4: LOANS AND LEASES This note details First Financial's diverse loan and lease portfolio, categorized by commercial and consumer segments, and outlines its credit quality monitoring using standard credit grades (Pass, Special Mention, Substandard, Doubtful). It also provides extensive data on loan origination, gross charge-offs, delinquency, and financial difficulty modifications (FDMs), showing a slight increase in total loans and leases from year-end 2023 to Q1 2024 - First Financial offers a variety of commercial (C&I, CRE, construction, lease financing) and consumer (residential real estate, home equity, installment, credit card) loan and lease products[44] - Lending activities are primarily concentrated in Ohio, Indiana, Kentucky, and Illinois, with specialty lending platforms extending beyond this geographic footprint[45] Total Loans and Leases by Category (Dollars in thousands) | Category | March 31, 2024 | December 31, 2023 | Change (QoQ) | % Change (QoQ) | |:---|---:|---:|---:|---:| | Commercial & industrial | $3,591,428 | $3,501,221 | $90,207 | 2.58% | | Lease financing | $492,862 | $474,817 | $18,045 | 3.80% | | Construction real estate | $641,596 | $564,832 | $76,764 | 13.59% | | Commercial real estate | $4,145,969 | $4,080,939 | $65,030 | 1.59% | | Residential real estate | $1,344,677 | $1,333,674 | $11,003 | 0.83% | | Home equity | $773,811 | $758,676 | $15,135 | 1.99% | | Installment | $153,838 | $159,078 | $(5,240) | -3.29% | | Credit card | $60,939 | $59,939 | $1,000 | 1.67% | | Total Loans and Leases | $11,205,120 | $10,933,176 | $271,944 | 2.49% | Loan Delinquency (Dollars in thousands) | Delinquency Status | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | 30 – 59 days past due | $13,444 | $11,056 | | 60 – 89 days past due | $4,240 | $22,507 | | > 89 days past due | $33,478 | $27,407 | | Total past due | $51,162 | $60,970 | | Current | $11,153,958 | $10,872,206 | | Total Loans | $11,205,120 | $10,933,176 | Financial Difficulty Modifications (FDMs) Granted (Three Months Ended March 31, Dollars in thousands) | Loan Class | 2024 Total | 2023 Total | |:---|---:|---:| | Commercial & industrial | $7,548 | $0 | | Residential real estate | $556 | $889 | | Home equity | $40 | $15 | | Total | $8,144 | $904 | - Nonaccrual loans decreased by $6.5 million, or 9.9%, to $59.2 million as of March 31, 2024, from $65.8 million at December 31, 2023[65][273] NOTE 5: ALLOWANCE FOR CREDIT LOSSES This note details First Financial's Allowance for Credit Losses (ACL) for loans and leases, which increased slightly to $144.3 million as of March 31, 2024, primarily due to loan growth. The provision for credit losses was $13.4 million for Q1 2024, and net charge-offs totaled $10.6 million. The ACL for unfunded commitments decreased to $16.2 million, with a provision recapture of $2.3 million - The ACL for loans and leases increased to $144.3 million as of March 31, 2024, from $141.4 million at December 31, 2023, primarily due to loan growth[91][92][280] Allowance for Credit Losses (ACL) Activity (Three Months Ended March 31, Dollars in thousands) | Metric | 2024 | 2023 | |:---|---:|---:| | Beginning balance | $141,433 | $132,977 | | Provision for credit losses | $13,419 | $8,644 | | Total net charge-offs | $(10,578) | $(30) | | Ending allowance for credit losses | $144,274 | $141,591 | - Net charge-offs for Q1 2024 were $10.6 million, or 38 basis points of average loans and leases on an annualized basis, including a $4.5 million loss on a single CRE loan[281] - The ACL as a percentage of nonaccrual loans increased to 243.6% at March 31, 2024, from 215.1% at December 31, 2023[282] - The ACL on unfunded commitments was $16.2 million as of March 31, 2024, down from $18.4 million at December 31, 2023, with a provision recapture of $2.3 million for Q1 2024[95][97][284] NOTE 6: LEASES - LESSEE This note details First Financial's operating leases where it acts as a lessee, primarily for real estate. As of March 31, 2024, the company recognized $52.9 million in Right-of-Use (ROU) assets and $63.1 million in corresponding lease liabilities. Total operating lease cost for Q1 2024 was $2.8 million - Substantially all of the company's lessee contracts are classified as operating leases, primarily for real estate property[98] Operating Lease Financials (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | Right-of-Use (ROU) assets | $52,900 | $54,200 | | Lease liability | $63,100 | $64,500 | | Total operating lease cost (Q1) | $2,834 | $2,672 (Q1 2023) | | Weighted-average remaining lease term | 12.2 years | 12.3 years | | Weighted-average discount rate | 3.44% | 3.43% | - Leases with an initial term of 12 months or less are not recorded on the balance sheet[101] NOTE 7: OPERATING LEASES - LESSOR This note provides information on First Financial's operating leases where it acts as a lessor, primarily for equipment financing. As of March 31, 2024, operating lease assets were $161.5 million, and lease income for Q1 2024 was $12.1 million, with no impairment losses recognized Operating Leases - Lessor (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | Operating leases (net of accumulated depreciation) | $161,500 | $153,200 | | Lease income (Q1) | $12,100 | $10,200 (Q1 2023) | | Depreciation expense (Q1) | $9,800 | $7,900 (Q1 2023) | - No impairment losses associated with operating lease assets were recognized for the three months ended March 31, 2024 or 2023[107] NOTE 8: GOODWILL AND OTHER INTANGIBLE ASSETS This note details changes in goodwill and other intangible assets. Goodwill increased to $1,007.7 million at March 31, 2024, primarily due to the $1.8 million goodwill from the Agile Premium Finance acquisition. Other intangible assets, including core deposit intangibles, customer lists, and mortgage servicing rights, totaled $85.6 million, with amortization expense of $3.1 million for Q1 2024 Goodwill and Other Intangible Assets (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | Goodwill | $1,007,656 | $1,005,868 | | Other Intangibles | $85,603 | $83,949 | | Goodwill from business combinations (Q1 2024) | $1,788 | $4,231 (Q1 2023) | | Amortization expense on other intangibles (Q1 2024) | $3,100 | $3,300 (Q1 2023) | - Goodwill of $1.8 million was recorded in Q1 2024 related to the acquisition of Agile Premium Finance, specializing in insurance premium financing[111] - Other intangible assets include core deposit intangibles (weighted average remaining life of 4.0 years), customer lists (Agile, Summit, Bannockburn), and mortgage servicing rights[114][115][116][117] - The most recent annual goodwill impairment test as of October 1, 2023, indicated no impairment[113] NOTE 9: BORROWINGS This note details First Financial's short-term and long-term borrowings. Short-term borrowings, primarily FHLB advances, decreased to $862.1 million at March 31, 2024. Long-term debt remained stable at $343.2 million, consisting of subordinated notes, capital lease liabilities, and an interest-free loan Borrowings Summary (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | FHLB short-term borrowings | $700,000 | $800,000 | | Other short-term borrowings | $162,145 | $137,814 | | Total Short-Term Borrowings | $862,145 | $937,814 | | Subordinated notes | $314,276 | $314,163 | | Notes issued with property/equipment acquisition | $28,112 | $29,179 | | Capital lease liability | $1,589 | $1,611 | | Capital loan with municipality | $775 | $775 | | Total Long-Term Debt | $343,236 | $344,115 | - First Financial has a $40.0 million short-term credit facility with an unaffiliated bank, with no outstanding balance as of March 31, 2024, and was in compliance with all associated covenants[122][123] - Subordinated notes include a $120.0 million issuance (5.13% fixed, maturing August 2025) and a $150.0 million issuance (5.25% fixed to May 2025, then floating, maturing May 2030), both treated as Tier 2 capital[125][126] - Acquired variable rate subordinated notes of $44.3 million are treated as Tier 1 capital[127] NOTE 10: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) This note details the components of Accumulated Other Comprehensive Income (Loss) (AOCI), which decreased to $(321.1) million at March 31, 2024, from $(309.8) million at January 1, 2024. The change was primarily driven by unrealized losses on debt securities and derivatives, partially offset by changes in retirement obligations Changes in Accumulated Other Comprehensive Income (Loss) (Three Months Ended March 31, 2024, Dollars in thousands) | Component | Beginning Balance (Jan 1, 2024) | Net Activity | Ending Balance (Mar 31, 2024) | |:---|---:|---:|---:| | Unrealized gain (loss) on debt securities | $(281,958) | $(7,186) | $(289,144) | | Unrealized gain (loss) on derivatives | $3,755 | $(4,091) | $(336) | | Retirement obligation | $(31,117) | $288 | $(30,829) | | Foreign currency translation | $(499) | $(301) | $(800) | | Total AOCI | $(309,819) | $(11,290) | $(321,109) | Reclassifications from AOCI into Income (Three Months Ended March 31, Dollars in thousands) | Item | 2024 (Pre-tax) | 2023 (Pre-tax) | Affected Line Item | |:---|---:|---:|:---| | Gains and losses on cash flow hedges (Interest rate contracts) | $(199) | $0 | Interest income - Loans and leases, including fees | | Realized gain (loss) on securities available-for-sale | $(7,518) | $(19) | Net gain (loss) on sales of investment securities | | Defined benefit pension plan (Net actuarial loss) | $(375) | $(150) | Other noninterest expense | | Total reclassifications, before tax | $(8,092) | $(169) | | NOTE 11: DERIVATIVES First Financial uses derivative instruments to manage interest rate, prepayment, and foreign currency risks, and for client services, without engaging in speculative positions. This includes interest rate client derivatives ($2.2 billion notional), foreign exchange contracts ($6.6 billion notional), and cash flow hedges ($1.0 billion notional) to mitigate interest rate risk on variable-rate commercial loan pools - First Financial uses derivatives (interest rate caps, floors, swaps, foreign exchange contracts) to reduce interest rate, prepayment, and foreign currency volatility, and for commercial customers, but not for speculative purposes[130][131][132] Derivative Notional Amounts and Fair Values (Dollars in thousands) | Derivative Type | March 31, 2024 Notional | March 31, 2024 Fair Value (Net) | December 31, 2023 Notional | December 31, 2023 Fair Value (Net) | |:---|---:|---:|---:|---:| | Interest rate client derivatives | $2,202,947 | $(115,236) (receive fixed) / $115,046 (pay fixed) | $2,172,714 | $13,232 (gain) / $(104,343) (loss) | | Foreign exchange contracts | $6,571,536 (pay USD) / $6,526,793 (receive USD) | $36,346 (pay USD) / $(36,346) (receive USD) | $7,021,569 | $84,731 (gain) / $(60,825) (loss) | | Cash flow hedges (collars/floors) | $1,000,000 | $1,395 | $1,000,000 | $6,896 | | Total Derivatives | $18,504,223 | $1,205 | $19,339,867 | $6,645 | - Cash flow hedges had a notional value of $1.0 billion at March 31, 2024, with a $0.3 million loss recorded in AOCI, and are expected to reclassify $0.7 million to interest income in the next 12 months[143] - Credit derivatives (risk participation agreements) had a total notional value of $326.2 million at March 31, 2024[148] - Mortgage derivatives (IRLCs and forward commitments) had notional amounts of $43.6 million and $38.3 million, respectively, at March 31, 2024[149] NOTE 12: COMMITMENTS AND CONTINGENCIES This note outlines First Financial's off-balance sheet arrangements, including $4.4 billion in loan commitments and $37.0 million in letters of credit as of March 31, 2024. It also details risk participation agreements and investments in affordable housing and other tax credit projects, with unfunded commitments of $95.7 million - First Financial had commitments to extend credit, including overdraft lending lines, of $4.4 billion at March 31, 2024, with the majority being variable interest rate commitments[153] - Letters of credit totaled $37.0 million at March 31, 2024, representing conditional commitments to guarantee client performance[157] - Risk participation agreements for interest rate swaps had a total notional amount of $326.2 million at March 31, 2024[157] Tax Credit Investments and Unfunded Commitments (Dollars in thousands) | Investment Type | Accounting Method | Investment (Mar 31, 2024) | Unfunded Commitment (Mar 31, 2024) | |:---|:---|---:|---:| | LIHTC | Proportional amortization | $146,186 | $79,909 | | HTC | Proportional amortization | $14,798 | $11,955 | | HTC | Equity | $3,749 | $2,088 | | NMTC | Equity | $1,754 | $0 | | Renewable energy | Equity | $23,845 | $1,787 | | Total | | $190,332 | $95,739 | - No reserves related to litigation matters were recorded as of March 31, 2024, or December 31, 2023[165] NOTE 13: INCOME TAXES First Financial reported income tax expense of $11.0 million for Q1 2024, resulting in an effective tax rate of 17.9%, a decrease from 19.7% in Q1 2023, primarily due to tax credits and lower taxable income. The company had no unrecognized tax benefits, interest, or penalties recorded Income Tax Expense and Effective Tax Rate (Three Months Ended March 31, Dollars in thousands) | Metric | 2024 | 2023 | |:---|---:|---:| | Income tax expense | $11,048 | $17,286 | | Effective tax rate | 17.9% | 19.7% | - The lower effective tax rate in 2024 is primarily driven by tax credits realized and lower taxable income[166] - First Financial had no unrecognized tax benefits, interest, or penalties recorded as of March 31, 2024, or December 31, 2023[167] - Tax years prior to 2020 are closed for U.S. federal income tax examinations, while 2020-2023 remain open[168] NOTE 14: EMPLOYEE BENEFIT PLANS This note details First Financial's non-contributory defined benefit pension plan, which covers substantially all employees. For Q1 2024, the net periodic benefit cost was $1.5 million, an increase from $0.9 million in Q1 2023, with no cash contributions made or expected in 2024 - First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees, with assets primarily invested in fixed income and publicly traded equity mutual funds[169] Net Periodic Benefit Cost (Three Months Ended March 31, Dollars in thousands) | Metric | 2024 | 2023 | |:---|---:|---:| | Service cost | $2,425 | $2,350 | | Interest cost | $1,300 | $1,075 | | Expected return on assets | $(2,625) | $(2,700) | | Net actuarial loss | $375 | $150 | | Net periodic benefit cost (income) | $1,475 | $875 | - No cash contributions were made to the pension plan during Q1 2024 or 2023, and none are expected for the remainder of 2024[170] NOTE 15: REVENUE RECOGNITION This note explains First Financial's revenue recognition policies, distinguishing between income sources outside the scope of ASU 2014-09 (loans, leases, securities, derivatives, foreign exchange forwards) and those within its scope (service charges on deposits, wealth management fees, bankcard income, foreign exchange spot income, other noninterest income) - The majority of revenues are outside the scope of ASU 2014-09, including income from loans, leases, securities, derivatives, and foreign exchange (excluding spot transactions)[172] - Revenues within the scope of ASU 2014-09 include service charges on deposit accounts, wealth management fees, bankcard income, foreign exchange spot income, and other noninterest income, recognized when performance obligations are satisfied[173] - Gross interchange income for bankcard services was $7.2 million for Q1 2024 and Q1 2023, presented net of expenses[177] - Income from foreign exchange spot trades was $2.9 million for Q1 2024, down from $3.1 million in Q1 2023[178] NOTE 16: EARNINGS PER COMMON SHARE This note provides the computation of basic and diluted earnings per common share for First Financial Bancorp. For Q1 2024, basic EPS was $0.54 and diluted EPS was $0.53, both lower than the prior year's comparable period Earnings Per Common Share (Three Months Ended March 31, Dollars in thousands, except per share data) | Metric | 2024 | 2023 | |:---|---:|---:| | Net income available to common shareholders | $50,689 | $70,403 | | Weighted average shares outstanding - basic | 94,218,067 | 93,732,532 | | Weighted average shares outstanding - diluted | 95,183,998 | 94,960,158 | | Basic EPS | $0.54 | $0.75 | | Diluted EPS | $0.53 | $0.74 | - No stock options or warrants were antidilutive at March 31, 2024, or March 31, 2023[181] NOTE 17: FAIR VALUE DISCLOSURES This note details First Financial's fair value measurements for financial instruments, categorized into Level 1, 2, and 3 of the fair value hierarchy. It outlines valuation techniques for investment securities, loans held for sale, derivatives, collateral-dependent loans, mortgage servicing rights, OREO, and operating leases, and provides reconciliations for Level 3 AFS securities - The fair value hierarchy prioritizes inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[182] Financial Instruments Not Measured at Fair Value (March 31, 2024, Dollars in thousands) | Instrument | Carrying Value | Estimated Fair Value (Total) | Level 1 | Level 2 | Level 3 | |:---|---:|---:|---:|---:|---:| | Cash and short-term investments | $950,697 | $950,697 | $950,697 | $0 | $0 | | Investment securities held-to-maturity | $79,542 | $70,850 | $0 | $70,850 | $0 | | Loans and leases | $11,060,846 | $10,759,097 | $0 | $0 | $10,759,097 | | Deposits | $13,457,148 | $13,440,989 | $0 | $13,440,989 | $0 | | Long-term debt | $343,236 | $296,116 | $0 | $296,116 | $0 | - Investment securities available-for-sale are primarily valued using Level 2 inputs (independent valuation techniques like matrix pricing)[185] - Derivatives are classified as Level 2, based on net present value calculations using observable market inputs[189] - Collateral dependent loans, mortgage servicing rights, OREO, and operating leases are measured at fair value on a nonrecurring basis, often using Level 3 inputs (e.g., real estate appraisals, enterprise value calculations)[190][191][192][193][195][196][198] Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis (March 31, 2024, Dollars in thousands) | Instrument | Level 1 | Level 2 | Level 3 | Total | |:---|---:|---:|---:|---:| | Assets: | | Investment securities available-for-sale | $30,912 | $2,787,626 | $32,129 | $2,850,667 | | Loans held for sale | $0 | $11,534 | $0 | $11,534 | | Interest rate derivative contracts | $0 | $131,076 | $0 | $131,076 | | Foreign exchange derivative contracts | $0 | $162,496 | $0 | $162,496 | | Interest rate floor | $0 | $1,565 | $0 | $1,565 | | Liabilities: | | Interest rate derivative contracts | $0 | $131,323 | $0 | $131,323 | | Foreign exchange derivative contracts | $0 | $162,496 | $0 | $162,496 | | Interest rate collars | $0 | $170 | $0 | $170 | NOTE 18: BUSINESS COMBINATIONS This note details First Financial's acquisition of Agile Premium Finance on February 29, 2024, for $96.9 million in cash. The transaction, accounted for using the acquisition method, resulted in $1.8 million of goodwill and acquired assets of $97.8 million and liabilities of $2.7 million. Agile specializes in commercial loans for insurance premiums, complementing First Financial's specialty lending business - On February 29, 2024, First Financial acquired Agile Premium Finance in an all-cash transaction for $96.9 million[208][212] - Agile specializes in lending to commercial customers to finance insurance premiums, with loans secured by unearned premiums and an average term of approximately ten months[111][208] - The acquisition resulted in $1.8 million of goodwill, reflecting expected additional revenue growth from expansion into insurance premium financing[111][209][212] Agile Premium Finance Purchase Price Allocation (Dollars in thousands) | Item | Amount | |:---|---:| | Purchase consideration (Cash) | $96,887 | | Commercial loans acquired | $93,353 | | Premises and equipment acquired | $651 | | Intangible assets acquired | $3,797 | | Other liabilities assumed | $2,702 | | Goodwill | $1,788 | - The interim financial statements are unaudited and prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, and should be read in conjunction with the Company's 2023 Form 10-K[25] - Management believes these unaudited consolidated financial statements reflect all necessary normal recurring adjustments for a fair presentation of the interim results[25] ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides a comprehensive analysis of First Financial Bancorp.'s financial condition and results of operations for the three months ended March 31, 2024, compared to prior periods. It covers key financial metrics, market strategies, recent acquisitions, non-GAAP measures, net interest income, noninterest income and expenses, asset quality, liquidity, capital, and risk management EXECUTIVE SUMMARY First Financial Bancorp. is a $17.6 billion financial holding company operating primarily through First Financial Bank, offering diverse banking and financial services across six lines of business, including Commercial, Retail Banking, and Wealth Management, with $3.6 billion in assets under management - First Financial Bancorp. is a $17.6 billion financial holding company headquartered in Cincinnati, Ohio, operating through First Financial Bank with 130 full-service banking centers[215] - The company provides banking and financial services products to business and retail clients through its six lines of business: Commercial, Retail Banking, Mortgage Banking, Wealth Management, Investment Commercial Real Estate and Commercial Finance[215] - Wealth Management, operating under the brand of Yellow Cardinal Advisory Group, had $3.6 billion in assets under management as of March 31, 2024[215] MARKET STRATEGY First Financial's market strategy focuses on local market engagement to build long-term client relationships and leverage stable, low-cost funding from community markets in Ohio, Indiana, Kentucky, and Illinois. The company also utilizes specialty lending platforms and evaluates strategic acquisitions for product line extensions and revenue diversification - First Financial utilizes a local market focus to provide superior service and build long-term relationships with clients[217] - The company serves metropolitan and community markets in Ohio, Indiana, Kentucky, and Illinois, with community markets providing stable, low-cost funding sources[217] - Specialty lending platforms extend beyond the geographic footprint, offering insurance premium financing, equipment lease financing, and financing to franchise owners and financial services clients[218] - Future growth plans concentrate within current markets and evaluate additional growth opportunities in metropolitan markets or strategic acquisitions for product line extensions[219] BUSINESS COMBINATIONS First Financial completed the acquisition of Agile Premium Finance on February 29, 2024, for cash, integrating it as a division to expand its insurance premium financing business. This acquisition resulted in $1.8 million in goodwill. In 2023, the company also acquired Brady Ware Capital and Brady Ware Corporate Finance, generating $4.2 million and $0.1 million in goodwill, respectively, to expand advisory services - Acquired Agile Premium Finance on February 29, 2024, in an all-cash transaction, integrating it as a division of the Bank[220] - Agile specializes in commercial loans for property and casualty insurance, operating in all 50 states, and the acquisition resulted in $1.8 million of goodwill[220][222] - In Q1 2023, First Financial acquired Brady Ware Capital for $4.3 million, generating $4.2 million in goodwill, and later Brady Ware Corporate Finance, adding $0.1 million in goodwill, to expand advisory services[223] NON-GAAP FINANCIAL MEASURES First Financial utilizes non-GAAP financial measures, such as tax equivalent net interest income and tangible common equity ratios, to provide additional insight into its financial performance and capital adequacy. These measures complement GAAP figures and are useful for peer comparisons, reflecting income from tax-exempt assets and capital available to common shareholders without intangible assets - Non-GAAP measures provide useful insight and should be supplemental to primary GAAP measures, not substitutes[224] - Net interest income is presented on a tax equivalent basis (assuming a 21% marginal tax rate) to consistently reflect income from tax-exempt assets and facilitate peer comparisons[225] - Non-GAAP capital ratios, including return on average tangible shareholder's equity and tangible common equity ratio, evaluate capital utilization and adequacy by excluding intangible assets[226] Non-GAAP Capital Ratios Reconciliation (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | |:---|---:|---:|---:| | Net income | $50,689 | $56,732 | $70,403 | | Average tangible equity | $1,174,976 | $1,053,511 | $983,910 | | Ending tangible equity | $1,193,744 | $1,178,157 | $1,024,589 | | Ending tangible assets | $16,505,979 | $16,443,083 | $15,836,977 | | Return on average tangible shareholders' equity | 17.35% | 21.36% | 29.02% | | Ending tangible shareholders' equity as a percent of ending tangible assets | 7.23% | 7.17% | 6.47% | | Tangible book value per share | $12.50 | $12.38 | $10.76 | OVERVIEW OF OPERATIONS First Financial's net income for Q1 2024 was $50.7 million ($0.53 diluted EPS), a decrease from Q4 2023 ($56.7 million, $0.60 diluted EPS) and Q1 2023 ($70.4 million, $0.74 diluted EPS). Return on average assets and equity also declined both linked quarter and year-over-year Operating Results Overview (Dollars in thousands, except per share data) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | |:---|---:|---:|---:| | Net income | $50,689 | $56,732 | $70,403 | | Net income per common share-diluted | $0.53 | $0.60 | $0.74 | | Return on average assets | 1.18% | 1.31% | 1.69% | | Return on average shareholders' equity | 9.00% | 10.50% | 13.71% | | Net interest income | $148,740 | $153,765 | $159,318 | | Total assets (end of period) | $17,599,238 | $17,532,900 | $16,933,884 | | Loans and leases (end of period) | $11,205,120 | $10,933,176 | $10,511,232 | | Deposits (end of period) | $13,457,148 | $13,360,797 | $12,893,797 | NET INTEREST INCOME Net interest income for Q1 2024 was $148.7 million, a 3.3% decrease from Q4 2023, and a 6.6% decrease from Q1 2023. The net interest margin (FTE) declined to 4.10% in Q1 2024, primarily due to increased deposit pricing pressure and higher interest expense on deposits and borrowings, which outpaced the growth in interest income from earning assets Net Interest Income (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | |:---|---:|---:|---:| | Total Interest Income | $240,686 | $238,437 | $208,581 | | Total Interest Expense | $91,946 | $84,672 | $49,263 | | Net Interest Income | $148,740 | $153,765 | $159,318 | | Net Interest Margin (FTE) | 4.10% | 4.26% | 4.55% | - Linked quarter, net interest income decreased by $5.0 million (3.3%), and net interest margin (FTE) decreased by 16 basis points, driven by deposit pricing pressure[234] - Interest income increased by $2.2 million (0.9%) linked quarter due to a $273.9 million increase in average earning assets, with average loan balances up $315.2 million (2.9%)[235] - Interest expense increased by $7.3 million (8.6%) linked quarter due to higher interest rates and increases in average deposits and borrowings; total cost of interest-bearing deposits rose 23 bps to 3.02%[236] - Year-to-date, net interest income decreased by $10.6 million (6.6%), and net interest margin (FTE) decreased by 45 basis points, primarily due to a 158 bp increase in the cost of average interest-bearing deposits[239][241] CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS This section provides a detailed breakdown of First Financial's average balance sheet for Q1 2024, Q4 2023, and Q1 2023, illustrating the volume and rates of earning assets and interest-bearing liabilities. It highlights the increase in average earning assets and interest-bearing deposits, along with the rising cost of funds, which impacted net interest spread and margin Consolidated Average Balance Sheets and Net Interest Income Analysis (Dollars in thousands) | Metric | March 31, 2024 (Balance) | March 31, 2024 (Interest) | March 31, 2024 (Yield/Cost) | December 31, 2023 (Balance) | December 31, 2023 (Interest) | December 31, 2023 (Yield/Cost) | March 31, 2023 (Balance) | March 31, 2023 (Interest) | March 31, 2023 (Yield/Cost) | |:---|---:|---:|---:|---:|---:|---:|---:|---:|---:| | Earning Assets: | | Investment securities | $3,137,665 | $31,388 | 4.01% | $3,184,408 | $33,696 | 4.20% | $3,635,317 | $35,331 | 3.94% | | Gross loans and leases | $11,066,184 | $201,840 | 7.32% | $10,751,028 | $197,416 | 7.29% | $10,373,302 | $169,706 | 6.63% | | Total Earning Assets | $14,757,503 | $240,686 | 6.54% | $14,483,589 | $238,437 | 6.53% | $14,326,645 | $208,581 | 5.90% | | Interest-Bearing Liabilities: | | Interest-bearing demand | $2,895,768 | $14,892 | 2.06% | $2,988,086 | $14,480 | 1.92% | $2,906,712 | $6,604 | 0.92% | | Savings | $4,399,768 | $29,486 | 2.69% | $4,235,658 | $26,632 | 2.49% | $3,818,807 | $7,628 | 0.81% | | Time | $2,813,880 | $31,697 | 4.52% | $2,611,075 | $28,081 | 4.27% | $2,131,707 | $17,224 | 3.28% | | Total Interest-Bearing Deposits | $10,109,416 | $76,075 | 3.02% | $9,834,819 | $69,193 | 2.79% | $8,857,226 | $31,456 | 1.44% | | Short-term borrowings | $796,518 | $10,943 | 5.51% | $743,633 | $10,277 | 5.48% | $1,090,719 | $12,950 | 4.82% | | Long-term debt | $342,496 | $4,928 | 5.77% | $340,321 | $5,202 | 6.06% | $343,619 | $4,857 | 5.73% | | Total Interest-Bearing Liabilities | $11,248,430 | $91,946 | 3.28% | $10,918,773 | $84,672 | 3.08% | $10,291,564 | $49,263 | 1.94% | | Net interest spread | | | 3.26% | | | 3.45% | | | 3.96% | | Net interest margin | | | 4.05% | | | 4.21% | | | 4.51% | RATE/VOLUME ANALYSIS This analysis quantifies the impact of changes in interest rates and asset/liability volumes on First Financial's net interest income. For Q1 2024, a decrease in rates negatively impacted net interest income by $5.9 million linked quarter and $17.6 million year-over-year, while volume changes had a positive but smaller effect Rate/Volume Analysis on Net Interest Income (Dollars in thousands) | Component | Linked Quarter Income Variance (Rate) | Linked Quarter Income Variance (Volume) | Linked Quarter Income Variance (Total) | Comparable Quarter Income Variance (Rate) | Comparable Quarter Income Variance (Volume) | Comparable Quarter Income Variance (Total) | |:---|---:|---:|---:|---:|---:|---:| | Earning Assets: | | Investment securities | $(1,490) | $(818) | $(2,308) | $636 | $(4,579) | $(3,943) | | Gross loans and leases | $831 | $3,593 | $4,424 | $17,417 | $14,717 | $32,134 | | Total Earning Assets | $(519) | $2,768 | $2,249 | $18,746 | $13,359 | $32,105 | | Interest-Bearing Liabilities: | | Total interest-bearing deposits | $5,629 | $1,253 | $6,882 | $34,464 | $10,155 | $44,619 | | Total borrowed funds | $(199) | $591 | $392 | $1,903 | $(3,839) | $(1,936) | | Total Interest-Bearing Liabilities | $5,430 | $1,844 | $7,274 | $36,367 | $6,316 | $42,683 | | Net Interest Income | $(5,949) | $924 | $(5,025) | $(17,621) | $7,043 | $(10,578) | NONINTEREST INCOME First Financial's noninterest income for Q1 2024 was $46.5 million, a 1.0% decrease linked quarter and a 16.3% decrease year-over-year. The linked-quarter decline was driven by increased losses on investment securities sales (due to portfolio repositioning) and lower limited partnership income, partially offset by higher leasing business income and foreign exchange income. The year-over-year decrease was primarily due to lower foreign exchange income and higher investment security losses Noninterest Income (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | |:---|---:|---:|---:| | Service charges on deposit accounts | $6,912 | $6,846 | $6,514 | | Wealth management fees | $6,676 | $6,091 | $6,334 | | Bankcard income | $3,142 | $3,349 | $3,592 | | Client derivative fees | $1,250 | $711 | $1,005 | | Foreign exchange income | $10,435 | $8,730 | $16,898 | | Leasing business income | $14,589 | $12,856 | $13,664 | | Net gain from sales of loans | $3,784 | $2,957 | $2,335 | | Net gain (loss) on sales of investment securities | $(5,277) | $(851) | $(19) | | Net gain (loss) on equity securities | $90 | $202 | $140 | | Other | $4,911 | $6,102 | $5,080 | | Total Noninterest Income | $46,512 | $46,993 | $55,543 | - Losses on the sale of investment securities increased by $4.4 million linked quarter due to a strategic repositioning of $228.8 million of the investment portfolio, expected to result in a 278 bp yield increase and a 1-year earn-back[245] - Leasing business income increased $1.7 million (13.5%) linked quarter due to higher volumes and remarketing fees[245] - Foreign exchange income decreased $6.5 million (38.2%) year-over-year due to lower demand in 2024[246] - Gains on sales of loans increased $1.4 million (62.1%) year-over-year due to increased mortgage demand from stabilized interest rates[247] NONINTEREST EXPENSE First Financial's noninterest expense for Q1 2024 was $122.4 million, a 2.7% increase linked quarter and a 4.9% increase year-over-year. The linked-quarter rise was driven by higher salaries and benefits (due to seasonal costs and variable compensation), other noninterest expense (pension-related costs), and leasing business expense, partially offset by lower FDIC assessments and professional services. Year-over-year, increases were seen in other noninterest expense (fraud losses, pension costs), salaries and benefits, and leasing business expense, partially offset by lower data processing expenses Noninterest Expenses (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | |:---|---:|---:|---:| | Salaries and employee benefits | $74,037 | $70,637 | $72,254 | | Net occupancy | $5,923 | $5,890 | $5,685 | | Furniture and equipment | $3,688 | $3,523 | $3,317 | | Data processing | $8,305 | $8,488 | $9,020 | | Marketing | $1,962 | $2,087 | $2,160 | | Communication | $795 | $707 | $634 | | Professional services | $2,268 | $3,148 | $1,946 | | State intangible tax | $877 | $984 | $985 | | FDIC assessments | $2,780 | $3,651 | $2,826 | | Intangible assets amortization | $2,301 | $2,601 | $2,600 | | Leasing business expense | $9,754 | $8,955 | $7,938 | | Other | $9,665 | $8,466 | $7,328 | | Total Noninterest Expenses | $122,355 | $119,137 | $116,693 | - Salaries and benefits increased $3.4 million (4.8%) linked quarter due to seasonal employee costs (annual raises, payroll taxes) and higher variable compensation[248] - Other noninterest expenses increased $1.2 million (14.2%) linked quarter due to higher pension-related costs[248] - FDIC assessments decreased $0.9 million (23.9%) linked quarter, largely due to a special assessment recorded in Q4 2023[248] - Year-over-year, other noninterest expense increased $2.3 million (31.9%) due to a $0.8 million increase in fraud losses and a $0.5 million increase in pension-related costs[249] INCOME TAXES First Financial's income tax expense for Q1 2024 was $11.0 million, resulting in an effective tax rate of 17.9%. This is lower than Q4 2023 (20.5%) and Q1 2023 (19.7%), primarily driven by tax credits realized in 2024 and lower taxable income Income Tax Expense and Effective Tax Rate (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | |:---|---:|---:|---:| | Income tax expense | $11,048 | $14,700 | $17,286 | | Pre-tax income | $61,700 | $71,400 | $87,700 | | Effective tax rate | 17.9% | 20.5% | 19.7% | - The lower effective tax rate in 2024 is primarily driven by tax credits realized and lower taxable income[250][251] - The effective tax rate may fluctuate due to changes in tax jurisdictions, forecasted income, tax-enhanced assets, and tax credit investments[252] INVESTMENTS First Financial's investment portfolio totaled $3.1 billion (17.4% of total assets) at March 31, 2024, with an effective duration of 4.6 years. The company incurred $5.2 million in losses from investment securities sales in Q1 2024 due to a strategic repositioning, which is expected to increase future yield. Unrealized after-tax losses on debt securities were $289.1 million, primarily due to rising interest rates Investment Portfolio Summary (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | Total investment portfolio | $3,055,757 | $3,231,392 | | AFS securities | $2,850,667 | $3,021,126 | | HTM securities | $79,542 | $80,321 | | Effective duration | 4.6 years | 4.6 years | | Unrealized after-tax loss on debt securities | $(289,100) | $(282,000) | | Net unrealized losses on HTM securities | $(8,700) | $(8,600) | - Losses on the sale of investment securities were $5.2 million in Q1 2024, largely from a strategic repositioning of $228.8 million of the portfolio, expected to increase future yield by 278 bps with a 1-year earn-back[255] - Unrealized losses on debt securities (AFS and HTM) were primarily driven by an increase in interest rates[256][257] LOANS AND LEASES First Financial's loan and lease balances, excluding held for sale, increased by $271.9 million (2.5%) to $11.2 billion as of March 31, 2024, driven by growth in C&I (including Agile loans), construction, commercial real estate, and lease financing. The portfolio is diversified, with specific attention to concentrations in commercial office space, which represents 3.9% of total loans Loan and Lease Balances (Dollars in thousands) | Category | March 31, 2024 | December 31, 2023 | Change (QoQ) | % Change (QoQ) | |:---|---:|---:|---:|---:| | Total Loans and Leases (excluding held for sale) | $11,205,120 | $10,933,176 | $271,944 | 2.49% | | C&I loans | $3,591,428 | $3,501,221 | $90,207 | 2.58% | | Construction loans | $641,596 | $564,832 | $76,764 | 13.59% | | Commercial real estate loans | $4,145,969 | $4,080,939 | $65,030 | 1.59% | | Lease financing | $492,862 | $474,817 | $18,045 | 3.80% | | Home equity | $773,811 | $758,676 | $15,135 | 1.99% | | Residential real estate loans | $1,344,677 | $1,333,674 | $11,003 | 0.83% | | Installment loans | $153,838 | $159,078 | $(5,240) | -3.29% | - C&I loan growth was largely due to $118.6 million of Agile loans added during the period[260] - Average loans for Q1 2024 increased $315.6 million (2.9%) linked quarter and $0.7 billion (6.6%) year-over-year, reflecting broad-based growth[261][262] - Commercial office space loans totaled $439.4 million (3.9% of total loans) at March 31, 2024, with 83.8% pass rated and two relationships totaling $17.4 million on nonaccrual status[265] COMMITMENTS AND CONTINGENCIES First Financial's off-balance sheet arrangements include $4.4 billion in loan commitments and $37.0 million in letters of credit as of March 31, 2024. The company also participates in risk participation agreements for interest rate swaps ($326.2 million notional) and invests in tax-advantaged projects with $95.7 million in unfunded commitments. No reserves for litigation matters were recorded - Outstanding commitments to extend credit, including overdraft lending lines, totaled $4.4 billion at March 31, 2024, with $4.3 billion having variable interest rates[266] - Letters of credit aggregated $37.0 million at March 31, 2024, primarily performance assurances[267] - Risk participation transactions of interest rate swaps had a total notional amount of $326.2 million at March 31, 2024[268] - Unfunded commitments related to affordable housing and other tax credit investments were $95.7 million at March 31, 2024[270] - No reserves related to litigation matters were established as of March 31, 2024, or December 31, 2023[271] ASSET QUALITY AND ALLOWANCE FOR CREDIT LOSSES First Financial's asset quality showed a decrease in nonaccrual loans to $59.2 million (0.53% of total loans) at March 31, 2024, but an increase in classified assets to $162.3 million (92 bps of total assets). The Allowance for Credit Losses (ACL) for loans and leases increased to $144.3 million (1.29% of loans), driven by loan growth and slower prepayment speeds. Net charge-offs for Q1 2024 were $10.6 million, and provision expense was $13.4 million Asset Quality Metrics (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | Nonaccrual loans | $59,237 | $65,753 | | Nonperforming assets | $59,398 | $65,859 | | Classified assets | $162,348 | $140,995 | | ACL on loans and leases | $144,274 | $141,433 | | ACL on unfunded commitments | $16,200 | $18,400 | | Total ACL | $160,400 | $159,900 | - Nonaccrual loans decreased by $6.5 million (9.9%) due to a $4.5 million charge-off related to a commercial real estate relationship[273] - Classified assets increased primarily due to the downgrade of one CRE relationship and one C&I relationship[274] - ACL as a percentage of period-end loans was 1.29% at both March 31, 2024, and December 31, 2023[280] - Net charge-offs for Q1 2024 were $10.6 million (38 bps annualized), compared to $12.6 million (46 bps) in Q4 2023[281] - Provision expense for loans and leases was $13.4 million in Q1 2024, driven by net charge-offs and loan growth[283] DEPOSITS AND FUNDING Total deposits increased by $96.4 million (0.7%) to $13.5 billion at March 31, 2024, with a shift towards higher-cost interest-bearing deposits like money market accounts and retail CDs. Uninsured deposits were $5.5 billion (40.5% of total), or $3.2 billion (24.0% adjusted). Borrowed funds decreased to $1.2 billion due to deposit increases and investment securities decreases, with FHLB short-term borrowings at $700.0 million Deposit and Funding Summary (Dollars in thousands) | Metric | March 31, 2024 | December 31, 2023 | |:---|---:|---:| | Total deposits | $13,457,148 | $13,360,797 | | Time deposits | $2,896,860 | $2,718,390 | | Savings deposits | $4,467,894 | $4,331,228 | | Noninterest-bearing deposits | $3,175,876 | $3,317,960 | | Interest-bearing demand deposits | $2,916,518 | $2,993,219 | | Uninsured deposit balances | $5,500,000 | $5,400,000 (approx.) | | Adjusted uninsured deposits (excluding public funds and intercompany) | $3,200,000 | $3,100,000 (approx.) | | Total borrowed funds | $1,205,381 | $1,281,929 | | FHLB short-term borrowings | $700,000 | $800,000 | - The deposit mix shifted to higher-cost interest-bearing deposits, with time deposits increasing $178.5 million (6.6%) and savings deposits increasing $136.7 million (3.2%)[289] - Borrowed funds declined due to increases in deposits combined with decreases in investment securities[294] - First Financial maintains diverse funding sources, including Fed Funds, the Fed discount window, brokered CDs, FHLB borrowings, and deposit placement services[293] LIQUIDITY First Financial manages liquidity through deposit growth, loan/investment payments, and wholesale funding. The company maintains investment-grade credit ratings (Kroll Bond Rating Agency) and has $6.3 billion pledged to FHLB, $1.4 billion in unpledged AFS securities, and $5.2 billion in unused wholesale funding capacity. Cash at the parent company was $151.8 million, with $206.3 million of Bank retained earnings available for distribution - Liquidity is derived primarily from deposit growth, principal and interest payments on loans and investment securities, maturing assets, and access to wholesale funding sources[297] - First Financial and First Financial Bank received investment-grade credit ratings from Kroll Bond Rating Agency, Inc[299] Credit Ratings (March 31, 2024) | Rating Type | First Financial Bancorp | First Financial Bank | |:---|:---|:---| | Senior Unsecured Debt | BBB+ | A | | Subordinated Debt | BBB | BBB+ | | Short-Term Debt | K2 | K2 | | Deposit | N/A | A | | Short-Term Deposit | N/A | K2 | - Pledged $6.3 billion of eligible loans and securities as collateral for FHLB borrowings, with $632.9 million remaining borrowing capacity[299][295] - $1.4 billion of AFS securities were unpledged, with $390.8 million available to be sold at breakeven and $472.1 million floating-rate securities with minimal losses[300] - Unused and available overnight wholesale funding sources totaled $5.2 billion (29.4% of total assets)[302] - Cash at the parent company was $151.8 million, and $206.3 million of the Bank's retained earnings were available for distribution without prior regulatory approval[304] CAPITAL First Financial maintains strong capital adequacy, exceeding all Basel III requirements. At March 31, 2024, its Common Equity Tier 1 ratio was 11.67%, Tier 1 capital ratio was 12.00%, Total capital ratio was 14.31%, and Leverage ratio was 9.75%. The company is categorized as 'well-capitalized' and had $516.7 million in excess regulatory capital. A $0.23 per common share dividend was paid, and a new 2024 Stock Repurchase Plan authorized the purchase of up to 5 million shares, with no repurchases in Q1 2024 - First Financial met all capital adequacy requirements and was categorized as 'well-capitalized' under regulatory frameworks[311] Capital Ratios (Consolidated, March 31, 2024, Dollars in thousands) | Ratio | Actual Capital Amount | Actual Ratio | Minimum Required (Basel III) | PCA Requirement (Well Capitalized) | |:---|---:|---:|---:|---:| | Common equity Tier 1 capital to risk-weighted assets | $1,582,113 | 11.67% | 7.00% | N/A | | Tier 1 capital to risk-weighted assets | $1,626,899 | 12.00% | 8.50% | N/A | | Total capital to risk-weighted assets | $1,940,762 | 14.31% | 10.50% | N/A | | Leverage ratio | $1,626,899 | 9.75% | 4.00% | N/A | - Total regulatory capital exceeded the minimum requirement by $516.7 million on a consolidated basis[311] - A dividend of $0.23 per common share was paid on March 15, 2024, and another $0.23 dividend was authorized for June 17, 2024[315] - The 2024 Stock Repurchase Plan authorized the purchase of up to 5,000,000 shares, with no repurchases made in Q1 2024[316] - Total shareholders' equity was $2.3 billion at March 31, 2024[317] ENTERPRISE RISK MANAGEMENT First Financial employs a structured Enterprise Risk Management (ERM) approach to assess, identify, and mitigate various risks, including credit, market (interest rate, liquidity, capital, foreign exchange, financial), operational, compliance, strategic, reputation, information technology, cyber, and legal risks - First Financial manages risk through a structured ERM approach that routinely assesses the overall level of risk, identifies specific risks, and evaluates mitigation actions[319] - The ERM framework monitors credit, market (interest rate, liquidity, capital, foreign exchange, financial), operational, compliance, strategic, reputation, information technology, cyber, and legal risks[319] [CREDIT RISK](index=68&type=sec