First Financial Bancorp.(FFBC) - 2021 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported adjusted earnings per share of $0.58, a return on assets of 1.34%, and an efficiency ratio of 60.2% for Q4 2021 [8][17] - There was a significant provision recapture of$ 7.7 million, reflecting improved credit quality trends, with classified assets decreasing by 36.7% [8][26] - Core loan growth was approximately $149 million or 6.3% annualized, marking the strongest quarter of the year [11][13] Business Line Data and Key Metrics Changes - Fee revenue was strong, driven by record foreign exchange income from the Bannockburn unit, which offset a seasonal drop in mortgage income [9][14] - Loan origination activity improved to record levels, approximately 27% higher than Q3, with commercial groups leading the growth [9][11] - Non-interest expenses increased due to elevated incentive compensation tied to higher fee income and overall company performance [15][25] Market Data and Key Metrics Changes - Average deposit balances increased by$ 218 million during the quarter, primarily from non-interest bearing deposits and public funds [22] - The net interest margin declined by 9 basis points to 3.23%, primarily due to lower asset yields and a decline in PPP forgiveness fees [18][20] Company Strategy and Development Direction - The company completed the acquisition of Summit Funding Group, which is expected to provide significant growth opportunities and enhance its lending platform [6][7] - The company anticipates loan demand to remain strong, especially in commercial businesses, with expected mid-single-digit growth in loan balances excluding PPP and Summit [30] - The focus remains on executing core strategies, delivering exceptional service, and capitalizing on momentum achieved in 2021 [35] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's prospects for growth in 2022, particularly in a rising interest rate environment [36] - The company expects further improvement in credit quality trends and additional provision recapture in the near term, albeit at a slower pace than in the latter half of 2021 [33][34] - Management noted that the acquisition of Summit is expected to have a minimal impact on 2022 earnings initially, with a stronger contribution anticipated as the year progresses [34][52] Other Important Information - The company paused its share repurchase program due to the Summit acquisition but has authorized an additional 5 million shares for repurchase in the future [15][29] - Non-interest income for Q4 remained elevated, driven by strong performance in Bannockburn and wealth management [23] Q&A Session Summary Question: Margin stability and impact of rate hikes - Management indicated that without rate hikes, the margin would remain relatively flat, but each 25 basis point hike could initially increase the margin by about 8 basis points [39][40] Question: Deposit beta assumptions - The overall weighted beta for deposits is expected to be around 20%, with higher betas for money market accounts and public funds [42] Question: Loan sales strategy - The decision to sell hotel loans was based on portfolio risk assessment, focusing on properties with higher short and medium-term risks [44][45] Question: Efficiency ratio outlook - The efficiency ratio is expected to rise slightly without rate hikes but could improve significantly with anticipated rate increases [47][48] Question: Summit acquisition impact - The acquisition is expected to initially have a slight negative impact on EPS due to fixed costs and amortization, but should become neutral as the balance sheet builds [52] Question: Overdraft policy changes - The company has lowered overdraft fees and increased the cushion before overdraft charges, anticipating an 8% to 10% decline in overdraft revenue [67][68]