First Financial Bancorp.(FFBC) - 2019 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted earnings for Q1 2019 were $0.48 per share, with a return on average assets of 1.38% and a return on average tangible common equity of 16.45% [7][16] - The efficiency ratio was reported at sub 52% when adjusted for merger-related items, reflecting disciplined expense management [7][10] - Net interest margin on a fully tax equivalent basis declined by 11 basis points to 4.10% due to fewer loan fees and expected declines in purchase accounting accretion [17][24] Business Line Data and Key Metrics Changes - Loan origination activity increased by 8% over the linked quarter, reaching its highest level since the merger, with notable growth in investment and commercial real estate business lines [19][26] - The loan portfolio growth was offset by continued payoff headwinds within the commercial construction portfolio [8] - Average deposit balances increased by $18 million, driven by retail and brokerage CD growth, despite seasonal declines in public funds and business DDA [20][27] Market Data and Key Metrics Changes - The yield on securities increased by 14 basis points, while loan yields declined by 4 basis points, and the cost of deposits increased by 10 basis points [18][25] - Credit quality metrics were negatively impacted by an isolated franchise charge-off, resulting in net charge-offs of 64 basis points as a percentage of total loans [21][28] Company Strategy and Development Direction - The company aims for low to mid single-digit loan growth for Q2 2019, with long-term targets of mid to high single-digit growth [32][36] - The management is focused on strategic acquisitions, particularly in fee-based businesses, while also evaluating capital strategies to support planned growth [36][63] - The company remains optimistic about future growth potentials, despite recent challenges in loan growth expectations [32][41] Management's Comments on Operating Environment and Future Outlook - Management expressed a stable near-term credit outlook and anticipated a rebound in fee income in the range of $29 million to $31 million for the next quarter [34][54] - The company expects expenses to increase slightly, with an efficiency ratio projected in the 50% to 52% range for the next quarter [35][36] - Management acknowledged the need for quicker action when signs of stress appear in long-term borrower relationships, emphasizing a more proactive approach [51] Other Important Information - The company reported a 10-year history in lending to quick-serve restaurant franchisees, with a granular franchise portfolio averaging $3.4 million per relationship [11][12] - Capital ratios continued to expand and remain above stated targets, with a tangible common equity of $1.1 billion [31][29] Q&A Session Summary Question: Loan growth visibility and acceleration - Management noted an 8% increase in commitments, with significant growth in commercial banking and investment real estate commitments, indicating positive momentum [40][41] Question: Core margin pressures - The primary driver of margin pressure is on the funding side, with deposit costs expected to increase slightly [43][44] Question: Franchise charge-off review process - Management emphasized the need for quicker action when signs of borrower stress appear, learning from the recent franchise charge-off experience [51] Question: Provision outlook - Management indicated that provisions would return to pre-first quarter levels, covering charge-offs and supporting growth [54] Question: Capital management and buyback strategy - Management discussed timing issues regarding share buybacks and indicated a willingness to consider buybacks depending on stock price levels [60][61] Question: Strategic acquisitions - Management is open to considering smaller acquisitions that add strategic value, particularly in adjacent markets [63]