FIRST FINANCIAL BANCORP annual report, FY2020

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First Financial Bancorp. — 2020 Form 10-K

Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020; it is not a standalone fourth-quarter report. First Financial is an Ohio-based regional bank holding company operating through First Financial Bank and related businesses, with core banking markets in Ohio, Indiana, Kentucky and Illinois and specialty lending and foreign-exchange operations nationally.

Financial and operating highlights

  • Credit costs: The company recorded a $70.6 million provision for credit losses during 2020, primarily attributed to COVID-19. It adopted CECL in the first quarter; allowances, including unfunded commitment reserves, rose $73.7 million at January 1, 2020, with a corresponding reduction in retained earnings.
  • COVID-19 lending: At year-end, approximately 4,900 PPP loans had $594.6 million in balances, net of $13.7 million in unearned fees. Loans with payment deferrals totaled $320.2 million, or 3.2% of the portfolio: $291.5 million were temporarily interest-only and $28.7 million received temporary relief from principal and interest payments.
  • Debt and liquidity: Reported indebtedness was $942.8 million at December 31, 2020. The Bank had $198.0 million available to pay dividends to the holding company without prior regulatory approval. The filing states the Bank met the regulatory capital ratios to be considered well-capitalized, but this excerpt does not provide the actual ratios.
  • Other business measures: Assets under management were $3.0 billion at year-end. First Financial became subject to the Durbin Amendment in July 2019; it reduced 2020 noninterest income by $11.8 million.
  • Revenue, earnings, cash flow and margins: This filing excerpt incorporates the detailed financial statements and MD&A by reference but does not provide clear values for 2020 revenue, net income, operating cash flow, net interest margin or comparable 2019 figures. Their year-over-year changes therefore cannot be assessed from the supplied text.

Changes versus the prior comparable period

  • The company’s 2020 results were substantially influenced by the pandemic, relief programs and elevated credit-loss provisioning. The excerpt does not provide sufficient comparable-period totals to quantify changes in earnings, revenue, cash flow, loan growth, margins or liquidity.
  • CECL adoption produced a $73.7 million opening allowance increase and retained-earnings reduction on January 1, 2020. Regulatory capital effects were subject to a transition relief period.
  • Durbin-related noninterest income reduction was $11.8 million in 2020; the filing notes the company became subject to the rule in July 2019.

Outlook, risks and unusual items

  • Management describes the pandemic’s effects on borrowers, credit quality, collateral values, deposits, capital, liquidity, revenue and expenses as uncertain. It highlights exposures including retail commercial real estate ($875.2 million), residential real estate ($1.0 billion), franchise lending ($423.8 million) and hospitality ($433.0 million), each as of year-end.
  • The filing gives no numerical earnings or margin guidance in the supplied text. It identifies interest-rate movements, economic and real-estate weakness, CECL estimates, deposit competition, cybersecurity and third-party service providers, and the LIBOR transition as material risks.
  • The company contributed $1.0 million in the first quarter of 2020 to agencies supporting COVID-19 relief. It also continued remote and digital operating measures and client relief programs.
  • Management stated pending litigation was not expected to be material to consolidated financial position or results of operations, while noting ultimate liability could not be determined for certain matters.

Important facts for investors to verify

  • Review the incorporated 2020 Annual Report and audited financial statements for full-year and quarterly revenue, net income, diluted EPS, cash flow, net interest margin and prior-year comparisons.
  • Check the detailed loan-quality disclosures, allowance for credit losses, charge-offs, criticized/classified assets and subsequent performance of deferred and PPP loans.
  • Verify actual year-end capital ratios, liquidity and funding measures, and the terms and maturities of the reported $942.8 million of indebtedness.
  • Assess the sensitivity of earnings and credit quality to the pandemic, interest rates, and the disclosed commercial real estate and hospitality exposures.
  • Review dividend capacity and the new authorization to repurchase up to 5 million shares, effective January 1, 2021; future dividends remain subject to board discretion and regulatory limits.