First Financial Bancorp. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. First Financial Bancorp. is an Ohio-based regional bank holding company operating through First Financial Bank, with banking markets primarily in Ohio, Indiana, Kentucky and Illinois and specialty finance and foreign-exchange businesses serving broader markets.
Financial performance and condition
The supplied filing text incorporates the detailed financial statements and management’s discussion from the 2022 Annual Report, but does not reproduce them. Accordingly, annual revenue, net income, earnings per share, operating cash flow, total assets, loan and deposit balances, and full liquidity measures are not clearly provided here.
- Net interest margin: Fully tax-equivalent margin increased from 3.31% in 2021 to 3.77% in 2022. The filing attributes the increase to a 71-basis-point rise in earning-asset yields, partly offset by a 36-basis-point rise in the cost of interest-bearing liabilities.
- Rate sensitivity: The Federal Reserve’s 425-basis-point increase in the target federal funds rate during 2022 reportedly contributed $67.0 million of incremental net income. Management describes the balance sheet as asset sensitive.
- Credit costs: The company recorded $6.7 million of provision for credit losses in 2022, versus a $19.0 million provision reversal in 2021. The 2022 charge reflected loan growth and longer portfolio duration as rates rose.
- Securities and equity: Accumulated other comprehensive loss increased from $0.4 million in 2021 to $358.7 million in 2022, primarily from lower fair values of available-for-sale securities.
- Debt and liquidity: The company reported $1.6 billion of indebtedness at year-end. The Bank had $219.3 million available to pay dividends to the holding company without prior regulatory approval. Other detailed liquidity measures are not clearly stated in the supplied text.
- Capital: The Bank met regulatory requirements to be classified as “well-capitalized” at December 31, 2022; specific year-end capital ratios are not included in the supplied text.
Changes versus the prior comparable period
- Net interest margin improved year over year amid rapid rate increases; interest expense also rose as funding costs increased.
- Provision expense shifted from a $19.0 million reversal in 2021 to a $6.7 million charge in 2022.
- Unrealized securities losses materially increased accumulated other comprehensive loss, a notable offset to reported capital and equity measures.
- PPP balances fell to $3.0 million, net of $0.1 million of unearned fees, from $55.6 million, net of $2.6 million, at year-end 2021. No loans remained in payment deferral at year-end 2022, compared with $16.5 million a year earlier.
- Summit Funding Group, acquired in December 2021 for approximately $127.1 million in aggregate consideration, operated as an equipment-finance subsidiary during 2022; the supplied text does not quantify its contribution to 2022 results.
Outlook, risks and other notable matters
- Management noted that further rate increases were projected for 2023, but the amount and duration were uncertain. No specific earnings or revenue guidance is stated in the supplied text.
- Key risks include credit deterioration from economic weakness, inflation, higher rates or declining real-estate values; deposit competition and higher funding costs; securities valuation and interest-rate exposure; and reliance on capital-market and wholesale funding.
- The company highlighted cybersecurity, third-party service-provider, operational, regulatory, and acquisition-integration risks. It stated that it did not anticipate material issues completing the transition away from LIBOR by June 30, 2023.
- COVID-related lending assistance had substantially wound down. The filing also notes potential SBA guarantee exposure if PPP loan origination, funding or servicing deficiencies were identified.
- Pending litigation is described as ordinary-course matters; management believes amounts relating to pending matters are not likely to be material to consolidated financial position or results of operations.
- The company reported effective disclosure controls and procedures and no material changes in internal control over financial reporting during the period.
Important facts for investors to verify
- Consult the incorporated Annual Report for audited revenue, net income, EPS, cash flows, balance-sheet totals, asset-quality measures, and complete capital and liquidity ratios.
- Review deposit composition, uninsured deposits, deposit pricing and sensitivity to continued competition for funding.
- Assess the scale and duration of unrealized securities losses, their effect on tangible equity and capital, and management’s liquidity plans if securities sales become necessary.
- Review loan concentrations, delinquencies, nonperforming assets, charge-offs, and allowance assumptions, especially for commercial real estate and specialty lending.
- Confirm the sustainability of the 2022 margin and earnings benefit from rising rates, alongside the effect of higher deposit costs and any subsequent rate changes.
- Check Summit’s post-acquisition performance, integration progress, and contribution to earnings and credit exposure.