First Financial Bancorp. — Q2 2023 Form 10-Q
Business context and reporting period. First Financial Bancorp. is an Ohio-based financial holding company operating primarily in Ohio, Indiana, Kentucky and Illinois. It reported unaudited results for the quarter and six months ended June 30, 2023. The company had $17.1 billion in assets and 130 full-service banking centers at quarter-end.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net interest income | $159.2 million | $117.0 million | $318.6 million | $223.4 million |
| Net income | $65.7 million | $51.5 million | $136.1 million | $92.8 million |
| Diluted EPS | $0.69 | $0.55 | $1.43 | $0.98 |
| Net interest margin | 4.43% GAAP; 4.48% FTE | Not presented here | 4.47% GAAP; 4.51% FTE | 3.26% GAAP; 3.31% FTE |
Revenue, costs and credit provision. Q2 total interest income rose to $223.9 million from $126.2 million a year earlier, while interest expense increased to $64.7 million from $9.1 million. Q2 noninterest income was $53.3 million, up from $49.8 million; noninterest expense was $120.6 million, up from $103.0 million. The company recorded $12.7 million of loan and lease credit-loss provision in Q2, compared with a $4.3 million provision recapture in Q2 2022. Six-month operating cash flow was $279.1 million, investing cash outflow was $241.2 million, and financing cash outflow was $27.9 million.
Balance sheet and funding. At June 30, total assets were $17.09 billion, loans and leases were $10.55 billion, deposits were $12.79 billion and shareholders’ equity was $2.14 billion. Compared with December 31, 2022, loans grew 2.4% and deposits grew 0.7%. Total borrowed funds were $1.56 billion, including $1.05 billion of short-term FHLB borrowings; long-term debt was $340.0 million. Cash and due from banks totaled $217.4 million, with $485.2 million of interest-bearing deposits at other banks.
Liquidity and capital. Management reported $5.0 billion of unused overnight wholesale funding capacity and $1.7 billion of unpledged AFS securities. Adjusted uninsured deposits, excluding public funds and intercompany accounts, were $2.5 billion, or 19.8% of deposits. Consolidated regulatory capital ratios were 11.30% CET1, 11.64% Tier 1, 13.94% total capital and 9.33% leverage; management said the company remained well-capitalized. The tangible common equity ratio, a non-GAAP measure, was 6.56%.
Material changes and notable items
- Compared with Q2 2022, net income increased 27.5% and diluted EPS rose from $0.55 to $0.69. Six-month net income increased to $136.1 million from $92.8 million.
- Quarterly net interest margin (FTE) declined to 4.48% from 4.55% in Q1 2023 as deposit pricing pressure drove interest expense growth to outpace interest income growth. The average cost of deposits reached 1.40% in Q2.
- Deposit mix shifted toward higher-cost funding: time deposits increased $784.1 million from year-end, primarily due to brokered CDs, while noninterest-bearing deposits declined $530.0 million.
- Nonaccrual loans rose to $53.7 million, or 0.51% of loans, from $28.6 million at year-end; management attributed the increase primarily to downgrades of two large relationships. Nonperforming assets were $54.0 million, or 0.32% of assets. The allowance for loan and lease losses was $148.6 million, or 1.41% of loans, versus $133.0 million, or 1.29%, at year-end.
- The AFS securities portfolio had $412.4 million of gross unrealized losses at June 30; the company reported a $320.3 million after-tax unrealized loss on debt securities in AOCI. Management said it did not intend, and was not more likely than not required, to sell the securities before recovery and recorded no AFS credit-loss reserve.
- First Financial acquired Brady Ware Capital and Brady Ware Corporate Finance in 2023, recording approximately $4.3 million of goodwill. The acquisition fair-value measurements remain subject to refinement.
Outlook, risks and contingencies
No specific numerical earnings or revenue guidance is provided in the filing. Management described the balance sheet as asset-sensitive: its model estimated that an immediate +100 basis-point rate shock would increase Year 1 net interest income by 4.37%, while a -100 basis-point shock would reduce it by 6.16%. Management cautioned that further deposit-cost increases could moderate asset sensitivity and described ongoing monitoring of loan and deposit trends and liquidity.
Key exposures include rising deposit costs and reliance on wholesale funding, deterioration in credit quality (including franchise, hotel and investor commercial real estate exposures), interest-rate and securities valuation risk, and broader economic, regulatory, operational and cyber risks. Commitments to extend credit totaled $4.5 billion; letters of credit totaled $32.2 million. Litigation includes overdraft-fee claims and other ordinary-course matters; the company had no litigation reserves at June 30 and said any liabilities were not considered probable or reasonably estimable. It recorded a $1.0 million tax-credit investment write-down in Q2 and reported no legal settlement expense in the first half of 2023.
Shareholders received a $0.23 per-share dividend in June; the board authorized another $0.23 dividend payable in September. No shares were repurchased under the 2022 repurchase plan during the first half of 2023. Management stated that disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification points
- Track deposit composition, brokered-CD usage, deposit pricing and the resulting net interest margin.
- Monitor the two downgraded borrower relationships, nonaccrual loan trends, charge-offs and adequacy of the credit-loss allowance.
- Assess liquidity and funding capacity alongside the $4.6 billion of uninsured deposits, FHLB borrowing and the securities portfolio’s unrealized losses.
- Review the timing and realization of Brady Ware acquisition benefits, related goodwill adjustments and any further tax-credit investment write-downs.
- Confirm future dividend and capital decisions, and monitor the stated rate sensitivity as deposit repricing assumptions evolve.