First Financial Bancorp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. First Financial is a bank holding company operating primarily in Ohio, Indiana, Kentucky and Illinois. Dollar amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2022 | Comparison |
|---|---|---|
| Net interest income | $106.3 | Down 6.6% year over year; down $4.5 from Q4 2021 |
| Net interest margin (fully tax-equivalent) | 3.17% | 3.40% in Q1 2021; 3.23% in Q4 2021 |
| Noninterest income | $41.3 | Up 2.4% year over year |
| Noninterest expense | $102.8 | Up 11.1% year over year |
| Net income / diluted EPS | $41.3 / $0.44 | $47.3 / $0.48 in Q1 2021; $46.9 / $0.50 in Q4 2021 |
| Return on average assets / equity | 1.03% / 7.53% | 1.20% / 8.44% in Q1 2021 |
Lower loan yields and fewer loan-related fees, including PPP forgiveness fees, reduced interest income. Summit Funding Group added $6.1 million of leasing income, with $3.9 million of related expense. Higher compensation and data-processing costs also contributed to year-over-year expense growth. Q1 net interest income after credit-loss provision was $112.2 million, reflecting a $5.6 million provision recapture on loans and leases and a $0.2 million recapture on unfunded commitments.
Balance sheet, credit and liquidity
- Assets and loans: Total assets were $16.0 billion, down from $16.3 billion at year-end. Loans and leases were $9.24 billion, down 0.5% from year-end; C&I and lease financing balances grew, while CRE and PPP balances declined.
- Deposits and borrowings: Deposits were $12.82 billion, versus $12.87 billion at year-end. Total borrowed funds fell to $564.8 million from $706.0 million; short-term borrowings were $185.0 million and long-term debt $379.8 million.
- Liquidity: Cash and interest-bearing deposits at other banks totaled $457.6 million. The company reported $5.1 billion of unused and available overnight wholesale funding capacity and $1.4 billion of remaining FHLB borrowing capacity.
- Credit quality: Nonaccrual loans were $45.5 million (0.49% of loans), down from $48.4 million at year-end. Nonperforming assets were $53.6 million, down from $60.1 million. The loan-and-lease allowance was $124.1 million, or 1.34% of loans, compared with $132.0 million, or 1.42%, at year-end. Net charge-offs were $2.3 million, or 0.10% annualized.
- Capital and equity: Consolidated CET1, Tier 1 and total capital ratios were 10.87%, 11.24% and 13.97%, respectively; management said the company remained well-capitalized. Shareholders’ equity was $2.14 billion, down from $2.26 billion, mainly reflecting investment-security valuation losses. Tangible book value per share declined to $10.97 from $12.26.
Cash flow and material changes
Operating cash flow was $143.8 million, investing cash flow was $82.8 million and financing cash flow was negative $216.2 million. Cash and due from banks increased $10.4 million during the quarter to $230.4 million; this cash-flow measure excludes interest-bearing deposits with other banks.
- Compared with Q1 2021, net income fell 12.7%, net interest income fell 6.6%, and expenses rose 11.1%. Noninterest income increased modestly, including new leasing revenue from Summit.
- Rising interest rates drove a substantial decline in AFS securities fair value: the portfolio was $3.96 billion at quarter-end, versus $4.21 billion at year-end. The after-tax unrealized debt-security loss in AOCI was $121.4 million, compared with an after-tax gain of $21.0 million at year-end. Comprehensive income was negative $100.7 million.
- Loans were broadly stable versus year-end, with PPP balances declining to $21.2 million from $55.6 million. Deposit balances were also broadly stable, while time deposits fell due primarily to seasonal brokered-CD declines.
Outlook, risks and unusual items
The filing provides no specific earnings or revenue guidance. Management described the balance sheet as asset-sensitive: its modeled NII change was +9.76% under an immediate +100-basis-point parallel rate shock and -6.86% under a -100-basis-point shock for year one. These are model estimates, dependent on assumptions, not forecasts. Management said it was monitoring loan and deposit trends, monetary policy and liquidity.
- The Summit acquisition closed December 31, 2021. Q1 2022 includes its operating results; purchase accounting remained preliminary, with refinement possible through December 2022. Acquisition goodwill was $62.2 million and is not tax-deductible.
- Credit risks include potential deterioration in economic conditions and exposures such as franchise, hotel and investor CRE lending. COVID-19-related uncertainty remains a disclosed risk; $16.7 million of loans had principal deferrals with interest-only payments at quarter-end.
- Interest-rate and market risk is material, including potential effects on securities values, funding costs, NII and capital. The filing also identifies liquidity, cyber, operational, regulatory, acquisition-integration and litigation risks.
- First Financial reported $4.1 billion of outstanding credit commitments and $40.4 million of letters of credit. It had no litigation reserves at quarter-end; management said pending claims were not considered probable or reasonably estimable. Overdraft-fee settlements were agreed in 2021, with $7.1 million of settlement expense recorded that year and none in Q1 2022.
- The board authorized a $0.23 per-share dividend payable in June 2022. No shares were repurchased in Q1; 5 million shares remained authorized under the repurchase plan.
Investor verification points
- Track whether net interest margin and loan yields stabilize as rates rise and PPP-related fees fade.
- Monitor AFS securities valuation losses, AOCI and tangible capital, alongside regulatory capital ratios.
- Review credit trends, especially CRE and commercial exposures, allowance adequacy, nonperforming loans and net charge-offs.
- Assess Summit’s contribution to leasing revenue, expenses, integration progress and final purchase-accounting adjustments.
- Confirm deposit mix, wholesale funding usage and the availability and cost of contingent liquidity.