First Financial Bancorp. (FFBC) 21 Apr 202020 Q1 Earnings call transcript

Good morning. Welcome to the First Financial First Quarter 2020 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there’ll be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.

to conference like Crowley, to now Controller. would turn over the Scott I ahead. Go

Good thank Executive Harrod, Financial Thank us everyone Brown, and on you, morning, Kate. Bill be will and Anderson, XXXX results. conference Archie Chief to today’s Officer; call quarter and on call Officer. you Jamie discuss Chief first First Chief Credit Bancorp’s President financial Participating Officer; today’s joining for Financial

website, presentation release press and issued www.bankatfirst.com are Relations’ available Investor we our slide the Both the section. on yesterday at the under accompanying

We the will call. contained make reference to the accompany slides to today’s presentation during

Additionally, The forward-looking as be or the well after refer to we accurate is information the a March disclosure release, first SEC statements reflect our facts contained of filings for provide XXXX not today please in will to of and the we as full call. updating as earnings factors. quarter XXst, circumstances forward-looking risk XXXX any discussion statement company’s this

over call the turn Archie now Brown. I’ll

Good Scott. afternoon we you, are like Yesterday you first for few financial results the events us our quarter. last an call. morning, the joining seems of thank Thank months say today’s announced the on everyone unprecedented and To understatement. for

marked first was strong half the upheaval quarter was of by the performance, While March economic uncertainty. financial by characterized and logistical and

financial despite interest point we rapidly that were impacted very in performance teams results and of There pre-provisioned operational shareholders our customers expect service not our rates. crisis and of the by associate successfully and come In thoughtful changing maintain operations that expectations drop our we few our COVID-XX they’ve XXX our a exceeded areas some base are client the changes to basis base, economic and or our with mobilized pleased in landscape, to way.

early in pandemic our affected markets. preparing event We on, COVID-XX the it the began monitoring

way. develop we plan shifted plans and crisis management, and our our on to be immediately XX and working to assist clients, associates to XX, can our As Committee a Executive seen communities activated meaningful and Slide products pandemic response in

that prioritizing client-facing we’ve of Our crisis business, our and protect and clients enabling centers banking remained us to the company. in both banking centers, our been by Across Over capabilities. including this the of our updated continuity all banking communities assisting safety, ensuring of provide our soundness guiding open to teams, our managing virtually protocols associates our Thru safety clients, have our principles and and utilizing – associate our to services Drive preserving XX% communities. have

management I’ve with transitioned Our working function approximately pleased from high adapt remotely and challenges. the a ability with now to support have sales to and rapidly working at teams despite XX% home. associates’ been level exceptionally our

various relief we’ve programs Additionally, also associate out associates for hardship. financial experiencing rolled those

program across efforts our loan deposit comprehensive clients few. which to segments relief our assistance fee foreclosures, clients into through customers, COVID-XX of all suspension our For property a name repossessions planning to and for our and vehicle and residential deferrals, payment developed provides waivers

governmental and evolving busy business a to great clients. our deal It’s and been a of quarter support accomplished the needs we’ve retail,

proactively to assistance financial actions program clients to the and governments continue ensure We available to federal actively them. they every of aware are assisting monitor state of and are of that our

remote, to environment. mobile support processes anywhere been we’ve Lastly, also working our a seamlessly anytime, enhance bank and to online

associates has this to meet historical of mobilized influx programs of client of to that redeployment cross rapidly of training the passage part legislation. launch significant Act, relief are this the the client the level We of and a conducted requests. the Since CARES Bank entire

Our gone implementation of program protection the paycheck has government’s overall. US well

the we overwhelmingly funding for in the loans, and of our Feedback intent associates corporate billion which proud positive secured representing $XXX SBA have more support our requests has embodiment representing as of an with strategic $X communities and been clients the million. to loan work X,XXX over responded our received we’ve X,XXX way live. from and excess approximately are To-date, than

Additionally, and income XX.XX% footprint, which into for – across earnings of efforts. put contributed hands directly fund efficiency the per first the assets, we $X a the COVID-XX Overall credit influenced income non-recurring when return adjusted will to ratio million income, our relief common net communities in were recorded remove fee on average throughout items. significantly X.XX% interest and average to agency adjusted supporting funds on efforts COVID-XX a we by share, substantially $X.XX The costs. return tangible most help relief of results net equity quarter pandemic the XX%

I’ll over turn Jamie’s forward-looking quarter the the up specific results, on our discussion, I first commentary. credit focus comments and our some wrap of details call will of after discuss now to exposures with to areas within Jamie and

Thank our you, of quarter summary Archie everyone. X X Slides first and performance. good and a provide morning, XXXX

remained Although one, growth, solid, as surpassed met and loan core expectations. performance the all an efficiency and fee first our fundamentals quarter was income operating or the eventful company’s

overall The resulted CECL adoption expense and of impact of and of provision pandemic $XX.X earnings. reduced million the the in

and sheet position targets. while credit elevated and put capital However, internal costs, power has absorb earnings maintaining strength balance excess regulatory in to our a us of in

quarter. basis points prior We to FTE an compared which pleased net only with interest on were declined margin, basis the XX

a all flat Foreign result base strong and and offset during and efficiency XX% expense derivative otherwise were client the ratio. exchange, trust sub in to income quarter

a positioned flat ratios linked relatively We believe basis. a we are quarter these remained regulatory on well standpoint, capital as from

in equity to common points declined the repurchases. due CECL basis tangible adoption first Our the quarter, of XX share and ratio

believe net are understanding per footprint such contribution cost share was or and items $X million related $X.XX fund COVID Slide X relief COVID of non-recurring to $XX.X income performance. million $X.X for consolidation our other reconciles quarter, in our excludes to the adjusted highlighting certain Adjusted which GAAP earnings important quarterly our and expenses. branch we a to items, million other earnings, as that

XX.X%. increase of during average XX average management. points Despite a basis diligent our As shown on our on return XX.X% assets of adjusted slight on expense quarter, remained strong ratio common earnings Slide return equates the equity approach the reflects adjusted to X, efficiency these and and our tangible

Slides margin to X, basis year we XXX on for The and the reduction the better interest X.XX% first X fully quarter. during tax anticipated, end quarter. since given decline was was point basis net point in equivalent than XX the basis a rates Turning interest

in was the decline and our fees primarily accounting accretion interest The to margin loan during net fewer lower related period. purchase

the by basis basis period. the by Fed proactively points dropped during due managing yields XX able XX cuts. which our asset offset rate the this declined While to costs during quarter were We funding to points by

Slide reinvestment rates, lower purchase the basis to loan on due yields, declining and the by are dropped points interest further decline period. these we fees yield on our XX accounting cost lowered basis declining rates. by basis X, to response XX as cause the The impact XX and In of the investment recent yield during Fed of aggressively actions to points points shown loans lower deposits

the on portfolio End end. balance of originations. Slide increased various XX period year from depicts the aspects our which has $XXX provide current portfolio primarily loan compared was driven million, loan linked relatively unchanged mix additional remainder Archie the detail The loan will changes presentation. was quarter. ICRE and in later the of of to balance by

the total, fund as deposit and with bearing interest-bearing quarter. relatively as mix balances CD decline average of flat the balances during public quarter growth, average non-interest shows DDA from first to balances. were the of progression well outpace retail CDs, brokered deposit deposits and market base our money deposit XX as the In Slide linked a combined in accounts

points. successfully manage able to As mentioned, point I basis XX a deposit XX were basis we to previously resulting in cost, reduction

we the continue pricing will based make necessary conditions on any and funding needs. market monitor Over near-term, adjustments deposit to and

our highlights XX for the Slide non-interest income quarter.

exchange record momentum positively increase in mortgage wealth management in was a derivatives banking foreign income income. fee client income, continued fees by quarter First and XX% impacted and

driven Non-interest derivative and expense XX. incentive is client the and elevated seasonal foreign in income. aforementioned quarter salaries related taxes, and the payroll were healthcare Slide on strong costs by increases Higher compensation exchange to shown for benefits

costs In such $X expenses not contribution approximately cost. non-interest million COVID merger $X.X in efforts recur other to expected our a branch footprint as consolidation and to included million and fund related addition, of relief

I’ll quarter. expense losses related discusses Next, Slide to and our allowance your the provision which turn XX, attention for for credit

As line you CECL day was as adopt one decision what in made XX-K. we and of with our impact X, was to January the can disclosed see, in our

total and included first economic the our of was the includes funded Our March, noting which and impact $XXX resulted both both It’s in of a provision substantially in that million at economic considerations ACL, released The provision for unfunded the reserves expected government to model related worth forecasts of first million for credit total quarter expense COVID Moody’s the stimulus. COVID. quarter baseline model from and all and $XX losses. utilized end

finance modified the period. increased the net increase NPAs in fairly the including was quality during had credit by XX, slight a period and mentioned that first as Slide increase a as in of driven received $XX TDR. in on specialty single for we Classified risk The $XXX,XXX classified rating the assets. credit large quarter, shown As loans a benign period by relationships, was as million downgrades and previously the period three during during recoveries was non-performing TDR the

Finally, on minimums. are regulatory and and strong as excess ratios remained shown in XX Slide of capital XX,

During the March repurchased on suspending XXth. program shares before the we XXX,XXX first quarter,

internal flat targets. capital Our exceeded regulatory ratios and remained relatively

CECL. the primarily Our to basis tangible period, adoption during common equity XX ratio the declined of by points due

our unchanged in will remain dividend the expect We near-term.

However, capital continue pandemic of various evaluate we actions as the economic impact COVID develops. to will the

Archie it and back our for some loan outlook. now our regarding to Archie? turn portfolio over I’ll commentary

Jamie. you, Thank

through highlight specific related to XX focus Given economic COVID-XX loan added the circumstances our to pandemic, areas XX Slides we’ve current of the portfolio. within

response every expect operations. early most of we of our assess a to hotels impact be asset strategic estate. including business on review that pandemic, the immediate conducted very with bar classes a of restaurants, we certain impacted, all and stages COVID-XX retail of the real commercial size would That the included forming conversations In review directly their thoroughly to to

total the of of X% franchise was As portfolio the or million quarter, of loans. end our $XXX first

of broader home with that portfolios delivery impacted be expertise $XXX either review of minimally implementation potentially where to indicated strong subsequent to stay at model a revenues. clients Our will orders approximately carry utilize that improvement the the out in million see loans or

Drive seen have with revenue approximately totaled Fast $XXX which million casual Thrus, material concepts declines.

to PPP portfolio million advantage revenue seen the franchise relief disruptions. relief relief Down XX% deferral, impacts have the Sit casual customers pass revenue including streams. of mitigates of which at significant of and a franchise payment portion XX $XXX as the rated rent are was to severe dining programs, program, pre-pandemic, March totaled Lastly, taking segment franchisor

Metropolitan Midwest had as impacted business substantially been our of by fared reliant or X% loans quarter. Our book of has outstanding balances markets of first occupancies, industry $XXX better declining portfolio of in total the the than most other has hotel end The is concentrated hotel which of the on travel, million locations. entire so

portfolio Our is representing service all loan exposure. average is of taken the quite of relief these and has And with XXX% approximately program. pass of PPP rated over XX% portfolio limited an hotels almost advantage have value diverse XX%. to customers of Pre-pandemic options this our

had portfolio the of portfolio. loans focused CRE or bank The retail XX% has X% strong range total values XXst. across to from of of The March with $XXX sponsors. on of outstanding to adequately as capitalized XX% Loan locations balances million most

of has that where next is with was of will also majority XXX% market do pass over levels or rated, essential advantage of rebound in Pre-pandemic not deals segment portfolio pre-crisis cases the months. decrease us. taken rightsizing This or PP or options this this in XX relief customer demand

forward. Given expected be rest the impact program. the factors this the of key we expected the uncertainty is our growth mid single-digits. to Core quarter. is year, low our XX transitory growth over expect of we impact single-digits were guidance to PPP challenging that Loan environment to adjusting the deposit be moving the in shows the the performance and in Slide excluding

We’ve economic X expected the in Fed gradually decline further interest XX interest March to cuts in for very margin to half the LIBOR see the XXXX. been near-term. margin and in expect a and an down credit over cost gradually expect in come indicate expense the continue rate declining basis points X point basis cost deposit to we rates. elevated dramatic of time Therefore, forecast expect to With compression. higher our rapidly quarter stress proactive to cost is From back net likelihood provision rate, then deposits cut each to to fall net we of a The high and as management next mature.

of dependent interchange Fee in largely driven months to revenues, the Wealth, length fees at disruptions business overdraft, few activity. exchange next income home and anticipate will to be required to which increase mortgage charge headwinds the is return uncertain and market are and orders to volatility. by stay more foreign due expected service timeframe revenue across levels. for refinanced upon due deposit derivative spinning to and We normal the higher

expenses, With current We believe hiring, consistent management last it and operations. rate follow discretionary to we approach on disciplined respect with a and critical run be paused the except expenditures two to support significant expense investments planned to most the to were quarters.

Regarding PPP transitory loan related will growth some approved incremental average from the fees $XXX incremental We revenue program, and of approximately X%. we in see million program. expenses anticipate loans the to the with

second that taking and the without the loans, consumer in $XXX of up range assuming of to be PPP our to we business of consideration impact pretax, XXXX, ramps activity over year. pre-provision million, the into the For back half XXX million expect income

many is to weathered work the moments to it’s be community a Every books. those a history together the nation. tough during of as filled and to Financial with is great In history. has conclusion, another XXX-year times company, challenging event added This moments bank’s certain First and

I the also transformational be opportunities and communities likely First society, elevate or for family and the communities serve. said how to events but it the the strengthen and of serve standing challenges am bears These the improve we build earlier the repeating. and our in in will experience will Financial unique I standing industry client customer relationships, provide digital we our evaluate proud

maintaining exceptional the company, to and our our move stewards associates. to and continue forward, diligent while of will we customers providing of As wellbeing we support be the service

This concludes now questions. for call the open the for the prepared We’ll call. up comments

will begin McGratty question Chris Our first Instructions] now question-and-answer KBW. Go We the [Operator session. is from from ahead.

Hey, good morning everybody.

Hey, Chris.

I start just the the Jamie, Hey, understand to Slide. make sure margin, with I just good can the – morning. I want

know, the core margin so. if the margins as it message you Fed that cuts was, look quarters? we by couple you’re have, the still X tell Is of first six X in know, you the point trying reflective to coming basis at reset next that of multiple know, you quarter, So you the partial on to impacts the

Correct. should Yeah, so, margins eventually out. our settle I mean

our basis So past, basis had, we’ve cuts, guided in if about the think margin as you XX down affected to rate X points. We know, you it point gets X it. goes by

you XX the had X So of think if you it, use essentially mean quarter, towards cuts. the the about I midpoint rate first at when point we end those basis X, of

eventually down roughly settle the from quarter, our will basis XX So margin first points.

in And I Chris that – thing in and basis one and kind so rate, we’ve assumes you’re for tipped is think I you point between a month know, to mind, it keep that one – to now that, of slide guess then Fed that differential outlook funds LIBOR. comes the XX the month the funds seeing LIBOR Fed you in with right know, one XX to where line,

So that that assumes line. back comes that in

Okay, then – And got it.

Yeah.

Jamie on margin. Maybe follow-up, a the

PPP it the get million, the but amortize X% of on you $XX right $XXX call loan I fees these math million, doing you’re I’m know the to loans, it, they have on assuming so – So loans, to assuming if going

– yeah yeah, Yeah,

Come two. next back, $XX should over X that’s That know, the through or math, million next be you margin flowing right? months the quarter

the Yeah, loan. set that’s will of amortize that life these set I will fee when up X% mean, over the the so up, obviously we upfront, it – we

month you So [XXXth] it you know, in off. fee we’ll [ph] until that know, every of take pays

pay extend a that months, within – those there but as percentage the X out beyond of well. expecting could We’re that be know, some you large to off

And it. – maybe then got Okay,

then pull you’ll that you all pay get during timeframe. is, Chris, you so we’ll and that into see popped off they get it when you So – – see – what income see obviously you’ll pop a

I Yep, it. got Exactly.

Yeah, yeah.

remarks, to Archie you. that through balance comments, can dividend question potential now, shrinking you you just market maybe evaluate – think Thank what there? suggesting mean, that? Can just know, And action. elaborate I I Is coming capital or for then, messaging on capital you’re for you’ll said just sheet Thanks. you talk think prepared but it the a on the the is your in steady I you

I we maybe to have through know at we But is going you at may know a you we about Yeah, it’s maybe the how what feel year this upon our I’ll I think just where concluding point, walk is always comment this. this how high our able we’re Jamie that level – it think – Jamie you feel time just get good in and we pay yeah, our will being dividend dependent But outlook we’ll later about feel to and good the talk make of and view kind on pretty know, forward. based continue about we outlook

severe we of you Chris our so at when Yeah, but different kind stress at portfolio, the we – loan look common, the when so scenarios one testing, know, apply you over you mean, know, several million portfolio, test on looked come look know, stress two-year did a losses period $XXX of when severe of you losses I you that the at approximately cases, we we to is DFAST, those a with think more using which know, case, in our methodology. up

dividend So, pre-provision period a our under income, when over conservative we you that remain above looking number above our those regulatory regulatory – pretax, even ratios, at excess capital flat, you scenario, that capital have we and know, that keeping minimum. still the two-year

how kind it. So that’s we triangulate of

Okay.

to that anything feel that the if message? – play still – Is were wouldn’t with scenario out, they So capital. you have right do come if the inorganic were to you’d to and

– I that’s right, think I mean Chris. I Yeah,

in you XX are years you kind really get we that, to capital dynamics I would bunches a market of and, said, and, having in Now you time, when ago Jamie good and an that environment uncertain know, here know, it is know, you flexibility. have I know, were say you uncertain

at know, in with environment II XX-year, prudent low to you you So, some it point. consider at looked off a, know, continue this we’ve cost we’ll on, seem capital evaluate does basis to point taxable tier and XX

when I’m in any do or like So really this we to environment going will what rates with not we doesn’t reasonable it this. but something, downside sure to seem have we’re do it, if an do

Understood, thanks much. so

Yep.

Our next ahead. Siefers from is Sandler. Scott Instructions] Go question from [Operator Piper

for Good taking Thanks guys. question morning, – the

Hey, Scott.

a be just of the of Jamie or some sheet as balance wanted rapidly understanding off the how I kind rules situation of maybe really PPP while? guess a on how and feel little the as they you I rules, Hey, some of question a guys all weeks. like would just curious planned, pay you on lack the is, comments upon sort could I something them what forgivable my the to known that of know, on in think might loans given pay versus I on first for ask off know, and guess mean lot they as can expand you expand you the goes XX is, I’m fluidity I concrete if sticking if around circumstances little under kind

Yeah so given low to I be Bill mean, these like I just know, call you to just expecting extend want but be XX% know, beyond XX% the know it you you – mentioned I and maybe could those know, of the think relatively conservatively unknown that that there short, we and rate some – you are between you

absolutely. yeah Yeah,

the obviously as that’s is to thing system, that maintained period. the look know of processing during the one employees X-week at the important number and You through be we the request

bit. companies based we carry about the they will level you that’s a to as just into low but get so, this better on, to loans, carry and what for and two-year extending is because borrow balance of interest to went the little You months maintain that you same able rate it loan be, enough off that they average that XX goes know, by the many the on suspect then apply that we’ll know on a going lengths within rate and know that are or that be upon that really is out capital the as going dictate how PPP to a the cost that shrink paid period into

process the makes as to-date. this the those I as And Yeah, believe, sense, I okay. will referring loan periods, you the roughly process just thinking modifications know go period, ground $XXX go us some to lot in I’m – and it be guys That the will of to is for you be you will then walk this just fine I in to once through looks going get as that specifically modifications, might this have business like read a side, what one you million think or guess appreciate your through we’re of of guys you this then going okay, modification the Can unchartered through due you I how look the of are of color we how stress know sort forbearance becoming there. sort kind kind guys’ thought diligence minds? through of know, we

what deferral have Scott were of borrow to – I’m kind borrowers things deferral, going got many got that deferral of there’ll about to them if – another we’ll – and thinking that many the I’ll we’ll this be some under the those at for start, of deferral second think just had walk you really and will first through, little to a but maybe how about we through going it, Hey, cases, maybe impact a would conversation we in we’re XX Bill we give our for look give deferral. certain second the described differently we primarily issues requested them I’ll and and on Archie. – do bit to is

to then longer the lockout look is, that we the mean and that take the more perspective. the likely take and that certain more to business place, I it’s up But in what as for the going really we’ll second it’s will systematic bit situations shelter into bit necessary additional so the it’s about XX at Yeah, dive as us will pacing. be individual time back we’re days absolutely grant situation or and also individual longer, a about going current more to or the little deferral and on revamp continues little you – longer businesses global get know, a by to normal,

front you was, customer program see key one know, And kind kind XX get so and our of as so we have we outreach can end the – things we’ll the on it a did we’ll flows. how of days, lens of first monitor

The a is second little more bit needs. deal and/or to XX going start to we’ll in specific relief to be days craft their a credit so that products much tailor and individual

I perfect. That’s description. the Okay. appreciate

So much. thank very guys you

Thanks, Scott.

Scott. Thanks,

At Instructions] have [Operator this questions. we time, no

So for would this Brown remarks. the to to back concludes now conference the question-and-answer over Archie turn session. like closing I

Thank period. you, safe today thank And trying a and I this nice we talking to want be Have through just us look to forward everybody healthy and day. joining you you to ask unprecedented again and for Kate. soon. to

presentation. for now you is Thank today’s attending conference The concluded.

may disconnect. You now