First Financial Bancorp. (FFBC) 29 Jan 212020 Q4 Earnings call transcript

Good day and welcome to the Fourth Quarter and Full Year 2020 Earnings Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Scott Crawley, Corporate Controller. Please go ahead.

Sara. you, Thank and conference everyone quarter for us joining full Good to thank discuss today's results. call XXXX fourth First on year morning financial you Financial and Bancorp's Brown, on President Anderson, Participating Financial Bill Officer. and Chief Officer; will call be Chief and Executive Officer; today's Chief Jamie Credit Harrod, Archie our issued under www.bankatfirst.com the Relations section. Both we the slide at yesterday the press presentation website accompanying and release are available on Investor

presentation reference make contained the during today's to accompanying will We in call. slides the

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

and XXXX. you joining fourth results Thanks Scott. announced and afternoon thank financial for today's Good year us full call. for quarter our the we Yesterday everyone morning on

achieved our in Before with detail, global pandemic, pleased Business deposit of fee I highlights basis, reflect X.XX% average recent company. and funds and quarter. our want Fed the loan in total On income, rate backdrop overall production, reduction we X to When $X.XX share, in stay-at-home XXXX, call and I'm assets management turn the a this to of low provide to levels of on and a conditions very for I then fourth adjusted our and a encountered basis the total and assets, experienced widespread balances, shutdowns, record year bolstered X.X%, considering loans strengthen past and achieved these C&I to common management, challenging experienced government-mandated from mortgage year orders, earned of XXX allowance points, in diluted significantly an results challenges on the losses business remain response in Tier the to in which and revenues. per discuss some under we Jamie we charge-offs. those the most difficult and grew a capital, equity Despite greater credit X.XX% return loans quarter. over

However, solid Loan results. which quarterly of X.XX%, strong and per record of and client deposit with were financial our of mortgage adjusted in increase rebounded metrics ratio An income includes our record return efficiency record near exchange forgiveness growth growth. loan Transactional the of $XXX average strong adjusted from activity share all production PPP XX% our on fees, foreign assets interest banking, adjusted again drove million income prior annualized XX.X%. an in with quarter to $X.XX, on earnings increases with or quarterly strong seeing origination levels production continued very C&I was with segments mortgage. in strong and

relatively stable. adapting processes remain efficiency sub-XX% environment the long-term ratio management expense in working diligent that continued investment company reflected success. Credit for position to despite and Our remote technologies our trends

with in the demonstrated slower-than-anticipated keeping increase an and the and cases their remaining which in Midwest rollout, clients uncertainty, expense, processes their with a our communities. of and credit enabled general COVID-XX our However, significant peak work am by us of resulting our response the otherwise. uncertain in loans in $XX.X levels, in engaged, to recorded from them our in for the our to total positioned commitment one to associates to in-office They allowance history. at to of pivoting resilience the pandemic, and of flexibility excluding future or periods From we in normal clients I we economic associates has provision support business stressful believe and amazing million absorb allowance or losses and beginning activities most to the X.XX% our of with pandemic changes pleased prioritized We the routines. anticipated increase safe our PPP. losses and most vaccine remotely

an proud of our our associates something consumers, embodying communities to were loans, lives organizational our totaling Our belief million and focused X,XXX a stewards, I'm in First of after to that I'll Jamie Cares constant in our results. discuss Financial $XXX details banking very with modifications, to portfolios the Act effort graining our faithful our commentary. then function essential over we provide PPP that ensuring an we're months mission. on team. Jamie? update was our over hotel now is and the fourth effort quarter in businesses approximately and discussion and matter forward-looking of the of up commitment some remember. of Notably to And remain on corporate-wide call franchise wrap and then I'll the turn Jamie's

and full our provide and summary X quarter Thank of XXXX morning, good X Slides results. year you, a fourth Archie and everyone.

to fee As very Archie happy strong. loan Earnings in fourth particularly trajectory income financial continued our remained fees mentioned, quarter increase as the performance. an led upward interest net with their were we margin and

our relatively base levels remained from expense quarter flat addition, as asset remained and declined quality In relatively expense provision the benign.

further disciplined regulatory the of the ratios in of loan remain buyback cost peak of our share remained our interest will during basis by reached stress expected the to credit economic absorb deployment continue With positioned and maintain we to excess future. the deposit testing balance levels reserve current and their XXXX. the the again fundamentals for has we sheet in sheet. capital loans strength We improved during as capital We non-performing and believe of and well driven capitalize level that impact any foreseeable of our expense to to results provide ability and us recorded increased fees these quarter. million core internal quarter in to opportunities the to XX indicate us that points our is balance both the stable, provision quarter, margin Net our believe this mind, our deterioration evaluate and have our levels on near-term targets. with reductions. continue Once materializes pandemic compared prior While $XX.X higher positioned

interest low asset face we will yields. the pressure rate continue on Given environment, to

we remain believe was we Mortgage record declining of highlight fundamental quarter results. was relatively pieces stable interest the expectations the driver and third in the levels quarter. Similar exceeded principal margin the income our of that despite into core from of recent as net fee will XXXX. head banking However, operating to trends, the the

service had pre-pandemic to gradual their record Bannockburn quarter foreign charges another levels. addition, exchange maintain and ascent deposit income In of

also a shares. recorded our to While Class gain non-operating not we part Visa noteworthy of B our operating related it's that results,

During FHLB their ratios Foundation impact indicate off to third-party the linked-quarter increased common the Total of that on remaining quarter utilized the well our shares market and fourth sold and were positioned shares PPP. gain sheet at a XX basis. capital quarter, X.XX% total we points of basis a as from basis and the increased we of remain improve the in on cost a excluding X.XX% the ratio First We equity or million across value. points pay quarter standpoint, tangible capital XX balance current portion board $XX.X results capital Financial regulatory higher our borrowings. to to the recorded a Fourth fund the

million highlighting branch extinguishment to to at costs, important contribution of First debt our the other reconciles items as the our Financial vis-à-vis performance. year. non-recurring that gain, aforementioned earnings, million the quarter, $XX.XX the Slide GAAP $XX.X costs. a million COVID-related credit which end excludes write-down Additionally, X to million million of $X.X $X.XX book for income we understanding Foundation or share a Adjusted our such tangible by grew adjusted tax $X.X of believe value earnings of quarterly $X and net a to $X.XX consolidation items per investment, share per $X.X and the are was

equate of and to depicted Slide equity a return average of return X, a adjusted these average on As common assets X.XX% on tangible on XX.X%. earnings

XX.X% very tied remains our income. compensation Our elevated efficiency adjusted incentive fee strong to despite ratio

points Slide negative related expect loan margin we to million by were XX to changes was Basic Net interest and which the higher margin due X.XX%. asset points. to fees due increase basis $XXX putting increase in primarily our PPP on increased will shows we the linked full pressure impact investment the late longer-term interest the X. XX mix first the our the in of on Turning and as total margin yields debt balance the This declined the prepaid points yields asset be In quarter of changes. to as the securities mix. net FHLB basis forgiveness. which to impact from to fourth benefit quarter balance average Slide is A from our the liquidity dropped investment some balance of we slightly portfolio driven sheet. higher XXXX. increased quarter yield investment basis realized XX X and Loan yields costs in in

to mix On continue to cost lower the rate illustrates the cost the mix Slide a deposit points compared as quarter. adjustments, and aggressively X XX to during These our period funding basis XX and reflect as core funding basis in linked changes well CDs we shift of retail points. higher-priced from deposits. balance costs our deposits brokered side strategic which lower to lower loan current declined

of deposit pricing as very recent all types. noninterest-bearing trajectory as $XXX are conditions most XX and income our our as quarter modest of stimulus loan during million additional ICRE grew based as Excluding public noninterest XX average average grew and funds million make Slide remain from in focus Slide adjustments loan with a deposit average a our with well $XXX highlights the bearing noninterest the fourth balances by checks growth on of the by mix base, and shows necessary our will dispersed offset the loans end-of-period quarter, progression to quarter. market C&I pleased needs. remains to clients. quarter. the deposits funding any during decline in balances We increases for Deposit flat total expected third as increases were the of were in in deposits. round deposits deposit continue the PPP loans the balances accounts, we near-term declines and transactional In other driven

line As to remained with quarter foreign Slide on were wealth expense XX. also the banking fee pleased service in expenses linked mortgage and continued strong and income. to compared previously, I the record for were fees We driven quarter. Overall income outlined management quarter was as Noninterest fourth expectations. elevated exchange mentioned increased and charges rebound as by

The were However basis. flat credit million increase on costs tax extinguishment the to the million foundation. a and relatively million $X of was write-down operating they a by financial $X.X contribution driven an first debt $X.X of

expected of consolidation branch as and $X.X such recur million Additionally we incurred costs. COVID-XX-related to cost another not

Slide your Turning to attention XX.

third $XXX utilized to of COVID. slightly Our and from allowance million stress losses. near from and in which reserve expense At of reserves point in credit do total both utilized released which first at quarter. fourth the Similar a baseline quarter quarters expected not future and ACL credit funded model captured model the believe of XXXX, of build the in improved the for December the the impact forecast majority provision we risk the forecast related The further the resulted COVID-related $XX.X we've includes term. was to time, in the Moody's quarter's provision the million economic economic this unfunded end in fourth three total from anticipate

and asset which as charge-offs quarter. nonperforming to for despite than remains classified the basis as have Net increases points XX loans levels, a of lower the $X.X Slide on increase linked and XX only slight the shown percentage net million slight historical charge-offs were remained compared levels. asset stable period of in we As quality

continues current the and credit While expect don't time as the better economic anticipated than in we XXXX, have deterioration at our the materialize. performed from of portfolio impact COVID we reflect stress XXXX, metrics our might at some much beginning to

XX slides of to increased and in ratios and of during all strong continue internal regulatory remain on capital exceed capital excess shown our Each the minimums. XX, as and targets. ratios ratios Finally, are quarter

do to $XX.XX. to dividend. equity tangible changes XX the basis points grew again, our ratio we anticipate the common common and any near-term not book tangible value Our during Once increased by period

it However, portfolio, the evaluate we outlook turn capital deferral of actions now focus to for over economic loan pandemic our Archie back going will related materializes. to of impact the commentary as continue specific various COVID our program Archie? areas the to in and forward. further I'll

slides updated Thanks, which the related to Due continued XX we've our the modifications circumstances Act economic hotel franchise to Jamie. and in pandemic, portfolios. cover XX, through COVID-XX Cares

are year-end. to on Only As making very with on can Cares year-end. pleased bringing $XXX million loan full the another at interest-only reduction XX, total be modifications our seen million $XX at payments, in slide loan on payment Act modifications $XXX balances loan million our substantial with I'm balances in deferrals,

that or which provides material to Additionally, our any additional our updated mix overall was exited and the portfolio The average issues. Cares on will XX. limited of seen December the not have and LTVs appraisals. XX detail require time deterioration of million deferral, of $XXX as loans credit we've XX% hotel Slide total Act we've stabilize, hotel health modifications in seen strong of pre-COVID portfolio,

Given time continue outcome. of and to we eventually work to stimulus the with in meantime, stabilize. will measures, our best and possible this portfolio borrowers ensure believe we'll status them monitor the additional the But

style have concepts million face strong seen Cares continue impacted headwinds. on has within Act franchise in at book sit-down modifications while as Our portfolio, performance, to XX, be Drive-through with substantially the concepts improved by delivery $XX remaining year-end. our slide demonstrated and pandemic-related also

distributed, becomes vaccine performance this to widely we the of improve. expect the more As concept

our Moving term, over the forward-looking outlook. the impacted certain near programs remain excluding but government seen we the expect we've improvement pandemic guidance, some in Loan target as to which flat still growth growth year. to and provides portfolios, PPP Slide is and mid-single-digit in XX pressure for to stimulus expected be by continue XXXX. ongoing will related

PPP expect stimulus we round pipeline given current three balances, potential deposit additional further for Regarding activity. our increases, and

be forgiveness further accelerated fee over Our net positively the payoffs the several next impacted is interest quarters. and expected recognition margin by associated to PPP

the expect be to stable. relatively accounting, variables volatile more loan we our as fees, fees, margin PPP purchase Excluding such

credit, Regarding yet of full to out. the the is pandemic play impact

moving declines may than future materialize. We've added allowance address total greater expect our provision brings in we million $XXX ACL credit losses losses This moderate going our However, XXXX expense forward. to to our for to We that during originations in a increases Specific anticipate income, the as the to any percentage first forward. the mortgage quarter. continued reserve three balance further loans at do times XX/XX/XX. we not expect fee to of strong

expect some premiums. and we volume seasonal lower decline in However,

Foreign changes million we exchange are Deposit this our distribution the first trend quarter. service the expect of peak of to quarter level toward With in after seasonal expected income move lows the respect performance. in remained to strong, range to below but expenses, fourth our to continue $XX opportunities with the pre-pandemic quarter, the in charges three quarter, to to this some more behavior income. but observed during could of $XX become customer we million per pandemic, banking we'll fee for fluctuate to light In continue consolidate evaluate In accelerated efficient. channel centers. be

our to the challenging company first the our position proud, strong financial to I'm ability newly our expect the year of support given repurchases repurchase using in and and performance business strong shareholder quarter pleased customers to in to despite of share Lastly, in earnings was also -- together share this challenging many the came look capital a on growing in and status value conditions. and The extremely quarter. active with we our in long-term be our how safety focused overall first we associates well-being market our the program and I'm communities. our resume our year. very for authorized remain XXXX

questions. As we subsides. our XXXX open this up into to call remain stronger move crisis forward even difficult company health ability environment when confident the for the and We'll financial in believe for we performance we've operating now positioned navigate

you. Thank

with begin ahead. first Piper the Instructions] now Scott Our will Sandler. We question question-and-answer go [Operator from session. Siefers Please

have and curious lot substantial reserve taking given expectations guys. right good you morning on now. of pretty for question. a Good was I Thanks the color just a certainly credit you've

extent sense through where first was for you're give when itself? or of and half peak to thinking dynamics? look about actual course you event you that out expect those hoping are to I comfortable content loss year a How a half the might the Just of us would you year? you manifests Is as the the second that

vaccine the is say into distributions. Yeah, happens the probably going mid third pandemic of Scott, with year quarter would we and were part the to still so be I be upon that's dependent comments what upon happens that? talking any of it where But I dependent issues now. those Bill in see bigger the peaking on other with to think what would going economy. somewhat again And we some it's

accurate that's No Archie.

any which you've for are their low And for deterioration lifetime of losses, substantial of And a magnitude presumably sense losses under have order or deterioration? so magnitude CECL Okay. to sense reserve, of any there got losses. very of now. order And a for is lifetime expected pull bucket

don't have a we I more for that saw QX. in We a little Scott, it sense know bit yet. just

were year XX losses For points. basis the

in primarily we've that to to -- XX For permanently. in with are concept, style bar stores some was closed one-buffet -- been They the reopen. related quarter that not it one stores some which learned going and

deterioration And so of for partial made that. charge had limited we that. We a outside

to difficult to I'd right lower they're say; say So side. it's be now going still the on

a further increase get may significant this moment. the we feel As in we at in little year charge-offs clarity, doesn't a but like it more have

Perfect. just overall guess suggesting that that In second Thank back the I'm is loan snapback next annualized digit number back of a that second just you. order presumably to the the rate growth when growth, And in right. presumably. getting for full to half basis, just or in And magnitude a half. we terms on are snap mid-single-digit curious -- you're talking snap then other about PPP of year All you words, year? of I of in the will which mid-single

And mortgage stronger levels. the single-digit through franchise, on portfolio, it's strong, mortgage seen quarter probably is the with really is some we pressure We originations we some we continue down. is down, we was strong additional are the refinanced Scott. C&I believe commercial, production, growth fourth momentum we in refinanced year the there. on saw and we getting loans mid-year running had more equity we've saw and intentionally mid- going the that and where then grow payoffs What year record to pressure production got pressure it still think -- full Yeah. sheet for balance was all which And keep home down the

where pressure. be momentum. feel pandemic So strong, going C&I we good come production like of out we we But and there's to that's some as the is saw still

Perfect. much. All you right. Thank very

Arfstrom question from with ahead. Markets. Please Jon comes next RBC Our go Capital

Good morning, Thanks. guys.

Hey, Jon.

Hey, Jon.

C&I. guess, stable some question what normal a That's you are need but hear I of more you theoretical normal be to a would reserve it's tough think company? your your a good Archie economy, would But thoughts on it's know, on a Bill, in levels question. sign. good maybe what what more Archie, kind to just maybe that? hold I do for

– probably in Jon I range. Yeah. of say, would somewhere kind XXX-ish we that

is probably the if middle think think level. we in weren't normal pandemic where of conditions we at I a of kind in you and were that just business –

Yeah.

is So Jon, Jamie. this

So number which if you one CECL it loans. came million day look was at was about out where our million, $XXX $XXX of

in somewhere back somewhere million theory to that stabilize. down say range, get that would that but whether you $XXX So, to into we start to level I it's million $XXX as mean, things level

then Okay. your of your one – That's was some comments in you in credit helpful. expect deterioration XXXX. super And Jamie last

right, charge-offs. what you're think, I that saying Is is or…

optimistic kind So about the which backside that that question before But to in right? of in the the what of little to this yeah. just about. just spring than reserve, talking that Charge-offs, in Scott's he again, in already we've it's that's those are, been of but have through charge-offs. We're the into we're magnitude offs Yeah. about XXXX. and yeah baked what expecting lift offs, level what order really yeah, We're would pandemic a of talking back the Absolutely. with of charge flow some expecting is had point we lift on more the at a charge the of talking

until words terms And picks provisioning So, at out in of the in really very just up in that growth required. have fair? that Is the come underlying little of put the message but existing reserves? is to least mouth, near-term charge-offs not your

given macro at as quarter, a work. something unless well, would it be point level right? change from we this could would Yeah, in Correct. lumpy any Charge-offs

the in given – from some this going and So be things unless probably forward. any but we releasing would providing would quarter deteriorate at point charge-offs for most reserves

Yes.

Okay.

topic last then And is margin. just Okay.

you're some it's but relative know think I the you and the the us maybe on this, NIM? the nice, magnitude words good puts understand see it's and of debt nice fighting benefit Can stability. I help fight prepayment of takes to the to

Yeah. Yeah.

deposit quarter side then a obviously rates overall we rates re-pricing fourth lower putting reinvestment little pay on to million. again, mean, see room the we're we're points. And which the the loan were bit the basis those of to I pressure of I off some $XXX FHLB we're of a side costs I deposit see stabilizing, advances, low-teens portfolio mean have down level, And So, mean into We going on securities we were – but $XXX going the on still just middle did about pressure, coming see lagging cost to XX at going on in yields. then those still we with million at a XXXX. like putting

to about little save the that's going year. million, a So, us but a close of $X than million bit less million $X – ballpark to $X in

business but that put comment, it's notable you a as equity couple remain you return a difficult said something to this XX% and editorial environment. Last times, up in Good. on tangible conditions Archie me of

So nice say just job guys.

Thank you.

Thanks, Jon.

Chris with next ahead. KBW. question McGratty from Our Please go comes

morning. good Hi,

Chris. Hey,

the with on start maybe you Jamie, margin.

the -- I talking make you're XXX plus stability that sure relative about identified? the think jumping-off you point. to is that just factors The to I want got I that basic

Yes. Yes.

bounce around. So we'll get like going PPP we loan in Obviously, some fees. in volatility to that's do with

little factors. accounting. excluding yes, a we're kind purchase that XXX core quarter-to-quarter We those talking bit But of volatility about in have of all

coming PPP that revenues should have in? model accretion the and that -- are we what from you the And remaining

Yes.

those $XXX $XX.X at our $XX fees is year-end, at million. are So PPP just the million, we're total million balances remaining -- to under and related at right right

on And accretion, how… the

asking? out help accretion you're the On what me

left No, purchase accounting of through? the just -- coming what's the

is what On from the accounting deal, last purchase asking? the you're that

Yes exactly.

about Sorry that.

Yes. get Yes. Hang on, me let that.

had we of points or year the So fourth And still here so. and see we mean, over should trailing XX quarter. accretion next we I I it's basis in roughly off mean, that the -- purchase accounting

Okay.

challenges if the predictive a we interpretation? just take is is general a single-digit So little NIM message margin back and environment, in of the bit the that this message should core in stability for Is a lower right that step NII? -- understand loan and a of growth allow mid-

Yes.

PPP fees, the Excluding correct. Yes.

Yes.

Okay. And then on just a $X two-year the is buyback? finally economy on are the be I pace against of going cautious about how I capital think know authorization which to some return, the with how the do million, optimism you aggressive

and what constantly and of be really here like it think, I looks looks about we're be million mean, but or quarter a taking think we're in of minus I be. and a would at a and if stretch. -- methodical ballpark said like. seeing kind to we But not million by quarter going kind shares and do how then what do where we will any we would level I plus $X in going that credit of we materializes first in pandemic not to the it see kind the market Yes. look credit the that be would at of But consistent

should using be then rate And forward? that. Okay. the moving going number the tax we on lot What's of parts obviously Thanks this a lastly for right quarter. just

XX%.

a number, right? that's GAAP And

Yes.

Perfect. Thanks that. of all

[Indiscernible]

go question Instructions] Long Please James. comes [Operator ahead. with David Raymond from next Your

everyone. morning, Good

David. Hi,

from. that hear where share? of client just Have this market the It's the just is C&I, pipeline the about have or it there, you coming you encouraging at curious talking about health growth you're point? Is is numbers base the taking hired, growth this your been overall and to --

David, Yeah, of each. it's I a little think

some get pronounced of PPP early to the -- not probably their of we some And that year, are borrowers. We started where share after meeting probably came expectations competing. there. taking some some round clients started we wins windfall That of because competition of from nice of maybe some had some last more

And so that's bit of little a it.

part added throughout footprint. have kind a our to of new We nice they're middle across And for relationships of larger latter And space, market bankers. some starting now XXXX. produce us the

primary low say well that strong it's that delinquencies, performance credit base pretty again, those So sitting that's few a two ago. just seeing general we obviously as our clients bank we're with I'd than mean, liquidity our in better just that I were is general And as our have. drivers. thinking And client – months overall,

Got it. you've seen the comment spreads then cycle. out hearing seeing haven't past you're And C&I In coming cycles just on widening seems could, the if but competitive. in still you that pretty it this that be business to the the of spreads, some I been

what point? on seeing commercial curious, Just you're at this spreads

Yeah. improved, at I this don't think they've point.

similar they're a I'd if slightly So anything, than of kind say maybe tighter ago. they were even couple months of

there. out So competitive it's pretty

taking it. questions. Great. Got my for Thanks

Okay.

to conference Archie any closing like our to back I concludes remarks. the question-and-answer over would Brown, turn This session. for

in very you looking Bye of Thank our day. to to talking a you more forward later all a about we Have quarter, joining great you And now. look year. the thank's Sara. And for much, today. little

attending now presentation. has today's conference Thank for you concluded. The

now may You disconnect.