FIRST FINANCIAL BANCORP. All significant reclassifications of prior period amounts, if applicable, have been made to conform to the current period's presentation and had no effect on the Company's previously reported net income or financial condition. InNovember 2020 , theSEC adopted amendments to Regulation S-K to eliminate certain disclosure requirements and to revise several others to make the disclosures provided in the MD&A more useful for investors. When providing a discussion and analysis of interim period results, the amendments provide a registrant with the option to discuss its interim results by comparing its most recent quarter to the immediately preceding quarter rather than to the same quarter of the prior year. First Financial elected to exercise this option as it believes that the comparison of current quarter results to a linked quarter, rather than the prior year comparable quarter, more accurately reflects management's perspective of the organization and its results.
EXECUTIVE SUMMARY
First Financial Bancorp . is a$16.9 billion financial holding company headquartered inCincinnati, Ohio , which operates through its subsidiaries. These subsidiaries includeFirst Financial Bank , anOhio -chartered commercial bank, which operated 130 full service banking centers as ofMarch 31, 2023 . First Financial provides banking and financial services products to business and retail clients through its six lines of business: Commercial, Retail Banking, Mortgage Banking, Wealth Management,Investment Commercial Real Estate and Commercial Finance. The Commercial Finance business lends to targeted industry verticals on a nationwide basis. Operating under the brand ofYellow Cardinal Advisory Group , Wealth Management had$3.3 billion in assets under management as ofMarch 31, 2023 and provides the following services: financial planning, investment management, trust administration, estate settlement, brokerage services and retirement planning. Additional information about First Financial, including its products, services and banking locations, is available on the Company's website at www.bankatfirst.com.
The major components of First Financial's operating results for the current and prior year are discussed in greater detail in the sections that follow.
MARKET STRATEGY
First Financial develops a competitive advantage by utilizing a local market focus to provide superior service and build long-term relationships with clients while helping them achieve greater financial success. First Financial serves a combination of metropolitan and community markets inOhio ,Indiana ,Kentucky andIllinois through its full-service banking centers. First Financial also has certain lending platforms that extend beyond the geographic banking center footprint to provide financing to franchise owners and clients within the financial services industry as well as equipment lease financing to commercial businesses. First Financial's investment in community markets is an important part of the Bank's core funding base and has historically provided stable, low-cost funding sources. First Financial's market selection process includes multiple factors, but markets are primarily chosen for their potential for long-term profitability and growth. First Financial intends to concentrate plans for future growth and capital investment within its current markets, and will continue to evaluate additional growth opportunities in metropolitan markets located within, or in close proximity to, the Company's current geographic footprint. Additionally, First Financial may assess strategic acquisitions that provide product line extensions or additional industry verticals that complement its existing business and diversify its product suite and revenue streams.
BUSINESS COMBINATIONS
OnJanuary 3, 2023 , First Financial purchased the assets ofBrady Ware Capital, LLC (Brady Ware). Located inMiamisburg, Ohio , Brady Ware was an advisory firm for mergers and acquisitions, focusing primarily on business succession planning. First Financial acquired all of the assets of Brady Ware for aggregate consideration of approximately$4.3 million , consisting of$3.4 million in cash and a$0.9 million earn-out payment. Pursuant to the purchase agreement, the earn-out payments are payable annually for each of the five years following the closing of the acquisition, contingent upon the results of Brady Ware's operations. 41
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The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date in accordance with FASB ASC Topic 805, Business Combinations.Goodwill arising from the Brady Ware acquisition was$4.2 million and reflects the business's growth potential and the expectation that the acquisition will provide additional revenue growth with the expansion of the Bank's advisory business. These fair value measurements are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values became available.
NON-GAAP FINANCIAL MEASURES
The Company utilizes certain non-GAAP financial measures, which we believe
provide useful insight to the reader of the Consolidated Financial Statements.
These non-GAAP measures should be supplemental to primary GAAP measures and
should not be read in isolation or relied upon as a substitute for the primary
GAAP measures.
For analytical purposes, net interest income is presented in the following table
adjusted to a tax equivalent basis assuming a 21% marginal tax rate. Net
interest income is disclosed on a tax equivalent basis to consistently reflect
income from tax-exempt assets, such as municipal loans and investments, in order
to facilitate a comparison between taxable and tax-exempt amounts. Management
believes it is a standard practice in the banking industry to present net
interest margin and net interest income on a fully tax equivalent basis as these
measures provide useful information to make peer comparisons.
Three months ended
(Dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022
Net interest income $ 159,318 $ 157,896 $ 106,345
Tax equivalent adjustment 1,424 1,553 1,467
Net interest income - tax equivalent $ 160,742 $
159,449
Average earning assets$ 14,326,645 $
14,136,477
Net interest margin (1) 4.51 % 4.43 % 3.11 % Net interest margin (FTE) (1) 4.55 % 4.47 % 3.16 %
(1) Calculated using annualized net interest income divided by average earning assets.
In addition to capital ratios defined by theU.S. banking agencies, First Financial considers various measures when evaluating capital utilization and adequacy, including the return on average tangible shareholder's equity and the tangible common equity ratio. These calculations are intended to complement the capital ratios defined by theU.S. banking agencies for both absolute and comparative purposes and may be useful for evaluating the performance of a business as the ratios calculate the capital and return available to common shareholders without the impact of intangible assets and their related amortization.. As GAAP does not include capital ratio measures, the Company believes there are no comparable GAAP financial measures to these ratios. These ratios are not formally defined by GAAP or codified in the federal banking regulations and, therefore, are considered to be non-GAAP financial measures.
First Financial encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely on any single financial measure.
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The following table reconciles non-GAAP capital ratios to GAAP:
Three months ended
(Dollars in thousands) March 31, 2023 December 31, 2022 March 31, 2022
Net income (a) $ 70,403 $ 69,086 $ 41,301
Average total shareholders' equity 2,082,210 2,009,564 2,225,495
Less:
Goodwill (1,005,713) (998,575) (1,000,238)
Other intangibles (92,587) (95,256) (103,033)
Average tangible equity (b) 983,910 915,733 1,122,224
Total shareholders' equity 2,121,496 2,041,373 2,137,445
Less:
Goodwill (1,005,738) (1,001,507) (999,959)
Other intangibles (91,169) (93,919) (101,673)
Ending tangible equity (c) 1,024,589 945,947 1,035,813
Total assets 16,933,884 17,003,316 16,009,150
Less:
Goodwill (1,005,738) (1,001,507) (999,959)
Other intangibles (91,169) (93,919) (101,673)
Ending tangible assets (d) 15,836,977 15,907,890 14,907,518
Risk-weighted assets (e) 13,025,552 12,923,233 11,705,447
Total average assets 16,942,999 16,767,598 16,184,919
Less:
Goodwill (1,005,713) (998,575) (1,000,238)
Other intangibles (92,587) (95,256) (103,033)
Average tangible assets (f) 15,844,699 15,673,767 15,081,648
Ending common shares outstanding (g) 95,190,406 94,891,099 94,451,496
Ratios
Return on average tangible shareholders' equity (a)/(b) 29.02 % 29.93 % 14.93 %
Ending tangible shareholders' equity as a percent of: Ending tangible assets (c)/(d)
6.47 % 5.95 % 6.95 %
Risk-weighted assets (c)/(e) 7.87 % 7.32 % 8.85 %
Average tangible shareholders' equity to
average tangible assets (b)/(f) 6.21 % 5.84 % 7.44 %
Tangible book value per share (c)/(g) $ 10.76 $
9.97
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OVERVIEW OF OPERATIONS
Linked quarter comparison: First quarter 2023 net income was$70.4 million and earnings per diluted common share were$0.74 . This compares with fourth quarter 2022 net income of$69.1 million and earnings per diluted common share of$0.73 . Return on average assets was 1.69% for the first quarter of 2023 compared to 1.63% for the fourth quarter of 2022. Return on average shareholders' equity was 13.71% for the first quarter of 2023 compared to 13.64% for the fourth quarter of 2022. Year-to-date comparison: For the three months endedMarch 31, 2023 , net income was$70.4 million and earnings per diluted common share were$0.74 . This compares with net income of$41.3 million and earnings per diluted common share of$0.44 for the first three months of 2022. Return on average assets for the three months endedMarch 31, 2023 was 1.69% compared to 1.03% for the same period in 2022, and return on average shareholders' equity was 13.71% and 7.53% for the first three months of 2023 and 2022, respectively.
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