First Financial Bancorp.

Hello and welcome to the First Financial Bancroft Fourth Quarter 2022 Earnings Conference Call and Webcast. My name is Glen and I will be the moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. I will now hand you over to your host, Scott Crawley, Corporate Controller. Scott, please go ahead.

Thank you, Glen. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bank's fourth quarter and full year 2022 financial results. Participating on today's call will be Archie Brown, President and Chief Executive Officer, Jamie Anderson, Chief Financial Officer, and Bill Herron, Chief Credit Officer. Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankitfirst.com under the Investor Relations section. We'll make reference to the slides contained in the accompanying presentation during today's call. Additionally, please refer to the forward-looking statement disclosure contained in the fourth quarter 2022 earnings release, as well as our SEC findings for a full discussion of the company's risk factors. The information we will provide today is accurate as of December 31st, 2022, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I now turn it over to Archie Brown. Thank you, Scott. Good morning, everyone, and thank you for joining us for today's call. Yesterday afternoon, we announced our financial results for the fourth quarter and full year of 2022. Before I turn the call over to Jamie, I would like to provide some highlights from the most recent quarter and recap this year's outstanding performance. I'm extremely pleased with our fourth quarter, which was exceptional on many levels. Earnings for diluted share was 73 cents. Return on assets was 1.63%. and our adjusted efficiency ratio improved to 55%. Deluded earnings per common share increased 24% from the third quarter, and we achieved record operating revenue of $214 million, driven by a 15% increase in net interest income and a 32% increase in fee income. Rate increases continue to positively impact our assets since it's a balance sheet, with our net interest margin expanding by 49 basis points to 4.47%. as increasing asset yields outpace deposit costs. The growth in non-interest income was due to record quarters from Bannockburn and Summit, which more than offset softness in mortgage, client derivative fees, and service charge income. We were also very pleased with $502 million of broad-based loan growth in the quarter, which is a 20.3% increase on an annualized basis and included $130 million increase at Summit. We expect loan growth to moderate in the first quarter of 2023 due to seasonality and economic uncertainty. During the quarter, we experienced modest outflows in personal interest-bearing transaction accounts. However, this was offset by seasonal inflows in our public fund and business deposits. The result was a stable core deposit base and a loan-to-deposit ratio of 81%. Loan quality remains strong across our portfolio, with non-performing assets declining by 16% to 23 basis points of total assets and one basis point of net recoveries for the period. Our ACL to total loan coverage increased slightly during the fourth quarter due to slowing prepayments and the general outlook of the US economy. 2022 was a great year for First Financials. Adjusted earnings per share of $2.36 was a record and increased 3% compared to 2021, resulting in a 1.36% adjusted return on assets and adjusted efficiency ratio of 60%. Revenue increased 14% compared to the prior year to $709 million, which was a record for our company. Net interest income grew by 15% with short-term rate increases providing a catalyst, while record fee income increased by 11% for the year as our acquisition of Summit Funding drove new fees and Bannockburn revenue grew by 23% to a record $55 million. Our recent acquisitions have diversified our income sources as we intended, and we are very pleased that they effectively insulated the company from much of the fee pressure that impacted the broader industry in 2022. Loan growth exceeded $1 billion for the year, representing an 11% increase from 2021. We were pleased that the growth was broad-based and included strong contributions from Summit funding, which we acquired at the end of 2021. Summit's originations exceeded $400 million for the year, which is an all-time high for them, and surpassed our expectations, contributing to over 20% of the company's overall loan growth. Asset quality was very strong for the year. Net charge-offs were six basis points of total loans, which was a 20 basis point decline compared to 26 basis points in 2021. And lastly, non-performing assets declined $20 million, or 34% to 23 basis points of total assets. With that, I'll now turn the call over to Jamie to discuss these results in more detail. After Jamie's discussion, I will wrap up with some additional forward-looking commentary. Jamie. Thank you, Archie.

Good morning, everyone. Slides 4, 5, and 6 provide a summary of our fourth quarter financial results. As Archie stated, fourth quarter financial performance was excellent, driven by expanding net interest margins, strong loan growth, elevated fee income, and stable asset quality. Our asset sensitive balance sheet continued to react positively to additional rate hikes with our net interest margin increasing 49 basis points. We anticipate stable to slight expansion of the net interest margin in the near term due to fewer rate hikes and expected deposit pricing pressures. We were once again pleased with strong loan growth during the quarter. Total loans grew 20% on an annualized basis, with the growth widespread across the portfolio. Fee income was particularly robust in the fourth quarter, with record results from multiple business lines. Bannockburn and Summit both posted the best quarter in their histories. When we acquired these two companies, the goal was to effectively diversify our fee income sources, so it was particularly satisfying to see that come to fruition during the fourth quarter. As expected, mortgage banking income continued to decline as higher interest rates impacted mortgage activity. Our wealth business had another solid quarter and overdraft income stabilized following program changes implemented earlier in the year. Non-interest expenses were slightly higher than our expectations due primarily to incentive compensation tied to elevated foreign exchange income and the company's overall performance. Additionally, we made a $2.5 million contribution to the first financial foundation during the period. We were pleased on the credit front, with one basis point of net recoveries and non-performing assets declined to 23 basis points of total assets. While asset quality remained strong, we recorded $10 million of provision expense during the period, which was driven by loan growth and slower prepayment rates. As a result, our ACL coverage ratio increased by two basis points. From a capital standpoint, our regulatory ratios remain in excess of both internal and regulatory targets. Accumulated other comprehensive income was relatively stable during the period. Therefore, tangible book value increased 49 cents, and our tangible common equity ratio improved by 16 basis points. Slide 7 reconciles our GAAP earnings to adjusted earnings. highlighted items that we believe are important to understanding our quarterly performance. Adjusted net income was $68.9 million, or 73 cents per share, for the quarter. As depicted on slide 8, these adjusted earnings equate to a return on average assets of 1.63%, a return on average tangible common equity of 30%, and an efficiency ratio of 55%. Turning to slides 9 and 10, net interest margin increased 49 basis points from the linked quarter to 4.47%. Once again, this increase was primarily driven by an increase in asset yields resulting from rising interest rates. The increase in asset yields was partially offset by higher funding costs. As a result of rising rates, asset yields surged during the period with loan yields increasing 96 basis points. In addition, investment yields increased 57 basis points due to higher reinvestment rates and slower prepayments on mortgage-backed securities. Our cost of deposits increased 31 basis points compared to the third quarter, and we expect these costs to increase further in reaction to competitive pressures from an increasing rate environment. Slide 11 details the asset sensitivity of our balance sheet. We remain well positioned for expected rate increases of approximately two-thirds of our loan portfolio, reprices fairly quickly. Slide 12 details the betas utilized in our net interest income modeling. Although deposit costs increase with greater velocity in the fourth quarter, our modeling remains relatively unchanged over the full cycle. Slide 13 outlines our various sources of liquidity and borrowing capacity. We continue to believe we have the flexibility required to manage the balance sheet through the expected economic environment. Slide 14 illustrates our current loan mix and balance changes compared to the linked quarter. As I mentioned before, loan balances increased 20% on an annualized basis with every portfolio growing compared to the linked quarter, except for franchise. The largest areas of growth were in the CNI, ICRE, and Summit portfolios, while Oak Street and Mortgage also increased. Slide 16 shows our deposit mix as well as a progression of average deposits from the linked quarter. In total, average deposit balances increased $261 million during the quarter, primarily driven by a $319 million increase in brokered CDs. Outside of this increase, deposit balances were relatively stable. which we viewed positively given the competitive landscape. Slide 17 highlights our non-interest income for the quarter, which surpassed our expectations. Both Bannockburn and Summit had the best quarter in the history of those businesses, and Wealth Management posted another solid quarter. Deposit service charge income was relatively flat compared to the third quarter, which reflected a bit of a normalization of the impact from program changes implemented early in the year have now fully materialized. Consistent with the third quarter, mortgage demand was solved due to higher rates, and we continue to expect further pressure on this business for 2023. Non-interest expense for the quarter is outlined on slide 18. On an operating basis and excluding summit, expenses increased $11.2 million compared to the linked quarter, due primarily to incentive compensation tied to the record quarterly performance from Bannockburn, as well as the company's overall performance. In addition, we made a $2.5 million contribution to the first financial foundation in the fourth quarter. Operating adjustments include $6.4 million of tax credit investment write-downs and $700,000 of other costs not expected to recur, such as acquisition, branch consolidation, and severance costs. Turning now to slide 19, our ACL model resulted in a total allowance, which includes both funded and unfunded reserves, of $151.4 million and $10 million in total provision expense during the period. This resulted in an ACL that was 1.29% of total loans at the end of the year, which was a two basis point increase from the third quarter. Similar to the third quarter, provision expense was driven by our strong loan growth and slower prepayment speeds, which increased the duration of the portfolio. Despite the increase in provision expense, asset quality remains stable. We had one basis point of net recoveries on an annualized basis, while non-performing assets declined to 23 basis points of total assets. We expect our ACL coverage to remain stable or increase slightly in the coming period as our model responds to changes in the macroeconomic environment. Finally, as shown on slides 21 and 22, regulatory capital ratios remain in excess of regulatory minimums and internal targets. During the fourth quarter, tangible book value increased 49 cents, and the TCE ratio increased 16 basis points due to our strong earnings. Accumulated other comprehensive income was relatively stable compared to the linked quarter, but remains a drag on our TCE ratio. Absent the impact from AOCI, the TCE ratio would have been 8.2% year-end compared to 6% as reported. Our total shareholder return remains robust with approximately 30% of our earnings returned to our shareholders during the period through the common dividend. We believe our dividend provides an attractive return to our shareholders and do not anticipate any near-term changes. However, we will continue to evaluate various capital actions as the year progresses. I'll now turn it back over to Archie for some comments on our outlook going forward. Archie.