First Financial Bancorp (FFBC) 2009 Q1 法說會逐字稿

Thank you, John. Good afternoon, and thanks for joining us. I'm joined to day by Greg Ehlinger, our CFO; and Jody Littrell, our Controller. Before we start with our presentation, I want to make you aware of important cautionary disclosures in connection with the forward-looking statements we'll be making on this call. The cautionary disclosures are in our written press release and in our recent SEC filings, including our report on Form 10-Q, which we filed this morning.

Today we announced a loss of $94 million or $3.17 per diluted share for the first quarter of 2009, due primarily to credit provisions and costs related to our strategic restructuring. The loss compares to a loss of $104 million in the fourth quarter of last year and was the smallest loss in four consecutive quarters.

Our banking subsidiaries remain adequately capitalized, which is important to our liquidity, and we increased our deposits in the first quarter. Through the sale of our home equity servicing assets in March, we have now completed all but one of the major steps in our restructuring plan to refocus our bank on small business and community banking. For the last two years, we have exited our national mortgage banking, equipment leasing, and home equity segments [but for] our remaining liquidating home equity portfolio.

With the transactions in March, we removed approximately $700 million of these home equity loans and other assets from our balance sheet. So this portfolio as of March 31 was down to about $375 million. We continue working actively to reduce the size of this portfolio further.

While we believe that home equity sale is a positive development, our attention is focused on the last remaining step in our restructuring -- raising new capital. We remain in discussions with our regulators and the US Treasury Department regarding a public/private partnership approach to recapitalizing the company. Our private commitments of $34 million remain in place. Although in this economy we cannot predict exactly when, the goal of our strategic restructuring is to return to profitability by simplifying our business and returning to the core strategy that has driven our success for the past 138 years -- serving small businesses and consumers in [branch] communities.

I'll now turn the call over to Greg to discuss our results in greater detail.

Thank you, Will. The principal thrust of our restructuring has been to exit from our transactional businesses and to refocus on our relationship based deposit and loan customers. Since the first quarter of last year, we've shrunk our total loan portfolio by nearly 40% from about $5.6 billion to $3.5 billion through the sale of our equipment leasing segment, achieving derecognition of home equity loans, and reducing our exposure to commercial real estate in our commercial banking segment. This, in combination with lower spreads, resulted in net interest income of $30 million as of March 31, compared to $64 million a year earlier, a decline of just over 50%.

Non-interest loss totaled $11 million compared to a loss of $4 million in the first quarter of 2008. The decline was primarily the result of mark-to-market on home equity loans and a loss on the sale of home equity servicing rights during the first quarter of this year, associated with the derecognition of almost $700 million of home equity loans.

For the three months ending March 31, 2009, the consolidated net interest margin declined to 2.76% compared to 4.44% during the first quarter of 2008. Much of that margin decline resulted from the securitization of the majority of the remainder of our home equity portfolio in the third quarter of 2008, a permanent financing done to remove liquidity risk exposure on all the remaining home equity portfolio.

Both consolidated loans held for sale and loans declined since year end. Loans held for sale declined from $841 million at year end to $149 million at the end of March, reflecting the home equity transactions. The loan portfolio declined $181 million to $3.3 billion, reflecting decisions to reduce the company's assets to enhance rates and liquidity during the restructuring.

We substantially increased our allowance for loan and lease losses in the first quarter. The allowance totaled $155 million at March 31, up from $137 million at the end of 2008, due to an increase in watch and non-performing credits, principally for the banking segment. We had $17 million in shareholders' equity as of March 31 compared to $111 million at December 31. At the consolidated level, we have an additional $200 million in trust preferred stock which is not fully accounted for in our regulatory capital, but would be under our recapitalization proposal.

Our two depositories have considerably more capital due to differences in capital composition. The corporation's lead bank subsidiary, Irwin Union Bank and Trust, had $285 million of regulatory capital at March 31, and our [THRIP] had an additional $53 million of capital. Both depositories are classified as adequately capitalized.

Turning now to the segments, commercial banking had a pretax loss of $35 million in the first quarter, compared to a pretax loss of $27 million in the fourth quarter, primarily due to higher loan loss provisions. The commercial banking segment's loan balances declined 6% during the quarter. Net interest margin was 3.55% during the first quarter, down slightly from 3.57% in the fourth quarter of 2008. 30 day and greater delinquencies were 4.46% at quarter end compared with 2.96% at year end. The loan loss provision at the commercial bank was $38 million during the first quarter, up from $29 million during the fourth quarter.

In the commercial finance line of business, the franchise finance channel -- the portion of the commercial finance business we are retaining after our restructuring -- lost $1.7 million pretax for the quarter, primarily due to elevated credit cost. The franchise finance loan portfolio totaled $662 million as of March 31, compared to $657 million at year end. The loan loss provision for the entire segment was $5.5 million, down from $5.6 million in the fourth quarter. For the franchise portfolio, the provision was $4.8 million, unchanged from the fourth quarter. And 30 day and greater delinquencies for the franchise finance portfolio were 3.9% at quarter end compared with 3.4% at year end.

The home equity segment had a pretax loss of $42 million during the first quarter compared to a pretax loss of $18 million during the fourth quarter of 2008. These losses are reflected by a provision of $21 million on the unsold portfolio and non-interest expense of $12 million, driven largely by the restructuring charges I noted earlier.

30 day and greater delinquencies on the managed portfolio decreased from 10.41% at December 31 down to 10.08% at the end of the first quarter. We were pleased to see a decrease in delinquencies, which seasonally is to be expected in normal times, but we were happy to see them occur in the current economic conditions. The allowance for loan losses totaled $57 million and totals 21.5% of the portfolio at quarter end.

Our other bank and non-bank consolidating entities lost $9 million pretax in the first quarter, compared to a fourth quarter loss of $13 million, primarily reflecting additional charges associated with our restructuring.

In summary, our first quarter loss was the smallest in four consecutive quarters. As Will noted, we've completed all but one of the major restructuring initiatives. We have submitted a proposal for capital enhancements to Treasury. We saw our deposits grow in the quarter, and both our bank and THRIP remain adequately capitalized. This has been a very expensive process, but we are focused on completing the final step through our capital offering and refocusing on serving small businesses and community banking. Now John -- Will and I would like to open the call to questions.

Thank you. We'll now begin the question-and-answer session. (Operator Instructions). Our first question is from Stephen Geyen from Stifel Nicolaus. Please go ahead.

Good afternoon. Just wondering about the federal tax refund. Is this a sure thing or are there certain conditions that need to be met?

Stephen, we believe it's a sure thing. The NOL carryback provisions right now are for two years and I don't think there's much doubt around it. And so, yes -- unless the IRS, I guess, could debate it, but that's highly unlikely.

Okay. And the non-interest expense, do you expect some kind of decline? I know you don't want to put real numbers out there but if you can give us a sense of where it might be, excluding one-time items? What levels do you think -- can you give us a range, what you might be comfortable with?

Stephen, I don't think at this point, having not put something in the 10-Q, we want to put out a range. It will, as you note, come down substantially. The home equity platform, from a headcount standpoint, was a substantial portion of our total headcount. And so we will see it come down substantially but we've not put a number out at this point.

Okay. Thank you.

(Operator Instructions). And we have a question from Gregg Summerville from Tecumseh Capital. Please go ahead.

It's Tecumseh. Everybody butchers that, but anyway.

Hi, Gregg.

How are you guys doing? I do have a question on your proposal to Treasury about the public/private partnership. How unique is that approach? Are there other community banks out there that are trying to do that or is this really a one-off proposal that you have in front of them?

I'm not privy to what other community banks are proposing to the Treasury or not. But our proposal is not that this be a unique one-off deal for Irwin. Our proposal is they really need to rethink the criteria for the program.

Okay. Okay. One of the solutions, clearly among the larger banks and regionals, has been to -- the conversion of preferred to common equity, and I know that that was part of -- I know you were having discussions at least with one group. Why have you -- is there a way to pursue that more aggressively? Is it the issue of dilution that's a problem to you or just why haven't you moved more on that front?

Well, we do continue to talk to the holders of trust preferred and we do continue to talk to them about a variety of ways to convert. I think we are actually ahead of the current conversations in that, although nothing's come to fruition from it. In most of those conversations right now, they too are interested in what Treasury's response will be. But we still see that as part of the long-term solution.

Okay. Okay. Thanks very much.

Thank you. And I know how to pronounce Tecumseh.

(Operator Instructions). And we have no further questions.

Okay. Thank you, John. And thank you all who tuned in. I know we had one of these just four weeks ago, and in many ways it's not a set of new messages. But we do look forward to talking to you again. Thanks.