First Financial Bancorp (FFBC) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Irwin Financial second-quarter results conference call. (Operator Instructions). I will now turn the call over to Mr. Will Miller. Mr. Miller, you may begin.

Thank you, John. Good morning and thank you for joining us. I'm joined today 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 will be making on this call. The cautionary disclosures are in our written press release and in our most recent SEC filings, including our report on Form 10-Q, which we filed this morning.

Today we announced a loss of $57 million or $1.92 per diluted share for the second quarter of 2009, due primarily to credit provisions and costs related to our strategic restructuring. This loss is substantially lower than the losses in each of the last four quarters. We are seeing some improvements in the leading credit quality indicators in our portfolios, in particular a meaningful decline in 30 day plus delinquencies in commercial banking and in the home equity portfolios that remained on our balance sheet at the end of the quarter.

We were able to significantly reduce our loan loss provision to $45 million, which was $20 million less than the first quarter of 2009 and about 1/3 of our provision in the second quarter of last year. The drop in provision, coupled with loan sales and the de-recognition of another $110 million of home equity loans, resulted in both our banking subsidiaries remaining adequately capitalized.

Our attention continues to be focused on the last remaining step in our restructuring, raising new capital. We remain in discussions with our regulators and Treasury regarding a public/private partnership. As you may have read in newspaper accounts, Treasury is working on what is being called Plan C. We have been advised that Treasury is in active discussions with other banking agencies as part of Plan C about a new program to make additional TARP capital available to community banks which have the ability to raise private capital as part of a re-capitalization process. Our commitments from private parties to invest $34 million alongside a Treasury investment have been extended again, this time to the end of the year.

Although in this economy we cannot predict exactly when, the goal of our strategic restructuring remains 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 primarily through our branch communities.

I will 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 second quarter of last year, doing so has caused us to shrink our loan portfolio nearly 45% from about $5.5 billion to $3 billion today in an effort to maintain our capital ratios and liquidity during the restructuring.

While the smaller loan portfolio has helped us to maintain adequate capitalization and liquidity, it has, of course, had a direct effect on our spread income, which totalled $14 million in the second quarter compared to $30 million in the first quarter. Our non-interest income totaled $21 million in the second quarter compared to a loss of $11 million in the first quarter of the year. This improvement came from two factors; an increase in the FAS 159 fair value adjustment that lowered the carrying value of certain of our liabilities compared with negative marks that we took on home equity loans and servicing rights as we shrunk the home equity exposure during the first quarter.

For the three months ended June 30, 2009, the consolidated net interest margin declined to 2.28%, down from 2.76% in the first quarter, and much of that decline resulted from the de-recognition of the $110 million of home equity loans and associated borrowings that we achieved in the second quarter.

Consolidated loans and loans held for sale declined both on a sequential quarter and a year-over-year basis due primarily to the restructuring and decisions to reduce the Corporation's assets to enhance capital ratios and liquidity.

The allowance for loan and lease losses totaled $148 million at June 30 or 5.44% of the loan portfolio compared with 4.65% at March 31. Credit quality deterioration, particularly of commercial loans and delinquencies, showed signs of slowing during the second quarter. Although each of our banking subsidiaries is adequately capitalized, the Corporation did have negative $42 million in shareholder's equity at the end of the quarter. We believe that the completion of our re-capitalization plan, including both raising additional equity and conversion of about 50% of our trust preferred into common stock, will restore the Corporation to positive equity. This would allow much of the $228 million of currently ineligible capital to again be eligible for inclusion under the regulatory formulas, providing a significant pickup in total regulatory capital.

Turning now to the segments. Commercial banking had a pretax loss of $28 million in the quarter compared to a pretax loss of $35 million in the first quarter, and this was primarily due to reduced credit provisions. The commercial banking segment's loan balances declined to $2.1 billion at June 30 and reflected our balance sheet management steps, in particular the $187 million of loan sales that we accomplished in June. An additional $50 million of the portfolio has been moved into held for sale due to pending third-quarter sales. Net interest margin was 3.45% in the second quarter, down slightly from 3.55% in the first quarter.

30 plus delinquencies in commercial banking were down significantly at 3.57% at the end of the second quarter compared with 4.46% at the end of March. The commercial finance line of business lost $400,000 in the quarter, down from a $3 million loss in the first quarter. The portfolio there totaled $656 million, down slightly from $673 million at the end of the first quarter. And our loss provision in the segment was $5.9 million, up modestly from $5.5 million during the first quarter.

In a positive sign for our credit outlook, 30-day delinquencies for the franchise portfolio were unchanged from the first quarter at a relatively low 1.4%.

The home equity segment had a pretax loss of $22 million during the second quarter. This compares favorably to a pretax loss of $42 million during the first quarter of 2009. These losses reflect a provision of $14 million on the remaining portfolio, funding costs on the loans that we securitized in the third quarter of 2008 and non-interest expense of $15 million, largely driven by restructuring.

The majority of the remaining staff at the home equity company was released in recent months as we moved the rest of the portfolio to be serviced by third parties and worked on completing the wind down of home equity. As a result, we expect operating expenses to be materially lower in future quarters.

During the quarter, as I mentioned, we completed the de-recognition of the last of the asset-backed securities funded portion of the portfolio, which totaled $110 million at the end of March. We also de-recognized the associated asset-backed debt.

Reported 30-day and greater delinquencies on the portfolio, including those loans that we de-recognized in April, increased from 10.1% to 13.7%. However, excluding the de-recognized loans, the 30-day plus delinquencies on the portfolio we have at June 30 decreased from 14.6% to 13.7%, and the critical 60-day plus delinquencies decreased from 10.6% at March 31 to 8.7% at the end of the second quarter.

The age of the portfolio, now with an average life of almost three and a half years, has reached the point normally associated with declining losses due to the burnout of problem credits. We think the lower 60-day delinquencies and the continued aging of the portfolio augurs well for lower loan losses going forward.

The other bank and non-bank consolidated entities lost $8 million pretax in the quarter compared to a loss of $9 million in the first quarter. The loss there included additional charges associated with our restructuring and other expenses, as well as an allocation of the one-time FDIC insurance premium to the Treasury group of the bank.

In summary, this loss is substantially lower than the losses in each of the last four quarters. We believe we are seeing positive signs as the credit trends in our portfolios are beginning to improve, and our two banks remain adequately capitalized and thus continue to have access to important sources of liquidity.

This has been a very expensive process, but we are focused on completing the final step through our capital offering and refocusing on servicing the small business and community banking needs of our customers. John, Will and I would like to open up the call to questions, please.

(Operator Instructions). At this time I show no questions.

Okay. John, thank you. We appreciate everybody's attendance today, we appreciate your continued support, and we will talk to you again in about 90 days. Thank you, John.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.