First Financial Bancorp (FFBC) Investor Day Conference Call August 15, 2012, 12:45 pm ET Executives Ken Lovik - VP, IR & Corporate Development Claude Davis - President & CEO Frank Hall - EVP, CFO & COO Doug Lefferson - EVP & Chief Banking Officer Jill Wyman - EVP & Co-Chief Retail Banking Officer Jill Stanton - EVP, Co-Chief Retail Banking Officer Greg Harris - SVP & Senior Operating Officer Kevin Woodard - SVP & Sales and Service Officer Kevin Langford - EVP & Chief Administrative Officer Richard Barbercheck - EVP & Chief Credit Officer Tony Stollings - EVP & Chief Risk Officer Analysts Joe Steven - Steven Capital Emlen Harmon - Jefferies Chris McGratty - KBW Matthew Keating - Barclays Jon Arfstrom - RBC Kenneth James - Sterne Agee Jelani Jackson - Opus Capital Presentation Ken Lovik
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Statements contained within the presentations are based on information and assumptions available at this time and are subject to risk and uncertainties which may cause future results to differ materially. Unless otherwise noted, the information presented is as of June 30, 2012 and we do not expect to be updating these items on a regular basis. For a complete discussion of the company’s risk factors please refer to this slide as well as our SEC filings.This slide presents our agenda for the day. As you can see, we have several members of our executive management team presenting and you can find their biographies on the last page of the printed and online versions of their respective presentations. We will be hosting two Q&A formats today. First, beginning with Doug Lefferson’s presentation on the commercial banking line of business, we’ll have a brief topic specific Q&A session following each presentation. As such, I would request that questions during this time directly relate to the presentations you have just heard and be more strategic in nature. After conclusion of the last presentation, we will be having a broader Q&A session with all the presenters where questions of a macro nature that touch on multiple business lines or drill down into the numbers a little bit more would be more appropriate. I will now turn it over to Claude Davis, our President and Chief Executive Officer, who will be giving our first presentation. Claude Davis Thanks Ken and welcome everyone. We appreciate those who are in attendance and those on the phone over the Internet for our first ever First Financial Investor Day. So welcome. I would like to begin by thanking Ken, and the Head of our Investor Relations Group, all the finance team it’s here, all of our administrative group; they did such a great job in preparing us for today, so thanks to all of them.
I want to give a bit of an overview and then we’ll get into the specific topic presentations, but it’s hard to believe that less than four years ago we were $3.7 billion asset company with a market cap of $460 million, because of the franchise repositioning efforts we undertook prior to the financial downturn, the strength of our balance sheet and credit profile, we are well positioned to capitalize on some tremendous growth opportunities.Today, we are $6.3 billion asset company with a market cap close to $1 billion. We have a much stronger presence in our metropolitan markets that we think leave us better positioned from a growth perspective. In the Cincinnati and Dayton markets and with a handful of others, and Indianapolis market, we are positioned as the largest community bank operating in these markets. Above us are the money centers and the large regionals and below us much smaller community banks. This is the position we like and one that we think we can exploit to gain additional market share. Our mission statement focuses on building long-term client relationship. Throughout today’s presentation you will hear how we are fulfilling this mission and how in doing so we’ll drive asset, sales and revenue growth going forward. This slide presents an overview of our business units and the services we provide to our clients and as you can see the operated straight forward community banking business model, with business lines consisting of commercial banking, retail banking and wealth management. These units are supported by seven functional areas that all contribute to the overall growth and strategic objectives of the business, while ensuring that we operate in a manner adhering to both the letter and the spirit of the many laws and regulations that apply to us. Before our business unit leaders get into their presentations, I want to highlight a concept that will be new to those of you who follow First Financial. In our quarterly reporting of loan activity we differentiated between uncovered loans and loans covered under loss share agreements with the FDIC which is consistent with what has become the industry standard for companies like us, that have successfully participated in the FDIC auction process.
As part of our quarterly supplement, we also provide additional color as to what we consider the strategic and non-strategic components of the portfolio which is shown on the pie chart on the right hand side of the slide. In terms of how our commercial and retail business units actually manage their portfolios internally refurbish primarily on the strategic balances which represent client relationships that are serviced with a long-term view on growth and profitability.These strategic balances consisted both uncovered and covered loans and the existence of a loss share agreement has no bearing on the way those relationships are managed. Additionally, with regard to covered loans that are reported on our balance sheet at a discount, our relationship managers handle these loan balances with no bias towards the mark. In other words, the loans are managed based on the unpaid principle balance and the exact same manner that an uncovered loan is treated. As a result, some of the loan balance information you will see in the business unit presentations will look different when compared to the quarterly reporting that you normally see. However, for purposes of today’s discussion we feel this approach will give you a much better perspective on our overall recent performance and our strategic growth objectives going forward. Throughout today’s presentations, we will touch on several key recurring things that serve as a foundation of our overall strategy. First and foremost, we have a values based people led strategy and the successful execution of our business model is built upon having well trained service oriented associates; a high caliber of talent allows us to execute on our mission of developing long-term client relationships. We take the time to understand their personal business and wealth management and then take a holistic approach to provide expert advice and sound financial solutions.
I mentioned earlier that we are positioned as the largest community bank operating in our key metropolitan markets. As you will hear from all of our business line executives today, we think our size gives us the ability to offer many of the same products and services as the larger competitors, but our local focus allows us to do so in a much more personal and responsive manner.Our commercial retail and wealth management teams have developed a sales culture that is aggressive in building client relationships and achieving our growth objectives and we think the strong sales culture gives us the ability to not only retain our solid market share position in key metro markets, but also leverage that position for continued growth. Tony Stollings will also, who is our Chief Risk Officer will discuss what we think is the strong risk management program that we have in place and how it serves as a base for supporting growth objectives. Our current strategic priorities are consistent with our long-term strategic plan and are clearly focused on sales and revenue growth. We are maximizing our efficiency management of our balance sheet and capital, rethinking in a shareholder friendly manner. And from a business development perspective, our primary objective is to attract and develop deeper client relationships with a strong focus on metropolitan markets I mentioned earlier. Over the past several years we have made significant progress in building out our presence in Cincinnati, and we are working hard to leverage the 2011 acquisitions and build greater scale in Dayton and Indianapolis. We are continuing to enhance the delivery of our products and services and Kevin Langford our Chief Administrative Officer will touch on some of the key technology initiatives and how they are impacting our client experience. We also remain focused on streamlining our processes; analyzing profitability of the company and our branch franchise; it is an ongoing process as demonstrated by our leasing consolidation plan announced earlier this year.
I also mentioned on the second quarter earnings call that we are initiating a full review of our cost structure in order to ensure that we achieve our operating efficiency ratio target of 55% to 60%. As we execute our strategic plan, we are always also on a lookout for opportunities to deploy capital in a shareholder friendly and risk appropriate way, including organic growth, acquisitions and capital management tools.Before I turn over to business unit leaders, I want to take a few minutes to cover a few aspects of our overall strategy and the impact of our company. First of all, I want to highlight significant change in the geographic focus of First Financial over the past several years. That would be interesting to show you how our banking locations have changed since 2004 as compared to our current franchise. As you can see while we did have some scale in the Northern part of Greater Cincinnati 2004, a significant portion of locations were spread-out across rural markets in Ohio and Indiana where loan and deposit growth was going to be a future challenge. In 2006, we implemented our plan to begin focusing an increasing amount of resources in metropolitan markets that offered substantially greater growth opportunities. The first step in this process was to begin divesting certain small market locations where we thought branch profitability was limited and is well within 10 locations in 2006. Another component of the plan is we moved our Corporate Headquarters to Cincinnati in 2007 and expanded our operations to serve a greater part of the metropolitan area. As most of you know, our metropolitan strategy had a significant boost with our acquisitions in 2009. First in July of 2009 we acquired Peoples Community which added 19 banking centers to our Cincinnati market and then in September of 2009 when we acquired Irwin we added 12 central Indiana locations and positioned us as the market share leader in the Columbus, Indiana MSA and added to our limited presence in Indianapolis market.
Most recently in 2011, we executed two branch acquisition transactions which significantly enhanced our presence in Dayton and Indianapolis, two markets that we have specifically identified in our strategic plan for future growth. Prior to these deals, we had commercial loan teams as well as a limited retail and wealth management presence, but this added the increased visibility and scale to allow us the marketing opportunities to grow our presence in all three of these critical markets. Throughout the business unit presentations you will hear from our executives on how this migration towards building greater scale is a key component of our strategy.The second item I want to cover is our branding strategy. Initially, we branded the company in 2006; developing a branding mission anchored and been client centered as our business model and that drives everything that we do. Our strategy for creating the brand and raising awareness of what its stands for incorporates many elements. One of the more visual aspects of this strategy is our award wining sales and banking center prototype. Our banking centers were created to provide an open and inviting environment with strong visual merchandizing, helping clients relate to successful moments in their lives. We also pursued targeted marketing in media relations initiatives. We were benefited from building strong relationships with media in our local markets, because we think we have a good story to tell, we have been a growth oriented organization that media has been interested in covering First Financial. We are also highly engaged in our communities; targeted sponsorships and community involvement have build awareness. We continue to reinforce the consistent brand messaging while more importantly having a positive impact on the local communities we serve. Just last night, we sponsored the World Choir Games which were held in Cincinnati and another example of our involvement in support of the Price Hill Financial Opportunity Center which represents our philanthropic focus on improving financial literacy.
The results of our efforts are illustrated in the graphs on this slide; prior to initially branding in 2006, we commissioned independent research to determine baseline awareness of First Financial, in Ohio, in Indiana, which as you can see from this slide, was extremely well. Using consistent questions and methodologies we updated the study in 2009 and 2011. With the execution of our brand strategy we have experienced tremendous growth in our brand awareness exceeding 50% in Indiana and approaching 50% in Ohio; provided this growth in brand awareness need for our business. Throughout the business line presentations today you will hear today our executives speak directly to how the increased awareness is a key component of the strategies driving our sales and growth initiatives.First to put this in the minds of our business prospects. Second, we have to expand our market presence and market share in our key metropolitan markets and provides opportunities for us to successfully deepen client relationships and deliver solutions across multiple business lines. And finally, it allows you to tie our brand with a differentiated client experience. The final topic I will talk about and I turn it over to here Frank, is to discuss what we call associated engagement. As I mentioned a few moments ago, our primary competitive advantage must be our people. Highly engaged associates were aligned with our business are formerly likely to clients. Research [leads] specific businesses results to associate engagement moves with top quartile engagement achieved substantially lower absenteeism in turnover and conversely higher client engagement, productivity and profitability. Our vision is to be employer of choice for high performing associates in the communities we serve, developing a cultural engagement allows us to attract and retain people who are committed to our company and our clients who do want to build their careers with First Financial.
In 2010, we engaged Gallup to facilitate what we called top key survey, designed to help us measure and develop associate engagement. The name top Q reflects our goal to have top quartile engagements at First Financials compared to other financial services companies.We completed the initial survey in 2010 and then performed a second identical survey in 2012, allowing us to measure our progress in fostering associate engagement. In both surveys, we had a 95% participation rate which is 5% higher than the top quartile participant rate in the Gallup database. As shown in the graph, the results of the 2012 survey, showed marked improvement to 2010. Gallup indicates an increase of [0.15] from one year to the next is significant and ours increased to 0.22. Furthermore, not only did we improve our overall score but we also made meaningful improvement on every single survey item. One result that I thought would be interesting to share is on the survey item I give clients new ideas, our score on this item was a 84 percentile in the Gallup database when you consider the building client centered relationships is at the heart of our brand and people are competitively advantaged. I feel really good about the future of First Financial and what our engaged associates can accomplish. Letting a cultural engagement and realizing it was loads of an energized workforce is a long-term proposition and we remain focused on the continual improvement. We are increasing our investment in management development because we recognize that managers are the key to improving associate engagement as well as we want to know that our associates are performing in a way that they need to have good feedback and our feedback and recognition elements are making improvements each year. Read the rest of this transcript for free on seekingalpha.com