First Financial Bancorp Second Quarter 2025 Earnings Call - Record revenue driven by industry-leading 4.05% net interest margin

Conference Call Operator: Thank you for standing by and welcome to the First Financial Bancorp Second Quarter 2025 Earnings Conference Call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, again press STAR one. Thank you. I’d now like to turn the call over to Scott Crawley. You may begin.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Good morning. Thank you.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Good morning everybody, and thank you for joining us on today’s conference call.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: To discuss First Financial Bancorp’s second quarter.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Year to date financial results. Participating on today’s call will be Archie Brown, President and Chief Executive Officer, Jamie Anderson, Chief Financial Officer, and Bill Harrod, Chief Credit Officer.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Both the press release we issued yesterday.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: The accompanying slide presentation is available on our website at www.bankatfirst.com under the Investor Relations section.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: will make reference to the slides contained.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: In the accompanying presentation during today’s call, please refer to the forward-looking statement disclosure contained in the second quarter 2025 earnings release, as well as our SEC filings, for a full discussion of.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: The company’s risk factors.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: The information we will provide today is accurate as of June 30, 2025, and we will not be updating any forward-looking statements to reflect facts or circumstances after the call. I’ll now turn it over to Archie Brown.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Thank you. Scott, good morning everyone and thank you for joining us on today’s call. Yesterday afternoon we announced our financial results for the second quarter and I’m thrilled with our performance this quarter. We achieved record revenue of $226.3 million, which represents a 5% increase over the same quarter one year ago and drove adjusted earnings per share of $0.74, a return on assets of 1.54% and a return on average tangible common equity of 20%. The company’s industry leading profitability was once again driven by a robust net interest margin. Loan growth was 2% on an annualized basis and we were pleased with broad based growth in most portfolios apart from commercial real estate, which declined due to higher payoffs. Q3 scheduled maturities in the investment portfolio are lower and we expect higher overall loan growth in the second half of this year.

We recorded adjusted non-interest income of $67.8 million in the second quarter, which was an 11% increase over the linked quarter and a 10% increase over the second quarter of 2024. Growth in fees was broad based with mortgage, bank card, leasing, business, and foreign exchange income all increasing by double digit percentages over the linked quarter. We were also pleased with our expense management, with adjusted non-interest expenses increasing 1% compared to the first quarter. Excluding leasing business expenses, which continue to increase as our operating lease portfolio grows, adjusted non-interest expenses increased by less than 2% on a year over year basis. Asset quality was stable for the quarter. Net charge-offs declined 15 basis points from the first quarter to 21 basis points of total loans and classified asset balances were relatively flat.

Our outlook for asset quality remains positive and we expect net charge-offs to be in the 20 to 25 basis points range for the remainder of this year. We’re pleased with the strength of our capital levels. Regulatory ratios are very strong and tangible common equity has continued to grow, increasing 16% over last year to 8.4%. Tangible book value per share increased to $15.40, which was a 4% increase from the linked quarter and a 19% increase over the same period last year. We’re also pleased to announce that our board of directors approved a $0.01 or 4.2% increase in the common dividend to $0.25. The dividend payout remains approximately 35% of net income and continues to provide an attractive yield. With that, I’ll now turn the call over to Jamie to discuss these results in greater detail.

After Jamie’s discussion, I’ll wrap up with some additional forward looking commentary and closing remarks.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Thank you, Archie. Good morning, everyone. Slides 4, 5, and 6 provide a summary of our most recent financial results. The second quarter results were excellent and included strong earnings, record revenues, record revenues driven by a robust net interest margin, solid loan and deposit growth, and declining net charge-offs. Our net interest margin remains very strong at 4.05%, which represented a 17 basis point increase from the first quarter. Funding costs declined 12 basis points, driven by a 13 basis point decrease in deposit costs, while asset yields increased 5 basis points. Loan balances increased modestly during the quarter as growth in C&I, Consumer, and our specialty businesses offset elevated prepayments in the ICRE portfolio. Average deposit balances increased $114 million due primarily to a seasonal influx in public funds and higher non-interest bearing deposits.

We maintain 21% of our total balances in non-interest bearing accounts and remain focused on growing lower cost deposit balances. Turning to the income statement, second quarter fee income was solid, led by double-digit percentage growth in mortgage and bank card income. Additionally, our leasing and foreign exchange businesses had good quarters. Non-interest expenses increased slightly from the linked quarter due to increases in marketing expenses and incentive compensation, which is tied to the company’s overall performance. Our efficiency efforts continue to impact our results positively, and we expect to see further benefits in the coming periods. Our ACL coverage increased slightly during the quarter to 1.34% of total loans. We recorded $9.8 million of provision expense during the period, which was driven by net charge-offs and loan growth. Overall asset quality trends were stable.

Net charge-offs declined 42% to 21 basis points on an annualized basis, while NPAs as a percentage of assets increased slightly during the period. Classified asset balances were relatively unchanged during the period at 1.15% of total assets. From a capital standpoint, our ratios are in excess of both internal and regulatory targets. Tangible book value increased $0.60 to $15.40, while our tangible common equity ratio increased 24 basis points to 8.4%. Additionally, our Board of Directors elected to increase our common dividend during the period. Increasing the common dividend is further proof of our commitment to deliver value to our shareholders. Slide 7 reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $70.6 million or $0.74 per share for the quarter.

Non-interest income was adjusted for gains on the sales of investment securities, while non-interest expense adjustments exclude the impact of acquisition and efficiency costs and other expenses not expected to recur. As depicted on Slide 8, these adjusted earnings equate to a return on average assets of 1.54% and a return on average tangible common equity of 20% and a pre-tax pre-provision ROA of 2.14%. Turning to Slides 9 and 10, net interest margin increased 17 basis points from the linked quarter to 4.05%. Asset yields increased 5 basis points compared to the prior quarter as loan yields increased 3 basis points and the yield on the investment portfolio increased 9 basis points. Total funding costs declined 12 basis points driven by a 13 basis point decrease in deposit costs compared to the linked quarter. Slide 12 illustrates our current loan mix and balance changes.

Compared to the linked quarter, loan balances increased 2% on an annualized basis with growth in CNI, consumer and specialty businesses outpacing a decline in ICRE driven by elevated prepayment activity. Slide 14 shows our deposit mix as well as the progression of average deposits from the linked quarter. In total, average deposit balances increased $114 million during the quarter. There was a seasonal influx in public funds and we had solid growth in non-interest bearing deposits while on the consumer side growth in retail CDs helped to offset declines in money market and interest-bearing demand accounts. Slide 15 illustrates trends in our average personal, business and public fund deposits as well as a comparison of our borrowing capacity to our uninsured deposits. On the bottom right of the slide you can see our adjusted uninsured deposits for $3.8 billion. This equates to 27% of our total deposits.

Remain comfortable with this concentration and believe our borrowing capacity provides sufficient flexibility to respond to any event that would stress our larger deposit balances. Slide 16 highlights our non-interest income for the quarter. Total adjusted fee income was $68 million with leasing, mortgage and interchange having strong growth quarters. Non-interest expense for the quarter is outlined on Slide 17. Core expenses increased $1 million during the period. This was driven primarily by higher incentive compensation tied to the company’s strong results as well as increases in marketing expenses. As I mentioned earlier, our ongoing efficiency initiative is positively impacting our results and we expect this work to continue in the back half of 2025. Turning now to slides 18 and 19, our ACL model resulted in a total allowance which includes both funded and unfunded reserves of $176 million and $9.8 million of total provision expense during the period.

This resulted in an ACL that was 1.34% of total loans, which was a slight increase from the first quarter. Provision expense was primarily driven by loan growth and net charge-offs, which were 21 basis points for the period. Overall credit trends were stable with a 42% reduction in net charge-offs and classified asset balances totaling 1.15%. Total assets as expected, our ACL coverage was relatively flat compared to the linked quarter and we continue to believe we have modeled conservatively to build a reserve that reflects the losses we expect from our portfolio. We anticipate our ACL coverage will remain flat or increase slightly in future periods as our model responds to changes in the macroeconomic environment. Finally, as shown on slides 20 and 21, capital ratios remain in excess of regulatory minimums and internal targets.

The TCE ratio increased 24 basis points to 8.4% and our tangible book value per share increased 4% to $15.40. Our total shareholder return remains strong with 33% of our earnings returned to our shareholders during the period through the common dividend. As I mentioned earlier, we were very pleased that the board elected to increase the common dividend, demonstrating our commitment to provide an attractive return to our shareholders. I’ll now turn it back over to Archie for some comments on our outlook. Archie? Yeah, thanks, Jamie.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Before we end our prepared remarks, I want to comment on our forward-looking guidance for the third quarter, which can be found on slide 22. Loan pipelines remain strong over the second half of the year. We expect easing payoff pressures combined with higher production to accelerate our growth. Specific to the third quarter, we expect loan growth to be in the low to mid-single digits on an annualized basis. Core deposit balances are expected to be stable over the next quarter, excluding seasonal deposit outflows. Our net interest margin remains very strong and industry-leading, and we expect it to be in the range between 4% and 4.05% over the next quarter. Assuming a 25 basis point rate cut in September, we expect our credit costs to approximate prior quarter levels and charge-offs to be in the 20 to 25 basis point range for the third quarter.

While ACL coverage as a percentage of loans is expected to be stable to slightly increasing. We anticipate fee income to be between $67 million and $69 million, which includes $14 million to $16 million for foreign exchange and $19 million to $21 million for leasing business revenue. Non-interest expense is expected to be between $128 million and $130 million and reflect our continued focus on expense management. We’re excited about our recent announcement to acquire Westfield Bank in Northeast Ohio and are actively engaged in the integration process. Appropriate applications have been filed with our regulators, and we continue to expect approval and closing to occur this year. In summary, we’re very pleased with our second quarter and year-to-date financial performance, and we remain very excited about our outlook for the remainder of 2025 and beyond. We’ll now open up the call for questions. Rob, thank you.

Conference Call Operator: We will now begin the question and answer session. If you would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star one again. Your first question comes from the line of Daniel Tamayo from Raymond James. Your line is open.

Thank you. Good morning, guys.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Maybe.

We start just on the margin, specifically on the funding side. The second quarter you really had, you showed a good ability to continue to lower deposit costs. Even non-maturity deposit costs came down pretty meaningfully. Just curious kind of how you see that continuing to play out here as we go forward and where maybe you would see a bottom in terms of funding costs absent any kind of rate cuts.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Yeah, I think, Danny, it’s Jamie. I think we’re pretty close to that at this point. When we look out over the next, really the next quarter, we see deposit costs just coming down slightly now, like 2 or 3 basis points. In our outlook, included in our outlook is a rate cut, excuse me, in September and a rate cut in December. As we get into the fourth quarter, we see deposit costs maybe coming down a little bit more than that. I think we’re kind of close, you know, with rates stabilizing here. I think we were maybe a quarter behind some of our competition in terms of lowering deposit costs and really kind of wringing out those last few basis points.

I think you see that 12 or 13 basis point drop in our deposit costs, maybe a little bit more than the peer group, and that’s that lag that I was referring to. When we look out here in the third quarter, included in that margin outlook, in that 4 to 4.05 range, is about a 2 to 3 point drop in the deposit costs.

Okay, so given that and then the fact that your asset yields are already pretty strong, the loan yields up towards pushing towards 7%, is it fair to say you think that the 4% to 4.05% will be a peak for you guys and then maybe bounce around that level again kind of before we consider what happens with rate cuts?

That’s right, yeah. When we look out and kind of start bleeding in the rate cuts into our model, you know, and we’ve said this kind of all along that the slow kind of methodical 25 basis point rate cuts, you know, we can manage through those. Obviously, you know, like you mentioned, we’re asset sensitive, so it’s going to impact the margin negatively. Those kind of quarterly 25 basis point rate cuts impact the margin by about 5 or 6 basis points each. Okay.

All right, helpful. Just to clean up a question on the deposit outflows, the seasonal deposit outflows that you referenced that the guidance excludes, what would you expect those to be in the third quarter?

Yeah, on average, they’re about $100 million. We get a pop in the second quarter, and these relate to Indiana property taxes at our public funds. Those come in in May and November, and May is kind of the bigger pop, as some people pay the full year. We see that 100 to 150 basis point or $150 million jump in public funds in the second quarter. Those flow out. Those come in kind of mid, early May, start to flow out. On average, we see that it’s roughly $100 million, and those flow out towards the end of the quarter. Quarter to quarter, around $100 million.

Okay, great. Very helpful. All right, I’ll step back. Thanks for all the color.

Great, thanks, Daniel.

Conference Call Operator: Your next question comes from the line of Terry McEvoy from Stephens Inc. Your line is open.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Hi.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Good morning, guys. Hey, Terry.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Terry.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Archie, in the prepared remarks, you talked about the ongoing efficiency initiative producing results, and you can see that in the overall efficiency ratio. Can you just dig a little bit deeper and talk about kind of where across the company or within the bank, you’re really focused on cutting costs and driving that operating leverage? Yeah, Terry, we’ve been at this more than a year now, and we really are going through the whole bank to do the work. Literally looking at every function, every department, we like to say we’re kind of going knee to knee with our associates and understanding the task and looking for ways to improve the processes that they’re using. In some cases it’s technology, in some cases it’s just some process redesign.

I would say we’re probably 80% of the way through the company at this point in terms of the reviews that we’ve done and the work that we’ve done. There’s probably 20% to go over the next several quarters. There’s some technology in a couple of these areas we’re implementing in the back half of this year. We’ll probably do some final work as we get into early 2026. From there, I think we view the recently announced acquisition will also provide some additional help in terms of efficiency as we go deeper into 2026. Thanks. As a follow up, can you just talk about the impact the payoffs are having on loan growth? I’m trying to get a sense of more normalized loan growth. I know it’s low to mid single digits over the near term, but that includes payoffs which are subsiding. Ex payoffs, what’s that underlying growth?

Terry, if you just said, if you had a norm to think about. For us, the way we think about this is 6% to 7% loan growth over the longer term is kind of how we think and how we’ve been planning. We have seen, as we’ve talked about, some higher level of payoffs specifically in our commercial real estate group. What we’re seeing for Q3 is scheduled maturities are lower, a little bit higher level of production coming for the quarter. Commercial real estate in Q3 probably won’t grow. We’re not forecasting that particular part of the book to grow in Q3, maybe slightly down, but it’ll be a lot better than what we’ve seen in the last couple of quarters. What that will allow is the other areas that have really good production, their growth will be more reflected and show through the overall company.

That’s why we’re taking it up a little bit in Q3. Longer term, 6% to 7% is how I think about it.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Great.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Thanks for taking my questions.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Yep, thanks.

Conference Call Operator: Your next question comes from a line of David Conrad from KBW. Your line is open. Yeah.

Hey, good morning. Just real quick question on asset quality. It’s been really solid and admittedly it’s.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Off of really low levels, but we.

Did see a little bit of a growth there in CNI in terms of the non-accrual. Any color on that growth rate there would be great.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Yeah, David, Bill will cover that a little bit here. Yeah, absolutely. Our quarter over quarter increase in the NPAs was driven by downgrades of two commercial borrowers, one of which was significantly impacted by the tariffs. Recently, they have shown some improvement as the dust is settling and their impacts. The other relationship with the contract manufacturer is currently going through a sale process. We’ve taken the bulk of our expected charge-off this quarter with the remainder in reserve as the dust settles before the end of the year, and we expect a resolution by the end of the year. Great.

Okay, thank you. Jamie, appreciate the asset sensitivity color. I know Westfield’s not a big asset change for you, but just wondered if your asset sensitivity would change a little bit next year as you integrate that balance sheet.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: First of all, welcome to the call on your state view on here.

Yeah.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: You’re killing it.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Yeah. You’re doing a great job. Yeah, thank you. I would say, you know, of course the size of this acquisition is relatively small, but they’re slightly liability sensitive. You know, obviously then you got to kind of wash through here for a while some of the purchase accounting noise that takes place in the first couple of years. Overall, they’re going to help our asset sensitivity and bring us a little bit more closer to neutral. Again, obviously the size of their earning asset base is roughly around 10% of our earning assets. It’s on the margin, but it does help for sure.

Great. Perfect.

Thank you. Thanks again.

Conference Call Operator: If you’d like to ask a question, press Star one on your telephone keypad. Your next question comes from a line of Karl Shepard from RBC Capital Markets. Your line is open.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Hey, good morning, guys.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Just to start on loan growth, real.

Quick, I appreciate the comments on CRE trend.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Are you guys signaling a consistent pace?

Of growth in the other businesses, or do you think that there’s, I guess.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Opportunity for a little acceleration there in the second half as well? Yeah, this is Jamie, Carl. What we’re really seeing is just that headwind on the CRE side in terms of the payoffs and prepayments, some level of maturities. In the other business lines, we’re just seeing consistent growth. Those business lines would have varying levels of growth. When you look at consumer, CNI, consistently on the CNI, we had a good quarter in the second quarter on the CNI side. CNI and consumer are going to be, if we’re talking 5% to 7% loan growth, we’re getting kind of maybe the lower end from those types of businesses. Our specialty lines will grow maybe in that 10% to 12% range. When you blend it all together, it’s in that, call it 7%. Obviously, the specialty lines make up around 20% of the loan book.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Carlos, Archie, what you’ll see typically in the back half of the year, summit, their volume really strengthens, especially as you get into Q4. They’ll ramp up more in the back half compared to the first half.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Perfect.

I love slide 12, and then one quick one on the margin.

Methodical cuts you guys can manage through.

Can you just remind us?

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: A little bit of leading impact, too.

Asset yields though, and then the deposits.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Maybe catch up a half quarter later.

Is that fair?

Just thinking about the timing of cuts and how that one quarter. Yep, yep, that’s a good question. When we’re looking out and we have like the September cut, it obviously doesn’t have a whole lot of impact for the third quarter. As rates start to move down in anticipation of that cut, we will see our loan yield start to move down, maybe starting 30, 45 days in advance of that. You’re right. We try to get in front of the deposit costs as much as we can, but that’s more. It’s obviously not contractual like the loan side is, and it’s more market competition type base. Typically, that will have a quarter lag on the deposit side. That’s kind of what you saw here in the second quarter with us.

We tend to, given the fact that our margin is so high, lag the deposit side just to make sure we’re retaining balances more and err kind of on the side of the liquidity and not bring them down and maybe have to readjust and bring them back up. You’ll see that lag on the deposit side typically with us.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Makes a ton of sense.

Jamie Anderson, Chief Financial Officer, First Financial Bancorp: Thanks so much.

Conference Call Operator: We have reached the end of our question and answer session. I will now turn the call back over to Archie Brown for some final closing remarks.

Archie Brown, President and Chief Executive Officer, First Financial Bancorp: Thank you, Robin. I want to thank everybody for joining us on today’s call and tracking with us on our really great second quarter. We look forward to talking to you again next quarter. Have a great day and weekend. Bye now.

Conference Call Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.