Q2 2025 First Financial Bancorp Earnings Call
Thank you for standing by and welcome to the First Financial Bank. Corpse second quarter, 2025 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speakers 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 1 on your telephone keypad. If you would like to withdraw your question again, press star 1, thank you. I'd now like to turn the call over to Scott Crawley. You may begin.
Good morning, thank you rob. Uh good morning everybody and thank you for joining us on today's conference call to discuss First Financial Bank Corp second quarter and 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 Herod Chief credit officer.
Last release we issued yesterday and the accompanying. Slide presentation are available on our website at www.bankfirst.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 4 looking statement, disclosure contained in the second quarter of 2025 earnings release as well as our SEC filings for a full discussion of the company's risk factors.
The information we will provide today is accurate as of June 30th 2025 and we will not be updating any forward-looking statements to reflect facts or circumstances after the call.
Archie Brown: I'll now turn it over to Archie Brown.
Archie Brown: Uh, 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.
Archie Brown: We achieved record revenue of 226.3 million.
Which represents a 5% increase over the same quarter 1 year ago?
Archie Brown: And drove adjusted earnings for share of 74 cents a return on assets of 1.54%.
And the return on tangible, common Equity of 20%.
Archie Brown: The company's industry leading profitability was once again, driven by a robust net interest margin.
Archie Brown: Long 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 icy portfolio are lower.
Archie Brown: 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.
Archie Brown: Over the linked quarter and a 10% increase over the second quarter of 2024.
Archie Brown: 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.
Archie Brown: We were also pleased with our expense management with adjusted n districts expenses, increasing 1% compared to the first quarter.
Excluding leasing business expenses, which continued to increase as our operating lease portfolio grows.
Adjusted due to expenses increased by less than 2%.
Archie Brown: On a year-over-year basis.
Asset quality was stable for the quarter. Net charge offs decline, 15 basis points from the first quarter to to 21 basis points of total loans.
Archie Brown: And classified assets balances were relatively flat.
Archie Brown: Our outlook for asset, quality remains positive, and we expect net, net charge offs to be in the 2025 basis points range for the remainder of this year.
We're pleased with the capital levels regulatory. Ratios are very strong.
And tangible common Equity has continued to grow.
Archie Brown: Increasing 16% over last year to 8.4% chance. We look value per share increased to 15.40, which was a 4% increase from the linked quarter.
Archie Brown: And a 19% over the same period.
Archie Brown: 19% increase over the same period last year.
Archie Brown: We're also pleased to announce that our board of directors approved a 1 cent or 4.2% increase in the common dividend to 25 cents.
The dividend payout remains approximately 35% of net, income and continues to provide an attractive yield.
Archie Brown: 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 4 looking commentary and closing remarks.
Jamie: Thank you RG. Good morning, everyone.
Speaker Change: Uh slides 4 5 and 6, provide a summary 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.
Speaker Change: Our net interest margin remains very strong at 4.05%, which represented a 17 basis point increase from the first quarter.
Speaker Change: Funding costs declined. 12 basis points driven by a 13 basis point. Decrease in deposit costs,
Yields increased 5 basis points.
Speaker Change: Loan balance has increased modestly during the quarter as growth in cni consumer and our specialty. Businesses offset elevated, prepayments in the icy portfolio.
Speaker Change: Average deposit balance is increased 114 million due primarily to a seasonal influx in public funds and higher non-interest bearing deposits.
Speaker Change: We maintain 21% of our total balances and non-interest bearing accounts and remain focused on growing lower cost deposit balances.
Speaker Change: Turning to the income statement, second quarter fee, income was solid led by double digit percentage growth in mortgage, and mortgage and bank card income.
Speaker Change: Additionally, our Leasing and foreign exchange exchange businesses, had good quarters.
Speaker Change: 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.
Speaker Change: Our ACL coverage increased slightly during the quarter to 1.34% of total loans.
Speaker Change: We recorded 9.8 million of provision expense During the period which was driven by net charge offs and Loan growth.
Speaker Change: 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,
Speaker Change: Classified asset, balances were relatively were relatively unchanged During the period at 1.15% of total assets.
Speaker Change: From a capital standpoint, our ratios are an excess of both internal and Regulatory targets.
Tangible Book value increased 60 cents to $15.40 while our tangible common equity ratio increased 24 basis points to 8.4%.
Speaker Change: 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.
Speaker Change: Slide 7 Recon is our gaap earnings to adjusted earnings highlighting items that we believe are important to understanding our quarterly performance.
Speaker Change: Adjusted, net income was 70.6 million or 74 cents per share for the quarter.
Speaker Change: Non-interest income was adjusted for gains on the sales of security of investment securities.
Speaker Change: While non-interest expense adjustments, exclude the impact of acquisition and efficiency costs and other expenses, not expected to recur.
Speaker Change: 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%.
Speaker Change: Turning to slides 9 and 10, net interest, margin increased 17 basis points from the linked quarter to 4.05%.
Speaker Change: Asset yields increase 5 basis, points compared to the prior quarter as low yields increase 3 basis points. And the yield on the Investment Portfolio, increased 9 basis points
Speaker Change: Total funding costs decline, 12 basis points driven by a 13 basis point decrease in deposit costs compared to the length quarter.
Speaker Change: Slide 12 illustrates our current loan, mix and balance changes compared to the linked quarter.
Speaker Change: Loan balances increased 2% on an annualized basis with growth in cni consumer and Specialty businesses outpacing a decline in icy driven by elevated prepayment activity.
Speaker Change: Slide 14 shows our deposit mix as well as a progression of average deposits from the linked quarter.
Speaker Change: In total average deposit, balances increase, 114 million during the quarter.
Speaker Change: There was a seasonal influx in public funds and we had solid growth and non-interest bearing deposits. While in the consumer side growth in retail CDs, helped to offset declines and money market and interest. Bearing demand accounts.
Speaker Change: 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 dollars.
Speaker Change: This equates to 27% of our total deposits.
Speaker Change: 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.
Speaker Change: Slide. 16 highlights our non-interest income for the quarter.
Speaker Change: Leasing mortgage and interchange having strong growth quarters.
Non-interest, expense for the quarter is outlined on slide 17.
For expenses increased, $1 million During the period.
This was driven primarily by higher incentive, compensation tied to the company, strong results as well as increases in marketing expenses.
As I mentioned earlier our, 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.
Speaker Change: This resulted in an ACL that was 1.34% of total loans, which was a slight increase from the first quarter.
Speaker Change: For vision, expense was primarily driven by loan growth and net charge offs which were 21 basis points for the period.
Speaker Change: Overall, credit Trends were stable with a 42% reduction in net. Charge offs and classified asset balances, totally 1.15% total assets.
As expected, our ACL coverage was coverage, was relatively flat compared to the linked quarter and we continue to believe we had model, we have model conservatively to build a reserve that reflects the losses we expect from our portfolio.
Speaker Change: We anticipate our ACL coverage, will remain flat or increased slightly in future periods as our model, responds to changes in the macroeconomic environment.
Speaker Change: Finally as shown on slides, 20 and 21 Capital ratios remain in excess of regulatory minimums and internal targets.
Speaker Change: The tce ratio increased 24 basis points to 8.4%.
Speaker Change: and our tangible book, value per share, increased 4% to $15.40
Speaker Change: For shareholder return remains strong with 33% of our earnings returned to our shareholders During the period through the common dividend.
Speaker Change: 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.
Archie Brown: I'll now turn it back over to Archie for some comments on our Outlook Archie. Yeah, thanks Jamie.
Speaker Change: Before we end our prepared remarks, I want to comment on an overlooking guidance for the third quarter, which can be found on slide 22.
Speaker Change: 1 pipelines. Remain strong over the second half of the year. We expect easing payoff pressures combined with higher production.
Speaker Change: To accelerate our growth specific to the third quarter. We expect long growth to be in the low to mid single digits on an annualized basis.
Speaker Change: Core deposit, balances are expected to be stable over the next quarter, excluding excluding seasonal deposit, outflows
Speaker Change: 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.
Speaker Change: We expect our credit cost to approximate prior quarter levels in charge off 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
Speaker Change: We anticipate fee income to be between 67 and 69 million.
Speaker Change: Which includes 14 to 16 million dollars for foreign exchange.
Speaker Change: And 19 to 21 million for leasing business Revenue.
Speaker Change: Non-interest expense is expected to be between 128 and 130 million and reflect our continued. Focus on expense management.
Speaker Change: 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.
Speaker Change: And Beyond.
Rob: We'll Now open up the call for questions, Rob.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 and your telephone keypad to raise your hand and enjoy the queue. If you would like to withdraw your questions, simply press star 1 again.
Rob: Your first question comes from a line of Daniel tamiyo from Raymond James, your line is open.
Thank you. Um, good morning, guys.
Speaker Change: Hey, Danny. Maybe
Speaker Change: Meaningfully. So just curious kind of how you see that continuing to play out here as we go forward and where we're maybe we uh you know you would see um a bottom in terms of funding costs absent, any kind of rate cuts.
Yeah, I think then it's Jamie. I think we're uh, I think we're pretty close to that at this point. I mean, when we look out over the next, uh, really the next quarter. Um we see deposit costs just coming down slightly now like 2 or 3 basis points. Um and then so in our Outlook
Including our Outlook is a uh, rate cut. Excuse me, in September and a rate cut in December. So, you know, as we get into the fourth quarter, that, uh, we see deposit costs, maybe coming down a little bit more than that, but I think we've we're kind of close, you know, with rate stabilizing here I think we were we were maybe a quarter behind some of our competition in terms of lowering deposit costs and really kind of wringing out that those last few basis points. So I think you'll see that, you know, 12 or 13 basis points, drop in our deposit costs, maybe a little bit more than the peer group and that's that lag that I was referring to. So, um, you know, when we look out here in the third quarter included in that margin Outlook, you know in that 4 to 405 range is a is about a 2 to 3 point drop in the uh deposit cost.
Speaker Change: Okay, um, so so given that, and then the fact that you're, you know, your asset yields are already pretty strong the loan yields up up towards pushing towards 7. Um, you know, is it, is it fair to say? You think that the 4 to 4005 will be a peek for you guys and then maybe bounce around that level? Um again, you know, kind of before we consider
Speaker Change: What happens with rate cuts?
That's right. Yeah.
when we again, when we look at and and kind of start bleeding in the rate cuts into our into our model, um,
Speaker Change: You know, and we and we've said this kind of all along that, you know, the slow kind of methodical 25 basis point rate cuts. Um, you know, we can, we can manage through those obviously, you know, like you mentioned, we're asset sensitive. So it's going to impact the margin negatively. But those those kind of uh quarterly 25 basis points rate Cuts impact, the margin by about 5 or 6 basis Points each
Speaker Change: Okay.
All right, helpful. And then, um, just to clean up 1, uh, question on the deposit, outflows the, uh, the seasonal deposit outflows that you referenced that the, uh, guidance excludes. What, what would you expect those to be in the third quarter?
Yeah, they're on average, they're about 100 million. Um, so we get a little, we get a pop in the, in the second quarter. Um, and these, these relate to Indiana property taxes at our at our public funds. So, those come in in May and November, and primarily in May, is kind of the big, a bigger pop as some people pay, uh, the full year. So, um, we will, uh, we see that 100 to 150 basis point or 150, uh, million dollar, uh, jump in public funds and the second quarter, those those flow out. Those come in kind of mid uh early may start to flow out so on average, we see that you know it's roughly a hundred hundred hundred million dollars and those flow out um towards the end of the quarter. So quarter to quarter is around a hundred million dollars
Speaker Change: Okay, great. Very helpful. All right, I'll step back. Thanks for all the color.
Speaker Change: All right, thanks penny.
Speaker Change: You're next question comes from Alina of Terry mackoy from Stevens, Inc. Your line is open.
Alina: Hi, good morning, guys.
Terry mackoy: Hey, Terry there.
Speaker Change: Archie and the the prepare prepare to Mark. You talked about the ongoing efficiency initiative uh producing results. And you can see that in the in the overall efficiency ratio, could you just dig a little bit deeper and talk about kind of where across the company or within the bank here. Um, really focused on on cutting costs and driving that that operating Leverage
Yeah, Terry. We've been we've been at this more than a year now, and we really are going through the whole Bank, uh, to to do the work. So literally looking at every every function, every Department.
um we we like to say we're kind of going knee to knee with our Associates and understanding, you know, the task and looking for ways to uh
improve the processes that they're they're using in some cases as technology some cases, it's just
Speaker Change: Uh, some process redesign. So I would say we're
Speaker Change: Probably 80% of the way through the company at this point in terms of the reviews that we've done and and the work that we've done.
Speaker Change: um, and then there's probably probably 20% to go over the next uh,
Speaker Change: A couple of these areas where implementing and they'll back half of this year and then we'll probably do some final work as we get into early. Uh,
Speaker Change: Uh, 2026.
Speaker Change: And then from there, I think we view, you know, the recently announced acquisition will also uh, provide some additional help in terms of efficiency as we go deeper into 2026.
thanks and and as a follow up, um,
You just talk about the impact. The payoffs are having on on loan growth. I'm trying to get a sense of more normalized loan growth. I know it's mid low to mid single digits over the near term, but that that includes, you know, payoffs which are subsiding, so, kind of X payoffs. What's that underlying growth? Terry. If you just set a, if you had a, a norm to think about, for us, the way we think about this is, you know, 6 7%, long growth over the longer term is, is kind of how we think and how, we how we've been planning. Um, we have seen, as, as we've talked about some
Speaker Change: Higher level of payoffs specifically in our Commercial Real Estate Group.
Speaker Change: uh, what we're seeing for Q3 is schedule maturities are lower a little bit higher, uh, level of production, uh, coming for the quarter commercial real estate in Q3 will probably
Speaker Change: It it probably won't grow. We're not we're not forecasting. That particular part of the 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 and what that will allow is. The other areas that are have really a good production. Uh, their growth will will be more reflected and show through uh, the overall company. So that's why we're taking it up a little bit in Q3.
Speaker Change: Uh, but longer term 6 to 7% is how I think about it.
Great. Thanks for taking my question.
Speaker Change: All right. Next question.
Speaker Change: Yeah. Hey, good morning. Um, just real quick question on on asset quality. Um, it's, it's been really solid and, and admittedly it's off of really low levels, but we did see a little bit of a, a growth there in cni in terms of the non-accrual. So any color on that that growth rate, um, there would be great
Speaker Change: Yeah, David Bill uh, bill will cover that a little bit here. Yeah, yeah, absolutely. So our quarter over quarter increase.
Speaker Change: Um, and the npas was driven by downgrades of 2 commercial Borrowers.
Speaker Change: Uh, 1 of which was significantly impacted by the tariffs. Uh, but recently, um, they have shown some improvement as the dust is settling in their impacts.
Speaker Change: Uh, the other relationship is a contract manufacturer, which is currently going through a sale process. Uh, we've taken the bulk of our expected charge off this quarter with the remainder. Um, in reserve, for as a dust settles before the end of the year and we expect a resolution by the end of the year.
Speaker Change: Great. Okay, thank you. And then um,
Speaker Change: Jamie appreciate the the assets sensitivity color and I know Westfield's not a big uh, asset change for you, but just wondered, if if your ass is sensitive to me, would change a little bit next year, as you integrate that that balance sheet.
Yeah.
Speaker Change: Uh, I'm your host debut on here. So yeah, the um, yeah, it it.
Yeah, yeah, yeah.
Speaker Change: You're doing a great job? Yeah.
Speaker Change: Thank you.
Yeah, yeah, no. No it um,
Speaker Change: I would say it. You know, of course, the size of this acquisition, you know, is is relatively small. But um, so there there's slightly, there's slightly liability sensitive. So um, and you know, and obviously then you got to kind of wash through here for a while. Some of the, some of the purchase accounting noise that takes place in the, uh, you know, in the first couple of years. But
Speaker Change: But overall, they're going to help our asset sensitivity and and bring us a little bit more uh, closer to neutral. Um, but again obviously the size of their, you know, earning asset base, you know, is roughly around, you know, 10% is of our uh of our earning assets. So um it's on the margin but it does help for sure.
Speaker Change: Great perfect. Thank you.
Speaker Change: Yep. Thanks.
Speaker Change: Again, if you'd like to ask a question press star 1 on your telephone keypad, you are. Next question comes from a line of Carl Shepard from RBC Capital markets. Your line is open.
Carl Shepard: Hey, good morning, guys.
Carl Shepard: Uh, just to to start on loan growth real quick. I appreciate the comments on CRA Trends. Are you, are you guys signaling a consistent pace of growth in the other businesses? Or do you think that there's um I guess opportunity for little acceleration there in the second half as well?
Well yeah. So what what we're really seeing is really just that headwind on the CRA side.
Carl Shepard: Um, in terms of the payoffs and prepayments, um, some level of maturities. But, um, but the but and really in in the other business lines, we're just seeing consistent growth. Now, those those uh, those business lines would have varying levels of growth. So like when you look at, you know, consumer cni, you know, consistently on the cni, we had good quarter on the in the second quarter on the cni side, but you know. Cni, consumer are going to be, you know, if we're talking 5 to 7% loan growth, we're getting kind of maybe the lower end from those types of businesses. And then our specialty lines will grow, you know, maybe in that 10 to 12 range and when you blend it all together, it's, you know, in that call it 7%. So, obviously, the specialty lines make up
Carl Shepard: around 20% of the, uh, of the loan book and Carlos starts, you what you'll see typically in the back half of the year, um, some
Carl Shepard: Of it, their volume really strengthens, especially as we get into Q4. So they'll, uh, they'll ramp up more in the back half, uh, compared to the first half.
Carl Shepard: Perfect. I I love slide 12, um, and then 1, quick 1 on the margin.
Methodical Cuts. You guys can manage through. Is it can you just remind us? Um, a little bit of lead leading impact to asset yields though and then the deposits maybe catch up a half quarter later. Is that is that fair? So just thinking about the timing of cuts and how that. Yeah, 1 quarter, the other 1. Yep. Yep, that's a good question. And so, you know, when we're looking out and we have like the September cut, you know, obviously doesn't have a whole lot of impact for the third quarter, but um, as rates start to move down and anticipation of that cut, um, you know, we will see our loan yields start to move down, you know, maybe starting 30, 45 days in advance of that, and then, and then you're right. I mean, we try to get in front of the deposit costs as much as we can.
Carl Shepard: Um, but you know, that's more that's obviously not contractual like the loan side is and it's more, you know, Market competition type base. So yeah, typically that will have a um
Border lag on the deposit side and that's kind of what you saw here in the second quarter um with us. And and we we tend we tend to you know give them the fact that our margin is so high. We tend to uh,
Carl Shepard: We tend to lag the deposit side just to make sure we're retaining balances more and are kind of on the side of uh of liquidity and not bring them down and and and maybe have to readjust and and bring them back up. So yeah, so you'll see that. You'll see that lag on the, on the uh, deposit side typically with us.
Okay. Makes a ton of sense. Thanks so much.
Carl Shepard: Yep. Yep.
And 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: Thank you Robin. Well, thank you very much 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. Uh, next quarter. Have a great day and weekend. Bye now.
Archie Brown: This concludes today's conference call. Thank you for your participation. You may now disconnect