First Financial Bancorp. (FFBC) 21 Jul 232023 Q2 Earnings call transcript

Good morning. My name is Rob and I will be your conference Operator today.

At this time, I would like to welcome everyone to the First Financial Bancorp second quarter 2023 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.

to followed question on by keypad. like simply this your would star press the you ask during a time, telephone If number one

you again your If to one. star, question, like would press withdraw

Crawley, Scott may conference. Controller, Thank you. Corporate begin you your

Officer; morning discuss will and Thank to results. you Harrod, for conference Financial Participating Anderson, XXXX be financial Bancorp’s President second Jamie on and joining you everyone Executive Officer, thank call on Archie Financial us Brown, and Chief Credit Rob. Chief today’s year-to-date today’s Good First call Chief quarter and Bill Officer.

press issued section. accompanying today’s call. www.bankatfirst.com release under Both slides make the the at available presentation during Relations Investor the we the We’ll accompanying are slide in presentation the website reference and our on to yesterday contained

to the disclosure filings forward-looking The our risk as we the Additionally, contained statements as earnings this XXXX updating XX, of facts circumstances forward-looking call. SEC information to will XXXX as after will please today statement not and discussion or any in company’s release, be full refer is quarter second accurate provide of well June we reflect factors. for a the

I’ll over call turn Archie to now Brown. the

morning on Good thank Scott. you joining us and Thank for our you everyone call.

to financial to afternoon, on some over high turn provide second our then results level further recent announced Yesterday Jamie we quarter. our call the thoughts the details. for I’ll provide performance and

in assets X.XX% XX.XX% tangible compared Earnings adjusted this XX% by strong on common continue offset deposit equity the I to $X.XX, yields. was as in with increase year. was quarter asset share in XXXX, expected Adjusted costs and earnings were higher per a pleased was performance respectively. our return again increase an the the quarter to while were second and once very be mostly same which

deposit the enabled stabilization We sheet Net to asset-sensitive and May by interest of rate were were the quarter. interest-bearing continued the balances business of higher increasing interest environment. half period expectations from June in has during to the to as Personal, the exceeded deposits balance encouraged margin navigate mix fund products. company the to shift our public while successfully the last stable to

this client higher in fee and period. net performance our strong leases wealth level quarter expectations financed management. less largely swaps, exceeded mortgage income group This had nice bolstered banking, with Summit fee our from of quarter shifted in the has the shift has but although Our a to funding income during resulted and loans. another mix interest income originations,

for was growth the expectations line quarter. in with Loan

XX basis charge-offs we expect in assets quarter the While in basis slowed quarter. line loan classified quarter linked were strong loan loan weeks second having the XX% a year. pleased last from quality early the asset half and were quarter We have of the Net and after fourth on declined moderate in of the while that activity and recent in quarter. the we annualized paydowns, experienced an remained pipelines growth zeroed during points higher strengthened net recovery commercial XXXX,

after the turn I’ll detail, discuss forward-looking some to to call now I’ll results over greater commentary. in Jamie’s additional that, With and Jamie up with these wrap discussion,

Jamie?

financial and morning Good results. a X of Archie. you X, second our X provide Slides summary Thank everyone. quarter

Our and stable performance was solid quality. fee margin, asset excellent, net income, driven high earnings, strong by interest

our X to only margin positively Our asset-sensitive net environment declining basis interest period. balance sheet the continued with points during the interest current rate to react

hikes to We fewer the near modest continue rate term net due on contraction anticipate margin deposit pricing. pressure additional interest and in to

Loan mortgage loans portfolios. the the was relatively growth with leasing other was X.X% an line Total residential in which and in stable grew on in annualized with expectations. books basis, balances concentrated our

posting another in income strong management the quarter second Fee with quarter. wealth remained record

compared leases Summit mix rebounded loans. of income mortgage the Additionally, finance had quarter, resulted to in level Bannockburn This net as strong shifted origination another previous higher production quarters. quarter the although fee and during to less had a period. mentioned, income but solid and shift to Archie a additive interest our was

increased higher the from linked Non-interest quarter slightly employee expenses marketing and to due costs.

were than lower Second we to anticipated and quarter expenses due leasing expenses fraud slightly costs. better business

an Asset as quality period. compared in basis annualized or the declined quarter, zero a in the to quarter. loans $XX of during first during percent basis XX resulting was second in points. million stable of the were XX net points XX% the charge-offs assets quarter total Classified Net on year-to-date charge-offs basis

during loan growth. expense of by net provision driven slower was We prepayment $XX.X rates, recorded the period which and million charge-offs

As our X.XX%. ratio coverage increased ACL a X to by points result, basis

in From while a value Accumulated million standpoint, result, regulatory improved basis ratio both X.X%, comprehensive $XX income of period; points. ratios by tangible equity as excess the other our remain targets. a book during increased or X and regulatory internal capital $X.XX common tangible declined

understanding a earnings, to associated important quarterly Adjusted banking exclude highlighting per we and $X income that $X.XX adjusted the million conversion, the our write-down, tax $X.X for $XX.X to other of with impact to of or credit earnings believe GAAP quarter. our not million net online $X investment Adjusted reconciles recur. items X our costs million earnings of million expected costs was share performance. Slide are

of of to Slide return a average assets of X.XX%, return on on an adjusted and a XX.X%. these equity common tangible equate efficiency depicted on XX.X%, X, As earnings average ratio

X.XX. points to Turning X linked basis X, to the declined net quarter Slide from margin interest

pleased earning said, yields higher asset yields profitable to during balances a As basis increases of mix we of points asset funding increase more cost basis that period. increased due point to the outpaced we rates expected, asset and higher That due in the XX in a XX were costs primarily deposits. being

increased asset Slide yields investments to XX the slower securities. basis yields and of mortgage-backed prepayments loan XX, points quarter as floating basis On the X during re-pricing increased yields by second points. Investment on grew due rate

competitive further and quarter, to first pressures increase coming we Our basis in the expect quarters. cost sustained costs points XX these to increased to of reaction deposits compared in

details up to points interest Slide approximately our in net XX%, second through-the-cycle our greater with with utilized our velocity percentage at the the XX in X XX%. [indiscernible] increased beta current estimated quarter, moving betas beta

XX our outlines and borrowing liquidity of sources capacity. various Slide

We continue the expected we manage balance flexibility environment. through required the have the to economic to sheet believe

illustrates loan balances Slide to changes linked mix and our the compared current XX quarter.

As annualized I mentioned loan driven before, balances X.X% basis, loans. Summit growth on mortgage with increased and an by

The other loan portfolios the to prior were relatively when compared unchanged quarter.

loan our details portfolio a provides loan industry. particular believe provide Slide sufficiently industry. XX from remains We deterioration our protection by to diversified concentration of in

Slide XX provides loans. space office of details our

LTV and of is book less the see, X% total concentrated the loan is strong. of portfolio can overall our you than As office in space

in suburban is economic we on markets into general borrowers our portfolio to footprint A immune of our B office primarily leaning believe our much While that not and Class space, stress continue assets mitigates within risk. to with

bearing money deposit Slide deposits accounts decline XX total, non-interest This rates in accounts. driven average market from quarter. higher shows average $XXX a savings was CDs progression interest our of linked products, deposit to mix well as declined million decline as in accounts. million have like the and expected a and quarter, more during customers million In as the $XX expensive balances driven the $XXX by primarily

during million accounts. the Additionally, increased transaction CDs decline $XXX period, offsetting brokered in the partially

for and personal, borrowing fund our uninsured in deposits, as trends comparison of well as public deposits. a business average depicts XX capacity Slide our

in continued decline. balances personal fund and were the stable deposit quarter, business deposits to relatively While public

last decline to discussed primarily decline related As this record we from quarter, high post-COVID is a balances.

total right slide, to deposits. This XX. bottom XX% can the were our our equates deposits see of On billion of uninsured $X.X the you adjusted at June

would concentration this with comfortable event balances. that borrowing provides and respond are We to sufficient deposit capacity believe our stress larger flexibility to any our

depicts with to Finally month. deposits deposits, respect average Slide by XX

levels the impacted but in months customers thereafter. by a Deposit in were who two large was large that balances. negatively quarter. in decline April As first lower you can part of see, the the balances two last deposit of stable initiated transactions normalized experienced deposit resulted year the business

Slide our results. quarter to quarter. non-interest the for Bannockburn continued post while another XX management strong Wealth record highlights had income

a mortgage to the income shift Summit during addition, period. very leases. the however, quarter; mix to product in leasing during income finance had rebounded period declined another In due strong

While quarter was exceeded the Summit the the from the of margin to fee business first interest than the lower contribution first amounts. quarter, portion net

quarter XX. by expected; however, were the driven were increase elevated by than they a compared costs initially These increase marketing and slight lower expenses. expenses for employee Core we Non-interest to leasing the higher lower partially and Slide expense on offset costs. outlined was were first business is quarter. This increases fraud

stable. quarter which allowance X of an quality $X.X driven was by total of from and growth. total point quarter. net charge-offs Net Turning ACL now annualized total provision the and increase and $XX.X resulted asset basis our both funded of of was This that prepayment period. an $XXX expense million expense on unfunded resulted to or relatively ACL which a charge-offs Overall, points during loan first in loans, model zero XX, Provision basis. from the the basis total includes first loans in slower XX X.XX% a to speeds, million in increased million was remained Slide reserves

is the charge-offs we quarters, reasonable While than XX believe this higher amount. net a is amount two year-to-date basis previous of points

increased XX% decreased to the during due downgrade relationships. $XXX the of two however, non-accrual million; assets loans period Classified to

environment. to to coverage responds continue model in our macroeconomic to increase the changes the ACL as We periods expect slightly coming our in

and internal ratios and shown as excess targets. XX XX, Finally capital remain on Slides in minimums regulatory regulatory of XX,

second reported. TCE June income X.XX% and strong would AOCI, the been due quarter, our second X.X% Absent million tangible and increased to impact X%, TCE quarter to have ratio. the Accumulated book the X compared other During earnings. as declined our $XX or TCE impact $X.XX basis increased from the during value XX at the to points ratio continues ratio comprehensive

ratios of the losses will that in XX securities in targets, excess Slide including the unrealized portfolio. capital demonstrates our remain regulatory

remains common anticipate to We return period provides as of however, our XX% dividend the year robust the an return through will during attractive earnings actions shareholders continue evaluate to and capital any the not our shareholder near do various total we progresses. believe shareholders our Our returned our changes; with to term dividend.

comments I’ll outlook Archie going now turn Archie? for forward. it to back some our over on

Thanks Jamie.

Before remarks, comment on to our prepared be found can forward-looking want XX. guidance, Slide on our we I end which

I remain year. to growth As pipelines the contributor in to a expect mentioned and strengthened of recent significant earlier, Summit we weeks rest loan the

in near segments the growth in single stay We overall continue mid digits to where the expect certain term. more to be we in selective

securities, flows will the Regarding growth. cash continue to portfolio loan support we to utilize

grow the continue as term expect traction. near to gain strategies our deposit We pricing to balances in modestly

around deposit uncertainty and some rate still demand is management, There loan fed pricing competition.

balance thus in sheet helped the deposit far cycle. offset us much has asset-sensitive pressures of Our

margin range anticipated additional an between July We in interest quarter interest contraction in continue increase. to with based X.XX% the third on our rate X.XX%, modest expect a net to

to rates customers. Specific still in economy of uncertainty to period and a inflation higher our and credit, the of the regarding we’re impact

Over the stability third be quarter, and we quality our coverage in trends credit higher. continued ACL to expect slightly

and including expect be million third $XX between income range $XX fee leasing business. stable to total the in the in We a and quarter million, in

Specific lease between expenses, $XXX expect expense million, portfolio. from to depreciation includes we $XXX million be and to which the

to in leasing quarter. stable expenses the Excluding be we third expense, expect

Lastly, the our dividend strong and to our level. maintain capital current expect ratios we at remain

We interest of are net back strong pleased the loan our with certainly our fee half second our robust the results quarter the position sustain our and in quality expected growth, with margin, stable of to asset consistent income year. balance performance sheet,

capital power, the of event provide support and a increasing levels, downturn our in reserve earnings additional strong and in economy. the high levels Additionally,

call the for With questions. Rob? up that, we’ll open now

[Operator instructions]

the line comes first Tamayo Raymond Your from Daniel James. of from question

is open. line Your

starting margin in what there are, for Good could guidance, forward on just taking going for with the if let morning non-interest and declines that. just then questions. first guys. bearing you know assumptions Maybe just--well, my start let’s me Thanks or baked degradation the Thanks.

second Jamie. at the--from obviously are What the many seeing. shift we the quarter quarter, here, to mix it’s looking are saw the we first like Danny, in

the than We that in to and of we same quarter maybe a with and of same type level in in here to continue mix We deposit linked continue shift that we third same on slightly the we same second XXX in the shift and on in the from continue around XX saw quarter. second basis that saw the expect what cost the increase X to more of level level quarter. quarter, to expect quarter point quarter, that second mix general had essentially and third generally increase that

more Maybe of with just the even second on seeing, the we pressure bit saw a we’re that again in quarter. on the increase side, the costs than little cost maybe an deposit

we of those range that in gave into there. We’re ramp But just up seeing the that’s outlook significantly. pretty again, our baked the margin forecast

Jamie. Okay, great. Thanks

rate the risen. post that about think potentially frame, we me get the come relatively hikes. time help more Obviously rate post that in point? that and think through fourth the quarter, expecting or maybe point? flat you at as Once seen more have Then really hike stay into ramps yields budgeting asset nicely for guys side how rates Are overall do you have margin asset increases you does at deposit

XXXX, Yes, in still little pauses look of in the think as if X.XX our X I but and at the in end of while, before out we looking Fed mid our do half--in maybe bit the come, here margin--we and farther any get through, cuts, somewhere those deposit in margin year, to that even costs we’ll somewhere middle the a of then of stabilizes if then next the that next that in first the you the rate towards year, the kind deposit--increases say increases but a assumes--again, at part little to pauses some around there a margin that July year, see think X assume Fed X.XX minimum first Fed--let’s for assumes a coming range. that stabilizing

step and Jamie. ahead I all color, go appreciate back. I’ll terrific. Okay, that

from Piper from of next Sandler. Nosal Your Brendan comes the question line

line open. is Your

Hey, good Hope you’re guys. morning doing well.

of factors piece, can here the on quarter into between and operating leasing expense guides? and financing, mix Maybe within how the dynamics this and the kind walk you that and how from progresses fee that through leases

the Jamie Brendan. the Yes, to way. this again, call, is Welcome by

we did In change. the a quarter, significant pretty second see

the the virtually quarter. leases little to lease--virtually lease with It’s market quarter production XX% and quarter. leases out leases, the to bit it saw to we always a the into a the see consistent as the things, XX% a opposed the some all, shift a it from of production in holding of held a can same some the you’re secondary two we where quarter to most not contract was of have portfolio necessarily quarter all were of combination bounce leases the a second small--virtually leasing where finance all little that, all going of of quarters we’ll dramatic those produce fee The In around income. sell some will pretty quarter, income all high mix quarter, we’re finance to and high finance First and leases, leases of bit.

leases seeing we at income XX%, leasing typically probably are that Going the vast we majority income the see that you forward, growing the forward, quarters, million that at so in we each finance that growing see that’s and in leasing next look and down we we lens business couple million $XX.X of moment. had $X.X division. going fee here quarter When about leases not much holding the XX% we we about section, as that, a into in range, may much have the it, for of first had were as but when the see we the income line as by

the side expense we we Typically the about million side by million, X, next expense, see quarter is quarters. then see so so ratio side income million $X for business see fee X.X is a what expense about so the we right leasing the had couple to by that in growing growing to part about the on each around we a

That’s Thank fantastic. Jamie. super helpful you. right, All commentary,

were a those you Were on driven as quarter, offer little the this your if reserve both how charge-offs drove credits guys at you increase point? released, what and in you this noted the experienced? the NPAs Can me. from so, by for same more you well one they just see Maybe more two that do color as

non-performing increase by was Bill the which in - unique them our talked they’re earlier, portfolio we’ve driven as borrowers, don’t when space, space, assets, really we them, about is CRE morning. good the consider The C&I across two on the Harrod very one at one this Yes, - circumstances. in systematic looking

We’re obviously both. through on resolutions working

issues, related with having and was office really a challenges CRE credit rollover. is management their lease been credit that’s The C&I to small the

bring the to loan other. down know, are values, charge-offs non-accrual on CRE were in properly reserved it and to the appraised mainly have--you We the our write-down the driven by of we

for All Thank excellent. my you taking questions. right,

to one star number then you like if the keypad. on Again ask would your question, press telephone a

of Your from line McGratty comes the next KBW. from Chris question

open. is line Your

Hi, for McGratty. this is morning Chris Nick Moutafakis Good on guys.

Hi Nick.

a you retail. if two deposits, and if bifurcated and catch-up a segments or a bifurcate and know, side seeing--you commercial on between that? the--at Are in as already the retail you you retail, commercial on then a just you on commercial is on and Maybe non-interest the make can whole, maybe the dynamics those in the maybe mix how make comment least commercial comment seen outflows have there’s and maybe already--you’ve on can

Archie. this Nick, Yes is

show balance month. you slide, I think think look can at XX, the it’s on we trends the there one by I

pressure businesses, quarter, past that’s our segments, to feel so funds normal now probably where some with operating little see we a see They like lines pretty some seen, pay on we’ll stabilization and but in interest in business. bearing little at more are some the overall generally quarter, going the mix they’re have going to the You’ll a to to grow we’re continue they some of but down, as cycles much in really Even of NID side. more so balances the tick-up point, still of a see to that personal, going Jamie occurred we’re liquidity. and used the we’ve during said, this bit going so. maybe deposits place kind business shift At of public grow for we’re like and forward, each

comment. another got Jamie’s

Jamie. is this Nick, Yes

we’ve that in which growing accounts, COVID, deposits. new a down, coming number increase last in account we’re with large the are good of balance But are personal individual account, seeing increase is the that accounts, pressure throughout per average and accounts. down, you I and but the offsetting ’XX we we fact net each what we’re accounts, those helping average side, the we’re of large seen few that. adding and as the we it’s on months, during the the dollars are--that just ’XX to But sitting offset just are given that the expected seeing on come we thing other The tell would portion

as CD but Great, and in deck, if maybe--I the it or--? don’t retail, brokered, portfolio, duration too, missed the maybe far know of it’s slide if CD the the--as growth, just I the

that of we run either to specials I X relatively to our but XX all the on--you than is less mean, Yes, months typically putting would be in that short. month would months. XX it’s typically or XX are seven know, months, in Brokered all XX range.

guys. thanks Okay,

Thanks Nick.

of question Your Terry McEvoy from the Stephens. next comes line from

line is open. Your

morning. Thank you, good

commercial Let’s macro portfolio. and given concerns their Could small hearing banking, what customers your two question start seeing the on with loan you talk of a are business some headlines pipelines, what there? and in out maybe just or and about you’re from the

the Yes mid-quarter, this the of just some to better lot and stronger certainly of saw, especially Then at is do seeing the a think and turmoil slowed. with point. beginning Terry, at softness, softened, somewhere quarter, the We latter so it had around in of and the shifted I Archie. industry, part pipelines it had activity we’re this the in quarter first activity much some occurred that

probably commercial I on Now the market talking I’m middle banking primarily when in side that, side, particular. say

of in I we projects know, and but is into being we that defensive relative that, more a seeing we we’re areas there lot sort to structures, we’re little respect probably seeing--you are mixed. commercial things selective, mean, quality space, them. do more estate, certainly targeting, and like when real opportunities, better industry to the and equity more the a in With are it’s

in but that. quarter. better because much side, back say activity C&I selective, much the we’re half the little--I’d demand a just just side, there of more it’s CRE little The a of demand slower it’s is so

just fee the the thank the--are in it’s what discussion goes and are all run thinking interest Summit net income on it or income? I’m with some different you. that whether holding back to to about the the moving through the at of Getting portfolio. that, the capital economics loan bank, Appreciate parts,

this Terry, from side on Yes economic is standpoint. It’s Jamie. an either relatively marginal

XXX%, side a in book. at sitting allocation the XXX% about standpoint, a a other From from think both but the risk-weighted timing sitting economics mean, of it economics--I in it’s it you the of capital risk-weighted, that--so assets little moves the same. whether capital virtually both sitting are whether they’re they’re standpoint, in the loan bit but If the they’re or it’s asset whether

order is the company selling in loans either forward Great. concentration or reduce any in Maybe class? to certain considering portfolio the last de-risk one a one, asset going

take is on test look get operating that part Terry, market. on out a a and getting go the to rhythm, and at normal pools. periodically pricing lens of in happening market, our Yes, discovery what’s the various that to We

obligation We’re look do to under execute, we if it. a we’ll case the and but no take will makes sense,

thanks Great, taking weekend. questions. for nice Have a my

Thanks Terry.

no some time. over at further for questions you I’ll to this are Mr. remarks. There call turn closing the Brown, final Archie back

Okay Thank you. Rob.

this you call for the joining Thank everybody morning.

you glad and our quarter. Have you us, with look hearing quarter story. nice about that were to talking We our a next day. more again forward We’re to on

you This concludes conference call. participation. your Thank today’s for

disconnect. may You now