First Financial Bancorp. (FFBC) 25 Oct 232023 Q3 Earnings call transcript

Good morning, and welcome to the First Financial Bancorp Third Quarter 2023 Earnings Conference Call and Webcast. My name is Brianna, and I will be your conference operator today. Please note that this call is being recorded.

[Operator Instructions] I will now turn the call over to Scott Crawley, Corporate Controller. ahead. go Please

on Investor Good us Brianna. Financial and you results. thank third Brown, be Thank and President today's morning, conference joining Chief Participating Chief available www.bankatfirst.com issued Jamie financial XXXX the yesterday, Anderson, on and First call Harrod, accompanying Officer; section. on the at Both Relations call slide and for will quarter Financial Officer; Officer. Archie the you, year-to-date press are our and under website Executive Bill everyone, presentation Chief today's Credit to Bancorp's release discuss we

reference in the make accompanying the call. today's We'll slides to presentation contained during

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

XX% announced led a provide quarter our the you, net financial call to over third everyone, Good recent third to thank in interest fee Jamie quarter we details. you from Scott. Overall, performance, the then results joining on strong some third income XXXX. first today's and to pleased with net discuss I'm of further turn Yesterday afternoon, quarter. income our income Thank robust increase for us I'll high-level thoughts the and and performance call. for morning, our on

of on return average we common average quarter, assets, most a share our recent adjusted X.XX% return achieved on earnings tangible equity. XX.X% a In $X.XX, per

the our a interest at higher slight expected, quarter, reduction end so, was a on in of led linked-quarter which expectations. margin X.XX% basis. was Even high the our to earnings for net costs As deposit

leasing the growth the expectations and period, led was in growth for in line with mortgage Loan by portfolios.

of loan balances pleased moderate the the ratio flat to we mix while remainder total money continued, I quarter, expect at our noninterest-bearing our accounts market deposit over growth the in of year. loan-to-deposit slight and in stability balances, during remained growth from change and CDs am We XX%. continued the by experienced the

income fee exceed quarter during continued with Credit trends performance and experienced the banking. equipment to wealth strong leasing, Our management, the for expectations we net period, mortgage charge-offs. mixed elevated were and from Bannockburn

on estate elected we million and quarter, approximately to the sale. real commercial incurred in third the million $X.X During loans $XX loss sell a

million negatively We loss also in COVID on a that the has C&I $X.X since. unable large a was rebound and loan recorded been period impacted to during

low, loan balances remain Additionally, fourth Last quarter. to the space but during the major assets nonaccrual expect tenant fairly one in provision expense the of we whose increased to remain period downgrade quarter. loan due the during office stable vacated and the

to with our interest continue pleased earnings. fee be income margin, trends We robust favorable and high net

to some the to increase common rates. our quarter, with over the despite the from wrap impact to will equity closing remarks. additional earnings and the now negative forward-looking ratio strengthened, I'll discussion, in and maintain Jamie's discuss helped to Jamie? turn the after in strong I Jamie call regulatory And During levels tangible detail. AOCI up results our capital market that, commentary greater these With

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

another margin strong was by good quarter high interest solid and third The fee highlighted income. earnings, quarter, net

the environment. to once sheet balance again rate interest positively reacted Our

with basis, deposit periods in X.X% loans mix. annualized and our to Total during declined interest due Our net funding interest as grew margin continued was pricing net period on remained contraction the line in We very but the strong X.XX%. changes anticipate expected an expectations. pressure at coming in margin which

growth was increased balances costs, slightly quarter solid remained residential linked in expenses in quarter due other from the Fee the the performances and income business with mortgage. with employee to the stable fraud Loan strong and mortgage books higher leasing expenses leasing, in concentrated portfolios. third in and relatively leasing Noninterest management, Bannockburn wealth losses.

driven mentioned, were Archie compared quarter. relatively and during assets elevated the charge-offs. Classified expense the increased. of As quarter We by net during the assets provision of and million as a were which linked $XX.X nonaccrual remain low period, recorded charge-offs stable loans percentage was net to

remains ratios regulatory income Our and targets. during our comprehensive X.XX% capital regulatory at declined period. of standpoint, ACL other $XX total million loans. From Accumulated of in conservative internal the coverage remain both a excess

or tangible $XX.X result, X to equity a reconciles ratio adjusted to we quarter. basis As points. items understanding believe common earnings important the GAAP tangible performance. X was million X%, book Slide by highlighting $X.XX our value are income our for while quarterly earnings, share $X.XX that Adjusted decreased per net our declined or

associated of other online banking as recur, branch costs impact conversion not to as well earnings severance expected as costs acquisition, costs. such the our Adjusted with and include consolidation

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

quarter Turning margin points Net to to declined X. X.XX%. Slide XX from interest linked basis the

point yields, increases in to cost of As due increase outpaced in higher primarily deposits. we expected, XX-basis a funding costs asset the

mix to period. increase primarily the due was points a loan a basis asset in earning yields. of XX, in higher XX-basis can during Slide and XX On profitable see driven by more rates yields balances increase increased asset point you yields the Asset

floating securities. and to the the Additionally, of on portfolio increased investment on yield mortgage-backed points the investments slower prepayments basis X rate due repricing

to XX%. quarter. compared modeling. slower we at moving to in expect our the mentioned, points XX cost points in in costs income up costs increase these to increased fourth details interest XX of deposits Slide beta X we linked basis I saw our the increased betas the the quarter, continue to in quarter percentage third net pace Deposit utilized quarter, previously current but the our and than As a

our Slide that sources is liquidity approximately XX%. our various indicates of modeling through-the-cycle and outlines beta capacity. borrowing XX Our

economic the sheet balance our quarter. through linked the flexibility compared balance the to mix we XX changes to and to loan continue required We expected environment. current believe have Slide manage illustrates the

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

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

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

and quarter. in linked see, total, $XXX As accounts nonaccrual which during X% the our money increased downgraded This portfolio. Slide deposit deposits our We and market the decline from primarily of products. increase deposit shows a CDs. noninterest-bearing the XX as $XXX quarter was portfolio loan relationship of book total office overall balances customers is to of single by for environment office a in higher-cost quarter, as progression driven balance driven concentrated million the nonaccrual rate $XX to million LTV mix expected strong. current in as average increased in offset well accounts. retail These our increase the you is the average savings In space million million and $XX during to can deposit about this a a deposits has the increases interest

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

balances business public increased levels. the fund and personal from rebounding second were X.X%, deposits relatively some While stable quarter, in quarter deposits

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

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

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

also income quarter, had the for had deposit balances were month well. and increased strong categories. Wealth record you stable to year. the expect of see, and July both the through we quarter. XX August Bannockburn our mortgage end and personal this business Management As and noninterest of very in can the Deposit another deposit quarters, Summit in performed the Slide the increases with highlights quarter. continue levels while in last

Slide and expenses expenses, fee as XX. a are Core driven fraud quarter Noninterest expected. employee was expense bit well leasing increase tied were higher to losses. for outlined The income by elevated we higher-than-expected than as costs the is initially which on

decrease Slides quarter. And which funded to and from ACL in period. $XX.X of million model provision a that both second total a total the unfunded an This ACL and now includes X-basis allowance, resulted our total $XXX during of was million the loans, Turning expense was point XX of XX. and which in X.XX% resulted reserves

Provision expense points basis of increased million charge-offs, loans quarter. $XX.X which was driven the to of total XX in net by

million an the in real attempt to As Archie sell approximately portfolio $XX charged off process. and during $X.X loans we quarter, million estate elected derisk to and the the in commercial mentioned,

impacted We that by during a quarter-over-quarter. also the while the due large million In office a the downgrade $X.X asset increased mentioned, to C&I negatively loans classified the previously relatively pandemic. on COVID balances credit flat of other loan recorded period I loss relationship trends, nonaccrual were was

total is loans. Our coverage X.XX% of ACL

to we conservatively portfolio. expect that losses quarters in from modeled have the prior We reserve a build our reflected

environment. to ACL coverage in expect macroeconomic the in the coming periods We our model as our remain changes responds to relatively flat

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

Absent million September basis value the During decreased X%, X decreased at X.XX% the book as a $X.XX comprehensive X.XX% XX to to income. AOCI, been tangible decline third ratio the TCE compared impact accumulated the from would $XX or other and in ratio quarter, TCE due points have reported.

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

anticipate robust, provides shareholders changes. the We earnings remains the our return dividend period to attractive return an not with and through believe XX% shareholders near-term of our common do returned our shareholder total Our dividend. to during any our

However, various our Archie going back on forward. progresses. comments capital as turn year we the now evaluate for actions will to over Archie? it I'll outlook some continue to

Thank you, Jamie.

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

year. we indicated through the As earlier, be remainder loan moderate the of growth expect to

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

in expect decline utilize loan cash term. modest the deposit as total we grow balances support over modestly near portfolio For expect we and a balances flows securities, to growth the we to

margin, Fed demand the interest path, some and see Regarding uncertainty still around the we competition. rate net deposit pricing loan

in of margin in period Specific expected. X.XX% uncertainty to to interest the with our impact we're our a contraction inflation fourth no with Fed in range the of margin and and modest expect net tightening still rates customers. further to We credit, regarding higher X.XX% between quarter a the economy

credit quarter fourth expect remain and be to ACL the to stable. loans we as of our a coverage similar cost to quarter, percentage the Over third

$XXX and range leasing we the million, million $XX expect to We and from million, expect million lease be depreciation includes $XX the portfolio. fee income which expenses, including to the expense Specific be between between to in the business. $XXX

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

Lastly, results earnings ratios our encouraged We're trends current level. our the net and with by favorable maintain far in to remain overall dividend strong, margin, XXXX income thus expect capital and be interest higher we and continue the pleased at fee our to performance.

we up Brianna? the call navigate close out we positioned deliver As continue and current We'll environment to year, for believe the questions. to we're open strong economic results. well the now

[Operator from Instructions] Tamayo Our James. question first with Daniel Raymond comes

if fourth charge-offs quarter should Maybe number be if a credit in if a outlook. given the might -- level, how that net similar net what Or third the guidance normal for just on be year? then like more about curious, the the thinking now? and considered charge-offs we we start next should the look I'm that's in not, elevated quarter

Danny, seeing either term, stable. or my expect Archie. on I near up pick cost, We is to Jamie Bill somewhat we're be or and things start, this thoughts. Maybe think from credit I'll a in think the can we

nonaccruals You've We may charge-offs up think There to related some some that. trends there's our resolution nonaccrual be move some seen QX. to slightly. in

kind we have that's where So stable. of things

back out, As they look or them down down. we look further call if like back things moderate will you

we're where it's in now, we've range, saying kind like right stable it provision of feels there. been pretty what a think I for So

that to specific you if tell wondering in? was guess, was the suburban I I urban located office was downgraded loan possible, if then that third or and quarter. And if that that helpful. That's city Okay. in what was us could

district. is Yes. suburban Blue in north which Cincinnati the very of area, located That commercial and Ash a was

any And Or read-throughs Okay. tenant was out. from you clarity like mean like into it large in a same mean, provides bucket? feel you offices a other pulled that I that that that mentioned is is to any that something of one-off I type feel you? kind of any

in interest We it's mean at. of I that like We we're There's on trying leases to yes, robust. one-off. rest good. I very the don't through. Yes, is area mean, very a book. feel our confident it is area work that, feels already systemic over where we're office that But think

it. Got

at And just lastly, subject base. changing the Okay. the then here, looking expense

if But if out get ability of how more we'll expenses curious pressured environment sure on off. about like the I environment pull year, I'm some a the you that? Just is an think jump side to next here revenue into in -- conversation your after revenue

is this Danny, again. Yes. Archie

pressure, Some of the to in some to performance. they're our fee tied variable -- on side, come revenue, nature if a to fee expenses lot that's the more there's of which maybe going are tied of the

not cut leave. we by to replace guess, see they itself we look, we a or to basis I use opportunities there, can attrition continuous where if come continue pressure when that on So And will some. costs staff down for

be XXXX So out. there'll see how as plays effort we do we more to revenue probably as in that

comes next with question McEvoy Stephens. Our Terry from

bit on apologize for the call. I a little late

So it 'XX questions. 'XX deposit lower curve to for Jamie, in, betas to you a use and today not as just the a loan incorporate are of forward was that experienced prospects we that some us suggest Is couple the proxy anything good rates? of rate has the to kind Maybe, there of cuts.

we talking 'XX betas about Slide cycle, show time beta, beta on XX, period 'XX the in through-the-cycle showing of that a So historical specifically our you're XX%. in we're like of deposit that to kind

the right -- anything I -- market. down now in to this scenario react going we'll would no. to in in cycle. anything have given that the mean, would rate think range. different expect in XXs we there's I at have to so I us tell point Obviously, similar to -- point, low the competition in at expect that think that that that down would But we they don't yes, be rate are this no, that

been reserve loan, for to Okay. C&I result. that quarter-over-quarter, And did you which I place $X million but sale, decline bit loan a again, charge-off a million guessing I a discussed, see have there the but allocated the have this may CRE the in ACL $X guess already was surprised I'm is And charge-off. was and some

of the at loans, second there I some. the But it at we we built the -- we the past had it XXX Yes, basis few up quarter, were XX, over -- mean, peer was quarters, had reserve when end XX in higher. the out of group, which the was looked points about basis points

we accelerated the current come of of in, X bit I we of down those conservative maybe reserve. loan next coming think that loan So little the that the were sale you might accelerated terms the X, those if essentially, in about into quarters, building ahead just some sale, X, all group And of that a in mean charge-offs period.

but quarter-to-quarter. our had and and going on loan, that feel And little here that loans, we with still from so charge-off a reserve -- we chunky feel like of X.XX% the in with our we the at be are can good we forward. like reserve is conservative, spot we're charge-offs C&I a So coupled one --

Okay. Maybe last I one if could. one,

you comes the balance cash earning securities portfolio The or assets the to down of of next loan Just -- flattish. quarters is would kind the fund it sheet about expect is X Or growth? of size kind think of the best balances. over X, way size to some

earning But point, after the a terms -- we're at would portfolio assumption at say I the going least plan the earning that, Yes. of I deposit to couple still of flows. of will point, in obviously, growth next a keep couple portfolio. in the after run securities that to securities that this quarters, at with the letting of over say quarters assets. will that's little with assets the look would the good grow sheet a balance balances down loan cash the at the is flow,

RBC from Capital comes question Arfstrom with Jon next Our Markets.

a uncertain, have little of margin do do assuming I expectations it's fourth here. kind you bottom is saying done, Just to NII Jamie, one margin beyond questions think and bit but quarter, you the the of key is questions you're a the up? know the margin when Fed what of couple and start

Yes.

that kind start look start asked, no at Terry 'XX, X% out into net start margin in of quarter, that again, as Fed the it bottoming to third we actions, we in get second -- we mean when grow out So then, interest of the to bottoming in dollars other X.XX% you'll quarter income point the of to again, see base, And as what next quarter I see the we margin asset the off the assuming you increase then, we leveling earning see the call in the start second to out, range. we as year, to see start again. of

Okay. increase driving on not it XX good in slides. Is to put MASH rates is business it the do opportunity ask having of just are the think, bottomed time that way like from out deposits. thumb Helpful, on very and confidence? a it kind frame. to guys? helpful think Slide there being they It Is And any you cautious? on you that. Is to looks wanted that? businesses I XX, I What invest again? Is or

and Jon, enough, of Archie. balances they've they and liquidity have We seen that pay we this in mix while of a saw certainly we you're mean, interestingly have down is take even also so shift, lot have but strengthened some And liquidity, have seen I businesses the that competitive right -- rates lines. strength. a been with then quarter. with mix that

many. but all not liquid, large, and by are businesses think I So

that the little offering either lines. their on they're so better products they're or of down are of some pay the down in we're a bringing using that pay some And to more because rates of

I now yes, pretty think they're healthy So overall. right

Okay.

And Jamie. off not, any in Okay. losses because just the one quarters. securities over much this for have you're burn call X if showing just But I of right bottom also graph, then but don't unrealized Slide the know idea or the portfolio you, good of or it, numbers. the XX, the you us how next, X

burns if So just that here much at 'XX, of the of naturally how end sitting we're off?

Yes.

actually yesterday. So about this were talking we

the over in that about AOCI it, So that the around the range to that would but XX% overall bit there's maybe course equity, just off about the portfolio of obviously, somewhere call of will and of other million burn conservative, I of -- right? the around That's impact lot $XXX off. million loss given $XXX in a in movement, XX% a and no year, little rate burn naturally. mean, rates variables

absolutely. Yes,

the that's So XX next over months.

Okay.

Our McGratty next from question Christopher comes KBW. with

Great. on the maybe, maybe -- a Jamie, question you. for Archie, margins

it credit it got volatility, starting but the like do a because part have mix you've higher assume How good margin? adjusted margins. a should have little point credit Just because just this normalized you'll bit is somebody bit think feels assets overall, have costs? margin peers of that think your credit little you it but credit in I a fair about to higher cost we asked to which higher of before, of about

Yes.

a the losses, losses the I've fair credit just the to always my are, give in term if you at again, XX at say that's consistently. when say overall look term career over XX that long long definitely than what the or window, long I yields ours rest of XX our asset or if higher be term significantly points loan if higher think from could you higher peers long overall industry. points to take, when a over and points are mean I could that XX at say basis looking credit that yields are well. return, over -- you look you're than to case. But it we want be That used say And as over the again, basis risk-adjusted that, basis

the between just we're charge-offs. But margin, quarter, this XXX and margin -- again, peer trade elevated we there's is look when times points above a a -- willing slightly our like median. at basis XXX make. again, to that's It's where So had we when that our

So portfolio. that just I have given we're to the think makeup going of the

Yes, completely see that.

just -- book. securities the the On question a on

the downside Your interested book contemplation have yield is floaters have adjusting of a of there, but to risk that, in kind moved? of you just bit bond higher. competition given hedge place rates anything whether assume anything put where any or in also I in

have -- we of investment between XX% do the about have that it's We is portfolio and floaters. -- Yes. in that XX% in

you -- quite we And yield protection overall, securities are the our in billion really the a so, of call And building $XXX remember, margin X.XX% notional extreme the would book. in to where $X.X and March macro range I around went downside $X about would in are we we 'XX where where we helped to floors it got on call extreme and what the around X% -- terms went specifically in to some in -- are protect obviously strategy, billion I nothing most that securities protection. Again, last -- we in to of we are want put X.XX% amount. there -- that so of that's margin that us -- in it, was, it our get hedging when forward to putting some when just against million more got But over bit the mean, because far So call But I rates want or downside hedges range. on to we're downside the some we downside. potentially protection year. place hurt if that total plummeted,

do So protection the is what to in build on downside. some we're extreme that trying

like like about that? trying the loss, balance the more. into was what sub-asset CRE? one within sale, just -- was then I'm the And guess, back it What XX% X Maybe charge-offs Okay. the a second, loss. class loan The the in rates quarter, it to the I relationships. $XX of like was looks loss million just on C&I

their changed retail that a and model multilevel of the after company as kind and hotel circuit a commercial COVID loan be and ultimately. health loan care included was sale deal. robust having model that the couldn't consumer changed covidiers went party after loan marketing The credit And very pre-COVID down office when Yes. had loan the

And million, the on of the what what rate like kind Okay. that second $X one? loss principal, was of that was the size

a Yes. total of about mean $XX I it million. was

[Operator Brown. to Instructions] the back Archie call turn now Seeing no will I questions, further

you, to Brianna. a forward I today's for We want next Have look our again everybody talking and thank Thank joining following day. call to great you to story. quarter.

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

disconnect. now may You