First Financial Bancorp.(FFBC) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Adjusted net income for Q3 2025 was $72.6 million, with adjusted earnings per share at $0.76, resulting in an adjusted return on assets of 1.55% and an adjusted return on tangible common equity of 19.3% [4][10] - Record revenue was achieved in Q3, driven by a robust net interest margin of 4.02% and record non-interest income, which represented 31% of total net revenue [4][8] - Tangible book value per share increased to $16.19, a 5% increase from the previous quarter and a 14% increase year-over-year [6][13] Business Line Data and Key Metrics Changes - Loan balances declined modestly by $72 million during the quarter, primarily due to lower production in specialty lending areas and an increase in construction originations [5][11] - Non-interest income reached a record high of $73.6 million, led by leasing and foreign exchange businesses, with higher syndication fees contributing to the increase [8][12] - Non-interest expenses increased due to higher incentive compensation tied to fee income, but core expenses remained well managed [9][12] Market Data and Key Metrics Changes - Average deposit balances increased by $157 million, driven by higher broker deposits and money market accounts, despite a seasonal decline in public funds [8][11] - The company maintained 21% of total balances in non-interest bearing accounts, focusing on growing lower-cost deposit balances [8] Company Strategy and Development Direction - The company expects loan growth to return to mid-single digits in Q4 2025, with strong commercial lending as the primary driver [15][30] - The integration of pending acquisitions, including Westfield and BankFinancial, is anticipated to enhance growth and efficiency, with a focus on expanding into new markets [15][17] - The company aims to maintain an industry-leading net interest margin and is preparing for potential rate cuts while managing deposit costs [15][43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong performance in Q4 2025, with expectations for increased origination volumes and strong deposit growth [15][17] - Credit costs are expected to remain stable, with net charge-offs projected to be in the mid-20 basis points range [37] - The company is optimistic about its financial performance and the momentum heading into 2026, driven by the pending acquisitions [17][59] Other Important Information - The company has received regulatory approval for the Westfield transaction, expected to close in early November 2025 [15][17] - The allowance for credit losses (ACL) coverage increased slightly to 1.38% of total loans, reflecting a conservative approach to modeling potential losses [9][13] Q&A Session Summary Question: NDFI loan exposure details - The NDFI portfolio stands at approximately $434 million, primarily composed of traditional REITs and conservatively managed with no adversely rated credit [20] Question: Impact of rate cuts on net interest margin - Each 25 basis point rate cut is expected to exert about five basis points of near-term pressure on margin, with a gradual recovery as deposit costs adjust [23] Question: Loan growth expectations and verticals driving growth - Strong commercial lending is anticipated to drive growth, with specific verticals including Summit funding and commercial real estate projected to contribute positively [30] Question: Fourth quarter expense guidance - The increase in expenses for Q4 is primarily driven by higher forecasts from Bannockburn and Summit, with expectations for continued growth in those areas [34] Question: Capital management post-acquisitions - The company plans to assess capital ratios after the acquisitions and may consider buybacks if trading below tangible book value [39]