First Financial Bancorp (FFBC) 2025 Q4 法說會逐字稿

Thank you for standing by. My name is JL, and I'll be your conference operator today. At this time, I would like to welcome everyone to the First Financial Bancorp fourth-quarter 2025 earnings conference call and webcast. (Operator Instructions)

I would now like to turn the conference over to Scott Crawley, Corporate Controller. You may begin.

Thanks, JL. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bancorp's fourth-quarter and full-year 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.

Both the press release we issued yesterday and the accompanying slide presentation are available on our website at www.bankatfirst.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 forward-looking statements disclosure contained in the fourth-quarter 2025 earnings release as well as our SEC filings for a full discussion of the company's risk factors. The information we provide today is accurate as of December 31, 2025, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call.

I'll now turn it over to Archie Brown.

Thanks, Scott. Good morning, everyone, and thank you for joining us on today's call. Yesterday afternoon, we announced our fourth-quarter and full-year financial results. I'm very pleased with our record earnings performance for the quarter. Adjusted earnings per share were $0.80, leading to an adjusted return on assets of 1.52%, and an adjusted return on tangible common equity of 20.3%.

The net interest margin, which declined slightly from the third quarter, has proven resilient as reduction in funding costs negated most of the impact of short-term rate reductions by the Federal Reserve. Balance sheet trends were solid for the quarter with loan growth of 4% on an annualized basis. Total average deposits increasing by approximately 7% on an annualized basis, excluding the impact from the Westfield acquisition.

I'm especially pleased with our robust noninterest income for the quarter. Total adjusted fee income was $77 million and increased 5% compared to the linked quarter. Wealth management and foreign exchange income both increased by double-digit percentages, while leasing and mortgage income also remained strong. While adjusted noninterest expenses increased by 6% from the linked quarter, most of the increase was driven by the Westfield acquisition.

Asset quality was relatively stable for the quarter and provision expense was in line with our expectations at $10.1 million. Nonperforming assets increased slightly to 0.48% of assets and classified assets declined slightly to 1.11% of assets. Three loans drove the increase in NPAs, while net charge-offs were 27 basis points, which was within our range of expectations.

Turning to the full year. 2025 was another great year for First Financial. On an adjusted basis, our net income was $281 million or $2.92 per share. Adjusted return on assets was 1.49% and adjusted return on tangible common equity was 19.3%. We are pleased with the performance of the net interest margin for the full year. While the margin did decline year over year from 4.05% to 3.98%, we were able to offset most of the impact of short-term rate decreases through the diligent management of deposit costs.

Adjusted noninterest income increased by 16% to a record $280 million, led by growth in wealth management, foreign exchange, and mortgage income. The result was record revenue for the company of almost $922 million, an 8% increase over 2024. Similar to the fourth quarter, asset quality was relatively stable for the year. Provision expense declined 21% from 2024.

Net charge-offs as a percent of average loans declined 5 basis points to 25 basis points, and our ACL coverage increased by 6 basis points to 1.39%. Capital levels remained strong during 2025. While the acquisition of Westfield negatively impacted our capital, our strong earnings drove increases to tangible book value per share of 11% from $14.15 to $15.74. I'll now turn the call over to Jamie to discuss these results in more detail. And after Jamie talks, I'll wrap up with some additional forward-looking commentary and closing remarks.

Thank you, Archie, and good morning, everyone. Slides 4, 5, and 6 provide a summary of our most recent financial results. The fourth quarter was another outstanding quarter, highlighted by record earnings, a strong net interest margin, organic growth in both loans and deposits, and the acquisition of Westfield Bank.

Our net interest margin remains very strong at 3.98%. Funding costs declined 15 basis points from the linked quarter, while asset yields decreased 19 basis points. Loan balances decreased (sic - see press release, "increased") $1.7 billion, including $1.6 billion acquired in the Westfield transaction. Organic growth was $131 million or 4% on an annualized basis and was driven by Summit and C&I.

Total deposit balances increased $2 billion, including $1.8 billion acquired in the Westfield transaction. Organic growth was $264 million with increases in the majority of our deposit types. We maintained 21% of our total balances in noninterest-bearing accounts and remain focused on growing lower cost deposit balances.

Additionally, we issued $300 million of subordinated debt during the fourth quarter. These notes have a 10-year maturity and carry a 6.375% interest rate. Turning to the income statement. Adjusted fourth-quarter fee income was a record, led by leasing, foreign exchange, and wealth management. Noninterest expenses increased from the linked quarter due primarily to the impact of the Westfield acquisition.

Our ACL coverage remained relatively unchanged during the quarter at 1.39% of total loans despite a large increase in the ACL balance. Most of that balance change was due to the Westfield acquisition. In addition, we recorded $10.1 million of provision expense during the period, which was driven primarily by net charge-offs and loan growth.

Asset quality trends were relatively stable as net charge-offs increased 9 basis points from the third quarter and classified assets as a percentage of total assets declined 7 basis points. Net charge-offs were 27 basis points on an annualized basis, while NPAs as a percentage of assets were 48 basis points.

From a capital standpoint, our ratios are in excess of both internal and regulatory targets. Tangible book value was $15.74, while our tangible common equity ratio was 7.79%. 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 $77.7 million or $0.80 per share for the quarter.

Noninterest income was adjusted for $12.6 million of losses on the sales of investment securities, while noninterest expense adjustments were primarily related to acquisition activity. As depicted on slide 8, these adjusted earnings equate to a return on average assets of 1.52%, a return on average tangible common equity of 20%, and a pretax pre-provision ROA of 2.14%.

Turning to slides 9 and 10. Net interest margin decreased 4 basis points from the linked quarter to 3.98%. Asset yields declined 19 basis points compared to the prior quarter. Total deposit costs declined 15 basis points, partially offsetting the impact of lower asset yields.

Slide 12 illustrates our current loan mix and balance changes compared to the linked quarter. Loan balances increased $1.7 billion during the period. As you can see on the right, $1.6 billion was a result of the Westfield transaction. Absent the impact from the acquisition, organic loan growth was $131 million or 4% on an annualized basis. Organic growth was driven by C&I and Summit.

Slide 14 shows our deposit mix as well as the progression of average deposits from the linked quarter. In total, average deposit balances increased $1.4 billion, including a $1.2 billion impact from the Westfield transaction. Organic growth during the quarter included increases in the majority of our product types, while some were seasonal in nature.

Slide 16 highlights our noninterest income. Total adjusted fee income increased to $77.3 million, which was the highest quarter in the history of the company. Bannockburn and Summit both had strong results. Wealth had a record quarter, while mortgage and deposit service charge income also increased from third-quarter levels.

Noninterest expense for the quarter is outlined on slide 17. Core expenses increased $8.6 million during the period. This was driven by the impact from the Westfield acquisition.

Turning now to slides 18 and 19. Our ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $207 million. This includes $26 million of initial allowance on the Westfield portfolio. We recorded $10.1 million of total provision expense during the period. At December 31, the ACL was 1.39% of total loans, which was up slightly from the linked quarter.

Provision expense was primarily driven by net charge-offs and loan growth. Additionally, our NPAs to total assets increased slightly to 48 basis points, while classified asset balances as a percentage of total assets decreased to 1.11%.

Finally, as shown on slides 20 and 21, capital ratios remain in excess of regulatory minimums and internal targets. During the fourth quarter, tangible book value and the TCE ratio were negatively impacted by the Westfield acquisition. Tangible book value was $15.74 and the TCE ratio was 7.79% at the end of the period.

Our total shareholder return remains strong with 40% of our earnings returned to shareholders during the period through the common dividend. We maintain our commitment to providing an attractive return to our shareholders, and we'll evaluate capital actions that support that commitment.

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

Thank you, Jamie. Before we conclude our prepared remarks, I want to comment on our outlook for the first quarter, which can be found on slide 22. Excluding the impact from Bank Financial, we expect payoff pressure to ease in the coming quarter, resulting in a low-single-digit organic loan growth on an annualized basis during the first quarter. And for the full year, as originations ramp up, we expect loan growth to be in the 6% to 8% range.

We expect core deposit balances to decline modestly in the near term due to seasonal outflows of public funds. Our net interest margin remains among the highest in the peer group, and we expect it to be in a range of between 3.94% and 3.99% over the next quarter, assuming a 25 basis point rate cut in March. We expect first-quarter credit costs to approximate fourth-quarter levels and ACL coverage to remain stable as a percentage of loans.

We expect fee income to be between $71 million and $73 million, which includes $14 million to $16 million for foreign exchange and $19 million to $21 million for leasing business revenue. This range includes the impact from both Westfield and Bank Financial. Noninterest expense is expected to be between $156 million and $158 million and reflect our continued focus on expense management. This range includes the impact from both Westfield and Bank Financial, which should approximate $11 million and $10 million, respectively.

While we remain confident that we will realize our modeled cost savings, we expect those savings to materialize later in 2026 once both banks have been fully integrated. To conclude, we're very proud of our overall performance in 2025. In addition to outstanding financial results, we successfully launched our Western Michigan banking office in Grand Rapids and acquired two banking companies, which strengthened our core funding and provides us with a platform for growth in two of the largest metropolitan markets in the Midwest.

We received our second consecutive outstanding CRA rating, demonstrating our commitment to creating opportunities for lower income communities in our footprint. And we were one of only 70 companies worldwide to be recognized by Gallup as an exceptional workplace. Finally, I want to recognize and thank our associates for their hard work and commitment. It's due to their efforts that First Financial consistently delivers industry-leading performance.

And with that, we'll now open up the call for questions.

(Operator Instructions) Daniel Tamayo, Raymond James.

Maybe starting on the fee income guidance, I mean, fourth quarter was a good quarter. The guidance was a little bit below where I was looking for. Within that, FX looks like it's going to be down and then leasing over the last couple of quarters has trended down. So just curious if you can kind of walk us through where you're seeing the path for the rest of the year in those two line items and then more broadly, the fee income path for the rest of the year.

Sure, Danny. As you said, the fourth quarter was a great quarter all around and FX certainly shined. I think they had their best quarter ever. There's a little bit of seasonality in Q1. And they have added quite a bit of talent where some non-solicits will burn off after the first quarter, which I think is going to create more opportunity for them as they go forward.

But with that, I'll have Jamie maybe talk about fees, you can talk about FX or go beyond that and maybe fees more broadly for the year.

Yeah, Danny. So for the fourth quarter, obviously, you saw we had a record quarter, huge revenue quarter for Bannockburn on the foreign exchange side. And we do see some seasonality to that business in terms of the revenue coming in. The fourth quarter is -- the back half of the year is typically large. And so we do see that coming down in the first quarter, but then ramping up as the year moves on.

And some of these teams that we've brought on over the past year. Again, Archie mentioned the non-solicit starts to wear off on those, and we start to see some impact from those teams. And then just -- I would say the big difference is just overall seasonality from the fourth quarter to the first quarter across really all the lines.

And so as you look out into the back half of '26 or even the second quarter -- second, third, fourth quarter, you start to get into that $75 million to $80 million range of fee income as the year moves on.

Okay. All right. That's helpful. So I mean, I guess, the FX business would -- you would expect growth year-over-year for that businesses as we look for kind of overall '26 and then leasing, is that business slowing the growth rates or are they slowing you think?

Yeah. On FX, we do expect, as Jamie said, Jamie, for it to keep growing. If you look at it, we acquired it in 2019. I think their compound annual growth rate is probably close to 14% or 15% a year over that time, and they're still going to grow probably low-double digit over the next few years. So we think foreign exchange will continue to grow in capital markets overall at nice clips.

In the case of Summit, I mean, their origination numbers were up last year. They'll be up some more this year. It's sometimes more of a question of what the mix is. And they're probably doing more finance leases and a little bit less operating leases as a percent of the mix. That's probably why you're seeing that number maybe a little bit on the flatter side.

Yeah. And Danny, it's Jamie. So I think we were seeing growth in that. On the leasing side in past years in that 10% to 15% range. And I would say, it's more high-single digits. We're just -- we're starting -- that portfolio is starting to become seasoned.

We acquired it, that company four or five years ago. The leases generally have terms in that range. And so you're starting to see things kind of churn at this point in that portfolio.

Okay. That's helpful. I appreciate it. And then, maybe one bigger picture here for you, Archie, just on the plan for growth in Grand Rapids. You mentioned that in your commentary and in the release. Just curious what you have in place there and what you're planning to do in terms of investments there?

We brought a team over -- it was not all at once, but we brought a team over throughout most of the first quarter last year, and they've ramped up nicely. I mean, they're not quite at, but close to $100 million in commitments on the loan side. I think $20 million to $30 million range in deposits. We've added other -- some other banking team members on the wealth side, in particular, private banking.

We're looking to add -- we've a full banking office up there this year, add in some mortgage as well. So we're going to keep building it out. And we think -- we don't have anything yet, Danny, but we think there's more opportunities in Michigan, especially with some of the larger M&A that's going on with some of the banks. We think that's going to potentially create some opportunity for us to do some add-on in that market over the years.

So we think it's close to a home run in terms of investment that we can make.

Great. All right. Well, I will step back. Thanks for the color, guys. Appreciate it.

Brendan Nosal, Hovde Group.

Maybe just to circle back to the loan growth outlook, I think you guys said 6% to 8% growth for the full year. Just want to confirm that that's on an organic basis and not including Bank Financial, which closed earlier this quarter.

Yeah, I think that's right, Brendan. Maybe a little more commentary on loans overall. We had an incredible origination quarter in Q4. It was our best quarter by a lot in 2025. I think it was up 36% over the linked quarter in terms of our fundings.

But what we also saw in Q4 was a record level of payoff activity. I think it was up 56% over Q3 last year and by far, our largest quarter of payoffs. And so Q1 tends to be a little bit of a lower point from an origination, just more seasonality and then it ramps up. Pipelines look healthy as that more -- probably more than even last year look healthy. And we think originations will certainly come in strong as the year goes on.

And we think payoffs, while they won't hit a low point in Q1, but they're going to come down from where they were. So we think we'll eke out a little bit of growth in Q1 and then it will ramp up, but we are projecting out 6% to 8% for the year, and that would be the legacy bank.

Yeah. So that would exclude any of the acquired balances.

Okay. Perfect. Maybe turning to the margin outlook for the first quarter, that 3.94% to 3.99%, can you break out the estimated purchase accounting accretion number with Bank Financial coming in and a full quarter of Westfield? PAA is I think 4 basis points this quarter. What does that look like in the guide for 1Q?

Yeah. So the 4 basis points for Westfield should pretty much hold. We don't see a big impact in terms of purchase accounting from the Bank Financial deal for one -- a couple of reasons. For one, that they just don't have a lot of -- they didn't have a lot of loans to begin with. And we are selling a big chunk of their -- the multifamily portfolio like we announced with the deal.

So they have about $700 million in loan balances that we acquired. We're selling about $450 million. And so really, I would -- so they're going to have $200 million to $250 million of loan balances that carry over. So you can imagine the purchase accounting isn't going to be significant for that. So if you look at Westfield, it was 4 basis points in the fourth quarter.

So -- and we had them for two months. So you can kind of look at like a 5 or 6 basis point purchase accounting impact from the deals.

Okay. That's really helpful. One more from me, just staying on the topic of margin. Like outside of short-term rate cuts, just kind of walk us through the major driver of margin over the course of 2026. Like if there's no more cuts, is there a natural drift in the margin one way or the other or is it really just dependent on what the short end does?

I would say it's really dependent on what the short end does for us. Now if we do not get any cuts, what we will see -- I mean, our margin we're showing for '26 is staying relatively level. We do get some impact now from the rate cuts. And we are forecasting -- in our forecast, we have rate cuts in -- two rate cuts, one in March, one in June. And our margin for the year goes down slightly kind of in the low 3.90s -- 3.90% to 3.95%.

So there is some impact if we have those rate cuts. If we don't, it essentially stays flat at just a higher level.

Fantastic. I really appreciate the color and commentary.

Welcome. Thanks, Brendan.

Terry McEvoy, Stephens.

It really feels like a Friday morning, not a Thursday morning. You kind of threw me off this quarter. I'm going to be honest -- (multiple speakers)

I'll run that by the boss. Just a question, the quarterly expenses, the $156 million to $158 million, where does that trend through the fourth quarter once you achieve the cost savings? I'm just trying to get a better sense for the quarterly trajectory.

Yeah. So Terry, it's Jamie. So we have a couple of things going on there that kind of go, I would say, in opposite direction. So we have -- so for the two deals, for Westfield, we have the major conversion, major event happened in March. So we'll start to realize much more of the cost savings for that deal after that.

We've already achieved some of that, but not the big amount that you typically get. And then in June, we have the conversion for Bank Financial. And so that will come a quarter later. And again, we'll start to see cost savings off of that. However, like we were mentioning, I think it was Danny's question about fees.

What we then see in the back half of the year is a pickup in foreign exchange revenue, which we will then -- which then ramps up commissions and whatnot related to that, the variable comp related to the -- of not only Bannockburn, but also a few of our other fee businesses. So that partially offset some of the cost savings that we will get. But obviously, then we have the revenue to -- on the other side.

So when we are -- when we look out kind of in the back half of the year, we're kind of in the low $150 million range, $150 million of -- on the expense side.

And I think, we're kind of looking at like conversion plus 90 days. You get -- you say convert Westfield in March. By June, pretty much all the expenses run out that we're going to get out of that integration. And then Bank Financial happens in June, conversion. And then three months later, we've got some employees that are contracted to stay with us 90 days after. So once we get to 90 days after conversion, that's when all the expenses burn out.

Perfect. Great color there. And then maybe as my follow up, what are the plans in Chicago, the $1.2 billion that comes from Bank Financial? It's a massive market. And what's the strategy to grow? Is it de novo hiring bankers or is that an M&A market for you potentially?

Yeah, Terry, this is Archie again. It's a little -- we'll focus on what we control, which is we're going to do organically. And we have a commercial banking team in the market that we had already put in prior, 1.5 years ago or two years prior to the Bank Financial closing. We'll be adding to that team a little bit. We'll be adding wealth bankers in the market, wealth private banking in the market.

They did not do mortgage banking. We'll be adding mortgage bankers in the market. And then we're going to retool what they're doing in their retail centers. They really weren't originating lending in the retail center. So we're training and retooling that so we can originate.

We're a pretty strong HELOC lender. So we're going to ramp that up. So a little bit of organic and then adding a little bit of talent in some spots where we need it. There's a couple of folks that they had doing smaller -- kind of smaller CRE that we've retained. They had a leasing team doing a few things on the leasing side that kind of filled in some holes that we had, and we're going to -- we're bringing them over.

We think there'll be some expansion of that business as a result. A little bit of both. As far as M&A in Chicago, we do think there's opportunity for add-on there. And if the right thing happens, maybe so, but that's not really our focus at the moment.

Perfect. Thanks for taking my questions.

(Operator Instructions) David Konrad, KBW.

Just a follow-up question on the expenses. Just wondering how the efficiency ratio will trend through the year. It feels like it's going to be like very low 50s based on your commentary.

Yeah, David, this is Jamie. You sound sick. I'm sorry about that.

I'm trying to be (inaudible).

Yeah, sorry. You got a good front. Yeah, so on the back half of the year, when the -- again, that will be kind of when we start to realize what I would call full cost savings for the two deals. When you look out, it's more -- it's not quite low 50s. It's kind of in that mid-50 range, 55%, 56% range.

A couple of things that like kind of nuance with our efficiency ratio. One of those is the impact from Summit and the equipment leasing side, the way you account for operating leases. And it's a pretty good sized chunk of our fee income and also on the expense side. So you get the rental payment in.

The rental payment is a -- goes into fee income and then you depreciate the asset on an operating lease. And that kind of isolated efficiency ratio for that business there is about in the mid to high 60s. And so that skews our efficiency ratio a little bit, maybe by a couple of hundred basis points. So absent that, it would be kind of in that -- what you're talking about, that 52%, 53% range.

Got it. Okay. And then Trust, really strong quarter there. How much did Westfield add? And what are you looking for, for the first quarter?

Yeah, David, Westfield didn't have a wealth private banking team. That's more on the banking side. So we're actually adding -- and we already hired one wealth adviser in the market. We're adding a second one here soon to try to grow wealth -- kind of the wealth management assets in Northeast Ohio, but they didn't have any when we acquired them.

But they did have a great quarter, and it was a combination of just continue to bringing in new assets and growing overall assets under management. And then we do have our M&A, small M&A advisory unit in that group and that group had a strong Q4, which added to their number.

Got it. Thank you.

Brian Foran, Truist.

Just going back to the loan growth commentary, two things I wanted to check. So one, would you expect total earning assets to kind of generally follow loan growth this year or is there anything we need to be mindful of as we're kind of penciling in cash and securities?

Yeah. So, Brian, this is Jamie. The -- so when you look at it, we are getting a big influx of liquidity cash in on the Bank Financial deal. So what we will do is put that money to work kind of mindful of cash flow off of the securities portfolio. So the securities portfolio might get a little bit bloated for us in terms of size. We typically like to keep the securities portfolio somewhere around 20% of assets.

So you'll see that peak maybe around $5 billion, so a little bit higher than what we would historically run on a percentage basis because at that point, we'll be around $22 billion in change in assets. So what we will do then as loan growth kind of ebbs and flows, we will bring the securities portfolio down. And really, if you kind of want to look at kind of maybe a rule of thumb for that, it would be loan growth and about half of that would come off of the securities portfolio. So we will bring that down, yeah.

And then just on the timing of loan growth improving, I guess, was it more tied to getting through elevated paydowns in 1Q or is it more tied to getting through the conversions and we should see the strengthening more in the back half of the year? I just -- maybe you could just revisit the catalyst for the step-up and the best guess of when we would start seeing it.

Brian, it's probably a couple of things. One, there is just a lower -- typically a little bit lower origination quarter in Q1 for us than you would see as the year ramps up, a little bit of seasonality, I guess, is what I'm saying. Summit, for example, our leasing group tends to have a really strong back half and the early part of the year tends to be a little bit lower than the back half, although we think they'll do a bit more this year.

But some seasonality is a piece of this. We think the Westfield team, for example, in Northeast Ohio is already running strong. So we'll be ramping up more resources and FTE in the Bank Financial markets, and that will -- in the back part of the year, also add more assets -- earning assets in our loans. So seasonality combined with bringing on some more people in the Chicago market over the year.

Perfect. Thank you so much.

With no further questions, that concludes our Q&A session. I'll now turn the conference back over to Archie Brown for closing remarks.

Thank you, JL. I want to thank everybody for joining us today. We are really pleased with the year and the quarter. Look forward to another great year in 2026, and look forward to talking to you again next quarter. Have a great day.

This concludes today's conference call. You may now disconnect.