First Financial Bancorp. (FFBC) 2026 Q3 法說會逐字稿

Hello everyone. Thank you for joining us and welcome to the First Financial Bancorp third-quarter 2026 earnings conference call and webcast.

(Operator instructions)

I will now hand the conference over to Scott Crawley, Corporate Controller. Scott, please go ahead.

Thanks, Leah. Good morning, everyone, and thank you for joining us on today's conference call to discuss First Financial Bancorp's third-quarter financial results. Participating on today's call will be Archie Brown, Chief Executive Officer Jamie Anderson, President and Chief Financial Officer and Bill Herod, 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 statement disclosure contained in the third-quarter 2026 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 September 30, 2026, 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. I'm very pleased to discuss our third-quarter results. We had a great quarter with adjusted net income of $87.8 million. And adjusted earnings per share of $0.84, which resulted in an adjusted return on assets of 1.56% and an adjusted return on tangible common equity of 20.2%.

Earnings per share increased 11% from the third-quarter of 2025 and were the highest in the company's history. We delivered record third-quarter revenue of $273.9 million, driven by a strong net interest margin of 4.07%. And record adjusted fee revenue of $77.6 million.

Loan balances increased moderately during the quarter, consistent with our prior outlook, particularly proud of the strong growth in our C&I portfolio for the quarter. Loan pipelines remain healthy as we enter the fourth-quarter, and we expect low to mid-single-digit loan growth as we close out 2026.

We're very encouraged by the strength and diversification of our fee income as adjusted non-interest income was a record $77.6 million and 28% of total revenue. Growth from the linked-quarter was driven by strong performances from foreign exchange, wealth management, client derivatives, and bank card income. As a result of our strong fee income and overall operating performance, expenses were elevated during the quarter.

Driven primarily by incentive costs associated with our record revenues, as well as higher health care claims and increased credit and collection costs. We do expect expenses to moderate in the fourth-quarter. Asset quality trends were stable during the third-quarter. Net charge-offs and non-performing assets were comparable to second-quarter levels, while classified assets increased significantly.

The increase in classified assets was primarily driven by the downgrade of a single ICRE relationship with multiple loans. The downgrade was driven by problems that developed in another business owned by our borrowers.

The underlying loans exhibit strong debt service coverage and low loan to values and are cross-collateralized. We expect to resolve the work out of this relationship over the next few quarters.

Finally, with respect to capital, all regulatory capital ratios increased from the second-quarter. However, tangible value per share and tangible common equity declined as a result of the sharp increase in interest rates during the second-half of the quarter. Tangible value per share decreased 6% from the linked-quarter to $15.65, while the tangible common equity ratio declined 43 basis points from June 30 to 7.81% at the end of September.

Now I'll turn the call over to Jamie to discuss our second-quarter results in greater detail. Jamie.

Thank you, Archie, and good morning, everyone. Slides 5, 6 and 7 provide a summary of our most recent financial results. The third-quarter results were excellent and included strong earnings, a robust net interest margin, record adjusted fee income and solid loan growth.

Our net interest margin remains very strong at 4.07%, increasing 9 basis points during the quarter. Asset yields increased 13 basis points and were partially offset by a 4 basis point increase in our cost of funds. End of period loan balances increased $170 million or 5% on an annualized basis with C&I, Summit and Consumer all having strong quarters. Average deposit balances increased $52 million or 1.2% on an annualized basis and included growth in interest-bearing demand accounts, money market accounts and retail CDs. This growth was offset by a decline in brokered CDs, savings and non-interest-bearing accounts.

Turning to the income statement, third-quarter adjusted fee income was the highest in the company's history, led by double-digit percentage growth in wealth management income, bank card income, and client derivative fees. Additionally, our leasing and foreign exchange businesses had solid quarters.

Non-interest expenses increased from the linked-quarter due to higher credit and collection expenses, health care costs. Compensation costs tied to fee income and the overall strong performance of the company. Our ACL coverage was unchanged during the quarter at 1.38% of total loans.

We recorded $8.9 million of provision expense during the period, which was driven primarily by net charge-offs and loan growth. On asset quality, net charge-offs were 21 basis points on an annualized basis, while NPAs as a percentage of assets were 45 basis points. Classified assets as a percentage of total assets increased to 1.26%, primarily due to the downgrade of a single ICRE relationship.

From a capital standpoint, our ratios are in excess of both internal and regulatory targets. Tangible book value was $15.65. While our TCE ratio declined to 7.8% due to unrealized losses on the investment portfolio.

Slide 8 reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $87.8 million or $0.84 per share for the quarter. Non-interest expense adjustments exclude the impact of acquisition costs. Tax credit investment amortization and other expenses not expected to recur.

As depicted on slide 9, these adjusted earnings equate to a return on average assets of 1.56%, a return on average tangible common equity of 20% and a pre-tax-provision ROA of 2.08%.

Turning to slides 10 and 11, net interest margin increased 9 basis points from the linked-quarter to 4.07%. Asset yields increased 13 basis points compared to the prior quarter. Total deposit costs increased 4 basis points from the linked-quarter, partially offsetting the impact of higher asset yields. There was minimal impact from the September rate hike on third-quarter net interest margin.

We expect the long-term impact from this increase in rates to be approximately three to four basis points. However, we anticipate a slightly higher impact in the near term as deposit costs are expected to increase over a more extended timeline.

Slide 13 illustrates our current loan mix and balance changes compared to the linked-quarter. Loan balances increased 5% on an annualized basis. As you can see on the right, growth was driven by C&I, Consumer and Summit, which offset a decline in ICRE, Mortgage and Oak Street due to prepayments and payoffs.

Slide 16 depicts our average deposit mix as well as a progression of average deposits in the linked-quarter. In total, average deposit balances increased $52 million during the quarter or 1% on an annualized basis. The increase was driven by interest-bearing demand accounts, retail CDs and money market accounts. These increases were offset by declines in brokered CDs, savings accounts and noninterest-bearing accounts. Excluding brokered CDs, average deposits increased $144 million from the second-quarter.

Slide 18 highlights our non-interest income. Total adjusted fee income was $77.6 million during the quarter, which was the highest quarter in the history of the company. Bannockburn and Summit both had solid quarters. Additionally, wealth management and bank card income increased from second-quarter levels.

Non-interest expense for the quarter as highlighted on slide 19. Core expenses increased $7.8 million during the period, driven primarily by higher compensation costs tied to an increase in fee income and the overall strong performance of the company. In addition, credit collection costs increased compared to second-quarter.

Turning now to slides 20 and 21, our ACL model. Resulted in a total allowance, which includes both funded and unfunded reserves of $210 million and $8.9 million of total provision expense during the period. This resulted in an ACL that was 1.38% of total loans, which was unchanged from the second-quarter. Provision expense was primarily driven by loan growth and net charge-offs, which were 21 basis points for the period.

In other credit trends, classified asset balances increased to 1.26% of total assets, primarily due to the downgrade of a single CRE relationship, while both net charge-offs and non-performing assets were relatively stable compared to the linked-quarter.

Finally, as shown on slides 22 and 23, capital ratios remain in excess of regulatory minimum and internal targets.

The increase in longer-term interest rates negatively impacted the market value of our investment portfolio, which resulted in a significant decline in AOCI during the period. Our TCE was 7.81%. Absent the impact from AOCI, the TCE ratio would have been 9.65%. Tangible book value was $15.65 at the end of the period. Our total shareholder return remains strong, with 34% of our third-quarter earnings returned to our shareholders during the period through the common dividend.

We maintain our commitment to providing an attractive return to our shareholders and will 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 the fourth-quarter outlook, which can be found on slide 24. Regarding our balance sheet, we expect low to mid-single-digit loan growth on an annualized basis. Expected strong growth in C&I and Summit will be partially offset with payoffs in the ICRE book.

For deposits, we expect low single-digit core deposit balance growth. We expect our net interest margin to increase to a range of 4.08% to 4.12% over the next quarter, assuming a December rate hike.

This range contemplates a decline in accretion income resulting from a forecasted decline in loan prepayments given the expected interest rate environment. We expect fourth-quarter credit costs to approximate third-quarter levels and ACL coverage to remain relatively stable as a percentage of loans.

To close up my commentary on the outlook, we expect fee income to be between $75 million and $78 million in the fourth-quarter, which includes $18 million to $20 million of foreign exchange income and $21 million to $23 million of leasing business revenue. Non-interest expenses are expected to be between $150 million and $153 million.

To conclude, we delivered another strong quarter and have had an excellent year-to-date. We're very pleased to have received regulatory approval for acquisition of Finward and expect to close on January 1, 2027, subject to state regulatory and Finward shareholder approvals. Looking ahead, we remain focused on closing the year on a strong note, completing the Finward acquisition and carrying our momentum into 2027.

Finally, I want to acknowledge the recently announced changes to our senior leadership structure. These changes were designed to promote continuity, reinforce our commitment to our strong financial performance, and maintain our engagement-centric culture.

I have tremendous confidence in Jamie and the rest of our leadership team, and the positive impact we're already seeing from these organizational changes underscores the strength of our people, our culture, and our continued commitment to serving our clients and our communities.

We'll now open up the call for questions. Leah.

We will now begin the question-and-answer session.

(Operator instructions)

Brendan Nozel, Hovdi Group.

Hey, good morning, guys. Thanks for taking the questions. Hey, Brendan. I'm starting off on the margin. You've kind of spoken about the margin in the context of rate hikes with this larger initial increase, and then that kind of measures out over time as starting costs catch up. What's the right way to think about the timeline from that initial seven to eight basis point to the longer-term three to four basis point benefit?

Yeah, Brennan, it's Jamie. Good question. So yeah, we think about that, obviously the loan side with a rate hike, we get that contractually. So about 60% of our loan book moves with the short end of SOFR. And so that's going to move right away or within 15 to 30 days as things reprise.

And then the way we look at it then, obviously, the deposit side is more managed, it's more market driven, and that's going to play out over another quarter or two until that kind of until that catches up.

And so, again, we think about that as an initial 7 to 8 basis points of improvement right away. And then as the deposit side catches up, really probably at between a quarter and two quarters, that's going to be in that 3 to 4 basis point range.

That's helpful way to think about it. Maybe one more for me, just kind of pivoting to the FINRA deal, just kind of looking at their release from last night. The bare book value is down like 11% and they lost like 90 bps on their capital, their TCE ratio, just given AOCI marks.

Just kind of wondering how the deal math changes given the shift in the rate environment and the marks on their balance sheet. I'm guessing book is more dilutive, but there's probably more fair value accretion versus that announcement.

Yeah, Brent, it's Jamie again. You're exactly right. It does we have a slightly more tangible book value dilution upfront. We'll get some more accretion income based on that.

Based on that hit that they took and everybody took, obviously, to their investment portfolio. The difference, though, if you look at the earn back, so at announcement date.

We looked at that earn back at around a half a year, I think it was 0.6 years, that extends out, not a lot, but extends out to about a year, to like it's 0.9 years, and mainly due to that, obviously, you take that book value dilution upfront. We get a little bit more accretion, but the accretion income will come in over a longer period of time than the initial earn back. So it just extends that earn back out a little bit, but it's not material.

Got it. All right. That's helpful color, Jamie. Thanks for taking my questions.

Brandon Rudd, Stephens.

Good morning. Thanks for taking my questions. If I could start on page 13, just with the strong growth in commercial and small business. I'm just kind of curious, maybe some of the subcategories within that. Is that an increase in line utilization? Is that CapEx spend? Maybe just kind of flush out what was behind that growth here in the third-quarter?

Brandon, it's kind of broad-based, both in terms of our market spend and in terms of the different product categories. So it's really not line utilization. If you look at our markets like Chicago. I mean, any of our major metros are seeing some pretty good growth here. Northeast Ohio is doing well. Of course, Southwest Ohio is doing well. So it's C&I oriented for the most part, and it's just coming from all the markets.

Okay, perfect. Thank you for that. And then maybe one more modeling question. I noticed on a period-end basis. The borrowings were a few hundred million dollars higher than on an average basis. So I'm just curious, is that more of an anomaly of a point in time and that comes back down closer to the average balance or is this $1 billion or so of borrowings a good number to use for the fourth-quarter?

Yeah, I think the $1 billion of borrowing is a good number to use for the fourth-quarter. It's going to bounce around a little bit. During any one period, and we kind of replaced some of the brokered, swapped out some of the brokered CDs into borrowing. So depending on the way the market looks, we'll do that on occasion, just depending on where we can, the most efficient way to borrow.

Okay, perfect. Thanks for taking my questions.

Daniel Tamayo, Raymond James.

Yes. Good morning, Archie. Good morning, Jamie. Maybe starting on the. Hey, good morning. Maybe starting on the fee income side, just particularly on the FX and leasing businesses. So FX has been kind of stable this year and leasing growth has been a little bit slower from prior years. Sorry.

Can you just remind us kind of from an annual perspective, the type of growth rates you might be looking at going forward with this business?

Yeah. Sorry, Danny, the last part of that, just want to kind of get a feel for how we see the rest of the year, full year playing out. Oh, growth year over year, okay. So I think we've talked about this before. Bannockburn, look, it's got a really good growth curve over a long window. It tends to come kind of in a more stair-step fashion. So if you said it's going to grow kind of in a high single-digit to 10% kind of range kind of yearly, that's kind of what it's been doing.

We expect it to close out pretty strong here and it will be still again decent year-over-year. The leasing business income is primarily tied to operating leases. And so it's somewhat dependent upon how much of their production is the operating lease mix. So if you think about where they are getting to the place where their amortizations are starting to catch up with their.

Kind of production, so the growth rates are just slowing generally. So that's going to be a little more of a slow grower as you go forward, just given the size of the portfolio more amortization.

Yeah, and Danny and Jamie too, just to add in on that. We will have as well like periodic sales of leases. We still are selling, call it around 10% to 15% of their production and that can, depending on any one quarter that can hit. That will pop that income. So it can be a little bit lumpy. They also get some occasional they get the end of term revenue as well that comes in. And so that can just move around. But we look at it, like Archie mentioned, kind of in a little bigger window than from quarter to quarter. And we look at that in that, call it 5% to 10% type growth rate.

Thanks, guys. Just point of clarification. I was just looking at kind of the midpoint of the guidance on the FX of around $19 million and that takes me to about $66 million for the year, which is pretty close to what you guys did last year. That's what I was basing that off of, but it sounds like you're continuing to expect growth off the overall number.

I'm trying to think. They had one quarter that was sort of an anomaly, Danny. So yeah, I see what you're saying. When you look at that together, I see how the math works. But that was a very unusual kind of quarter they had. And I guess I'm not thinking about that in terms because it's more of an outlier.

Understood. Got it. Okay.

Q4 of 25 is really high, Dan.

Got it. Okay. And then maybe kind of walk us through how you're thinking about the impact of higher rates, be it kind of what we've seen so far from the back half of this year and then maybe the potential for more in terms of how that could impact your loan demand. I'm curious, obviously, from a CRE perspective, but also leasing or any of the specialty businesses, how you think that might trend?

Danny, it's not affecting on the C&I side, it's not affecting it yet. So those numbers and the pipeline is really good. Actually, the CRE production was strong in the quarter, it will be a good strong Q4, but it's less than probably Q4 of last year. And when you look at it and you start going back and looking and part of this is multifamily has softened in terms of production, we're seeing that for sure already.

The other thing we're seeing a lot more competition, especially in the industrial space. So we're seeing a lot of competition come in, spreads are thinning, structures are loosening and I think we talked about this before, we're not going to. We're not going to play in kind of loosening structures. We'll play to some point on certainly price competition, but it is getting thinner.

So a combination of softer multifamily, a little bit more competitive on industrial, I think is bringing down a little bit of the growth rate on CRE. We're seeing some still pay also sales of properties being sold. Underlying properties being sold and so balance pressure there still as well. So more on the CRE side, I'm seeing it now. I think that will play out more as we go forward.

But if you look at our near-term pipeline view, and we look at this regularly, it's still a really strong pipeline, kind of on par with where we've been the last couple of quarters.

Got it. Okay. Well, thanks for that color, Archie.

Brian Foran, Truist.

Hey, good morning, guys. Maybe just to follow on, as you think about growth potentially getting the low to mid-single-digit. And like what would change that would get it back to mid to high single-digits? I guess just following on that last question, is it the CRE that is mainly you'd point to or is there anything else that would have to change in the environment or kind of what you're seeing in the markets to maybe get back to mid to high?

Brian, this is Archie. Our C&I business has strengthened throughout the course of the year. And right now, in the near to intermediate term, it looks like it's going to continue to be really strong. So if you start looking at the other businesses we have, the two places we've seen some pressure have been, as we just mentioned, ICRE. So ICRE in our near-term forecast has got some payoffs that are.

More credit related as well. We talked about our class size jumping up, we expect some of that to be resolved in Q4. So that's probably putting a little more pressure on payoffs in Q4. So maybe that starts to get a little bit better after that.

But still, the competition there, as I mentioned, industrial and then the softening in multifamily, I think are driving maybe sort of more of an immediate term softness there. So that's a piece that would have to think get better.

Oak Street has seen a little more payoff pressure. This is a unit that lends to our group that lends to insurance agencies and RIAs. They had a little more payoff pressure. And it's a little bit of the same thing, businesses selling. And in a couple of cases, we have grown relationships over a long window.

And then as they continue to get larger, they get to the place where it's just too big for us to continue to finance. So we've seen a payoff or two that's happened. I think we'll a couple more in Q4 where they've just gotten large enough that we can't continue to take care of them anymore. So that's a bit of the pressure there. That's more.

I think one, I'll call it one time or related to kind of what's happening near term, I think that will abate and they have good production. So I think their growth rates will pick up as we get into 2027. So mainly I think for us to get better, Oak Street will have higher production with less payoff pressure next year.

And CRE, that's probably the wild card, just how much does multifamily come back. How competitive does it get there? Do higher rates put more pressure on bringing production down? That would be the question.

And maybe a follow-up. I feel like not just for you, but for really across the industry, there's this fear that deposit competition is going to intensify and kind of steal the asset sensitivity away from the sector. Have margins roll over? I mean, everything looks pretty muted and sanguine in this release, but any thoughts on what you're seeing in the markets? Is that a valid concern or do you think maybe the investor focus on that is a little too high?

Yeah. Brian, I'll start. Jamie will maybe chime in as well. Look, I think we feel pretty good. For the near to intermediate term on your question, I think our growth in Q4 is maybe a little muted, but that's more we're seeing some public fund dollars, not the operating accounts, but more the extra money they keep in the bank, they're moving that money around to higher rate options in some cases.

To take advantage of the current rate environment. So some of that money is moving out, but kind of core relationships and commercial deposits and all that will be growing, I think, fairly decent and a fairly decent clip here in Q4.

So near term, we're not concerned. Intermediate term, I don't think I'm too concerned. Yes, we're watching the same dynamics you're talking about. I think for us, the. The one advantage we have, at least going into the current cycle, is we have a pretty low loan-to-deposit ratio. I think we're in the high 70s. So we do have more flexibility.

I think we've got some levers to pull here, depending on what loan growth looks like. We can be more aggressive if we need to. We can pull back if we want to in order to kind of manage this over, I think, the course of the next two quarters.

I think that's the biggest thing. That Archie mentioned, Brian, was that our loan-to-deposit ratio coming off of the acquisition that we had, especially the bank financial deal where we picked up a good chunk of liquidity, our loan-to-deposit ratio is about 78%. So over time, we want to optimize the balance sheet.

A little bit more, get back more towards a 83% to 85% loan-to-deposit ratio, which is where we've historically run, kind of where we feel comfortable. And so while we're still competitive, obviously, in the deposit pricing.

Landscape, we're kind of right in the middle and we're doing fine in terms of gathering deposits. We see that become a little bit more competitive. We can either pull down some of the balances from the securities portfolio or we can just elect to get more aggressive in the deposit market. So I think we have some options based on. On the way our balance sheet is right now and the way our loan to deposit ratio. So I think it provides us a lot of flexibility.

Thank you so much.

Thanks, Brian.

(Operator instructions)

John Arfstrom, RBC Capital Markets.

I guess we're kind of ticking through all the questions. And Jamie, maybe expenses is an area we haven't talked about yet. But. The new guide that you've talked about, does that basically strip out the impacts of what you mentioned impacted the Q3 numbers, so that takes out incentives, healthcare and some of the credit costs that are in expenses, is that the right way to think about it?

Yeah, that's right. So we see those moderating. I mean, the wild card there is where fee income, where it comes in. So we have that expense guide kind of based on that midpoint of the fee income and the associated commissions and incentives related to that. The other thing we had in the third-quarter, we had a true-up to some incentives that were more broad-based company-wide.

Incentive-based, just based on the year that we've had, the strong performance. So we think at this point that that was more of a kind of a year-to-date adjustment that won't necessarily happen that we won't have in the fourth-quarter. So that will help moderate expenses. The credit collection should come down.

And we typically see a little bit of a bump in healthcare in the third-quarter just based on our program. So, yes, and then some just overall moderation and a few other line items, small stuff, but yes, see that coming down based on those reasons in the fourth-quarter. Yes.

Okay. Good. Thank you on that. Bill or Archie, I mean, credit looks clean. Bill, you probably didn't think you're going to get a question, but anything more on the classified increase? It sounds like it's pretty specific to one credit. And then anything else from a credit or economic point of view you guys are watching a little closer.

Yeah, good morning. The one credit that we're talking about, it's a multi-asset real estate investor that also had C&I businesses and the C&I business elsewhere is what fueled the bankruptcy.

So we do think it's not systemic, it's isolated. And now we're just working through the sale of the underlying real estate assets. It's a mix of multifamily retail and some office. Market interest has been encouraging. While there's still execution ahead, we remain cautiously optimistic about the outcome.

And overall, credit, our watch and worse buckets have remained very steady. No big increases. And our charge-offs are in line with last quarter. So we don't see anything systemic coming down the pike.

Good. Thank you on that. And then, Archie, maybe just one for you. I think I'm probably last here. But anything you're thinking about strategically, you guys have had some, call it unique but also successful deals over the last year or two. Are you guys still active and still interested or is it just getting the current deal closed and integrating that as the near-term focus?

Yes, John. We really are focused on Finward and getting that closed. There continue to be bank M&A conversations, but I could tell you in the near term, we don't have anything else on our slate. Continued conversations, maybe other opportunities will pop up that make sense to us in 2027. Regarding non-bank, we've always been sort of opportunistic about that.

There are spots we wouldn't mind adding to drive some more fees, but they kind of come up when they come up. So we don't have anything right now that we're working on, but we're open to the ideas if the right things make sense. It's just they kind of come when they come.

Okay. All right. Thank you.

Thanks, John.

David Conrad, KBW.

Hey, good morning. Just one quick follow-up question on expenses. I know leasing kind of weighs a little bit on the efficiency ratio, but just some thoughts as you integrate and get all the cost saves out of the announced deals. What do you think the efficiency ratio could trend over the next couple of years?

Yeah, David, this is Jamie. So a little disappointed you didn't have a rush question for me. I know you're a big rush fan.

That's my one follow-up.

That's funny. Yeah. So for us, the efficiency ratio, it's a good point. The leasing business impacts our efficiency ratio by about 200 basis points. Just that we got obviously the fee income related to the rental payments up top and then the depreciation related to the assets down in the expenses. That adds about 200 basis points. Relatively to our efficiency ratio. We've been running around that 57% range. When everything's said and done, we get everything through, we think that comes down about 50% to 100 basis points.

So kind of 50%, 56% to 56.5%.

Yeah, 56, yeah, around that range.

Okay, perfect. That's right where I'm at. So thank you.

Got it. Thanks, David.

We have reached the end of the Q&A session. I will now turn the call back to Archie Brown for closing remarks.

Thank you, Leah. I want to thank everybody for joining us on today's call. We're proud of our results and we thank you for your interest and look forward to talk to you again next quarter. Have a great day. Bye now.

This concludes today's call. Thank you for attending. You may now disconnect.