FIRST FINANCIAL BANCORP /OH/ Q1 FY2025 earnings call

• Adjusted earnings per share $0.63, return on assets 1.33%, return on tangible common equity 17.8%.
• Net interest margin strong but declined slightly, expected to expand near term.
• Loan balances stable, first quarter loan production seasonally lower, expecting modest growth in second quarter.
• Fee income $61 million, in line with expectations, expecting seasonal rebounds in second quarter.
• Non-interest expenses declined 3.3% due to lower incentive compensation and fraud losses, ongoing efficiency efforts.
• Asset quality improved with net charge-offs down and non-performing assets down, expecting continued improvement.
• Capital ratios strong, tangible common equity ratio 8.2%, tangible book value per share $14.80.
• Recognized for Gallup Exceptional Workplace Award and outstanding Community Reinvestment Act rating.

Adjusted earnings per share was $0.63, return on assets was 1.33%, and return on tangible common equity was 17.8%. Net interest margin was 3.88%, declining slightly due to loan yields outpacing deposit cost decreases. Loan balances were stable; first quarter loan production was seasonally lower. Fee income was $61 million, in line with expectations but down from linked quarter. Non-interest expenses declined 3.3% due to lower incentive compensation and fraud losses. Asset quality improved with net charge-offs down four basis points and non-performing assets down 9.5%. Capital ratios were strong, with tangible common equity ratio at 8.2% and tangible book value per share at $14.80.

• Second quarter loan growth expected modest with healthy pipelines in consumer, C&I, and ICRE.
• Net interest margin expected to expand to 3.95% - 4.05% in second quarter assuming 25 basis point rate cut in June.
• Credit cost expected stable, net charge-offs to decline further.
• Fee income expected between $64 million and $66 million, with leasing business revenue $20 million - $20 million.
• Non-interest expense expected between $126 million and $128 million, stable excluding certain expenses.
• Strong capital ratios remain in place.

• Uncertainty regarding impact of tariffs on clients.
• Economic turbulence potentially affecting loan growth and asset quality.
• Elevated prepayments in ICRE portfolio continuing.
• Payoff pressure in CRE from office credits maturing, private credit market competition, and potential refinancing if rates fall.

Q: How's it going? This is Angel Arfstrom on for Chris McGratty. Given current rates, have you taken steps to reduce asset sensitivity on the balance sheet and what's the sensitivity to NII and margin for each additional twenty-five basis point rate cut?

A: Our balance sheet is asset sensitive. Rate cuts are bleeding through deposit cost. A twenty-five basis point cut typically has about a five to six basis point drop in net interest margin, but we expect to mitigate some with deposit cost reductions.

Q: Given tariff uncertainty, any change in view toward capital deployment and M&A deals?

A: There have been more M&A discussions, but current uncertainty may slow them. Repurchases not expected near term.

Q: Workout of several C&I credits, trends and industries?

A: Some payoffs of classified loans, one large C&I credit in a flooring industry affected by bankruptcies and new market entry was a major charge-off source.

Q: Outlook for Summit, Oak Hill, Agile and management in softer economy?

A: Agile to seasonally ramp up, asset quality good. Oak Street asset quality solid. Summit has some small ticket deterioration but middle market/larger clients performing well.

Q: Loan growth guidance, back half of year outlook?

A: Full year loan growth now expected 4%-5% vs initial 6%-7% due to payoff pressure in CRE. Payoffs from office credits maturing, private credit market entry, and potential refinancing if rates fall. Origination side strong but back half harder to predict.

Q: Credit outlook, net charge-offs expected?

A: Net charge-offs expected to come down, with 2025 expectation 25-30 basis points, current 36 basis points due to one large credit, expecting glide path down to normalized range.

Q: Tariff impact, which parts of book to watch?

A: Bankers working with clients to understand tariff impact on cost structure and demand. Some clients with direct China supply may be more affected, but generally monitoring client-specific impacts.

Q: Tariff conversation, any surprises? Pipeline strength?

A: Pipelines strong in near term despite tariff noise, with more uncertainty in back half.

Q: Foreign exchange business, macro uncertainty impact?

A: Volatility good for business, expecting continued good activity driven by volatility.