First Financial Bancorp. Q3 FY2025 earnings call

• Financial performance: Third quarter was outstanding with adjusted net income of $72.6 million, adjusted EPS of $0.76, strong net interest margin of 4.02%, and record noninterest income.
• Net interest margin: Remains very strong at 4.02%, with asset yields declining slightly and deposit costs managed. Loan balances declined due to slower production in specialty lending and construction originations.
• Expenses: Noninterest expenses increased due to higher incentive compensation tied to fee income, but efficiency efforts continue. Core expenses increased $5.7 million driven by higher incentive compensation.
• Loan and deposit: Loan balances declined modestly; average deposit balances increased $157 million due to higher broker deposits and money markets, with 21% of total balances in noninterest-bearing accounts.
• Asset quality: Nonperforming assets flat as a percent of assets, annualized net charge-offs 18 basis points, ACL coverage 1.38% of total loans.

The third quarter of 2025 was outstanding for First Financial. Adjusted net income was $72.6 million and adjusted earnings per share were $0.76, resulting in an adjusted return on assets of 1.55% and an adjusted return on tangible common equity of 19.3%. Record revenue was achieved driven by a robust net interest margin (4.02%) and record noninterest income. Adjusted noninterest income represented 31% of total net revenue for the quarter. Loan balances declined modestly during the quarter. Average deposit balances increased $157 million due to higher broker deposits and money markets. Third quarter fee income was a record, led by leasing and foreign exchange businesses. ACL coverage increased to 1.38% of total loans. Tangible book value per share was $16.19, increasing 5% from the linked quarter and 14% from a year ago, while tangible common equity increased 47 basis points to 8.87%.

• Fourth quarter: Expect loan growth to be in mid-single digits annualized. Net interest margin expected to be in the range of 3.92% - 3.97% over the next quarter assuming 25 basis point rate cuts in October and December. Expect fee income between $77 million and $79 million. Westfield transaction expected to close in early November. Initial preparations for BankFinancial close underway, expected to close in first quarter of 2026.

Q: Brendan Nosal from Hovde Group asked about NDFI loan exposure.

A: As of the end of the quarter, about $434 million in the NDFI portfolio, diversified, conservatively managed with bulk in traditional REITs and a securitization book.

Q: Brendan Nosal asked about net interest margin and early next year.

A: Margin reacts to 25 basis point cuts with about 5 basis points of pressure per cut, and Westfield coming in mitigates some pressure.

Q: Mark Shootley from KBW asked about new loan originations and portfolio yield.

A: Origination yields affected by rate cuts, currently in mid-6s range, commercial is big driver for loan growth in Q4.

Q: Daniel Tamayo from Raymond James asked about fees, expenses, credit, and capital.

A: Fee income strong, credit cost expected to be similar to third quarter, capital ratios will be assessed after deals close with potential for buybacks if stock undervalued.

Q: Terry McEvoy from Stephens asked about deposit competition and growth.

A: Modest increase in deposit costs, expect reduction in deposit cost going forward, seasonal bump in public funds in fourth quarter.

Q: Jon Arfstrom from RBC asked about workforce efficiency and acquisitions.

A: Well on the way to achieving expense reductions from acquisitions, with opportunities to add roles for revenue growth in markets.