FIRST FINANCIAL BANCORP /OH/ Q3 FY2026 earnings call

• Financial Performance: Delivered record third-quarter revenue of $273.9 million and adjusted net income of $87.8 million ($0.84 EPS), an 11% increase from Q3 2025. Adjusted Return on Assets (ROA) was 1.56%, and Adjusted Return on Tangible Common Equity (ROTCE) was 20.2%.
• Net Interest Margin (NIM): NIM strengthened to 4.07%, up 9 basis points sequentially. Asset yields rose 13 basis points, partially offset by a 4 basis point increase in cost of funds. The September rate hike had minimal impact on Q3 but is expected to contribute 3-4 basis points long-term.
• Loan Growth: Loan balances increased $170 million (5% annualized). Growth was driven by strong performance in C&I, Summit, and Consumer loans, while ICRE, Mortgage, and Oak Street saw declines due to prepayments and payoffs.
• Fee Income: Record adjusted non-interest income of $77.6 million (28% of total revenue). Key drivers included double-digit growth in wealth management, bank card income, and client derivative fees. Foreign exchange and leasing businesses also performed solidly.
• Asset Quality: Net charge-offs were stable at 21 basis points annualized. Non-performing assets were 45 basis points of total assets. Classified assets increased to 1.26% primarily due to the downgrade of a single ICRE relationship linked to borrower business issues; underlying collateral remains strong.
• Capital Position: Regulatory capital ratios increased. Tangible Book Value decreased 6% to $15.65 per share, and TCE ratio declined 43 bps to 7.81% due to unrealized losses in the investment portfolio from rising interest rates. Absent AOCI impact, TCE would have been 9.65%.
• Operational Expenses: Non-interest expenses increased due to incentive costs tied to record revenues, higher healthcare claims, and increased credit/collection costs. Expenses are expected to moderate in Q4.

The provided transcript does not break down revenue or performance by distinct product segments (e.g., Retail vs. Commercial) in terms of absolute dollar contributions or specific percentage shares of total revenue. The company reports consolidated figures: Total Revenue was $273.9 million, with Adjusted Net Income of $87.8 million and Adjusted Fee Income of $77.6 million. While fee income components like Wealth Management, Bank Card, FX, and Leasing are mentioned as drivers, their individual absolute values and revenue contribution percentages are not explicitly stated.

• Loan Growth: Expects low to mid-single digit loan growth for Q4 2026. Strong C&I and Summit growth expected to be partially offset by payoffs in the ICRE book.
• Deposit Growth: Expects low single-digit core deposit balance growth.
• Net Interest Margin: Projects NIM to increase to a range of 4.08% - 4.12% in Q4, assuming a December rate hike. This assumes a decline in accretion income due to forecasted lower loan prepayments.
• Credit Costs: Expects fourth-quarter credit costs to approximate third-quarter levels, with ACL coverage remaining relatively stable.
• Fee Income: Guidance for Q4 fee income is $75 - $78 million, including $18 - $20 million from foreign exchange and $21 - $23 million from leasing.
• Non-Interest Expenses: Expected to be between $150 - $153 million in Q4.

• Interest Rate Sensitivity: Sharp increases in interest rates negatively impacted the market value of the investment portfolio, leading to significant declines in Accumulated Other Comprehensive Income (AOCI) and tangible book value.
• Specific Credit Downgrade: A single ICRE relationship was downgraded to classified status due to problems in a separate business owned by the borrowers. While underlying loans have strong debt service coverage and low LTVs, the workout process may take several quarters.
• Competitive Pressure: Increased competition in the industrial CRE space and softening multifamily production are thinning spreads and loosening structures, potentially impacting future CRE growth.
• Payoff Pressure: Businesses selling properties and growing beyond the bank's financing capacity (specifically noted in Oak Street/RIA sector) are creating payoff pressure.

Q: Analyst asked about the timeline for net interest margin improvement post-rate hike, distinguishing between immediate loan repricing and slower deposit cost adjustments. / A: CFO explained that ~60% of the loan book reprices quickly (15-30 days), providing an initial 7-8 bps boost. Deposit costs will catch up over the next 1-2 quarters, resulting in a longer-term 3-4 bps benefit.

Q: Analyst queried how the recent drop in Fenward’s book value affects the acquisition economics and earn-back period. / A: CFO confirmed upfront dilution to tangible book value but noted more accretion income from the discount. However, the earn-back period extended slightly from 0.6 years to 0.9 years due to the longer amortization of the accretion, though not materially.

Q: Analyst asked about the impact of higher rates on loan demand, specifically regarding CRE and specialty lending pipelines. / A: CEO stated C&I demand remains strong, but CRE is facing headwinds from softer multifamily production and intensified competition in industrial spaces. Spreads are thinning, and they avoid loosening structures. Payoff pressure exists where clients sell assets or grow too large for the bank.

Q: Analyst questioned whether concerns about deposit competition intensifying and stealing asset sensitivity are valid given current muted trends. / A: CEO/CFO expressed confidence in near-to-intermediate term stability. They highlighted a favorable loan-to-deposit ratio (~high 70s) providing flexibility to manage liquidity via securities sales or aggressive deposit pricing if needed, unlike peers with tighter ratios.

Q: Analyst asked about the strategic outlook for M&A after closing the FinWard deal and thoughts on efficiency ratio trends post-integration. / A: CEO stated the near-term focus is exclusively on closing and integrating FinWard, with no other deals currently on the slate, though open to opportunistic non-bank acquisitions. CFO noted the leasing business adds ~200 bps to the efficiency ratio, and post-integration, they expect the ratio to improve by 50-100 bps to the high 50s range.