First Financial Bancorp 2026 Q3 Earnings Call

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 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 will 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 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 will now turn it over to Archie Brown.

Thanks, Scott. Good morning, everyone, and thank you for joining us on today's call. I am 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. We are 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 are 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 healthcare 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 workout 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 book value per share decreased 6% from the linked quarter to $15.65, while the tangible common equity ratio declined 43 basis points from June 30th to 7.81% at the end of September.

Now I will 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, healthcare costs and 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, pre-provision ROA of 2.08%. Turning to slides 10 and 11, net interest margin increased nine basis points from the linked quarter to 4.07%.

Asset yields increased 13 basis points compared to the prior quarter. Total deposit costs increased four 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 the progression of average deposits from 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 non-interest-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 is 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 and 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.