FIRST FINANCIAL BANCORP /OH/ Q4 FY2024 earnings call

• Fourth quarter adjusted earnings per share were $0.71, ROA 1.7%, ROTCE 19.9%. Net interest margin 3.94%, down from prior quarter. Loan growth >7% annualized, deposits up ~16% annualized.
• Non-interest income strong, with leasing, foreign exchange, wealth management up double-digit from linked quarter. Expenses up 5% from linked quarter due to higher incentive compensation, but efficiency initiative eliminated 145 positions with completion expected in 2025.
• Asset quality relatively stable: NPAs flat at 0.36%, classified assets up 7 basis points to 1.21% due to foreign exchange trade termination, but customer obligation fully collateralized and expected to be paid in 2025. Net charge-offs slightly elevated but credit trends improving, anticipating lower credit costs.
• 2024 was excellent: adjusted earnings $249 million, ROA 1.4%, ROTCE 19.9%. Loan growth 7.6% to $11.8 billion, deposit growth 7.2% to $14.3 billion. Tangible common equity up 56 basis points to 7.73%, tangible value per share up 14%. Asset quality stable, net charge-offs as % of avg loans down 3 basis points to 30 basis points, NPAs as % of total assets down 2 basis points to 0.36%.

In the fourth quarter, the net interest margin was 3.94%, down from the prior quarter. Loan growth exceeded 7% annualized, with C&I, ICRE, mortgage, and leasing all showing strong growth. Total deposits surged by approximately 16% annualized. Non-interest income was robust, with leasing, foreign exchange, and wealth management income increasing double-digit from the linked quarter. For 2024, on an adjusted basis, earnings were $249 million or $2.61 per share, loan growth was 7.6% to $11.8 billion, and deposit growth was 7.2% to $14.3 billion. Net interest margin declined from 4.4% to 4.05% due to falling short-term rates, but loan growth offset most impact. Non-interest income increased over 13% to a record $241.8 million, leading to record revenue of approximately $854 million, a 2% increase from 2023.

• Loan growth expected to moderate to low single digits annualized in first quarter as approaching seasonal lows. Securities portfolio expected to remain relatively stable.
• Deposit growth expected to see seasonal flows reverse in first quarter, causing public funds and business balances to be slightly down.
• Net interest margin expected to be in range of 3.85% to 3.9% over next quarter assuming no additional rate cuts.
• Credit costs expected to be modestly lower, net charge-offs lower than current period. ACL coverage as % of loans expected to be stable to slightly increasing.
• Fee income expected to be between $63 million and $65 million, including $11 million to $13 million foreign exchange and $19 million to $21 million leasing business revenue.
• Non-interest expense expected to be between $128 million and $130 million, stable excluding leasing business and fee-based incentive expense.
• Capital ratios remain strong, dividend expected to be maintained at current level.

• Increase in classified assets due to mutually agreed upon termination of a foreign exchange trade resulting in a $45 million customer obligation, though fully collateralized.
• Net charge-offs slightly elevated due to resolution of longer-term workout loans.
• Macro-economic environment changes could impact credit quality and net interest margin.

Q: Daniel Tamayo asked about loan growth moderation in Q1, seasonality and future outlook.

A: Archie Brown said it's a combination of seasonality (Q1 typically lower) and higher payoffs on commercial real estate, but pipelines are healthy with positive client outlook.

Q: Daniel Tamayo asked about margin guidance and Fed funds cuts.

A: Jamie Anderson said a cut is built into the 2025 forecast in June, deposit costs continue to come down, loan book contractual nature causes margin to adjust slightly, but margin remains in 3.85%-3.90% range.

Q: Daniel Tamayo asked about market expansion into Grand Rapids and other markets.

A: Archie Brown said new markets are performing well, teams are in place, and they look for opportunistic opportunities in markets adjacent to their footprint.

Q: Terry McEvoy asked about expense guide and credit risk in classified assets.

A: Jamie Anderson said expenses include factors like payroll taxes, and Bill Harrod explained the foreign exchange trade termination receivable is fully collateralized with expected repayment in 2025.

Q: Christopher McGratty asked about inorganic growth and M&A.

A: Archie Brown said there's more optimism for M&A, having active discussions with banks in $1-5 billion range adjacent to their footprint but no specific likelihood to disclose.

Q: Jon Arfstrom asked about non-interest income growth, agile business, and classified assets.

A: Archie Brown and Jamie Anderson discussed non-interest income trends, seasonality in agile business, and Bill Harrod said classified assets excluding FX issue are improving with better trajectory.