First Financial Bancorp. Q1 2024 Earnings Call Transcript

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April 26, 2024

There are 9 speakers on the call.

Operator

Thank you for standing by. My name is Mandeep, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the First Financial Bancorp 20 24 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.

Operator

I would now like to turn the conference over to Scott Crowley, Corporate Controller. You may begin.

Speaker 1

Thank you, Mandeep. Good morning, everyone, and thanks for joining us on today's conference call to discuss First Financial Bancorp's Q1 financial results. Participating on today's call will be Archie Brown, President and Chief Executive Officer Jamie Anderson, 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'll make reference to the slides contained in the accompanying presentation during today's call.

Speaker 1

Additionally, please refer to the forward looking statements disclosure contained in the Q1 2024 earnings release as well as our SEC filings for a full discussion of the company's risk factors. Information we will provide today is accurate as of March 31, 2024, and we will not be updating any forward looking statements to reflect facts or circumstances after this call. I'll now turn the call over to Archie Brown. Thanks, Scott. Good morning, everyone, and thank you for joining us on today's call.

Speaker 1

Yesterday afternoon, we announced our financial results for the Q1. I'll provide some high level thoughts on our recent performance and then I'll turn the call over to Jamie to provide further details. I'm pleased with our Q1 results and encouraged by our trends, some of which were bolstered by actions we took during the quarter. These actions included a repositioning of a portion of the investment portfolio, a workforce efficiency initiative and the acquisition of Agile Premium Finance. We also commenced the restructuring of a portion of our bank owned life insurance portfolio, which is expected to increase income in the back half of the year.

Speaker 1

Adjusted earnings per share was $0.59 which resulted in a return on assets of 1.3% and return on tangible common equity of 19.1%. At 4.1%, the net interest margin remains very strong. Asset yields remained steady during the quarter. However, as expected, the continued rise of funding costs negatively impacted our net interest margin. Additionally, loan growth was robust for the 2nd consecutive quarter with balances increasing by 10% on an annualized basis.

Speaker 1

Average deposit growth slowed for the quarter to a 2.3% annualized growth rate and it included a seasonal outflow of approximately $100,000,000 in business deposits early in the quarter. I'm pleased that non interest income rebounded from the 4th quarter with increases across most of our fee revenue areas. During the quarter, we incurred a loss on the sale of investment securities associated with the repositioning of a portion of the investment portfolio. This repositioning has a very short earn back and should enhance our asset yields going forward. We also intensified our focus on expenses during the quarter.

Speaker 1

Our workforce efficiency initiative resulted in the reduction of approximately $5,000,000 in annual expenses, and we expect to realize an additional $10,000,000 to $12,000,000 in annualized expense reductions by the end of 2024. While expenses increased on a linked quarter basis, most of the increase was related to seasonal employee costs and variable compensation tied to the increase in fee income. We're excited to add Agile to our mix of specialty businesses. An overview of the company and transaction can be found on Slide 13. Agile operates an impressive business model, which originates high quality short duration loans at attractive yields.

Speaker 1

At closing, we acquired $93,000,000 in loans, which grew to $119,000,000 at the end of the quarter. Agile will further diversify the loan portfolio and is a perfect complement to our Oak Street and Commercial Banking businesses. Asset quality was stable for the quarter. Net charge offs declined for the 2nd consecutive quarter to 38 basis points and were primarily driven by charges on 2 office loans that had been on non accrual since early 2023. These two loans have been charged down to their net realizable value and no other office loans had a classified risk rating at the end of the Q1.

Speaker 1

Overall classified assets increased 12 basis points to 0.92 percent of assets, while non performing assets declined 9.8% from the prior quarter. With that, I'll now turn the call over to Jamie to discuss his results in greater detail. And then after Jamie's discussion, I'll wrap up with some additional forward looking commentary and closing remarks.

Speaker 2

Thank you, Archie, and good morning, everyone. Slides 4, 5 and 6 provide a summary of our Q1 financial results. The Q1 was another solid quarter, highlighted by strong earnings, net interest margin that was in line with expectations, solid loan growth and the purchase of Agile Premium Finance. Similar to last quarter, our net interest margin declined due to increasing deposit costs, but remains very strong at 4.1%. Additionally, we repositioned a portion of the securities portfolio, included selling $228,000,000 of securities at a $5,200,000 loss.

Speaker 2

We expect the reinvestment from these sales will bolster the margin in coming periods with a 278 basis point increase in yield. We anticipate further net interest margin contraction in the coming periods due to additional pressure on deposit pricing and changes in funding mix. However, we expect the pace of the decline to moderate. Total loans grew 10% on an annualized basis, which exceeded our expectations. Loan growth was concentrated in commercial real estate with smaller increases across the various other portfolios.

Speaker 2

Loan balances also included $93,000,000 of acquired balances from Agile, which is a finance company specializing in insurance premium lending. We acquired Agile in an all cash transaction at the end of February, and the deal resulted in the creation of $5,600,000 of intangible assets, primarily consisting of goodwill and a customer list asset. Excluding the loss on the sale of investment securities, non interest income increased compared to the linked quarter. Leasing and Wealth Management once again had solid quarters, while foreign exchange, client derivatives and mortgage income increased from lower levels in the 4th quarter. Non interest expenses increased from the linked quarter due to seasonal employee costs and higher variable compensation.

Speaker 2

Overall asset quality trends were stable with lower net charge offs and declining non performing asset balances with an increase in classified assets. Annualized net charge offs were 38 basis points during the period, which was an 8 basis point decline from the linked quarter, while non accrual loans decreased 10%. We recorded $11,200,000 of provision expense during the period, which was driven by net charge offs and loan growth. Our ACL coverage remains conservative at 1.29% of total loans. From a capital standpoint, our regulatory ratios are in excess of both internal and regulatory targets.

Speaker 2

Tangible book value increased slightly, while our tangible common equity ratio increased by 6 basis points during the period. Slide 7 reconciles our GAAP earnings to adjusted earnings, highlighting items that we believe are important to understanding our quarterly performance. Adjusted net income was $55,800,000 or $0.59 per share for the quarter. Adjusted earnings exclude the impact of the FDIC special assessment, losses on the sales of investment securities as well as acquisition, severance and branch consolidation costs. As depicted on Slide 8, these adjusted earnings equate to a return on average assets of 1.3%, a return on average tangible common equity of 19% and an efficiency ratio of 60%.

Speaker 2

Turning to Slide 9 and 10, net interest margin declined 16 basis points from the linked quarter to 4.1%. As we expected, higher funding costs outpaced increases in asset yields, primarily due to a 19 basis point increase in funding costs. These costs were partially offset by a modest increase in asset yields during the period. Our cost of deposits increased 20 2 basis points compared to the linked quarter, and we expect these costs to continue to increase in the coming months, but at a slower pace than we saw in the Q1. Slide 11 details the betas utilized in our net interest income modeling.

Speaker 2

Deposit costs increased in the 1st quarter, moving our current beta up 5 percentage points to 43%. Our modeling indicates that our through the cycle beta is approximately 40% to 45%. Slide 12 outlines our various sources of liquidity and borrowing capacity. We continue to believe we have the flexibility required to manage the balance sheet through the expected economic environment. Slide 14 illustrates our current loan mix and balance changes compared to the linked quarter.

Speaker 2

As I mentioned before, loan balances increased 10% on an annualized basis with growth concentrated in ICRE and moderate growth in almost every other portfolio. Additionally, the acquisition of Agile contributed $119,000,000 of growth during the quarter. Slide 5 provides detail on our loan concentration by industry. We believe our loan portfolio remains sufficiently diversified to provide protection from deterioration in any particular industry. Slide 16 provides detail on our office portfolio.

Speaker 2

About 4% of our total loan book is concentrated in office space and the overall portfolio performance metrics are strong. No office relationships were downgraded to non accrual during the quarter and our total non accrual balance for this portfolio declined to $17,000,000 Slide 17 shows our deposit mix as well as a progression of average deposits from the linked quarter. In total, average deposit balances increased $76,000,000 during the quarter, driven primarily by a $198,000,000 increase in money market accounts and a $186,000,000 increase in retail CDs. These increases offset declines in non interest bearing deposits, public funds and savings accounts. This was expected as the current interest rate environment has driven customers to higher cost deposit products.

Speaker 2

Slide 18 illustrates trends in our average personal, business and public fund deposits as well as a comparison of our borrowing capacity to our uninsured deposits. On the bottom right of the slide, you can see our adjusted uninsured deposits were $3,200,000,000 This equates to 24% of our total deposits. We remain comfortable with this concentration and believe our borrowing capacity provides sufficient flexibility to respond to any event that would stress our larger deposit balances. Slide 19 highlights our non interest income for the quarter. Total fee income was relatively unchanged at $46,500,000 during the Q1 and included the loss on the investment portfolio that I previously mentioned.

Speaker 2

Wealth management and leasing business income remained strong, while mortgage, foreign exchange and client derivative income all increased from 4th quarter levels. Non interest expense for the quarter is outlined on Slide 20. Core expenses increased $4,200,000 during the period. This was driven by an increase in variable compensation tied to fee income as well as higher employee costs, which includes annual raises and a seasonal increase in payroll taxes. Turning now to Slides 21 22, our ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $160,000,000 $11,200,000 of total provision expense during the period.

Speaker 2

This resulted in an ACL that was 1.29 percent of total loans, which was unchanged from the 4th quarter. Provision expense was driven by net charge offs and loan growth. Net charge offs were $10,600,000 or 38 basis points on an annualized basis, which was an 8 basis point decline from the linked quarter. In other credit trends, non accrual loans decreased 10% during the period, while classified asset balances increased to 92 basis points of total assets, primarily due to the downgrade of 2 relationships. Our ACL coverage was unchanged and we continue to believe we have modeled conservatively to build a reserve that reflects the losses we expect from our portfolio.

Speaker 2

We anticipate our ACL coverage will remain relatively flat or increase slightly in future periods as our model responds to changes in the macroeconomic environment. Finally, as shown on Slides 23, 2425, regulatory capital ratios remain in excess of regulatory minimums and internal targets. During the Q1, tangible book value increased slightly and the TCE ratio increased 6 basis points due to our strong earnings. Absent the impact from AOCI, the TCE ratio would have been 9.18% compared to 7.23% as reported. Slide 24 demonstrates that our capital ratios would remain in excess of regulatory targets, including the unrealized losses in the securities portfolio.

Speaker 2

Our total shareholder return remains robust with 43% of our earnings returned to our shareholders during the period through the common dividend. We believe our dividend provides an attractive return to our shareholders and do not anticipate any near term changes. However, we will continue to evaluate various capital actions as the year progresses. I'll now turn it back over to Archie for some comments on our outlook. Archie?

Speaker 2

Thank you, Jamie.

Speaker 1

Before we end our prepared remarks, I want to comment on our forward looking guidance, which can be found on Slide 26. Loan pipelines remain healthy, payoff trends remain lower and we expect seasonal tailwinds from our recent acquisition of Agile to contribute to overall growth of 10% to 12% on an annualized basis over the near term. For securities, we expect the portfolio to remain stable. Deposit growth has been solid and we expect to grow moderately over the next quarter. Our net interest margin has remained strong and resilient and we expect it to be between 3.95% and 4.05% for the next quarter, assuming no Fed cuts.

Speaker 1

We expect our credit costs remain consistent with the prior quarter, while ACL coverage as a percentage of loans is expected to be stable to slightly increasing. For the full year, we expect net charge offs to be approximately 30 basis points. Fee income is expected to be between $56,000,000 $58,000,000 as fees increase from seasonal lows and this includes $12,000,000 to $14,000,000 foreign exchange and $15,000,000 to $17,000,000 for leasing business revenue. Non interest expense is expected to be between $120,000,000 $122,000,000 which includes $9,000,000 to $11,000,000 in depreciation expense for the leasing business. Specific to capital, our capital ratios remain strong and we expect to maintain our dividend at the current level.

Speaker 1

Overall, I'm pleased with our quarter and the work our teams are doing to continuously improve the company. While we're in a difficult operating environment for the industry, I'm encouraged by our results and trends and expect that we will continue to have a strong year. We'll now open the call for questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from the line of Daniel Tamayo with Raymond James. Please go ahead.

Speaker 3

Thank you. Good morning Archie. Good morning Jamie.

Speaker 2

Good morning Dave.

Speaker 1

Good morning.

Speaker 3

Maybe we start on the loan growth guidance. It's a good strong number, but just curious if you could kind of deconstruct that for us of where you're expecting that? And I know you put a lot of information on the Agile acquisition in the deck, which certainly appreciate, but just if you could incorporate how Agile fits into that loan growth as well? Thanks.

Speaker 1

Sure, Danny. So the Q1, as you see it on the slide, it was a little bit more ICRE and agile were probably the bigger drivers. I think our view of the 2nd quarter is going to be a little more broad based. ICRE is going to probably fall back a little bit for the quarter. But we're going to see more broad based agile, we'll probably be about a third of that overall growth in the quarter.

Speaker 1

Commercial Banking, our Oak Street unit, Summit Funding will all contribute more, we believe, in the Q2. Again, I CRE will distribute some, just not as much as what you saw in Q1.

Speaker 3

Okay. And I'm sorry, were you going to say something else? No. Okay. And you mentioned cross selling opportunities from Agile.

Speaker 3

Just curious what you're thinking about the opportunities there are?

Speaker 1

Yes, there's going to be some work. It's not going to happen immediately, but we know that our commercial businesses are they sometimes there's a lump payment due to for property and casualty insurance and we've got the ability to help finance that over a 1 year or a little bit less than a 1 year window for them. So some will want to take that opportunity to do that. So we need to just introduce Agile and work them into getting to know our commercial bankers and offering that as another alternative offering for our clients.

Speaker 3

Okay. And then finally just again on Agile, just the I think you had 10 to 20 basis points as the credit loss expectation for that business. How should we think about that? Is that kind of full cycle or near term or just if you could kind of Yes,

Speaker 1

I'd say that as it ramps up and gets to kind of to its fuller run rate that we would start to see that I would say more think about more later on as opposed to near term. We when we acquired the portfolio, we did spend time selecting what we think were the highest quality assets and making sure the strategy fit with our kind of our credit appetite. So would tell you when it matures, that's what we would expect, but in the near term, it'd be less than that. Okay.

Speaker 3

All right. Well, terrific. Thanks for taking my questions.

Speaker 1

Thanks, Danny.

Operator

Our next question comes from the line of Terry McEvoy with Stephens. Please go ahead.

Speaker 4

Good morning, guys.

Speaker 1

Hey, Terry. Jamie,

Speaker 2

I was wondering if you

Speaker 4

could help us think about the margin in the second half of the year when you take into consideration the BOLI restructuring as well as the security sale that occurred in the Q1?

Speaker 2

Yes. So just to be clear on the BOLI restructuring that income is down in fee income. So that is included in our fee income outlook and that restructuring, it takes a little bit of time for that to kind of for the insurance carriers to process that. So, it will typically take 90 days to 120 days kind of ish for that to pull through and we get those dollars reinvested. But that hits down in fee income.

Speaker 2

So it's not really a margin item. So but on that, just to clarify, that will hit mostly in the starting in the Q3. There will really be a large we'll get some of it, but it won't be a large second quarter item. But obviously then on the margin, the securities repositioning is going to help our asset yields. Also, the Agile acquisition as well will help increase our asset yields, plus just the reinvestment of assets into current rates is obviously helping as well.

Speaker 2

So, as the Agile assets, their yield is around 9%. So that is at least 100 basis points or so higher than kind of the rest of our current offering rates on the loan book. So that's going to help. And so when we look at the margin out and obviously we gave the outlook for the kind of the near term in the second quarter. When we look out in the back half of the year, we see the margin stabilizing.

Speaker 2

So our forecast, we currently have 2 rate cuts, one kind of still in the middle of the year, whether that will happen or not, it will remains to be same. And one towards the back half of the year in that November, December timeframe. And so we have our margin stabilizing in the back half of the year in that 3 in that 3.90 to 3.95 range. And then if we don't get any cuts, that we just that just helps our margin stay a little bit higher for a little longer. So it would be maybe in that higher 3.90 range if we don't get any cuts.

Speaker 4

Perfect. Thanks for all that information. And then as a follow-up on expenses, the actions taken last quarter, is that built into the $120,000,000 to $122,000,000 expense outlook? Or should we expect expenses to come down later this year? And I was it $10,000,000 to $12,000,000 I didn't I couldn't write it down as quickly as I wanted to when Archie was discussing it.

Speaker 1

Yes, Terry, this is Archie. So the $5,000,000 I referred to that we realized in the Q1 by the end of the quarter, I think we've got that baked into our near term expense outlook. That did fully cover the cost of the Agile operating expenses. So it does a nice job of that, but it's all baked into the near term. The 10 to 12 additional expense savings on an annualized basis, we think that will be realized by the end of the year, so it'll affect more next year in full.

Speaker 1

But there's going to be some gradual each quarter, some gradual incremental reductions coming from that work. It just won't be fully, I guess, in effect or impacting the company until we get to the end of the year.

Speaker 4

Great. Thanks for taking my questions. Have a nice weekend.

Speaker 1

Thanks, Terry. Thanks, Terry. Thanks, Terry.

Operator

Our next question comes from Chris McGratty with KBW. Please go ahead.

Speaker 1

Hey, good morning. Hey, Chris.

Speaker 5

Good morning. Jamie, a question on the funding, with the step up in the loan growth, what's the plan to fund it? Are you going to borrow? Are you going to do something on CDs? What's the plan to fund the extra growth?

Speaker 1

Well, I mean, it will be a little

Speaker 2

bit of everything. So we have about 5% projected deposit growth for the remainder of the year kind of across the board. And then we will obviously depending on where the loan growth plays out. So if you look at 5% deposit growth, that's about in that $175,000,000 $200,000,000

Speaker 1

a quarter

Speaker 2

deposit growth on that side. And the if we have we're showing around 10% or so growth in the 2nd quarter in loans. And that doesn't quite cover that 10%. So we would fill in the rest with borrowings. And then we'll see where loan growth shakes out for the rest of the year, but about 5% deposit growth.

Speaker 2

And then again, we'll just fill in with fill in with borrowings.

Speaker 5

Okay, great. And then just a couple of housekeeping items on the bond restructure. What's do you have the spot rate for the bond portfolio?

Speaker 2

The spot with the current yield, is that what you're asking?

Speaker 5

Yes. I'm just trying to like second quarter like security yield, I'm trying to get at.

Speaker 2

Yes. Give me one second here. So, yes, total investment yield projected $415,000,000

Speaker 5

And then maybe I'll sneak one in on capital. I mean, you talked about organic growth tuck in deal. Is there any change in conversations activity on traditional banks? Obviously, the marks are hard with rates, but you guys have a multiple.

Speaker 6

I was just wondering if you

Speaker 5

had any thoughts there.

Speaker 1

Yes, Chris, this is Archie. I mean, there are I'd say just we were having each quarter some conversations and I think things generally advance a little bit, but I can't tell if there's anything we're seeing right now near term that would use up the capital we're building. So it's something we'll keep working on and see if something makes sense for us, but there's nothing right now that's immediate or imminent. Okay. Thank you.

Speaker 1

Yes.

Operator

Our next question comes from the line of Jon Arfstrom with RBC Capital Markets. Please go ahead.

Speaker 6

Hey, thank you. Good morning, guys.

Speaker 2

Hey, John. Hey, John.

Speaker 6

A few follow ups. On Agile, Archie, where do you think this business could go? I see your $80,000,000 end of year target, but what kind of longer term growth expectations do you have for it?

Speaker 1

Yes. John, it's going to be over some time. I mean, this year, I think we're it's probably going to be a little bit shy of $200,000,000 by year end. It may actually look at some seasonality in the middle part of the year. So it may peak out around $200,000,000 in the summer and then slightly fall back to around 190 or so by year end.

Speaker 1

But then next year, we think that can ramp up some more. So I think over 3 to 4 years, if you're talking about a business that's maybe $500,000,000 range, that's probably what we would say right now. These loans are very short in tenor. They're probably 10 months, something like that. So you got to do a lot in order to keep it going.

Speaker 1

But if we get into that $400,000,000 $500,000,000 range over the next several years, I think that's where it gets to. It's a nice what we like though, John, it's got great granularity, high quality. It's another lever. It helps us diversify the overall loan book. It complements the commercial banking team.

Speaker 1

So we like all the different facets that come with it.

Speaker 6

Yes. No, I think it makes sense. Jamie, for you, I hear you on the margin pressures, but how about net interest income inflection? When do you think that could occur given the loan growth maybe that happens before the margin? Is that fair?

Speaker 2

And John, just to make sure I understand, you're talking about just dollars of net interest income and when that starts to move up again. More like in the towards the end of the year, I mean, obviously with we are looking at still here 1st quarter to the second quarter of call it about 10 basis points of margin compression around that area. And then so keeping the dollars the same here first to second quarter probably is unlikely. But really then in the back half of the year as the margin stabilizes a little bit more, you'll see that with the growth that we have, you'll see that those dollars start to stabilize and then move up.

Speaker 6

Okay. All right. Thank you. And then Bill, maybe for you just on credit in general, how you're feeling about credit and then you're I'd like that office maturity schedule slide or cable on Slide 16. What are you seeing on some of those loans that are coming up from renewal from your point of view?

Speaker 6

And how do you kind of look ahead to get ahead of any problems?

Speaker 7

Yes, absolutely. So on the office in particular, we have a quarterly cadence for review, including stress testing of the book from all the different angles that you would expect. And then we supplement that with portfolio review discussions on the buckets that we identify with potential issues. We do this on a quarterly basis. And as we look at 2024 and 2025, we have a manageable handful of deals to work through during that time.

Speaker 7

But overall, we feel good about our office book as it sits today. And we monitor that every, like I said, every quarter. On the global book, I do I feel good about it. I think as I look out in the future, we have the office nice and ring fenced. Our C and I is performing very, very well and feel pretty good.

Speaker 1

Okay. All

Speaker 6

right. Thanks guys for the help.

Speaker 1

Thanks,

Operator

Our next question comes from the line of Alex Thruentwalt with Piper Sandler. Please go ahead.

Speaker 8

Thanks. Good morning, guys.

Speaker 1

Hey, Alex.

Speaker 8

Just wanted to go back to the loan growth guide. I think that 10% to 12% in the near term, that makes sense given that ramp up that you talked about with Agile and some of the other pieces contributing in the Q2. But I mean, is that sustainable into the back half of the year? Or do you think that there's going to be maybe as rates remain high maybe that cools down a little bit in the 3rd Q4?

Speaker 1

Yes, Alex, it's a little harder to tell. Our pipelines coming into the quarter were they were ramping up in Q1. They're healthy and they're remaining pretty strong and stable. We can look out into the middle of the year and feel pretty good. Just a little murk here, if I'm handicapping, I would tell you, it's probably it feels like it may be just a little bit lighter than that 10% to 12% annualized rate that we're talking about right now when you get in the back half.

Speaker 8

Yes, that makes sense. Not a lot of banks projecting that peso loan growth at all this year. So I guess like going to the NIM, with the agile loans coming on with the 9% plus, the securities restructuring, some of the other dynamics, kind of I guess a little surprised to see that amount of NIM compression still expected for the Q2. So are there some is it really just the funding just like some higher tranches of borrowings maybe repricing during the quarter? Or maybe talk about kind of really what's driving that level of compression in the 2nd quarter still?

Speaker 2

Yes, Alex, it's Jamie. So, yes, it's really the funding side that's driving all of that still. And really what we are seeing is just that continued mix shift on the deposit side, the dollars moving out of the lower cost buckets into the money market and CD specials. And that's just continues to drive up the we were starting to see that mitigate some in the back half of the first quarter, but we still see some of that going on in the Q2. And that's just driving the cost that we're seeing.

Speaker 2

Dollars continue to move out slowly still in our business DDA balances. And the average balance of those accounts are still higher than what they were historically. So we're still seeing some dollars move out of there. And we're replacing those dollars with CDs and money market accounts. So it's just drive that's just driving up the funding.

Speaker 2

And so, yes, we get a little bit of benefit from the asset yields. I mean, obviously, I mean, agile helps. It's just a small couple of 100,000,000 on the loan base. It obviously helps, but it's not enough here in the very near term to offset that funding pressure that we're seeing. But we expect that funding pressure, again, another quarter of that with maybe a little still some of it in the Q3, not as much as the second quarter.

Speaker 2

We just see that the deposit costs start to stabilize, again, absent any rate cuts.

Speaker 8

Okay. Appreciate that color. And then as you think about the agile and the I guess really more broad term for the specialty finance businesses, I got to think that their funding costs are getting pressured even more than banks. And I'm just curious, have you seen an increase in these types of deals? Like how many would you typically look at in any given year?

Speaker 8

And is that some of these specialty finance type transactions, are they going to be, I guess, should we expect them to be part of the overall growth strategy for 2024 beyond the Agile acquisition?

Speaker 1

Yes, Alex, this is Archie. I'll discuss it. We do I think because we have acquired several specialty companies, we are higher on, I'm going to use a little term, the Rolodex of bankers that are calling around for different companies. But we've really never responded to those. Everything that we've really acquired has been in a way based on some relationships we have or a network we have with people.

Speaker 1

So we're really not out looking for more. I would tell you certainly in the wealth space, if we ever found something that made sense and the pricing could be rationalized, right, we would consider something like that. But we're not looking for more specialty companies. This was a it came in through some connections we had and we really liked what this business looked like in terms of again the diversity of the yields, the complements commercial banking, the granularity, we like to all that. So yes, and it's just a Chicago company and that's right here, not far, we've got other presence in the Chicago area.

Speaker 1

So, not looking for more, but it fits in the pattern of the things we've acquired over recent years.

Speaker 8

Great. Appreciate all the additional color. Thanks for taking my questions.

Speaker 1

Thanks, Alex. Have a good day.

Operator

That concludes our Q and A session. I will now turn the conference over to Archie Brown for closing remarks.

Speaker 1

Well, thank you for joining us on today's call and following along with us for a quarter. We look forward to talking again next quarter. Have a great weekend. Bye now.

Operator

This concludes today's conference call. You may now disconnect.

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Key Takeaways

  • Adjusted EPS was $0.59, delivering a 1.3% return on assets, 19.1% return on tangible common equity, and a 4.1% net interest margin, with loans up 10% annualized and deposit growth moderating to 2.3% after a $100 million seasonal outflow.
  • Repositioned $228 million of securities at a $5.2 million loss to secure a 278 bp yield pickup, launched a workforce efficiency program saving $5 million (with $10–12 million more expected by year-end), and began restructuring bank-owned life insurance to boost second-half income.
  • Closed the all-cash acquisition of Agile Premium Finance, adding $93 million (growing to $119 million) in high-quality, short-duration loans that diversify the portfolio and complement Oak Street and commercial banking units.
  • Guidance includes near-term loan growth of 10–12% annualized, Q2 net interest margin of 3.95–4.05% (assuming no Fed cuts), full-year net charge-offs around 30 bps, fee income of $56–58 million, and noninterest expense of $120–122 million, while maintaining the current dividend.
  • Asset quality remains stable with net charge-offs declining to 38 bps and nonperforming assets down 9.8%, backed by a conservative 1.29% allowance coverage of loans, robust liquidity, and capital ratios well above regulatory and internal targets.
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Earnings Conference Call
First Financial Bancorp. Q1 2024
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