First Financial Bancorp, a leading regional bank serving the Midwest, has reported its financial results for the second quarter of 2024, showcasing exceptional performance across key metrics. The company's adjusted earnings per share came in at $0.65, surpassing the Zacks Consensus Estimate of $0.59 and representing a 10.17% earnings surprise. This strong quarterly performance translated into a return on assets of 1.4% and a return on tangible common equity of 20.9%.

Business Overview

The standout driver of First Financial's success in the second quarter was its impressive loan growth, which increased by 11% on an annualized basis. This broad-based growth was led by the commercial banking segment, reflecting the company's ability to capitalize on robust demand across its diverse lending portfolio. Notably, the company's C&I loans, lease financing, and commercial real estate loans all experienced double-digit percentage increases compared to the prior quarter.

Complementing the strong loan growth, First Financial also reported a 10.6% annualized increase in average deposit balances, driven by a seasonal uptick in public fund deposits as well as growth in retail CDs, money market accounts, and broker deposits. While the deposit mix continued to shift towards higher-cost products, the company maintained a healthy 22% of total deposits in non-interest-bearing accounts, demonstrating its focus on maintaining a stable funding base.

Financials

The company's net interest margin remained resilient at 4.10%, unchanged from the previous quarter, as increases in both loan and investment yields offset the pressure on deposit costs. First Financial's management team expects the net interest margin to remain strong, projecting a range of 4.00% to 4.05% for the next quarter, even with an anticipated 25 basis point rate cut by the Federal Reserve in September.

Turning to the income statement, First Financial delivered record-setting fee income of $61.6 million, representing a 7% increase compared to the linked quarter. This impressive performance was driven by broad-based growth across multiple business lines, including a more than 60% surge in foreign exchange revenue, double-digit percentage increases in leasing business income, mortgage banking, and bankcard income, as well as another record quarter for wealth management fees.

On the expense front, the company's adjusted non-interest expenses increased by a modest 1.2% compared to the first quarter, reflecting the impact of annual salary adjustments, the full-quarter inclusion of Agile's expenses, and higher variable compensation tied to the record fee income. However, First Financial's ongoing workforce efficiency initiative, which has already resulted in the elimination of 90 full-time positions, is expected to provide further expense management benefits in the coming periods.

Risks and Challenges

The company's asset quality metrics were mixed during the quarter, with a 23 basis point decline in annualized net charge-offs to 15 basis points, marking the third consecutive quarter of improvement. However, the company did experience some credit migration, leading to a 7 basis point increase in the allowance for credit losses (ACL) to 1.36% of total loans. Management remains confident in the conservatism of the ACL, anticipating it will remain relatively flat or increase slightly in future periods to reflect changes in the macroeconomic environment.

Liquidity

From a capital perspective, First Financial's regulatory ratios continue to exceed both internal and regulatory targets. The company's tangible book value per share increased by 3.5% during the quarter, while the tangible common equity ratio remained flat at 7.23%. Notably, the company's board of directors approved a $0.01 increase to the common dividend, raising it to $0.24 per share and demonstrating the company's commitment to providing an attractive return to its shareholders.

Outlook

Looking ahead, First Financial's management team provided guidance for the remainder of 2024. They expect loan growth to moderate to the low single-digits on an annualized basis, driven by a modest increase in payoffs and seasonally lower production from the Agile business unit. The company's net interest margin is projected to remain strong, ranging between 4.00% and 4.05%, while credit costs are expected to decline slightly in the back half of the year. For the full year, the company anticipates net charge-offs to be in the range of 25 to 30 basis points.

On the fee income front, First Financial expects quarterly revenue to be between $58 million and $60 million, including $13 million to $15 million from foreign exchange and $16 million to $18 million from the leasing business. Non-interest expenses are expected to remain stable, excluding the leasing business, and are projected to be in the range of $122 million to $124 million.

Conclusion

First Financial Bancorp's impressive second quarter results, marked by exceptional loan growth, record fee income, and resilient net interest margins, demonstrate the company's ability to navigate the current economic environment and deliver value to its shareholders. With a strong capital position, disciplined expense management, and a positive outlook for the remainder of 2024, First Financial is well-positioned to continue its trajectory of success.