Thanks for your patience. My name is Mandeep, and I will be your conference operator today. I would like to welcome everyone to the First Financial Bancorp 2024 Earnings Conference Call and webcast. I will now hand the conference over to Scott Crawley, Corporate Controller. You may begin.

Thank you, Mandeep. Good morning, everyone, and thanks for joining us on today's conference call to discuss First Financial Bank's first quarter 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. Additionally, please refer to the forward-looking statement disclosure contained in the first quarter 2024 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 March 31, 2024; 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. Yesterday afternoon, we announced our financial results for the first quarter. 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 first quarter 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. Adjusted earnings per share was $0.59, which resulted in a return on assets of 1.3% and a 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 in funding costs negatively impacted our net interest margin. Additionally, loan growth was robust for the second consecutive quarter, with balances increasing by 10% on an annualized basis. Average deposit growth slowed for the quarter to a 2.3% annualized growth rate and included a seasonal outflow of approximately $100 million in business deposits early in the quarter. I'm pleased that noninterest income rebounded from the fourth 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. Our workforce efficiency initiative resulted in a reduction of approximately $5 million in annual expenses, and we expect to realize an additional $10 million to $12 million 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 that originates high-quality, short-duration loans at attractive yields. At closing, we acquired $93 million in loans, which grew to $119 million 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 second consecutive quarter to 38 basis points and were primarily driven by charges on two office loans that had been on nonaccrual 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 first quarter. Overall classified assets increased 12 basis points to 0.92% of assets, while nonperforming assets declined 9.8% from the prior quarter. With that, I'll now turn the call over to Jamie to discuss those results in greater detail. Then after Jamie's discussion, I'll wrap up with some additional forward-looking commentary and closing remarks.

Thank you, Archie, and good morning, everyone. Slides 4, 5, and 6 provide a summary of our first quarter financial results. The first quarter was another solid quarter, highlighted by strong earnings, a 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, which included selling $228 million of securities at a $5.2 million loss. We expect the reinvestment from these sales to 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 the 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. Loan balances also included $93 million 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 $5.6 million of intangible assets, primarily consisting of goodwill and a customer list asset. Excluding the loss on the sale of investment securities, noninterest 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 fourth quarter. Noninterest expenses increased from the linked quarter due to seasonal employee costs and higher variable compensation. Overall asset quality trends were stable, with lower net charge-offs and declining nonperforming asset balances, alongside 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 nonaccrual loans decreased 10%. We recorded $11.2 million of provision expense during the period, which was driven by net charge-offs and loan growth. Our allowance for credit losses (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. Tangible book value increased slightly, while our tangible common equity ratio increased by six 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 $55.8 million 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%. Turning to Slides 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 22 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 first quarter. Slide 11 details the betas utilized in our net interest income modeling. Deposit costs increased in the first quarter, moving our current beta up five 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. 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 million 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. 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 nonaccrual during the quarter, and our total nonaccrual balance for this portfolio declined to $17 million. 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 million during the quarter, driven primarily by a $198 million increase in money market accounts and a $186 million increase in retail CDs. These increases offset declines in noninterest-bearing deposits, public funds, and savings accounts. This was expected as the current interest rate environment has driven customers to higher cost deposit products. 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 $3.2 billion. 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 noninterest income for the quarter. Total fee income was relatively unchanged at $46.5 million during the first quarter and included the loss on the investment portfolio that I previously mentioned. Wealth management and leasing business income remained strong, while mortgage, foreign exchange, and client derivative income all increased from fourth quarter levels. Noninterest expense for the quarter is outlined on Slide 20. Core expenses increased $4.2 million during the period. This was driven by an increase in variable compensation tied to fee income, as well as higher employee costs, which include annual raises and a seasonal increase in payroll taxes. Turning now to Slides 21 and 22. Our ACL model resulted in a total allowance, which includes both funded and unfunded reserves of $160 million and $11.2 million of total provision expense during the period. This resulted in an ACL that was 1.29% of total loans, which was unchanged from the fourth quarter. Provision expense was driven by net charge-offs and loan growth. Net charge-offs were $10.6 million or 38 basis points on an annualized basis, which was an eight basis point decline from the linked quarter. On other credit trends, nonaccrual loans decreased 10% during the period, while classified asset balances increased to 92 basis points of total assets primarily due to the downgrade of two 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. 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, 24, and 25, regulatory capital ratios remain in excess of regulatory minimums and internal targets. During the first quarter, tangible book value increased slightly, and the TCE ratio increased six 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. 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.

Thank you, Jamie. 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. We expect our credit costs to 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 million and $58 million as fees increase from seasonal lows, and this includes $12 million to $14 million in foreign exchange, and $15 million to $17 million for leasing business revenue. Noninterest expense is expected to be between $120 million and $122 million, which includes $9 million to $11 million 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. 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.

Our first question comes from Daniel Tamayo with Raymond James.

Thank you. 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 where you're expecting that? And I know you put a lot of information on the Agile acquisition in the deck, which I certainly appreciate, but just if you could incorporate how Agile fits into that loan growth as well.

Sure, Danny. So the first quarter, 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 second 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 will probably be about one-third of that overall growth in the quarter. Commercial Banking, our Oak Street units, and Summit funding will all contribute more, we believe, in the second quarter. Again, ICRE will contribute some just not as much as what you saw in Q1.

And you mentioned cross-selling opportunities from Agile. Just curious what you're thinking about the opportunities there are.

Yes. There's going to be some work. It's not going to happen immediately, but we know that our commercial businesses sometimes have a lump payment due for property and casualty insurance, and we've got the ability to help finance that over a one-year or a little bit less than a one-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.

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

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

Good morning, guys. Jamie, I was wondering if you could help us think about the margin in the second half of the year when you take into consideration the BOLI restructuring as the security sale that occurred in the first quarter?

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 takes a little bit of time for that to pull through. It will typically take 90 to 120 days or so for that to pull through. We get those dollars reinvested. But that hits down in fee income. So it's not really a margin item. So on that, just to clarify, that will hit mostly starting in the third quarter; there won't really 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 will help increase our asset yields, plus just the reinvestment of assets into current rates is obviously helping as well. So the Agile assets, their yield is around 9%. So that is at least 100 basis points or so higher than the rest of our current offering rates on the loan book. So that's going to help. When we look at the margin now and obviously, we gave the outlook for the kind of the near term or the second quarter. When we look out in the back half of the year, we see the margin stabilizing. So our forecast currently includes two rate cuts, one in the middle of the year, whether that will happen or not remains to be seen, and one in the back half of the year in that November, December timeframe. We have our margin stabilizing in the back half of the year in the $3.90 to $3.95 range. If we don't get any cuts, that just helps our margin stay a little bit higher for longer, so it would be maybe in that higher $3.90 range if we don't get any cuts.

Perfect. As a follow-up on expenses, are the actions taken last quarter included in the $120 million to $122 million expense outlook? Should we expect expenses to decrease later this year? Was it $10 million to $12 million? I didn't manage to write it down as quickly as I wanted to. Archie was discussing it.

Yes, Terry. This is Archie. The $5 million I referred to that we realized in the first quarter, by the end of the quarter. I think we've got that baked into our near-term expense outlook that covered 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 million in additional expense savings on an annualized basis will be realized by the end of the year to affect more next year in full, but there will be some gradual incremental reductions coming from that work each quarter. It just won't be fully effective or impacting the company until we get to the end of the year.

Our next question comes from Chris McGratty with KBW.

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 with the CDs? What's the plan to fund the extra growth?

It will be a mix of different strategies. We anticipate around 5% deposit growth for the rest of the year, evenly spread out. Loan growth will also influence our approach. With 5% deposit growth, we expect to see an increase of approximately $175 million to $200 million in deposits each quarter. If we achieve about 10% loan growth in the second quarter, it won’t fully cover that increase, so we will need to supplement with borrowings. We’ll evaluate loan growth trends for the remainder of the year, but our expectation remains at around 5% deposit growth, and we will use borrowings to bridge any gaps.

Okay. Great. Do you have the spot rate for the bond portfolio?

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

Yes, I'm trying to address the second quarter security yields.

Yes. Give me one second here. So you had total investment yield projected around $415 million.

And then maybe I'll sneak one in on capital. I mean you talked about organic growth, tuck-in deals. Is there any change in conversations activity on traditional banks? Obviously, the markets are hard with rates. But you guys have a multiple. I was just wondering if you're getting thoughts there.

Yes, Chris, this is Archie. We've been having conversations each quarter, and things are generally progressing, but I can't mention anything immediate regarding the capital we're building. We're continuing to explore options to see if something makes sense for us, but there’s nothing pressing or on the horizon at this moment.

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

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

Yes. Jon, it's going to be over some time. This year, I think we're probably going to be a little shy of $200 million by year-end. It may actually – we got some seasonality in the middle part of the year. So it may peak at around $200 million in the summer and then slightly fall back to around $190 or so by year-end. But then next year, we think that can ramp up some more. So I think over the next three to four years, we're talking about a business that's maybe in the $1.5 billion range. That's probably what we would say right now. These loans are very short in tenure. They’re probably about ten months, something like that. So you've got to do a lot to keep it going. But if we get into that $400 million to $500 million range over the next several years, I think that's probably where it gets to. It's got great granularity and high quality. It’s another lever that helps us diversify the overall loan book and complements the commercial banking team, so we like all the different facets that come with it.

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?

And Jon, just to make sure I understand. You're talking about the dollars of net interest income?

Yes. When that starts to move up again.

More like in the, towards the end of the year. I mean, obviously, we're looking at still here first quarter to the second quarter, probably about 10 basis points of margin compression in that area. So keeping the dollars the same here, from first to second quarter, probably is unlikely. But 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, those dollars starting to stabilize and then move up.

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

Yes, absolutely. 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. Then we supplement that with portfolio review discussions on the buckets that we identify with potential issues. We do this on a quarterly basis. As we look at '24 and '25, we have a manageable handful of deals to work through during that time. But overall, we feel good about our office book as it sits today. We monitor it every quarter. On the global book, I feel good about it. I think as I look out in the future, we have the office nice ring fenced. Our C&I is performing very well, and we feel pretty good.

Our next question comes from Alex Twerdahl with Piper Sandler.

Just wanted to go back to the loan growth guide. I think that 10% to 12% in the near term makes sense given that ramp-up you talked about with Agile and some of the other pieces contributing in the second quarter. 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 third and fourth quarter?

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

Yes, that makes sense. Not a lot of banks projecting that pace of 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 surprised to see that amount of NIM compression still expected for the second quarter. So is it really just the funding, just like some higher tranches of borrowings maybe repricing during the quarter? Or maybe talk about really what's driving that level of compression in the second quarter still.

Yes, Alex, it's Jamie. Yes, it's really the funding side that's driving all of that still. 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, which continues to drive up the costs. We will start to see that mitigate some in the back half of the first quarter, but we still see some of that ongoing into the second quarter, and that's just driving the cost up. We're seeing dollars continue to move out slowly still in our business DDA balances, and the average balance of those accounts is still higher than what they were historically. So we're still seeing some dollars move out there, and we're replacing those dollars with CDs and money market accounts. So that's just driving up the funding. So yes, we get a little bit of benefit from asset yields. Obviously, Agile helps. It's just a couple of hundred million 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. We expect that funding pressure to continue for another quarter, with maybe a little still some of it in the third quarter. We just see the deposit costs starting to stabilize unless we see any rate cuts.

Okay. Appreciate that color. And then as I think about the Agile and I guess, really broader term for the specialty finance businesses, I've got to think that their funding costs are getting pressured even more than banks. I'm curious, have you seen an increase in these types of deals? Like how many would you typically look at in any given year? Are specialty finance type transactions going to be, should we expect them to be part of the overall growth strategy for '24 beyond the Agile acquisition?

Yes, Alex, it's Archie. I'll address this. We have acquired several specialty companies, which has increased our connections with bankers looking for different companies. However, we haven't actively pursued these opportunities. Our acquisitions have primarily stemmed from existing relationships and networks. In the wealth space, if we come across a suitable opportunity with rational pricing, we would consider it, but we are not actively seeking more specialty companies. This acquisition came through our connections, and we are pleased with its potential, especially regarding yield diversity, complementing commercial banking, and granularity. This business is based in Chicago, which is convenient since we have a presence in the area. While we are not looking for additional acquisitions, this aligns with our recent acquisition strategy.

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

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 good weekend. Bye now.

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