First Financial Bancorp Reports Second Quarter 2013 Financial Results

25 Jul, 2013, 16:19 ET from First Financial Bancorp

CINCINNATI, July 25, 2013 /PRNewswire/ -- First Financial Bancorp (Nasdaq: FFBC) ("First Financial" or the "Company") announced today financial and operational results for the second quarter 2013.

Second quarter net income was $15.8 million and earnings per diluted common share were $0.27.  This compares with first quarter net income of $13.8 million and earnings per diluted common share of $0.24 and second quarter 2012 net income of $17.8 million and earnings per diluted common share of $0.30.

  • Quarterly adjusted pre-tax, pre-provision income increased 4.7% to $26.4 million, or 1.68% of average assets
  • Continued solid quarterly performance
    • Quarterly results included several items which reduced earnings per diluted share by $0.02
    • Return on average assets of 1.01%; 1.08% as adjusted for the items noted below
    • Return on average tangible common equity of 10.54%; 11.30% as adjusted for the items noted below
  • Capital ratios remain strong
    • Tangible common equity to tangible assets of 9.62%
    • Tier 1 capital ratio of 15.41%
    • Total risk-based capital ratio of 16.68%
  • Total uncovered loan portfolio growth of 16.5% on an annualized basis
    • Strong performance in specialty finance, commercial real estate and traditional C&I with solid contributions from construction and residential mortgage
    • Uncovered loan growth exceeded the covered loan decline for the third consecutive quarter as total loans increased $67.8 million
  • Quarterly net interest margin of 4.02%
    • Decline of 2 bps compared to the linked quarter
    • Strong growth in uncovered loans helped to offset impact of covered loan decline
    • Cost of interest-bearing deposits declined 6 bps during the quarter to 0.35%
    • Yield on uncovered loan portfolio declined 4 bps to 4.56%
  • Total nonperforming loans declined $2.3 million during the quarter, which represents 2.22% of total loans compared to 2.38% for the linked quarter

During the quarter, the Company incurred certain pre-tax expenses resulting from its efficiency initiative of $1.5 million.  Approximately $0.5 million was related to employee benefit expenses associated with staffing reductions and $1.0 million was related to real estate expenses associated with banking center consolidation and closure plans.  Additionally, the Company incurred pre-tax pension settlement charges of $4.3 million resulting from recent employee-driven activity.  The Company also recognized other pre-tax income not expected to recur of $0.4 million and gains of $0.2 million resulting from sales of investment securities.  In the aggregate, these items reduced pre-tax earnings by $5.2 million, or $0.06 per diluted share after taxes.

The Company also enhanced its valuation methodology related to certain estimates of its of cash flows and impairment associated with the covered loan portfolio during the quarter.  As a result of these enhancements, the allowance for loan losses related to FDIC covered loans was reduced by $7.8 million with an equivalent amount reflected in the negative provision for covered loan losses for the quarter.  The Company also recognized the corresponding reduction in the FDIC indemnification asset of $6.3 million related to this change in estimate with an equivalent amount reflected in the negative FDIC loss sharing income for the quarter.  In the aggregate, these items increased pre-tax earnings by $1.6 million, or $0.02 per diluted share after taxes.

The Company's income tax expense for the second quarter benefitted from a favorable tax reversal related to an intercompany tax obligation associated with an unconsolidated former Irwin subsidiary as well as other nonrecurring items associated with favorable tax changes and recent tax planning strategies.  In the aggregate, these items reduced the Company's quarterly income tax expense by $1.1 million, or $0.02 per diluted share.

The board of directors has authorized a regular dividend of $0.15 per common share and a variable dividend of $0.12 per common share for the next regularly scheduled dividend, payable on October 1, 2013 to shareholders of record as of August 30, 2013.  As previously disclosed, this will be the last variable dividend paid with subsequent quarterly dividends expected to be comprised solely of the regular dividend.

Under the announced share repurchase plan, the Company repurchased 291,400 shares during the second quarter at an average price of $15.47 per share.  When combined with the regular and variable dividends paid to shareholders, First Financial returned 130.1% of quarterly net income to shareholders during the second quarter.

The Company continued to make progress on its efficiency initiative during the quarter.  Adjusting for expenses covered under loss sharing agreements, noninterest expense items discussed above, OREO costs and other operating expense variances that were primarily timing-related differences, noninterest expense declined $0.9 million during the quarter.  The timing-related expenses, totaling $1.6 million in the aggregate, were unrelated to initiatives associated with the $17.1 million annual cost savings target.  The Company estimates that it has achieved $15.0 million of annualized run rate savings to date and remains on track to realize 85% of the annual target in 2013.  All initiatives related to the annual target have been implemented and opportunities for further efficiencies are currently under review.

Claude Davis, President and Chief Executive Officer, commented, "On a reported basis, quarterly net income increased $2.0 million, or 14.5%, compared to the prior quarter.  Adjusting for the effects of expenses related to our efficiency initiative and other items incurred during the quarter, net income increased $2.1 million, or 13.8%, compared to the linked quarter, driven primarily by a rebound in fee revenue which more than offset the modest decline in net interest income.

"Net interest income declined $0.6 million, or 1.0%, and net interest margin declined 2 bps to 4.02% compared to the linked quarter.  While we continue to see a significant difference in the yields on new loan originations compared to loans that payoff, our strong loan growth helped to mitigate the impact of both the continued low rate environment and the decline in our covered loan portfolio.

"We were very pleased with our asset generation during the quarter as uncovered loans increased $133.3 million, or 16.5% on an annualized basis.  This marks the third consecutive quarter that our growth in uncovered loans has outpaced the decline in the covered loan portfolio.  Total loans increased $67.8 million, or 6.9% on an annualized basis, which is a respectable achievement in its own right.  Almost all lending areas of the Company contributed to the quarterly growth led by strong performance in our specialty finance and commercial real estate portfolios.  Specialty finance balances increased $43.2 million during the quarter, or 33.9% on a linked quarter basis, and investment CRE balances increased $36.0 million, or 4.7% on a linked quarter basis.

"Due to our initiative in late 2012 to pre-fund the investment portfolio's expected 12 month cash flows with wholesale borrowings, we were in a modest liability sensitive position as of March 31, 2013.  Early in the second quarter, we began to unwind the pre-funding initiative, as evidenced by the declines in average balances of both the investment portfolio and short-term borrowings.  As of June 30, 2013, we anticipate that we will be approximately neutral on our asset/liability position under a +100 bp parallel rate shift and asset sensitive under a +200 bp rate shift.  We continue to execute on deleverage strategies but will remain prudent in managing our balance sheet given strong loan demand and rational deposit pricing."

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income for the second quarter was $58.1 million as compared to $58.7 million for the first quarter and $64.8 million for the second quarter 2012.  Compared to the linked quarter, total interest income declined $1.2 million, or 1.9%, and total interest expense declined $0.6 million, or 12.4%.  Net interest margin was 4.02% for the second quarter 2013 as compared to 4.04% for the first quarter 2013 and 4.49% for the second quarter 2012.

Interest income earned on loans decreased $1.0 million, or 1.8%, compared to the prior quarter.  The lower interest income earned on loans and modest decline in net interest margin was driven primarily by a 9.8% decrease in the average balance of covered loans outstanding and a 42 bp decline in the yield earned on the portfolio.

Growth in average uncovered loan balances of $109.3 million, or 3.4% on a linked quarter basis, and higher loan fees helped to partially offset the impact on net interest income and margin from the decline in covered loans during the quarter.  The yield earned on the uncovered portfolio declined 4 bps during the quarter.

Interest income earned from investment securities declined slightly during the quarter despite a decrease of $133.6 million, or 7.3%, in average balances as the yield earned on the portfolio increased 10 bps to 2.08%, helping to mitigate the impact on net interest margin of lower yields earned on loans.

Interest expense and net interest margin continued to benefit from declining deposit costs.  The average balance of interest-bearing deposits increased 0.2% compared to the prior quarter as a $50.7 million increase in average interest-bearing demand, savings and money market balances were partially offset by a decline of $43.2 million in average time deposit balances during the quarter.  The cost of funds related to interest-bearing deposits decreased 6 bps to 35 bps compared to 41 bps for the linked quarter.

NONINTEREST INCOME

The following table presents noninterest income for the three months ended June 30, 2013 and for the trailing four quarters, adjusted to exclude the impact of covered loan activity and other select items on the Company's reported balance.  

Table I

For the Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

(Dollars in thousands)

2013

2013

2012

2012

2012

Total noninterest income

$      11,615

$      26,698

$      26,121

$      30,830

$      33,545

Selected components of noninterest income

Accelerated discount on covered loans 1

1,935

1,935

2,455

3,798

3,764

FDIC loss sharing income

(7,384)

8,934

5,754

8,496

8,280

Gain on sale of investment securities

188

1,536

1,011

2,617

-

Other items not expected to recur

442

-

-

-

5,000

Total noninterest income excluding items noted above

$      16,434

$      14,293

$      16,901

$      15,919

$      16,501

1  Net of the corresponding valuation adjustment on the FDIC indemnification asset

Excluding the items highlighted in Table I, noninterest income earned in the second quarter was $16.4 million compared to $14.3 million in the first quarter and $16.5 million in the second quarter 2012.  The increase of $2.1 million compared to the linked quarter was driven by higher service charges on deposits, bankcard income, net gains from sales of residential mortgages, client derivative fees and a credit valuation adjustment related to client derivatives, partially offset by lower trust and wealth management fees.  

NONINTEREST EXPENSE

The following table presents noninterest expense for the three months ended June 30, 2013 and for the trailing four quarters, adjusted to exclude the impact of covered asset activity and other select items on the Company's reported balance.

Table II

For the Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

(Dollars in thousands)

2013

2013

2012

2012

2012

Total noninterest expense

$      53,283

$      53,106

$      53,474

$      55,286

$      57,459

Selected components of noninterest expense

Loss (gain) - covered real estate owned

(2,212)

(157)

(54)

(25)

1,233

Loss sharing expense

1,578

2,286

2,305

3,584

3,085

Pension settlement charges

4,316

-

-

-

-

Expenses associated with efficiency initiative

1,518

2,878

952

351

2,160

Other items not expected to recur

-

390

-

-

-

Total noninterest expense excluding items noted above

$      48,083

$      47,709

$      50,271

$      51,376

$      50,981

FDIC loss share support 1

$           795

$           776

$           798

$           951

$        1,014

1  Represents direct expenses associated with credit management and loan administration related to covered assets as well as compliance

with FDIC loss sharing agreements; included in total noninterest expense excluding the items noted above and comprised of several noninterest

expense line items; expected to recur but decline over time as assets covered under loss sharing agreements decrease

Excluding the items highlighted in Table II, noninterest expense in the second quarter was $48.1 million as compared to $47.7 million in the first quarter and $51.0 million in the second quarter 2012.  The increase of $0.4 million compared to the linked quarter was due primarily to higher marketing and other miscellaneous expenses, partially offset by lower salaries and employee benefits, uncovered OREO and equipment expenses.  Expenses associated with the efficiency initiative and other staffing-related changes include $0.5 million of employee benefit expenses related to staffing reductions and $1.0 million of real estate expenses associated with banking center consolidation and closure plans.

During the quarter, the Company recognized $4.3 million of pension settlement charges associated with recent employee-related actions and the resulting lump-sum distributions from its pension plan.  Pension settlement charges are an acceleration of previously deferred costs that would have been recognized in future periods and are determined in accordance with FASB ASC Topic 715, Compensation - Retirement Benefits.  As First Financial has exceeded the annual accounting threshold for lump-sum distributions, it will recognize a proportionate share of any further lump-sum distributions from its pension plan as additional pension settlement charges through the remainder of 2013.

INCOME TAXES

For the second quarter, income tax expense was $6.5 million, resulting in an effective tax rate of 29.0%, compared with income tax expense of $6.4 million and an effective tax rate of 31.5% during the first quarter and $8.7 million and an effective tax rate of 32.8% during the second quarter 2012.  The lower second quarter tax rate resulted from a favorable tax reversal related to an intercompany tax obligation associated with an unconsolidated former Irwin subsidiary as well as other nonrecurring items associated with favorable tax changes and recent tax planning strategies.  In the aggregate, these items reduced the Company's quarterly income tax expense by $1.1 million.  The Company anticipates this will be the last meaningful adjustment related to the resolution of the former Irwin subsidiary and that a normalized effective tax rate in future periods is estimated to be 34.5%.

CREDIT QUALITY – EXCLUDING COVERED ASSETS

The following table presents certain credit quality metrics related to the Company's uncovered loan portfolio as of June 30, 2013 and the trailing four quarters.

Table III

As of or for the Three Months Ended

June 30,

March 31,

December 31,

September 30,

June 30,

(Dollars in thousands)

2013

2013

2012

2012

2012

Total nonaccrual loans

$      42,063

$      42,128

$      50,930

$      49,404

$      63,093

Troubled debt restructurings - accruing

12,924

12,757

10,856

11,604

9,909

Troubled debt restructurings - nonaccrual

19,948

22,324

14,111

13,017

10,185

Total troubled debt restructurings

32,872

35,081

24,967

24,621

20,094

Total nonperforming loans

74,935

77,209

75,897

74,025

83,187

Total nonperforming assets

86,733

89,202

88,423

87,937

98,875

Nonperforming assets as a % of:

Period-end loans plus OREO

2.56%

2.74%

2.77%

2.86%

3.27%

Total assets

1.38%

1.40%

1.36%

1.41%

1.57%

Nonperforming assets ex. accruing TDRs as a % of:

Period-end loans plus OREO

2.17%

2.34%

2.43%

2.48%

2.94%

Total assets

1.18%

1.20%

1.19%

1.22%

1.42%

Nonperforming loans as a % of total loans

2.22%

2.38%

2.39%

2.41%

2.76%

Provision for loan and lease losses - uncovered

$        2,409

$        3,041

$        3,882

$        3,613

$        8,364

Allowance for uncovered loan & lease losses

$      47,047

$      48,306

$      47,777

$      49,192

$      50,952

Allowance for loan & lease losses as a % of:

Total loans

1.39%

1.49%

1.50%

1.60%

1.69%

Nonaccrual loans

111.9%

114.7%

93.8%

99.6%

80.8%

Nonaccrual loans plus nonaccrual TDRs

75.9%

75.0%

73.5%

78.8%

69.5%

Nonperforming loans

62.8%

62.6%

63.0%

66.5%

61.3%

Total net charge-offs

$        3,668

$        2,512

$        5,297

$        5,373

$        6,849

Annualized net-charge-offs as a % of average

loans & leases

0.45%

0.32%

0.68%

0.71%

0.93%

Net Charge-offs

For the second quarter, net charge-offs increased $1.2 million, or 46.0%, to $3.7 million compared to the linked quarter due to increases in commercial real estate and C&I net charge-offs, partially offset by lower home equity net charge-offs.  The increase was driven primarily by a $0.9 million charge-off related to a nonaccrual commercial real estate credit.

Nonperforming Assets

Nonaccrual loans, including nonaccrual troubled debt restructurings, decreased $2.4 million, or 3.8%, to $62.0 million as of June 30, 2013 from $64.5 million as of March 31, 2013.  Contributing to the decline was a $1.5 million paydown related to a commercial relationship classified as a nonaccrual troubled debt restructuring.  Other activity included the addition to nonaccrual loans of a $2.0 million commercial real estate credit that was offset by reductions resulting from paydowns or transfers to OREO.

OREO decreased $0.2 million, or 1.6%, to $11.8 million during the second quarter as resolutions and valuation adjustments of $2.2 million exceeded $2.0 million of additions during the quarter.  Additions were driven by two properties totaling $1.6 in the aggregate and resolutions included three properties totaling $1.0 million in the aggregate for the quarter.

Classified assets as of June 30, 2013 declined to $129.8 million, or 0.5%, from $130.4 million for the linked quarter and decreased $15.8 million, or 10.8%, from $145.6 million as of June 30, 2012.  Classified assets are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse.

Delinquent Loans

As of June 30, 2013, loans 30-to-89 days past due totaled $13.4 million, or 0.40% of period-end loans, as compared to $18.2 million, or 0.56%, as of March 31, 2013 and $26.0 million, or 0.86%, as of June 30, 2012.  The decline of $4.8 million, or 26.4%, during the second quarter was driven primarily by the reclassification of a $2.0 million commercial real estate credit to nonaccrual status as well as a commercial real estate credit and an equipment finance credit, totaling $1.9 million in the aggregate, where the borrowers made payments to bring the loans current.

Provision for Loan & Lease Losses

Second quarter provision expense related to uncovered loans and leases was $2.4 million as compared to $3.0 million for the linked quarter and $8.4 million for the comparable year-over-year quarter.  Provision expense is a result of the Company's modeling efforts to estimate the period-end allowance for loan and lease losses.  As a percentage of net charge-offs, second quarter provision expense equaled 65.7%.

LOANS (EXCLUDING COVERED LOANS)

The following table presents the loan portfolio, excluding covered loans, as of June 30, 2013, March 31, 2013 and June 30, 2012. 

Table IV

As of

June 30, 2013

March 31, 2013

June 30, 2012

Percent

Percent

Percent

(Dollars in thousands)

Balance

of Total

Balance

of Total

Balance

of Total

Commercial

$    940,420

27.8%

$    892,381

27.5%

$    823,890

27.3%

Real estate - construction

97,246

2.9%

87,542

2.7%

86,173

2.9%

Real estate - commercial

1,477,226

43.7%

1,433,182

44.1%

1,321,446

43.9%

Real estate - residential

343,016

10.1%

330,260

10.2%

292,503

9.7%

Installment

50,781

1.5%

53,509

1.6%

61,590

2.0%

Home equity

370,206

10.9%

365,943

11.3%

365,413

12.1%

Credit card

33,222

1.0%

32,465

1.0%

31,486

1.0%

Lease financing

70,011

2.1%

53,556

1.6%

30,109

1.0%

Total

$ 3,382,128

100.0%

$ 3,248,838

100.0%

$ 3,012,610

100.0%

Loans, excluding covered loans, totaled $3.4 billion as of June 30, 2013, increasing $133.3 million, or 16.5% on an annualized basis, compared to the linked quarter and $369.5 million, or 12.3%, compared to June 30, 2012.  The increase relative to the linked quarter was driven by growth in specialty finance, commercial real estate and traditional C&I with continued solid performance from construction and residential mortgage lending.

INVESTMENTS

The following table presents a summary of the total investment portfolio at June 30, 2013.  

Table V

As of June 30, 2013

Securities

Securities

Other

Total

Percent

(Dollars in thousands)

HTM

AFS

Investments

Securities

of Portfolio

Agency

$      19,854

$      10,147

$             -

$      30,001

1.8%

CMO - fixed rate

413,656

362,901

-

776,557

47.6%

CMO - variable rate

-

96,874

-

96,874

5.9%

MBS - fixed rate

95,747

129,652

-

225,399

13.8%

MBS - variable rate

132,088

37,808

-

169,896

10.4%

Municipal

8,901

33,137

-

42,038

2.6%

Other tax-exempt

-

43,097

-

43,097

2.6%

Corporate

-

70,155

-

70,155

4.3%

Asset-backed securities

-

60,486

-

60,486

3.7%

Other securities AFS

-

40,437

-

40,437

2.5%

Regulatory stock and other

-

-

75,645

75,645

4.6%

$    670,246

$    884,694

$   75,645

$ 1,630,585

100.0%

The investment portfolio decreased $113.0 million, or 6.5%, during the second quarter as $54.9 million of purchases were offset by sales, amortizations and paydowns.  In addition, the Company sold $19.9 million of agency MBS and CMOs during the quarter in order to enhance liquidity and reduce prepayment and premium risks, recognizing a pre-tax gain of $0.2 million.  The organic runoff of principal and interest payments in the investment portfolio is complementing loan demand as the Company manages the potential impact of rising long-term interest rates on its interest rate sensitivity position and capital.  This decline could be accelerated in the future depending on the Company's view of forward rates.  As of June 30, 2013, the overall duration of the investment portfolio increased to 4.0 years compared to 3.1 years as of March 31, 2013.  The yield earned on the portfolio during the quarter increased 10 bps to 2.08% from 1.98% for the linked quarter, driven partially by stabilization in premium amortization.  Due to an increase in interest rates and a widening of spreads for fixed income securities during the quarter, the net unrealized gain included in accumulated other comprehensive loss related to the investment portfolio of $9.4 million as of March 31, 2013 declined $15.2 million to a net unrealized loss of $5.8 million as of June 30, 2013.

DEPOSITS

Non-time deposit balances totaled $3.8 billion as of June 30, 2013, consistent with balances as of March 31, 2013, as increases in commercial balances of $29.7 million and public fund balances of $13.0 million were offset by a decrease in consumer balances of $42.9 million.

Time deposit balances decreased $51.4 million, or 5.0%, compared to the linked quarter due primarily to a decline in consumer balances of $56.6 million, offset by an increase in public fund balances of $10.7 million.

The low interest rate environment continued to have a positive impact on the Company's deposit costs as the total cost of deposit funding declined to 27 bps for the quarter, a decrease of 5 bps compared to the prior quarter and 22 bps compared to the second quarter 2012.

CAPITAL MANAGEMENT

The following table presents First Financial's regulatory and other capital ratios as of June 30, 2013, March 31, 2013 and June 30, 2012.

Table VI

As of

June 30,

March 31,

June 30,

2013

2013

2012

Leverage Ratio

10.12%

10.00%

10.21%

Tier 1 Capital Ratio

15.41%

15.87%

17.14%

Total Risk-Based Capital Ratio

16.68%

17.15%

18.42%

Ending tangible shareholders' equity

to ending tangible assets

9.62%

9.60%

9.91%

Ending tangible common shareholders'

equity to ending tangible assets

9.62%

9.60%

9.91%

Tangible book value per share

$10.29

$10.33

$10.47

Shareholders' equity decreased $6.2 million during the quarter due primarily to the change in the unrealized gain/loss related to the investment portfolio, regular and variable dividends declared during the quarter and share repurchases. This decline was partially offset by net income and a $10.4 million adjustment related to the Company's updated pension plan assumptions reflecting the recent change in long-term interest rates and their estimated impact on the benefit obligation.  The Company's tangible common equity ratio increased during the quarter as the decline in period end tangible assets outweighed the decline in tangible equity.  The tier 1 capital and total risk-based capital ratios declined during the quarter due primarily to an increase in risk-weighted assets.  Regulatory capital ratios as of June 30, 2013 are considered preliminary pending the filing of the Company's regulatory reports.  

Teleconference / Webcast Information

First Financial's senior management will host a conference call to discuss the Company's financial and operating results on Friday, July 26, 2013 at 8:30 a.m. Eastern Time.  Members of the public who would like to listen to the conference call should dial (888) 317-6016 (U.S. toll free), (855) 669-9657 (Canada toll free) or +1 (412) 317-6016 (International) (no passcode required).  The number should be dialed five to ten minutes prior to the start of the conference call.  The conference call will also be accessible as an audio webcast via the Investor Relations section of the Company's website at www.bankatfirst.com.  A replay of the conference call will be available beginning one hour after the completion of the live call through August 12, 2013 at (877) 344-7529 (U.S. toll free) and +1 (412) 317-0088 (International); conference number 10031278.  The webcast will be archived on the Investor Relations section of the Company's website through July 26, 2014.

Press Release and Additional Information on Website

This press release as well as supplemental information and any non-GAAP reconciliations related to this release is available to the public through the Investor Relations section of First Financial's website at www.bankatfirst.com/investor.

Forward-Looking Statement

Certain statements contained in this release which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the ''Act'').  In addition, certain statements in future filings by First Financial with the SEC, in press releases, and in oral and written statements made by or with the approval of First Financial which are not statements of historical fact constitute forward-looking statements within the meaning of the Act.  Examples of forward-looking statements include, but are not limited to, projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items, statements of plans and objectives of First Financial or its management or board of directors and statements of future economic performances and statements of assumptions underlying such statements.  Words such as ''believes,'' ''anticipates,'' "likely," "expected," ''intends,'' and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.  Management's analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance.  However, such performance involves risks and uncertainties that may cause actual results to differ materially.  Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

  • management's ability to effectively execute its business plan;
  • the risk that the strength of the United States economy in general and the strength of the local economies in which we conduct operations may continue to deteriorate resulting in, among other things, a further deterioration in credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio, allowance for loan and lease losses and overall financial performance;
  • U.S. fiscal debt and budget matters;
  • the ability of financial institutions to access sources of liquidity at a reasonable cost;
  • the impact of recent upheaval in the financial markets and the effectiveness of domestic and international governmental actions taken in response, and the effect of such governmental actions on us, our competitors and counterparties, financial markets generally and availability of credit specifically, and the U.S. and international economies, including potentially higher FDIC premiums arising from increased payments from FDIC insurance funds as a result of depository institution failures;
  • the effect of and changes in policies and laws or regulatory agencies (notably the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act);
  • the effect of the current low interest rate environment or changes in interest rates on our net interest margin and our loan originations and securities holdings;
  • our ability to keep up with technological changes;
  • failure or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers;
  • our ability to comply with the terms of loss sharing agreements with the FDIC;
  • mergers and acquisitions, including costs or difficulties related to the integration of acquired companies and the wind-down of non-strategic operations that may be greater than expected, such as the risks and uncertainties associated with the Irwin Mortgage Corporation bankruptcy proceedings and other acquired subsidiaries;
  • the risk that exploring merger and acquisition opportunities may detract from management's time and ability to successfully manage our Company;
  • expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, and deposit attrition, customer loss and revenue loss following completed acquisitions may be greater than expected;
  • our ability to increase market share and control expenses;
  • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and the SEC;
  • adverse changes in the creditworthiness of our borrowers and lessees, collateral values, the value of investment securities and asset recovery values, including the value of the FDIC indemnification asset and related assets covered by FDIC loss sharing agreements;
  • adverse changes in the securities, debt and/or derivatives markets;
  • our success in recruiting and retaining the necessary personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services;
  • monetary and fiscal policies of the Board of Governors of the Federal Reserve System (Federal Reserve) and the U.S. government and other governmental initiatives affecting the financial services industry;
  • unpredictable natural or other disasters could have an adverse effect on us in that such events could materially disrupt our operations or our vendors' operations or willingness of our customers to access the financial services we offer;
  • our ability to manage loan delinquency and charge-off rates and changes in estimation of the adequacy of the allowance for loan losses; and
  • the costs and effects of litigation and of unexpected or adverse outcomes in such litigation.

In addition, please refer to our Annual Report on Form 10-K for the year ended December 31, 2012, as well as our other filings with the SEC, for a more detailed discussion of these risks and uncertainties and other factors. Such forward-looking statements are meaningful only on the date when such statements are made, and First Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such a statement is made to reflect the occurrence of unanticipated events.

About First Financial Bancorp

First Financial Bancorp is a Cincinnati, Ohio based bank holding company.  As of June 30, 2013, the Company had $6.3 billion in assets, $4.0 billion in loans, $4.8 billion in deposits and $695 million in shareholders' equity.  The Company's subsidiary, First Financial Bank, N.A., founded in 1863, provides banking and financial services products through its three lines of business: commercial, retail and wealth management.  The commercial and retail units provide traditional banking services to business and consumer clients.  First Financial Wealth Management provides wealth planning, portfolio management, trust and estate, brokerage and retirement plan services and had approximately $2.5 billion in assets under management as of June 30, 2013.  The Company's strategic operating markets are located in Ohio, Indiana and Kentucky where it operates 110 banking centers.  Additional information about the Company, including its products, services and banking locations is available at www.bankatfirst.com.

FIRST FINANCIAL BANCORP.

CONSOLIDATED FINANCIAL HIGHLIGHTS

 

(Dollars in thousands, except per share)

(Unaudited)

Three months ended,

Six months ended,

Jun. 30,

Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Jun. 30,

2013

2013

2012

2012

2012

2013

2012

RESULTS OF OPERATIONS

Net income

$15,829

$13,824

$16,265

$16,242

$17,802

$29,653

$34,796

Net earnings per share - basic 

$0.28

$0.24

$0.28

$0.28

$0.31

$0.52

$0.60

Net earnings per share - diluted 

$0.27

$0.24

$0.28

$0.28

$0.30

$0.51

$0.59

Dividends declared per share

$0.24

$0.28

$0.28

$0.30

$0.29

$0.52

$0.60

KEY FINANCIAL RATIOS

Return on average assets

1.01%

0.88%

1.03%

1.05%

1.13%

0.94%

1.09%

Return on average shareholders' equity

9.02%

7.91%

9.06%

9.01%

9.98%

8.47%

9.83%

Return on average tangible shareholders' equity

10.54%

9.24%

10.58%

10.53%

11.68%

9.89%

11.52%

Net interest margin

4.02%

4.04%

4.27%

4.21%

4.49%

4.03%

4.50%

Net interest margin (fully tax equivalent) (1)

4.06%

4.07%

4.29%

4.23%

4.50%

4.07%

4.51%

Ending shareholders' equity as a percent of ending assets

11.08%

11.05%

10.93%

11.48%

11.41%

11.08%

11.41%

Ending tangible shareholders' equity as a percent of:

Ending tangible assets

9.62%

9.60%

9.50%

9.99%

9.91%

9.62%

9.91%

Risk-weighted assets

14.50%

15.05%

15.57%

16.16%

16.39%

14.50%

16.39%

Average shareholders' equity as a percent of average assets

11.15%

11.09%

11.35%

11.62%

11.32%

11.12%

11.11%

Average tangible shareholders' equity as a percent of

    average tangible assets

9.70%

9.65%

9.88%

10.12%

9.84%

9.68%

9.64%

Book value per share

$12.05

$12.09

$12.24

$12.24

$12.25

$12.05

$12.25

Tangible book value per share

$10.29

$10.33

$10.47

$10.47

$10.47

$10.29

$10.47

Tier 1 Ratio(2)

15.41%

15.87%

16.32%

16.93%

17.14%

15.41%

17.14%

Total Capital Ratio(2)

16.68%

17.15%

17.60%

18.21%

18.42%

16.68%

18.42%

Leverage Ratio(2)

10.12%

10.00%

10.25%

10.54%

10.21%

10.12%

10.21%

AVERAGE BALANCE SHEET ITEMS

Loans (3)

$3,313,731

$3,205,781

$3,107,760

$3,037,734

$2,995,296

$3,260,054

$2,987,402

Covered loans and FDIC indemnification asset

758,875

840,190

920,102

1,002,622

1,100,014

799,308

1,139,842

Investment securities

1,705,219

1,838,783

1,746,961

1,606,313

1,713,503

1,771,632

1,689,073

Interest-bearing deposits with other banks

13,890

3,056

5,146

11,390

4,454

8,503

65,392

  Total earning assets

$5,791,715

$5,887,810

$5,779,969

$5,658,059

$5,813,267

$5,839,497

$5,881,709

Total assets

$6,310,602

$6,391,049

$6,294,084

$6,166,667

$6,334,973

$6,350,604

$6,406,952

Noninterest-bearing deposits

$1,063,102

$1,049,943

$1,112,072

$1,052,421

$1,044,405

$1,056,559

$987,876

Interest-bearing deposits

3,792,891

3,785,402

3,912,854

4,013,148

4,210,079

3,789,167

4,377,615

  Total deposits

$4,855,993

$4,835,345

$5,024,926

$5,065,569

$5,254,484

$4,845,726

$5,365,491

Borrowings

$644,058

$735,327

$439,308

$257,340

$234,995

$689,441

$198,453

Shareholders' equity

$703,804

$708,862

$714,373

$716,797

$717,111

$706,319

$711,829

CREDIT QUALITY RATIOS (excluding covered assets)

Allowance to ending loans

1.39%

1.49%

1.50%

1.60%

1.69%

1.39%

1.69%

Allowance to nonaccrual loans

111.85%

114.66%

93.81%

99.57%

80.76%

111.85%

80.76%

Allowance to nonperforming loans

62.78%

62.57%

62.95%

66.45%

61.25%

62.78%

61.25%

Nonperforming loans to total loans

2.22%

2.38%

2.39%

2.41%

2.76%

2.22%

2.76%

Nonperforming assets to ending loans, plus OREO

2.56%

2.74%

2.77%

2.86%

3.27%

2.56%

3.27%

Nonperforming assets to total assets

1.38%

1.40%

1.36%

1.41%

1.57%

1.38%

1.57%

Net charge-offs to average loans (annualized) 

0.45%

0.32%

0.68%

0.71%

0.93%

0.38%

0.90%

(1)The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate.  Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully tax equivalent basis.  Therefore, management believes, these measures provide useful information to investors by allowing them to make peer comparisons.  Management also uses these measures to make peer comparisons.

(2)June 30, 2013 regulatory capital ratios are preliminary.

(3) Includes loans held for sale.

 

 FIRST FINANCIAL BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

 

(Dollars in thousands, except per share)

(Unaudited)

Three months ended,

Six months ended,

Jun. 30,

Jun. 30,

2013

2012

% Change

2013

2012

% Change

Interest income

  Loans, including fees

$55,022

$63,390

(13.2%)

$111,047

$129,826

(14.5%)

  Investment securities

     Taxable

8,295

10,379

(20.1%)

16,671

20,896

(20.2%)

     Tax-exempt

560

121

362.8%

1,140

255

347.1%

        Total investment securities interest

8,855

10,500

(15.7%)

17,811

21,151

(15.8%)

  Other earning assets

(1,556)

(1,967)

(20.9%)

(3,028)

(3,957)

(23.5%)

       Total interest income

62,321

71,923

(13.4%)

125,830

147,020

(14.4%)

Interest expense

  Deposits

3,284

6,381

(48.5%)

7,144

14,097

(49.3%)

  Short-term borrowings

305

37

724.3%

634

49

1193.9%

  Long-term borrowings

654

675

(3.1%)

1,308

1,355

(3.5%)

      Total interest expense

4,243

7,093

(40.2%)

9,086

15,501

(41.4%)

      Net interest income

58,078

64,830

(10.4%)

116,744

131,519

(11.2%)

  Provision for loan and lease losses - uncovered

2,409

8,364

(71.2%)

5,450

11,622

(53.1%)

  Provision for loan and lease losses - covered

(8,283)

6,047

(237.0%)

759

18,998

(96.0%)

      Net interest income after provision for loan and lease losses

63,952

50,419

26.8%

110,535

100,899

9.6%

Noninterest income

  Service charges on deposit accounts

5,205

5,376

(3.2%)

9,922

10,285

(3.5%)

  Trust and wealth management fees

3,497

3,377

3.6%

7,447

7,168

3.9%

  Bankcard income 

3,145

2,579

21.9%

5,578

5,115

9.1%

  Net gains from sales of loans

1,089

1,132

(3.8%)

1,795

2,072

(13.4%)

  FDIC loss sharing income

(7,384)

8,280

(189.2%)

1,550

21,096

(92.7%)

  Accelerated discount on covered loans

1,935

3,764

(48.6%)

3,870

7,409

(47.8%)

  Gain on sale of investment securities

188

0

N/M

1,724

0

N/M

  Other

3,940

9,037

(56.4%)

6,427

12,325

(47.9%)

      Total noninterest income

11,615

33,545

(65.4%)

38,313

65,470

(41.5%)

Noninterest expenses

  Salaries and employee benefits

26,216

29,048

(9.7%)

53,545

57,909

(7.5%)

  Pension settlement charges

4,316

0

N/M

4,316

0

N/M

  Net occupancy

5,384

5,025

7.1%

11,549

10,407

11.0%

  Furniture and equipment 

2,250

2,323

(3.1%)

4,621

4,567

1.2%

  Data processing 

2,559

2,076

23.3%

5,028

3,977

26.4%

  Marketing

1,182

1,238

(4.5%)

2,079

2,392

(13.1%)

  Communication

781

913

(14.5%)

1,614

1,807

(10.7%)

  Professional services

1,764

2,151

(18.0%)

3,567

4,298

(17.0%)

  State intangible tax

1,004

970

3.5%

2,018

1,996

1.1%

  FDIC assessments

1,148

1,270

(9.6%)

2,273

2,433

(6.6%)

  Loss (gain) - other real estate owned

216

313

(31.0%)

718

1,309

(45.1%)

  Loss (gain) - covered other real estate owned

(2,212)

1,233

(279.4%)

(2,369)

2,525

(193.8%)

  Loss sharing expense

1,578

3,085

(48.8%)

3,864

4,836

(20.1%)

  Other 

7,097

7,814

(9.2%)

13,566

14,781

(8.2%)

      Total noninterest expenses

53,283

57,459

(7.3%)

106,389

113,237

(6.0%)

Income before income taxes

22,284

26,505

(15.9%)

42,459

53,132

(20.1%)

Income tax expense

6,455

8,703

(25.8%)

12,806

18,336

(30.2%)

      Net income

15,829

17,802

(11.1%)

29,653

34,796

(14.8%)

ADDITIONAL DATA

Net earnings per share - basic

$0.28

$0.31

$0.52

$0.60

Net earnings per share - diluted

$0.27

$0.30

$0.51

$0.59

Dividends declared per share

$0.24

$0.29

$0.52

$0.60

Return on average assets

1.01%

1.13%

0.94%

1.09%

Return on average shareholders' equity

9.02%

9.98%

8.47%

9.83%

Interest income

$62,321

$71,923

(13.4%)

$125,830

$147,020

(14.4%)

Tax equivalent adjustment

514

216

138.0%

991

434

128.3%

   Interest income - tax equivalent

62,835

72,139

(12.9%)

126,821

147,454

(14.0%)

Interest expense

4,243

7,093

(40.2%)

9,086

15,501

(41.4%)

   Net interest income - tax equivalent

$58,592

$65,046

(9.9%)

$117,735

$131,953

(10.8%)

Net interest margin

4.02%

4.49%

4.03%

4.50%

Net interest margin (fully tax equivalent) (1)

4.06%

4.50%

4.07%

4.51%

Full-time equivalent employees 

1,338

1,525

(1)The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income on a fully tax equivalent basis.  Therefore, management believes, these measures provided useful information to investors by allowing them to make peer comparisons.  Management also uses these measures to make peer comparisons.  

N/M = Not meaningful.

 

FIRST FINANCIAL BANCORP.

CONSOLIDATED QUARTERLY STATEMENTS OF INCOME

 

(Dollars in thousands, except per share)

(Unaudited)

2013

Second

First

% Change

Quarter

Quarter

YTD

Linked Qtr.

Interest income

  Loans, including fees

$55,022

$56,025

$111,047

(1.8%)

  Investment securities

     Taxable

8,295

8,376

16,671

(1.0%)

     Tax-exempt

560

580

1,140

(3.4%)

        Total investment securities interest

8,855

8,956

17,811

(1.1%)

  Other earning assets

(1,556)

(1,472)

(3,028)

5.7%

       Total interest income

62,321

63,509

125,830

(1.9%)

Interest expense

  Deposits

3,284

3,860

7,144

(14.9%)

  Short-term borrowings

305

329

634

(7.3%)

  Long-term borrowings

654

654

1,308

0.0%

      Total interest expense

4,243

4,843

9,086

(12.4%)

      Net interest income

58,078

58,666

116,744

(1.0%)

  Provision for loan and lease losses - uncovered

2,409

3,041

5,450

(20.8%)

  Provision for loan and lease losses - covered

(8,283)

9,042

759

(191.6%)

Net interest income after provision for loan and lease losses

63,952

46,583

110,535

37.3%

Noninterest income

  Service charges on deposit accounts

5,205

4,717

9,922

10.3%

  Trust and wealth management fees

3,497

3,950

7,447

(11.5%)

  Bankcard income 

3,145

2,433

5,578

29.3%

  Net gains from sales of loans

1,089

706

1,795

54.2%

  FDIC loss sharing income

(7,384)

8,934

1,550

(182.7%)

  Accelerated discount on covered loans

1,935

1,935

3,870

0.0%

  Gain on sale of investment securities

188

1,536

1,724

(87.8%)

  Other

3,940

2,487

6,427

58.4%

      Total noninterest income

11,615

26,698

38,313

(56.5%)

Noninterest expenses

  Salaries and employee benefits

26,216

27,329

53,545

(4.1%)

  Pension settlement charges

4,316

0

4,316

              N/M

  Net occupancy

5,384

6,165

11,549

(12.7%)

  Furniture and equipment 

2,250

2,371

4,621

(5.1%)

  Data processing 

2,559

2,469

5,028

3.6%

  Marketing

1,182

897

2,079

31.8%

  Communication

781

833

1,614

(6.2%)

  Professional services

1,764

1,803

3,567

(2.2%)

  State intangible tax

1,004

1,014

2,018

(1.0%)

  FDIC assessments

1,148

1,125

2,273

2.0%

  Loss (gain) - other real estate owned

216

502

718

(57.0%)

  Loss (gain) - covered other real estate owned

(2,212)

(157)

(2,369)

1308.9%

  Loss sharing expense

1,578

2,286

3,864

(31.0%)

  Other 

7,097

6,469

13,566

9.7%

      Total noninterest expenses

53,283

53,106

106,389

0.3%

Income before income taxes

22,284

20,175

42,459

10.5%

Income tax expense

6,455

6,351

12,806

1.6%

      Net income

$15,829

$13,824

$29,653

14.5%

ADDITIONAL DATA

Net earnings per share - basic

$0.28

$0.24

$0.52

Net earnings per share - diluted

$0.27

$0.24

$0.51

Dividends declared per share

$0.24

$0.28

$0.52

Return on average assets

1.01%

0.88%

0.94%

Return on average shareholders' equity

9.02%

7.91%

8.47%

Interest income

$62,321

$63,509

$125,830

(1.9%)

Tax equivalent adjustment

514

477

991

7.8%

   Interest income - tax equivalent

62,835

63,986

126,821

(1.8%)

Interest expense

4,243

4,843

9,086

(12.4%)

   Net interest income - tax equivalent

$58,592

$59,143

$117,735

(0.9%)

Net interest margin

4.02%

4.04%

4.03%

Net interest margin (fully tax equivalent) (1)

4.06%

4.07%

4.07%

Full-time equivalent employees 

1,338

1,385

(1)The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate.  Management believes that it is a standard practice in the banking industry to present net interest income on a fully tax equivalent basis.  Therefore, management believes, these measures provided useful information to investors by allowing them to make peer comparisons.  Management also uses these measures to make peer comparisons.

N/M = Not meaningful.

 

FIRST FINANCIAL BANCORP.

CONSOLIDATED QUARTERLY STATEMENTS OF INCOME

 

(Dollars in thousands, except per share)

(Unaudited)

2012

Fourth 

Third

Second

First

Full

Quarter

Quarter

Quarter

Quarter

Year

Interest income

  Loans, including fees

$60,389

$59,536

$63,390

$66,436

$249,751

  Investment securities

     Taxable

8,410

8,358

10,379

10,517

37,664

     Tax-exempt

370

111

121

134

736

        Total investment securities interest

8,780

8,469

10,500

10,651

38,400

  Other earning assets

(1,564)

(1,700)

(1,967)

(1,990)

(7,221)

       Total interest income

67,605

66,305

71,923

75,097

280,930

Interest expense

  Deposits

4,798

5,730

6,381

7,716

24,625

  Short-term borrowings

159

54

37

12

262

  Long-term borrowings

672

675

675

680

2,702

      Total interest expense

5,629

6,459

7,093

8,408

27,589

      Net interest income

61,976

59,846

64,830

66,689

253,341

  Provision for loan and lease losses - uncovered

3,882

3,613

8,364

3,258

19,117

  Provision for loan and lease losses - covered

5,283

6,622

6,047

12,951

30,903

      Net interest income after provision for loan and lease losses

52,811

49,611

50,419

50,480

203,321

Noninterest income

  Service charges on deposit accounts

5,431

5,499

5,376

4,909

21,215

  Trust and wealth management fees

3,409

3,374

3,377

3,791

13,951

  Bankcard income 

2,526

2,387

2,579

2,536

10,028

  Net gains from sales of loans

1,179

1,319

1,132

940

4,570

  FDIC loss sharing income

5,754

8,496

8,280

12,816

35,346

  Accelerated discount on covered loans

2,455

3,798

3,764

3,645

13,662

  Gain on sale of investment securities

1,011

2,617

0

0

3,628

  Other

4,356

3,340

9,037

3,288

20,021

      Total noninterest income

26,121

30,830

33,545

31,925

122,421

Noninterest expenses

  Salaries and employee benefits

28,033

27,212

29,048

28,861

113,154

  Net occupancy

5,122

5,153

5,025

5,382

20,682

  Furniture and equipment 

2,291

2,332

2,323

2,244

9,190

  Data processing 

2,526

2,334

2,076

1,901

8,837

  Marketing

1,566

1,592

1,238

1,154

5,550

  Communication

814

788

913

894

3,409

  Professional services

1,667

1,304

2,151

2,147

7,269

  State intangible tax

942

961

970

1,026

3,899

  FDIC assessments

1,085

1,164

1,270

1,163

4,682

  Loss (gain) - other real estate owned

569

1,372

313

996

3,250

  Loss (gain) - covered other real estate owned

(54)

(25)

1,233

1,292

2,446

  Loss sharing expense

2,305

3,584

3,085

1,751

10,725

  Other 

6,608

7,515

7,814

6,967

28,904

      Total noninterest expenses

53,474

55,286

57,459

55,778

221,997

Income before income taxes

25,458

25,155

26,505

26,627

103,745

Income tax expense

9,193

8,913

8,703

9,633

36,442

      Net income

$16,265

$16,242

$17,802

$16,994

$67,303

ADDITIONAL DATA

Net earnings per share - basic

$0.28

$0.28

$0.31

$0.29

$1.16

Net earnings per share - diluted

$0.28

$0.28

$0.30

$0.29

$1.14

Dividends declared per share

$0.28

$0.30

$0.29

$0.31

$1.18

Return on average assets

1.03%

1.05%

1.13%

1.05%

1.07%

Return on average shareholders' equity

9.06%

9.01%

9.98%

9.67%

9.43%

Interest income

$67,605

$66,305

$71,923

$75,097

$280,930

Tax equivalent adjustment

366

255

216

218

1,055

   Interest income - tax equivalent

67,971

66,560

72,139

75,315

281,985

Interest expense

5,629

6,459

7,093

8,408

27,589

   Net interest income - tax equivalent

$62,342

$60,101

$65,046

$66,907

$254,396

Net interest margin

4.27%

4.21%

4.49%

4.51%

4.37%

Net interest margin (fully tax equivalent) (1)

4.29%

4.23%

4.50%

4.52%

4.39%

Full-time equivalent employees 

1,439

1,475

1,525

1,513

(1)The tax equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a 35% tax rate. Management believes that it is a standard practice in the banking industry to present net interest income on a fully tax equivalent basis.  Therefore, management believes, these measures provided useful information to investors by allowing them to make peer comparisons.  Management also uses these measures to make peer comparisons.

 

FIRST FINANCIAL BANCORP.

CONSOLIDATED STATEMENTS OF CONDITION

 

(Dollars in thousands)

(Unaudited)

Jun. 30,

Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

% Change

% Change

2013

2013

2012

2012

2012

Linked Qtr.

Comparable Qtr.

ASSETS

     Cash and due from banks

$114,745

$106,249

$134,502

$154,181

$126,392

8.0%

(9.2%)

     Interest-bearing deposits with other banks

2,671

1,170

24,341

21,495

9,187

128.3%

(70.9%)

     Investment securities available-for-sale

884,694

952,039

1,032,096

689,680

724,518

(7.1%)

22.1%

     Investment securities held-to-maturity

670,246

716,214

770,755

822,319

873,538

(6.4%)

(23.3%)

     Other investments

75,645

75,375

71,492

71,492

71,492

0.4%

5.8%

     Loans held for sale

18,650

28,126

16,256

23,530

20,971

(33.7%)

(11.1%)

     Loans

       Commercial

940,420

892,381

861,033

834,858

823,890

5.4%

14.1%

       Real estate - construction

97,246

87,542

73,517

91,897

86,173

11.1%

12.8%

       Real estate - commercial

1,477,226

1,433,182

1,417,008

1,338,636

1,321,446

3.1%

11.8%

       Real estate - residential

343,016

330,260

318,210

299,654

292,503

3.9%

17.3%

       Installment

50,781

53,509

56,810

59,191

61,590

(5.1%)

(17.5%)

       Home equity

370,206

365,943

367,500

368,876

365,413

1.2%

1.3%

       Credit card

33,222

32,465

34,198

31,604

31,486

2.3%

5.5%

       Lease financing

70,011

53,556

50,788

41,343

30,109

30.7%

132.5%

          Total loans, excluding covered loans

3,382,128

3,248,838

3,179,064

3,066,059

3,012,610

4.1%

12.3%

       Less

          Allowance for loan and lease losses

47,047

48,306

47,777

49,192

50,952

(2.6%)

(7.7%)

             Net loans - uncovered

3,335,081

3,200,532

3,131,287

3,016,867

2,961,658

4.2%

12.6%

       Covered loans

622,265

687,798

748,116

825,515

903,862

(9.5%)

(31.2%)

       Less

          Allowance for loan and lease losses

32,961

45,496

45,190

48,895

48,327

(27.6%)

(31.8%)

             Net loans - covered

589,304

642,302

702,926

776,620

855,535

(8.3%)

(31.1%)

                Net loans

3,924,385

3,842,834

3,834,213

3,793,487

3,817,193

2.1%

2.8%

     Premises and equipment

142,675

146,889

146,716

146,603

142,744

(2.9%)

0.0%

     Goodwill

95,050

95,050

95,050

95,050

95,050

0.0%

0.0%

     Other intangibles

6,620

7,078

7,648

8,327

9,195

(6.5%)

(28.0%)

     FDIC indemnification asset

88,966

112,428

119,607

130,476

146,765

(20.9%)

(39.4%)

     Accrued interest and other assets

250,228

265,565

244,372

278,447

245,632

(5.8%)

1.9%

       Total assets

$6,274,575

$6,349,017

$6,497,048

$6,235,087

$6,282,677

(1.2%)

(0.1%)

LIABILITIES

     Deposits

       Interest-bearing demand

$1,131,466

$1,113,940

$1,160,815

$1,112,843

$1,154,852

1.6%

(2.0%)

       Savings

1,601,122

1,620,874

1,623,614

1,568,818

1,543,619

(1.2%)

3.7%

       Time

978,680

1,030,124

1,068,637

1,199,296

1,331,758

(5.0%)

(26.5%)

          Total interest-bearing deposits

3,711,268

3,764,938

3,853,066

3,880,957

4,030,229

(1.4%)

(7.9%)

       Noninterest-bearing

1,059,368

1,056,409

1,102,774

1,063,654

1,071,520

0.3%

(1.1%)

          Total deposits

4,770,636

4,821,347

4,955,840

4,944,611

5,101,749

(1.1%)

(6.5%)

     Short-term borrowings

       Federal funds purchased and securities sold

         under agreements to repurchase

114,030

130,863

122,570

88,190

73,919

(12.9%)

54.3%

       FHLB short-term borrowings

505,900

502,200

502,000

283,000

176,000

0.7%

187.4%

          Total short-term borrowings

619,930

633,063

624,570

371,190

249,919

(2.1%)

148.1%

     Long-term debt

73,957

74,498

75,202

75,521

75,120

(0.7%)

(1.5%)

          Total borrowed funds

693,887

707,561

699,772

446,711

325,039

(1.9%)

113.5%

     Accrued interest and other liabilities

114,600

118,495

131,011

127,799

139,101

(3.3%)

(17.6%)

       Total liabilities

5,579,123

5,647,403

5,786,623

5,519,121

5,565,889

(1.2%)

0.2%

SHAREHOLDERS' EQUITY

     Common stock

576,641

575,514

579,293

578,129

576,929

0.2%

(0.0%)

     Retained earnings 

329,633

327,635

330,004

330,014

331,315

0.6%

(0.5%)

     Accumulated other comprehensive loss

(25,645)

(21,475)

(18,677)

(18,855)

(18,172)

19.4%

41.1%

     Treasury stock, at cost

(185,177)

(180,060)

(180,195)

(173,322)

(173,284)

2.8%

6.9%

       Total shareholders' equity

695,452

701,614

710,425

715,966

716,788

(0.9%)

(3.0%)

       Total liabilities and shareholders' equity

$6,274,575

$6,349,017

$6,497,048

$6,235,087

$6,282,677

(1.2%)

(0.1%)

 

FIRST FINANCIAL BANCORP.

AVERAGE CONSOLIDATED STATEMENTS OF CONDITION

 

(Dollars in thousands)

(Unaudited)

Quarterly Averages

Year-to-Date Averages

Jun. 30,

Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Jun. 30,

2013

2013

2012

2012

2012

2013

2012

ASSETS

     Cash and due from banks

$119,909

$111,599

$118,619

$118,642

$121,114

$115,777

$122,374

     Interest-bearing deposits with other banks

13,890

3,056

5,146

11,390

4,454

8,503

65,392

     Investment securities

1,705,219

1,838,783

1,746,961

1,606,313

1,713,503

1,771,632

1,689,073

     Loans held for sale

19,722

21,096

18,054

26,035

19,554

20,405

19,638

     Loans

       Commercial

904,029

863,427

819,262

811,998

827,722

883,840

838,907

       Real estate - construction

93,813

81,171

85,219

92,051

99,087

87,527

106,016

       Real estate - commercial

1,445,626

1,411,769

1,373,781

1,322,369

1,279,869

1,428,791

1,257,741

       Real estate - residential

334,652

323,768

307,580

293,423

290,335

329,240

289,042

       Installment

52,313

54,684

58,283

60,691

62,846

53,492

64,074

       Home equity

367,408

365,568

368,605

365,669

361,166

366,493

359,763

       Credit card

33,785

33,300

32,954

31,977

31,383

33,544

31,292

       Lease financing

62,383

50,998

44,022

33,521

23,334

56,722

20,929

          Total loans, excluding covered loans

3,294,009

3,184,685

3,089,706

3,011,699

2,975,742

3,239,649

2,967,764

       Less

          Allowance for loan and lease losses

50,172

49,408

50,172

51,486

50,353

49,792

51,933

             Net loans - uncovered

3,243,837

3,135,277

3,039,534

2,960,213

2,925,389

3,189,857

2,915,831

       Covered loans

653,892

724,846

794,838

866,486

950,226

689,173

985,223

       Less

          Allowance for loan and lease losses

41,861

46,104

48,553

51,150

47,964

43,971

47,558

             Net loans - covered

612,031

678,742

746,285

815,336

902,262

645,202

937,665

                Net loans

3,855,868

3,814,019

3,785,819

3,775,549

3,827,651

3,835,059

3,853,496

     Premises and equipment

144,759

147,355

148,047

145,214

143,261

146,050

141,819

     Goodwill

95,050

95,050

95,050

95,050

95,050

95,050

95,050

     Other intangibles

6,831

7,346

8,001

8,702

9,770

7,087

10,138

     FDIC indemnification asset

104,983

115,344

125,264

136,136

149,788

110,135

154,619

     Accrued interest and other assets

244,371

237,401

243,123

243,636

250,828

240,906

255,353

       Total assets

$6,310,602

$6,391,049

$6,294,084

$6,166,667

$6,334,973

$6,350,604

$6,406,952

LIABILITIES

     Deposits

       Interest-bearing demand

$1,141,767

$1,112,664

$1,145,800

$1,164,111

$1,192,868

$1,127,296

$1,239,032

       Savings

1,639,834

1,618,239

1,640,427

1,588,708

1,610,411

1,629,096

1,646,459

       Time

1,011,290

1,054,499

1,126,627

1,260,329

1,406,800

1,032,775

1,492,124

          Total interest-bearing deposits

3,792,891

3,785,402

3,912,854

4,013,148

4,210,079

3,789,167

4,377,615

       Noninterest-bearing

1,063,102

1,049,943

1,112,072

1,052,421

1,044,405

1,056,559

987,876

          Total deposits

4,855,993

4,835,345

5,024,926

5,065,569

5,254,484

4,845,726

5,365,491

     Short-term borrowings

       Federal funds purchased and securities sold

          under agreements to repurchase

105,299

134,709

100,087

81,147

80,715

119,923

83,303

       Federal Home Loan Bank short-term borrowings

464,630

525,878

263,895

100,758

78,966

495,085

39,483

          Total short-term borrowings

569,929

660,587

363,982

181,905

159,681

615,008

122,786

     Long-term debt

74,129

74,740

75,326

75,435

75,314

74,433

75,667

       Total borrowed funds

644,058

735,327

439,308

257,340

234,995

689,441

198,453

     Accrued interest and other liabilities

106,747

111,515

115,477

126,961

128,383

109,118

131,179

       Total liabilities

5,606,798

5,682,187

5,579,711

5,449,870

5,617,862

5,644,285

5,695,123

SHAREHOLDERS' EQUITY

     Common stock

576,391

578,452

578,691

577,547

576,276

577,416

577,395

     Retained earnings 

329,795

330,879

331,414

330,368

332,280

330,334

328,325

     Accumulated other comprehensive loss

(19,204)

(19,576)

(19,612)

(17,756)

(18,242)

(19,389)

(19,293)

     Treasury stock, at cost

(183,178)

(180,893)

(176,120)

(173,362)

(173,203)

(182,042)

(174,598)

       Total shareholders' equity

703,804

708,862

714,373

716,797

717,111

706,319

711,829

       Total liabilities and shareholders' equity

$6,310,602

$6,391,049

$6,294,084

$6,166,667

$6,334,973

$6,350,604

$6,406,952

 

 FIRST FINANCIAL BANCORP.

NET INTEREST MARGIN RATE/VOLUME ANALYSIS (1)

(Dollars in thousands)

(Unaudited)

 Quarterly Averages 

 Year-to-Date Averages 

Jun. 30, 2013

Mar. 31, 2013

Jun. 30, 2012

Jun. 30, 2013

Jun. 30, 2012

Balance

Yield

Balance

Yield

Balance

Yield

Balance

Yield

Balance

Yield

Earning assets

   Investments:

   Investment securities

$       1,705,219

2.08%

$      1,838,783

1.98%

$       1,713,503

2.46%

$       1,771,632

2.03%

$      1,689,073

2.53%

   Interest-bearing deposits with other banks

13,890

0.32%

3,056

0.53%

4,454

0.18%

8,503

0.36%

65,392

0.28%

Gross loans(2)

4,072,606

5.26%

4,045,971

5.47%

4,095,310

6.02%

4,059,362

5.37%

4,127,244

6.15%

    Total earning assets

5,791,715

4.32%

5,887,810

4.37%

5,813,267

4.96%

5,839,497

4.35%

5,881,709

5.04%

Nonearning assets

Allowance for loan and lease losses

(92,033)

(95,512)

(98,317)

(93,763)

(99,491)

Cash and due from banks

119,909

111,599

121,114

115,777

122,374

Accrued interest and other assets

491,011

487,152

498,909

489,093

502,360

    Total assets

$      6,310,602

$      6,391,049

$     6,334,973

$     6,350,604

$     6,406,952

Interest-bearing liabilities

   Deposits:

   Interest-bearing demand

$        1,141,767

0.09%

$        1,112,664

0.12%

$       1,192,868

0.11%

$       1,127,296

0.10%

$      1,239,032

0.12%

   Savings

1,639,834

0.10%

1,618,239

0.10%

1,610,411

0.12%

1,629,096

0.10%

1,646,459

0.13%

   Time

1,011,290

1.04%

1,054,499

1.20%

1,406,800

1.60%

1,032,775

1.12%

1,492,124

1.66%

Total interest-bearing deposits

3,792,891

0.35%

3,785,402

0.41%

4,210,079

0.61%

3,789,167

0.38%

4,377,615

0.65%

Borrowed funds

   Short-term borrowings

569,929

0.21%

660,587

0.20%

159,681

0.09%

615,008

0.21%

122,786

0.08%

   Long-term debt

74,129

3.54%

74,740

3.55%

75,314

3.59%

74,433

3.54%

75,667

3.61%

     Total borrowed funds

644,058

0.60%

735,327

0.54%

234,995

1.22%

689,441

0.57%

198,453

1.43%

   Total interest-bearing liabilities

4,436,949

0.38%

4,520,729

0.43%

4,445,074

0.64%

4,478,608

0.41%

4,576,068

0.68%

Noninterest-bearing liabilities

   Noninterest-bearing demand deposits

1,063,102

1,049,943

1,044,405

1,056,559

987,876

   Other liabilities

106,747

111,515

128,383

109,118

131,179

   Shareholders' equity

703,804

708,862

717,111

706,319

711,829

     Total liabilities & shareholders' equity

$      6,310,602

$      6,391,049

$     6,334,973

$     6,350,604

$     6,406,952

Net interest income(1)

$           58,078

$           58,666

$           64,830

$           116,744

$            131,519

Net interest spread(1)

3.94%

3.94%

4.32%

3.94%

4.36%

Net interest margin(1)

4.02%

4.04%

4.49%

4.03%

4.50%

(1)Not tax equivalent.

(2)Loans held for sale, nonaccrual loans, covered loans, and indemnification asset are included in gross loans.

 

FIRST FINANCIAL BANCORP.

NET INTEREST MARGIN RATE/VOLUME ANALYSIS (1)

(Dollars in thousands)

(Unaudited)

 Linked Qtr. Income Variance 

 Comparable Qtr. Income Variance 

 Year-to-Date Income Variance 

Rate

Volume

Total

Rate

Volume

Total

Rate

Volume

Total

Earning assets

   Investment securities

$       488

$     (589)

$     (101)

$   (1,602)

$       (43)

$   (1,645)

$     (4,170)

$        830

$   (3,340)

   Interest-bearing deposits with other banks

(2)

9

7

2

7

9

24

(100)

(76)

   Gross loans(2)

(2,027)

933

(1,094)

(7,668)

(298)

(7,966)

(15,968)

(1,806)

(17,774)

     Total earning assets

(1,541)

353

(1,188)

(9,268)

(334)

(9,602)

(20,114)

(1,076)

(21,190)

Interest-bearing liabilities

   Total interest-bearing deposits

$      (619)

$         43

$     (576)

$   (2,736)

(361)

$   (3,097)

$     (5,844)

$   (1,109)

$   (6,953)

   Borrowed funds

     Short-term borrowings

21

(45)

(24)

48

220

268

78

507

585

     Long-term debt

(2)

2

0

(11)

(10)

(21)

(25)

(22)

(47)

       Total borrowed funds

19

(43)

(24)

37

210

247

53

485

538

     Total interest-bearing liabilities

(600)

0

(600)

(2,699)

(151)

(2,850)

(5,791)

(624)

(6,415)

                Net interest income(1)

$      (941)

$       353

$     (588)

$   (6,569)

$     (183)

$   (6,752)

$   (14,323)

$      (452)

$ (14,775)

(1)Not tax equivalent.

(2)Loans held for sale, nonaccrual loans, covered loans, and indemnification asset are included in gross loans.

 

FIRST FINANCIAL BANCORP.

CREDIT QUALITY

(excluding covered assets)

 

(Dollars in thousands)

(Unaudited)

Six months ended,

Jun. 30,

Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Jun. 30,

Jun. 30,

2013

2013

2012

2012

2012

2013

2012

ALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITY

Balance at beginning of period

$48,306

$47,777

$49,192

$50,952

$49,437

$47,777

$52,576

  Provision for uncovered loan and lease losses

2,409

3,041

3,882

3,613

8,364

5,450

11,622

  Gross charge-offs

    Commercial 

859

781

657

1,340

1,129

1,640

2,315

    Real estate - construction

0

0

0

180

717

0

2,504

    Real estate - commercial

2,044

995

2,221

2,736

3,811

3,039

6,055

    Real estate - residential

326

223

454

565

191

549

795

    Installment

97

100

267

134

116

197

176

    Home equity

591

701

1,722

380

915

1,292

1,559

    Other

277

410

227

469

259

687

556

      Total gross charge-offs 

4,194

3,210

5,548

5,804

7,138

7,404

13,960

  Recoveries

    Commercial 

67

319

71

202

48

386

120

    Real estate - construction

0

136

0

0

0

136

0

    Real estate - commercial

57

39

46

38

68

96

181

    Real estate - residential

5

4

3

33

9

9

37

    Installment

110

77

53

72

75

187

198

    Home equity

225

52

32

31

28

277

52

    Other

62

71

46

55

61

133

126

      Total recoveries

526

698

251

431

289

1,224

714

  Total net charge-offs

3,668

2,512

5,297

5,373

6,849

6,180

13,246

   Ending allowance for uncovered loan and lease losses

$47,047

$48,306

$47,777

$49,192

$50,952

$47,047

$50,952

NET CHARGE-OFFS TO AVERAGE LOANS AND LEASES (ANNUALIZED)

  Commercial 

0.35%

0.22%

0.28%

0.56%

0.53%

0.29%

0.53%

  Real estate - construction

0.00%

(0.68%)

0.00%

0.78%

2.91%

(0.31%)

4.75%

  Real estate - commercial

0.55%

0.27%

0.63%

0.81%

1.18%

0.42%

0.94%

  Real estate - residential

0.38%

0.27%

0.58%

0.72%

0.25%

0.33%

0.53%

  Installment

(0.10%)

0.17%

1.46%

0.41%

0.26%

0.04%

(0.07%)

  Home equity

0.40%

0.72%

1.82%

0.38%

0.99%

0.56%

0.84%

  Other

0.90%

1.63%

0.94%

2.51%

1.46%

1.24%

1.66%

   Total net charge-offs 

0.45%

0.32%

0.68%

0.71%

0.93%

0.38%

0.90%

COMPONENTS OF NONPERFORMING LOANS, NONPERFORMING ASSETS, AND UNDERPERFORMING ASSETS

  Nonaccrual loans

    Commercial 

$2,904

$4,044

$10,562

$4,563

$12,065

$2,904

$12,065

    Real estate - construction

808

945

950

2,536

7,243

808

7,243

    Real estate - commercial

30,977

30,311

31,002

33,961

36,116

30,977

36,116

    Real estate - residential

5,149

4,371

5,045

5,563

5,069

5,149

5,069

    Installment

153

211

376

284

319

153

319

    Home equity

1,576

1,750

2,499

2,497

2,281

1,576

2,281

    Lease financing

496

496

496

0

0

496

0

     Nonaccrual loans

42,063

42,128

50,930

49,404

63,093

42,063

63,093

  Troubled debt restructurings (TDRs)

    Accruing

12,924

12,757

10,856

11,604

9,909

12,924

9,909

    Nonaccrual

19,948

22,324

14,111

13,017

10,185

19,948

10,185

     Total TDRs

32,872

35,081

24,967

24,621

20,094

32,872

20,094

     Total nonperforming loans

74,935

77,209

75,897

74,025

83,187

74,935

83,187

  Other real estate owned (OREO)

11,798

11,993

12,526

13,912

15,688

11,798

15,688

     Total nonperforming assets

86,733

89,202

88,423

87,937

98,875

86,733

98,875

  Accruing loans past due 90 days or more

158

157

212

108

143

158

143

     Total underperforming assets

$86,891

$89,359

$88,635

$88,045

$99,018

$86,891

$99,018

Total classified assets

$129,832

$130,436

$129,040

$133,382

$145,621

$129,832

$145,621

CREDIT QUALITY RATIOS (excluding covered assets)

Allowance for loan and lease losses to

   Nonaccrual loans

111.85%

114.66%

93.81%

99.57%

80.76%

111.85%

80.76%

   Nonaccrual loans plus nonaccrual TDRs

75.87%

74.95%

73.46%

78.81%

69.53%

75.87%

69.53%

   Nonperforming loans

62.78%

62.57%

62.95%

66.45%

61.25%

62.78%

61.25%

   Total ending loans

1.39%

1.49%

1.50%

1.60%

1.69%

1.39%

1.69%

Nonperforming loans to total loans

2.22%

2.38%

2.39%

2.41%

2.76%

2.22%

2.76%

Nonperforming assets to

   Ending loans, plus OREO

2.56%

2.74%

2.77%

2.86%

3.27%

2.56%

3.27%

   Total assets

1.38%

1.40%

1.36%

1.41%

1.57%

1.38%

1.57%

Nonperforming assets, excluding accruing TDRs to

   Ending loans, plus OREO

2.17%

2.34%

2.43%

2.48%

2.94%

2.17%

2.94%

   Total assets

1.18%

1.20%

1.19%

1.22%

1.42%

1.18%

1.42%

 

FIRST FINANCIAL BANCORP.

CAPITAL ADEQUACY

 

(Dollars in thousands, except per share)

(Unaudited)

Six months ended,

Jun. 30,

Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Jun. 30,

Jun. 30,

2013

2013

2012

2012

2012

2013

2012

PER COMMON SHARE

Market Price

  High

$16.05

$16.07

$16.95

$17.86

$17.70

$16.07

$18.28

  Low

$14.52

$14.46

$13.90

$15.58

$14.88

$14.46

$14.88

  Close

$14.90

$16.05

$14.62

$16.91

$15.98

$14.90

$15.98

Average shares outstanding - basic

57,291,994

57,439,029

57,800,988

57,976,943

57,933,281

57,365,105

57,864,269

Average shares outstanding - diluted

58,128,349

58,283,467

58,670,666

58,940,179

58,958,279

58,206,503

58,921,689

Ending shares outstanding

57,698,344

58,028,923

58,046,235

58,510,916

58,513,393

57,698,344

58,513,393

REGULATORY CAPITAL

Preliminary

Preliminary

Tier 1 Capital

$630,819

$632,020

$637,176

$641,828

$640,644

$630,819

$640,644

Tier 1 Ratio

15.41%

15.87%

16.32%

16.93%

17.14%

15.41%

17.14%

Total Capital

$682,927

$682,974

$686,961

$690,312

$688,401

$682,927

$688,401

Total Capital Ratio

16.68%

17.15%

17.60%

18.21%

18.42%

16.68%

18.42%

Total Capital in excess of minimum 

  requirement

$355,435

$364,376

$374,633

$387,115

$389,367

$355,435

$389,367

Total Risk-Weighted Assets

$4,093,644

$3,982,479

$3,904,096

$3,789,957

$3,737,920

$4,093,644

$3,737,920

Leverage Ratio

10.12%

10.00%

10.25%

10.54%

10.21%

10.12%

10.21%

OTHER CAPITAL RATIOS

Ending shareholders' equity to ending

  assets

11.08%

11.05%

10.93%

11.48%

11.41%

11.08%

11.41%

Ending tangible shareholders' equity

  to ending tangible assets

9.62%

9.60%

9.50%

9.99%

9.91%

9.62%

9.91%

Average shareholders' equity to

  average assets

11.15%

11.09%

11.35%

11.62%

11.32%

11.12%

11.11%

Average tangible shareholders' equity

  to average tangible assets

9.70%

9.65%

9.88%

10.12%

9.84%

9.68%

9.64%

REPURCHASE PROGRAM(1)

Shares repurchased

291,400

249,000

460,500

0

0

540,400

0

Average share repurchase price

$15.47

$15.39

$14.78

N/A

N/A

$15.43

N/A

Total cost of shares repurchased

$4,508

$3,831

$6,806

N/A

N/A

$8,339

N/A

(1)Represents share repurchases as part of publicly announced plans.

N/A=Not applicable

SUPPLEMENTAL INFORMATION ON COVERED ASSETS

ACCELERATED DISCOUNT ON LOAN PREPAYMENTS AND DISPOSITIONS

During the second quarter, First Financial recognized approximately $1.9 million in accelerated discount from covered loans, net of the corresponding adjustment on the FDIC indemnification asset.  Accelerated discount is recognized when covered loans, which are recorded on the Company's balance sheet at an amount less than the unpaid principal balance, prepay at an amount greater than their recorded book value.  Prepayments can occur through either customer driven payments before the maturity date or loan sales.  The amount of discount attributable to the credit loss component of each loan varies and the recognized amount is offset by a related reduction in the FDIC indemnification asset.  Accelerated discount recognized during the quarter resulted primarily from loan prepayments.

NET INTEREST MARGIN IMPACT

Net interest margin is affected by certain activity related to the covered loan portfolio.  The majority of these loans are accounted for under FASB ASC Topic 310-30 and, as such, the Company is required to periodically update its forecast of expected cash flows from these loans.  Impairment, as a result of a decrease in expected cash flows, is recognized as provision expense in the period it is measured and has no impact on net interest margin.  Improvements in expected cash flows, in excess of any prior impairment, are recognized on a prospective basis through an upward adjustment to the yield earned on the portfolio.  Impairment and improvement are both partially offset by the impact of changes in the value of the FDIC indemnification asset.  Impairment is partially offset by an increase to the FDIC indemnification asset as a result of FDIC loss sharing income.  Improvement, which is reflected as a higher yield, is partially offset by a lower yield earned on the FDIC indemnification asset until the next periodic valuation of the loans and the indemnification asset.  The weighted average yield of the acquired loan portfolio may also be subject to change as loans with higher yields pay down more quickly or slowly than loans with lower yields.

The following table shows the estimated yield earned by the Company on its covered and uncovered loan portfolios and the FDIC indemnification asset for the three months ended June 30, 2013.

Table VII

For the Three Months Ended

June 30, 2013

Average

(Dollars in thousands)

Balance

Yield

Loans, excluding covered loans 1

$     3,313,731

4.56%

Covered loan portfolio accounted for under ASC Topic 310-302

584,360

10.45%

Covered loan portfolio accounted for under ASC Topic 310-203

69,532

12.06%

FDIC indemnification asset2

104,983

(5.99%)

Total

$     4,072,606

5.26%

1  Includes loans with loss share coverage removed

2  Future yield adjustments subject to change based on required, periodic valuation procedures

3  Includes loans with revolving privileges which are scoped out of ASC Topic 310-30 and certain loans

   which the Company elected to treat under the cost recovery method of accounting

COVERED ASSETS

The following table presents the covered loan portfolio as of June 30, 2013, March 31, 2013 and June 30, 2012.

Table VIII

As of

June 30, 2013

March 31, 2013

June 30, 2012

Percent

Percent

Percent

(Dollars in thousands)

Balance

of Total

Balance

of Total

Balance

of Total

Commercial

$      69,562

11.2%

$      90,424

13.1%

$    142,009

15.7%

Real estate - construction

9,647

1.6%

9,866

1.4%

15,333

1.7%

Real estate - commercial

389,282

62.6%

425,950

61.9%

556,673

61.6%

Real estate - residential

90,707

14.6%

95,991

14.0%

111,720

12.4%

Installment

7,057

1.1%

7,640

1.1%

11,641

1.3%

Home equity

53,214

8.6%

55,021

8.0%

63,162

7.0%

Other

2,796

0.4%

2,906

0.4%

3,324

0.4%

Total

$    622,265

100.0%

$    687,798

100.0%

$    903,862

100.0%

As of June 30, 2013, 15.5% of the Company's total loans were covered loans.  During the second quarter, the total balance of covered loans decreased $65.5 million, or 9.5%, compared to the prior quarter.  As required under the loss sharing agreements, First Financial must file monthly certifications with the FDIC on single-family residential loans and quarterly certifications on all other loans.  The payment of claims is subject to the FDIC's review for compliance with the loss sharing agreements and to date, all certifications have been filed in a timely manner and without significant issues.

Covered OREO decreased $6.9 million, or 23.4%, during the second quarter to $22.5 million as of June 30, 2013 as resolutions and valuation adjustments of $13.1 million exceeded additions of $6.2 million during the quarter.  Additionally, the Company recognized a net gain on sales of covered OREO of $2.2 million during the quarter.  The net gain was offset by a corresponding reduction in FDIC loss sharing income of approximately 80% of the net gains recognized.

ALLOWANCE FOR LOAN AND LEASE LOSSES - COVERED

Under the applicable accounting guidance, the allowance for loan losses related to covered loans is a result of impairment identified in ongoing valuation procedures and is generally recognized in the current period as provision expense.  However, if improvement is noted in a loan pool that had previously experienced impairment, the amount of improvement is recognized as a reduction to the applicable period's provision expense.  Additional improvement beyond previously recorded impairment is reflected as a yield adjustment on a prospective basis.  The timing inherent in this accounting treatment may result in earnings volatility in future periods.

The following table presents activity in the allowance for loan losses related to covered loans for the three months ended June 30, 2013 and for the trailing three quarters.  

Table IX

As of or for the Three Months Ended

June 30,

March 31,

December 31,

September 30,

(Dollars in thousands)

2013

2013

2012

2012

Balance at beginning of period

$      45,496

$      45,190

$      48,895

$      48,327

Provision for loan and lease losses - covered

(8,283)

9,042

5,283

6,622

Total gross charge-offs

(4,681)

(9,684)

(9,568)

(9,058)

Total recoveries

429

948

580

3,004

Total net charge-offs

(4,252)

(8,736)

(8,988)

(6,054)

Ending allowance for loan and lease losses - covered

$      32,961

$      45,496

$      45,190

$      48,895

As a percentage of total covered loans, the allowance for loan losses totaled 5.30% as of June 30, 2013 compared to 6.61% as of March 31, 2013.

During the quarter, the Company implemented certain enhancements to its valuation methodology and the estimation of impairment to place greater emphasis on changes in total expected cash flows and less emphasis on changes in the net present value of expected cash flows.  As a result of these changes in estimates, the allowance for loan losses related to covered loans was reduced by $7.8 million with an equivalent amount reflected in the negative provision for covered loan losses for the quarter.  The Company also recognized a corresponding reduction in the FDIC indemnification asset of $6.3 million related to these changes in estimates with an equivalent amount reflected in the negative FDIC loss sharing income for the quarter.

Net charge-offs on covered loans during the second quarter were $4.3 million compared to $8.7 million for the first quarter, a decrease of $4.5 million, or 51.3%.  During the second quarter, the Company recognized a negative provision expense of $8.3 million compared to a provision expense of $9.0 million for the linked quarter.  The difference between provision expense and net charge-offs primarily relates to the quarterly re-estimation of cash flow expectations required under FASB ASC Topic 310-30.

In addition to the provision expense, the Company incurred loss sharing and covered asset expenses of $1.6 million, consisting primarily of credit expenses, offset by $2.2 million of net gains related to covered OREO.  The negative FDIC loss sharing income for the quarter reflects the quarterly re-estimation of expected cash flows, including the enhancements to the quarterly estimation discussed above, as well as the corresponding offset related to the net gains on sales of covered OREO and loss sharing and covered asset expenses.

SOURCE First Financial Bancorp



RELATED LINKS

http://www.bankatfirst.com