First Financial Bancorp Reports Third Quarter 2012 Financial Results

25 Oct, 2012, 16:07 ET from First Financial Bancorp

CINCINNATI, Oct. 25, 2012 /PRNewswire/ -- First Financial Bancorp (Nasdaq: FFBC) ("First Financial" or the "Company") announced today financial and operational results for the third quarter 2012.

Third quarter 2012 net income was $16.2 million and earnings per diluted common share were $0.28.  This compares with second quarter 2012 net income of $17.8 million and earnings per diluted common share of $0.30 and third quarter 2011 net income of $15.6 million and earnings per diluted common share of $0.27.

The board of directors has authorized a regular dividend of $0.15 per common share and a variable dividend of $0.13 per common share for the next regularly scheduled dividend, payable on January 2, 2013 to shareholders of record as of November 30, 2012.  This is a continuation of the 100% dividend payout ratio first announced in the second quarter 2011 and is expected to continue through 2013 unless the Company's capital position materially changes or capital deployment opportunities arise.

The board of directors also approved a share repurchase plan under which the Company has the ability to repurchase up to 5,000,000 shares.  Under the plan, the Company expects to repurchase approximately 1,000,000 shares annually beginning in the fourth quarter 2012.  This annual target will be subject to market conditions and quarterly evaluation by the board as well as balance sheet composition and growth.  The Company expects to disclose a summary of total shares repurchased on a quarterly basis in future periods.  The share repurchase plan is not expected to impact the variable dividend and as a result the return of capital to shareholders is expected to exceed 100% of earnings through 2013.  Subsequent to the expiration of the variable dividend, the Company expects to return to shareholders a target range of 60% - 80% of earnings through a combination of its regular dividend and share repurchases while still maintaining capital ratios that exceed internal target thresholds, current regulatory capital requirements and proposed capital requirements under Basel III.

  • 88th consecutive quarter of profitability
  • Continued solid quarterly performance
    • Return on average assets of 1.05%
    • Return on average risk-weighted assets of 1.72%
    • Return on average shareholders' equity of 9.01%
  • Capital ratios remain strong
    • Tangible common equity to tangible assets of 9.99%
    • Tier 1 capital ratio of 16.93%
    • Total risk-based capital ratio of 18.21%
  • Quarterly net interest margin declined to 4.21% from 4.49% for the linked quarter
    • Yield earned on covered loans declined 59 bps
    • Decline in investment portfolio yield due to elevated prepayment and redemption activity
    • Cost of interest-bearing deposits declined 4 bps during the quarter to 0.57%
  • Total uncovered loan portfolio growth of 7.1% on an annualized basis
    • Solid growth in C&I and commercial real estate loan balances
    • Specialty finance product lines continue to grow
  • Provision for loan and lease losses related to the uncovered loan portfolio totaled $3.6 million for the third quarter 2012, declining $4.8 million, or 56.8%, compared to the linked quarter
  • Significant improvement in nonperforming assets and continued downward trend in classified assets
    • Total nonperforming assets declined $10.9 million, or 11.1%, compared to the linked quarter
    • Nonperforming assets to total assets declined to 1.41% from 1.57% as of June 30, 2012
    • Total classified assets declined $12.2 million, or 8.4%, compared to the linked quarter and $39.2 million, or 22.7%, compared to September 30, 2011

During the third quarter 2012, the Company completed a comprehensive efficiency study across all business lines and support functions.  As a result, it identified approximately $17.1 million of annualized cost savings impacting several expense categories, inclusive of the estimated $3.0 million of net operating expenses associated with 2012 banking center consolidations previously announced in the second quarter.  Realization of the identified cost savings is anticipated to begin during the fourth quarter 2012, however the Company does not expect to recognize net savings during 2012 as one-time costs associated with implementing the efficiency plan are expected to offset estimated savings.  Related to such costs, the Company incurred $0.4 million of pre-tax employee benefit expenses associated with the efficiency plan during the third quarter.  Furthermore, the Company continues to review its operational structure as part of an on-going process, similar to its branch franchise and market evaluations, and will provide detail in future periods as additional cost savings opportunities are identified.

Claude Davis, President and Chief Executive Officer, commented, "Our operating results for the quarter were impacted by declines in both net interest income and net interest margin which were affected by the convergence of several events.  The combination of a decline in the yield earned on our covered loan portfolio and elevated prepayments and redemptions related to our investment portfolio contributed to the $5.0 million decrease in net interest income and 28 bp decline in net interest margin compared to the linked quarter.

"On the positive side, our credit results related to the uncovered portfolio for the quarter were solid as we showed meaningful improvement in almost all performance ratios.  The level of classified assets continued to decline and nonperforming assets dropped to its lowest level since the fourth quarter 2009.  While net charge-offs still remain somewhat elevated at 71 bps of average loans, the 21.6% decline in net charge-offs compared to the prior quarter was encouraging.

"Additionally, our uncovered loan portfolio continued to grow, increasing 7.1% on an annualized basis during the quarter as a result of solid performance in our commercial, commercial real estate, specialty finance and residential mortgage portfolios.  Third quarter originations and renewals were solid and consistent with the prior quarter and our pipeline of new business opportunities remains strong.

"We completed an in-depth analysis of our cost structure during the quarter and specifically identified approximately $17.1 million of cost reductions across all business lines and support areas.  In addition to the previously announced banking center consolidations, we began implementing certain other initiatives as early as the second quarter and continued to do so in the third quarter parallel with completion of the study.  Our expectation is that all initiatives will be in place by the end of the second quarter 2013 with actual savings realization following closely behind.  Executing an efficient operating model is a strategic priority for First Financial and many of the processes we employed during the quarter to identify efficiencies will be performed on a continual basis to ensure long term positive operating leverage.

"We are pleased to announce that the board of directors has approved a share buyback plan under which we expect to repurchase approximately 1,000,000 shares annually over a five year period.  We will implement the plan during the fourth quarter 2012 and are also pleased to report that share repurchases are not anticipated to impact the variable dividend, which we expect to continue through 2013 unless the Company's capital position changes materially or capital deployment opportunities arise that move us towards our capital thresholds sooner than expected.  Despite returning greater than 100% of our earnings to shareholders through 2013 and targeting a long term return of 60% - 80% of the capital we generate through dividends and share repurchases, we expect to maintain a sufficient level of capital to support growth initiatives."

NET INTEREST INCOME AND NET INTEREST MARGIN Net interest income for the third quarter 2012 was $59.8 million as compared to $64.8 million for the second quarter 2012 and $65.2 million as compared to the year-over-year period.  Compared to the linked quarter, total interest income decreased $5.6 million, or 7.8%, and total interest expense declined $0.6 million, or 8.9%.  Net interest margin was 4.21% for the third quarter 2012 as compared to 4.49% for the second quarter 2012 and 4.55% for the third quarter 2011.  The declines in net interest income and net interest margin were significantly impacted by activity in the Company's covered loan and investment securities portfolios.

Contributing to the lower interest income earned on loans and decline in net interest margin was an 8.8% decline in the average balance of covered loans outstanding as well as a 59 bp decrease in the yield earned on the portfolio compared to the linked quarter.  The decline in the yield earned on covered loans was partially driven by the full amortization of discounts associated with certain loans accounted for under ASC Topic 310-20 late in the second quarter 2012.  Additionally, a large credit in the same portfolio that had previously been classified as nonaccrual paid off in full during the second quarter 2012 with all accrued interest recognized, positively impacting the yield in that quarter as well.

Interest income earned on investment securities declined as a result of a $107.2 million decrease, or 6.3%, in average balances as well as a 37 bp decrease in the yield earned on the portfolio compared to the linked quarter.  Elevated prepayment activity related to higher yielding mortgage-backed securities impacted both the average balances and portfolio yield during the quarter.  The prepayment activity also resulted in accelerated premium amortization, negatively affecting interest income and contributing to 5 bps of the decline in net interest margin.  Additionally, a significant portion of the Company's higher-yielding investment grade single-issuer trust preferred securities were redeemed by the issuers' early in the quarter, also impacting interest income and net interest margin.

While average uncovered loan balances increased 4.8% during the quarter on an annualized basis, and new loan origination activity was strong, payoff activity was also elevated.  As a result of the low interest rate environment and heightened competition, loan originations during the quarter were recorded at yields approximately 94 bps lower than loans that paid off during the quarter, muting the impact of increased balances on interest income earned and net interest margin.

Interest income and net interest margin were also negatively impacted, to a lesser extent, by a decline in loan fees.

Interest expense and net interest margin continued to benefit from the impact of deposit pricing and rationalization strategies as the average balance of interest-bearing deposits declined 4.7% and the cost of funds related to these deposits decreased 4 bps to 57 bps compared to 61 bps for the linked quarter.  Additionally, net interest margin benefitted from the impact of a lower earning asset base, which declined 2.7% compared to the second quarter 2012.

NET INTEREST MARGIN OUTLOOK The Company's expectation for net interest margin in future periods is that the quarterly declines will be less severe than the third quarter's results as compared to the linked quarter.  In the third quarter, there were linked quarter changes in the yield earned on the investment portfolio due to prepayments and on the covered loan portfolio.  Similar changes are not expected to have the same magnitude in future periods.  Expected margin headwinds should impact fourth quarter 2012 net interest margin by approximately 8 to 15 bps.  Prepayment activity, if experienced as expected, should have a negligible linked quarter impact on net interest margin; but could have as much as a 5 bp impact in some accelerated scenarios.

NONINTEREST INCOME The following table presents noninterest income for the three months ended September 30, 2012, June 30, 2012 and September 30, 2011 highlighting the estimated impact of covered loan activity and other transition items on the Company's reported balance.

  

Table I

For the Three Months Ended

September 30,

June 30,

September 30,

(Dollars in thousands)

2012

2012

2011

Total noninterest income

$         30,830

$ 33,545

$         28,115

Certain significant components of noninterest income

Items likely to recur:

Accelerated discount on covered loans 1, 2

3,798

3,764

5,207

FDIC loss sharing income

8,496

8,280

8,377

(Loss) income related to transition/non-strategic operations

(32)

91

98

Items not expected to recur:

Other items not expected to recur

2,617

5,000

288

Total noninterest income excluding items noted above

$         15,951

$ 16,410

$         14,145

1  See Selected Financial Information for additional information

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

Excluding the items highlighted in Table I, noninterest income earned in the third quarter 2012 was $16.0 million compared to $16.4 million in the second quarter 2012 and $14.1 million in the third quarter 2011.  The decline compared to the linked quarter was driven by a decrease in client derivative fees and bankcard income, partially offset by an increase in service charges on deposits and gain on sale of loans from mortgage originations.  Other items not expected to recur consist of $2.6 million of gains on sales of investment securities which are discussed in more detail in Investments.

NONINTEREST EXPENSE The following table presents noninterest expense for the three months ended September 30, 2012, June 30, 2012 and September 30, 2011 including the estimated effect of covered asset activity, acquired-non-strategic operations, acquisition-related costs and other transition items.

  

Table II

For the Three Months Ended

September 30,

June 30,

September 30,

(Dollars in thousands)

2012

2012

2011

Total noninterest expense

$         55,286

$ 57,459

$         53,142

Certain significant components of noninterest expense

Items likely to recur:

Loss share and covered asset expense

3,559

4,317

3,755

FDIC loss share support

951

1,014

1,382

Acquired-non-strategic operating expenses1

19

19

(407)

Transition-related items1

-

-

(111)

Items not expected to recur:

Acquisition-related costs1

78

78

1,875

Other items not expected to recur

374

2,870

1,874

Total noninterest expense excluding items noted above

$         50,305

$ 49,161

$         44,774

1  See Selected Financial Information for additional information

Excluding the items highlighted in Table II, noninterest expense in the third quarter 2012 was $50.7 million as compared to $49.2 million in the second quarter 2012 and $44.8 million in the third quarter 2011.  The increase of $1.1 million compared to the linked quarter was due to higher uncovered OREO expenses, marketing expenses and data processing costs, partially offset by lower salaries and employee benefits and professional services expenses.  Loss share and covered asset expense includes $3.6 million of credit-related expenses, offset by a small amount of net recoveries on covered OREO.  Other items not expected to recur consist primarily of $0.4 million of employee benefit costs associated with execution of the efficiency plan.

INCOME TAXES For the third quarter 2012, income tax expense was $8.9 million, resulting in an effective tax rate of 35.4%, compared with income tax expense of $8.7 million and an effective tax rate of 32.8% during the second quarter 2012 and $9.7 million and an effective tax rate of 38.2% during the comparable year-over-year period.  The increase in the effective tax rate during the third quarter 2012 compared to the second quarter 2012 resulted from the lower rate recognized during the prior quarter driven by a one-time adjustment related to state income taxes at the subsidiary level.

CREDIT QUALITY – EXCLUDING COVERED ASSETS The following table presents certain credit quality metrics related to the Company's uncovered loan portfolio as of September 30, 2012 and for the trailing four quarters.

  

Table III

As of or for the Three Months Ended

September 30,

June 30,

March 31,

December 31,

September 30,

(Dollars in thousands)

2012

2012

2012

2011

2011

Total nonaccrual loans

$         49,404

$ 63,093

$ 55,945

$        54,299

$         59,150

Troubled debt restructurings - accruing

11,604

9,909

9,495

4,009

4,712

Troubled debt restructurings - nonaccrual

13,017

10,185

17,205

18,071

12,571

Total troubled debt restructurings

24,621

20,094

26,700

22,080

17,283

Total nonperforming loans

74,025

83,187

82,645

76,379

76,433

Total nonperforming assets

87,937

98,875

97,681

87,696

88,436

Nonperforming assets as a % of:

Period-end loans plus OREO

2.86%

3.27%

3.28%

2.94%

3.00%

Total assets

1.41%

1.57%

1.52%

1.31%

1.40%

Nonperforming assets ex. accruing TDRs as a % of:

Period-end loans plus OREO

2.48%

2.94%

2.96%

2.81%

2.84%

Total assets

1.22%

1.42%

1.37%

1.25%

1.32%

Nonperforming loans as a % of total loans

2.41%

2.76%

2.79%

2.57%

2.60%

Provision for loan and lease losses - uncovered

$           3,613

$   8,364

$   3,258

$          5,164

$           7,643

Allowance for uncovered loan & lease losses

$         49,192

$ 50,952

$ 49,437

$        52,576

$         54,537

Allowance for loan & lease losses as a % of:

Period-end loans

1.60%

1.69%

1.67%

1.77%

1.86%

Nonaccrual loans

99.6%

80.8%

88.4%

96.8%

92.2%

Nonaccrual loans plus nonaccrual TDRs

78.8%

69.5%

67.6%

72.7%

76.0%

Nonperforming loans

66.5%

61.3%

59.8%

68.8%

71.4%

Total net charge-offs

$           5,373

$   6,849

$   6,397

$          7,125

$           6,777

Annualized net-charge-offs as a % of average

loans & leases

0.71%

0.93%

0.87%

0.95%

0.96%

  

Net Charge-offs For the third quarter 2012, net charge-offs declined $1.5 million, or 21.6%, compared to the linked quarter.  Significant items driving net charge-offs for the quarter included $0.8 million related to the disposition of a commercial loan and $2.3 million related to valuation adjustments of three commercial real estate credits.

Nonperforming Assets Nonaccrual loans, including nonaccrual troubled debt restructurings, decreased $10.9 million, or 14.8%, to $62.4 million as of September 30, 2012 from $73.3 million as of June 30, 2012 driven primarily by the finalization of resolution strategies related to credits in the commercial and construction and land development portfolios, including transfers to OREO, dispositions and net charge-offs, as well as $3.4 million of paydowns on a commercial line of credit during the quarter.

OREO decreased $1.8 million to $13.9 million during the third quarter as resolutions and valuation adjustments of $2.7 million exceeded $0.9 million of additions during the quarter.  There were no individually significant items included in either the additions or resolutions for the quarter.

Classified assets as of September 30, 2012 totaled $133.4 million as compared to $145.6 million for the linked quarter and $172.6 million as of September 30, 2011, representing declines of 8.4% and 22.7%, respectively.  Classified assets, which have declined for eight consecutive quarters, are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse.

Delinquent Loans As of September 30, 2012, loans 30-to-89 days past due decreased to $17.0 million, or 0.55% of period-end loans, as compared to $26.0 million, or 0.86%, as of June 30, 2012 and $19.5 million, or 0.66%, as of September 30, 2011.  The decrease compared to the linked quarter was driven primarily by lower delinquencies in the commercial real estate portfolio.

Provision for Loan & Lease Losses Third quarter 2012 provision expense related to uncovered loans and leases was $3.6 million as compared to $8.4 million during the linked quarter and $7.6 million during 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.  The decrease relative to the linked and comparable quarters was driven primarily by the continued positive migration trends in classified assets as well as the finalization of resolution strategies on certain loans during the quarter.  As a percentage of net charge-offs, third quarter 2012 provision expense equaled 67.2%.

LOANS (EXCLUDING COVERED LOANS) The following table presents the loan portfolio, not including covered loans, as of September 30, 2012, June 30, 2012 and September 30, 2011.

  

Table IV

As of

September 30, 2012

June 30, 2012

September 30, 2011

Percent

Percent

Percent

(Dollars in thousands)

Balance

of Total

Balance

of Total

Balance

of Total

Commercial

$    834,858

27.2%

$    823,890

27.3%

$    822,552

28.0%

Real estate - construction

91,897

3.0%

86,173

2.9%

136,651

4.7%

Real estate - commercial

1,338,636

43.7%

1,321,446

43.9%

1,202,035

40.9%

Real estate - residential

299,654

9.8%

292,503

9.7%

300,165

10.2%

Installment

59,191

1.9%

61,590

2.0%

70,034

2.4%

Home equity

368,876

12.0%

365,413

12.1%

362,919

12.4%

Credit card

31,604

1.0%

31,486

1.0%

30,435

1.0%

Lease financing

41,343

1.3%

30,109

1.0%

12,870

0.4%

Total

$ 3,066,059

100.0%

$ 3,012,610

100.0%

$ 2,937,661

100.0%

Loans, excluding covered loans, totaled $3.1 billion as of September 30, 2012, increasing $53.4 million, or 7.1% on an annualized basis, compared to the linked quarter and $128.4 million, or 4.4%, compared to the third quarter 2011.

INVESTMENTS The following table presents a summary of the total investment portfolio at September 30, 2012.

  

Table V

As of September 30, 2012

Securities

Securities

Other

Total

Percent

Tax Equiv.

(Dollars in thousands)

HTM

AFS

Investments

Securities

of Portfolio

Yield

Agencies

$   20,844

$   26,163

$              -

$      47,007

3.0%

3.61%

CMO - fixed rate

505,288

202,218

-

707,506

44.7%

2.17%

CMO - variable rate

-

221,640

-

221,640

14.0%

0.70%

MBS - fixed rate

121,698

150,567

-

272,265

17.2%

2.50%

MBS - variable rate

172,597

56,207

-

228,804

14.4%

1.94%

Municipal

1,892

6,478

-

8,370

0.5%

3.45%

Corporate

-

14,552

-

14,552

0.9%

4.36%

Other AFS securities

-

11,855

-

11,855

0.7%

2.48%

Regulatory stock

-

-

71,492

71,492

4.5%

3.59%

$ 822,319

$ 689,680

$     71,492

$ 1,583,491

100.0%

2.13%

The investment portfolio decreased $86.1 million, or 5.2%, during the third quarter 2012 as $133.8 million of purchases late in the quarter were offset by sales, amortizations and paydowns, including elevated prepayment activity related to fixed rate MBS.  The Company sold $84.3 million of lower-yielding agency MBS during the quarter in order to reduce liquidity, interest rate cap and prepayment risks, recognizing a pre-tax gain of $2.6 million.  As of September 30, 2012, the overall duration of the investment portfolio was 1.8 years, consistent with June 30, 2012.  The yield earned on the portfolio during the quarter declined to 2.09% from 2.46% for the linked quarter.  As of September 30, 2012, the market value of the portfolio classified as available-for-sale resulted in a net unrealized gain of $16.9 million which is included in other comprehensive income.

The investment purchases mentioned above were made late in the quarter and had little impact on net interest income and net interest margin for the quarter.  Additionally, the Company has purchased $256.9 million of securities during the fourth quarter 2012.  Collectively, these purchases consist primarily of fixed rate agency CMOs and tax-exempt pass-through securities and, to a lesser extent, variable rate agency CMOs.  To mitigate prepayment and premium risk, the majority of these purchases consisted of securities with lower premiums.  Additionally, a large percentage of these purchases were collateralized by higher LTV loans originated under the HARP program as well as lower balance mortgages which together should exhibit more favorable prepayment protection in a low interest rate environment.

The Company's current investment strategy consists of a "barbelled" approach under which both short and long duration securities are targeted to provide a weighted average duration and yield profile approximating an intermediate duration security.  This strategy will provide current income from the longer duration securities which benefit from the steepness of the yield curve while also mitigating interest rate risk with shorter duration variable rate securities which will reset when interest rates begin to rise.

DEPOSITS Non-time deposit balances totaled $3.7 billion as of September 30, 2012, representing a decrease of $24.7 million, or 0.7%, compared to June 30, 2012.  The decline was driven primarily by a $37.7 million decrease in public fund balances.  Offsetting this activity was an increase of $29.2 million in core business and commercial account balances.

Total time deposit balances decreased $132.5 million, or 9.9%, compared to the linked quarter as the Company continued to focus on reducing non-core relationship deposits in connection with its deposit rationalization strategies.

The Company's rationalization strategies related to deposit pricing continued to have a positive impact as the total cost of deposit funding declined to 45 bps for the quarter, a decrease of 8.2% compared to the prior quarter and 40.8% compared to the third quarter 2011.  The composition of the Company's deposit base has also improved as non-time deposits comprised 75.7% of total deposits as of September 30, 2012 compared to 68.7% as of September 30, 2011.

CAPITAL MANAGEMENT The following table presents First Financial's regulatory and other capital ratios as of September 30, 2012, June 30, 2012 and September 30, 2011.

  

Table VI

As of

September 30,

June 30,

September 30,

"Well-Capitalized"

2012

2012

2011

Minimum

Leverage Ratio

10.54%

10.21%

10.87%

5.00%

Tier 1 Capital Ratio

16.93%

17.14%

18.81%

6.00%

Total Risk-Based Capital Ratio

18.21%

18.42%

20.08%

10.00%

Ending tangible shareholders' equity

to ending tangible assets

9.99%

9.91%

10.38%

N/A

Ending tangible common shareholders'

equity to ending tangible assets

9.99%

9.91%

10.38%

N/A

The Company's leverage and tangible common equity ratios increased during the quarter as total tangible assets declined and tangible common equity remained essentially unchanged compared to June 30, 2012.  As of September 30, 2012, tangible book value per common share was $10.47, consistent with June 30, 2012 and compared to $11.15 as of September 30, 2011.  Regulatory capital ratios as of September 30, 2012 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, October 26, 2012 at 9:00 a.m. Eastern Time.  Members of the public who would like to listen to the conference call should dial (877) 317-6789 (U.S. toll free), (866) 605-3852 (Canada toll free) or +1 (412) 317-6789 (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 November 12, 2012 at (877) 344-7529 (U.S. toll free) and +1 (412) 317-0088 (International); conference number 10019897.  The webcast will be archived on the Investor Relations section of the Company's website through October 26, 2013.

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 news 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 or 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 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;
  • our ability to manage loan delinquency and charge-off rates and changes in estimation of the adequacy of the allowance for loan and lease 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, 2011, 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 September 30, 2012, the Company had $6.2 billion in assets, $3.9 billion in loans, $4.9 billion in deposits and $716 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 $2.4 billion in assets under management as of September 30, 2012.  The Company's strategic operating markets are located in Ohio, Indiana and Kentucky where it operates 122 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,

Nine months ended,

Sep. 30,

Jun. 30,

Mar. 31,

Dec. 31,

Sep. 30,

Sep. 30,

2012

2012

2012

2011

2011

2012

2011

RESULTS OF OPERATIONS

Net income

$16,242

$17,802

$16,994

$17,941

$15,618

$51,038

$48,798

Net earnings per share - basic 

$0.28

$0.31

$0.29

$0.31

$0.27

$0.88

$0.85

Net earnings per share - diluted 

$0.28

$0.30

$0.29

$0.31

$0.27

$0.87

$0.83

Dividends declared per share

$0.30

$0.29

$0.31

$0.27

$0.27

$0.90

$0.51

KEY FINANCIAL RATIOS

Return on average assets

1.05%

1.13%

1.05%

1.09%

1.01%

1.08%

1.05%

Return on average shareholders' equity

9.01%

9.98%

9.67%

9.89%

8.54%

9.56%

9.19%

Return on average tangible shareholders' equity

10.53%

11.68%

11.37%

11.59%

9.56%

11.17%

10.32%

Net interest margin

4.21%

4.49%

4.51%

4.32%

4.55%

4.40%

4.63%

Net interest margin (fully tax equivalent) (1)

4.23%

4.50%

4.52%

4.34%

4.57%

4.42%

4.65%

Ending shareholders' equity as a percent of ending assets

11.48%

11.41%

11.14%

10.68%

11.47%

11.48%

11.47%

Ending tangible shareholders' equity as a percent of:

    Ending tangible assets

9.99%

9.91%

9.66%

9.23%

10.38%

9.99%

10.38%

    Risk-weighted assets

16.16%

16.39%

16.42%

16.63%

18.47%

16.16%

18.47%

Average shareholders' equity as a percent of average assets

11.62%

11.32%

10.91%

11.05%

11.83%

11.28%

11.43%

Average tangible shareholders' equity as a percent of

    average tangible assets

10.12%

9.84%

9.43%

9.58%

10.70%

9.80%

10.32%

Book value per share

$12.24

$12.25

$12.21

$12.22

$12.48

$12.24

$12.48

Tangible book value per share

$10.47

$10.47

$10.41

$10.41

$11.15

$10.47

$11.15

Tier 1 Ratio(2)

16.93%

17.14%

17.18%

17.47%

18.81%

16.93%

18.81%

Total Capital Ratio(2)

18.21%

18.42%

18.45%

18.74%

20.08%

18.21%

20.08%

Leverage Ratio(2)

10.54%

10.21%

9.94%

9.87%

10.87%

10.54%

10.87%

AVERAGE BALANCE SHEET ITEMS

Loans (3)

$3,037,734

$2,995,296

$2,979,508

$2,983,354

$2,800,466

$3,004,302

$2,801,544

Covered loans and FDIC indemnification asset

1,002,622

1,100,014

1,179,670

1,287,776

1,380,128

1,093,768

1,495,798

Investment securities

1,606,313

1,713,503

1,664,643

1,257,574

1,199,473

1,661,285

1,113,443

Interest-bearing deposits with other banks

11,390

4,454

126,330

485,432

306,969

47,260

319,857

  Total earning assets

$5,658,059

$5,813,267

$5,950,151

$6,014,136

$5,687,036

$5,806,615

$5,730,642

Total assets

$6,166,667

$6,334,973

$6,478,931

$6,515,756

$6,136,815

$6,326,272

$6,207,184

Noninterest-bearing deposits

$1,052,421

$1,044,405

$931,347

$860,863

$735,621

$1,009,548

$734,521

Interest-bearing deposits

4,013,148

4,210,079

4,545,151

4,630,412

4,366,827

4,255,239

4,399,914

  Total deposits

$5,065,569

$5,254,484

$5,476,498

$5,491,275

$5,102,448

$5,264,787

$5,134,435

Borrowings

$257,340

$234,995

$161,911

$174,939

$195,140

$218,225

$214,347

Shareholders' equity

$716,797

$717,111

$706,547

$719,964

$725,809

$713,497

$709,653

CREDIT QUALITY RATIOS (excluding covered assets)

Allowance to ending loans

1.60%

1.69%

1.67%

1.77%

1.86%

1.60%

1.86%

Allowance to nonaccrual loans

99.57%

80.76%

88.37%

96.83%

92.20%

99.57%

92.20%

Allowance to nonperforming loans

66.45%

61.25%

59.82%

68.84%

71.35%

66.45%

71.35%

Nonperforming loans to total loans

2.41%

2.76%

2.79%

2.57%

2.60%

2.41%

2.60%

Nonperforming assets to ending loans, plus OREO

2.86%

3.27%

3.28%

2.94%

3.00%

2.86%

3.00%

Nonperforming assets to total assets

1.41%

1.57%

1.52%

1.31%

1.40%

1.41%

1.40%

Net charge-offs to average loans (annualized) 

0.71%

0.93%

0.87%

0.95%

0.96%

0.83%

0.80%

(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)September 30, 2012 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,

Nine months ended,

Sep. 30,

Sep. 30,

2012

2011

% Change

2012

2011

% Change

Interest income

  Loans, including fees

$59,536

$70,086

(15.1%)

$189,362

$216,031

(12.3%)

  Investment securities

     Taxable

8,358

7,411

12.8%

29,254

21,294

37.4%

     Tax-exempt

111

176

(36.9%)

366

566

(35.3%)

        Total investment securities interest

8,469

7,587

11.6%

29,620

21,860

35.5%

  Other earning assets

(1,700)

(1,721)

(1.2%)

(5,657)

(4,059)

39.4%

       Total interest income

66,305

75,952

(12.7%)

213,325

233,832

(8.8%)

Interest expense

  Deposits

5,730

9,823

(41.7%)

19,827

31,990

(38.0%)

  Short-term borrowings

54

44

22.7%

103

138

(25.4%)

  Long-term borrowings

675

867

(22.1%)

2,030

2,893

(29.8%)

  Subordinated debentures and capital securities

0

0

N/M

0

391

(100.0%)

      Total interest expense

6,459

10,734

(39.8%)

21,960

35,412

(38.0%)

      Net interest income

59,846

65,218

(8.2%)

191,365

198,420

(3.6%)

  Provision for loan and lease losses - uncovered

3,613

7,643

(52.7%)

15,235

14,046

8.5%

  Provision for loan and lease losses - covered

6,622

7,260

(8.8%)

25,620

57,171

(55.2%)

      Net interest income after provision for loan and lease losses

49,611

50,315

(1.4%)

150,510

127,203

18.3%

Noninterest income

  Service charges on deposit accounts

5,499

4,793

14.7%

15,784

14,286

10.5%

  Trust and wealth management fees

3,374

3,377

(0.1%)

10,542

10,809

(2.5%)

  Bankcard income 

2,387

2,318

3.0%

7,502

6,801

10.3%

  Net gains from sales of loans

1,319

1,243

6.1%

3,391

3,086

9.9%

  FDIC loss sharing income

8,496

8,377

1.4%

29,592

53,455

(44.6%)

  Accelerated discount on covered loans

3,798

5,207

(27.1%)

11,207

15,746

(28.8%)

  Gain on sale of investment securities

2,617

0

N/M

2,617

0

N/M

  Other

3,340

2,800

19.3%

15,665

8,708

79.9%

      Total noninterest income

30,830

28,115

9.7%

96,300

112,891

(14.7%)

Noninterest expenses

  Salaries and employee benefits

27,212

27,774

(2.0%)

85,121

80,467

5.8%

  Net occupancy

5,153

4,164

23.8%

15,560

15,517

0.3%

  Furniture and equipment 

2,332

2,386

(2.3%)

6,899

7,520

(8.3%)

  Data processing 

2,334

1,466

59.2%

6,311

4,157

51.8%

  Marketing

1,592

1,584

0.5%

3,984

4,227

(5.7%)

  Communication

788

772

2.1%

2,595

2,339

10.9%

  Professional services

1,304

2,062

(36.8%)

5,602

7,384

(24.1%)

  State intangible tax

961

546

76.0%

2,957

3,147

(6.0%)

  FDIC assessments

1,164

1,211

(3.9%)

3,597

4,484

(19.8%)

  Loss (gain) - other real estate owned

1,372

(287)

578.0%

2,681

3,198

(16.2%)

  (Gain) loss - covered other real estate owned

(25)

2,707

(100.9%)

2,500

8,440

(70.4%)

  Loss sharing expense

3,584

1,048

242.0%

8,420

1,862

352.2%

  Other 

7,515

7,709

(2.5%)

22,296

20,687

7.8%

      Total noninterest expenses

55,286

53,142

4.0%

168,523

163,429

3.1%

Income before income taxes

25,155

25,288

(0.5%)

78,287

76,665

2.1%

Income tax expense

8,913

9,670

(7.8%)

27,249

27,867

(2.2%)

      Net income

16,242

15,618

4.0%

51,038

48,798

4.6%

ADDITIONAL DATA

Net earnings per share - basic

$0.28

$0.27

$0.88

$0.85

Net earnings per share - diluted

$0.28

$0.27

$0.87

$0.83

Dividends declared per share

$0.30

$0.27

$0.90

$0.51

Return on average assets

1.05%

1.01%

1.08%

1.05%

Return on average shareholders' equity

9.01%

8.54%

9.56%

9.19%

Interest income

$66,305

$75,952

(12.7%)

$213,325

$233,832

(8.8%)

Tax equivalent adjustment

255

236

8.1%

689

714

(3.5%)

   Interest income - tax equivalent

66,560

76,188

(12.6%)

214,014

234,546

(8.8%)

Interest expense

6,459

10,734

(39.8%)

21,960

35,412

(38.0%)

   Net interest income - tax equivalent

$60,101

$65,454

(8.2%)

$192,054

$199,134

(3.6%)

Net interest margin

4.21%

4.55%

4.40%

4.63%

Net interest margin (fully tax equivalent) (1)

4.23%

4.57%

4.42%

4.65%

Full-time equivalent employees 

1,475

1,377

(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

Third

Quarter

Second

Quarter

First

Quarter

YTD

% Change

Linked Qtr.

Interest income

  Loans, including fees

$59,536

$63,390

$66,436

$189,362

(6.1%)

  Investment securities

     Taxable

8,358

10,379

10,517

29,254

(19.5%)

     Tax-exempt

111