First Financial Bancorp Reports First Quarter 2012 Financial Results Announcing 25% Increase in Regular Dividend and Continuation of Variable Dividend

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

First quarter 2012 net income was $17.0 million and earnings per diluted common share were $0.29.  This compares with fourth quarter 2011 net income of $17.9 million and earnings per diluted common share of $0.31 and first quarter 2011 net income of $17.2 million and earnings per diluted common share of $0.29.

The board of directors has voted to increase the regular quarterly dividend to $0.15 per common share and has authorized a variable dividend of $0.14 per common share for the next regularly scheduled dividend, payable on July 2, 2012 to shareholders of record as of June 1, 2012.  Future dividend payments are expected to consist of the higher regular dividend and continuation of the variable dividend for the next six quarters, with the combined dividend continuing to represent a 100% payout of quarterly earnings.  Dividend decisions are evaluated quarterly by the board in the context of numerous factors, and the board will evaluate the regular dividend for increase only when such an increase is sustainable and will remain within the stated payout range of 40% to 60% of recurring earnings.

• 86th consecutive quarter of profitability
• Quarterly adjusted pre-tax, pre-provision income remains strong, totaling $31.2 million, or 1.94% of average assets
• Continued strong quarterly performance
  • Return on average assets of 1.05%
  • Return on average risk-weighted assets of 1.86%
  • Return on average shareholders' equity of 9.67%
• Capital ratios remain high
  • Tangible common equity to tangible assets of 9.66%
  • Tier 1 capital ratio of 17.18%
  • Total risk-based capital of 18.45%
• Quarterly net interest margin increased to 4.51%
  • Cash proceeds from branch acquisitions fully deployed into investment portfolio
  • ­Cost of deposit funding continues to improve as a result of strategic initiatives
• Total classified assets declined $7.7 million, or 4.7%, compared to the linked quarter and $31.1 million, or 16.7%, compared to March 31, 2011

As part of the on-going evaluation of its banking center network and ensuring that resources are focused on opportunities designed to maximize value for customers as well as shareholders, the Company announced during the quarter that it will be consolidating nine banking centers located in Ohio and Indiana and exiting one Indiana market effective June 29, 2012.  Customer relationships related to the consolidated banking centers will be transferred to the nearest First Financial location where those customers will continue to receive the same high level of service.  Estimated annual pre-tax operating expenses associated with the 10 locations are $2.3 million, net of the anticipated impact on revenue related to expected deposit attrition.

Claude Davis, President and Chief Executive Officer, commented, "First Financial recorded another strong quarter of performance driven in large part by a 19 basis point increase in our net interest margin.  All cash proceeds from our 2011 branch acquisitions have been fully deployed and we realized the benefit of a 32 basis point improvement in the yield earned on the investment portfolio.  Continued focus on our deposit rationalization strategies resulted in our cost of deposit funding dropping to 57 basis points, a decline of over 35% from the first quarter of 2011.  Our rationalization strategies are continually improving the quality of our deposit base, resulting in a stronger, core-funded balance sheet.

"This was the first full quarter of operations for all of the newly acquired banking centers in Dayton and Indianapolis and we are pleased with the progress our commercial, retail and wealth management teams have made in developing relationships in these markets that will lead to balance sheet and revenue growth in future periods.  We are intensely focused on deploying our resources in markets that provide the greatest prospects for maximizing growth and profitability and continue to evaluate the franchise for additional opportunities.  We recently opened our new banking center in Columbus, IN, and another in the Cincinnati area, and will be opening two additional Cincinnati-area locations over the next several months.

"We are also pleased to announce that the board of directors has voted to increase the regular dividend 25% to $0.15 per share and has established a time frame for expiration of the variable dividend.  While the variable dividend has been well received, the predictability of future dividend payments appears to have greater value among many of our shareholders.  Our capital ratios remain strong but subsequent to the expected expiration of the variable dividend they will begin to reflect the capital retention needs of a shift in risk-weighted assets on our balance sheet as loans covered under loss share agreements with the FDIC begin to migrate to our uncovered portfolio.  Additionally, we will still want to preserve some capital for expected use in pursuing growth initiatives"

SECTION I – RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income on a fully tax-equivalent basis for the first quarter 2012 was $66.9 million as compared to $65.7 million for the fourth quarter 2011 and $67.6 million as compared to the year-over-year period.  Compared to the linked quarter, total interest income was essentially flat as an increase in interest income earned on investments offset the decline in interest earned on loans and amortization of the FDIC indemnification asset.  The average balance of investments increased $407.1 million, or 32.4%, during the quarter as cash received from the 2011 branch transactions was fully deployed.  Additionally, the yield earned on the investment portfolio increased 32 bps compared to the linked quarter.  Total interest expense declined $1.1 million, or 11.6%, compared to the fourth quarter 2011 due primarily to lower interest expense on deposits.

NET INTEREST MARGIN

Net interest margin was 4.51% for the first quarter 2012 as compared to 4.32% for the fourth quarter 2011 and 4.73% for the first quarter 2011.  Net interest margin benefitted significantly from the increase in the average balance of investments, driven by $291.6 million of purchases during the quarter and a full quarter's impact of $228.8 million of purchases that did not settle until late in the fourth quarter 2011.  The increase in the portfolio yield contributed to an 11 bp increase in the overall yield on total earning assets.  The improvement in the investment portfolio offset the continued negative impact of amortization and paydowns in the Company's high-yielding covered loan portfolio, which experienced an average balance decline of 8.4% during the quarter.  The sustained impact of strategic initiatives related to deposits resulted in both a lower average balance of interest-bearing deposits during the quarter as well as a 7 bp decline in the cost of these deposits.  Additionally, net interest margin benefitted from the impact of a lower earning asset base and higher loan fees resulting from loan prepayments.

NONINTEREST INCOME

The following table presents noninterest income for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011 highlighting the estimated impact of covered loan activity and other transition items on the Company's reported balance.  

Excluding the items highlighted in Table I, estimated noninterest income earned in the first quarter 2012 was $15.3 million as compared to $15.1 million in the fourth quarter 2011 and $14.9 million in the first quarter 2011.  The increase of $0.2 million was driven by modest increases in trust fee income and other noninterest income, offset by a decline in gains on sales of loans.

NONINTEREST EXPENSE

The following table presents noninterest expense for the three months ended March 31, 2012, December 31, 2011 and March 31, 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
			March 31,		December 31,		March 31,
		(Dollars in thousands)	2012		2011		2011
		Total noninterest expense	$      55,778		$      54,668		$      57,790
		Certain significant components of noninterest expense
		Items likely to recur:
		Loss share and covered asset expense	3,043		2,521		3,171
		FDIC loss share support	1,163		1,333		783
		Acquired-non-strategic operating expenses(1)	(146)		(27)		3,911
		Transition-related items(1)	-		-		196
		Items expected not to recur:
		Acquisition-related costs(1)	188		1,167		116
		Other items not expected to recur	2,797		2,473		3,962
		Total excluding items noted above	$      48,733		$      47,201		$      45,651
		(1)  See Selected Financial Information for additional information

Excluding the items highlighted in Table II, estimated noninterest expense in the first quarter 2012 was $48.7 million as compared to $47.2 million in the fourth quarter 2011 and $45.7 million in the first quarter 2011.  The increase of $1.5 million compared to the linked quarter was due to higher salaries and employee benefits expense, data processing costs and state intangible tax, offset by lower occupancy costs, marketing expenses and other noninterest expense.  Loss share and covered asset expense includes $1.3 million of losses on covered OREO and $1.7 million of other credit-related expenses.  During the quarter, the Company incurred certain pension and trust-related costs and other miscellaneous expenses that are not expected to recur totaling $1.8 million in the aggregate, or $0.02 per fully diluted share after taxes.  Other items not expected to recur consist of $1.0 million of valuation adjustments to uncovered OREO.

Certain wind-down costs related to subsidiaries acquired in 2009 are expected to continue through much of 2012.

INCOME TAXES

For the first quarter 2012, income tax expense was $9.6 million, resulting in an effective tax rate of 36.2%, compared with income tax expense of $10.4 million and an effective tax rate of 36.8% during the fourth quarter 2011 and $9.3 million and an effective tax rate of 35.2% during the comparable year-over-year period.

CREDIT QUALITY – EXCLUDING COVERED ASSETS

The following table presents certain credit quality metrics related to the Company's uncovered loan portfolio as of March 31, 2012 and for the trailing four quarters.

Net Charge-offs

Significant items driving net charge-offs for the quarter included $1.7 million related to a commercial construction and land development credit, $1.1 million related to a hotel real estate loan and three commercial credits totaling $0.9 million in the aggregate.

Nonperforming Assets

Nonaccrual loans, including nonaccrual troubled debt restructurings, totaled $73.2 million as of March 31, 2012 compared to $72.4 million as of December 31, 2011, representing an increase of $0.8 million, or 1.1%, as total additions modestly outweighed credits removed from nonaccrual status due to the finalization of resolution strategies, including transfers to OREO and net charge-offs. Included in the additions to total nonaccrual loans was a single $10.8 million commercial real estate credit. 

Accruing troubled debt restructurings increased $5.5 million during the first quarter primarily as a result of renewals and term extensions of performing loans that are experiencing operating cash flow stress but have strong underlying collateral and guarantor support.

OREO increased $3.7 million to $15.0 million during the first quarter as additions of $5.4 million exceeded resolutions and valuation adjustments during the quarter of $1.7 million.  Additions to OREO were driven primarily by three land development relationships totaling $3.4 million in the aggregate.

Classified assets as of March 31, 2012 totaled $154.7 million as compared to $162.4 million for the linked quarter and $185.7 million as of March 31, 2011, representing declines of 4.7% and 16.7%, respectively.  Classified assets, which have declined for seven consecutive quarters, are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse.

Delinquent Loans

As of March 31, 2012, loans 30-to-89 days past due declined slightly to $20.2 million, or 0.68% of period end loans, as compared to $20.4 million, or 0.69%, as of December 31, 2011 and $20.4 million, or 0.73%, as of March 31, 2011.

Provision for Loan & Lease Losses

First quarter 2012 provision expense related to uncovered loans and leases was $3.3 million as compared to $5.2 million during the linked quarter and $0.6 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 quarter was driven primarily by the 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, first quarter 2012 provision expense equaled 50.9%.

LOANS (EXCLUDING COVERED LOANS)

The following table presents the loan portfolio, not including covered loans, as of March 31, 2012, December 31, 2011 and March 31, 2011.

Loans, excluding covered loans, totaled $3.0 billion at the end of the first quarter 2012, consistent with the fourth quarter 2011 and representing a $182.5 million increase, or 6.6%, compared to the first quarter 2011.

INVESTMENTS

The following table presents a summary of the total investment portfolio at March 31, 2012.

The investment portfolio increased $209.6 million, or 13.8%, during the first quarter 2012 as $291.6 million of purchases during the quarter were offset by amortizations and paydowns in the portfolio.  The purchases consisted primarily of agency MBS and, to a lesser extent, investment grade single issuer trust preferred securities, with a weighted average yield of 2.59% and duration of 3.0 years.  As of March 31, 2012, the overall duration of the investment portfolio increased to 2.6 years from 2.4 years as of December 31, 2011.  Additionally, the yield earned on the portfolio during the quarter increased to 2.57% from 2.25% for the linked quarter.  As of March 31, 2012, the market value of the portfolio classified as available-for-sale resulted in a net unrealized gain of $17.1 million which is included in other comprehensive income.

During the first quarter 2012, the Company reclassified securities, primarily agency MBS, with a total book value of $915.5 million as of March 31, 2012 from available-for-sale to held-to-maturity.  While a low interest rate environment is expected for the next several years, the increase in the Company's portfolio duration over the past two quarters has caused the modeled price sensitivity of the portfolio to increase in rising interest rate scenarios.  The reclassification was executed to mitigate the impact of price depreciation on other comprehensive income and the corresponding negative impact on shareholders' equity.  The Company does not expect this reclassification to affect its liquidity needs in future periods.  Based on March 31, 2012 reported balances, 53.2% of the Company's investment portfolio are now classified as held-to-maturity.

DEPOSITS

Non-time deposit balances totaled $3.9 billion as of March 31, 2012, representing a decrease of $78.4 million, or 2.0%, compared to December 31, 2011.  The decline was driven by a $149.9 million reduction in balances, primarily public fund savings accounts, associated with the Flagstar branch acquisition that were repriced subsequent to closing.  Partially offsetting this activity was an increase of $80.0 million in core retail transactional balances.

Total time deposit balances decreased $163.5 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 deposit rationalization strategies related to deposit pricing continued to have a positive impact as the cost of funds related to interest bearing deposits declined to 68 bps for the first quarter compared to 75 bps for the linked quarter and 104 bps for the first quarter 2011.  The Company's total cost of deposit funding declined to 57 bps for the quarter, a decrease of 10.9% compared to the prior quarter and 36.7% compared to the first quarter 2011.

CAPITAL MANAGEMENT

The following table presents First Financial's regulatory and other capital ratios as of March 31, 2012, December 31, 2011 and March 31, 2011.

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 balances as of December 31, 2011.  Tier 1 capital and total risk-based capital ratios decreased as a result of the redeployment of cash balances into securities with risk-weightings greater than zero.  As of March 31, 2012, tangible book value per common share was $10.41, consistent with December 31, 2011 and compared to $11.17 as of March 31, 2011.  Regulatory capital ratios as of March 31, 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 Thursday, April 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 May 11, 2012 at (877) 344-7529 (U.S. toll free) and +1 (412) 317-0088 (International); conference number 10013085.  The webcast will be archived on the Investor Relations section of the Company's website through April 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;
• the effects of the potential delay or failure of the U.S. federal government to pay its debts as they become due or make payments in the ordinary course;
• 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, such as the U.S. Treasury's TARP and the FDIC's Temporary Liquidity Guarantee Program, 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);
• inflation and possible changes in interest rates;
• our ability to keep up with technological changes;
• 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 and debt 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 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 March 31, 2012, the Company had $6.4 billion in assets, $4.0 billion in loans, $5.4 billion in deposits and $715 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 $2.3 billion in assets under management as of March 31, 2012.  The Company's strategic operating markets are located in Ohio, Indiana and Kentucky where it operates 136 banking centers.  Additional information about the Company, including its products, services and banking locations is available at www.bankatfirst.com.