First Financial Bancorp Reports Fourth Quarter and Full Year 2010 Financial Results

CINCINNATI, Jan. 26, 2011 /PRNewswire/ -- First Financial Bancorp (Nasdaq: FFBC) ("First Financial" or the "Company") announced today financial and operational results for the fourth quarter 2010 and for the twelve month period ended December 31, 2010.

Fourth quarter 2010 net income and net income available to common shareholders were $14.3 million and earnings per diluted common share were $0.24.  This compares with third quarter 2010 net income and net income available to common shareholders of $15.6 million and earnings per diluted common share of $0.27 and fourth quarter 2009 net income of $13.8 million, net income available to common shareholders of $12.8 million and earnings per diluted common share of $0.25.  

For the twelve month period ended December 31, 2010, net income was $59.3 million, net income available to common shareholders was $57.4 million and earnings per diluted common share were $0.99 as compared to net income of $221.3 million, net income available to common shareholders of $217.8 million and earnings per diluted common share of $4.78 for the twelve month period ended December 31, 2009.  Included in the financial results for 2009 was a pre-tax bargain purchase gain of $342.5 million recognized during the third quarter 2009 in connection with the Company's FDIC-assisted transactions.

• 81st consecutive quarter of profitability
• Continued strong quarterly performance
  • Quarterly return on average assets of 0.90%; full year return on average assets of 0.91%
  • Quarterly return on average shareholders' equity of 8.14%; full year return on average shareholders' equity of 8.68%
  • Quarterly return on risk-weighted assets of 1.54%; full year return on risk-weighted assets of 1.56%
• Board of directors announces 20% increase in the quarterly dividend to $0.12 per share
  • Earnings consistency provides capacity to support higher payout
  • Robust capital levels still allow ability to take advantage of strategic opportunities
• Strong focus on sales leads to increases across business lines
  • Quarterly growth in commercial loans of 4.8%
  • Residential mortgage originations up 61% over third quarter
  • Strategic transaction and savings deposits increased 7.1% during the quarter
• Capital ratios remain among industry leaders
  • Tangible common equity to tangible assets of 10.33%
  • Tier 1 capital ratio of 18.45%
  • Total risk-based capital of 19.72%
• Quarterly net interest margin increased to 4.65%
  • Continued positive impact from runoff of retail and brokered certificates of deposit and disciplined pricing strategies
  • Full quarter impact of prepayment of FHLB advances
• Improved credit quality
  • Total NPLs decreased 11.2% from the prior quarter to $70.6 million
  • Total NPAs decreased 9.5% from the prior quarter to $88.5 million
  • Net loan charge-offs related to uncovered loans increased to $9.8 million from $6.8 million for the linked quarter, but down 13.5% compared to December 31, 2009
  • Provision for uncovered loan losses of $9.7 million
• Balance sheet risk continues to remain low
  • FDIC loss share coverage on 34.5% of loan portfolio
  • 100% risk-weighted assets continue to represent less than 50% of balance sheet

Claude Davis, President and Chief Executive Officer, commented, "We ended the year with solid financial and operational performance.  2010 was a year in which we focused on the successful integration of our 2009 acquisitions and continued executing our strategic plan.  Evaluation of both our legacy franchise and the operations we acquired in 2009 is an ongoing process as we remain committed to making prudent decisions that focus on building shareholder value.  

"The board of directors is pleased to announce an increase to the quarterly dividend by $0.02 to $0.12 per share.  Despite uncertainty related to future regulatory capital requirements, our strong capital levels continue to grow as a result of our earnings power.  We believe our capital position will remain at levels allowing us to take full advantage of growth opportunities in our strategic markets.

"During the fourth quarter, we also made progress in improving our level of nonperforming assets as NPAs to total assets decreased to 1.42% from 1.59% at the end of the third quarter.  We have seen improvement in the status of some of our previously stressed borrowers and our continued efforts to address problem credits have met with some success as we finalized resolution strategies on several nonperforming loans.  However, as the economy is still lagging, we remain vigilant in the monitoring of our portfolio.

"While prudent lending opportunities continue to be limited in our core markets, we were encouraged as new loan originations outpaced amortizations and paydowns for the first time in 2010.  Specifically, we saw modest growth in our commercial and commercial real estate portfolios and we remain confident that our client-oriented community bank business model will allow us to take advantage of a greater number of lending opportunities in 2011."

SECTION I – RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income on a fully tax-equivalent basis for the fourth quarter 2010 was $68.1 million as compared to the third quarter 2010 and $73.5 million as compared to the year-over-year period.  Despite a lower level of average interest earning assets relative to the linked quarter and a decrease in interest earned on the FDIC indemnification asset, net interest income was impacted by a decrease in interest expense resulting from lower time and brokered deposit balances and the prepayment of FHLB advances during the third quarter 2010.  The decrease compared to the year-over-year quarter was driven by a 7.2% decline in average interest earning assets and a decline in the yield on earning assets, including a 154 bp reduction in the yield earned on investment securities.

For the twelve month period ended December 31, 2010, net interest income on a fully tax-equivalent basis was $276.4 million as compared to $177.2 million for the comparable period in 2009.  The increase of $99.2 million was driven by higher levels of average interest-earning assets and interest-bearing liabilities resulting from the 2009 acquisitions as well as a significant increase in the net interest margin.

NET INTEREST MARGIN

Net interest margin was 4.65% for the fourth quarter 2010 as compared to 4.59% for the third quarter 2010 and 4.65% for the fourth quarter 2009.  As in prior quarters, the net interest margin continued to be negatively impacted by the combination of normal amortization and paydowns in both the legacy and acquired loan portfolios and reduced loan demand in the Company's strategic markets.  The Company did realize a full quarter of positive impact, however, related to the third quarter 2010 prepayment of $232 million of FHLB advances.  First Financial also used a portion of its liquidity to purchase $364.2 million of agency mortgage backed securities, which, when combined with prior quarters' purchases, helped to offset the net effect of muted loan activity.  Additionally, net interest margin was positively impacted by the expected runoff of retail and brokered certificates of deposit and the lower earning asset base during the quarter.

Net interest margin was also affected by certain activity related to the acquired loan portfolio.  The majority of these loans are accounted for under ASC Topic 310-30 and, as such, the Company is required to periodically update its forecast of expected cash flows from these loans.  The Company recognized an improvement in the cash flow expectations related to certain loan pools, which is reflected as a yield adjustment on a prospective basis.  However, this yield improvement will be offset as the Company also recognized a decline in expected cash flows, and, hence, a lower prospective yield, related to the FDIC indemnification asset.

The following table shows the estimated yield earned by the Company on its legacy and originated loan portfolio, acquired loan portfolio and the FDIC indemnification asset for the three months ended December 31, 2010.

As part of its on-going valuation procedures, the Company experienced a $17.3 million net improvement in the cash flow expectations related to certain loan pools during the fourth quarter 2010.  As a result, the average yield earned on covered loans increased from 9.75% during the third quarter 2010 to 10.29% during the fourth quarter 2010.  On a prospective basis and until its next periodic valuation, the Company expects the yield on covered loans to be 10.41%.

This projected improvement in cash flow expectations on loans is offset by a related $13.6 million decline in cash flow expectations on the FDIC indemnification asset.  The net result of improvement and impairment (discussed in more detail in Section II) activity related to covered loans affected the average yield earned on the indemnification asset, decreasing from 3.91% during the third quarter 2010 to 0.40% during the fourth quarter 2010.  On a prospective basis and until its next periodic valuation, the Company expects the yield on the indemnification asset to be -0.76%.

Net interest margin for the twelve month period ended December 31, 2010 was 4.66% as compared to 4.05% for the twelve month period ended December 31, 2009.

NONINTEREST INCOME

The following table presents noninterest income for the three months ended December 31, September 30, June 30 and March 31, 2010 as well as for the twelve months ended December 31, 2010 highlighting the estimated impact of covered loan activity and other transition items on the Company's reported balance.

During the quarterly periods presented above, excluding reimbursements due from the FDIC resulting from loss share agreements, covered loan activity positively impacted noninterest income due to loan prepayments.  This activity is discussed in more detail in Section II.  There were no sales of covered loans or loans related to the Company's franchise finance business during the fourth quarter 2010. Periodic sales of loans originated by the franchise finance unit may occur in future periods in order to mitigate credit and geographic concentration risk within the franchise portfolio.

Excluding the items highlighted in Table II, estimated noninterest income earned in the fourth quarter 2010 was $16.0 million as compared to $16.4 million in the third quarter 2010 and $14.5 million in the fourth quarter 2009.  

For the twelve month period ended December 31, 2010, noninterest income totaled $146.8 million as compared to $404.7 million for the similar year-over-year period.  Excluding the items highlighted in Table II, the bargain purchase gain on the acquisitions recognized during the third quarter 2009, gains on sales of investments and the gain on sale of the property & casualty portion of the insurance business which occurred during the first quarter 2009, noninterest income was $59.7 million for the twelve month period ended December 31, 2010 as compared to $48.1 million for the twelve months ended December 31, 2009.  The increase in the comparable year-over-year quarter was driven primarily by higher service charges on deposit accounts resulting from an increase in transaction-based deposits and increased bankcard income as a result of the 2009 acquisitions as well as higher gains on sales of loans from increased mortgage origination activity.

NONINTEREST EXPENSE

The following table presents noninterest expense for the three months ended December 31, September 30, June 30 and March 31, 2010 as well as for the twelve months ended December 31, 2010 including the estimated effect of acquired-non-strategic operations, acquisition-related costs and other transition items.

Similar to the first three quarters of 2010, noninterest expense during the fourth quarter 2010 continued to be affected by acquisition-related costs as well as other transition-related items and costs related to the Company's acquired-non-strategic operations.  The increase in acquired-non-strategic operating expenses during the fourth quarter was partially attributable to the Company's strategic decision to exit the Michigan and Louisville, KY markets and the reclassification of expenses associated with those locations.  Excluding the items highlighted in Table III, estimated noninterest expense in the fourth quarter 2010 was $48.2 million as compared to $49.0 million in the third quarter 2010 and $47.2 million in the fourth quarter 2009.

For the twelve month period ended December 31, 2010, noninterest expense totaled $233.7 million compared to $170.6 million for the comparable year-over-year period.  Excluding the items highlighted in Table III, acquisition-related and other non-recurring expenses incurred during the third quarter 2009, the FDIC special assessment and acquisition related expenses incurred during the second quarter 2009 and severance costs related to the first quarter 2009 sale of the property & casualty portion of the insurance business, noninterest expense was $192.5 million for the twelve month period ended December 31, 2010 as compared to $143.0 million for the twelve months ended December 31, 2009.  This increase of $49.5 million was primarily driven by higher salaries and employee benefits, occupancy costs, professional service fees, equipment expenses, marketing costs and data processing expenses resulting from the 2009 acquisitions.

While the technology and operational integration of Irwin and Peoples is complete, it is expected that wind-down costs related to acquired subsidiaries will continue through 2011.

INCOME TAXES

For the fourth quarter 2010, income tax expense was $8.1 million, resulting in an effective tax rate of 36.2%, compared with income tax expense of $8.8 million and an effective tax rate of 36.2% during the third quarter 2010 and $7.1 million and an effective tax rate of 34.0% during the comparable year-over-year period.

For the twelve month period ended December 31, 2010, income tax expense was $32.7 million, resulting in an effective tax rate of 35.6%, compared with income tax expense of $132.6 million and an effective tax rate of 37.5% for the twelve months ended December 31, 2009.

CREDIT QUALITY – EXCLUDING COVERED ASSETS

The following table presents certain credit quality metrics related to the Company's uncovered loan portfolio as of December 31, 2010 and for the trailing four quarters.

Net Charge-offs

Fourth quarter 2010 net charge-offs were $9.8 million, or 1.39% of average loans and leases, compared with $6.8 million, or 0.97%, for the linked quarter and $11.3 million, or 1.53%, for the comparable year-over-year quarter.  The increase compared to the linked quarter was driven by higher charge-offs in the commercial and home equity portfolios and a lower level of total recoveries, offset by lower charge-offs in the construction portfolio.  Included in the $5.1 million of gross charge-offs related to commercial loans was $3.8 million related to the resolution of one relationship which included the sale and charge-off of $7.7 million of previously reported restructured and nonaccrual loans.

For the twelve months ended December 31, 2010, net charge-offs were $35.6 million, or 1.27% of average loans and leases.  These amounts were impacted by the alleged fraudulent activity noted during the first quarter 2010 which totaled $8.8 million, representing 31 basis points of average loans and leases for the period.  Excluding the alleged fraudulent activity, net charge-offs were $26.8 million, or 0.96%, as compared to $32.6 million, or 1.16%, for the twelve month period ended December 31, 2009.

Nonperforming Assets

Nonperforming loans totaled $70.6 million and nonperforming assets totaled $88.5 million as of December 31, 2010 compared with $79.5 million and $97.8 million, respectively, for the linked quarter and $77.8 million and $81.9 million, respectively, for the comparable year-over-year quarter.  The decrease was driven primarily by a reduction in commercial nonaccrual loans of $3.6 million and a decrease of $5.0 million related to restructured loans.  As a result of continued efforts in identifying and resolving problem credits, improvements, resolutions and charge-off activity during the quarter outpaced additions to nonperforming assets.

Total classified assets decreased $10.4 million during the fourth quarter 2010 to $202.1 million.  Classified assets are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse.  The decrease was due to the finalization of resolution strategies on several problem credits.  All credits included in classified assets are monitored closely and have workout strategies in place should their status continue to deteriorate.

As mentioned earlier, the Company continues to aggressively identify and resolve problem credits with some signs of effectiveness as the level of nonperforming assets improved during the quarter.  However, the deterioration of one or two larger credits could result in nonperforming assets returning to previous levels.  As a result, all larger credit relationships are closely monitored in order to mitigate potential losses should increased stress become evident.  With regard to consumer-oriented loan portfolios, the Company continues to experience stress given the prolonged depressed economic environment and current unemployment levels.

Delinquent Loans

Loans 30-to-89 days past due totaled $22.3 million, or 0.79% of period end loans, as of December 31, 2010.  This compares to $45.1 million, or 1.63%, as of September 30, 2010 and $19.1 million, or 0.66%, as of December 31, 2009.  The decrease compared to the linked quarter resulted from the resolution of several large multi-family loans.

Provision for Loan & Lease Losses

Fourth quarter 2010 provision expense related to uncovered loans and leases was $9.7 million as compared to $6.3 million during the linked quarter and $14.8 million during the comparable year-over-year quarter.  As a percentage of net charge-offs, fourth quarter 2010 provision expense was 99.9% compared to 91.8% during the third quarter 2010 and 131.4% during the fourth quarter 2009.

Allowance for Loan & Lease Losses

As of the end of the fourth quarter 2010, the allowance for uncovered loan and lease losses was $57.2 million as compared to $57.2 million as of September 30, 2010 and $59.3 million as of December 31, 2009.  As a percentage of period-end loans, the allowance for loan and lease losses was 2.03% as of December 31, 2010 as compared to 2.07% as of September 30, 2010 and 2.05% as of December 31, 2009.  The allowance for loan and lease losses as of December 31, 2010 reflects management's estimate of credit risk inherent in the Company's uncovered loan portfolio at that time.

LOANS (EXCLUDING COVERED LOANS)

The following table presents the loan portfolio, not including covered loans, as of December 31, 2010, September 30, 2010 and December 31, 2009.

Loans, excluding covered loans, totaled $2.8 billion at the end of the fourth quarter, representing an increase of $50.9 million, or 1.8%, compared to September 30, 2010 and a decrease of $79.0 million, or 2.7%, compared to December 31, 2009.  As compared to the linked quarter, the composition of the loan portfolio remained similar to the linked quarter with net loan growth occurring in the commercial and commercial real estate portfolios offset by decreases in the construction and residential real estate portfolios.  While the Company did experience modest growth in the portfolio during the fourth quarter, loan demand continues to remain slow in the Company's strategic operating markets.

INVESTMENTS

The following table presents a summary of the total investment portfolio at December 31, 2010.

The increase in the investment portfolio relative to the linked quarter was due to the purchase of $364.2 million of GNMA, FNMA and FHLMC mortgage backed securities during the quarter, net of maturities and amortizations.  While loan demand remains muted, the Company continues to selectively redeploy a portion of its cash position to purchase investments as market conditions permit.  Future purchases will be made utilizing the same discipline and portfolio management philosophy applied in the past, including avoidance of material credit risk and geographic concentration risk within mortgage-backed securities, while also balancing the Company's overall asset / liability management objectives.

DEPOSITS

The following table presents a roll-forward of deposit activity during the fourth quarter 2010, including activity related to deposits acquired through the FDIC-assisted transactions.

During the fourth quarter 2010, the Company announced its intent to exit the Michigan and Louisville, KY markets acquired as part of the Irwin transaction.   As such, the deposits associated with these locations are now classified as acquired-non-strategic.

Strategic transaction and savings accounts increased $212.1 million during the fourth quarter 2010, driven by $130.9 million of seasonal growth in public funds accounts and an increase of $80.1 million in retail transactional and savings accounts.  Average interest-bearing transaction balances and savings accounts increased 5.6% and 5.5%, respectively, during the fourth quarter 2010 as compared to the linked quarter.  Similar to prior quarters', acquired-non-strategic time deposit and brokered deposit balances continued to decline.  As of December 31, 2010, brokered deposits had declined to less than 3% of total deposits.

CAPITAL MANAGEMENT

The following table presents First Financial's preliminary regulatory and other capital ratios as of December 31, 2010, September 30, 2010 and December 31, 2009.  Prior period amounts have been revised to reflect the purchase accounting adjustments discussed in Acquisitions in Section II below.

Capital levels remained relatively consistent during the fourth quarter 2010 as compared to the linked quarter.  As of December 31, 2010, tangible book value per common share was $11.02 compared to $10.90 as of September 30, 2010 and $9.94 as of December 31, 2009.  

SECTION II – SUPPLEMENTAL INFORMATION ON COVERED ASSETS AND ACQUISITION-RELATED ITEMS

To assist in analyzing the effect of the 2009 FDIC assisted transactions on the financial results, supplemental information that segregates the estimated impact on pre-tax earnings of certain acquisition-related items and provides additional detail on the covered loan portfolio follows.

SUMMARY OF SIGNIFICANT ACQUISITION-RELATED ITEMS

The following table illustrates the estimated effect of certain acquisition-related items on the results of operations for the three months ended December 31, September 30, June 30 and March 31, 2010 as well as for the twelve months ended December 31, 2010.

ACCELERATED DISCOUNT ON LOAN PREPAYMENTS AND DISPOSITIONS

During the fourth quarter, First Financial recognized approximately $6.1 million in accelerated discount recognition from acquired loans.  Accelerated discount is recognized when acquired loans, which are recorded on First Financials balance sheet at an amount less than the unpaid principal balance, prepay at an amount greater than the recorded book value.  Prepayments can occur either through customer driven payments before the maturity date or loan sales.  The amount of discount attributable to the credit loss content in each loan varies and the recognized amount is offset by a related reduction in the FDIC Indemnification Asset.  

The Company did not conduct any material loan sales involving either acquired-non-strategic loans or loans originated by its franchise finance unit during the fourth quarter 2010.  All accelerated discount revenue recognized during the fourth quarter pertained to covered loan prepayments.  

For the full year 2010, First Financial sold $47.7 million of loans, consisting of $24.5 million of acquired-non-strategic western market covered loans and $23.2 million of loans related to the franchise finance unit.  As a result of these loan sales, the Company recognized $2.3 million related to the accelerated discount during 2010.  The remaining $26.8 million of accelerated discount resulted from loan prepayments.

When losses are incurred on covered loans that exceed expectations, the Company recognizes the gross credit losses in excess of the valuation mark as provision expense.  Reimbursements due from the FDIC under loss share agreements related to these credit losses are recorded as noninterest income.  The impact on earnings of this offsetting activity is shown above as the net effect of the gross up of credit losses and FDIC reimbursement, representing the Company's proportionate share of the credit losses realized on covered loans.

COVERED ASSETS & LOSS SHARE AGREEMENTS

As of December 31, 2010, 34.5% of the Company's total loans were covered loans.  As required under the loss-share arrangements, First Financial must file monthly certifications with the FDIC on single-family residential loans and quarterly certifications on all other loans.  To date, all certifications have been filed in a timely manner and without significant issues.

COVERED LOAN PORTFOLIO

The following table presents estimated activity in the covered loan portfolio by loan type during the fourth quarter 2010.

During the fourth quarter 2010, the total balance of covered loans decreased $128.1 million, or 8.0%, as compared to the previous quarter.  The decrease was driven primarily by prepayments and renewals of $67.6 million, or 4.2% of the quarterly decline, and contractual payments of $46.3 million, or 2.9% of the quarterly decline.

ALLOWANCE FOR LOAN LOSSES

Under the applicable accounting guidance, the allowance for loan losses related to covered loans as a result of impairment identified in on-going valuation procedures is generally recognized in the current period as provision expense.  Improvement in the credit outlook is generally not recognized immediately but instead is reflected as an adjustment to the yield earned on the related loan pools on a prospective basis.  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 Company established an allowance for loan losses associated with covered loans during 2010 based on estimated valuation procedures performed during the period.  During the fourth quarter 2010, the Company updated its estimated valuation related to these loans.  As a result of net impairment identified in certain loan pools of $4.9 million and net charge-offs of $9.1 million, it recognized a provision expense related to covered loans of $14.0 million, resulting in an allowance for covered loan losses of $16.5 million as of December 31, 2010.  The related receivable due from the FDIC under loss share agreements related to these loans of $11.3 million was recognized as FDIC loss share income and a corresponding increase to the FDIC indemnification asset.

For the twelve month period ended December 31, 2010, the Company recognized $63.1 million of provision expense related to covered loans and realized net charge-offs of $46.7 million.  The related receivable due from the FDIC under loss share agreements for the full year 2010, recognized as FDIC loss share income, totaled $51.8 million.

DETAILS OF RESULTS

The results of the comparable periods in 2010 and 2009 were impacted by a number of acquisition-related items.  During the third quarter 2009, through FDIC-assisted transactions, First Financial assumed the banking operations of Peoples Community Bank ("Peoples"), Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B. (collectively, "Irwin").  

In connection with the FDIC-assisted transactions, the Company has loss sharing arrangements with the FDIC.  Under the terms of these agreements, the FDIC will reimburse the Company for losses with respect to certain loans ("covered loans") and other real estate owned ("OREO") (collectively, "covered assets").

As a result of the acquisitions, the Company's business and operating markets expanded significantly.  To assist readers in understanding the financial and strategic impact of the acquisitions, the combined operations of First Financial's legacy and acquired businesses will be discussed in three categories: "Legacy-Strategic", "Acquired-Strategic" and "Acquired-Non-Strategic".  Additional disclosures have been added in a separate section of the earnings release that segregate the effect acquisition-related items have on certain reported income statement and balance sheet amounts, "Section II – Supplemental Information on Covered Assets and Acquisition-Related Items".  Definitions of the business categories and other financial items related to the acquisitions can be found below in "Glossary of Terms".

In an effort to simplify and clarify the financial performance of First Financial, a number of significant items are noted separately throughout this release and will address the nature, timing and expected recurrence of each item.  Available on the Company's website at www.bankatfirst.com is a presentation providing supplemental information regarding its quarterly results.

Glossary of Terms

To assist readers in understanding the Company's financial results and the effect of the acquisitions on reported amounts, the following terms are used throughout this release to refer to specific acquisition-related items.  The first three define the business components referred to above and the remaining items define specific covered loan terminology.

Legacy-strategic – Elements of the business that existed prior to the acquisitions and will continue to be supported.

Acquired-strategic – Elements of the business that the Company intends to retain and will continue to support and build.  Legacy-strategic and acquired-strategic are collectively referred to as "strategic."

Acquired-non-strategic – Elements of the business that the Company intends to exit but will continue to support to obtain maximum economic value.  No growth or replacement is expected.

Accelerated discount on loan prepayments and dispositions – The acceleration of the unrealized valuation discount.  This item will be ongoing but diminishing as covered loan balances decline over time.

UPB – Unpaid principal balance

Carrying value – The unpaid principal balance of a covered loan less any valuation discount.

Unless otherwise noted, all amounts discussed in this earnings release are pre-tax except net income and per-share data which are presented after-tax. Percentage changes are not annualized unless specifically noted. In some instances, financial data may not add up due to rounding.

ACQUISITIONS

Subsequent Events

The Irwin and Peoples acquisitions were considered business combinations and accounted for under FASB Codification Topic 805: Business Combinations, FASB Codification Topic 820: Fair Value Measurements, FASB Codification Topic 310-30: Loans and Debt Securities Acquired with Deteriorated Credit Quality and FASB Codification Topic 310-20: Receivables – Nonrefundable Fees and Costs.  All acquired assets and liabilities, including identifiable intangible assets, were recorded at their estimated fair values as of the date of acquisition.

Purchase Accounting Adjustments

When additional information arises subsequent to the acquisition date and within one year, the Company is permitted to record adjustments to the initial purchase entries.  The one year period for such adjustments related to the 2009 acquisitions expired at the end of the third quarter 2010.  Such items recorded by the Company within the one year period represent the final valuation adjustments allowable under the applicable accounting guidance and impacted reported amounts for 2009 only.

The most significant purchase accounting adjustments pertained to items affecting the gain on acquisitions originally reported during the third quarter 2009.  These items, all of which were associated with the Irwin transaction, were related to the valuation of the indemnification asset, valuation of loans acquired and fair value adjustments for other assets primarily related to the establishment of valuation allowances for certain assets of and investments in subsidiaries as well as other community reinvestment related assets.  The total impact of these adjustments was a decrease in the originally reported pre-tax gain of $383.3 million to $342.5 million.

Teleconference / Webcast Information

First Financial's senior management will host a conference call to discuss the Company's financial and operating results on Thursday, January 27, 2011 at 9:00 a.m.  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 February 11, 2011 at (877) 344-7529 (U.S. toll free) and +1 (412) 317-0088 (International); conference number 447697.  The webcast will be archived on the Investor Relations section of the Company's website through January 26, 2012.

Press Release and Additional Information on Website

This press release as well as supplemental information 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 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;
• 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;
• 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, 2009, 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 December 31, 2010, the Company had $6.3 billion in assets, $4.3 billion in loans, $5.1 billion in deposits and $697 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 December 31, 2010.  The Company's strategic operating markets are located in Ohio, Indiana and Kentucky where it operates 108 banking centers across 70 communities.  Additional information about the Company, including its products, services and banking locations is available at www.bankatfirst.com.

SOURCE First Financial Bancorp