First Financial Bancorp Reports Fourth Quarter and Full Year 2012 Financial Results

News provided by

First Financial Bancorp

Jan 29, 2013, 04:05 ET

CINCINNATI, Jan. 29, 2013 /PRNewswire/ -- First Financial Bancorp (Nasdaq: FFBC) ("First Financial" or the "Company") announced today financial and operational results for the fourth quarter 2012 and for the twelve month period ended December 31, 2012.

Fourth quarter 2012 net income was $16.3 million and earnings per diluted common share were $0.28.  This compares with third quarter 2012 net income of $16.2 million and earnings per diluted common share of $0.28 and fourth quarter 2011 net income of $17.9 million and earnings per diluted common share of $0.31.

For the twelve month period ended December 31, 2012, net income was $67.3 million and earnings per diluted common share were $1.14 as compared to net income of $66.7 million and earnings per diluted common share of $1.14 for the twelve month period ended December 31, 2011.

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 April 1, 2013 to shareholders of record as of March 1, 2013.  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.

Under the announced share repurchase plan, the Company repurchased 460,500 shares during the fourth quarter at an average price of $14.78 per share.  When combined with the regular and variable dividends paid to shareholders, First Financial returned 110.8% of 2012 full year net income to shareholders during the year.  Additionally, the Company has repurchased 84,000 shares during the first quarter 2013 at an average price of $14.83 per share.

  • 89th consecutive quarter of profitability 
  • Quarterly adjusted pre-tax, pre-provision income of $28.6 million, an increase of $4.2 million, or 17.1%, compared to the linked quarter
  • Continued solid performance
    • Quarterly return on average assets of 1.03%; full year return on average assets of 1.07%
    • Quarterly return on average risk-weighted assets of 1.68%; full year return on average risk-weighted assets of 1.78%
    • Quarterly return on average shareholders' equity of 9.06%; full year return on average shareholders' equity of 9.43%
  • Capital ratios remain strong
    • Tangible common equity to tangible assets of 9.50%
    • Tier 1 capital ratio of 16.32%
    • Total risk-based capital ratio of 17.60%
  • Quarterly net interest margin increased to 4.27% from 4.21% for the linked quarter
    • Results included a $2.2 million prepayment fee; excluding this item net interest margin was 4.11% for the quarter
    • Adjusted yield on the uncovered portfolio increased 3 bps during the quarter to 4.73%
    • Cost of interest-bearing deposits declined 8 bps during the quarter to 0.49%
  • Total uncovered loan portfolio growth of 14.7% on an annualized basis
    • Strong growth in C&I, commercial real estate, specialty finance and residential mortgage balances
    • Uncovered loan growth exceeded covered loan decline by $35.6 million
  • Significant core deposit growth during the fourth quarter
    • Non-time deposits increased 15.1% on an annualized basis
    • Growth driven by the commercial and retail lines of business
  • Total classified assets declined $4.3 million, or 3.3%, compared to the linked quarter and $33.3 million, or 20.5%, compared to December 31, 2011

Implementation of the efficiency plan announced in the third quarter continues as previously disclosed with regard to estimated annualized cost savings and timing.  During the fourth quarter, the Company announced that it will be consolidating 10 banking centers located in Ohio and Indiana effective February 15, 2013.  The estimated annual pre-tax operating costs associated with these locations are included in the identified $17.1 million of annualized cost savings.  Also during the quarter, the Company incurred certain pre-tax expenses not expected to recur of $1.0 million, or $0.01 per diluted share after taxes.  Approximately $0.6 million was related to employee benefit expenses associated with the efficiency plan and $0.3 million was related to real estate expenses associated with previously announced banking center consolidation and closure plans.  Additionally, the Company recognized pre-tax gains of $1.0 million resulting from the sales of investment securities, or $0.01 per diluted share after taxes.

Claude Davis, President and Chief Executive Officer, commented, "While 2012 presented a variety of challenges, we ended the year on a strong note as we experienced solid growth in both our uncovered loan portfolio and core deposit base.  We were especially pleased that for the first time since the Irwin transaction in 2009, uncovered loan growth exceeded the decline in covered loans as total loan balances increased $35.6 million during the fourth quarter.

"During the fourth quarter, total uncovered loans increased $113.0 million, or 14.7% on an annualized basis, and increased $210.6 million, or 7.1%, compared to the prior year.  As in recent quarters, the level of early payoffs remained elevated; however, our strong pipeline at the end of the third quarter translated into fourth quarter originations and renewals resulting in one of our best quarters in recent years.  We had a particularly strong December driven by new business in our traditional commercial and franchise lending businesses.  We are optimistic that this momentum will carry over into 2013 as the pipeline continued to look solid at the end of the year, with specialty finance expected to contribute meaningfully to first quarter originations.

"Over the last several years, we have made significant investments intended to create long-term franchise value for all stakeholders in the Company, including the branch acquisitions we made during 2011 and the build-outs of our specialty finance and mortgage origination platforms.  We recognize that we face a revenue headwind as the current interest rate and economic environments combined with our declining covered loan portfolio creates challenges for achieving earnings growth and positive operating leverage over the next several quarters. The strategic initiatives we have implemented, as well as the efficiency plan we are executing on, are evidence of our commitment to build the premier community banking franchise serving our markets.

"During 2012, these investments in the franchise began to payoff.  Almost 45% of our year-over-year growth in uncovered loans came from the Indianapolis and Dayton markets as we achieved significant growth in both our commercial and retail lines of business.  While the earnings impact of this growth was muted due to the interest rate environment, our sales efforts in these markets have laid the groundwork for continued success as we aggressively pursue new client relationships.  Additionally, the deposit relationships we added as part of the branch acquisitions contributed to the growth in core noninterest income as fee revenue from deposit products increased 9.6% during the year.

"Our business credit and equipment finance products also enjoyed tremendous growth as outstanding balances increased over 80% during the year, demonstrating our ability to adapt to the ever-changing needs of our client base.  Furthermore, mortgage originations, both those we sell in the secondary market as well as those retained on our balance sheet, increased over 67% during 2012.  Fee revenue from our mortgage business, which is still early in its full development, increased 51% year-over-year." 

NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income for the fourth quarter 2012 was $62.0 million as compared to $59.8 million for the third quarter 2012 and $65.5 million as compared to the year-over-year period.  Compared to the linked quarter, total interest income increased $1.3 million, or 2.0%, and total interest expense declined $0.8 million, or 12.9%.  Net interest margin was 4.27% for the fourth quarter 2012 as compared to 4.21% for the third quarter 2012 and 4.32% for the fourth quarter 2011.

Interest income earned on loans increased $0.9 million, or 1.4%, compared to the prior quarter.  Included in the quarterly increase was a prepayment fee of $2.2 million related to the early payoff of one relationship.  Excluding this prepayment fee, net interest margin was 4.11%, a decline of 10 bps compared to the linked quarter.  Net of the prepayment fee, the lower interest income earned on loans and decline in net interest margin was driven primarily by an 8.3% decrease in the average balance of covered loans outstanding and, to a lesser extent, a decline in the yield earned on the portfolio.

The covered loan activity was partially offset by growth in average uncovered loan balances of $78.0 million, or 2.6% on a linked quarter basis.  Excluding the impact of the prepayment fee, the yield earned on the uncovered portfolio during the quarter was approximately 4.73%, a 3 bp increase compared to the linked quarter.

Interest income earned from investment securities increased as a result of a $140.6 million, or 8.8%, increase in average balances compared to the linked quarter.  However, the impact on net interest margin was muted as the portfolio yield declined 10 bps to 1.99% as investment rates remain low in the current environment.

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 2.5% compared to the prior quarter, driven by a $133.7 million, or 10.6%, decrease in average time deposit balances during the quarter.  The cost of funds related to interest-bearing deposits decreased 8 bps to 49 bps compared to 57 bps for the linked quarter. 

NONINTEREST INCOME

The following table presents noninterest income for the three months ended December 31, 2012, September 30, 2012 and December 31, 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



December 31,

September 30,

December 31,


(Dollars in thousands)

2012

2012

2011











Total noninterest income

$      26,121

$      30,830

$      29,640











Certain significant components of noninterest income
















Items likely to recur:
















Accelerated discount on covered loans 1, 2

2,455

3,798

4,775


FDIC loss sharing income

5,754

8,496

7,433


Income (loss) related to transition/non-strategic operations

192

(32)

64











Items not expected to recur:
















Other items not expected to recur

1,011

2,617

2,270











Total noninterest income excluding items noted above

$      16,709

$      15,951

$      15,098




















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 fourth quarter 2012 was $16.7 million compared to $16.0 million in the third quarter 2012 and $15.1 million in the fourth quarter 2011.  There were no individually significant items driving the increase compared to the linked quarter.  Other items not expected to recur consist of $1.0 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 December 31, 2012, September 30, 2012 and December 31, 2011, including the estimated effect of covered asset activity, acquired-non-strategic operations and acquisition-related costs.




















Table II







For the Three Months Ended




December 31,

September 30,

December 31,



(Dollars in thousands)

2012

2012

2011













Total noninterest expense

$      53,474

$      55,286

$      54,668













Certain significant components of noninterest expense


















Items likely to recur:


















Loss share and covered asset expense

2,251

3,559

2,522



FDIC loss share support

798

951

1,333



Acquired-non-strategic operating expenses1

43

19

(27)













Items not expected to recur:


















Acquisition-related costs1

-

78

1,167



Other items not expected to recur

952

374

2,473













Total noninterest expense excluding items noted above

$      49,430

$      50,305

$      47,200

































1  See Selected Financial Information for additional information

Excluding the items highlighted in Table II, noninterest expense in the fourth quarter 2012 was $49.4 million as compared to $50.3 million in the third quarter 2012 and $47.2 million in the fourth quarter 2011.  The decrease of $0.9 million compared to the linked quarter was due to lower uncovered OREO and collection expenses, partially offset by higher data processing and professional services expenses.  Loss share and covered asset expense includes $2.3 million of credit-related expenses, offset by a small amount of net recoveries on covered OREO.  Other items not expected to recur include $0.6 million of employee benefit expenses associated with the efficiency plan and $0.3 million of real estate expenses associated with previously announced banking center consolidation and closure plans.

INCOME TAXES

For the fourth quarter 2012, income tax expense was $9.2 million, resulting in an effective tax rate of 36.1%, compared with income tax expense of $8.9 million and an effective tax rate of 35.4% during the third quarter 2012 and $10.4 million and an effective tax rate of 36.8% 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 December 31, 2012 and the trailing four quarters.




























Table III











As of or for the Three Months Ended




December 31,

September 30,

June 30,

March 31,

December 31,



(Dollars in thousands)

2012

2012

2012

2012

2011

















Total nonaccrual loans

$      50,930

$      49,404

$      63,093

$      55,945

$      54,299



Troubled debt restructurings - accruing

10,856

11,604

9,909

9,495

4,009



Troubled debt restructurings - nonaccrual

14,111

13,017

10,185

17,205

18,071



Total troubled debt restructurings

24,967

24,621

20,094

26,700

22,080



Total nonperforming loans

75,897

74,025

83,187

82,645

76,379



Total nonperforming assets

88,423

87,937

98,875

97,681

87,696

















Nonperforming assets as a % of:












Period-end loans plus OREO

2.77%

2.86%

3.27%

3.28%

2.94%



Total assets

1.36%

1.41%

1.57%

1.52%

1.31%



Nonperforming assets ex. accruing TDRs as a % of:












Period-end loans plus OREO

2.43%

2.48%

2.94%

2.96%

2.81%



Total assets

1.19%

1.22%

1.42%

1.37%

1.25%

















Nonperforming loans as a % of total loans

2.39%

2.41%

2.76%

2.79%

2.57%

















Provision for loan and lease losses - uncovered

$        3,882

$        3,613

$        8,364

$        3,258

$        5,164

















Allowance for uncovered loan & lease losses

$      47,777

$      49,192

$      50,952

$      49,437

$      52,576

















Allowance for loan & lease losses as a % of:












Total loans

1.50%

1.60%

1.69%

1.67%

1.77%



Nonaccrual loans

93.8%

99.6%

80.8%

88.4%

96.8%



Nonaccrual loans plus nonaccrual TDRs

73.5%

78.8%

69.5%

67.6%

72.7%



Nonperforming loans

63.0%

66.5%

61.3%

59.8%

68.8%

















Total net charge-offs

$        5,297

$        5,373

$        6,849

$        6,397

$        7,125



Annualized net-charge-offs as a % of average












loans & leases

0.68%

0.71%

0.93%

0.87%

0.95%











































Net Charge-offs

For the fourth quarter 2012, net charge-offs declined slightly to $5.3 million, or 1.4%, compared to the linked quarter.  Net charge-offs for the fourth quarter included approximately $1.1 million of consumer loan charge-offs, primarily home equity loans, resulting from recent guidance by the Office of the Comptroller of the Currency ("OCC") clarifying that loans to consumer borrowers that have been discharged in bankruptcy where the borrower has not reaffirmed the debt are considered troubled debt restructurings and should be reported as nonaccrual loans and recorded at the lesser of the remaining loan balance or the fair value of the collateral securing the loan.  There were no other individually significant items included in net charge-offs during the fourth quarter and the total amount was driven primarily by activity in the commercial real estate portfolio.

Nonperforming Assets

Nonaccrual loans, including nonaccrual troubled debt restructurings, increased $2.6 million, or 4.2%, to $65.0 million as of December 31, 2012 from $62.4 million as of September 30, 2012 driven primarily by $2.3 million of additions resulting from the previously mentioned OCC guidance on troubled debt restructurings as well as a $7.0 million addition related to a single commercial relationship where the Company believes the total exposure is collateralized substantially in excess of the outstanding balance.  These additions were offset by resolution strategies related to credits in the commercial real estate and home equity portfolios, including collections, writedowns, transfers to OREO, dispositions and net charge-offs.

OREO decreased $1.4 million, or 10.0%, to $12.5 million during the fourth quarter as resolutions and valuation adjustments of $2.5 million exceeded $1.1 million of additions during the quarter.  There were no individually material items included in either the additions or resolutions for the quarter.

Classified assets as of December 31, 2012 totaled $129.0 million as compared to $133.4 million for the linked quarter and $162.4 million as of December 31, 2011, representing declines of 3.3% and 20.5%, respectively.  Classified assets, which have declined for nine consecutive quarters, are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse.

Delinquent Loans

As of December 31, 2012, loans 30-to-89 days past due decreased to $16.3 million, or 0.51% of period-end loans, as compared to $17.0 million, or 0.55%, as of September 30, 2012 and $20.4 million, or 0.69%, as of December 31, 2011.

Provision Expense and Allowance for Loan & Lease Losses

Fourth quarter 2012 provision expense related to uncovered loans and leases was $3.9 million as compared to $3.6 million during the linked quarter and $5.2 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.  As a percentage of net charge-offs, fourth quarter 2012 provision expense equaled 73.3%. Excluding the $1.1 million of charge-offs related to consumer loans resulting from the OCC guidance, fourth quarter provision equaled 91.6% of net charge-offs.

The allowance for loan and lease losses declined $1.4 million, or 2.9%, compared to the prior quarter as a result of a decline in reserves related to resolved nonaccrual loans.  Furthermore, the additions to nonaccrual loans discussed above required no reserves at December 31, 2012 as those resulting from the OCC guidance were recorded at the lesser of the remaining loan balance or the fair value of the underlying collateral and the Company believes the single commercial relationship is collateralized substantially in excess of the outstanding balance.  

LOANS (EXCLUDING COVERED LOANS)

The following table presents the loan portfolio, not including covered loans, as of December 31, 2012, September 30, 2012 and December 31, 2011.  



































Table IV













As of




December 31, 2012

September 30, 2012

December 31, 2011






Percent


Percent


Percent



(Dollars in thousands)

Balance

of Total

Balance

of Total

Balance

of Total



















Commercial

$    861,033

27.1%

$    834,858

27.2%

$    856,981

28.9%



















Real estate - construction

73,517

2.3%

91,897

3.0%

114,974

3.9%



















Real estate - commercial

1,417,008

44.6%

1,338,636

43.7%

1,233,067

41.5%



















Real estate - residential

318,210

10.0%

299,654

9.8%

287,980

9.7%



















Installment

56,810

1.8%

59,191

1.9%

67,543

2.3%



















Home equity

367,500

11.6%

368,876

12.0%

358,960

12.1%



















Credit card

34,198

1.1%

31,604

1.0%

31,631

1.1%



















Lease financing

50,788

1.6%

41,343

1.3%

17,311

0.6%



















Total

$ 3,179,064

100.0%

$ 3,066,059

100.0%

$ 2,968,447

100.0%

















































Loans, excluding covered loans, totaled $3.2 billion as of December 31, 2012, increasing $113.0 million, or 14.7% on an annualized basis, compared to the linked quarter and $210.6 million, or 7.1%, compared to December 31, 2011.  The increase relative to both the linked and comparable quarters was driven by growth in commercial lending, including the C&I, commercial real estate and specialty finance portfolios, as well as growth in residential mortgage lending.

INVESTMENTS

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


































Table V















As of December 31, 2012





Securities

Securities

Other

Total

Percent

Tax Equiv.



(Dollars in thousands)

HTM

AFS

Investments

Securities

of Portfolio

Yield




















Agency

$      20,512

$      72,984

$             -

$      93,496

5.0%

1.57%



CMO - fixed rate

471,780

451,182

-

922,962

49.2%

1.96%



CMO - variable rate

-

167,582

-

167,582

8.9%

0.77%



MBS - fixed rate

111,896

196,351

-

308,247

16.4%

2.82%



MBS - variable rate

157,215

52,115

-

209,330

11.2%

2.17%



Municipal

9,352

35,997

-

45,349

2.4%

4.41%



Corporate

-

43,949

-

43,949

2.3%

2.84%



Other

-

11,936

-

11,936

0.6%

2.84%



Regulatory stock

-

-

71,492

71,492

3.8%

4.28%






















$    770,755

$ 1,032,096

$   71,492

$ 1,874,343

100.0%

2.15%




















































The investment portfolio increased $290.9 million, or 18.4%, during the fourth quarter 2012 as $564.5 million of purchases were offset by sales, amortizations and paydowns, including continued elevated prepayment activity related to fixed rate MBS.  The Company sold $152.4 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 $1.0 million.  As of December 31, 2012, the overall duration of the investment portfolio increased to 2.8 years compared to 1.8 years as of September 30, 2012.  The yield earned on the portfolio during the quarter declined to 1.99% from 2.09% for the linked quarter.  As of December 31, 2012, the market value of the portfolio classified as available-for-sale resulted in a net unrealized gain of $15.0 million which is included in other comprehensive income.

A portion of the purchases made during the quarter were funded by wholesale borrowings under a strategy to pre-fund the investment portfolio based on the portfolio's expected cash flows over the next twelve months.  The increase in total short-term borrowings of $253.4 million during the fourth quarter approximates the borrowings under this strategy and had a weighted average cost of funds of 0.17%.

DEPOSITS

Non-time deposit balances totaled $3.9 billion as of December 31, 2012, representing an increase of $141.9 million, or 15.1% on an annualized basis, compared to September 30, 2012.  The increase was driven primarily by a $100.6 million increase in commercial balances and a $69.6 million increase in retail balances, offset by a decline of $35.2 million in public fund balances.

Total time deposit balances decreased $130.7 million, or 10.9%, 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 38 bps for the quarter, a decrease of 15.6% compared to the prior quarter and 40.6% compared to the fourth quarter 2011.  The composition of the Company's deposit base continues to improve as non-time deposits comprised 78.4% of total deposits as of December 31, 2012 compared to 70.7% as of December 31, 2011.

CAPITAL MANAGEMENT

The following table presents First Financial's regulatory and other capital ratios as of December 31, 2012, September 30, 2012 and December 31, 2011.  



























Table VI









As of






December 31,

September 30,

December 31,

"Well-Capitalized"




2012

2012

2011

Minimum















Leverage Ratio

10.25%

10.54%

9.87%

5.00%















Tier 1 Capital Ratio

16.32%

16.93%

17.47%

6.00%















Total Risk-Based Capital Ratio

17.60%

18.21%

18.74%

10.00%















Ending tangible shareholders' equity










to ending tangible assets

9.50%

9.99%

9.23%

N/A















Ending tangible common shareholders'










equity to ending tangible assets

9.50%

9.99%

9.23%

N/A





































The Company's tangible common equity and regulatory capital ratios decreased during the quarter primarily due to the increases in tangible assets and risk-weighted assets resulting from the higher balances of investment securities and uncovered loans and, to a lesser extent, the decrease in shareholders' equity resulting from share repurchases.  As of December 31, 2012, tangible book value per common share was $10.47, consistent with September 30, 2012 and compared to $10.41 as of December 31, 2011.  Regulatory capital ratios as of December 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 Wednesday, January 30, 2013 at 9:00 a.m. Eastern Time.  Members of the public who would like to listen to the conference call should dial (888) 317-6016 (U.S. toll free), (855) 669-9657 (Canada toll free) or +1 (412) 317-6016 (International) (no passcode required).  The number should be dialed five to ten minutes prior to the start of the conference call.  The conference call will also be accessible as an audio webcast via the Investor Relations section of the Company's website at www.bankatfirst.com.  A replay of the conference call will be available beginning one hour after the completion of the live call through February 14, 2013 at (877) 344-7529 (U.S. toll free) and +1 (412) 317-0088 (International); conference number 10023463.  The webcast will be archived on the Investor Relations section of the Company's website through January 30, 2014.

Press Release and Additional Information on Website

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

Forward-Looking Statement

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

  • management's ability to effectively execute its business plan;
  • the risk that the strength of the United States economy in general and the strength of the local economies in which we conduct operations may continue to deteriorate resulting in, among other things, a further deterioration in credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio, allowance for loan and lease losses and overall financial performance;
  • U.S. fiscal debt and budget matters;
  • the ability of financial institutions to access sources of liquidity at a reasonable cost;
  • the impact of recent upheaval in the financial markets and the effectiveness of domestic and international governmental actions taken in response, and the effect of such governmental actions on us, our competitors and counterparties, financial markets generally and availability of credit specifically, and the U.S. and international economies, including potentially higher FDIC premiums arising from increased payments from FDIC insurance funds as a result of depository institution failures;
  • the effect of and changes in policies and laws or regulatory agencies (notably the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act);
  • the effect of the current low interest rate environment or changes in interest rates on our net interest margin and our loan originations and securities holdings;
  • our ability to keep up with technological changes;
  • failure or breach of our operational or security systems or infrastructure, or those of our third party vendors 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 December 31, 2012, the Company had $6.5 billion in assets, $3.9 billion in loans, $5.0 billion in deposits and $710 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, 2012.  The Company's strategic operating markets are located in Ohio, Indiana and Kentucky where it operates 124 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,

Twelve months ended,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

Dec. 31,

Dec. 31,

2012

2012

2012

2012

2011

2012

2011














RESULTS OF OPERATIONS












Net income

$16,265

$16,242

$17,802

$16,994

$17,941

$67,303

$66,739

Net earnings per share - basic 

$0.28

$0.28

$0.31

$0.29

$0.31

$1.16

$1.16

Net earnings per share - diluted 

$0.28

$0.28

$0.30

$0.29

$0.31

$1.14

$1.14

Dividends declared per share

$0.28

$0.30

$0.29

$0.31

$0.27

$1.18

$0.78














KEY FINANCIAL RATIOS












Return on average assets

1.03%

1.05%

1.13%

1.05%

1.09%

1.07%

1.06%

Return on average shareholders' equity

9.06%

9.01%

9.98%

9.67%

9.89%

9.43%

9.37%

Return on average tangible shareholders' equity

10.58%

10.53%

11.68%

11.37%

11.59%

11.01%

11.01%














Net interest margin

4.27%

4.21%

4.49%

4.51%

4.32%

4.37%

4.55%

Net interest margin (fully tax equivalent) (1)

4.29%

4.23%

4.50%

4.52%

4.34%

4.39%

4.57%














Ending shareholders' equity as a percent of ending assets

10.93%

11.48%

11.41%

11.14%

10.68%

10.93%

10.68%

Ending tangible shareholders' equity as a percent of:












    Ending tangible assets

9.50%

9.99%

9.91%

9.66%

9.23%

9.50%

9.23%

    Risk-weighted assets

15.57%

16.16%

16.39%

16.42%

16.63%

15.57%

16.63%














Average shareholders' equity as a percent of average assets

11.35%

11.62%

11.32%

10.91%

11.05%

11.30%

11.33%

Average tangible shareholders' equity as a percent of












    average tangible assets

9.88%

10.12%

9.84%

9.43%

9.58%

9.83%

9.81%














Book value per share

$12.24

$12.24

$12.25

$12.21

$12.22

$12.24

$12.22

Tangible book value per share

$10.47

$10.47

$10.47

$10.41

$10.41

$10.47

$10.41














Tier 1 Ratio(2)

16.32%

16.93%

17.14%

17.18%

17.47%

16.32%

17.47%

Total Capital Ratio(2)

17.60%

18.21%

18.42%

18.45%

18.74%

17.60%

18.74%

Leverage Ratio(2)

10.25%

10.54%

10.21%

9.94%

9.87%

10.25%

9.87%














AVERAGE BALANCE SHEET ITEMS











Loans (3)

$3,107,760

$3,037,734

$2,995,296

$2,979,508

$2,983,354

$3,030,308

$2,847,370

Covered loans and FDIC indemnification asset

920,102

1,002,622

1,100,014

1,179,670

1,287,776

1,050,114

1,443,365

Investment securities

1,746,961

1,606,313

1,713,503

1,664,643

1,257,574

1,682,821

1,149,772

Interest-bearing deposits with other banks

5,146

11,390

4,454

126,330

485,432

36,674

361,591

  Total earning assets

$5,779,969

$5,658,059

$5,813,267

$5,950,151

$6,014,136

$5,799,917

$5,802,098

Total assets

$6,294,084

$6,166,667

$6,334,973

$6,478,931

$6,515,756

$6,318,181

$6,284,961

Noninterest-bearing deposits

$1,112,072

$1,052,421

$1,044,405

$931,347

$860,863

$1,035,319

$766,366

Interest-bearing deposits

3,912,854

4,013,148

4,210,079

4,545,151

4,630,412

4,169,175

4,458,012

  Total deposits

$5,024,926

$5,065,569

$5,254,484

$5,476,498

$5,491,275

$5,204,494

$5,224,378

Borrowings

$439,308

$257,340

$234,995

$161,911

$174,939

$273,798

$204,414

Shareholders' equity

$714,373

$716,797

$717,111

$706,547

$719,964

$713,717

$712,252














CREDIT QUALITY RATIOS (excluding covered assets)











Allowance to ending loans

1.50%

1.60%

1.69%

1.67%

1.77%

1.50%

1.77%

Allowance to nonaccrual loans

93.81%

99.57%

80.76%

88.37%

96.83%

93.81%

96.83%

Allowance to nonperforming loans

62.95%

66.45%

61.25%

59.82%

68.84%

62.95%

68.84%

Nonperforming loans to total loans

2.39%

2.41%

2.76%

2.79%

2.57%

2.39%

2.57%

Nonperforming assets to ending loans, plus OREO

2.77%

2.86%

3.27%

3.28%

2.94%

2.77%

2.94%

Nonperforming assets to total assets

1.36%

1.41%

1.57%

1.52%

1.31%

1.36%

1.31%

Net charge-offs to average loans (annualized) 

0.68%

0.71%

0.93%

0.87%

0.95%

0.79%

0.84%














(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)December 31, 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,

Twelve months ended,

Dec. 31,

Dec. 31,

2012

2011

% Change

2012

2011

% Change

Interest income











  Loans, including fees

$60,389

$69,658

(13.3%)

$249,751

$285,689

(12.6%)

  Investment securities











     Taxable

8,410

6,945

21.1%

37,664

28,239

33.4%

     Tax-exempt

370

201

84.1%

736

767

(4.0%)

        Total investment securities interest

8,780

7,146

22.9%

38,400

29,006

32.4%

  Other earning assets

(1,564)

(1,819)

(14.0%)

(7,221)

(5,878)

22.8%

       Total interest income

67,605

74,985

(9.8%)

280,930

308,817

(9.0%)













Interest expense











  Deposits

4,798

8,791

(45.4%)

24,625

40,781

(39.6%)

  Short-term borrowings

159

25

536.0%

262

163

60.7%

  Long-term borrowings

672

693

(3.0%)

2,702

3,586

(24.7%)

  Subordinated debentures and capital securities

0

0

N/M

0

391

(100.0%)

      Total interest expense

5,629

9,509

(40.8%)

27,589

44,921

(38.6%)

      Net interest income

61,976

65,476

(5.3%)

253,341

263,896

(4.0%)

  Provision for loan and lease losses - uncovered

3,882

5,164

(24.8%)

19,117

19,210

(0.5%)

  Provision for loan and lease losses - covered

5,283

6,910

(23.5%)

30,903

64,081

(51.8%)

      Net interest income after provision for loan and lease losses

52,811

53,402

(1.1%)

203,321

180,605

12.6%













Noninterest income











  Service charges on deposit accounts

5,431

4,920

10.4%

21,215

19,206

10.5%

  Trust and wealth management fees

3,409

3,531

(3.5%)

13,951

14,340

(2.7%)

  Bankcard income 

2,526

2,490

1.4%

10,028

9,291

7.9%

  Net gains from sales of loans

1,179

1,172

0.6%

4,570

4,258

7.3%

  FDIC loss sharing income

5,754

7,433

(22.6%)

35,346

60,888

(41.9%)

  Accelerated discount on covered loans

2,455

4,775

(48.6%)

13,662

20,521

(33.4%)

  Gain on sale of investment securities

1,011

2,541

(60.2%)

3,628

2,541

42.8%

  Other

4,356

2,778

56.8%

20,021

11,486

74.3%

      Total noninterest income

26,121

29,640

(11.9%)

122,421

142,531

(14.1%)













Noninterest expenses











  Salaries and employee benefits

28,033

26,447

6.0%

113,154

106,914

5.8%

  Net occupancy

5,122

5,893

(13.1%)

20,682

21,410

(3.4%)

  Furniture and equipment 

2,291

2,425

(5.5%)

9,190

9,945

(7.6%)

  Data processing 

2,526

1,559

62.0%

8,837

5,716

54.6%

  Marketing

1,566

1,567

(0.1%)

5,550

5,794

(4.2%)

  Communication

814

864

(5.8%)

3,409

3,203

6.4%

  Professional services

1,667

2,252

(26.0%)

7,269

9,636

(24.6%)

  State intangible tax

942

436

116.1%

3,899

3,583

8.8%

  FDIC assessments

1,085

1,192

(9.0%)

4,682

5,676

(17.5%)

  Loss (gain) - other real estate owned

569

773

(26.4%)

3,250

3,971

(18.2%)

  (Gain) loss - covered other real estate owned

(54)

784

(106.9%)

2,446

9,224

(73.5%)

  Loss sharing expense

2,305

1,738

32.6%

10,725

3,600

197.9%

  Other 

6,608

8,738

(24.4%)

28,904

29,425

(1.8%)

      Total noninterest expenses

53,474

54,668

(2.2%)

221,997

218,097

1.8%

Income before income taxes

25,458

28,374

(10.3%)

103,745

105,039

(1.2%)

Income tax expense

9,193

10,433

(11.9%)

36,442

38,300

(4.9%)

      Net income

16,265

17,941

(9.3%)

67,303

66,739

0.8%


























ADDITIONAL DATA











Net earnings per share - basic

$0.28

$0.31


$1.16

$1.16


Net earnings per share - diluted

$0.28

$0.31


$1.14

$1.14


Dividends declared per share

$0.28

$0.27


$1.18

$0.78















Return on average assets

1.03%

1.09%


1.07%

1.06%


Return on average shareholders' equity

9.06%

9.89%


9.43%

9.37%















Interest income

$67,605

$74,985

(9.8%)

$280,930

$308,817

(9.0%)

Tax equivalent adjustment

366

265

38.1%

1,055

979

7.8%

   Interest income - tax equivalent

67,971

75,250

(9.7%)

281,985

309,796

(9.0%)

Interest expense

5,629

9,509

(40.8%)

27,589

44,921

(38.6%)

   Net interest income - tax equivalent

$62,342

$65,741

(5.2%)

$254,396

$264,875

(4.0%)













Net interest margin

4.27%

4.32%


4.37%

4.55%


Net interest margin (fully tax equivalent) (1)

4.29%

4.34%


4.39%

4.57%















Full-time equivalent employees 

1,439

1,508





















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















N/M = Not meaningful.

FIRST FINANCIAL BANCORP.

CONSOLIDATED QUARTERLY STATEMENTS OF INCOME


(Dollars in thousands, except per share)
(Unaudited)














2012

Fourth

Third

Second

First


% Change

Quarter

Quarter

Quarter

Quarter

YTD

Linked Qtr.

Interest income










  Loans, including fees

$60,389

$59,536

$63,390

$66,436

$249,751

1.4%

  Investment securities










     Taxable

8,410

8,358

10,379

10,517

37,664

0.6%

     Tax-exempt

370

111

121

134

736

233.3%

        Total investment securities interest

8,780

8,469

10,500

10,651

38,400

3.7%

  Other earning assets

(1,564)

(1,700)

(1,967)

(1,990)

(7,221)

(8.0%)

       Total interest income

67,605

66,305

71,923

75,097

280,930

2.0%












Interest expense










  Deposits

4,798

5,730

6,381

7,716

24,625

(16.3%)

  Short-term borrowings

159

54

37

12

262

194.4%

  Long-term borrowings

672

675

675

680

2,702

(0.4%)

      Total interest expense

5,629

6,459

7,093

8,408

27,589

(12.9%)

      Net interest income

61,976

59,846

64,830

66,689

253,341

3.6%

  Provision for loan and lease losses - uncovered

3,882

3,613

8,364

3,258

19,117

7.4%

  Provision for loan and lease losses - covered

5,283

6,622

6,047

12,951

30,903

(20.2%)

Net interest income after provision for loan and lease losses

52,811

49,611

50,419

50,480

203,321

6.5%












Noninterest income










  Service charges on deposit accounts

5,431

5,499

5,376

4,909

21,215

(1.2%)

  Trust and wealth management fees

3,409

3,374

3,377

3,791

13,951

1.0%

  Bankcard income 

2,526

2,387

2,579

2,536

10,028

5.8%

  Net gains from sales of loans

1,179

1,319

1,132

940

4,570

(10.6%)

  FDIC loss sharing income

5,754

8,496

8,280

12,816

35,346

(32.3%)

  Accelerated discount on covered loans

2,455

3,798

3,764

3,645

13,662

(35.4%)

  Gain on sale of investment securities

1,011

2,617

0

0

3,628

(61.4%)

  Other

4,356

3,340

9,037

3,288

20,021

30.4%

      Total noninterest income

26,121

30,830

33,545

31,925

122,421

(15.3%)












Noninterest expenses










  Salaries and employee benefits

28,033

27,212

29,048

28,861

113,154

3.0%

  Net occupancy

5,122

5,153

5,025

5,382

20,682

(0.6%)

  Furniture and equipment 

2,291

2,332

2,323

2,244

9,190

(1.8%)

  Data processing 

2,526

2,334

2,076

1,901

8,837

8.2%

  Marketing

1,566

1,592

1,238

1,154

5,550

(1.6%)

  Communication

814

788

913

894

3,409

3.3%

  Professional services

1,667

1,304

2,151

2,147

7,269

27.8%

  State intangible tax

942

961

970

1,026

3,899

(2.0%)

  FDIC assessments

1,085

1,164

1,270

1,163

4,682

(6.8%)

  Loss - other real estate owned

569

1,372

313

996

3,250

(58.5%)

  (Gain) loss - covered other real estate owned

(54)

(25)

1,233

1,292

2,446

116.0%

  Loss sharing expense

2,305

3,584

3,085

1,751

10,725

(35.7%)

  Other 

6,608

7,515

7,814

6,967

28,904

(12.1%)

      Total noninterest expenses

53,474

55,286

57,459

55,778

221,997

(3.3%)

Income before income taxes

25,458

25,155

26,505

26,627

103,745

1.2%

Income tax expense

9,193

8,913

8,703

9,633

36,442

3.1%

      Net income

$16,265

$16,242

$17,802

$16,994

$67,303

0.1%












ADDITIONAL DATA










Net earnings per share - basic

$0.28

$0.28

$0.31

$0.29

$1.16

Net earnings per share - diluted

$0.28

$0.28

$0.30

$0.29

$1.14

Dividends declared per share

$0.28

$0.30

$0.29

$0.31

$1.18

























Return on average assets

1.03%

1.05%

1.13%

1.05%

1.07%

Return on average shareholders' equity

9.06%

9.01%

9.98%

9.67%

9.43%













Interest income

$67,605

$66,305

$71,923

$75,097

$280,930

2.0%

Tax equivalent adjustment

366

255

216

218

1,055

43.5%

   Interest income - tax equivalent

67,971

66,560

72,139

75,315

281,985

2.1%

Interest expense

5,629

6,459

7,093

8,408

27,589

(12.9%)

   Net interest income - tax equivalent

$62,342

$60,101

$65,046

$66,907

$254,396

3.7%












Net interest margin

4.27%

4.21%

4.49%

4.51%

4.37%

Net interest margin (fully tax equivalent) (1)

4.29%

4.23%

4.50%

4.52%

4.39%













Full-time equivalent employees 

1,439

1,475

1,525

1,513















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



FIRST FINANCIAL BANCORP.

CONSOLIDATED QUARTERLY STATEMENTS OF INCOME


(Dollars in thousands, except per share)
(Unaudited)





2011


Fourth 

Third

Second

First

Full


Quarter

Quarter

Quarter

Quarter

Year

Interest income









  Loans, including fees

$69,658

$70,086

$71,929

$74,016

$285,689

  Investment securities









     Taxable

6,945

7,411

7,080

6,803

28,239

     Tax-exempt

201

176

192

198

767

        Total investment securities interest

7,146

7,587

7,272

7,001

29,006

  Other earning assets

(1,819)

(1,721)

(1,384)

(954)

(5,878)

       Total interest income

74,985

75,952

77,817

80,063

308,817











Interest expense









  Deposits

8,791

9,823

10,767

11,400

40,781

  Short-term borrowings

25

44

49

45

163

  Long-term borrowings

693

867

937

1,089

3,586

  Subordinated debentures and capital securities

0

0

197

194

391

      Total interest expense

9,509

10,734

11,950

12,728

44,921

      Net interest income

65,476

65,218

65,867

67,335

263,896

  Provision for loan and lease losses - uncovered

5,164

7,643

5,756

647

19,210

  Provision for loan and lease losses - covered

6,910

7,260

23,895

26,016

64,081

      Net interest income after provision for loan and lease losses

53,402

50,315

36,216

40,672

180,605











Noninterest income









  Service charges on deposit accounts

4,920

4,793

4,883

4,610

19,206

  Trust and wealth management fees

3,531

3,377

3,507

3,925

14,340

  Bankcard income 

2,490

2,318

2,328

2,155

9,291

  Net gains from sales of loans

1,172

1,243

854

989

4,258

  FDIC loss sharing income

7,433

8,377

21,643

23,435

60,888

  Accelerated discount on covered loans

4,775

5,207

4,756

5,783

20,521

  Gain on sale of investment securities

2,541

0

0

0

2,541

  Other

2,778

2,800

3,147

2,761

11,486

      Total noninterest income

29,640

28,115

41,118

43,658

142,531











Noninterest expenses









  Salaries and employee benefits

26,447

27,774

25,123

27,570

106,914

  Net occupancy

5,893

4,164

4,493

6,860

21,410

  Furniture and equipment 

2,425

2,386

2,581

2,553

9,945

  Data processing 

1,559

1,466

1,453

1,238

5,716

  Marketing

1,567

1,584

1,402

1,241

5,794

  Communication

864

772

753

814

3,203

  Professional services

2,252

2,062

3,095

2,227

9,636

  State intangible tax

436

546

1,236

1,365

3,583

  FDIC assessments

1,192

1,211

1,152

2,121

5,676

  Loss (gain) - other real estate owned

773

(287)

163

3,322

3,971

  Loss - covered other real estate owned

784

2,707

2,621

3,112

9,224

  Loss sharing expense

1,738

1,048

755

59

3,600

  Other 

8,738

7,709

7,670

5,308

29,425

      Total noninterest expenses

54,668

53,142

52,497

57,790

218,097

Income before income taxes

28,374

25,288

24,837

26,540

105,039

Income tax expense

10,433

9,670

8,864

9,333

38,300

      Net income

$17,941

$15,618

$15,973

$17,207

$66,739











ADDITIONAL DATA









Net earnings per share - basic

$0.31

$0.27

$0.28

$0.30

$1.16

Net earnings per share - diluted

$0.31

$0.27

$0.27

$0.29

$1.14

Dividends declared per share

$0.27

$0.27

$0.12

$0.12

$0.78











Return on average assets

1.09%

1.01%

1.03%

1.11%

1.06%

Return on average shareholders' equity

9.89%

8.54%

9.05%

10.04%

9.37%











Interest income

$74,985

$75,952

$77,817

$80,063

$308,817

Tax equivalent adjustment

265

236

240

238

979

   Interest income - tax equivalent

75,250

76,188

78,057

80,301

309,796

Interest expense

9,509

10,734

11,950

12,728

44,921

   Net interest income - tax equivalent

$65,741

$65,454

$66,107

$67,573

$264,875











Net interest margin

4.32%

4.55%

4.61%

4.73%

4.55%

Net interest margin (fully tax equivalent) (1)

4.34%

4.57%

4.62%

4.75%

4.57%











Full-time equivalent employees 

1,508

1,377

1,374

1,483

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











FIRST FINANCIAL BANCORP.

CONSOLIDATED STATEMENTS OF CONDITION


(Dollars in thousands)
(Unaudited)





























Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

Dec. 31,

% Change

% Change

2012

2012

2012

2012

2011

Linked Qtr.

Comparable Qtr.

ASSETS












     Cash and due from banks

$134,502

$154,181

$126,392

$125,949

$149,653

(12.8%)

(10.1%)

     Interest-bearing deposits with other banks

24,341

21,495

9,187

24,101

375,398

13.2%

(93.5%)

     Investment securities available-for-sale

1,032,096

689,680

724,518

736,309

1,441,846

49.6%

(28.4%)

     Investment securities held-to-maturity

770,755

822,319

873,538

917,758

2,664

(6.3%)

              N/M

     Other investments

71,492

71,492

71,492

71,492

71,492

0.0%

0.0%

     Loans held for sale

16,256

23,530

20,971

21,052

24,834

(30.9%)

(34.5%)

     Loans












       Commercial

861,033

834,858

823,890

831,101

856,981

3.1%

0.5%

       Real estate - construction

73,517

91,897

86,173

104,305

114,974

(20.0%)

(36.1%)

       Real estate - commercial

1,417,008

1,338,636

1,321,446

1,262,775

1,233,067

5.9%

14.9%

       Real estate - residential

318,210

299,654

292,503

288,922

287,980

6.2%

10.5%

       Installment

56,810

59,191

61,590

63,793

67,543

(4.0%)

(15.9%)

       Home equity

367,500

368,876

365,413

359,711

358,960

(0.4%)

2.4%

       Credit card

34,198

31,604

31,486

31,149

31,631

8.2%

8.1%

       Lease financing

50,788

41,343

30,109

21,794

17,311

22.8%

193.4%

          Total loans, excluding covered loans

3,179,064

3,066,059

3,012,610

2,963,550

2,968,447

3.7%

7.1%

       Less












          Allowance for loan and lease losses

47,777

49,192

50,952

49,437

52,576

(2.9%)

(9.1%)

             Net loans - uncovered

3,131,287

3,016,867

2,961,658

2,914,113

2,915,871

3.8%

7.4%

       Covered loans

748,116

825,515

903,862

986,619

1,053,244

(9.4%)

(29.0%)

       Less












          Allowance for loan and lease losses

45,190

48,895

48,327

46,156

42,835

(7.6%)

5.5%

             Net loans - covered

702,926

776,620

855,535

940,463

1,010,409

(9.5%)

(30.4%)

                Net loans

3,834,213

3,793,487

3,817,193

3,854,576

3,926,280

1.1%

(2.3%)

     Premises and equipment

146,716

146,603

142,744

141,664

138,096

0.1%

6.2%

     Goodwill

95,050

95,050

95,050

95,050

95,050

0.0%

0.0%

     Other intangibles

7,648

8,327

9,195

10,193

10,844

(8.2%)

(29.5%)

     FDIC indemnification asset

119,607

130,476

146,765

156,397

173,009

(8.3%)

(30.9%)

     Accrued interest and other assets

244,372

278,447

245,632

262,027

262,345

(12.2%)

(6.9%)

       Total assets

$6,497,048

$6,235,087

$6,282,677

$6,416,568

$6,671,511

4.2%

(2.6%)














LIABILITIES












     Deposits












       Interest-bearing demand

$1,160,815

$1,112,843

$1,154,852

$1,289,490

$1,317,339

4.3%

(11.9%)

       Savings

1,623,614

1,568,818

1,543,619

1,613,244

1,724,659

3.5%

(5.9%)

       Time

1,068,637

1,199,296

1,331,758

1,491,132

1,654,662

(10.9%)

(35.4%)

          Total interest-bearing deposits

3,853,066

3,880,957

4,030,229

4,393,866

4,696,660

(0.7%)

(18.0%)

       Noninterest-bearing

1,102,774

1,063,654

1,071,520

1,007,049

946,180

3.7%

16.6%

          Total deposits

4,955,840

4,944,611

5,101,749

5,400,915

5,642,840

0.2%

(12.2%)

     Short-term borrowings












       Federal funds purchased and securities sold












         under agreements to repurchase

122,570

88,190

73,919

78,619

99,431

39.0%

23.3%

       FHLB short-term borrowings

502,000

283,000

176,000

0

0

77.4%

              N/M

          Total short-term borrowings

624,570

371,190

249,919

78,619

99,431

68.3%

528.1%

     Long-term debt

75,202

75,521

75,120

75,745

76,544

(0.4%)

(1.8%)

          Total borrowed funds

699,772

446,711

325,039

154,364

175,975

56.6%

297.7%

     Accrued interest and other liabilities

131,011

127,799

139,101

146,596

140,475

2.5%

(6.7%)

       Total liabilities

5,786,623

5,519,121

5,565,889

5,701,875

5,959,290

4.8%

(2.9%)














SHAREHOLDERS' EQUITY












     Common stock

579,293

578,129

576,929

575,675

579,871

0.2%

(0.1%)

     Retained earnings 

330,004

330,014

331,315

330,563

331,351

(0.0%)

(0.4%)

     Accumulated other comprehensive loss

(18,677)

(18,855)

(18,172)

(18,687)

(21,490)

(0.9%)

(13.1%)

     Treasury stock, at cost

(180,195)

(173,322)

(173,284)

(172,858)

(177,511)

4.0%

1.5%

       Total shareholders' equity

710,425

715,966

716,788

714,693

712,221

(0.8%)

(0.3%)

       Total liabilities and shareholders' equity

$6,497,048

$6,235,087

$6,282,677

$6,416,568

$6,671,511

4.2%

(2.6%)














N/M = Not meaningful.












FIRST FINANCIAL BANCORP.

AVERAGE CONSOLIDATED STATEMENTS OF CONDITION


(Dollars in thousands)
(Unaudited)















Quarterly Averages

Year-to-Date Averages

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

Dec. 31,

Dec. 31,

2012

2012

2012

2012

2011

2012

2011

ASSETS












     Cash and due from banks

$118,619

$118,642

$121,114

$123,634

$121,603

$120,492

$115,692

     Interest-bearing deposits with other banks

5,146

11,390

4,454

126,330

485,432

36,674

361,591

     Investment securities

1,746,961

1,606,313

1,713,503

1,664,643

1,257,574

1,682,821

1,149,772

     Loans held for sale

18,054

26,035

19,554

19,722

21,067

20,848

13,805

     Loans












       Commercial

819,262

811,998

827,722

850,092

851,006

827,205

811,474

       Real estate - construction

85,219

92,051

99,087

112,945

135,825

97,278

143,751

       Real estate - commercial

1,373,781

1,322,369

1,279,869

1,235,613

1,206,678

1,303,155

1,155,209

       Real estate - residential

307,580

293,423

290,335

287,749

293,158

294,803

269,541

       Installment

58,283

60,691

62,846

65,302

68,945

61,768

66,467

       Home equity

368,605

365,669

361,166

358,360

360,389

363,470

347,312

       Credit card

32,954

31,977

31,383

31,201

30,759

31,882

29,275

       Lease financing

44,022

33,521

23,334

18,524

15,527

29,899

10,536

          Total loans, excluding covered loans

3,089,706

3,011,699

2,975,742

2,959,786

2,962,287

3,009,460

2,833,565

       Less












          Allowance for loan and lease losses

50,172

51,486

50,353

53,513

55,157

51,378

56,282

             Net loans - uncovered

3,039,534

2,960,213

2,925,389

2,906,273

2,907,130

2,958,082

2,777,283

       Covered loans

794,838

866,486

950,226

1,020,220

1,113,876

907,520

1,255,403

       Less












          Allowance for loan and lease losses

48,553

51,150

47,964

47,152

51,330

48,711

41,544

             Net loans - covered

746,285

815,336

902,262

973,068

1,062,546

858,809

1,213,859

                Net loans

3,785,819

3,775,549

3,827,651

3,879,341

3,969,676

3,816,891

3,991,142

     Premises and equipment

148,047

145,214

143,261

140,377

128,168

144,238

119,646

     Goodwill

95,050

95,050

95,050

95,050

77,158

95,050

58,253

     Other intangibles

8,001

8,702

9,770

10,506

9,094

9,240

6,067

     FDIC indemnification asset

125,264

136,136

149,788

159,450

173,900

142,594

187,962

     Accrued interest and other assets

243,123

243,636

250,828

259,878

272,084

249,333

281,031

       Total assets

$6,294,084

$6,166,667

$6,334,973

$6,478,931

$6,515,756

$6,318,181

$6,284,961














LIABILITIES












     Deposits












       Interest-bearing demand

$1,145,800

$1,164,111

$1,192,868

$1,285,196

$1,388,903

$1,196,764

$1,191,064

       Savings

1,640,427

1,588,708

1,610,411

1,682,507

1,617,588

1,630,426

1,624,840

       Time

1,126,627

1,260,329

1,406,800

1,577,448

1,623,921

1,341,985

1,642,108

          Total interest-bearing deposits

3,912,854

4,013,148

4,210,079

4,545,151

4,630,412

4,169,175

4,458,012

       Noninterest-bearing

1,112,072

1,052,421

1,044,405

931,347

860,863

1,035,319

766,366

          Total deposits

5,024,926

5,065,569

5,254,484

5,476,498

5,491,275

5,204,494

5,224,378

     Short-term borrowings












       Federal funds purchased and securities sold












          under agreements to repurchase

100,087

81,147

80,715

85,891

98,268

86,980

96,060

       Federal Home Loan Bank short-term borrowings

263,895

100,758

78,966

0

0

111,295

0

          Total short-term borrowings

363,982

181,905

159,681

85,891

98,268

198,275

96,060

     Long-term debt

75,326

75,435

75,314

76,020

76,671

75,523

98,185

     Other long-term debt

0

0

0

0

0

0

10,169

       Total borrowed funds

439,308

257,340

234,995

161,911

174,939

273,798

204,414

     Accrued interest and other liabilities

115,477

126,961

128,383

133,975

129,578

126,172

143,917

       Total liabilities

5,579,711

5,449,870

5,617,862

5,772,384

5,795,792

5,604,464

5,572,709














SHAREHOLDERS' EQUITY












     Common stock

578,691

577,547

576,276

578,514

579,321

577,759

578,725

     Retained earnings 

331,414

330,368

332,280

324,370

323,624

329,615

320,579

     Accumulated other comprehensive loss

(19,612)

(17,756)

(18,242)

(20,344)

(5,396)

(18,987)

(8,758)

     Treasury stock, at cost

(176,120)

(173,362)

(173,203)

(175,993)

(177,585)

(174,670)

(178,294)

       Total shareholders' equity

714,373

716,797

717,111

706,547

719,964

713,717

712,252

       Total liabilities and shareholders' equity

$6,294,084

$6,166,667

$6,334,973

$6,478,931

$6,515,756

$6,318,181

$6,284,961














FIRST FINANCIAL BANCORP.

NET INTEREST MARGIN RATE/VOLUME ANALYSIS

 (Dollars in thousands)
(Unaudited)







 Quarterly Averages 

 Year-to-Date Averages 


Dec. 31, 2012

Sep. 30, 2012

Dec. 31, 2011

Dec. 31, 2012

Dec. 31, 2011


Balance

Yield

Balance

Yield

Balance

Yield

Balance

Yield

Balance

Yield

Earning assets



















Investment securities

$1,746,961

1.99%

$1,606,313

2.09%

$1,257,574

2.25%

$1,682,821

2.28%

$1,149,772

2.52%

Interest-bearing deposits with other banks

5,146

0.54%

11,390

0.45%

485,432

0.25%

36,674

0.30%

361,591

0.31%

Gross loans(2)

4,027,862

5.79%

4,040,356

5.68%

4,271,130

6.27%

4,080,422

5.94%

4,290,735

6.49%

Total earning assets

5,779,969

4.64%

5,658,059

4.65%

6,014,136

4.95%

5,799,917

4.84%

5,802,098

5.32%





















Nonearning assets



















Allowance for loan and lease losses

(98,725)


(102,636)


(106,487)


(100,089)


(97,826)

Cash and due from banks

118,619


118,642


121,603


120,492


115,692

Accrued interest and other assets

494,221


492,602


486,504


497,861


464,997

Total assets

$6,294,084


$6,166,667


$6,515,756


$6,318,181


$6,284,961






















Interest-bearing liabilities



















Total interest-bearing deposits

$3,912,854

0.49%

$4,013,148

0.57%

$4,630,412

0.75%

$4,169,175

0.59%

$4,458,012

0.91%

Borrowed funds



















Short-term borrowings

363,982

0.17%

181,905

0.12%

98,268

0.10%

198,275

0.13%

96,060

0.17%

Long-term debt

75,326

3.54%

75,435

3.55%

76,671

3.59%

75,523

3.58%

98,185

3.65%

Other long-term debt

0

     N/M

0

     N/M

0

     N/M

0

     N/M

10,169

3.85%

Total borrowed funds

439,308

0.75%

257,340

1.12%

174,939

1.63%

273,798

1.08%

204,414

2.03%

Total interest-bearing liabilities

4,352,162

0.51%

4,270,488

0.60%

4,805,351

0.79%

4,442,973

0.62%

4,662,426

0.96%





















Noninterest-bearing liabilities



















Noninterest-bearing demand deposits

1,112,072


1,052,421


860,863


1,035,319


766,366

Other liabilities

115,477


126,961


129,578


126,172


143,917

Shareholders' equity

714,373


716,797


719,964


713,717


712,252

Total liabilities & shareholders' equity

$6,294,084


$6,166,667


$6,515,756


$6,318,181


$6,284,961






















Net interest income(1)

$61,976


$59,846


$65,476


$253,341


$263,896

Net interest spread(1)


4.13%


4.05%


4.16%


4.22%


4.36%

Net interest margin(1)


4.27%


4.21%


4.32%


4.37%


4.55%





















(1) Not tax equivalent.



















(2) Loans held for sale, nonaccrual loans, covered loans,

and indemnification asset are included in gross loans.


























































N/M = Not meaningful.



















FIRST FINANCIAL BANCORP.

NET INTEREST MARGIN RATE/VOLUME ANALYSIS


(Dollars in thousands)
(Unaudited)








































 Linked Qtr. Income Variance 

 Comparable Qtr. Income Variance 

 Year-to-Date Income Variance 


Rate

Volume

Total

Rate

Volume

Total

Rate

Volume

Total

Earning assets

















Investment securities

$      (396)

$       707

$       311

$      (826)

$    2,460

$    1,634

$     (2,770)

$   12,164

$     9,394

Interest-bearing deposits with other banks

2

(8)

(6)

348

(653)

(305)

(36)

(983)

(1,019)

Gross loans(2)

1,177

(182)

995

(5,157)

(3,552)

(8,709)

(23,767)

(12,495)

(36,262)

Total earning assets

783

517

1,300

(5,635)

(1,745)

(7,380)

(26,573)

(1,314)

(27,887)

Interest-bearing liabilities

















Total interest-bearing deposits

$      (809)

$     (123)

$     (932)

$   (3,113)

(880)

$   (3,993)

$   (14,450)

$   (1,706)

$ (16,156)

Borrowed funds

















Short-term borrowings

25

80

105

18

116

134

(36)

135

99

Long-term debt

(2)

(1)

(3)

(9)

(12)

(21)

(73)

(811)

(884)

Other long-term debt

0

0

0

0

0

0

0

(391)

(391)

Total borrowed funds

23

79

102

9

104

113

(109)

(1,067)

(1,176)

Total interest-bearing liabilities

(786)

(44)

(830)

(3,104)

(776)

(3,880)

(14,559)

(2,773)

(17,332)

         Net interest income(1)

$    1,569

$       561

$    2,130

$   (2,531)

$     (969)

$   (3,500)

$   (12,014)

$     1,459

$ (10,555)



















(1)Not tax equivalent.

















(2)Loans held for sale, nonaccrual loans, covered loans,

and indemnification asset are included in gross loans.




















































FIRST FINANCIAL BANCORP.

CREDIT QUALITY

(excluding covered assets)


(Dollars in thousands)
(Unaudited)





























Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

Dec. 31,

Full Year

Full Year

2012

2012

2012

2012

2011

2012

2011














ALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITY











Balance at beginning of period

$49,192

$50,952

$49,437

$52,576

$54,537

$52,576

$57,235

  Provision for uncovered loan and lease losses

3,882

3,613

8,364

3,258

5,164

19,117

19,210

  Gross charge-offs












    Commercial 

657

1,340

1,129

1,186

1,742

4,312

3,436

    Real estate - construction

0

180

717

1,787

2,105

2,684

6,279

    Real estate - commercial

2,221

2,736

3,811

2,244

2,505

11,012

10,382

    Real estate - residential

454

565

191

604

473

1,814

1,551

    Installment

267

134

116

60

115

577

526

    Home equity

1,722

380

915

644

488

3,661

2,183

    Other

227

469

259

297

363

1,252

1,441

      Total gross charge-offs 

5,548

5,804

7,138

6,822

7,791

25,312

25,798

  Recoveries












    Commercial 

71

202

48

72

348

393

762

    Real estate - construction

0

0

0

0

5

0

32

    Real estate - commercial

46

38

68

113

68

265

309

    Real estate - residential

3

33

9

28

3

73

45

    Installment

53

72

75

123

96

323

363

    Home equity

32

31

28

24

71

115

117

    Other

46

55

61

65

75

227

301

      Total recoveries

251

431

289

425

666

1,396

1,929

  Total net charge-offs

5,297

5,373

6,849

6,397

7,125

23,916

23,869

Ending allowance for uncovered loan and lease losses

$47,777

$49,192

$50,952

$49,437

$52,576

$47,777

$52,576














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











  Commercial 

0.28%

0.56%

0.53%

0.53%

0.65%

0.47%

0.33%

  Real estate - construction

0.00%

0.78%

2.91%

6.36%

6.13%

2.76%

4.35%

  Real estate - commercial

0.63%

0.81%

1.18%

0.69%

0.80%

0.82%

0.87%

  Real estate - residential

0.58%

0.72%

0.25%

0.81%

0.64%

0.59%

0.56%

  Installment

1.46%

0.41%

0.26%

(0.39%)

0.11%

0.41%

0.25%

  Home equity

1.82%

0.38%

0.99%

0.70%

0.46%

0.98%

0.59%

  Other

0.94%

2.51%

1.46%

1.88%

2.47%

1.66%

2.86%

Total net charge-offs 

0.68%

0.71%

0.93%

0.87%

0.95%

0.79%

0.84%














COMPONENTS OF NONPERFORMING LOANS, NONPERFORMING ASSETS, AND UNDERPERFORMING ASSETS





  Nonaccrual loans












    Commercial 

$10,562

$4,563

$12,065

$5,936

$7,809

$10,562

$7,809

    Real estate - construction

950

2,536

7,243

7,005

10,005

950

10,005

    Real estate - commercial

31,002

33,961

36,116

35,581

28,349

31,002

28,349

    Real estate - residential

5,045

5,563

5,069

5,131

5,692

5,045

5,692

    Installment

376

284

319

377

371

376

371

    Home equity

2,499

2,497

2,281

1,915

2,073

2,499

2,073

    Lease financing

496

0

0

0

0

496

0

Nonaccrual loans

50,930

49,404

63,093

55,945

54,299

50,930

54,299

  Troubled debt restructurings (TDRs)












    Accruing

10,856

11,604

9,909

9,495

4,009

10,856

4,009

    Nonaccrual

14,111

13,017

10,185

17,205

18,071

14,111

18,071

Total TDRs

24,967

24,621

20,094

26,700

22,080

24,967

22,080

Total nonperforming loans

75,897

74,025

83,187

82,645

76,379

75,897

76,379

  Other real estate owned (OREO)

12,526

13,912

15,688

15,036

11,317

12,526

11,317

Total nonperforming assets

88,423

87,937

98,875

97,681

87,696

88,423

87,696

  Accruing loans past due 90 days or more

212

108

143

203

191

212

191

Total underperforming assets

$88,635

$88,045

$99,018

$97,884

$87,887

$88,635

$87,887

Total classified assets

$129,040

$133,382

$145,621

$154,684

$162,372

$129,040

$162,372














CREDIT QUALITY RATIOS (excluding covered assets)












Allowance for loan and lease losses to












   Nonaccrual loans

93.81%

99.57%

80.76%

88.37%

96.83%

93.81%

96.83%

   Nonaccrual loans plus nonaccrual TDRs

73.46%

78.81%

69.53%

67.58%

72.65%

73.46%

72.65%

   Nonperforming loans

62.95%

66.45%

61.25%

59.82%

68.84%

62.95%

68.84%

   Total ending loans

1.50%

1.60%

1.69%

1.67%

1.77%

1.50%

1.77%

Nonperforming loans to total loans

2.39%

2.41%

2.76%

2.79%

2.57%

2.39%

2.57%

Nonperforming assets to












   Ending loans, plus OREO

2.77%

2.86%

3.27%

3.28%

2.94%

2.77%

2.94%

   Total assets

1.36%

1.41%

1.57%

1.52%

1.31%

1.36%

1.31%

Nonperforming assets, excluding accruing TDRs to












   Ending loans, plus OREO

2.43%

2.48%

2.94%

2.96%

2.81%

2.43%

2.81%

   Total assets

1.19%

1.22%

1.42%

1.37%

1.25%

1.19%

1.25%

FIRST FINANCIAL BANCORP.

CAPITAL ADEQUACY




(Dollars in thousands, except per share)
(Unaudited)


























Twelve months ended,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

Dec. 31,

Dec. 31,

Dec. 31,

2012

2012

2012

2012

2011

2012

2011

PER COMMON SHARE













Market Price













  High

$16.95

$17.86

$17.70

$18.28

$17.06

$18.28

$18.91

  Low

$13.90

$15.58

$14.88

$16.11

$13.40

$13.90

$13.34

  Close

$14.62

$16.91

$15.98

$17.30

$16.64

$14.62

$16.64















Average shares outstanding - basic

57,800,988

57,976,943

57,933,281

57,795,258

57,744,662

57,876,685

57,691,979

Average shares outstanding - diluted

58,670,666

58,940,179

58,958,279

58,881,043

58,672,575

58,868,792

58,693,205

Ending shares outstanding

58,046,235

58,510,916

58,513,393

58,539,458

58,267,054

58,046,235

58,267,054















REGULATORY CAPITAL

Preliminary








Preliminary


Tier 1 Capital

$637,176

$641,828

$640,644

$637,612

$636,836

$637,176

$636,836

Tier 1 Ratio

16.32%

16.93%

17.14%

17.18%

17.47%

16.32%

17.47%

Total Capital

$686,961

$690,312

$688,401

$684,838

$683,255

$686,961

$683,255

Total Capital Ratio

17.60%

18.21%

18.42%

18.45%

18.74%

17.60%

18.74%

Total Capital in excess of minimum 













  requirement

$374,633

$387,115

$389,367

$387,954

$391,623

$374,633

$391,623

Total Risk-Weighted Assets

$3,904,096

$3,789,957

$3,737,920

$3,711,053

$3,645,403

$3,904,096

$3,645,403

Leverage Ratio

10.25%

10.54%

10.21%

9.94%

9.87%

10.25%

9.87%















OTHER CAPITAL RATIOS













Ending shareholders' equity to ending













  assets

10.93%

11.48%

11.41%

11.14%

10.68%

10.93%

10.68%

Ending tangible shareholders' equity













  to ending tangible assets

9.50%

9.99%

9.91%

9.66%

9.23%

9.50%

9.23%

Average shareholders' equity to













  average assets

11.35%

11.62%

11.32%

10.91%

11.05%

11.30%

11.33%

Average tangible shareholders' equity













  to average tangible assets

9.88%

10.12%

9.84%

9.43%

9.58%

9.83%

9.81%















REPURCHASE PROGRAM(1)













Shares repurchased

460,500

0

0

0

0

460,500

0

Average share repurchase price

$14.78

N/A

N/A

N/A

N/A

$14.78

N/A

Total cost of shares repurchased

$6,806

N/A

N/A

N/A

N/A

$6,806

N/A















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












N/A=Not applicable













SUPPLEMENTAL INFORMATION ON COVERED ASSETS AND ACQUISITION-RELATED ITEMS

To assist in analyzing the effect of the Company's 2009 FDIC assisted transactions and 2011 branch transactions on its 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 income and expense effects of certain direct acquisition-related items for the three months ended December 31, 2012, September 30, 2012 and December 31, 2011.




















Table VII







For the Three Months Ended




December 31,

September 30,

December 31,



(Dollars in thousands)

2012

2012

2011













Income effect:








Accelerated discount on covered loans1, 2

$        2,455

$        3,798

$        4,775



Acquired-non-strategic net interest income

6,939

7,931

8,954



FDIC loss sharing income 1

5,754

8,496

7,433



Service charges on deposit accounts related to








acquired-non-strategic operations

34

35

53



Other income (loss) related to transition/non-strategic operations

158

(67)

11



Total income effect

$      15,340

$      20,193

$      21,226













Expense effect:








Provision for loan and lease losses - covered

$        5,283

$        6,622

$        6,910



Loss share and covered asset expense 3

2,251

3,559

2,522



FDIC loss share support3

798

951

1,333



Acquired-non-strategic operating expenses: 3

43

19

(27)



Acquisition-related costs:3

-

78

1,167













Total expense effect

$        8,375

$      11,229

$      11,905























1  Included in noninterest income


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



3  Included in noninterest expense

ACCELERATED DISCOUNT ON LOAN PREPAYMENTS AND DISPOSITIONS

During the fourth quarter 2012, First Financial recognized approximately $2.5 million in accelerated discount from acquired loans, net of the corresponding adjustment on the FDIC indemnification asset.  Accelerated discount is recognized when acquired loans, which are recorded on the Company's balance sheet at an amount less than the unpaid principal balance, prepay at an amount greater than their recorded book value.  Prepayments can occur through either customer driven payments before the maturity date or loan sales.  The amount of discount attributable to the credit loss component of each loan varies and the recognized amount is offset by a related reduction in the FDIC indemnification asset.  Accelerated discount recognized during the quarter resulted primarily from loan prepayments.

OPERATING EXPENSES AND OTHER ACQUISITION-RELATED COSTS

Acquired-non-strategic operating expenses and acquisition-related costs have declined significantly as costs associated with acquisitions, including market exit costs and professional services and other resolution expenses related to non-strategic acquired subsidiaries, have continued to wind down over the past several quarters.

NET INTEREST MARGIN IMPACT

Net interest margin is 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.  Impairment, as a result of a decrease in expected cash flows, is recognized as provision expense in the period it is measured and has no impact on net interest margin.  Improvements in expected cash flows, in excess of any prior impairment, are recognized on a prospective basis through an upward adjustment to the yield earned on the portfolio.  Impairment and improvement are both partially offset by the impact of changes in the value of the FDIC indemnification asset.  Impairment is partially offset by an increase to the FDIC indemnification asset as a result of FDIC loss sharing income.  Improvement, which is reflected as a higher yield, is partially offset by a lower yield earned on the FDIC indemnification asset until the next periodic valuation of the loans and the indemnification asset.  The weighted average yield of the acquired loan portfolio may also be subject to change as loans with higher yields pay down more quickly or slowly than loans with lower yields.

The following table shows the estimated yield earned by the Company on its covered and uncovered loan portfolios and the FDIC indemnification asset for the three months ended December 31, 2012.





















Table VIII

For the Three Months Ended





December 31, 2012





Average





(Dollars in thousands)

Balance

Yield












Loans, excluding covered loans 1

$     3,107,760

5.01%












Covered loan portfolio accounted for under ASC Topic 310-302

717,003

10.43%












Covered loan portfolio accounted for under ASC Topic 310-203

77,835

11.55%












FDIC indemnification asset2

125,264

(4.99%)












Total

$     4,027,862

5.79%





















1  Includes loans with loss share coverage removed



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



3  Includes loans with revolving privileges which are scoped out of ASC Topic 310-30 and certain loans which the Company elected to treat under the cost recovery method of accounting






The yield related to uncovered loans was impacted by the $2.2 million prepayment fee discussed above in Net Interest Income and Net Interest Margin.  Excluding this item, the yield earned on the uncovered loan portfolio during the fourth quarter was 4.73%.

LOSS SHARE AGREEMENTS

As of December 31, 2012, 19.0% of the Company's total loans were covered loans.  As required under the loss-share agreements, 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 the covered loan portfolio as of December 31, 2012, September 30, 2012 and December 31, 2011.
































Table IX













As of




December 31, 2012

September 30, 2012

December 31, 2011






Percent


Percent


Percent



(Dollars in thousands)

Balance

of Total

Balance

of Total

Balance

of Total



















Commercial

$    102,126

13.7%

$    121,745

14.7%

$    195,892

18.6%



















Real estate - construction

10,631

1.4%

12,898

1.6%

17,120

1.6%



















Real estate - commercial

465,555

62.2%

512,320

62.1%

637,044

60.5%



















Real estate - residential

100,694

13.5%

105,113

12.7%

121,117

11.5%



















Installment

8,674

1.2%

9,892

1.2%

13,176

1.3%



















Home equity

57,458

7.7%

60,502

7.3%

64,978

6.2%



















Other

2,978

0.4%

3,045

0.4%

3,917

0.4%



















Total

$    748,116

100.0%

$    825,515

100.0%

$ 1,053,244

100.0%

































During the fourth quarter 2012, the total balance of covered loans decreased $77.4 million, or 9.4%, as compared to the previous quarter.

ALLOWANCE FOR LOAN AND LEASE LOSSES - COVERED

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

The following table presents activity in the allowance for loan losses related to covered loans for the three months ended December 31, 2012, September 30, 2012, June 30, 2012 and March 31, 2012.
























Table X






















As of or for the Three Months Ended




December 31,

September 30,

June 30,

March 31,



(Dollars in thousands)

2012

2012

2012

2012















Balance at beginning of period

$      48,895

$      48,327

$      46,156

$      42,835















Provision for loan and lease losses - covered

5,283

6,622

6,047

12,951















Total gross charge-offs

(9,568)

(9,058)

(5,163)

(10,118)















Total recoveries

580

3,004

1,287

488















Total net charge-offs

(8,988)

(6,054)

(3,876)

(9,630)















Ending allowance for loan and lease losses - covered

$      45,190

$      48,895

$      48,327

$      46,156

























The Company has established an allowance for loan losses associated with covered loans based on estimated valuation procedures performed each quarter.  As a percentage of total covered loans, the allowance for loan losses totaled 6.04% as of December 31, 2012 compared to 5.92% as of September 30, 2012.

Net charge-offs on covered loans during the fourth quarter 2012 were $9.0 million compared to $6.1 million for the third quarter 2012, an increase of $2.9 million, or 48.5%.  During the fourth quarter 2012, the Company recognized provision expense of $5.3 million, representing a decrease of $1.3 million, or 20.2%, compared to the linked quarter.  The difference between provision expense and net charge-offs primarily relates to the quarterly re-estimation of cash flow expectations required under ASC Topic 310-30.  The net present value of expected cash flows is influenced by both the amount and timing of such cash flows.

In addition to the provision expense, the Company incurred loss share and covered asset expenses of $2.3 million, consisting primarily of credit expenses offset by a small amount of gains related to covered OREO.  The receivable due from the FDIC under loss share agreements of $5.8 million related to total credit costs incurred was recognized as FDIC loss share income and a corresponding increase to the FDIC indemnification asset.  

SOURCE First Financial Bancorp

21%

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