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

News provided by

First Financial Bancorp

Apr 25, 2012, 04:06 ET

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

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

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

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

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

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

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

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

SECTION I – RESULTS OF OPERATIONS

NET INTEREST INCOME

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

NET INTEREST MARGIN

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

NONINTEREST INCOME

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


















Table I








For the Three Months Ended



March 31,

December 31,

March 31,


(Dollars in thousands)

2012

2011

2011











Total noninterest income

$ 31,925

$        29,640

$ 43,658











Certain significant components of noninterest income
















Items likely to recur:
















Accelerated discount on covered loans (1, 2)

3,645

4,775

5,783


FDIC loss sharing income

12,816

7,433

23,435


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

(10)

64

(552)











Items expected not to recur:
















Other items not expected to recur

209

2,270

125











Total excluding items noted above

$ 15,265

$        15,098

$ 14,867




















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

NONINTEREST EXPENSE

The following table presents noninterest expense for the three months ended March 31, 2012, December 31, 2011 and March 31, 2011 including the estimated effect of covered asset activity, acquired-non-strategic operations, acquisition-related costs and other transition items.



























Table II








For the Three Months Ended



March 31,

December 31,

March 31,


(Dollars in thousands)

2012

2011

2011











Total noninterest expense

$      55,778

$      54,668

$      57,790











Certain significant components of noninterest expense
















Items likely to recur:
















Loss share and covered asset expense

3,043

2,521

3,171


FDIC loss share support

1,163

1,333

783


Acquired-non-strategic operating expenses(1)

(146)

(27)

3,911


Transition-related items(1)

-

-

196











Items expected not to recur:
















Acquisition-related costs(1)

188

1,167

116


Other items not expected to recur

2,797

2,473

3,962











Total excluding items noted above

$      48,733

$      47,201

$      45,651





























(1)  See Selected Financial Information for additional information





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

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

INCOME TAXES

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

CREDIT QUALITY – EXCLUDING COVERED ASSETS

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


























Table III












As of or for the Three Months Ended



March 31,

December 31,

September 30,

June 30,

March 31,


(Dollars in thousands)

2012

2011

2011

2011

2011















Total nonaccrual loans

$      55,945

$      54,299

$      59,150

$      56,536

$      62,048


Troubled debt restructurings - accruing

9,495

4,009

4,712

3,039

3,923


Troubled debt restructurings - nonaccrual

17,205

18,071

12,571

14,443

14,609


Total troubled debt restructurings

26,700

22,080

17,283

17,482

18,532


Total nonperforming loans

82,645

76,379

76,433

74,018

80,580


Total nonperforming assets

97,681

87,696

88,436

90,331

95,533















Nonperforming assets as a % of:











  Period-end loans plus OREO

3.28%

2.94%

3.00%

3.22%

3.42%


  Total assets

1.52%

1.31%

1.40%

1.50%

1.51%


Nonperforming assets ex. accruing TDRs as a % of:










  Period-end loans plus OREO

2.96%

2.81%

2.84%

3.11%

3.28%


  Total assets

1.37%

1.25%

1.32%

1.44%

1.45%















Nonperforming loans as a % of total loans

2.79%

2.57%

2.60%

2.65%

2.90%















Provision for loan and lease losses - uncovered

$        3,258

$        5,164

$        7,643

$        5,756

$           647















Allowance for uncovered loan & lease losses

$      49,437

$      52,576

$      54,537

$      53,671

$      53,645















Allowance for loan & lease losses as a % of:











  Period-end loans

1.67%

1.77%

1.86%

1.92%

1.93%


  Nonaccrual loans

88.4%

96.8%

92.2%

94.9%

86.5%


  Nonaccrual loans plus nonaccrual TDRs

67.6%

72.7%

76.0%

75.6%

70.0%


  Nonperforming loans

59.8%

68.8%

71.4%

72.5%

66.6%















Total net charge-offs

$        6,397

$        7,125

$        6,777

$        5,730

$        4,237


Annualized net-charge-offs as a % of average











loans & leases

0.87%

0.95%

0.96%

0.83%

0.61%


























Net Charge-offs

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

Nonperforming Assets

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

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

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

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

Delinquent Loans

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

Provision for Loan & Lease Losses

First quarter 2012 provision expense related to uncovered loans and leases was $3.3 million as compared to $5.2 million during the linked quarter and $0.6 million during the comparable year-over-year quarter.  Provision expense is a result of the Company's modeling efforts to estimate the period end allowance for loan and lease losses.  The decrease relative to the linked quarter was driven primarily by the positive migration trends in classified assets as well as the finalization of resolution strategies on certain loans during the quarter.  As a percentage of net charge-offs, first quarter 2012 provision expense equaled 50.9%.

LOANS (EXCLUDING COVERED LOANS)

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













































Table IV














As of



March 31, 2012

December 31, 2011

March 31, 2011





Percent


Percent


Percent


(Dollars in thousands)

Balance

of Total

Balance

of Total

Balance

of Total

















Commercial

$    831,101

28.0%

$    856,981

28.9%

$    794,821

28.6%

















Real estate - construction

104,305

3.5%

114,974

3.9%

145,355

5.2%

















Real estate - commercial

1,262,775

42.6%

1,233,067

41.5%

1,131,306

40.7%

















Real estate - residential

288,922

9.7%

287,980

9.7%

268,746

9.7%

















Installment

63,793

2.2%

67,543

2.3%

66,028

2.4%

















Home equity

359,711

12.1%

358,960

12.1%

339,590

12.2%

















Credit card

31,149

1.1%

31,631

1.1%

28,104

1.0%

















Lease financing

21,794

0.7%

17,311

0.6%

7,147

0.3%

















Total

$ 2,963,550

100.0%

$ 2,968,447

100.0%

$ 2,781,097

100.0%






























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

INVESTMENTS

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




































Table V


















As of March 31, 2012




Securities

Securities

Other

Total

Percent

Tax Equiv.

Effective


(Dollars in thousands)

HTM

AFS

Investments

Securities

of Portfolio

Yield

Duration




















Agencies

$      31,394

$   15,052

$             -

$      46,446

2.7%

2.90%

3.3


CMO - fixed rate

552,577

85,975

-

638,552

37.0%

2.38%

2.6


CMO - variable rate

-

225,732

-

225,732

13.1%

0.73%

1.5


MBS - fixed rate

136,678

271,709

-

408,387

23.7%

3.05%

2.5


MBS - variable rate

194,837

77,396

-

272,233

15.8%

2.93%

3.4


Municipal

2,272

8,690

-

10,962

0.6%

7.16%

1.2


Corporate

-

40,443

-

40,443

2.3%

5.73%

12.2


Other AFS securities

-

11,312

-

11,312

0.7%

3.72%

0.1


Regulatory stock

-

-

71,492

71,492

4.1%

3.72%

-






















$    917,758

$ 736,309

$   71,492

$ 1,725,559

100.0%

2.60%

2.6






















































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

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

DEPOSITS

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

Total time deposit balances decreased $163.5 million, or 9.9%, compared to the linked quarter as the Company continued to focus on reducing non-core relationship deposits in connection with its deposit rationalization strategies.

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

CAPITAL MANAGEMENT

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






















Table VI










As of





March 31,

December 31,

March 31,

"Well-Capitalized"



2012

2011

2011

Minimum













Leverage Ratio

9.94%

9.87%

11.09%

5.00%













Tier 1 Capital Ratio

17.18%

17.47%

20.49%

6.00%













Total Risk-Based Capital Ratio

18.45%

18.74%

21.76%

10.00%













Ending tangible shareholders' equity









to ending tangible assets

9.66%

9.23%

10.40%

N/A













Ending tangible common shareholders'









equity to ending tangible assets

9.66%

9.23%

10.40%

N/A






















The Company's leverage and tangible common equity ratios increased during the quarter as total tangible assets declined and tangible common equity remained essentially unchanged compared to balances as of December 31, 2011.  Tier 1 capital and total risk-based capital ratios decreased as a result of the redeployment of cash balances into securities with risk-weightings greater than zero.  As of March 31, 2012, tangible book value per common share was $10.41, consistent with December 31, 2011 and compared to $11.17 as of March 31, 2011.  Regulatory capital ratios as of March 31, 2012 are considered preliminary pending the filing of the Company's regulatory reports.

Teleconference / Webcast Information

First Financial's senior management will host a conference call to discuss the Company's financial and operating results on Thursday, April 26, 2012 at 9:00 a.m. Eastern Time.  Members of the public who would like to listen to the conference call should dial (877) 317-6789 (U.S. toll free), (866) 605-3852 (Canada toll free) or +1 (412) 317-6789 (International) (no passcode required).  The number should be dialed five to ten minutes prior to the start of the conference call.  The conference call will also be accessible as an audio webcast via the Investor Relations section of the Company's website at www.bankatfirst.com.  A replay of the conference call will be available beginning one hour after the completion of the live call through May 11, 2012 at (877) 344-7529 (U.S. toll free) and +1 (412) 317-0088 (International); conference number 10013085.  The webcast will be archived on the Investor Relations section of the Company's website through April 26, 2013.

Press Release and Additional Information on Website

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

Forward-Looking Statement

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

  • management's ability to effectively execute its business plan;
  • the risk that the strength of the United States economy in general and the strength of the local economies in which we conduct operations may continue to deteriorate resulting in, among other things, a further deterioration in credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio, allowance for loan and lease losses and overall financial performance;
  • the effects of the potential delay or failure of the U.S. federal government to pay its debts as they become due or make payments in the ordinary course;
  • the ability of financial institutions to access sources of liquidity at a reasonable cost;
  • the impact of recent upheaval in the financial markets and the effectiveness of domestic and international governmental actions taken in response, such as the U.S. Treasury's TARP and the FDIC's Temporary Liquidity Guarantee Program, and the effect of such governmental actions on us, our competitors and counterparties, financial markets generally and availability of credit specifically, and the U.S. and international economies, including potentially higher FDIC premiums arising from increased payments from FDIC insurance funds as a result of depository institution failures;
  • the effect of and changes in policies and laws or regulatory agencies (notably the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act);
  • inflation and possible changes in interest rates;
  • our ability to keep up with technological changes;
  • our ability to comply with the terms of loss sharing agreements with the FDIC;
  • mergers and acquisitions, including costs or difficulties related to the integration of acquired companies and the wind-down of non-strategic operations that may be greater than expected, such as the risks and uncertainties associated with the Irwin Mortgage Corporation bankruptcy proceedings and other acquired subsidiaries;
  • the risk that exploring merger and acquisition opportunities may detract from management's time and ability to successfully manage our company;
  • expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, and deposit attrition, customer loss and revenue loss following completed acquisitions may be greater than expected;
  • our ability to increase market share and control expenses;
  • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and the SEC;
  • adverse changes in the securities and debt markets;
  • our success in recruiting and retaining the necessary personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services;
  • monetary and fiscal policies of the Board of Governors of the Federal Reserve System (Federal Reserve) and the U.S. government and other governmental initiatives affecting the financial services industry;
  • our ability to manage loan delinquency and charge-off rates and changes in estimation of the adequacy of the allowance for loan losses; and
  • the costs and effects of litigation and of unexpected or adverse outcomes in such litigation.

In addition, please refer to our Annual Report on Form 10-K for the year ended December 31, 2011, as well as our other filings with the SEC, for a more detailed discussion of these risks and uncertainties and other factors. Such forward-looking statements are meaningful only on the date when such statements are made, and First Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such a statement is made to reflect the occurrence of unanticipated events.

About First Financial Bancorp

First Financial Bancorp is a Cincinnati, Ohio based bank holding company.  As of March 31, 2012, the Company had $6.4 billion in assets, $4.0 billion in loans, $5.4 billion in deposits and $715 million in shareholders' equity.  The Company's subsidiary, First Financial Bank, N.A., founded in 1863, provides banking and financial services products through its three lines of business: commercial, retail and wealth management.  The commercial and retail units provide traditional banking services to business and consumer clients.  First Financial Wealth Management provides wealth planning, portfolio management, trust and estate, brokerage and retirement plan services and had approximately $2.3 billion in assets under management as of March 31, 2012.  The Company's strategic operating markets are located in Ohio, Indiana and Kentucky where it operates 136 banking centers.  Additional information about the Company, including its products, services and banking locations is available at www.bankatfirst.com.

  

FIRST FINANCIAL BANCORP.

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Dollars in thousands, except per share)

(Unaudited)






Three months ended,




Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

2012

2011

2011

2011

2011










RESULTS OF OPERATIONS








Net income

$16,994

$17,941

$15,618

$15,973

$17,207

Net earnings per share - basic 

$0.29

$0.31

$0.27

$0.28

$0.30

Net earnings per share - diluted 

$0.29

$0.31

$0.27

$0.27

$0.29

Dividends declared per share

$0.31

$0.27

$0.27

$0.12

$0.12




















KEY FINANCIAL RATIOS








Return on average assets

1.05%

1.09%

1.01%

1.03%

1.11%

Return on average shareholders' equity

9.67%

9.89%

8.54%

9.05%

10.04%

Return on average tangible shareholders' equity

11.37%

11.59%

9.56%

9.84%

10.94%










Net interest margin

4.51%

4.32%

4.55%

4.61%

4.73%

Net interest margin (fully tax equivalent) (1)

4.52%

4.34%

4.57%

4.62%

4.75%










Ending shareholders' equity as a percent of ending assets

11.14%

10.68%

11.47%

11.95%

11.21%

Ending tangible shareholders' equity as a percent of:








   Ending tangible assets

9.66%

9.23%

10.38%

11.11%

10.40%

   Risk-weighted assets

16.42%

16.63%

18.47%

19.65%

19.28%










Average shareholders' equity as a percent of average assets

10.91%

11.05%

11.83%

11.38%

11.09%

Average tangible shareholders' equity as a percent of








    average tangible assets

9.43%

9.58%

10.70%

10.56%

10.28%










Book value per share

$12.21

$12.22

$12.48

$12.39

$12.15

Tangible book value per share

$10.41

$10.41

$11.15

$11.42

$11.17










Tier 1 Ratio(2)

17.18%

17.47%

18.81%

20.14%

20.49%

Total Capital Ratio(2)

18.45%

18.74%

20.08%

21.42%

21.76%

Leverage Ratio(2)

9.94%

9.87%

10.87%

11.01%

11.09%




















AVERAGE BALANCE SHEET ITEMS








Loans (3)

$2,979,508

$2,983,354

$2,800,466

$2,782,947

$2,821,450

Covered loans and FDIC indemnification asset

1,179,670

1,287,776

1,380,128

1,481,353

1,628,645

Investment securities

1,664,643

1,257,574

1,199,473

1,093,870

1,045,292

Interest-bearing deposits with other banks

126,330

485,432

306,969

375,434

276,837

  Total earning assets

$5,950,151

$6,014,136

$5,687,036

$5,733,604

$5,772,224

Total assets

$6,478,931

$6,515,756

$6,136,815

$6,219,754

$6,266,408

Noninterest-bearing deposits

$931,347

$860,863

$735,621

$734,674

$733,242

Interest-bearing deposits

4,545,151

4,630,412

4,366,827

4,402,103

4,431,524

  Total deposits

$5,476,498

$5,491,275

$5,102,448

$5,136,777

$5,164,766

Borrowings

$161,911

$174,939

$195,140

$218,196

$230,087

Shareholders' equity

$706,547

$719,964

$725,809

$707,750

$695,062




















CREDIT QUALITY RATIOS (excluding covered assets)








Allowance to ending loans

1.67%

1.77%

1.86%

1.92%

1.93%

Allowance to nonaccrual loans

109.61%

96.83%

92.20%

94.93%

86.46%

Allowance to nonperforming loans

68.85%

68.84%

71.35%

72.51%

66.57%

Nonperforming loans to total loans

2.42%

2.57%

2.60%

2.65%

2.90%

Nonperforming assets to ending loans, plus OREO

2.92%

2.94%

3.00%

3.22%

3.42%

Nonperforming assets to total assets

1.35%

1.31%

1.40%

1.50%

1.51%

Net charge-offs to average loans (annualized) 

0.87%

0.95%

0.96%

0.83%

0.61%










(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) March 31, 2012 regulatory capital ratios are preliminary.

(3) Includes loans held for sale.


















  

FIRST FINANCIAL BANCORP.

CONSOLIDATED QUARTERLY STATEMENTS OF INCOME

(Dollars in thousands, except per share)

(Unaudited)





2012

2011

First

Fourth 

Third

Second

First

Full

Quarter

Quarter

Quarter

Quarter

Quarter

Year

Interest income










  Loans, including fees

$66,436

$69,658

$70,086

$71,929

$74,016

$285,689

  Investment securities










     Taxable

10,517

6,945

7,411

7,080

6,803

28,239

     Tax-exempt

134

201

176

192

198

767

        Total investment securities interest

10,651

7,146

7,587

7,272

7,001

29,006

  Other earning assets

(1,990)

(1,819)

(1,721)

(1,384)

(954)

(5,878)

       Total interest income

75,097

74,985

75,952

77,817

80,063

308,817












Interest expense










  Deposits

7,716

8,791

9,823

10,767

11,400

40,781

  Short-term borrowings

12

25

44

49

45

163

  Long-term borrowings

680

693

867

937

1,089

3,586

  Subordinated debentures and capital securities

0

0

0

197

194

391

      Total interest expense

8,408

9,509

10,734

11,950

12,728

44,921

      Net interest income

66,689

65,476

65,218

65,867

67,335

263,896

  Provision for loan and lease losses - uncovered

3,258

5,164

7,643

5,756

647

19,210

  Provision for loan and lease losses - covered

12,951

6,910

7,260

23,895

26,016

64,081

      Net interest income after provision for loan and lease losses

50,480

53,402

50,315

36,216

40,672

180,605












Noninterest income










  Service charges on deposit accounts

4,909

4,920

4,793

4,883

4,610

19,206

  Trust and wealth management fees

3,791

3,531

3,377

3,507

3,925

14,340

  Bankcard income 

2,536

2,490

2,318

2,328

2,155

9,291

  Net gains from sales of loans

940

1,172

1,243

854

989

4,258

  FDIC loss sharing income

12,816

7,433

8,377

21,643

23,435

60,888

  Accelerated discount on covered loans

3,645

4,775

5,207

4,756

5,783

20,521

  Gain on sale of investment securities

0

2,541

0

0

0

2,541

  Other

3,288

2,778

2,800

3,147

2,761

11,486

      Total noninterest income

31,925

29,640

28,115

41,118

43,658

142,531












Noninterest expenses










  Salaries and employee benefits

28,861

26,447

27,774

25,123

27,570

106,914

  Net occupancy

5,382

5,893

4,164

4,493

6,860

21,410

  Furniture and equipment 

2,244

2,425

2,386

2,581

2,553

9,945

  Data processing 

1,901

1,559

1,466

1,453

1,238

5,716

  Marketing

1,154

1,567

1,584

1,402

1,241

5,794

  Communication

894

864

772

753

814

3,203

  Professional services

2,147

2,252

2,062

3,095

2,227

9,636

  State intangible tax

1,026

436

546

1,236

1,365

3,583

  FDIC assessments

1,163

1,192

1,211

1,152

2,121

5,676

  Other 

11,006

12,033

11,177

11,209

11,801

46,220

      Total noninterest expenses

55,778

54,668

53,142

52,497

57,790

218,097

Income before income taxes

26,627

28,374

25,288

24,837

26,540

105,039

Income tax expense

9,633

10,433

9,670

8,864

9,333

38,300

      Net income

$16,994

$17,941

$15,618

$15,973

$17,207

$66,739












ADDITIONAL DATA










Net earnings per share - basic

$0.29

$0.31

$0.27

$0.28

$0.30

$1.16

Net earnings per share - diluted

$0.29

$0.31

$0.27

$0.27

$0.29

$1.14

Dividends declared per share

$0.31

$0.27

$0.27

$0.12

$0.12

$0.78












Return on average assets

1.05%

1.09%

1.01%

1.03%

1.11%

1.06%

Return on average shareholders' equity

9.67%

9.89%

8.54%

9.05%

10.04%

9.37%












Interest income

$75,097

$74,985

$75,952

$77,817

$80,063

$308,817

Tax equivalent adjustment

218

265

236

240

238

979

   Interest income - tax equivalent

75,315

75,250

76,188

78,057

80,301

309,796

Interest expense

8,408

9,509

10,734

11,950

12,728

44,921

   Net interest income - tax equivalent

$66,907

$65,741

$65,454

$66,107

$67,573

$264,875












Net interest margin

4.51%

4.32%

4.55%

4.61%

4.73%

4.55%

Net interest margin (fully tax equivalent) (1)

4.52%

4.34%

4.57%

4.62%

4.75%

4.57%












Full-time equivalent employees

1,513

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 STATEMENT OF CONDITION

(Dollars in thousands)

(Unaudited)















Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

% Change

% Change

2012

2011

2011

2011

2011

Linked Qtr.

Comparable Qtr.

ASSETS












     Cash and due from banks

$125,949

$149,653

$108,253

$104,150

$96,709

(15.8%)

30.2%

     Interest-bearing deposits with other banks

24,101

375,398

369,130

147,108

387,923

(93.6%)

(93.8%)

     Investment securities available-for-sale

736,309

1,441,846

1,120,179

1,134,114

1,024,684

(48.9%)

(28.1%)

     Investment securities held-to-maturity

917,758

2,664

2,724

3,001

16,780

34350.4%

5369.4%

     Other investments

71,492

71,492

71,492

71,492

78,689

0.0%

(9.1%)

     Loans held for sale

21,052

24,834

14,259

8,824

6,813

(15.2%)

209.0%

     Loans












       Commercial

831,101

856,981

822,552

798,552

794,821

(3.0%)

4.6%

       Real estate - construction

104,305

114,974

136,651

142,682

145,355

(9.3%)

(28.2%)

       Real estate - commercial

1,262,775

1,233,067

1,202,035

1,144,368

1,131,306

2.4%

11.6%

       Real estate - residential

288,922

287,980

300,165

256,788

268,746

0.3%

7.5%

       Installment

63,793

67,543

70,034

63,799

66,028

(5.6%)

(3.4%)

       Home equity

359,711

358,960

362,919

344,457

339,590

0.2%

5.9%

       Credit card

31,149

31,631

30,435

28,618

28,104

(1.5%)

10.8%

       Lease financing

21,794

17,311

12,870

9,890

7,147

25.9%

204.9%

          Total loans, excluding covered loans

2,963,550

2,968,447

2,937,661

2,789,154

2,781,097

(0.2%)

6.6%

       Less












          Allowance for loan and lease losses

49,437

52,576

54,537

53,671

53,645

(6.0%)

(7.8%)

             Net loans - uncovered

2,914,113

2,915,871

2,883,124

2,735,483

2,727,452

(0.1%)

6.8%

       Covered loans

986,619

1,053,244

1,151,066

1,242,730

1,336,015

(6.3%)

(26.2%)

       Less












          Allowance for loan and lease losses

46,156

42,835

48,112

51,044

31,555

7.8%

46.3%

             Net loans - covered

940,463

1,010,409

1,102,954

1,191,686

1,304,460

(6.9%)

(27.9%)

                Net loans

3,854,576

3,926,280

3,986,078

3,927,169

4,031,912

(1.8%)

(4.4%)

     Premises and equipment

141,664

138,096

120,325

114,797

115,873

2.6%

22.3%

     Goodwill

95,050

95,050

68,922

51,820

51,820

0.0%

83.4%

     Other intangibles

10,193

10,844

8,436

4,847

5,227

(6.0%)

95.0%

     FDIC indemnification asset

156,397

173,009

177,814

193,113

207,359

(9.6%)

(24.6%)

     Accrued interest and other assets

262,027

262,345

290,117

281,172

290,692

(0.1%)

(9.9%)

       Total Assets

$6,416,568

$6,671,511

$6,337,729

$6,041,607

$6,314,481

(3.8%)

1.6%














LIABILITIES












     Deposits












       Interest-bearing demand

$1,289,490

$1,317,339

$1,288,721

$1,021,519

$1,136,219

(2.1%)

13.5%

       Savings

1,613,244

1,724,659

1,537,420

1,643,110

1,628,952

(6.5%)

(1.0%)

       Time

1,491,132

1,654,662

1,658,031

1,581,603

1,702,294

(9.9%)

(12.4%)

          Total interest-bearing deposits

4,393,866

4,696,660

4,484,172

4,246,232

4,467,465

(6.4%)

(1.6%)

       Noninterest-bearing

1,007,049

946,180

814,928

728,178

749,785

6.4%

34.3%

          Total deposits

5,400,915

5,642,840

5,299,100

4,974,410

5,217,250

(4.3%)

3.5%

     Federal funds purchased and securities sold












         under agreements to repurchase

78,619

99,431

95,451

105,291

87,973

(20.9%)

(10.6%)

     Long-term debt

75,745

76,544

76,875

102,255

102,976

(1.0%)

(26.4%)

     Other long-term debt

0

0

0

0

20,620

N/M

(100.0%)

          Total borrowed funds

154,364

175,975

172,326

207,546

211,569

(12.3%)

(27.0%)

     Accrued interest and other liabilities

146,596

140,475

139,171

137,889

177,698

4.4%

(17.5%)

       Total Liabilities

5,701,875

5,959,290

5,610,597

5,319,845

5,606,517

(4.3%)

1.7%














SHAREHOLDERS' EQUITY












     Common stock

575,675

579,871

578,974

577,856

576,992

(0.7%)

(0.2%)

     Retained earnings 

330,563

331,351

329,243

329,455

320,515

(0.2%)

3.1%

     Accumulated other comprehensive loss

(18,687)

(21,490)

(3,388)

(7,902)

(12,332)

(13.0%)

51.5%

     Treasury stock, at cost

(172,858)

(177,511)

(177,697)

(177,647)

(177,211)

(2.6%)

(2.5%)

       Total Shareholders' Equity

714,693

712,221

727,132

721,762

707,964

0.3%

1.0%

       Total Liabilities and Shareholders' Equity

$6,416,568

$6,671,511

$6,337,729

$6,041,607

$6,314,481

(3.8%)

1.6%














N/M = Not meaningful.


























  

FIRST FINANCIAL BANCORP.

AVERAGE CONSOLIDATED STATEMENT OF CONDITION

(Dollars in thousands)

(Unaudited)






Quarterly Averages




Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

2012

2011

2011

2011

2011

ASSETS








     Cash and due from banks

$123,634

$121,603

$110,336

$118,829

$111,953

     Interest-bearing deposits with other banks

126,330

485,432

306,969

375,434

276,837

     Investment securities

1,664,643

1,257,574

1,199,473

1,093,870

1,045,292

     Loans held for sale

19,722

21,067

9,497

8,530

16,121

     Loans








       Commercial

850,092

851,006

794,447

797,158

802,944

       Real estate - construction

112,945

135,825

141,791

139,255

158,403

       Real estate - commercial

1,235,613

1,206,678

1,145,195

1,132,662

1,135,630

       Real estate - residential

287,749

293,158

258,377

260,920

265,527

       Installment

65,302

68,945

63,672

65,568

67,700

       Home equity

358,360

360,389

346,486

341,876

340,285

       Credit card

31,201

30,759

29,505

28,486

28,321

       Lease financing

18,524

15,527

11,496

8,492

6,519

          Total loans, excluding covered loans

2,959,786

2,962,287

2,790,969

2,774,417

2,805,329

       Less








          Allowance for loan and lease losses

53,513

55,157

55,146

55,132

59,756

             Net loans - uncovered

2,906,273

2,907,130

2,735,823

2,719,285

2,745,573

       Covered loans

1,020,220

1,113,876

1,196,327

1,295,228

1,420,197

       Less








          Allowance for loan and lease losses

47,152

51,330

51,955

39,070

23,399

             Net loans - covered

973,068

1,062,546

1,144,372

1,256,158

1,396,798

                Net loans

3,879,341

3,969,676

3,880,195

3,975,443

4,142,371

     Premises and equipment

140,377

128,168

116,070

115,279

119,006

     Goodwill

95,050

77,158

52,004

51,820

51,820

     Other intangibles

10,506

9,094

4,697

5,031

5,421

     FDIC indemnification asset

159,450

173,900

183,801

186,125

208,448

     Accrued interest and other assets

259,878

272,084

273,773

289,393

289,139

       Total Assets

$6,478,931

$6,515,756

$6,136,815

$6,219,754

$6,266,408










LIABILITIES








     Deposits








       Interest-bearing demand

$1,285,196

$1,388,903

$1,153,178

$1,130,503

$1,088,791

       Savings

1,682,507

1,617,588

1,659,152

1,636,821

1,585,065

       Time

1,577,448

1,623,921

1,554,497

1,634,779

1,757,668

          Total interest-bearing deposits

4,545,151

4,630,412

4,366,827

4,402,103

4,431,524

       Noninterest-bearing

931,347

860,863

735,621

734,674

733,242

          Total deposits

5,476,498

5,491,275

5,102,448

5,136,777

5,164,766

     Federal funds purchased and securities sold








          under agreements to repurchase

85,891

98,268

100,990

95,297

89,535

     Long-term debt

76,020

76,671

94,150

102,506

119,932

     Other long-term debt

0

0

0

20,393

20,620

       Total borrowed funds

161,911

174,939

195,140

218,196

230,087

     Accrued interest and other liabilities

133,975

129,578

113,418

157,031

176,493

       Total Liabilities

5,772,384

5,795,792

5,411,006

5,512,004

5,571,346










SHAREHOLDERS' EQUITY








     Common stock

578,514

579,321

578,380

577,417

579,790

     Retained earnings 

324,370

323,624

331,107

318,466

308,841

     Accumulated other comprehensive loss

(20,344)

(5,396)

(6,013)

(10,488)

(13,251)

     Treasury stock, at cost

(175,993)

(177,585)

(177,665)

(177,645)

(180,318)

       Total Shareholders' Equity

706,547

719,964

725,809

707,750

695,062

       Total Liabilities and Shareholders' Equity

$6,478,931

$6,515,756

$6,136,815

$6,219,754

$6,266,408










  

FIRST FINANCIAL BANCORP.

NET INTEREST MARGIN RATE / VOLUME ANALYSIS (1)

(Dollars in thousands)

(Unaudited)



























 Quarterly Averages 













Mar. 31, 2012

Dec. 31, 2011

Mar. 31, 2011

 Linked Qtr. Income Variance 

 Comparable Qtr. Income Variance 


Balance

Yield

Balance

Yield

Balance

Yield

Rate

Volume

Total

Rate

Volume

Total

Earning assets























Investment securities

$ 1,664,643

2.57%

$ 1,257,574

2.25%

$ 1,045,292

2.72%

$    989

$ 2,516

$  3,505

$    (386)

$ 4,036

$  3,650

Interest-bearing deposits with other banks

126,330

0.28%

485,432

0.25%

276,837

0.41%

34

(257)

(223)

(89)

(104)

(193)

Gross loans, including covered loans and

indemnification asset(2)

4,159,178

6.21%

4,271,130

6.27%

4,450,095

6.63%

(711)

(2,459)

(3,170)

(4,678)

(3,745)

(8,423)

Total earning assets

5,950,151

5.06%

6,014,136

4.95%

5,772,224

5.63%

312

(200)

112

(5,153)

187

(4,966)

























Nonearning assets























Allowance for loan and lease losses

(100,665)


(106,487)


(83,155)













Cash and due from banks

123,634


121,603


111,953













Accrued interest and other assets

505,811


486,504


465,386













Total assets

$ 6,478,931


$ 6,515,756


$ 6,266,408






































Interest-bearing liabilities























Total interest-bearing deposits

$ 4,545,151

0.68%

$ 4,630,412

0.75%

$ 4,431,524

1.04%

$  (844)

$  (231)

$ (1,075)

$ (3,960)

$    276

$ (3,684)

Borrowed funds























Short-term borrowings

85,891

0.06%

98,268

0.10%

89,535

0.20%

(11)

(2)

(13)

(33)

0

(33)

Long-term debt

76,020

3.59%

76,671

3.59%

119,932

3.68%

0

(13)

(13)

(28)

(381)

(409)

Other long-term debt

0

N/M

0

N/M

20,620

3.82%

0

0

0

(194)

0

(194)

Total borrowed funds

161,911

1.71%

174,939

1.63%

230,087

2.34%

(11)

(15)

(26)

(255)

(381)

(636)

Total interest-bearing liabilities

4,707,062

0.72%

4,805,351

0.79%

4,661,611

1.11%

(855)

(246)

(1,101)

(4,215)

(105)

(4,320)

























Noninterest-bearing liabilities























Noninterest-bearing demand deposits

931,347


860,863


733,242













Other liabilities

133,975


129,578


176,493













Shareholders' equity

706,547


719,964


695,062













Total liabilities & shareholders' equity

$ 6,478,931


$ 6,515,756


$ 6,266,408






































Net interest income(1)

$      66,689


$      65,476


$      67,335


$ 1,167

$      46

$  1,213

$    (938)

$    292

$    (646)

Net interest spread(1)


4.34%


4.16%


4.52%











Net interest margin(1)


4.51%


4.32%


4.73%




































(1) Not tax equivalent.

























(2) Loans held for sale and nonaccrual loans are both included in gross loans.

























N/M = Not meaningful.

  

FIRST FINANCIAL BANCORP.

CREDIT QUALITY

(excluding covered assets)

(Dollars in thousands)

(Unaudited)











Mar 31,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

2012

2011

2011

2011

2011










ALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITY








Balance at beginning of period

$52,576

$54,537

$53,671

$53,645

$57,235

  Provision for uncovered loan and lease losses

3,258

5,164

7,643

5,756

647

  Gross charge-offs








    Commercial 

1,186

1,742

879

383

432

    Real estate - construction

1,787

2,105

1,771

1,213

1,190

    Real estate - commercial

2,244

2,505

2,997

2,791

2,089

    Real estate - residential

604

473

564

406

108

    Installment

60

115

162

177

72

    Home equity

644

488

510

923

262

    Other

297

363

291

339

448

      Total gross charge-offs 

6,822

7,791

7,174

6,232

4,601

  Recoveries








    Commercial 

72

348

92

222

100

    Real estate - construction

0

5

0

27

0

    Real estate - commercial

113

68

168

38

35

    Real estate - residential

28

3

4

29

9

    Installment

123

96

87

82

98

    Home equity

24

71

9

12

25

    Other

65

75

37

92

97

      Total recoveries

425

666

397

502

364

  Total net charge-offs

6,397

7,125

6,777

5,730

4,237

Ending allowance for uncovered loan and lease losses

$49,437

$52,576

$54,537

$53,671

$53,645










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

  Commercial 

0.53%

0.65%

0.39%

0.08%

0.17%

  Real estate - construction

6.36%

6.13%

4.96%

3.42%

3.05%

  Real estate - commercial

0.69%

0.80%

0.98%

0.97%

0.73%

  Real estate - residential

0.81%

0.64%

0.86%

0.58%

0.15%

  Installment

(0.39%)

0.11%

0.47%

0.58%

(0.16%)

  Home equity

0.70%

0.46%

0.57%

1.07%

0.28%

  Other

1.88%

2.47%

2.46%

2.68%

4.09%

Total net charge-offs 

0.87%

0.95%

0.96%

0.83%

0.61%










COMPONENTS OF NONPERFORMING LOANS, NONPERFORMING ASSETS, AND UNDERPERFORMING ASSETS

  Nonaccrual loans








    Commercial 

$5,936

$7,809

$10,792

$9,811

$9,918

    Real estate - construction

7,005

10,005

13,844

13,237

14,199

    Real estate - commercial

24,738

28,349

26,408

26,213

30,846

    Real estate - residential

5,131

5,692

5,507

4,564

4,419

    Installment

377

371

322

335

262

    Home equity

1,915

2,073

2,277

2,376

2,404

   Nonaccrual loans

45,102

54,299

59,150

56,536

62,048

  Troubled debt restructurings (TDRs)








    Accruing

9,495

4,009

4,712

3,039

3,923

    Nonaccrual

17,205

18,071

12,571

14,443

14,609

   Total TDRs

26,700

22,080

17,283

17,482

18,532

   Total nonperforming loans

71,802

76,379

76,433

74,018

80,580

  Other real estate owned (OREO)

15,036

11,317

12,003

16,313

14,953

   Total nonperforming assets

86,838

87,696

88,436

90,331

95,533

  Accruing loans past due 90 days or more

203

191

235

149

241

   Total underperforming assets

$87,041

$87,887

$88,671

$90,480

$95,774

Total classified assets

$154,684

$162,372

$172,581

$184,786

$185,738










CREDIT QUALITY RATIOS (excluding covered assets)








Allowance for loan and lease losses to








   Nonaccrual loans

109.61%

96.83%

92.20%

94.93%

86.46%

   Nonaccrual loans plus nonaccrual TDRs

79.34%

72.65%

76.04%

75.62%

69.98%

   Nonperforming loans

68.85%

68.84%

71.35%

72.51%

66.57%

   Total ending loans

1.67%

1.77%

1.86%

1.92%

1.93%

Nonperforming loans to total loans

2.42%

2.57%

2.60%

2.65%

2.90%

Nonperforming assets to








   Ending loans, plus OREO

2.92%

2.94%

3.00%

3.22%

3.42%

   Total assets

1.35%

1.31%

1.40%

1.50%

1.51%

Nonperforming assets, excluding accruing TDRs to








   Ending loans, plus OREO

2.60%

2.81%

2.84%

3.11%

3.28%

   Total assets

1.21%

1.25%

1.32%

1.44%

1.45%










  

FIRST FINANCIAL BANCORP.

CAPITAL ADEQUACY

(Dollars in thousands, except per share)

(Unaudited)











Mar. 31,

Dec. 31,

Sep. 30,

Jun. 30,

Mar. 31,

2012

2011

2011

2011

2011

PER COMMON SHARE








Market Price








  High

$18.28

$17.06

$17.12

$17.20

$18.91

  Low

$16.11

$13.40

$13.34

$15.04

$15.65

  Close

$17.30

$16.64

$13.80

$16.69

$16.69










Average shares outstanding - basic

57,795,258

57,744,662

57,735,811

57,694,792

57,591,568

Average shares outstanding - diluted

58,881,043

58,672,575

58,654,099

58,734,662

58,709,037

Ending shares outstanding

58,539,458

58,267,054

58,256,136

58,259,440

58,286,890










REGULATORY CAPITAL

Preliminary







Tier 1 Capital

$637,612

$636,836

$661,838

$681,492

$691,559

Tier 1 Ratio

17.18%

17.47%

18.81%

20.14%

20.49%

Total Capital

$684,838

$683,255

$706,570

$724,763

$734,724

Total Capital Ratio

18.45%

18.74%

20.08%

21.42%

21.76%

Total Capital in excess of minimum 








  requirement

$387,954

$391,623

$425,128

$454,034

$464,660

Total Risk-Weighted Assets

$3,711,053

$3,645,403

$3,518,026

$3,384,115

$3,375,800

Leverage Ratio

9.94%

9.87%

10.87%

11.01%

11.09%










OTHER CAPITAL RATIOS








Ending shareholders' equity to ending








  assets

11.14%

10.68%

11.47%

11.95%

11.21%

Ending tangible shareholders' equity








  to ending tangible assets

9.66%

9.23%

10.38%

11.11%

10.40%

Average shareholders' equity to








  average assets

10.91%

11.05%

11.83%

11.38%

11.09%

Average tangible shareholders' equity








  to average tangible assets

9.43%

9.58%

10.70%

10.56%

10.28%










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 March 31, 2012, December 31, 2011 and March 31, 2011.


















Table VII








For the Three Months Ended



March 31,

December 31,

March 31,


(Dollars in thousands)

2012

2011

2011











Income effect:







Accelerated discount on covered loans(1, 2)

$        3,645

$        4,775

$        5,783


Acquired-non-strategic net interest income

7,428

8,954

8,902


FDIC loss sharing income (1)

12,816

7,433

23,435


Service charges on deposit accounts related to







acquired-non-strategic operations

37

53

152


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

(47)

11

(704)


Total income effect

$      23,879

$      21,226

$      37,568











Expense effect:







Provision for loan and lease losses - covered

$      12,951

$        6,910

$      26,016


Loss share and covered asset expense (3)

3,043

2,521

3,171


FDIC loss share support(3)

1,163

1,333

783


Acquired-non-strategic operating expenses: (3)

(146)

(27)

3,911


Acquisition-related costs:(3)

188

1,167

116


Transition-related items:(3)

-

-

196











Total expense effect

$      17,199

$      11,904

$      34,193




















(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 first quarter 2012, First Financial recognized approximately $3.6 million in accelerated discount from acquired loans.  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, acquisition-related costs and transition-related items 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 wound down over the past several quarters.  Acquisition-related costs incurred during the fourth quarter 2011 consisted primarily of $1.0 million of expenses incurred related to the Flagstar acquisition.

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 March 31, 2012.  



















Table VIII

For the Three Months Ended




March 31, 2012




Average




(Dollars in thousands)

Balance

Yield










Loans, excluding covered loans (1)

$     2,979,508

5.13%










Covered loan portfolio accounted for under ASC Topic 310-30(2)

928,912

10.78%










Covered loan portfolio accounted for under ASC Topic 310-20(3)

91,308

14.92%










FDIC indemnification asset(2)

159,450

-5.24%










Total

$     4,159,178

6.21%


















(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


As part of its on-going valuation procedures, the Company experienced a $3.3 million improvement in the cash flow expectations related to certain loan pools.  During the quarter, the average yield earned on covered loans accounted for under ASC Topic 310-30 was 10.78%.  On a prospective basis and until its next periodic valuation, the Company expects the yield on covered loans to be 11.60%.

This projected improvement in cash flow expectations on loans is partially offset by a related decline in cash flow expectations on the FDIC indemnification asset which is recognized through its yield.  The average yield earned on the indemnification asset during the first quarter 2012 was -5.24%.  On a prospective basis and until its next periodic valuation, the Company expects the yield on the indemnification asset to be -5.70%.

LOSS SHARE AGREEMENTS

As of March 31, 2012, 25.0% 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 first quarter 2012.


































Table IX
















Covered Loan Activity - First Quarter 2012





Reduction in Recorded Investment Due to:




December 31,




Contractual

Net

Loans With

March 31,


(Dollars in thousands)

2011

Sales (1)

Prepayments

Activity(2)

Charge-Offs(3)

Coverage Removed

2012



















Commercial

$       195,892

$                   -

$         12,656

$         12,546

$           5,757

$                   -

$    164,933


Real estate - construction

17,120

-

40

482

(129)

-

16,727


Real estate - commercial

637,044

(6,338)

25,117

6,310

2,814

-

609,141


Real estate - residential

121,117

-

3,709

1,941

39

-

115,428


Installment

13,176

-

280

281

536

-

12,079


Home equity

64,978

-

1,778

(2,237)

613

-

64,824


Other covered loans

3,917

-

-

430

-

-

3,487



















Total covered loans

$    1,053,244

$          (6,338)

$         43,580

$         19,753

$           9,630

$                   -

$    986,619




































(1)  Negative amount represents repurchased loan participations associated with loans covered under loss share agreements




(2)  Includes partial paydowns, accretion of the valuation discount and advances on revolving loans






(3)  Indemnified at 80% from the FDIC











During the first quarter 2012, the total balance of covered loans decreased $66.6 million, or 6.3%, 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 on-going 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 March 31, 2012, December 31, 2011, September 30, 2011 and June 30, 2011.

































Table X





















As of or for the Three Months Ended



March 31,

December 31,

September 30,

June 30,


(Dollars in thousands)

2012

2011

2011

2011













Balance at beginning of period

$      42,835

$      48,112

$      51,044

$      31,555













Provision for loan and lease losses - covered

12,951

6,910

7,260

23,895













  Total gross charge-offs

(9,725)

(13,513)

(10,609)

(7,456)













  Total recoveries

95

1,326

417

3,050













Total net charge-offs

(9,630)

(12,187)

(10,192)

(4,406)













Ending allowance for loan and lease losses - covered

$      46,156

$      42,835

$      48,112

$      51,044






















The Company has established an allowance for loan losses associated with covered loans based on estimated valuation procedures performed each quarter.  The allowance for covered loan losses increased $3.3 million, or 7.8%, during the first quarter.  As a percentage of total covered loans, the allowance for loan losses totaled 4.68% as of March 31, 2012 compared to 4.07% as of December 31, 2011.

The credit outlook on the covered loan portfolio remained relatively stable as net charge-offs during the first quarter 2012 were $9.6 million compared to $12.2 million for the fourth quarter 2011, a decrease of $2.6 million, or 21.0%.  During the first quarter 2012, the Company recognized a provision expense of $13.0 million, representing an increase of $6.0 million, or 87.4%, 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.  The Company continues to refine its expectations with respect to both factors as the covered portfolio ages.

In addition to the provision expense, the Company incurred loss share and covered asset expenses of $3.0 million, including $1.3 million of losses related to covered OREO and $1.7 million of other credit expenses related to covered assets.  The receivable due from the FDIC under loss share agreements of $12.8 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

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