FIRST FINANCIAL BANCORP. 
By 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.
-- 89(th) 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
expenses(1) 43 19 (27)
Items not expected to recur:
----------------------------
Acquisition-related costs(1) - 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)
Twelve months ended,
Three 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 support(3) 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 310-30(2) 717,003 10.43%
Covered loan portfolio accounted for
under ASC Topic 310-20(3) 77,835 11.55%
FDIC indemnification asset(2) 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%
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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
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December 31, September 30, June 30, March 31,
(Dollars in thousands) 2012 2012 2012 2012
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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
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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
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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
