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First Financial Bancorp Q2 2010 Earnings Call Transcript

First Financial Bancorp Q2 2010 Earnings Call Transcript

First Financial Bancorp (FFBC)

Q2 2010 Earnings Call Transcript

August 4, 2010 9:00 am ET


Ken Lovik – VP, IR

Claude Davis – President and CEO

Frank Hall – EVP and CFO


Jon Arfstrom – RBC Capital Markets

Scott Siefers – Sandler O'Neill

Steve Moss – Janney Montgomery Scott

Bryce Rowe – R.W. Baird

Daniel Cardenas – Howe Barnes



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» First Financial Bancorp. Q3 2009 Earnings Call Transcript
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Good day, and welcome to the First Financial Bancorp's second quarter 2010 earnings conference call and webcast. All participants will be in a listen-only mode. (Operator Instructions)

I would now like to turn the conference over to Ken Lovik. Mr. Lovik, the floor is yours, sir.

Kenneth Lovik

Thank you, Mike. Good morning, everyone and thank you for joining us on today's conference call to discuss First Financial Bancorp's second quarter 2010 financial results. Discussing our operating and financial results today will be Claude Davis, President and Chief Executive Officer and Frank Hall, Executive Vice President and Chief Financial Officer.

Before we get started, I would like to mention that both the press release we issued yesterday announcing our financial results for the quarter and the accompanying supplemental presentation are available on our website at under the Investor Relations section.

Please refer to the forward-looking statement disclosure contained in the second quarter 2010 earnings release, as well as our SEC filings for a full discussion of the company's risk factors. The information we provide today is accurate as of June 30th, 2010 and we will not be updating any forward-looking statements to reflect facts or circumstances after this call.

I will now turn the call over to Claude Davis.

Claude Davis

Thank you, Ken. And thank you to those joining the call today. Second quarter net income of $17.8 million or $0.30 per diluted common share, an increase of over 75% from the first quarter. Return on average assets for the quarter was 1.07% and return on average shareholder's equity was 10.24%, representing strong performance despite the continued challenging operating environment.

Before Frank provides more color on our financial results and specific drivers behind our performance, I would like to take a couple of minutes to highlight some key themes that contributed to our results and I believe, leave us well positioned to continue to be a high-performing institution. In addition, I will also provide some commentary on our credit performance.

First, we have an extremely strong but low-risk balance sheet. 38% of our loan portfolio consists of loans acquired as part of our 2009 acquisitions that feature loss-share coverage from the FDIC.

Our non-performing assets to total assets ratio, excluding covered assets is 1.46%. This measure of asset quality compares favorably to our peers, including other Midwestern banks. Additionally, our capital ratios are among the strongest in the industry.

Second, even with our low-risk balance sheet, our earnings capacity remains robust, driven by strong contributions from both our strategic operations and income generated as a result of the 2009 acquisitions.

Our strategic operations provided over 80% of our total revenue for the quarter and we continue to reap the benefits from other aspects of the 2009 transactions, even as we continue to incur certain acquisition and transition related costs. With regard to our strategic ongoing operations, we experienced solid growth in fee revenue, managed our day-to-day expenses and continue to invest in our business.

Third, our strong liquidity position provides additional protection and opportunity in a time of economic uncertainty. As loan demand remains sluggish, we've experienced a buildup of cash in our balance sheet which obviously impacted our net interest margin for the quarter. We are evaluating a number of ways this excess liquidity can be redeployed that would add to our already profitable operations while minimizing future risk.

And fourth, we continue to build our strategic core deposit franchise, as evidenced by the 5.4% linked quarter increase in our strategic transaction and savings accounts and our overall low cost of funding.

As we have said, acquiring low-cost core deposits and customer relationships is central to the company's long-term operating strategy. Loan demand does remain sluggish. However, we continue to actively pursue new loan growth in our commercial and consumer businesses as evidenced by our new loan originations and renewals in the second quarter of $216 million.

I will now make a few comments regarding our overall credit quality and provide some specifics on our credit performance for the quarter. Industry wide, credit quality remains challenging, although we are beginning to see early signs of stabilization. The economic environment within our strategic markets is showing some signs of improvement and stabilization as well, however with a consistently high unemployment rate and continuing commercial real estate stress, we expect the environment to be challenging for several quarters.

Our 30 to 89 day total loan delinquency levels remained relatively stable and total nonaccrual loans remained flat for the quarter at approximately $67 million. Our level of OREO declined modestly during the quarter and our most recent appraisals on the properties indicate we’re fully secured, although where land is involved, until liquidation occurs the actual value realization may differ.

As we have mentioned on previous calls, our credit results have the potential to experience quarterly volatility due to loan size of individual commercial credits. Net charge offs for the quarter declined to $5 million, or 71 basis points of average loans, on an annual basis, down 64% compared to the first quarter and 39% compared to the year-over-year quarter.

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