First Financial Bancorp ( FFBC)

Q3 2011 Earnings Call

October 27, 2011; 09:00 am ET

Executives

Claude Davis - President & Chief Executive Officer

Frank Hall - Executive Vice President, Chief Financial Officer & Chief Operating Officer

Kenneth Lovik - Vice President, Investor Relations & Corporate Development

Analysts

Chris Mcgratty - KBW

Jon Arfstrom - RBC Capital Markets

Scott Siefers - Sandler O'Neill

David Long - Raymond James

Matthew Keating - Barclays Capital

Presentation

Operator

Good morning and welcome to the First Financial Bancorp, third quarter 2011 earnings conference call and webcast.

I would now like to turn the conference over to Ken Lovik, Vice President, Investor Relations and Corporate Development. Mr. Lovik, please go ahead.

Kenneth Lovik

Thank you, Sue. Good morning everyone and thank you for joining us on today’s conference call to discuss First Financial Bancorp’s third quarter 2011 financial results. Discussing our operating and financial results today will be Claude Davis, President and Chief Executive Officer; and Frank Hall, Executive Vice President, Chief Financial Officer and Chief Operating 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 www.bankatfirst.com under the Investor Relations section.

Please refer to the forward-looking statement disclosure contained in the third quarter 2011 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 September 30, 2011 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. We reported net income of $15.6 million or $0.27 per diluted common share for the second quarter, representing a return on assets of 1.01% and a return on equity of 8.54%.

During the quarter we incurred $3.4 million of expenses not expected to recur, related to the Liberty branch acquisition and other exit and transition activity, which reduced earnings per share by $0.04. Excluding these items net income totaled $17.7 million and earnings per share were $0.31, representing an adjusted return on assets of 1.15% and return on equity of 9.68%.

Our adjusted pre-tax pre-provision earnings were $33 million for the third quarter, representing an increase of $2.2 million or 7% over the second quarter. Our provision for uncovered loans totaled $7.6 million, an increase of $1.9 million compared to the second quarter and represented almost 113% of quarterly net charge-offs.

From an acquisition perspective, the third quarter continued to be a busy one as we announced the second branch purchase with the signing and agreement to acquire 22 Indiana based banking centers from Flagstar Bank, 18 of which are located in the Indianapolis area.

We are extremely excited about the opportunity this acquisition provides as it significantly enhances our presence in an important metropolitan market, with increased brand recognition expected to drive growth across all business lines serving the central Indiana area. We are well into our integration activities and are still on track to close the transaction during the fourth quarter.

We also closed the Liberty branch transaction during the quarter, successfully completing all integration activities and transferring the retail and commercial relationships acquired to the First Financial brand. We are pleased to welcome the new associates joining First Financial from Liberty and look forward to building a strong relationship with all of our new clients.

With regard to capital management, we paid our first payable dividend during the quarter; representing a 100% dividend payout ratio based on our second quarters reported earnings per share. Based on yesterday’s closing price of our stock at $16.23, the dividend yield in our stock is 6.7%, placing it among the highest dividend yielding investments in the banking industry.

The Board has authorized a regular dividend of $0.12 per share and our second variable dividend of $0.15 per share for our next scheduled dividend to be paid in January of 2012. As of September 30, our tangible common ratio was 10.38%, tier-one leverage ratio is 10.87% and total risk based capital ratio was 20.08%.

Our capital ratios, which received no benefit from the second quarter earnings due to the variable dividend, declined during the quarter as a result of the Liberty acquisition; however, they are still well in excess of our stated threshold of a tangible equity ratio at 7%, tier one leverage ratio of 8% and total capital ratio of 13%.

We still have the ability to support significant asset growth and under the most constraining of our thresholds, have capacity to support approximately $1.9 billion in additional assets. We expect to continue paying the variable dividend until we have capital deployment opportunities such as acquisitions or organic growth that moves us closer towards our capital thresholds.

Total classified assets declined for the fifth consecutive quarter and were down $12.2 million or 6.6% compared to the linked quarter and are down $40 million or 18.8% compared to the third quarter 2010. Total non-performing assets declined $1.9 million during the quarter and as of September 30 total non-performing assets to total assets equaled 1.40%.

The decline in non-performing assets was due to a reduction in OREO as we sold one of our larger commercial real estate properties in the portfolio. This is offset by an increase of $2.4 million in non-performing loans, but as a percentage of total loans, total non-performing loans decreased to 2.60% from 2.65% as of June 30.

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