First Financial Bancorp's CEO Discusses Q1 2012 Results - Earnings Call Transcript

First Financial Bancorp (FFBC)

Q1 2012 Earnings Call

April 26, 2012 9:00 am ET

Executives

Kenneth J. Lovik – Vice President, Investor Relations and Corporate Development

Claude E. Davis – President and Chief Executive Officer

J. Franklin Hall – Executive Vice President, Chief Operating Officer and Chief Financial Officer

Analysts

Scott Siefers – Sandler O'Neill & Partners

Jon Arfstrom – RBC Capital Markets Equity Research

John Barber – Keefe, Bruyette & Woods, Inc.

David Long – Raymond James & Associates

Emlen Harmon – Jefferies & Co., Inc.

Presentation

Operator

Good morning, and welcome to the First Financial Bancorp First Quarter 2012 Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I’d now like to turn the conference over to Ken Lovik, Vice President, Investor Relations and Corporate Development. Please go ahead sir.

Kenneth J. Lovik

Thank you, Denise. Good morning, everyone, and thank you for joining us on today’s conference call to discuss First Financial Bancorp’s first quarter 2012 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 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 first quarter 2012 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 March 31, 2012, 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 Claude Davis. Dave?

Claude E. Davis

Thank you, Ken, and thank you to those joining the call today. We’re pleased to announce another quarter of strong performance, reporting net income of $17 million or $0.29 per diluted common share. Return on average assets was 1.05%, and return on average shareholders’ equity was 9.67% for the quarter. During the quarter, we incurred $1.8 million of expenses not expected to recur, which reduced earnings per share by $0.02.

Our adjusted pre-tax, pre-provision earnings were $31.2 million for the quarter or 1.94% of average asset. Adjusted pre-tax, pre-provision earnings were essentially flat as higher net interest income and fee revenue were offset by higher operating expenses, primarily compensation cost due to a full quarter’s impact of the associates joining us from Flagstar, as well as seasonal factors.

We were extremely pleased with our net interest margins for the quarter, which increased 19 basis points to 4.51%, driven primarily by performance in our investment portfolio. Frank will provide more details on these items later in the call.

We paid our third variable dividend during the quarter, representing a 100% dividend payout ratio based on our fourth quarter’s reported earnings per share of $0.31. We’re also pleased to announce that the Board of Directors has approved an increase in our regular dividend to $0.15 per share, an increase of 25%.

While economic conditions in our operating markets have yet to fully recover, the increase reflects our confidence in sustainability of our earnings power and our continued commitment to providing shareholders with a solid long-term return on their investment in First Financial.

The increase will not affect the variable dividend in the short-term, as we also announced that we intend to maintain this component for the next six quarters, unless capital deployment opportunities arise that cause our capital ratios to move towards our stated thresholds sooner than expected. The six-quarter timeframe represents actual dividend that will be paid to shareholders through 2013 based on our traditional dividend payment schedule.

Our next quarterly dividend will consist of the increased regular dividend of $0.15 per share and a variable dividend of $0.14 per share based on the first quarter earnings of $0.29. The announced variable dividend results in a current yield of 6.8% based on yesterday’s closing price of $17.10.

Our variable dividend has been very well received and recognized as an innovative way to return capital to shareholders in an uncertain regulatory environment. However, we also acknowledge that many of our shareholders place greater value on the predictability of future dividend payments.

Additionally, our capital retention needs will increase in future periods as loans covered under loss share agreements with the FDIC, which enjoy a 20% risk-weighting currently begin to migrate to our uncovered portfolio and drive an increase in our risk-weighted assets. Furthermore, we will also maintain capital for pursuing future growth opportunities. These three factors compelled us to establish a timeframe for expiration of the variable dividend.

As of March 31, our tangible common ratio was 9.66%; Tier 1 leverage was 9.94%; and total risk-based capital was 18.45%. Our ratios remain well in excess of our stated thresholds of a tangible equity ratio of 7%; Tier 1 leverage ratio of 8%; and total capital of 13%. Our strong capital ratios still have the ability to support significant growth under the most constraining of our thresholds – excuse me, have capacity to support approximately $1.5 billion in additional assets.

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