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 First Financial Bancorp Reports Third Quarter 2009 Earnings & Financial ResultsNovember 5, 2009 CINCINNATI, Nov. 5 /PRNewswire-FirstCall/ --
-- Net income of $225.2 million or $4.38 per common share for the third
quarter of 2009
-- First Financial, through Federal Deposit Insurance Corporation (FDIC)
assisted acquisitions, made significant advancement in its strategic
operating markets with the addition of 36 banking centers and over $3.8
billion in assets from the acquisitions of the banking operations of
Peoples Community Bank, Irwin Union Bank and Trust Company and Irwin
Union Bank, F.S.B.
-- Purchase accounting contributed approximately $241.0 million of capital,
created through the recognition of a bargain purchase gain on
acquisition
-- Tangible book value per common share increased by 58.5%, without
dilution to shareholders, to $10.48 from $6.61 at June 30, 2009, with a
tangible common equity ratio of 7.48% and a total risk-based capital
ratio of 17.46%
-- Increased allowance for loan and lease losses to 1.94% from 1.34%,
excluding loans covered by FDIC loss share agreements
First Financial Bancorp (Nasdaq: FFBC) today reported third quarter and year-to-date results for the period ended September 30, 2009. Claude Davis, First Financial Bancorp's president and chief executive officer, said, "We are very excited about the growth and expansion of the company, particularly the retail banking network in the greater Cincinnati market, the state of Indiana, Louisville, Kentucky and our re-entry into Michigan. The banking centers we acquired complement our existing locations and provide entry into markets where we did not have a presence. "The financial and capital strength of the company has positioned us to be opportunistic in these difficult times, and we believe that our ability to execute these transactions is evidence of that strength. We expect the capital generated as a result of these acquisitions will support the acquired assets and also support future growth and expansion opportunities. "First Financial associates, both existing and new, have worked relentlessly to ensure the efficient integration of these banking operations. We are grateful to all of our associates for their hard work and the professional manner in which they helped to execute these transactions. We welcome our new associates to First Financial and look forward to helping them further build their careers with a strong and growing company. We also welcome our new clients. We are very excited to forge long term relationships with them and the communities where they live and work. "Our organic growth strategy also remains on track. Construction is nearly complete on banking centers in St. Marys, Ohio and Edgewood, Kentucky," added Mr. Davis. "Both locations are expected to open in the fourth quarter and are being built with the company's new prototype design, which we expect will further enhance access and service to our clients in those markets. First Financial clients now have the convenience of banking at 118 First Financial Bank locations and ATMs within the four state regions of Ohio, Indiana, Kentucky and Michigan." Mr. Davis continued, "Our results this quarter were impacted by higher credit costs resulting from our expectation of loan portfolio stress, primarily within our commercial and commercial construction real estate portfolios. Credit quality and the resolution of problem loans are top priorities and we continue to work closely with clients on resolution strategies for problem credits. However, until we begin to see consistent economic growth over several quarters, including increased consumer spending and lower unemployment rates, we believe that certain credit metrics, including charge-offs and nonperforming assets, may remain at elevated levels." EARNINGS & FINANCIAL RESULTS Third quarter 2009 net income was $226.2 million, net income available to common shareholders was $225.2 million and earnings per diluted common share were $4.38. This compares with net income of $5.7 million and earnings per diluted common share of $0.15 for the third quarter of 2008, and net income of $1.5 million, net income available to common shareholders of $0.5 million and earnings per diluted common share of $0.01 for the second quarter of 2009. Year-to-date 2009 net income was $233.4 million, net income available to common shareholders was $230.8 million, and earnings per diluted common share were $5.31. This compares with year-to-date 2008 net income of $20.9 million and earnings per diluted common share of $0.56. Third quarter 2009 results, when compared with the third quarter of 2008, and the second quarter of 2009, were impacted by the following significant items:
-- Gain related to the accounting for a Federal Deposit Insurance
Corporation (FDIC) assisted transaction.
-- On September 18, 2009, the company assumed the banking operations of
Irwin Union Bank and Trust Company and Irwin Union Bank. F.S.B.
(collectively, "Irwin"), which included 27 banking centers. The
estimated fair value of assets acquired exceeded the estimated fair
value of liabilities assumed, resulting in the recognition of a
$241.0 million after-tax gain.
-- On July 31, 2009, the company assumed the banking operations of Peoples
Community Bank (Peoples), which included 19 banking centers. The
estimated fair value of liabilities assumed exceeded the estimated fair
value of assets acquired, resulting in the recognition of goodwill in
the amount of approximately $18.7 million.
-- On August 28, 2009, in a separate and unrelated transaction, the company
purchased 3 banking centers located in Indiana from Irwin. Associated
loans were acquired at par value and there was no premium paid on
assumed liabilities.
-- Each transaction is considered a business combination and accounted for
under Financial Accounting Standards Board ("FASB") Codification Topic
805: Business Combinations ("Topic 805"), FASB Codification Topic 820:
Fair Value Measurements and FASB Codification Topic 310-30: Loans and
Debt Securities Acquired with Deteriorated Credit Quality. All acquired
assets and liabilities were recorded at their estimated fair market
values as of the date of acquisition, and identifiable intangible assets
were recorded at their estimated fair value. These estimated fair market
values are considered preliminary, and are subject to change for up to
one year after the acquisition date as additional information relative
to closing date fair values becomes available.
-- Increased credit costs, including higher provision expense and elevated
net-charge-offs.
-- Increased the provision expense from the second quarter of 2009 by
$16.3 million to $26.7 million, or 280% of total net charge-offs,
further strengthening the allowance for loan and lease losses
(excludes covered assets) to 1.94%.
-- Included in total net charge-offs was a $2.2 million loss on the
sale of the entire $34.5 million shared national credit portfolio.
ACQUISITIONS All references to acquired balances reflect the fair value unless stated otherwise. During the third quarter of 2009, through FDIC-assisted transactions, First Financial acquired the banking operations of Peoples and Irwin. The company also acquired 3 Indiana banking centers from Irwin in a separate and unrelated transaction. The acquisitions of the Peoples and Irwin franchises significantly expands the First Financial footprint, opens new markets and strengthens the company through the generation of additional capital. Through these three transactions, the company added a total of 49 banking centers, including 39 banking centers within the company's primary markets. In connection with the Peoples and Irwin FDIC-assisted transactions, First Financial entered into loss sharing agreements with the FDIC. Under the terms of these agreements the FDIC will reimburse First Financial for losses with respect to certain loans and other real estate owned (OREO) (collectively, "covered assets"), which now represent nearly half of First Financial's loans, beginning with the first dollar of loss. These agreements provide for loss protection on single-family, residential loans for a period of ten years and First Financial is required to share any recoveries of previously charged-off amounts for the same time period, on the same pro-rata basis with the FDIC. All other loans are provided loss protection for a period of five years and recoveries of previously charged-off loans must be shared with the FDIC for a period of eight years, again on the same pro-rata basis. First Financial must follow specific servicing and resolution procedures, as outlined in the loss share agreements, in order to receive reimbursement from the FDIC for losses on covered assets. The company has established separate and dedicated teams of legal, finance, credit and technology staff to execute and monitor all activity related to each agreement, including the required periodic reporting to the FDIC. First Financial intends to service all covered assets with the same resolution practices and diligence as it does for the assets that are not subject to a loss share agreement. An overview of the transactions and their respective loss share agreements are discussed below. Peoples Community Bank Including cash received from the FDIC, First Financial acquired $566.0 million in assets, including $336.1 million in loans and other real estate, and assumed $584.7 million in liabilities, including $520.8 million in deposits, recorded at their estimated fair market value. Covered assets totaling $324.4 million in fair value are subject to a stated loss threshold of $190.0 million whereby the FDIC will reimburse First Financial for 80% of covered asset losses up to $190.0 million, and 95% of losses beyond $190.0 million. First Financial holds a purchase option from the FDIC for each of Peoples bank properties and their associated contents. The company's review of the former Peoples locations is still in progress. In late October, First Financial successfully completed the technology conversion and operational integration of Peoples. In conjunction with these efforts, two former Peoples banking centers were consolidated into First Financial locations and one First Financial banking center was consolidated into a former Peoples location. In addition, of the approximately 115 associates who were employed at Peoples on the acquisition date, 96 have accepted full-time positions at First Financial. The positions are primarily located within the banking center network. Irwin Including cash received from the FDIC, First Financial acquired $3.3 billion in assets, including $1.8 billion in loans, and assumed $2.9 billion in liabilities, including $2.5 billion in deposits, recorded at their estimated fair market value. The loans were acquired under a modified transaction structure with the FDIC whereby certain non-performing loans, foreclosed real estate, acquisition, development and construction loans, and residential and commercial land loans were excluded from the acquired portfolio. The estimated fair value for loans acquired was based upon the FDIC's estimated data for excluded loans. The company anticipates the final determination of the excluded loans will be completed in the fourth quarter of 2009. Covered assets acquired from Irwin Union Bank and Trust Company totaling $1.5 billion in fair value are subject to a stated loss threshold of $526.0 million whereby the FDIC will reimburse First Financial for 80% of covered asset losses up to $526.0 million, and 95% of losses beyond $526.0 million. Covered assets acquired from Irwin Union Bank, F.S.B. totaling $259.4 million in fair value are subject to a stated loss threshold of $110.0 million whereby the FDIC will reimburse First Financial for 80% of covered asset losses up to $110.0 million, and 95% of losses beyond $110.0 million. As the estimated fair value of assets acquired exceeded the estimated fair value of liabilities assumed, First Financial recognized an after-tax bargain purchase gain of $241.0 million, as required by FASB Codification Topic 805. Integration planning is underway for the conversion of Irwin's technology and operational systems; however, a specific timeline has not yet been established for these conversions. Irwin Banking Centers In a separate and unrelated transaction, the company purchased 3 banking centers located in Indiana from Irwin, including $84.6 million in deposits and $41.1 million in performing loans. Assets acquired in this transaction are not subject to a loss share agreement. Loans were acquired at par value and there was no premium paid on assumed liabilities. Strategic Decisions Management has concluded that the markets previously operated by Irwin in the western United States do not align with the long-term strategic plans for the company. Though profitable, each of these markets will pursue an exit strategy whereby the market presidents will work with an institution of their choosing to refer existing client relationships. If a suitable financial institution is not identified, an exit date will be selected for each market and the office will close in compliance with the applicable regulatory requirements. The western offices combined had an estimated $730.1 million in loans and $494.9 million in deposits on the acquisition date, based on the seller's book value. First Financial will continue to service the loans in these markets in compliance with the terms of the FDIC Purchase and Assumption Agreements. First Financial also acquired, as part of the Irwin transaction, a franchise finance business. This business is a specialty lender in the quick service and casual dining segments of the restaurant industry. It has been consistently profitable and is led by a seasoned management team with strong underwriting, credit management and loss mitigation experience. There are principal balances of approximately $656.9 million in franchise finance loans outstanding, all of which are covered under a loss share agreement with the FDIC. This niche business offers First Financial the ability to diversify its earning assets and will be supported as part of the company's ongoing strategy. The overall portfolio size will be managed to a risk-appropriate level so as not to create an industry concentration. For additional information on First Financial's comparable financial results, please refer to the discussions that follow detailing revenue and expense fluctuations. DETAILS OF RESULTS Unless otherwise noted, all amounts discussed in this earnings release are pre-tax except net income and per-share data which are presented after-tax. Percentage changes are not annualized unless specifically noted. In some instances, financial data may not add up due to rounding. CREDIT QUALITY (excluding covered assets) The following table presents First Financial's key credit quality metrics.
Table I
($ in thousands)
Three Months Ended
September June March December September
30, 30, 31, 31, 30,
2009 2009 2009 2008 2008
Total Nonperforming Loans $63,608 $37,790 $24,892 $18,185 $14,038
Total Nonperforming Assets $67,909 $42,956 $28,405 $22,213 $18,648
Nonperforming
assets as a % of:
Period-End
Loans, plus OREO 2.36% 1.48% 1.04% 0.83% 0.70%
Total Assets 0.94% 1.14% 0.75% 0.60% 0.53%
Nonperforming Loans
as a % of Total
Loans 2.21% 1.31% 0.91% 0.68% 0.53%
Provision for
Loan & Lease
Losses $26,655 $10,358 $4,259 $10,475 $3,219
Allowance for
Loan & Lease
Losses $55,770 $38,649 $36,437 $35,873 $30,353
Allowance for Loan
& Lease Losses as
a % of:
Period-End Loans 1.94% 1.34% 1.33% 1.34% 1.14%
Nonaccrual Loans 92.2% 102.8% 147.6% 199.5% 219.5%
Nonperforming Loans 87.7% 102.3% 146.4% 197.3% 216.2%
Total Net Charge-Offs $9,534 $8,146 $3,695 $4,955 $2,446
Annualized Net Charge-Offs
as a % of Average
Loans & Leases 1.31% 1.19% 0.55% 0.73% 0.36%
Year-to-Date
------------
September September
30, 2009 30, 2008
--------- ---------
Total Nonperforming Loans $63,608 $14,038
Total Nonperforming Assets $67,909 $18,648
Nonperforming Assets as a % of:
Period-End Loans, plus
OREO 2.36% 0.70%
Total Assets 0.94% 0.53%
Nonperforming Loans as a
% of Total Loans 2.21% 0.53%
Provision for Loan &
Lease Losses $41,272 $8,935
Allowance for Loan &
Lease Losses $55,770 $30,353
Allowance for Loan & Lease Losses as a % of:
Period-End Loans 1.94% 1.14%
Nonaccrual Loans 92.2% 219.5%
Nonperforming Loans 87.7% 216.2%
Total Net Charge-Offs $21,375 $7,639
Annualized Net Charge-Offs as a % of Average
Loans & Leases 1.03% 0.39%
The elevated net charge-offs and higher level of nonperforming assets reflects the continued adverse impact of the prolonged economic downturn and its effect on the loan portfolio. The elevated provision expense in the quarter is due largely to the company's expectation of the risk inherent in the commercial real estate portfolio. While not necessarily credit specific for First Financial, generally the outlook for this sector has continued to deteriorate and is not likely to recover over the next 12 months, according to most industry data. Therefore, the company has increased reserves for this category. Approximately $10.2 million of the $17.1 million net increase to the allowance is due to the company's estimate of sector risk in the commercial real estate portfolio. Although there have been some signs of economic stabilization and emerging optimism, unemployment rates remain at near-record levels, consumer spending is stagnant, and operating conditions continue to be challenging for many commercial borrowers. Net Charge-offs The commercial and commercial real estate construction lending portfolios continued to experience elevated levels of stress during the third quarter of 2009. The quarter's increase in total net charge-offs compared with last quarter and a year ago was driven primarily by deterioration within these segments. Late in 2008 and continuing into 2009, pressure from the prolonged recession began to adversely impact clients who up until that time, had not been severely affected. Third quarter 2009 total net charge-offs were $9.5 million, or 131 basis points of average loans and leases, compared with $8.1 million or 119 basis points of average loans and leases in the second quarter of 2009, and $2.4 million or 36 basis points of average loans and leases in the third quarter of 2008. Year-to-date 2009, total net charge-offs were $21.4 million or 103 basis points of average loans and leases, compared with $7.6 million or 39 basis points of average loans and leases year-to-date 2008. During the third quarter of 2009, primarily due to a rebound in market values and the desire to eliminate portfolio risk from the shared national credit segment, the entire $34.5 million portfolio of shared national credits was sold, resulting in a net charge-off of $2.2 million or 30 basis points of average loans and leases. Included in this loan sale was a $1.4 million relationship, in bankruptcy, which represented approximately 20% of the loss on the portfolio sale. Nonperforming Assets Third quarter 2009 nonperforming loans were $63.6 million compared with $37.8 million in the second quarter of 2009 and $14.0 million in the third quarter of 2008. Both the linked-quarter and year-over-year increases were primarily attributable to continued deterioration within the commercial lending portfolios, specifically, commercial real estate construction. During the quarter, the company placed a single relationship totaling $13.6 million of commercial land development loans on nonaccrual. Similar to the past several quarters, the higher level of nonperforming loans, which are accounted for under FASB Codification Topic 310-10-35: Subsequent Measurement of Receivables, continues to adversely impact the company's nonperforming loan coverage ratios. The third quarter 2009 allowance for loan and lease losses as a percent of nonaccrual loans was 92.2% compared with 102.8% in the second quarter of 2009, and 219.5% in the third quarter of 2008, and the allowance for loan and lease losses as a percent of nonperforming loans was 87.7% compared with 102.3% in the second quarter of 2009, and 216.2% in the third quarter of 2008. Restructured Loans During the third quarter of 2009, the company restructured approximately $2.9 million of residential mortgage loans for borrowers. The terms of the modifications included a combination of temporary interest rate reductions, term extensions and re-amortizations. These actions did not have a significant financial impact on the company. There can be no assurance these actions will be successful in improving the long-term performance of the borrowers. Delinquent Loans Total loans 30 to 89 days past due at September 30, 2009 were $20.8 million, or 0.72% of period end loans, compared with $20.5 million, or 0.71% at June 30, 2009, and $22.3 million, or 0.84% at September 30, 2008. Management closely monitors these trends and ratios and considers the level of delinquent loans consistent with its expectation of the total loan portfolio's behavior. Allowance for Loan & Lease Losses At September 30, 2009, the allowance for loan and lease losses increased to $55.8 million from $38.6 million at June 30, 2009, and $30.4 million at September 30, 2008. The higher reserve reflects the company's expectation that certain credit metrics may remain volatile and at these historically higher levels over the next several quarters as a result of the current economic conditions, including the high unemployment rates, declining real estate values and expectations for a slow recovery. Other Real Estate Owned At September 30, 2009, OREO was $4.3 million, compared with $5.2 million at June 30, 2009, and $4.6 million at September 30, 2008. For further details on the quarter-over-quarter and year-to-date changes in credit quality, excluding covered assets, please see the attached Credit Quality schedule. CAPITAL MANAGEMENT The Irwin FDIC-assisted transaction, which was accounted for as a business combination with a bargain purchase gain, generated approximately $241.0 million of additional capital. The acquired covered assets and the FDIC Indemnification Asset, which represents the fair value of estimated future payments by the FDIC to First Financial, are both risk-weighted at 20% for regulatory capital requirement purposes. Associated with the sale of the company's perpetual preferred securities to the U.S. Treasury under its Capital Purchase Plan (CPP) in December of 2008, the U.S. Treasury received one warrant to purchase 930,233 shares of First Financial common stock at an exercise price of $12.90 per share. As a result of the common equity raised during the second quarter of 2009, the number of common shares eligible for purchase under the warrant agreement was reduced by 50% to 465,116 shares. At September 30, 2009, total regulatory capital exceeded the "minimum" requirement by $380.5 million, on a consolidated basis. The following table presents regulatory capital ratios at September 30, 2009.
Regulatory
Table II "well-
-capitalized"
FFBC minimum
------------------------------------------------------------------
Leverage Ratio 14.60% 5%
Tier 1 Capital Ratio 16.21% 6%
Total Risk-Based Capital Ratio 17.46% 10%
EOP Tangible Equity /
EOP Tangible Assets 8.57% N/A
EOP Tangible Common Equity / EOP
Tangible Assets 7.48% N/A
N/A = not applicable
NET INTEREST INCOME & NET INTEREST MARGIN
Table III
($ in thousands)
Quarter Year-to-Date
September 30, September 30,
3Q-09 2Q-09 3Q-08 2009 2008
Net Interest
Income $37,455 $31,209 $29,410 $99,592 $86,073
Net Interest
Margin 3.59% 3.60% 3.68% 3.59% 3.72%
Net Interest Margin
(fully tax
Equivalent) 3.61% 3.64% 3.73% 3.63% 3.79%
Third quarter 2009 net interest income increased $8.0 million from the third quarter of 2008 and $6.2 million from the second quarter of 2009. The third quarter 2009 net interest margin declined 9 basis points from the third quarter of 2008 and 1 basis point from the second quarter of 2009. Year-to-date 2009 net interest income increased $13.5 million from 2008's comparable period, and the net interest margin declined 13 basis points. The year-over-year quarter, linked quarter and year-to-date increases in net interest income were due to higher average loan balances largely driven by the purchase of $145.1 million in performing loans from Irwin at the end of the second quarter of 2009 and the Peoples and Irwin FDIC-assisted transactions in the third quarter. This increase was partially offset by the sales of securities at the end of the second quarter and the cash flows from the investment portfolio that were not reinvested into securities. The year-over-year quarter, linked quarter and year-to-date net interest margin declines were primarily related to the impact from the cash received from the FDIC-assisted transactions in the third quarter. These funds, held at the Federal Reserve, earn a federal funds rate and are being utilized to fund anticipated runoff from deposit repricing. This impacted the net interest margin by 11 basis points in the third quarter of 2009. The year-to-date net interest margin declines were also impacted by the lower overall market interest rate environment. The net interest margin, however, continues to benefit from the growth in average total loans and the continued mix shifts in the loan portfolio from consumer to commercial and in the deposit portfolio from time to transaction deposits. For further details on the quarter-over-quarter and year-to-date changes in the net interest margin, please see the attached Net Interest Margin Rate / Volume Analysis.
NONINTEREST INCOME
The following table presents a summary of items impacting
noninterest income.
Table IV ($ in thousands)
Quarter Year-to-Date
September 30, September 30,
3Q-09 2Q-09 3Q-08 2009 2008
Gain (Loss) on
FHLMC shares $154 $112 $(3,400) $277 $(3,601)
Gain on
Acquisition 383,330 - - 383,330 -
Gain on Sale of
property & Casualty
Portion of
insurance Business - - - 574 -
Gain on Sales of
investment
Securities
(CPP 2Q-09;
VISA 1Q-08) - 3,349 - 3,349 1,585
Impact to
Noninterest
Income $383,484 $3,461 $(3,400) $387,530 $(2,016)
Third quarter 2009 noninterest income was $394.9 million, an increase of $384.4 million from the third quarter of 2008, and an increase of $380.8 million from the second quarter of 2009. Excluding the items disclosed in the table, third quarter 2009 noninterest income declined $2.5 million from the third quarter of 2008 and increased $0.8 million from the second quarter of 2009. The year-over-year decline was primarily a result of lower net gains from loan sales, trust and wealth management fees and other noninterest income. The decline in other noninterest income was related to lower revenue from bank-owned life insurance and the sale of the company's property and casualty liability portion of the insurance business that was sold in the first quarter of 2009. Market-based revenues such as bank-owned life insurance and trust fees are reflective of the overall market conditions from which these revenues are derived. The linked quarter benefited from increases in service charges on deposit accounts and trust and wealth management fees, but was also negatively impacted by lower net gains from loan sales. Year-to-date 2009 noninterest income was $421.0 million, an increase of $381.9 million from $39.1 million in 2008's comparable period. Excluding the items disclosed in the table, year-to-date 2009 noninterest income declined $7.6 million from 2008's comparable period. This decline was primarily due to lower service charges on deposit accounts, decreases in bankcard income and lower trust and wealth management fees as well as declines in income from bank-owned life insurance and brokerage income. Over the past year, most fee income components of noninterest income have been negatively impacted by the declining economic conditions and their impact on consumer spending, while trust and wealth management fees were negatively impacted by volatility in the investment and equity markets. In the second and third quarters of 2009, a number of deposit and consumer-based fee income categories began to show improvement over prior quarters. Third quarter 2009 total service charges on deposit accounts increased $1.1 million from the second quarter of 2009 reflecting higher fee income on the company's legacy deposit accounts as well as additional income resulting from acquired deposit accounts during the quarter. Bankcard income declined slightly from the second quarter of 2009 but showed improvement from the first quarter of 2009. The following table presents overdraft/non-sufficient funds fees and trust and wealth management fees.
Table V ($ in thousands)
Quarter Year-to-Date
September 30, September 30,
3Q-09 2Q-09 3Q-08 2009 2008
Overdraft/Non-Sufficient
Fund Fees $3,735 $3,003 $3,789 $9,529 $10,757
Other 1,673 1,286 1,559 4,247 4,149
Total Service Charges on
Deposit Accounts $5,408 $4,289 $5,348 $13,776 $14,906
Trust Fees 3,132 2,944 3,811 9,022 11,691
Investment Advisory
Fees 207 309 579 859 1,975
Total Trust & Wealth
Management Fees $3,339 $3,253 $4,390 $9,881 $13,666
Between June 30, 2008 and March 31, 2009, assets under management by the company's wealth management division declined by over $470 million from $2.0 billion to $1.6 billion, primarily as a result of equity market declines. A rebound in the equity markets over the past several months have positively impacted market values, and assets under management increased by over $230 million to $1.8 billion at September 30, 2009 from $1.6 billon at March 31, 2009. NONINTEREST EXPENSE Core operating expenses were primarily unchanged although there were some higher expenses related to general growth, market expansion and incentive compensation. Acquisition-related costs were primarily comprised of legal, professional, technology and other integration costs. Staffing and occupancy expenses also increased as a result of the additional associates and banking centers that were added during the quarter. INCOME TAXES Income tax expense was $133.7 million and the effective tax rate was 37.1% for the third quarter of 2009, compared with income tax expense of $2.6 million and an effective tax rate of 31.2% for the third quarter of 2008, and income tax expense of $0.7 million and an effective tax rate of 32.6% for the second quarter of 2009. Year-to-date 2009 income tax expense was $137.4 million with an effective tax rate of 37.1% compared with income tax expense of $10.0 million and an effective tax rate of 32.5% for 2008's comparable period. The increase in the overall tax rate for both the third quarter and year-to-date 2009 was driven by the tax impact from the bargain purchase gain and other changes resulting from the Irwin acquisition. LOANS (excluding covered loans) Third Quarter 2009 versus Third Quarter 2008
-- Average total loans increased $179.1 million or 6.6%.
-- Average commercial, commercial real estate and construction loans
increased $311.7 million, or 17.2%.
Third Quarter 2009 versus Second Quarter 2009
-- Average total loans increased $148.5 million, or 21.7% on an annualized
basis.
-- Average commercial, commercial real estate and construction loans
increased $150.1 million, or 30.5% on an annualized basis.
Year-to-Date 2009 versus Year-to-Date 2008
-- Average total loans increased $130.6 million, or 4.9%.
-- Average commercial, commercial real estate and construction loans
increased $275.6 million, or 15.9%.
Loan balances include $41.1 million in loans purchased on August 28, 2009 from Irwin, but exclude covered loans acquired under loss share agreements. INVESTMENTS Securities available-for-sale at September 30, 2009, totaled $523.4 million, compared with $492.6 million at September 30, 2008, and $528.2 million at June 30, 2009. The total investment portfolio represented 8.7% and 15.2% of total assets at September 30, 2009 and 2008, respectively, and 14.8% of total assets at June 30, 2009. At September 30, 2009, the company held 71.8% of its available-for-sale securities in residential mortgage-related investments, substantially all of which are held in highly-rated, agency-backed pass-through instruments, including collateralized mortgage obligations (CMOs). All CMOs held by the company are AAA rated by Standard & Poor's Corporation or similar rating agencies. First Financial does not own any interest-only, principal-only, or other high-risk securities. The company has recorded, as a component of equity in accumulated other comprehensive income, an unrealized after-tax gain on the investment portfolio of approximately $12.5 million at September 30, 2009, compared with an unrealized after-tax gain of $0.5 million at September 30, 2008, and an unrealized after-tax gain of $7.5 million at June 30, 2009. The following table presents a summary of the total investment portfolio at September 30, 2009.
Table VI
($ in thousands, excluding book price and market value)
% of Book Book Book
Total Value Yield Price
UST Notes & Agencies 8.7% $54,502 4.65 99.76
CMOs (Agency) 9.9% 62,342 4.62 100.47
CMOs (Private) 0.0% 68 1.12 100.00
MBSs (Agency) 61.8% 389,469 4.64 100.94
Agency Preferred 0.1% 338 - 1.69
Subtotal 80.5% $506,719 4.64 100.69
Municipal 4.1% $25,512 7.15 99.01
Other * 15.4% 97,083 3.70 101.50
Subtotal 19.5% $122,595 4.42 100.98
Total Investment
Portfolio 100.0% $629,314 4.60 100.75
September 30, 2009 Pre-Tax
Market Value Gain/(Loss)
UST Notes & Agencies 101.92 $1,160
CMOs (Agency) 104.30 2,294
CMOs (Private) 97.97 (1)
MBSs (Agency) 104.92 14,753
Agency Preferred 1.69 -
Subtotal 103.46 $18,206
Municipal 101.43 $616
Other * 101.91 388
Subtotal 101.81 $1,004
Total Investment
Portfolio 103.17 $19,210
Net Unrealized Gain/(Loss) $19,210
Aggregate Gains $19,488
Aggregate Losses $(278)
Net Unrealized Gain/(Loss) % of Book
Value 3.05%
*Other includes $88 million of regulatory stock
First Financial has not purchased any securities in the investment portfolio since the first quarter of 2009 due to higher pricing on bonds, which has persisted since the beginning of the year. The increase in portfolio balances during the third quarter of 2009 was the result of acquired securities from the Peoples and Irwin transactions. All securities acquired through these FDIC-assisted transactions are conforming investments as outlined in First Financial's investment policy. The acquired Peoples and Irwin investment securities, excluding regulatory stock, were acquired from the FDIC at their fair market values as of the date of the acquisitions. The following table presents the quarterly progression of the investment portfolio incorporating these acquisitions.
Table VII Change
($ in thousands) 06/30/09 ------------------------------- 09/30/09
Beginning Maturities/ Ending
Book Value Peoples Irwin Additions Book Value
UST Notes &
Agencies $41,145 $- $13,609 $(252) $54,502
CMOs (Agency) 65,879 - - (3,537) 62,342
CMOs (Private) 77 - - (9) 68
MBSs (Agency) 391,667 21,465 1,330 (24,994) 389,468
Agency Preferred 184 - - 154 338
Subtotal $498,952 $21,465 $14,939 $(28,638) $506,718
Municipals $30,085 $349 $627 $(5,549) $25,512
Other * 31,839 15,867 50,021 (643) 97,084
Subtotal $61,924 $16,216 $50,648 $(6,192) $122,596
Total Investment
Portfolio $560,876 $37,681 $65,587 $(34,830) $629,314
* Includes Regulatory
Stock
Net Unrealized
Gain/(Loss) $12,108 $19,210
Aggregate Gains $13,072 $19,488
Aggregate Losses $(964) $(278)
Net Unrealized Gain/
(Loss) % of
Book Value 2.16% 3.05%
DEPOSITS & FUNDING Deposits balances were elevated by the $3.0 billion in deposits assumed as part of the Peoples and Irwin transactions, and by $84.6 million in deposits assumed on August 28, 2009 directly from Irwin. The table below presents the progression of deposits, including the deposits acquired, during the third quarter of 2009.
Table VIII Deposits, including Acquired Deposits
($ in thousands) First First
Financial Financial
at Acquired Organic at
06/30/09 Deposits Growth 09/30/09
End of Period
Transaction &
Savings Deposits $1,680,446 $1,401,965 $50,181 $3,132,592
Time Deposits 1,032,890 950,945 44,677 2,028,512
Broker Deposits 78,509 601,332 (4,961) 674,880
Total $2,791,845 $2,954,242 $89,897 $5,835,984
As permitted by the FDIC, First Financial had the option to reprice the acquired deposit portfolios to current market rates within seven days of the acquisition dates. In addition, depositors had the option to withdraw funds without penalty. The company chose to reprice approximately $1.0 billion in deposits. The repriced deposits were comprised of all assumed brokered deposits, all time deposits from Peoples, as well as related time deposits of Irwin Union Bank, F.S.B. First Financial received approximately $948.3 million from the FDIC associated with the transactions and believes that this provides sufficient liquidity to fund the potential at-risk deposit outflows. Through the end of October, 2009, approximately 36% of the repriced deposit accounts were redeemed without penalty. First Financial assumed additional Federal Home Loan Bank debt in the Peoples and Irwin acquisitions. Approximately $83.7 million in short-term advances from Irwin matured prior to the end of the third quarter of 2009. The table below presents the quarterly progression of First Financial's borrowed funds position.
Table IX
($ in thousands) Change
--------------------------------
06/30/09 07/31/09 09/18/09 3Q-09 09/30/09
Beginning Peoples Irwin Maturities/ Ending
Borrowed Funds Balance Additions Additions Additions Balance
Short Term Borrowings:
Federal Funds
Purchased and
Securities Sold
Under Agreements
to Repurchase 206,777 - - (171,014) 35,763
Federal Home Loan
Bank Advances 125,000 - 138,700 (198,700) 65,000
Other 25,000 - - (25,000) -
Total Short Term
Borrowings $356,777 $- $138,700 $(394,714) $100,763
Long Term Borrowings:
Federal Home
Loan Bank
Advances $70,908 $63,477 $216,304 $(5,334) 345,356
Securities Sold
Under Agreements
to Repurchase 65,000 - - - 65,000
Other 20,620 - - - 20,620
Total Long
Term Borrowings $156,528 $63,477 $216,304 $(5,334) $430,976
Total Short &
Long Term
Borrowings $513,305 $63,477 $355,004 $(400,048) $531,739
At September 30, 2009, First Financial had unused and available overnight wholesale funding of approximately $2.5 billion. Conference Call & Webcast As previously announced, a conference call and webcast to discuss First Financial's third quarter 2009 financial results will be held on Friday, November 6, 2009, at 9:00 a.m. ET with Claude E. Davis, president and chief executive officer, and J. Franklin Hall, executive vice president and chief financial officer. To access the conference call, dial 800-860-2442 (passcode not required). The webcast will be available at First Financial's website (www.bankatfirst.com/Investor). Participants should join the live conference call and webcast 5 to 10 minutes before its scheduled start. A replay of the call and webcast will be available approximately one hour after the live call has ended. To access the replay, dial 877-344-7529 (passcode 435439). Forward-Looking Statements This news release should be read in conjunction with the consolidated financial statements, notes and tables in First Financial Bancorp's most recent Annual Report on Form 10-K for the year ended December 31, 2008. Management's analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risk 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 First Financial conducts operations 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 First Financial's loan portfolio, allowance for loan and lease losses and overall financial purpose; the ability of financial institutions to access sources of liquidity at a reasonable cost; the impact of recent upheaval in the financial markets and the effectiveness of domestic and international governmental actions taken in response, such as the U.S. Treasury's TARP and the FDIC's Temporary Liquidity Guarantee Program, and the effect of such governmental actions on First Financial, its 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 participation in the Temporary Liquidity Guarantee Program or from increased payments from FDIC insurance funds as a result of depository institution failures; the effects of and changes in policies and laws of regulatory agencies, inflation, and interest rates; technology changes; mergers and acquisitions, including costs or difficulties related to the integration of acquired companies; 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 for revenue loss following completed acquisitions may be greater than expected; the effect of changes in accounting policies and practices; adverse changes in the securities and debt markets; First Financial's 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; the cost and effects of litigation and of unexpected or adverse outcomes in such litigation; uncertainties arising from First Financial's participation in the TARP, including impacts on employee recruitment and retention and other business practices, and uncertainties concerning the potential redemption of the U.S. Treasury's preferred stock investment under the program, including the timing of, regulatory approvals for, and conditions placed upon, any such redemption; and First Financial's success at managing the risks involved in the foregoing. For further discussion of certain factors that may cause such forward-looking statements to differ materially from actual results, refer to the 2008 Form 10-K and other public documents filed with the Securities and Exchange Commission (SEC), as well as the most recent Form 10-Q filing for the quarter ended June 30, 2009. These documents are available at no cost within the investor relations section of First Financial's website at www.bankatfirst.com/Investor and on the SEC's website at www.sec.gov. Additional information will also be set forth in our quarterly report on Form 10-Q for the quarter ended September 30, 2009, which is due to be filed with the SEC no later than November 9, 2009. About First Financial Bancorp First Financial Bancorp is a Cincinnati, Ohio based bank holding company. At September 30, 2009, the company had $7.3 billion in assets, including $4.9 billion in total loans and $5.8 billion in deposits. Its banking subsidiary, First Financial Bank, N.A., founded in 1863, provides consumer and commercial banking products and services, and investment and insurance products through its retail banking center network. Currently First Financial Bank, N.A. operates 128 banking centers. Its strategic operating markets are located within the four state regions of Ohio, Indiana, Kentucky and Michigan where it operates 118 banking centers. The bank's wealth management division, First Financial Wealth Resource Group, provides investment management, traditional trust, brokerage, private banking, and insurance services, and had approximately $2.0 billion in assets under management at September 30, 2009. Additional information about the company, including its products, services, and banking locations, is available at www.bankatfirst.com/investor.
FIRST FINANCIAL BANCORP.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share)
(Unaudited)
Three months ended,
Sep. 30, Jun. 30, Mar. 31, Dec. 31,
2009 2009 2009 2008
---- ---- ---- ----
RESULTS OF OPERATIONS
Net interest income $37,455 $31,209 $30,928 $30,129
Net income $226,187 $1,450 $5,735 $2,084
Net income available to
common shareholders $225,187 $450 $5,157 $2,084
Net earnings per common
share - basic $4.41 $0.01 $0.14 $0.06
Net earnings per common
share - diluted $4.38 $0.01 $0.14 $0.06
Dividends declared
per common share $0.10 $0.10 $0.10 $0.17
KEY FINANCIAL RATIOS
Return on average assets 19.96% 0.15% 0.62% 0.23%
Return on average
shareholders' equity 195.16% 1.53% 6.63% 2.89%
Return on average common
shareholders' equity 234.13% 0.60% 7.67% 2.97%
Return on average
tangible common
shareholders' equity 272.75% 0.66% 8.57% 3.32%
Net interest margin 3.59% 3.60% 3.61% 3.67%
Net interest margin
(fully tax equivalent) (1) 3.61% 3.64% 3.65% 3.71%
Ending equity as a
percent of ending assets 9.25% 11.81% 9.29% 9.42%
Ending common equity as a
percent of ending assets 8.17% 9.74% 7.24% 7.31%
Ending tangible common
equity as a percent of:
Ending tangible assets 7.48% 9.06% 6.54% 6.57%
Risk-weighted assets 13.41% 11.05% 8.38% 8.37%
Average equity as a
percent of average assets 10.23% 10.04% 9.29% 8.04%
Average common equity as a
percent of average assets 8.49% 7.98% 7.22% 7.82%
Average tangible common
equity as a percent of
average tangible assets 7.37% 7.27% 6.51% 7.05%
Book value per
common share $11.53 $7.16 $7.36 $7.21
Tangible book value
per common share $10.48 $6.61 $6.59 $6.43
Tier 1 Ratio (2) 16.21% 14.77% 12.16% 12.38%
Total Capital Ratio (2) 17.46% 16.02% 13.39% 13.62%
Leverage Ratio (2) 14.60% 12.02% 9.51% 10.00%
AVERAGE BALANCE SHEET ITEMS
Loans (3) $2,889,234 $2,744,063 $2,717,097 $2,690,895
Covered loans and FDIC
indemnification asset 540,742 0 0 0
Investment securities 578,243 731,119 758,257 574,893
Other earning assets 136,210 8,614 7,291 1,737
------- ----- ----- -----
Total earning assets $4,144,429 $3,483,796 $3,482,645 $3,267,525
Total assets $4,496,327 $3,784,458 $3,777,510 $3,566,051
Noninterest-
bearing deposits $543,320 $425,330 $416,206 $412,644
Interest-bearing
deposits 3,065,377 2,408,054 2,405,700 2,367,121
--------- --------- --------- ---------
Total deposits $3,608,697 $2,833,384 $2,821,906 $2,779,765
Borrowings $377,406 $542,578 $566,808 $474,655
Shareholders' equity $459,809 $379,944 $350,857 $286,582
CREDIT QUALITY RATIOS (excluding covered assets)
Allowance to ending loans 1.94% 1.34% 1.33% 1.34%
Allowance to
nonaccrual loans 92.17% 102.81% 147.57% 199.51%
Allowance to
nonperforming loans 87.68% 102.27% 146.38% 197.27%
Nonperforming loans
to total loans 2.21% 1.31% 0.91% 0.68%
Nonperforming assets to
ending loans, plus OREO 2.36% 1.48% 1.04% 0.83%
Nonperforming assets
to total assets 0.94% 1.14% 0.75% 0.60%
Net charge-offs to average
loans (annualized) 1.31% 1.19% 0.55% 0.73%
Three months ended, Nine months ended
Sep. 30, Sep. 30,
2008 2009 2008
---- ---- ----
RESULTS OF OPERATIONS
Net interest income $29,410 $99,592 $86,073
Net income $5,732 $233,372 $20,878
Net income available to
common shareholders $5,732 $230,794 $20,878
Net earnings per common
share - basic $0.15 $5.37 $0.56
Net earnings per common
share - diluted $0.15 $5.31 $0.56
Dividends declared
per common share $0.17 $0.30 $0.51
KEY FINANCIAL RATIOS
Return on average assets 0.66% 7.76% 0.83%
Return on average
shareholders' equity 8.24% 78.54% 10.05%
Return on average common
shareholders' equity 8.24% 96.69% 10.05%
Return on average
tangible common
shareholders' equity 9.21% 116.40% 11.23%
Net interest margin 3.68% 3.59% 3.72%
Net interest margin
(fully tax equivalent)(1) 3.73% 3.63% 3.79%
Ending equity as a percent
of ending assets 7.89% 9.25% 7.89%
Ending common equity as a
percent of ending assets 7.89% 8.17% 7.89%
Ending tangible common
equity as a percent of:
Ending tangible assets 7.13% 7.48% 7.13%
Risk-weighted assets 8.86% 13.41% 8.86%
Average equity as a
percent of average assets 7.96% 9.88% 8.21%
Average common equity as a
percent of average assets 7.96% 7.93% 8.21%
Average tangible common
equity as a percent of
average tangible assets 7.18% 6.68% 7.41%
Book value per common share $7.40 $11.53 $7.40
Tangible book value
per common share $6.62 $10.48 $6.62
Tier 1 Ratio (2) 9.80% 16.21% 9.80%
Total Capital Ratio (2) 10.89% 17.46% 10.89%
Leverage Ratio (2) 7.95% 14.60% 7.95%
AVERAGE BALANCE SHEET ITEMS
Loans (3) $2,709,629 $2,784,095 $2,651,692
Covered loans and FDIC
indemnification asset 0 184,824 0
Investment securities 467,524 688,547 411,967
Other earning assets 3,137 51,177 24,266
----- ------ ------
Total earning assets $3,180,290 $3,708,643 $3,087,925
Total assets $3,476,648 $4,022,064 $3,379,343
Noninterest-bearing
deposits $402,604 $462,084 $392,104
Interest-bearing
deposits 2,380,037 2,628,793 2,411,221
--------- --------- ---------
Total deposits $2,782,641 $3,090,877 $2,803,325
Borrowings $394,708 $494,903 $270,128
Shareholders' equity $276,594 $397,269 $277,401
CREDIT QUALITY RATIOS (excluding covered assets)
Allowance to ending loans 1.14% 1.94% 1.14%
Allowance to
nonaccrual loans 219.47% 92.17% 219.47%
Allowance to
nonperforming loans 216.22% 87.68% 216.22%
Nonperforming loans
to total loans 0.53% 2.21% 0.53%
Nonperforming assets to
ending loans, plus OREO 0.70% 2.36% 0.70%
Nonperforming assets
to total assets 0.53% 0.94% 0.53%
Net charge-offs to average
loans (annualized) 0.36% 1.03% 0.39%
(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) September 30, 2009 regulatory capital ratios are preliminary.
(3) Includes loans held for sale.
FIRST FINANCIAL BANCORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)
Three months ended,
Sep. 30,
--------
2009 2008 % Change
---- ---- --------
Interest income
Loans, including fees $44,913 $39,754 13.0%
Investment securities
Taxable 6,241 5,349 16.7%
Tax-exempt 352 631 (44.2%)
--- --- -----
Total investment
securities interest 6,593 5,980 10.3%
Federal funds sold 0 22 (100.0%)
- -- ------
Total interest income 51,506 45,756 12.6%
Interest expense
Deposits 11,490 13,608 (15.6%)
Short-term borrowings 261 1,720 (84.8%)
Long-term borrowings 1,977 707 179.6%
Subordinated debentures
and capital securities 323 311 3.9%
--- --- ---
Total interest expense 14,051 16,346 (14.0%)
------ ------ -----
Net interest income 37,455 29,410 27.4%
Provision for loan and
lease losses 26,655 3,219 728.1%
------ ----- -----
Net interest income after
provision for loan and
lease losses 10,800 26,191 (58.8%)
Noninterest income
Service charges on
deposit accounts 5,408 5,348 1.1%
Trust and wealth
management fees 3,339 4,390 (23.9%)
Bankcard income 1,379 1,405 (1.9%)
Net gains from sales of loans 63 376 (83.2%)
Gains on sales of
investment securities 0 0 N/M
Gain on acquisition 383,330 0 N/M
Income (loss) on preferred
securities 154 (3,400) (104.5%)
Other 1,213 2,359 (48.6%)
----- ----- -----
Total noninterest income 394,886 10,478 3668.7%
Noninterest expenses
Salaries and employee
benefits 22,051 16,879 30.6%
Net occupancy 3,442 2,538 35.6%
Furniture and equipment 1,874 1,690 10.9%
Data processing 973 791 23.0%
Marketing 871 622 40.0%
Communication 737 601 22.6%
Professional services 1,220 729 67.Come And Visit
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