FIRST FINANCIAL BANCORP. 
By CINCINNATI, Ohio, Jan. 30, 2014 /PRNewswire/ -- First Financial Bancorp (Nasdaq: FFBC) ("First Financial" or the "Company") announced today financial and operational results for the fourth quarter 2013 and for the twelve month period ended December 31, 2013.
Fourth quarter net income was $3.8 million and earnings per diluted common share were $0.07. This compares with third quarter net income of $14.9 million and earnings per diluted common share of $0.26 and fourth quarter 2012 net income of $16.3 million and earnings per diluted common share of $0.28.
For the twelve month period ended December 31, 2013, net income was $48.3 million and earnings per diluted common share were $0.83 as compared to net income of $67.3 million and earnings per diluted common share of $1.14 for the twelve month period ended December 31, 2012.
-- Quarterly adjusted pre-tax, pre-provision income increased 4.0% to $27.4
million, or 1.75% of average assets
-- Continued solid quarterly performance
-- Quarterly results included several items which reduced earnings per
diluted share by approximately $0.24 on a net basis
-- Return on average assets of 0.24%; 1.14% as adjusted for the items
noted below
-- Return on average tangible common equity of 2.51%; 11.88% as
adjusted for the items noted below
-- Capital ratios remain strong
-- Tangible common equity to tangible assets of 9.20%
-- Tier 1 capital ratio of 14.61%
-- Total risk-based capital ratio of 15.88%
-- Total uncovered loan growth for the quarter of 8.6% on an annualized
basis
-- Strong performance in traditional C&I / owner-occupied CRE and
franchise lending
-- Continued growth in specialty finance balances
-- Quarterly net interest margin of 3.90%
-- Excluding the impact from loans that returned to accrual status, net
interest margin was 3.86% for the quarter
-- Adjusted yield on the uncovered loan increased 2 bps during the
quarter
-- Yield on investment securities increased 18 bps to 2.38%
-- Continued improvement in asset quality metrics
-- Total nonperforming loans declined $21.5 million, or 29.0%, and
represent 1.50% of total loans compared to 2.16% for the linked
quarter
-- Total nonperforming assets declined $13.5 million, or 15.7%, and
represent 1.13% of total assets compared to 1.38% for the linked
quarter
During the quarter, the Company incurred certain pre-tax expenses of $1.5 million resulting from its efficiency initiatives. Approximately $1.3 million was related to employee benefit expenses associated with staffing reductions and $0.2 million was related to expenses associated with real estate consolidation and closure plans. Additionally, the Company incurred pre-tax pension settlement charges of $0.5 million resulting from employee-driven activity as well as acquisition-related expenses of $0.3 million. In the aggregate, these items reduced pre-tax earnings by $2.2 million, or approximately $0.02 per diluted share after taxes.
As previously disclosed in the press release dated January 22, 2014, the Company recognized a $22.4 million pre-tax non-cash valuation adjustment on its FDIC indemnification asset during the quarter which reduced the fourth quarter's diluted earnings per share after taxes by $0.26.
The Company recognized an income tax benefit for the quarter resulting from favorable state tax adjustments as well as lower income for the quarter primarily due to the FDIC indemnification asset valuation adjustment. In the aggregate, these items increased quarterly after-tax net income by $2.1 million, or $0.04 per diluted share.
The board of directors has authorized a dividend of $0.15 per common share for the next regularly scheduled dividend, payable on April 1, 2014 to shareholders of record as of February 28, 2014.
Under the announced share repurchase plan, the Company repurchased 209,745 shares of common stock during the fourth quarter at an average price of $16.39 per share. For the full year 2013, the Company repurchased 750,145 shares at an average price of $15.70 per share. When combined with the regular and variable dividends paid during the year, First Financial returned 151.4% of 2013 full year net income to shareholders during the year. Additionally, the Company has repurchased 40,255 shares during the first quarter 2014 at an average price of $17.32 per share.
The Company continued to execute on its efficiency initiative during the quarter. Adjusting for expenses covered under loss sharing agreements, noninterest expense items discussed above and OREO costs, noninterest expense declined $1.4 million during the quarter. Based on operating performance during the year, the Company estimates that it surpassed its original goal of 85% realization of announced cost savings and achieved 100% of its annual target of $17.1 million during 2013. All initiatives related to the original plan are fully implemented and annualized run rate savings are expected to exceed the original target. As previously announced, the Company identified additional initiatives that it implemented during the fourth quarter. These initiatives are expected to produce $5.0 million of added cost savings that will be realized in 2014 full year results across multiple expense categories.
Claude Davis, President and Chief Executive Officer, commented, "We ended 2013 on a positive note as the fourth quarter's results represent our best operating quarter of the year. Adjusted pre-tax, pre-provision income increased 4% as we were able to maintain a consistent level of operating revenue while operating expenses continued to decline.
"We were able to execute on strategic initiatives late in the year and early in 2014 with the announced acquisitions of The First Bexley Bank and Insight Bank in Columbus, Ohio, and the hiring of strong commercial and residential mortgage lending teams in Fort Wayne, Indiana - two markets we had previously identified as presenting strong prospects for future growth. In Columbus, we are working hard on the operational and cultural integration of these two outstanding institutions and our new team in Fort Wayne is actively calling on new clients and prospects with the wider product set and resources at their disposal as part of First Financial.
"We were also very pleased with our ability to execute on the efficiency initiative and deliver announced cost savings ahead of schedule. Our associates worked very hard throughout the year to carry out these initiatives and as a result of their efforts we expect to realize savings in 2014 beyond the annual target of $17.1 million related to the original plan. When combined with the additional initiatives we implemented during the fourth quarter, we have made significant progress in right-sizing the expense base and are positioned to deliver positive operating leverage in future periods as organic growth increasingly outweighs the impact of the declining covered loan portfolio and we capitalize on our new market expansion activities.
"The fourth quarter represented our seventh consecutive quarter of growth in the uncovered loan portfolio, increasing $74.7 million, or 8.6% on an annualized basis, compared to the linked quarter and $326.6 million, or 10.3%, compared to the fourth quarter 2012. Additionally, uncovered loan growth exceeded the decline in the covered loan portfolio, making this the fourth out of the last five quarters we achieved this milestone. As loan originations and renewals were particularly strong in December and forecasted production for the first quarter 2014 looks solid, we feel encouraged about our asset generation capabilities and momentum heading into the new year."
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income for the fourth quarter was $55.8 million as compared to $55.8 million for the third quarter and $62.0 million for the fourth quarter 2012. Compared to the linked quarter, total interest income increased $0.3 million, or 0.5%, and total interest expense increased $0.3 million, or 7.6%. Net interest margin was 3.90% for the fourth quarter as compared to 3.91% for the third quarter and 4.27% for the fourth quarter 2012.
Interest income earned on loans decreased $0.6 million, or 1.1%, compared to the prior quarter. Included in the fourth quarter's interest income on loans was the recognition of $0.6 million of previously reserved interest related to loans that returned to accrual status. Excluding this amount, net interest margin was 3.86%, a decline of 5 bps compared to the linked quarter. Net of the interest income related to loans that returned to accrual status, the lower interest income earned on loans was driven primarily by a decline of $83.2 million, or 14.5%, in average covered loan balances, partially offset by a 37 bp increase in the yield earned on the portfolio. Amortization of the FDIC indemnification asset increased $0.2 million during the quarter despite the average balance declining $4.1 million as the negative yield on the asset increased 182 bps to -12.36%, negatively impacting net interest income and net interest margin.
Growth in average uncovered loan balances of $45.3 million, or 1.3% on a linked quarter basis, helped to partially offset the impact on net interest income and net interest margin from covered loan and FDIC indemnification asset activity during the quarter. Excluding the impact of interest income related to loans that returned to accrual status, the yield earned on the uncovered portfolio during the quarter was approximately 4.45%, a 2 bp increase compared to the linked quarter.
Interest income earned from investment securities increased $1.1 million, or 12.7%, compared to the prior quarter as average balances increased $64.7 million, or 4.1%, and the yield earned on the portfolio increased 18 bps to 2.38%.
The increase in total interest expense was due to an increase in deposit costs. Average interest-bearing deposit balances increased $66.5 million, or 1.8%, during the quarter driven primarily by growth in interest-bearing checking and money market balances. The cost of funds related to interest-bearing deposits increased 4 bps to 35 bps compared to 31 bps for the linked quarter.
NONINTEREST INCOME
The following table presents noninterest income for the three months ended December 31, 2013 and for the trailing four quarters, adjusted to exclude the impact of covered loan activity and other select items on the Company's reported balance.
Table I
For the Three Months Ended
--------------------------
December 31, September 30, June 30, March 31, December 31,
(Dollars in thousands) 2013 2013 2013 2013 2012
--------------------- ---- ---- ---- ---- ----
Total noninterest income $13,043 $22,291 $11,615 $26,698 $26,121
Selected components of noninterest income
Accelerated discount on covered loans (1) 1,572 1,711 1,935 1,935 2,455
FDIC loss sharing income (3,385) 5,555 (7,384) 8,934 5,754
Gain on sale of investment securities - - 188 1,536 1,011
Other items not expected to recur - - 442 - -
Total noninterest income excluding items noted above $14,856 $15,025 $16,434 $14,293 $16,901
======= ======= ======= ======= =======
1 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 was $14.9 million compared to $15.0 million in the third quarter and $16.9 million in the fourth quarter 2012. The decrease of $0.2 million compared to the linked quarter was driven by lower service charges on deposit accounts and net gains on sales of residential mortgages, partially offset by higher trust and wealth management fees.
NONINTEREST EXPENSE
The following table presents noninterest expense for the three months ended December 31, 2013 and for the trailing four quarters, adjusted to exclude the impact of covered asset activity and other select items on the Company's reported balance.
Table II
For the Three Months Ended
--------------------------
December 31, September 30, June 30, March 31, December 31,
(Dollars in thousands) 2013 2013 2013 2013 2012
--------------------- ---- ---- ---- ---- ----
Total noninterest expense $70,285 $48,801 $53,283 $53,106 $53,474
Selected components of noninterest expense
Loss (gain) - covered real estate owned 946 204 (2,212) (157) (54)
Loss sharing expense 1,495 1,724 1,578 2,286 2,305
Pension settlement charges 462 1,396 4,316 - -
Expenses associated with efficiency initiative 1,450 1,051 1,518 2,878 952
FDIC indemnification asset valuation adjustment 22,417 - - - -
Acquisition-related expenses 284 - - - -
Other items not expected to recur - - - 390 -
Total noninterest expense excluding items noted above $43,231 $44,426 $48,083 $47,709 $50,271
======= ======= ======= ======= =======
FDIC loss share support (1) $844 $841 $795 $776 $798
1 Represents direct expenses associated with credit management and
loan administration related to covered assets as well as compliance
with FDIC loss sharing agreements; included in total noninterest
expense excluding the items noted above and comprised of several
noninterest expense line items
Excluding the items highlighted in Table II, noninterest expense in the fourth quarter was $43.2 million as compared to $44.4 million in the third quarter and $50.3 million in the fourth quarter 2012. The decrease of $1.2 million compared to the linked quarter was due primarily to lower salaries and employee benefits expense, occupancy costs and marketing and communications expenses. Expenses associated with the efficiency initiative and other staffing-related changes include $1.3 million of employee benefit expenses related to staffing reductions and $0.2 million of expenses associated with real estate consolidation and closure plans.
During the quarter, the Company recognized $0.5 million of pension settlement charges associated with recent employee-driven actions and the resulting lump-sum distributions from its pension plan. Pension settlement charges are an acceleration of previously deferred costs that would have been recognized in future periods and are determined in accordance with FASB ASC Topic 715, Compensation - Retirement Benefits. First Financial exceeded the annual accounting threshold for lump-sum distributions during 2013 and has recognized a proportionate share of lump-sum distributions from its pension plan as pension settlement charges during the year. The annual threshold for recognizing lump-sum distributions as pension settlement charges resets on January 1, 2014.
INCOME TAXES
For the fourth quarter, the Company recognized an income tax benefit of $1.2 million, resulting in an effective tax rate of -47.4%, compared with income tax expense of $7.6 million and an effective tax rate of 33.9% during the third quarter and income tax expense of $9.2 million and an effective tax rate of 36.1% during the fourth quarter 2012. The fourth quarter income tax benefit resulted from favorable state tax adjustments as well as lower net income for the quarter primarily related to the FDIC indemnification asset valuation adjustment. The Company recognized favorable state tax adjustments, net of federal taxes, of approximately $1.0 million during the fourth quarter resulting from the completion of its 2012 state tax returns and other related adjustments. While adjustments related to the completion of federal and state tax returns are typical late in the year, 2013 activity was made more significant by the impact of a favorable state tax rate change on the Company's deferred taxes. For the full year 2013, the Company's effective tax rate was 28.5%. A normalized effective tax rate in future periods is estimated to be 34.0%.
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, 2013 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) 2013 2013 2013 2013 2012
Total nonaccrual loans (1) $37,605 $57,926 $62,011 $64,452 $65,041
Troubled debt restructurings - accruing 15,094 16,278 12,924 12,757 10,856
Total nonperforming loans 52,699 74,204 74,935 77,209 75,897
Total nonperforming assets 72,505 86,008 86,733 89,202 88,423
Nonperforming assets as a % of:
Period-end loans plus OREO 2.06% 2.50% 2.56% 2.74% 2.77%
Total assets 1.13% 1.38% 1.38% 1.40% 1.36%
Nonperforming assets ex. accruing TDRs as a % of:
Period-end loans plus OREO 1.63% 2.03% 2.17% 2.34% 2.43%
Total assets 0.89% 1.12% 1.18% 1.20% 1.19%
Nonperforming loans as a % of total loans 1.50% 2.16% 2.22% 2.38% 2.39%
Provision for loan and lease losses - uncovered $1,851 $1,413 $2,409 $3,041 $3,882
Allowance for uncovered loan & lease losses $43,829 $45,514 $47,047 $48,306 $47,777
Allowance for loan & lease losses as a % of:
Total loans 1.25% 1.33% 1.39% 1.49% 1.50%
Nonaccrual loans 116.6% 78.6% 75.9% 75.0% 73.5%
Nonperforming loans 83.2% 61.3% 62.8% 62.6% 63.0%
Total net charge-offs $3,536 $2,946 $3,668 $2,512 $5,297
Annualized net-charge-offs as a % of average
loans & leases 0.41% 0.34% 0.45% 0.32% 0.68%
1 Includes nonaccrual troubled debt restructurings
Net Charge-offs
For the fourth quarter, net charge-offs increased $0.6 million to $3.5 million compared to the linked quarter. Significant charge-offs during the quarter included $1.8 million related to a commercial real estate credit that was transferred to OREO as well as $0.9 million associated with an unrelated commercial real estate credit.
Nonperforming Assets
Nonaccrual loans, including nonaccrual troubled debt restructurings, decreased $20.3 million, or 35.1%, to $37.6 million as of December 31, 2013 from $57.9 million as of September 30, 2013. Contributing to the decline were three commercial real estate credits totaling $7.5 million in the aggregate that returned to accrual status, $1.2 million in payoffs related to commercial and construction real estate credits and a $9.1 million commercial real estate credit that was charged down and transferred to OREO. Other activity included the addition to nonaccrual loans of a $0.6 million commercial credit and a $1.2 million commercial real estate credit. Included in the $7.5 million of loans that returned to accrual status was a single credit totaling $4.9 million that paid in full during January 2014.
Accruing troubled debt restructurings decreased $1.2 million, or 7.3%, to $15.1 million as of December 31, 2013 compared to the linked quarter. The decline was primarily driven by the transfer of a $1.2 million commercial credit to OREO during the quarter.
OREO increased $8.0 million, or 67.8%, on a net basis to $19.8 million during the fourth quarter as additions of $9.4 million exceeded resolutions and valuation adjustments of $1.4 million during the quarter. Additions were driven by four properties totaling $9.2 million in the aggregate, while resolutions included one property totaling $0.6 million.
Classified assets as of December 31, 2013 declined $9.9 million, or 8.2%, to $110.5 million from $120.4 million for the linked quarter and decreased $18.5 million, or 14.4%, from $129.0 million as of December 31, 2012. Classified assets are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse.
Delinquent Loans
As of December 31, 2013, loans 30-to-89 days past due totaled $13.6 million, or 0.39% of period-end loans, as compared to $10.4 million, or 0.30%, as of September 30, 2013 and $16.3 million, or 0.51%, as of December 31, 2012. The increase of $3.2 million, or 31.1%, during the fourth quarter was driven primarily by a $3.3 million increase in delinquent commercial real estate credits during the period.
Provision for Loan & Lease Losses
Fourth quarter provision expense related to uncovered loans and leases was $1.9 million as compared to $1.4 million for the linked quarter and $3.9 million for the fourth quarter 2012. Provision expense is a result of the Company's modeling efforts to estimate the period-end allowance for loan and lease losses. The allowance for loan and lease losses as a percent of period end loans was 1.25% as of December 31, 2013.
LOANS (EXCLUDING COVERED LOANS)
The following table presents the loan portfolio, excluding covered loans, as of December 31, 2013, September 30, 2013 and December 31, 2012.
Table IV
As of
-----
December 31, September 30, December 31,
2013 2013 2012
------------- -------------- -------------
Percent Percent Percent
(Dollars in thousands) Balance of Total Balance of Total Balance of Total
--------------------- ------- -------- ------- -------- ------- --------
Commercial $1,035,668 29.5% $960,016 28.0% $861,033 27.1%
Real estate -construction 80,741 2.3% 90,089 2.6% 73,517 2.3%
Real estate - commercial 1,496,987 42.7% 1,493,969 43.5% 1,417,008 44.6%
Real estate - residential 352,931 10.1% 352,830 10.3% 318,210 10.0%
Installment 47,133 1.3% 49,273 1.4% 56,810 1.8%
Home equity 376,454 10.7% 373,839 10.9% 367,500 11.6%
Credit card 35,592 1.0% 34,285 1.0% 34,198 1.1%
Lease financing 80,135 2.3% 76,615 2.2% 50,788 1.6%
Total $3,505,641 100.0% $3,430,916 100.0% $3,179,064 100.0%
========== ===== ========== ===== ========== =====
Loans, excluding covered loans, totaled $3.5 billion as of December 31, 2013, increasing $74.7 million, or 8.6% on an annualized basis, compared to the linked quarter and $326.6 million, or 10.3%, compared to December 31, 2012. The increase relative to the linked quarter was driven by growth in traditional C&I and owner-occupied commercial real estate lending, franchise finance and specialty finance.
INVESTMENTS
The following table presents a summary of the total investment portfolio at December 31, 2013.
Table V
As of December 31, 2013
-----------------------
Held-to- Available-for- % of
(Dollars in thousands) Maturity Sale Other Total Portfolio
--------------------- -------- ---- ----- ----- ---------
Debt obligations of the U.S. Government $ - $21,223 $ - $21,223 1.2%
Debt obligations of U.S.
Government Agency 18,981 9,571 - 28,552 1.6%
Residential Mortgage Backed Securities
Pass-through securities:
Agency fixed rate 86,819 109,398 - 196,217 10.9%
Agency adjustable rate 145,019 41,667 - 186,686 10.4%
Collateralized mortgage obligations:
Agency fixed rate 370,303 253,938 - 624,241 34.7%
Agency variable rate - 82,137 - 82,137 4.6%
Agency collateralized and
insured municipal
securities 68,888 103,974 - 172,862 9.6%
Commercial mortgage backed securities 145,977 119,275 - 265,252 14.8%
Municipal bond securities 1,285 3,358 - 4,643 0.3%
Corporate securities - 110,513 - 110,513 6.1%
Asset-backed securities - 50,554 - 50,554 2.8%
Regulatory stock - - 42,576 42,576 2.4%
Other - 7,993 4,851 12,844 0.7%
$837,272 $913,601 $47,427 $1,798,300 100.0%
======== ======== ======= ========== =====
The investment portfolio increased $198.5 million, or 12.4%, during the fourth quarter as $289.1 million of purchases were offset by amortizations and other portfolio reductions. As of December 31, 2013, the overall duration of the investment portfolio increased to 4.3 years compared to 4.1 years as of September 30, 2013. The yield earned on the portfolio during the quarter increased 18 bps to 2.38% from 2.20% for the linked quarter, driven by the increase in interest rates and continued stabilization in premium amortization. Due primarily to the increase in interest rates during the quarter, the net unrealized loss included in accumulated other comprehensive loss related to the investment portfolio increased $6.5 million to $16.3 million as of December 31, 2013.
DEPOSITS
Non-time deposit balances totaled $3.9 billion as of December 31, 2013, increasing $82.2 million, or 2.2%, on a linked quarter basis. The Company experienced growth across multiple lines of business as public fund balances increased $38.8 million, consumer balances increased $26.4 million and commercial balances increased $15.2 million.
Time deposit balances increased $26.3 million, or 2.8%, compared to the linked quarter due primarily to an increase in consumer balances of $23.9 million driven by sales of a CD product celebrating the Company's 150(th) anniversary which offers incentives for opening additional checking or money market accounts.
The Company's total cost of deposit funding, inclusive of noninterest-bearing balances, was 27 bps for the quarter, an increase of 3 bps compared to the prior quarter and a decrease of 11 bps compared to the fourth quarter 2012.
CAPITAL MANAGEMENT
The following table presents First Financial's regulatory and other capital ratios as of December 31, 2013, September 30, 2013 and December 31, 2012.
Table VI
As of
-----
December 31, September 30, December 31,
2013 2013 2012
---- ---- ----
Leverage Ratio 10.11% 10.29% 10.25%
Tier 1 Capital Ratio 14.61% 15.26% 16.32%
Total Risk-Based Capital Ratio 15.88% 16.53% 17.60%
Ending tangible shareholders' equity
to ending tangible assets 9.20% 9.60% 9.50%
Ending tangible common shareholders'
equity to ending tangible assets 9.20% 9.60% 9.50%
Tangible book value per share $10.10 $10.24 $10.47
Shareholders' equity decreased $9.9 million during the quarter due primarily to the change in the unrealized gain/loss related to the investment portfolio, the excess of dividends paid over net income for the quarter and share repurchases. The decline in shareholders' equity combined with increases in both tangible assets and risk-weighted assets resulted in lower tangible common equity and regulatory capital ratios compared to the linked quarter. Regulatory capital ratios as of December 31, 2013 are considered preliminary pending the filing of the Company's regulatory reports.
Teleconference / Webcast Information
First Financial's executive management will host a conference call to discuss the Company's financial and operating results on Friday, January 31, 2014 at 8:30 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 17, 2014 at (877) 344-7529 (U.S. toll free), (855) 669-9658 (Canada toll free) and +1 (412) 317-0088 (International); conference number 10039964. The webcast will be archived on the Investor Relations section of the Company's website through January 31, 2015.
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.
About First Financial Bancorp
First Financial Bancorp is a Cincinnati, Ohio based bank holding company. As of December 31, 2013, the Company had $6.4 billion in assets, $4.0 billion in loans, $4.8 billion in deposits and $682 million in shareholders' equity. The Company's subsidiary, First Financial Bank, N.A., founded in 1863, provides banking and financial services products through its four lines of business: commercial, consumer, wealth management and mortgage. The commercial, consumer and mortgage units provide traditional banking services to business and retail clients. First Financial Wealth Management provides wealth planning, portfolio management, trust and estate, brokerage and retirement plan services and had approximately $2.5 billion in assets under management as of December 31, 2013. The Company's strategic operating markets are located in Ohio, Indiana and Kentucky where it operates 110 banking centers. Additional information about the Company, including its products, services and banking locations is available at www.bankatfirst.com.
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. 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. These factors include, but are not limited to: economic, market, liquidity, credit, interest rate, operational and technological risks associated with the Company's business; 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); management's ability to effectively execute its business plan; mergers and acquisitions, including costs or difficulties related to the integration of acquired companies, including the recently announced proposed acquisitions of The First Bexley Bank and Insight Bank; the Company's ability to comply with the terms of loss sharing agreements with the FDIC; the effect of changes in accounting policies and practices; and the costs and effects of litigation and of unexpected or adverse outcomes in such litigation. Please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2012, as well as its other filings with the SEC, for a more detailed discussion of these risks, uncertainties and other factors that could cause actual results to differ from those discussed in the forward-looking statements. Such forward-looking statements are meaningful only on the date when such statements are made, and the Company 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.
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,
2013 2013 2013 2013 2012 2013 2012
---- ---- ---- ---- ---- ---- ----
RESULTS OF OPERATIONS
Net income $3,785 $14,911 $15,829 $13,824 $16,265 $48,349 $67,303
Net earnings per share - basic $0.07 $0.26 $0.28 $0.24 $0.28 $0.84 $1.16
Net earnings per share - diluted $0.07 $0.26 $0.27 $0.24 $0.28 $0.83 $1.14
Dividends declared per share $0.15 $0.27 $0.24 $0.28 $0.28 $0.94 $1.18
KEY FINANCIAL RATIOS
Return on average assets 0.24% 0.96% 1.01% 0.88% 1.03% 0.77% 1.07%
Return on average shareholders' equity 2.15% 8.53% 9.02% 7.91% 9.06% 6.89% 9.43%
Return on average tangible shareholders' equity 2.51% 10.00% 10.54% 9.24% 10.58% 8.05% 11.01%
Net interest margin 3.90% 3.91% 4.02% 4.04% 4.27% 3.97% 4.37%
Net interest margin (fully tax equivalent) (1) 3.94% 3.95% 4.06% 4.07% 4.29% 4.01% 4.39%
Ending shareholders' equity as a percent of ending assets 10.63% 11.07% 11.08% 11.05% 10.93% 10.63% 10.93%
Ending tangible shareholders' equity as a percent of:
Ending tangible assets 9.20% 9.60% 9.62% 9.60% 9.50% 9.20% 9.50%
Risk-weighted assets 13.59% 14.27% 14.50% 15.05% 15.57% 13.59% 15.57%
Average shareholders' equity as a percent of average assets 11.23% 11.19% 11.15% 11.09% 11.35% 11.17% 11.30%
Average tangible shareholders' equity as a percent of
average tangible assets 9.77% 9.71% 9.70% 9.65% 9.88% 9.72% 9.83%
Book value per share $11.86 $11.99 $12.05 $12.09 $12.24 $11.86 $12.24
Tangible book value per share $10.10 $10.24 $10.29 $10.33 $10.47 $10.10 $10.47
Tier 1 Ratio(2) 14.61% 15.26% 15.41% 15.87% 16.32% 14.61% 16.32%
Total Capital Ratio(2) 15.88% 16.53% 16.68% 17.15% 17.60% 15.88% 17.60%
Leverage Ratio(2) 10.11% 10.29% 10.12% 10.00% 10.25% 10.11% 10.25%
AVERAGE BALANCE SHEET ITEMS
Loans (3) $3,450,069 $3,410,102 $3,313,731 $3,205,781 $3,107,760 $3,345,768 $3,030,308
Covered loans and FDIC indemnification asset 568,385 655,654 758,875 840,190 920,102 704,894 1,050,114
Investment securities 1,654,374 1,589,666 1,705,219 1,838,783 1,746,961 1,696,211 1,682,821
Interest-bearing deposits with other banks 4,906 4,010 13,890 3,056 5,146 6,464 36,674
Total earning assets $5,677,734 $5,659,432 $5,791,715 $5,887,810 $5,779,969 $5,753,337 $5,799,917
Total assets $6,232,971 $6,193,722 $6,310,602 $6,391,049 $6,294,084 $6,281,411 $6,318,181
Noninterest-bearing deposits $1,129,097 $1,072,259 $1,063,102 $1,049,943 $1,112,072 $1,078,800 $1,035,319
Interest-bearing deposits 3,720,809 3,654,311 3,792,891 3,785,402 3,912,854 3,737,946 4,169,175
--------- --------- --------- --------- --------- --------- ---------
Total deposits $4,849,906 $4,726,570 $4,855,993 $4,835,345 $5,024,926 $4,816,746 $5,204,494
Borrowings $583,522 $667,706 $644,058 $735,327 $439,308 $657,265 $273,798
Shareholders' equity $700,063 $693,158 $703,804 $708,862 $714,373 $701,425 $713,717
CREDIT QUALITY RATIOS (excluding covered assets)
Allowance to ending loans 1.25% 1.33% 1.39% 1.49% 1.50% 1.25% 1.50%
Allowance to nonaccrual loans 116.55% 78.57% 75.87% 74.95% 73.46% 116.55% 73.46%
Allowance to nonperforming loans 83.17% 61.34% 62.78% 62.57% 62.95% 83.17% 62.95%
Nonperforming loans to total loans 1.50% 2.16% 2.22% 2.38% 2.39% 1.50% 2.39%
Nonperforming assets to ending loans, plus OREO 2.06% 2.50% 2.56% 2.74% 2.77% 2.06% 2.77%
Nonperforming assets to total assets 1.13% 1.38% 1.38% 1.40% 1.36% 1.13% 1.36%
Net charge-offs to average loans (annualized) 0.41% 0.34% 0.45% 0.32% 0.68% 0.38% 0.79%
(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, 2013 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,
-------- --------
2013 2012 % 2013 2012 % Change
Change
---
Interest income
Loans, including fees $52,351 $60,389 (13.3%) $216,306 $249,751 (13.4%)
Investment securities
Taxable 9,209 8,410 9.5% 34,147 37,664 (9.3%)
Tax-exempt 719 370 94.3% 2,400 736 226.1%
--- --- ---- ----- --- -----
Total investment securities interest 9,928 8,780 13.1% 36,547 38,400 (4.8%)
Other earning assets (2,432) (1,564) 55.5% (7,645) (7,221) 5.9%
------ ------ ---- ------ ------ ---
Total interest income 59,847 67,605 (11.5%) 245,208 280,930 (12.7%)
Interest expense
Deposits 3,247 4,798 (32.3%) 13,247 24,625 (46.2%)
Short-term borrowings 257 159 61.6% 1,177 262 349.2%
Long-term borrowings 539 672 (19.8%) 2,464 2,702 (8.8%)
--- --- ------ ----- ----- -----
Total interest expense 4,043 5,629 (28.2%) 16,888 27,589 (38.8%)
----- ----- ------ ------ ------ -------
Net interest income 55,804 61,976 (10.0%) 228,320 253,341 (9.9%)
Provision for loan and lease losses - uncovered 1,851 3,882 (52.3%) 8,714 19,117 (54.4%)
Provision for loan and lease losses - covered (5,857) 5,283 (210.9%) 195 30,903 (99.4%)
------ ----- -------- --- ------ -------
Net interest income after provision for loan and lease losses 59,810 52,811 13.3% 219,411 203,321 7.9%
Noninterest income
Service charges on deposit accounts 5,226 5,431 (3.8%) 20,595 21,215 (2.9%)
Trust and wealth management fees 3,506 3,409 2.8% 14,319 13,951 2.6%
Bankcard income 2,699 2,526 6.8% 10,914 10,028 8.8%
Net gains from sales of loans 604 1,179 (48.8%) 3,150 4,570 (31.1%)
Gain on sale of investment securities 0 1,011 (100.0%) 1,724 3,628 (52.5%)
FDIC loss sharing income (3,385) 5,754 (158.8%) 3,720 35,346 (89.5%)
Accelerated discount on covered loans 1,572 2,455 (36.0%) 7,153 13,662 (47.6%)
Other 2,821 4,356 (35.2%) 12,072 20,021 (39.7%)
----- ----- ------ ------ ------ -------
Total noninterest income 13,043 26,121 (50.1%) 73,647 122,421 (39.8%)
Noninterest expenses
Salaries and employee benefits 24,023 28,033 (14.3%) 101,402 113,154 (10.4%)
Pension settlement charges 462 0 N/M 6,174 0 N/M
Net occupancy 4,557 5,122 (11.0%) 21,207 20,682 2.5%
Furniture and equipment 2,136 2,291 (6.8%) 8,970 9,190 (2.4%)
Data processing 2,617 2,526 3.6% 10,229 8,837 15.8%
Marketing 999 1,566 (36.2%) 4,270 5,550 (23.1%)
Communication 728 814 (10.6%) 3,207 3,409 (5.9%)
Professional services 1,781 1,667 6.8% 6,876 7,269 (5.4%)
State intangible tax 901 942 (4.4%) 3,929 3,899 0.8%
FDIC assessments 1,121 1,085 3.3% 4,501 4,682 (3.9%)
Loss (gain) - other real estate owned 348 569 (38.8%) 1,250 3,250 (61.5%)
Loss (gain) - covered other real estate owned 946 (54) (1851.9%) (1,219) 2,446 (149.8%)
Loss sharing expense 1,495 2,305 (35.1%) 7,083 10,725 (34.0%)
FDIC indemnification impairment 22,417 0 N/M 22,417 0 N/M
Other 5,754 6,608 (12.9%) 25,179 28,904 (12.9%)
Total noninterest expenses 70,285 53,474 31.4% 225,475 221,997 1.6%
Income before income taxes 2,568 25,458 (89.9%) 67,583 103,745 (34.9%)
Income tax expense (1,217) 9,193 (113.2%) 19,234 36,442 (47.2%)
------ ----- -------- ------ ------ -------
Net income 3,785 16,265 (76.7%) 48,349 67,303 (28.2%)
===== ====== ====== ====== ====== =======
ADDITIONAL DATA
Net earnings per share - basic $0.07 $0.28 $0.84 $1.16
Net earnings per share - diluted $0.07 $0.28 $0.83 $1.14
Dividends declared per share $0.15 $0.28 $0.94 $1.18
Return on average assets 0.24% 1.03% 0.77% 1.07%
Return on average shareholders' equity 2.15% 9.06% 6.89% 9.43%
Interest income $59,847 $67,605 (11.5%) $245,208 $280,930 (12.7%)
Tax equivalent adjustment 635 366 73.5% 2,142 1,055 103.0%
--- --- ---- ----- ----- -----
Interest income - tax equivalent 60,482 67,971 (11.0%) 247,350 281,985 (12.3%)
Interest expense 4,043 5,629 (28.2%) 16,888 27,589 (38.8%)
----- ----- ------ ------ ------ -------
Net interest income - tax equivalent $56,439 $62,342 (9.5%) $230,462 $254,396 (9.4%)
======= ======= ===== ======== ======== =====
Net interest margin 3.90% 4.27% 3.97% 4.37%
Net interest margin (fully tax equivalent) (1) 3.94% 4.29% 4.01% 4.39%
Full-time equivalent employees 1,306 1,439
(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)
2013
----
Fourth Third Second First % Change
Quarter Quarter Quarter Quarter YTD Linked Qtr.
------- ------- ------- ------- --- -----------
Interest income
Loans, including fees $52,351 $52,908 $55,022 $56,025 $216,306 (1.1%)
Investment securities
Taxable 9,209 8,267 8,295 8,376 34,147 11.4%
Tax-exempt 719 541 560 580 2,400 32.9%
--- --- --- --- ----- ----
Total investment securities interest 9,928 8,808 8,855 8,956 36,547 12.7%
Other earning assets (2,432) (2,185) (1,556) (1,472) (7,645) 11.3%
------ ------ ------ ------ ------ ----
Total interest income 59,847 59,531 62,321 63,509 245,208 0.5%
Interest expense
Deposits 3,247 2,856 3,284 3,860 13,247 13.7%
Short-term borrowings 257 286 305 329 1,177 (10.1%)
Long-term borrowings 539 617 654 654 2,464 (12.6%)
--- --- --- --- ----- ------
Total interest expense 4,043 3,759 4,243 4,843 16,888 7.6%
----- ----- ----- ----- ------ ---
Net interest income 55,804 55,772 58,078 58,666 228,320 0.1%
Provision for loan and lease losses - uncovered 1,851 1,413 2,409 3,041 8,714 31.0%
Provision for loan and lease losses - covered (5,857) 5,293 (8,283) 9,042 195 (210.7%)
------ ----- ------ ----- --- --------
Net interest income after provision for loan and lease losses 59,810 49,066 63,952 46,583 219,411 21.9%
Noninterest income
Service charges on deposit accounts 5,226 5,447 5,205 4,717 20,595 (4.1%)
Trust and wealth management fees 3,506 3,366 3,497 3,950 14,319 4.2%
Bankcard income 2,699 2,637 3,145 2,433 10,914 2.4%
Net gains from sales of loans 604 751 1,089 706 3,150 (19.6%)
Gain on sale of investment securities 0 0 188 1,536 1,724 N/M
FDIC loss sharing income (3,385) 5,555 (7,384) 8,934 3,720 (160.9%)
Accelerated discount on covered loans 1,572 1,711 1,935 1,935 7,153 (8.1%)
Other 2,821 2,824 3,940 2,487 12,072 (0.1%)
----- ----- ----- ----- ------ -----
Total noninterest income 13,043 22,291 11,615 26,698 73,647 (41.5%)
Noninterest expenses
Salaries and employee benefits 24,023 23,834 26,216 27,329 101,402 0.8%
Pension settlement charges 462 1,396 4,316 0 6,174 (66.9%)
Net occupancy 4,557 5,101 5,384 6,165 21,207 (10.7%)
Furniture and equipment 2,136 2,213 2,250 2,371 8,970 (3.5%)
Data processing 2,617 2,584 2,559 2,469 10,229 1.3%
Marketing 999 1,192 1,182 897 4,270 (16.2%)
Communication 728 865 781 833 3,207 (15.8%)
Professional services 1,781 1,528 1,764 1,803 6,876 16.6%
State intangible tax 901 1,010 1,004 1,014 3,929 (10.8%)
FDIC assessments 1,121 1,107 1,148 1,125 4,501 1.3%
Loss (gain) - other real estate owned 348 184 216 502 1,250 89.1%
Loss (gain) - covered other real estate owned 946 204 (2,212) (157) (1,219) 363.7%
Loss sharing expense 1,495 1,724 1,578 2,286 7,083 (13.3%)
FDIC indemnification impairment 22,417 0 0 0 22,417 N/M
Other 5,754 5,859 7,097 6,469 25,179 (1.8%)
Total noninterest expenses 70,285 48,801 53,283 53,106 225,475 44.0%
Income before income taxes 2,568 22,556 22,284 20,175 67,583 (88.6%)
Income tax expense (1,217) 7,645 6,455 6,351 19,234 (115.9%)
------ ----- ----- ----- ------ --------
Net income $3,785 $14,911 $15,829 $13,824 $48,349 (74.6%)
====== ======= ======= ======= ======= ======
ADDITIONAL DATA
Net earnings per share - basic $0.07 $0.26 $0.28 $0.24 $0.84
Net earnings per share - diluted $0.07 $0.26 $0.27 $0.24 $0.83
Dividends declared per share $0.15 $0.27 $0.24 $0.28 $0.94
Return on average assets 0.24% 0.96% 1.01% 0.88% 0.77%
Return on average shareholders' equity 2.15% 8.53% 9.02% 7.91% 6.89%
Interest income $59,847 $59,531 $62,321 $63,509 $245,208 0.5%
Tax equivalent adjustment 635 516 514 477 2,142 23.1%
--- --- --- --- ----- ----
Interest income - tax equivalent 60,482 60,047 62,835 63,986 247,350 0.7%
Interest expense 4,043 3,759 4,243 4,843 16,888 7.6%
----- ----- ----- ----- ------ ---
Net interest income - tax equivalent $56,439 $56,288 $58,592 $59,143 $230,462 0.3%
======= ======= ======= ======= ======== ===
Net interest margin 3.90% 3.91% 4.02% 4.04% 3.97%
Net interest margin (fully tax equivalent) (1) 3.94% 3.95% 4.06% 4.07% 4.01%
Full-time equivalent employees 1,306 1,292 1,338 1,385
(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 Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
Interest income
Loans, including fees $60,389 $59,536 $63,390 $66,436 $249,751
Investment securities
Taxable 8,410 8,358 10,379 10,517 37,664
Tax-exempt 370 111 121 134 736
--- --- --- --- ---
Total investment securities interest 8,780 8,469 10,500 10,651 38,400
Other earning assets (1,564) (1,700) (1,967) (1,990) (7,221)
------ ------ ------ ------ ------
Total interest income 67,605 66,305 71,923 75,097 280,930
Interest expense
Deposits 4,798 5,730 6,381 7,716 24,625
Short-term borrowings 159 54 37 12 262
Long-term borrowings 672 675 675 680 2,702
--- --- --- --- -----
Total interest expense 5,629 6,459 7,093 8,408 27,589
----- ----- ----- ----- ------
Net interest income 61,976 59,846 64,830 66,689 253,341
Provision for loan and lease losses - uncovered 3,882 3,613 8,364 3,258 19,117
Provision for loan and lease losses - covered 5,283 6,622 6,047 12,951 30,903
----- ----- ----- ------ ------
Net interest income after provision for loan and lease losses 52,811 49,611 50,419 50,480 203,321
Noninterest income
Service charges on deposit accounts 5,431 5,499 5,376 4,909 21,215
Trust and wealth management fees 3,409 3,374 3,377 3,791 13,951
Bankcard income 2,526 2,387 2,579 2,536 10,028
Net gains from sales of loans 1,179 1,319 1,132 940 4,570
Gain on sale of investment securities 1,011 2,617 0 0 3,628
FDIC loss sharing income 5,754 8,496 8,280 12,816 35,346
Accelerated discount on covered loans 2,455 3,798 3,764 3,645 13,662
Other 4,356 3,340 9,037 3,288 20,021
----- ----- ----- ----- ------
Total noninterest income 26,121 30,830 33,545 31,925 122,421
Noninterest expenses
Salaries and employee benefits 28,033 27,212 29,048 28,861 113,154
Net occupancy 5,122 5,153 5,025 5,382 20,682
Furniture and equipment 2,291 2,332 2,323 2,244 9,190
Data processing 2,526 2,334 2,076 1,901 8,837
Marketing 1,566 1,592 1,238 1,154 5,550
Communication 814 788 913 894 3,409
Professional services 1,667 1,304 2,151 2,147 7,269
State intangible tax 942 961 970 1,026 3,899
FDIC assessments 1,085 1,164 1,270 1,163 4,682
Loss (gain) - other real estate owned 569 1,372 313 996 3,250
Loss (gain) - covered other real estate owned (54) (25) 1,233 1,292 2,446
Loss sharing expense 2,305 3,584 3,085 1,751 10,725
Other 6,608 7,515 7,814 6,967 28,904
Total noninterest expenses 53,474 55,286 57,459 55,778 221,997
Income before income taxes 25,458 25,155 26,505 26,627 103,745
Income tax expense 9,193 8,913 8,703 9,633 36,442
----- ----- ----- ----- ------
Net income $16,265 $16,242 $17,802 $16,994 $67,303
======= ======= ======= ======= =======
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
Tax equivalent adjustment 366 255 216 218 1,055
--- --- --- --- -----
Interest income - tax equivalent 67,971 66,560 72,139 75,315 281,985
Interest expense 5,629 6,459 7,093 8,408 27,589
----- ----- ----- ----- ------
Net interest income - tax equivalent $62,342 $60,101 $65,046 $66,907 $254,396
======= ======= ======= ======= ========
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 STATEMENTS OF CONDITION
(Dollars in thousands)
(Unaudited)
Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, % Change % Change
2013 2013 2013 2013 2012 Linked Qtr. Comparable Qtr.
---- ---- ---- ---- ---- ----------- ---------------
ASSETS
Cash and due from banks $117,620 $177,698 $114,745 $106,249 $134,502 (33.8%) (12.6%)
Interest-bearing deposits with other banks 25,830 10,414 2,671 1,170 24,341 148.0% 6.1%
Investment securities available-for-sale 913,601 854,747 884,694 952,039 1,032,096 6.9% (11.5%)
Investment securities held-to-maturity 837,272 669,093 670,246 716,214 770,755 25.1% 8.6%
Other investments 47,427 75,945 75,645 75,375 71,492 (37.6%) (33.7%)
Loans held for sale 8,114 10,704 18,650 28,126 16,256 (24.2%) (50.1%)
Loans
Commercial 1,035,668 960,016 940,420 892,381 861,033 7.9% 20.3%
Real estate - construction 80,741 90,089 97,246 87,542 73,517 (10.4%) 9.8%
Real estate - commercial 1,496,987 1,493,969 1,477,226 1,433,182 1,417,008 0.2% 5.6%
Real estate - residential 352,931 352,830 343,016 330,260 318,210 0.0% 10.9%
Installment 47,133 49,273 50,781 53,509 56,810 (4.3%) (17.0%)
Home equity 376,454 373,839 370,206 365,943 367,500 0.7% 2.4%
Credit card 35,592 34,285 33,222 32,465 34,198 3.8% 4.1%
Lease financing 80,135 76,615 70,011 53,556 50,788 4.6% 57.8%
Total loans, excluding covered loans 3,505,641 3,430,916 3,382,128 3,248,838 3,179,064 2.2% 10.3%
Less
Allowance for loan and lease losses 43,829 45,514 47,047 48,306 47,777 (3.7%) (8.3%)
------ ------ ------ ------ ------ ----- -----
Net loans - uncovered 3,461,812 3,385,402 3,335,081 3,200,532 3,131,287 2.3% 10.6%
Covered loans 457,873 518,524 622,265 687,798 748,116 (11.7%) (38.8%)
Less
Allowance for loan and lease losses 18,901 23,259 32,961 45,496 45,190 (18.7%) (58.2%)
------ ------ ------ ------ ------ ------
Net loans - covered 438,972 495,265 589,304 642,302 702,926 (11.4%) (37.6%)
------- ------- ------- ------- ------- ------ ------
Net loans 3,900,784 3,880,667 3,924,385 3,842,834 3,834,213 0.5% 1.7%
Premises and equipment 137,110 139,125 142,675 146,889 146,716 (1.4%) 6.5%
Goodwill 95,050 95,050 95,050 95,050 95,050 0.0% 0.0%
Other intangibles 5,924 6,249 6,620 7,078 7,648 (5.2%) (22.5%)
FDIC indemnification asset 45,091 78,132 88,966 112,428 119,607 (42.3%) (62.3%)
Accrued interest and other assets 283,390 255,617 250,228 265,565 244,372 10.9% 16.0%
------- ------- ------- ------- ------- ---- ----
Total assets $6,417,213 $6,253,441 $6,274,575 $6,349,017 $6,497,048 2.6% (1.2%)
========== ========== ========== ========== ========== === =====
LIABILITIES
Deposits
Interest-bearing demand $1,125,723 $1,068,067 $1,131,466 $1,113,940 $1,160,815 5.4% (3.0%)
Savings 1,612,005 1,593,895 1,601,122 1,620,874 1,623,614 1.1% (0.7%)
Time 952,327 926,029 978,680 1,030,124 1,068,637 2.8% (10.9%)
------- ------- ------- --------- --------- --- ------
Total interest-bearing deposits 3,690,055 3,587,991 3,711,268 3,764,938 3,853,066 2.8% (4.2%)
Noninterest-bearing 1,147,452 1,141,016 1,059,368 1,056,409 1,102,774 0.6% 4.1%
--------- --------- --------- --------- --------- --- ---
Total deposits 4,837,507 4,729,007 4,770,636 4,821,347 4,955,840 2.3% (2.4%)
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 94,749 105,472 114,030 130,863 122,570 (10.2%) (22.7%)
FHLB short-term borrowings 654,000 518,200 505,900 502,200 502,000 26.2% 30.3%
------- ------- ------- ------- ------- ---- ----
Total short-term borrowings 748,749 623,672 619,930 633,063 624,570 20.1% 19.9%
Long-term debt 60,780 61,088 73,957 74,498 75,202 (0.5%) (19.2%)
------ ------ ------ ------ ------ ----- ------
Total borrowed funds 809,529 684,760 693,887 707,561 699,772 18.2% 15.7%
Accrued interest and other liabilities 88,016 147,635 114,600 118,495 131,011 (40.4%) (32.8%)
Total liabilities 5,735,052 5,561,402 5,579,123 5,647,403 5,786,623 3.1% (0.9%)
SHAREHOLDERS' EQUITY
Common stock 577,076 577,429 576,641 575,514 579,293 (0.1%) (0.4%)
Retained earnings 324,192 328,993 329,633 327,635 330,004 (1.5%) (1.8%)
Accumulated other comprehensive loss (31,281) (29,294) (25,645) (21,475) (18,677) 6.8% 67.5%
Treasury stock, at cost (187,826) (185,089) (185,177) (180,060) (180,195) 1.5% 4.2%
-------- -------- -------- -------- -------- --- ---
Total shareholders' equity 682,161 692,039 695,452 701,614 710,425 (1.4%) (4.0%)
------- ------- ------- ------- ------- ----- -----
Total liabilities and shareholders' equity $6,417,213 $6,253,441 $6,274,575 $6,349,017 $6,497,048 2.6% (1.2%)
========== ========== ========== ========== ========== === =====
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,
2013 2013 2013 2013 2012 2013 2012
---- ---- ---- ---- ---- ---- ----
ASSETS
Cash and due from banks $110,246 $120,154 $119,909 $111,599 $118,619 $115,486 $120,492
Interest-bearing deposits with other banks 4,906 4,010 13,890 3,056 5,146 6,464 36,674
Investment securities 1,654,374 1,589,666 1,705,219 1,838,783 1,746,961 1,696,211 1,682,821
Loans held for sale 7,990 13,349 19,722 21,096 18,054 15,497 20,848
Loans
Commercial 986,438 937,939 904,029 863,427 819,262 923,336 827,205
Real estate - construction 79,194 93,103 93,813 81,171 85,219 86,832 97,278
Real estate - commercial 1,489,858 1,488,047 1,445,626 1,411,769 1,373,781 1,459,119 1,303,155
Real estate - residential 351,929 347,110 334,652 323,768 307,580 339,463 294,803
Installment 47,733 50,130 52,313 54,684 58,283 51,193 61,768
Home equity 374,919 371,072 367,408 365,568 368,605 369,771 363,470
Credit card 35,673 34,176 33,785 33,300 32,954 34,240 31,882
Lease financing 76,335 75,176 62,383 50,998 44,022 66,317 29,899
Total loans, excluding covered loans 3,442,079 3,396,753 3,294,009 3,184,685 3,089,706 3,330,271 3,009,460
Less
Allowance for loan and lease losses 46,531 49,451 50,172 49,408 50,172 48,884 51,378
------ ------ ------ ------ ------ ------ ------
Net loans - uncovered 3,395,548 3,347,302 3,243,837 3,135,277 3,039,534 3,281,387 2,958,082
Covered loans 490,072 573,243 653,892 724,846 794,838 609,768 907,520
Less
Allowance for loan and lease losses 21,733 31,208 41,861 46,104 48,553 35,149 48,711
------ ------ ------ ------ ------ ------ ------
Net loans - covered 468,339 542,035 612,031 678,742 746,285 574,619 858,809
------- ------- ------- ------- ------- ------- -------
Net loans 3,863,887 3,889,337 3,855,868 3,814,019 3,785,819 3,856,006 3,816,891
Premises and equipment 138,644 141,498 144,759 147,355 148,047 143,036 144,238
Goodwill 95,050 95,050 95,050 95,050 95,050 95,050 95,050
Other intangibles 6,075 6,428 6,831 7,346 8,001 6,666 9,240
FDIC indemnification asset 78,313 82,411 104,983 115,344 125,264 95,126 142,594
Accrued interest and other assets 273,486 251,819 244,371 237,401 243,123 251,869 249,333
------- ------- ------- ------- ------- ------- -------
Total assets $6,232,971 $6,193,722 $6,310,602 $6,391,049 $6,294,084 $6,281,411 $6,318,181
========== ========== ========== ========== ========== ========== ==========
LIABILITIES
Deposits
Interest-bearing demand $1,150,275 $1,098,524 $1,141,767 $1,112,664 $1,145,800 $1,125,836 $1,196,764
Savings 1,637,657 1,608,351 1,639,834 1,618,239 1,640,427 1,626,025 1,630,426
Time 932,877 947,436 1,011,290 1,054,499 1,126,627 986,085 1,341,985
------- ------- --------- --------- --------- ------- ---------
Total interest-bearing deposits 3,720,809 3,654,311 3,792,891 3,785,402 3,912,854 3,737,946 4,169,175
Noninterest-bearing 1,129,097 1,072,259 1,063,102 1,049,943 1,112,072 1,078,800 1,035,319
--------- --------- --------- --------- --------- --------- ---------
Total deposits 4,849,906 4,726,570 4,855,993 4,835,345 5,024,926 4,816,746 5,204,494
Short-term borrowings
Federal funds purchased and securities sold
under agreements to repurchase 107,738 114,505 105,299 134,709 100,087 115,486 86,980
Federal Home Loan Bank short-term borrowings 414,892 483,937 464,630 525,878 263,895 472,062 111,295
------- ------- ------- ------- ------- ------- -------
Total short-term borrowings 522,630 598,442 569,929 660,587 363,982 587,548 198,275
Long-term debt 60,892 69,264 74,129 74,740 75,326 69,717 75,523
------ ------ ------ ------ ------ ------ ------
Total borrowed funds 583,522 667,706 644,058 735,327 439,308 657,265 273,798
Accrued interest and other liabilities 99,480 106,288 106,747 111,515 115,477 105,975 126,172
Total liabilities 5,532,908 5,500,564 5,606,798 5,682,187 5,579,711 5,579,986 5,604,464
SHAREHOLDERS' EQUITY
Common stock 577,851 576,953 576,391 578,452 578,691 577,409 577,759
Retained earnings 337,034 329,518 329,795 330,879 331,414 331,817 329,615
Accumulated other comprehensive loss (28,380) (28,232) (19,204) (19,576) (19,612) (23,884) (18,987)
Treasury stock, at cost (186,442) (185,081) (183,178) (180,893) (176,120) (183,917) (174,670)
-------- -------- -------- -------- -------- -------- --------
Total shareholders' equity 700,063 693,158 703,804 708,862 714,373 701,425 713,717
------- ------- ------- ------- ------- ------- -------
Total liabilities and shareholders' equity $6,232,971 $6,193,722 $6,310,602 $6,391,049 $6,294,084 $6,281,411 $6,318,181
========== ========== ========== ========== ========== ========== ==========
FIRST FINANCIAL BANCORP.
NET INTEREST MARGIN RATE/VOLUME ANALYSIS (1)
(Dollars in thousands)
(Unaudited)
Quarterly Averages Year-to-Date Averages
------------------ ---------------------
Dec. 31, 2013 Sep. 30, 2013 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2012
Balance Yield Balance Yield Balance Yield Balance Yield Balance Yield
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Earning assets
Investments:
Investment securities $1,654,374 2.38% $1,589,666 2.20% $1,746,961 1.99% $1,696,211 2.15% $1,682,821 2.28%
Interest-bearing deposits with other banks 4,906 0.57% 4,010 0.49% 5,146 0.54% 6,464 0.42% 36,674 0.30%
Gross loans(2) 4,018,454 4.93% 4,065,756 4.95% 4,027,862 5.79% 4,050,662 5.15% 4,080,422 5.94%
Total earning assets 5,677,734 4.18% 5,659,432 4.17% 5,779,969 4.64% 5,753,337 4.26% 5,799,917 4.84%
Nonearning assets
Allowance for loan and lease losses (68,264) (80,659) (98,725) (84,033) (100,089)
Cash and due from banks 110,246 120,154 118,619 115,486 120,492
Accrued interest and other assets 513,255 494,795 494,221 496,621 497,861
------- ------- ------- ------- -------
Total assets $6,232,971 $6,193,722 $6,294,084 $6,281,411 $6,318,181
========== ========== ========== ========== ==========
Interest-bearing liabilities
Deposits:
Interest-bearing demand $1,150,275 0.19% $1,098,524 0.12% $1,145,800 0.13% $1,125,836 0.13% $1,196,764 0.13%
Savings 1,637,657 0.15% 1,608,351 0.09% 1,640,427 0.11% 1,626,025 0.11% 1,630,426 0.12%
Time 932,877 0.90% 947,436 0.90% 1,126,627 1.40% 986,085 1.01% 1,341,985 1.57%
------- ---- ------- ---- --------- ---- ------- ---- --------- ----
Total interest-bearing deposits 3,720,809 0.35% 3,654,311 0.31% 3,912,854 0.49% 3,737,946 0.35% 4,169,175 0.59%
Borrowed funds
Short-term borrowings 522,630 0.20% 598,442 0.19% 363,982 0.17% 587,548 0.20% 198,275 0.13%
Long-term debt 60,892 3.51% 69,264 3.53% 75,326 3.54% 69,717 3.53% 75,523 3.58%
Total borrowed funds 583,522 0.54% 667,706 0.54% 439,308 0.75% 657,265 0.55% 273,798 1.08%
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Total interest-bearing liabilities 4,304,331 0.37% 4,322,017 0.35% 4,352,162 0.51% 4,395,211 0.38% 4,442,973 0.62%
Noninterest-bearing liabilities
Noninterest-bearing demand deposits 1,129,097 1,072,259 1,112,072 1,078,800 1,035,319
Other liabilities 99,480 106,288 115,477 105,975 126,172
Shareholders' equity 700,063 693,158 714,373 701,425 713,717
Total liabilities & shareholders' equity $6,232,971 $6,193,722 $6,294,084 $6,281,411 $6,318,181
========== ========== ========== ========== ==========
Net interest income(1) $55,804 $55,772 $61,976 $228,320 $253,341
======= ======= ======= ======== ========
Net interest spread(1) 3.81% 3.82% 4.13% 3.88% 4.22%
==== ==== ==== ==== ====
Net interest margin(1) 3.90% 3.91% 4.27% 3.97% 4.37%
==== ==== ==== ==== ====
(1)Not tax equivalent.
(2)Loans held for sale, nonaccrual loans, covered loans, and indemnification asset are included in gross loans.
FIRST FINANCIAL BANCORP.
NET INTEREST MARGIN RATE/VOLUME ANALYSIS (1)
(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 $732 $388 $1,120 $1,704 $(556) $1,148 $(2,142) $289 $(1,853)
Interest-bearing deposits with other banks 1 1 2 0 0 0 42 (126) (84)
Gross loans(2) (218) (588) (806) (8,789) (117) (8,906) (32,252) (1,533) (33,785)
Total earning assets 515 (199) 316 (7,085) (673) (7,758) (34,352) (1,370) (35,722)
Interest-bearing liabilities
Total interest-bearing deposits $333 $58 $391 $(1,383) $(168) $(1,551) $(9,850) $(1,528) $(11,378)
Borrowed funds
Short-term borrowings 8 (37) (29) 20 78 98 135 780 915
Long-term debt (4) (74) (78) (5) (128) (133) (33) (205) (238)
Total borrowed funds 4 (111) (107) 15 (50) (35) 102 575 677
--- ---- ---- --- --- --- --- --- ---
Total interest-bearing liabilities 337 (53) 284 (1,368) (218) (1,586) (9,748) (953) (10,701)
Net interest income(1) $178 $(146) $32 $(5,717) $(455) $(6,172) $(24,604) $(417) $(25,021)
==== ===== === ======= ===== ======= ======== ===== ========
(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
2013 2013 2013 2013 2012 2013 2012
---- ---- ---- ---- ---- ---- ----
ALLOWANCE FOR LOAN AND LEASE LOSS ACTIVITY
Balance at beginning of period $45,514 $47,047 $48,306 $47,777 $49,192 $47,777 $52,576
Provision for uncovered loan and lease losses 1,851 1,413 2,409 3,041 3,882 8,714 19,117
Gross charge-offs
Commercial 293 1,482 859 781 657 3,415 4,312
Real estate - construction 1 0 0 0 0 1 2,684
Real estate - commercial 3,113 2,174 2,044 995 2,221 8,326 11,012
Real estate - residential 218 249 326 223 454 1,016 1,814
Installment 39 99 97 100 267 335 577
Home equity 706 411 591 701 1,722 2,409 3,661
Other 398 696 277 410 227 1,781 1,252
Total gross charge-offs 4,768 5,111 4,194 3,210 5,548 17,283 25,312
Recoveries
Commercial 194 92 67 319 71 672 393
Real estate - construction 46 490 0 136 0 672 0
Real estate - commercial 634 1,264 57 39 46 1,994 265
Real estate - residential 96 98 5 4 3 203 73
Installment 66 57 110 77 53 310 323
Home equity 136 95 225 52 32 508 115
Other 60 69 62 71 46 262 227
Total recoveries 1,232 2,165 526 698 251 4,621 1,396
Total net charge-offs 3,536 2,946 3,668 2,512 5,297 12,662 23,916
----- ----- ----- ----- ----- ------ ------
Ending allowance for uncovered loan and lease losses $43,829 $45,514 $47,047 $48,306 $47,777 $43,829 $47,777
======= ======= ======= ======= ======= ======= =======
NET CHARGE-OFFS TO AVERAGE LOANS AND LEASES (ANNUALIZED)
Commercial 0.04% 0.59% 0.35% 0.22% 0.28% 0.30% 0.47%
Real estate - construction (0.23%) (2.09%) 0.00% (0.68%) 0.00% (0.77%) 2.76%
Real estate - commercial 0.66% 0.24% 0.55% 0.27% 0.63% 0.43% 0.82%
Real estate - residential 0.14% 0.17% 0.38% 0.27% 0.58% 0.24% 0.59%
Installment (0.22%) 0.33% (0.10%) 0.17% 1.46% 0.05% 0.41%
Home equity 0.60% 0.34% 0.40% 0.72% 1.82% 0.51% 0.98%
Other 1.20% 2.27% 0.90% 1.63% 0.94% 1.51% 1.66%
Total net charge-offs 0.41% 0.34% 0.45% 0.32% 0.68% 0.38% 0.79%
==== ==== ==== ==== ==== ==== ====
COMPONENTS OF NONPERFORMING LOANS, NONPERFORMING ASSETS, AND UNDERPERFORMING ASSETS
Nonaccrual loans(1)
Commercial $7,934 $8,554 $12,925 $16,296 $15,893 $7,934 $15,893
Real estate - construction 223 1,099 1,104 2,094 2,102 223 2,102
Real estate - commercial 17,286 35,549 35,055 33,871 34,977 17,286 34,977
Real estate - residential 8,606 9,346 9,369 8,295 7,869 8,606 7,869
Installment 574 421 249 341 452 574 452
Home equity 2,982 2,871 2,813 3,059 3,252 2,982 3,252
Lease financing 0 86 496 496 496 0 496
--- --- --- --- --- --- ---
Nonaccrual loans 37,605 57,926 62,011 64,452 65,041 37,605 65,041
Accruing troubled debt restructurings (TDRs) 15,094 16,278 12,924 12,757 10,856 15,094 10,856
Total nonperforming loans 52,699 74,204 74,935 77,209 75,897 52,699 75,897
Other real estate owned (OREO) 19,806 11,804 11,798 11,993 12,526 19,806 12,526
------ ------ ------ ------ ------ ------ ------
Total nonperforming assets 72,505 86,008 86,733 89,202 88,423 72,505 88,423
Accruing loans past due 90 days or more 218 265 158 157 212 218 212
--- --- --- --- ---
Total underperforming assets $72,723 $86,273 $86,891 $89,359 $88,635 $72,723 $88,635
======= ======= ======= ======= ======= ======= =======
Total classified assets $110,509 $120,423 $129,832 $130,436 $129,040 $110,509 $129,040
======== ======== ======== ======== ======== ======== ========
CREDIT QUALITY RATIOS (excluding covered assets)
Allowance for loan and lease losses to
Nonaccrual loans 116.55% 78.57% 75.87% 74.95% 73.46% 116.55% 73.46%
Nonperforming loans 83.17% 61.34% 62.78% 62.57% 62.95% 83.17% 62.95%
Total ending loans 1.25% 1.33% 1.39% 1.49% 1.50% 1.25% 1.50%
Nonperforming loans to total loans 1.50% 2.16% 2.22% 2.38% 2.39% 1.50% 2.39%
Nonperforming assets to
Ending loans, plus OREO 2.06% 2.50% 2.56% 2.74% 2.77% 2.06% 2.77%
Total assets 1.13% 1.38% 1.38% 1.40% 1.36% 1.13% 1.36%
Nonperforming assets, excluding accruing TDRs to
Ending loans, plus OREO 1.63% 2.03% 2.17% 2.34% 2.43% 1.63% 2.43%
Total assets 0.89% 1.12% 1.18% 1.20% 1.19% 0.89% 1.19%
(1) Nonaccrual loans include nonaccrual TDRs of $13.0 million, $13.0 million, $19.9 million, $22.3 million, $14.1 million, and as of December 31, 2013 September 30, 2013, June 30, 2013, March 31, 2013, and December 31, 2012, respectively.
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,
2013 2013 2013 2013 2012 2013 2012
---- ---- ---- ---- ---- ---- ----
PER COMMON SHARE
Market Price
High $17.59 $16.47 $16.05 $16.07 $16.95 $17.59 $18.28
Low $14.56 $14.89 $14.52 $14.46 $13.90 $14.46 $13.90
Close $17.43 $15.17 $14.90 $16.05 $14.62 $17.43 $14.62
Average shares outstanding - basic 57,152,425 57,201,390 57,291,994 57,439,029 57,800,988 57,270,233 57,876,685
Average shares outstanding - diluted 57,863,433 58,012,588 58,128,349 58,283,467 58,670,666 58,073,054 58,868,792
Ending shares outstanding 57,533,046 57,702,444 57,698,344 58,028,923 58,046,235 57,533,046 58,046,235
REGULATORY CAPITAL Preliminary Preliminary
Tier 1 Capital $624,746 $631,846 $630,819 $632,020 $637,176 $624,746 $637,176
Tier 1 Ratio 14.61% 15.26% 15.41% 15.87% 16.32% 14.61% 16.32%
Total Capital $678,970 $684,363 $682,927 $682,974 $686,961 $678,970 $686,961
Total Capital Ratio 15.88% 16.53% 16.68% 17.15% 17.60% 15.88% 17.60%
Total Capital in excess of minimum
requirement $336,878 $353,118 $355,435 $364,376 $374,633 $336,878 $374,633
Total Risk-Weighted Assets $4,276,153 $4,140,561 $4,093,644 $3,982,479 $3,904,096 $4,276,153 $3,904,096
Leverage Ratio 10.11% 10.29% 10.12% 10.00% 10.25% 10.11% 10.25%
OTHER CAPITAL RATIOS
Ending shareholders' equity to ending
assets 10.63% 11.07% 11.08% 11.05% 10.93% 10.63% 10.93%
Ending tangible shareholders' equity
to ending tangible assets 9.20% 9.60% 9.62% 9.60% 9.50% 9.20% 9.50%
Average shareholders' equity to
average assets 11.23% 11.19% 11.15% 11.09% 11.35% 11.17% 11.30%
Average tangible shareholders' equity
to average tangible assets 9.77% 9.71% 9.70% 9.65% 9.88% 9.72% 9.83%
REPURCHASE PROGRAM(1)
Shares repurchased 209,745 0 291,400 249,000 460,500 750,145 460,500
Average share repurchase price $16.39 N/A $15.47 $15.39 $14.78 $15.70 $14.78
Total cost of shares repurchased $3,438 N/A $4,508 $3,831 $6,806 $11,778 $6,806
(1)Represents share repurchases as part of publicly announced plans.
N/A=Not applicable
SUPPLEMENTAL INFORMATION ON COVERED ASSETS
ACCELERATED DISCOUNT ON LOAN PREPAYMENTS AND DISPOSITIONS
During the fourth quarter, First Financial recognized approximately $1.6 million in accelerated discount on covered loans, net of the related adjustment on the FDIC indemnification asset. Accelerated discount is recognized when covered 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.
NET INTEREST MARGIN IMPACT
Net interest margin is affected by certain activity related to the covered loan portfolio. The majority of these loans are accounted for under FASB 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, 2013.
Table VII For the Three
Months Ended
December 31, 2013
-----------------
Average
(Dollars in thousands) Balance Yield
--------------------- ------- -----
Loans, excluding covered loans (1) $3,450,069 4.51%
Covered loan portfolio accounted for under ASC Topic 310-30(2) 432,498 10.16%
Covered loan portfolio accounted for under ASC Topic 310-20(3) 57,574 14.08%
FDIC indemnification asset(2) 78,313 (12.36%)
Total $4,018,454 4.93%
==========
Yield earned on total covered loans 10.62%
Yield earned on total covered loans and FDIC indemnification
asset 7.45%
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
COVERED ASSETS
The following table presents the covered loan portfolio as of December 31, 2013, September 30, 2013 and December 31, 2012.
Table VIII
As of
-----
December 31, September 30, December 31,
2013 2013 2012
------------- -------------- -------------
Percent Percent Percent
(Dollars in thousands) Balance of Total Balance of Total Balance of Total
--------------------- ------- -------- ------- -------- ------- --------
Commercial $42,316 9.2% $52,276 10.1% $102,126 13.7%
Real estate - construction 8,556 1.9% 8,692 1.7% 10,631 1.4%
Real estate - commercial 268,633 58.7% 312,798 60.3% 465,555 62.2%
Real estate - residential 80,733 17.6% 84,418 16.3% 100,694 13.5%
Installment 5,641 1.2% 6,135 1.2% 8,674 1.2%
Home equity 49,624 10.8% 51,692 10.0% 57,458 7.7%
Other 2,370 0.5% 2,513 0.5% 2,978 0.4%
Total $457,873 100.0% $518,524 100.0% $748,116 100.0%
======== ===== ======== ===== ======== =====
As of December 31, 2013, 11.6% of the Company's total loans were covered loans. During the fourth quarter, the total balance of covered loans decreased $60.7 million, or 11.7%, compared to the prior quarter. Of this decline, $46.1 million consisted of covered loans classified as likely to exit and resulted from the continued successful execution of resolution strategies. As required under the loss sharing agreements, First Financial must file monthly certifications with the FDIC on single-family residential loans and quarterly certifications on all other loans. The payment of claims is subject to the FDIC's review for compliance with the loss sharing agreements and to date, all certifications have been filed in a timely manner and without significant issues. The Company's loss sharing agreements with the FDIC related to non-single-family loans expire during the third quarter 2014 and the agreements related to single-family loans expire in the third quarter 2019.
Covered OREO decreased $0.6 million, or 2.3%, during the fourth quarter to $27.1 million as of December 31, 2013 as additions of $3.2 million were offset by resolutions and valuation adjustments of $3.8 million. Additionally, the Company recognized a net loss on sales of covered OREO of $0.9 million during the quarter. The net loss was offset by a corresponding increase in FDIC loss sharing income of approximately 80% of the net loss recognized.
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, 2013 and for the trailing three quarters.
Table IX
As of or for the Three Months Ended
-----------------------------------
December 31, September 30, June 30, March 31,
(Dollars in thousands) 2013 2013 2013 2013
--------------------- ---- ---- ---- ----
Balance at beginning of period $23,259 $32,961 $45,496 $45,190
Provision for loan and lease
losses -covered (5,857) 5,293 (8,283) 9,042
Total gross charge-offs (3,850) (21,009) (4,681) (9,684)
Total recoveries 5,349 6,014 429 948
----- ----- --- ---
Total net (charge-offs) /
recoveries 1,499 (14,995) (4,252) (8,736)
Ending allowance for loan and
lease losses -covered $18,901 $23,259 $32,961 $45,496
======= ======= ======= =======
As a percentage of total covered loans, the allowance for loan losses totaled 4.13% as of December 31, 2013 compared to 4.49% as of September 30, 2013.
The Company realized net recoveries on covered loans during the fourth quarter of $1.5 million compared to net charge-offs of $15.0 million for the third quarter. The net recoveries realized during the fourth quarter were driven primarily by the continued resolution strategies related to covered loans discussed above. During the fourth quarter, the Company recognized a negative provision expense of $5.9 million compared to a provision expense of $5.3 million for the linked quarter. The difference between provision expense and net charge-offs / recoveries primarily relates to the quarterly re-estimation of cash flow expectations required under FASB ASC Topic 310-30.
In addition to the provision expense, the Company incurred loss sharing and covered asset expenses of $1.5 million, consisting primarily of credit expenses, and net losses related to covered OREO of $0.9 million. The negative FDIC loss sharing income of $3.4 million for the quarter reflects the quarterly re-estimation of expected cash flows and the corresponding offset related to the net losses on sales of covered OREO and loss sharing and covered asset expenses.
As previously disclosed in the press release dated January 22, 2014, the Company recognized a $22.4 million pre-tax non-cash valuation adjustment on its FDIC indemnification asset during the quarter. The non-cash valuation adjustment resulted primarily from an improvement in future expected cash flows on covered loans, a meaningful decline in loss claims filed with the FDIC, higher reimbursements to the FDIC related to positive asset resolutions in recent periods and the significantly shorter remaining life of the indemnification asset in comparison to the weighted average life of the related covered loans.
SOURCE First Financial Bancorp
