HAMILTON, Ohio, Jan. 29 /PRNewswire-FirstCall/ -- First Financial Bancorp president and chief executive officer, Claude E. Davis, today announced full year 2007 net income of $35.7 million or 93 cents in diluted earnings per share, compared to $21.3 million or 54 cents in diluted earnings per share for the full year 2006. First Financial also announced fourth quarter 2007 net income of $10.7 million or 29 cents in diluted earnings per share, compared to $0.8 million or 2 cents in diluted earnings per share for the fourth quarter 2006. Net income was $8.4 million or 22 cents in diluted earnings per share in the third quarter 2007.
Davis said, "We are pleased with our fourth quarter performance, particularly against the backdrop of a very difficult quarter for the banking industry, and believe that our full year results are strong evidence that the efforts put forth by our associates in the implementation of our strategic initiatives are paying off. While current economic conditions may put stress on both commercial and consumer borrowers, we remain optimistic that our strong credit processes will allow us to effectively manage our credit risk.
"Our capital position is strong, and we have a diversified portfolio of earning assets that should help us mitigate any significant macro-economic risks. The interest rate environment will have some negative impact on our performance, but overall we believe we are well positioned to capitalize on opportunities that are sure to present themselves in these interesting times."
Return on average assets for the full year 2007 was 1.08 percent compared to 0.62 percent for the full year 2006. Fourth quarter 2007 return on average assets was 1.27 percent compared to 0.10 percent for the same period in 2006 and 1.00 percent last quarter. Return on average shareholders' equity was 12.73 percent for the full year 2007 compared to 7.13 percent for the full year 2006. Fourth quarter 2007 return on average shareholders' equity was 15.37 percent compared to 1.10 percent for the same period in 2006 and 12.03 percent last quarter.
Unless otherwise noted, all amounts discussed in the earnings release are pre-tax except net income and per-share data which is presented after-tax. Percentage changes are not annualized unless specifically noted.
Summary of Operating Results and Outlook of Key Drivers
Net income in the fourth quarter 2007 of $10.7 million was significantly impacted by the following items: gain on the sale of the merchant payment processing portfolio of $5.5 million or 9 cents per diluted share, pension settlement expense of $2.2 million or 4 cents per diluted share, and Visa litigation expense of $0.5 million or 1 cent per diluted share. For further detail on comparable financial results, please refer to the discussion regarding revenue and expense fluctuations found later in this release.
Net interest margin decreased to 3.94 percent for the full year 2007 from 4.01 percent for the full year 2006 primarily due to the effect of competitive increases in deposit rates and account migration to higher cost deposit products, somewhat offset by increased yields due to the mix shift of earnings assets. In a series of actions beginning in September 2007, the Federal Reserve lowered the federal funds rate a total of 100 basis points by year-end, and an additional 75 basis points to date in January 2008, in an effort to reduce the impact on consumers and the financial markets from the subprime mortgage and credit crisis. These actions have resulted in the decline of other market interest rates, specifically the prime rate, but have created a disproportionate impact on asset yields as compared to deposit costs. The linked-quarter (fourth quarter 2007 compared to third quarter 2007) net interest margin decline of 9 basis points to 3.79 percent in the fourth quarter 2007 was primarily due to these recent actions by the Federal Reserve and the resulting impact from our asset sensitivity.
Noninterest income grew $2.8 million, or 5.5 percent, on a comparative full year basis, excluding the impact of the several significant events detailed later in this release. This net increase was primarily due to higher trust and wealth management fees and bankcard income, resulting from our successful efforts to market both products. We expect this to continue throughout 2008, though wealth management fees may be muted by overall market value decreases, should they continue.
Noninterest expense has improved significantly as a direct result of the successful execution of the previously mentioned strategic initiatives, resulting in a reduction in noninterest expense of $31.8 million, or 20.8 percent, for the full year 2007 as compared to the full year 2006. The pension settlement charge recorded in both 2006 and 2007 was a result of First Financial's staff reductions, and is an acceleration of costs that were previously deferred under pension accounting rules and would have been recognized in future periods. First Financial continues to evaluate its staffing levels based on its business needs and requirements; and as a result, associate base salaries excluding severance costs have decreased $5.0 million in 2007 from the full year 2006, or 9.3 percent.
The fourth quarter 2007 noninterest expense included $0.5 million associated with First Financial's proportionate share of the announced Visa Inc. member bank settlement charges and pending litigation. It is anticipated that Visa will use a portion of the proceeds of their planned initial public offering ("IPO") to satisfy such litigation judgments and settlements. In the event this IPO occurs, First Financial expects that its proportionate share of proceeds from the offering will more than offset its current liability for this litigation.
Please refer to the detailed schedule of significant expense items in the noninterest expense section that follows.
Loan growth during 2007 was primarily driven by First Financial's continued efforts to expand its commercial lending sales force and deepen its market presence, primarily in its metropolitan markets. The mix shift from lower yielding consumer lending to higher yielding commercial loans continues. Period-end commercial, commercial real estate, and construction loans increased from $1.40 billion in the fourth quarter 2006 to $1.64 billion in the fourth quarter 2007, an increase of $244.2 million or 17.5 percent.
Deposit growth during 2007 was modest, with the competitive landscape remaining intense and made even more difficult by the increased liquidity pressure being exhibited by a number of banks in our markets. The consumer's preference for higher-yielding money market accounts and time deposits, rather than more traditional transaction accounts, remains and continues to result in shifts in deposit mix. This is also the primary driver of behavior-based margin compression.
Capital ratios at December 31, 2007, significantly exceeded the levels necessary to be classified as "well capitalized" and were slightly higher than the third quarter 2007, with a leverage ratio of 8.26%, a tangible ratio of 7.41% and a total capital ratio of 11.38%. In 2008 we expect to operate within the boundaries of our target capital ratios for minimum leverage, tangible and total risk-based capital of 8.0%, 6.75% and 11.50% respectively. The timing and volume of our most recent share repurchase activity has resulted in a 12 basis point shortfall to the total capital minimum target ratio, but we expect to return to that range within the first half of 2008.
Credit quality overall is stable, as evidenced by our level of net charge- offs, as well as the low level of nonperforming assets. Net charge-offs, as a percent of average loans, for the full year and fourth quarter of 2007 were 24 basis points and 26 basis points respectively. While there is some anticipation of decay in certain consumer-based lending products due to a broad economic downturn, First Financial's total loan portfolio has, and continues to shift away from most consumer-based lending. As such, the expected effects from such economic conditions on First Financial, relative to the industry, should be less severe. Additionally, the mix of the total loan portfolio has shifted not only in product type, but in the risk profile of the borrowers due to the improvements in both underwriting and in the resolution strategies used for problem credits. However, there always remains the possibility of an unexpected event which could result in higher credit losses.
Nonperforming asset levels remained relatively stable throughout 2007, reflective of First Financial's strong credit management policies and practices, particularly in the current economic environment. Improvement in the commercial and installment loan categories in the second half of 2007 were offset by increases in the commercial real estate, residential real estate, and home equity loan categories. Nonaccrual loans, as a percent of total loans, for the fourth and third quarters of 2007 were 0.56 percent and 0.53 percent, respectively. First Financial's December 31, 2007 allowance for loan and lease losses to period-end loans ratio was 1.12 percent, an increase of 2 basis points compared to December 31, 2006 and equal to the September 30, 2007 ratio. For a more detailed discussion of credit quality, please refer to the credit quality section that follows.
2008 Outlook
Based upon the overall economic outlook for 2008, management anticipates low single digit growth in both loans and deposits. Net interest margin compression will continue as our assets reprice downward at a faster pace and with greater magnitude than our liabilities with a larger near-term impact and slow return to pre-rate-cut levels in 2009. Expected net charge-off levels are between 30 and 40 basis points of average loans. Management does expect modest noninterest income growth and little to no growth in noninterest expense. A material change in economic conditions would have an impact on our expected 2008 performance.
Current Period Operating Results Detail NET INTEREST INCOME Full Year 2007 vs. Full Year 2006
Net interest income for the full year 2007 was $118.5 million compared to $125.1 million for the full year 2006, a decrease of $6.6 million or 5.3 percent. This decrease is primarily due to a 3.6 percent net decline in the level of average earning assets, resulting primarily from the third quarter 2006 sale of ten branches and their approximate $101 million of loans and $109 million of deposits.
Fourth Quarter 2007 vs. Fourth Quarter 2006
Net interest income in the fourth quarter 2007 was $29.1 million compared to $30.1 million in the fourth quarter 2006, a decrease of $1.0 million or 3.4 percent. This decrease is primarily due to a slight reduction in the yield on earning assets, as well as increased average deposit balances and interest rates paid on those deposits.
Fourth Quarter 2007 vs. Third Quarter 2007
Net interest income on a linked-quarter basis remained relatively flat, decreasing from $29.4 million in the third quarter 2007 to $29.1 million in the fourth quarter 2007, a $0.3 million or 4.6 percent annualized decrease. The slight decline in net interest income is primarily a result of recent actions by the Federal Reserve to lower targeted interest rates and the resulting impact from our modest asset sensitivity.
NET INTEREST MARGIN Full Year 2007 vs. Full Year 2006
Full year net interest margin was 3.94 percent in 2007 compared to 4.01 percent in 2006, a decline of 7 basis points primarily due to an increase in deposit costs. On a tax-equivalent full year basis, net interest margin was 4.01 percent in 2007 as compared to 4.09 percent in 2006.
Fourth Quarter 2007 vs. Fourth Quarter 2006
Fourth quarter 2007 net interest margin of 3.79 percent decreased 16 basis points from 3.95 percent for the fourth quarter 2006 primarily due to an increase in deposit costs on a higher level of average interest-bearing deposits. On a tax equivalent basis, the fourth quarter 2007 net interest margin of 3.86 percent decreased 19 basis points from 4.05 percent for the fourth quarter 2006.
Fourth Quarter 2007 vs. Third Quarter 2007
Linked-quarter net interest margin decreased 9 basis points from 3.88 percent to 3.79 percent. The net interest margin was positively impacted by the continuing shift from lower yielding indirect installment and residential real estate loans to higher yielding commercial and commercial real estate loans, offset by the impact of recent actions by the Federal Reserve to lower targeted interest rates. On a tax-equivalent basis, the fourth quarter 2007 net interest margin was 3.86 percent as compared to 3.95 percent for the third quarter 2007.
For further details on the quarter-over-quarter and full year changes in the net interest margin, please see the attached Net Interest Margin Rate / Volume Analysis.
BALANCE SHEET TRENDS Loans
The change in period-end commercial, commercial real estate, and construction loans are summarized below (in thousands):
Period-end balances: Annualized % Change % Change Comparable 12/31/07 9/30/07 12/31/06 Linked Qtr. Qtr. Commercial $785,143 $774,059 $673,445 5.7% 16.6% Real estate - commercial 706,409 684,931 623,603 12.5% 13.3% Real estate - construction 151,432 155,495 101,688 (10.5)% 48.9% Total $1,642,984 $1,614,485 $1,398,736 7.1% 17.5%
During late 2005 and early 2006, management made a number of decisions to realign its balance sheet and change its lending focus. These decisions included exiting indirect installment lending, no longer holding its residential real estate loan originations on the balance sheet, and utilizing the sale of loans to strategically manage the company's asset mix, risk profile, and credit quality. This has resulted in the cumulative reduction in loan balances as follows (in thousands):
Indirect installment loan runoff $196,898 Residential real estate loan runoff 174,304 Strategic loan sales 260,423 Total $631,625 Full Year 2007 vs. Full Year 2006
Full year 2007 average total loans remained relatively flat in comparison to 2006, decreasing $19.8 million or less than 1.0 percent; however, average commercial, commercial real estate, and construction loans increased $185.9 million or 13.8 percent from 2006.
Fourth Quarter 2007 vs. Fourth Quarter 2006
Average total loans for the fourth quarter 2007 increased $88.0 million or 3.5 percent from the comparable period a year ago. Period-end commercial, commercial real estate, and construction loans increased $244.2 million or 17.5 percent from the fourth quarter 2006.
Fourth Quarter 2007 vs. Third Quarter 2007
Average total loans for the fourth quarter 2007 increased $11.2 million or 1.7 percent on an annualized basis from the third quarter 2007; and average commercial, commercial real estate, and construction loans increased $36.3 million or 9.1 percent on an annualized basis from the third quarter 2007. Period-end commercial, commercial real estate, and construction loans increased $28.5 million or 7.1 percent on an annualized basis from the third quarter 2007.
Investments
Securities available-for-sale were $306.9 million at December 31, 2007, compared to $324.3 million at December 31, 2006, and $307.9 million at September 30, 2007. The combined investment portfolio was 10.3 percent and 11.1 percent of total assets at December 31, 2007, and 2006, respectively, and 10.4 percent of total assets at September 30, 2007. At December 31, 2007, First Financial held approximately 44 percent of its available-for-sale securities in pass- through residential real estate instruments. Among other factors, several of the portfolio criteria have been to avoid securities backed by sub-prime assets and also those containing assets that would give rise to material geographic concentrations.
Deposits Full Year 2007 vs. Full Year 2006
Full year 2007 average total deposits decreased $48.2 million or 1.7 percent from 2006. Excluding the $74.6 million of average deposit balances included with the branch sales in the third quarter 2006, full year 2007 average deposits increased $26.4 million from 2006.
Fourth Quarter 2007 vs. Fourth Quarter 2006
Average deposits for the fourth quarter 2007 increased $50.7 million or 1.8 percent from the comparable period a year ago. Average total interest-bearing deposits for the fourth quarter 2007 increased $69.4 million or 2.9 percent, and average noninterest-bearing deposits decreased $18.7 million or 4.5 percent, both from the fourth quarter 2006.
Fourth Quarter 2007 vs. Third Quarter 2007
Average deposits for the fourth quarter 2007 increased $24.3 million or 3.4 percent on an annualized basis from the third quarter 2007. Average total interest-bearing deposits increased $10.6 million or 1.7 percent, and average noninterest-bearing deposits increased $13.7 million or 14.2 percent, both on an annualized basis from the third quarter 2007. Period-end noninterest-bearing deposits increased $76.7 million from the third quarter 2007 with approximately $60 million of the variance primarily due to the seasonal deposit activity of large commercial clients. These seasonal fluctuations are generally temporary in nature.
NONINTEREST INCOME Full Year 2007 vs. Full Year 2006
Full year noninterest income was $63.6 million in 2007 compared to $68.0 million in 2006, a $4.4 million or 6.5 percent decrease. The full year 2007 included a $5.5 million fourth quarter gain on the sale of the merchant payment processing portfolio, $0.4 million in gains on the sale of investment securities during the third quarter, and a $1.1 million first quarter gain on the sale of mortgage servicing rights. The full year 2006 included third quarter gains of $12.5 million on the sales of branches, $2.2 million on the sales of problem loans, and a first quarter $0.5 million loss from the sales of investment securities. Excluding these items, full year 2007 noninterest income increased $2.8 million or 5.5 percent from 2006. This remaining increase was primarily due to higher trust and wealth management fees and bankcard income.
Fourth Quarter 2007 vs. Fourth Quarter 2006
Fourth quarter 2007 noninterest income was $20.3 million, an increase of $7.4 million or 57.0 percent from the fourth quarter 2006. Excluding the fourth quarter 2007 gain on the sale of the merchant payment processing portfolio, fourth quarter 2007 noninterest income increased $1.9 million or 14.4 percent from the comparable period in 2006. This increase was primarily due to higher trust and wealth management fees as well as increased earnings from bank-owned life insurance, offset by lower service charge income on deposit accounts.
Fourth Quarter 2007 vs. Third Quarter 2007
On a linked-quarter basis, excluding the fourth quarter 2007 gain on the sale of the merchant payment processing portfolio and the third quarter 2007 gain on sale of investment securities, total noninterest income increased $0.7 million or 19.3 percent on an annualized basis.
NONINTEREST EXPENSE Full Year 2007 vs. Full Year 2006
Full year noninterest expense was $120.7 million in 2007 compared to $152.5 million in 2006, a $31.8 million or 20.8 percent decrease. Significant items that impacted the level of noninterest expense for both years are shown below, by quarter:
Full Year Full Year 2007 2006 $ Change % Change Total noninterest expense $120,747 $152,515 $(31,768) (20.8)% Q1 items: Debt extinguishment prepayment penalty - (4,295) 4,295 - Losses on properties - (354) 354 - Severance (933) (155) (778) - Q1 items subtotal (933) (4,804) 3,871 - Q2 items: Technology contract early termination costs - (1,073) 1,073 - Losses on properties (58) (137) 79 - Severance (128) (2,601) 2,473 - Q2 items subtotal (186) (3,811) 3,625 - Q3 items: Technology contract early termination costs - (500) 500 - Gain (loss) on properties and fixed assets 406 (511) 917 - Severance (521) (696) 175 - Q3 items subtotal (115) (1,707) 1,592 - Q4 items: Pension settlement charges (2,222) (2,969) 747 - Technology contract early termination costs - (408) 408 - Gain (loss) on properties and fixed assets 227 (985) 1,212 - Severance (38) (798) 760 - Visa member litigation charges (461) - (461) - Q4 items subtotal (2,494) (5,160) 2,666 - Adjusted total noninterest expense $117,019 $137,033 $(20,014) (14.6)%
The following items contributed to the adjusted $20.0 million decrease in noninterest expense from the full year 2006:
-- decreases in salaries and employee benefits of $9.0 million primarily due to the $5.3 million reduction in salaries and other performance and incentive-based compensation as a result of an overall reduction in staffing levels and the $3.2 million reduction in pension and other retirement-related expenses -- decreases in data processing of $4.5 million primarily due to the impact of First Financial's prior year technology upgrade in which the company moved from an out-sourced to an in-house data processing environment -- decreases in professional services of $3.7 million primarily due to 2006 costs associated with the corporate reorganization, branding initiative, branch staffing, and recruiting fees, combined with an overall reduction in consultant usage Fourth Quarter 2007 vs. Fourth Quarter 2006
Total noninterest expense decreased $6.4 million or 16.9 percent during the fourth quarter 2007 as compared to the fourth quarter 2006, in addition to the items listed in the table above, primarily due to the following:
-- decreases in salaries and employee benefits of $1.8 million primarily due to the $1.0 million reduction in pension and other retirement- related expenses -- decreases in data processing of $0.3 million primarily due to the positive impact of First Financial's 2006 technology upgrade in which the company moved from an out-sourced to an in-house data processing environment -- decreases in marketing of $0.5 million primarily due to the costs associated with the branding initiative in the prior year -- decreases in professional services of $1.0 million primarily due to 2006 costs associated with the branding initiative, branch staffing, and recruiting fees, combined with an overall reduction in outside consulting usage -- decreases totaling $0.6 million in other individually immaterial, noninterest expense categories, primarily due to the company's heightened focus on expense control. Fourth Quarter 2007 vs. Third Quarter 2007
On a linked-quarter basis, noninterest expense increased $2.6 million or 9.2 percent from the third quarter 2007. The increase in noninterest expense was primarily due to the previously mentioned fourth quarter 2007 pension settlement charge.
INCOME TAXES
Income tax expense was $18.0 million and $9.4 million for the full years 2007 and 2006, respectively. The effective tax rates for the full years 2007 and 2006 were 33.5 percent and 30.8 percent, respectively. Income tax expense was $5.6 million for the fourth quarter 2007 with an effective tax rate of 34.5 percent. The fourth quarter 2006 included an income tax benefit of $1.4 million.
CREDIT QUALITY
First Financial's December 31, 2007 allowance for loan and lease losses to period-end loans ratio was 1.12 percent, 2 basis points higher when compared to December 31, 2006 and equal to September 30, 2007. Full year 2007 net charge- offs of 24 basis points of average loans were significantly improved from the full year 2006 net charge-offs of 48 basis points of average loans, excluding the impact of the transfer of approximately $53 million of loans to loans held for sale. A large percentage of underperforming assets is secured by real estate, and this collateral has been appropriately considered in establishing the allowance for loan and lease losses at December 31, 2007.
In the second quarter 2005, First Financial made the strategic decision to discontinue the origination of residential real estate loans for retention on its balance sheet. As a result, the residential real estate portfolio has declined $174.3 million, excluding the impact of the loan sales, since that time. Earlier in 2007, First Financial sold the servicing of its remaining residential real estate portfolio and established an agreement to sell future originations to a strategic partner. Prior to this decision, First Financial was not a sub-prime lender, and the company does not originate sub-prime residential real estate loans in the current originate-and-sell model.
At December 31, 2007, the commercial real estate and real estate construction loan portfolio totaled $857.8 million, or 33.0 percent of total loans, including $91.9 million or 3.5 percent of total loans for commercial real estate construction, and $46.6 million or 1.8 percent of total loans, for residential construction and land acquisition and development. First Financial's internal lending policies are key to limiting credit exposure from both the residential construction and land acquisition and development segments in any particular project. Most of the residential construction and land acquisition and development loans are in areas of relatively strong housing demand or with borrowers who have undergone an extensive underwriting process.
First Financial continually evaluates the commercial real estate and real estate construction portfolio for geographic and borrower concentrations, as well as loan-to-value coverage, and believes its credit underwriting processes are producing a prudent and acceptable level of credit exposure.
It is management's belief that the $29.1 million allowance for loan and lease losses is adequate to absorb probable credit losses inherent in the portfolio.
Full Year 2007 vs. Full Year 2006
Full year net charge-offs were $6.0 million, an annualized 24 basis points of average loans, compared to full year 2006 net charge-offs of $12.2 million, or 48 basis points of average loans excluding the full year 2006 impact of the transfer of approximately $53 million of loans to loans held for sale. Full year 2006 net charge-offs were 97 basis points of average loans including the impact of the previously mentioned transfer of loans to loans held for sale.
Total underperforming assets at the end of the fourth quarter 2007 were $17.6 million, an increase of $4.3 million from the end of the fourth quarter 2006 primarily due to higher commercial real estate, residential real estate, and home equity loans on nonaccrual status. As a result, the ratio of nonperforming assets to ending loans, plus other real estate owned, increased from 53 basis points at the end of the fourth quarter 2006 to 67 basis points at the end of the fourth quarter 2007, and the ratio of nonperforming loans to
total loans increased from 44 basis points at the end of the fourth quarter 2006 to 56 basis points at the end of the fourth quarter 2007.
Fourth Quarter 2007 vs. Fourth Quarter 2006
Fourth quarter 2007 net charge-offs were $1.7 million, an annualized 26 basis points of average loans, compared to fourth quarter 2006 net charge-offs of $5.9 million, an annualized 95 basis points of average loans excluding the impact of the transfer of approximately $15 million of loans to loans held for sale. The fourth quarter 2006 net charge-offs to average loans ratio was 1.64 percent including the impact of the previously mentioned transfer of loans to loans held for sale.
Fourth Quarter 2007 vs. Third Quarter 2007
Fourth quarter 2007 net charge-offs were $1.7 million, an annualized 26 basis points of average loans, compared to third quarter 2007 net charge-offs of $1.5 million, an annualized 23 basis points of average loans. Total underperforming assets at the end of the fourth quarter 2007 were $17.6 million, an increase of $0.6 million from the end of the third quarter 2007. The ratio of nonperforming assets to ending loans, plus other real estate owned, increased 2 basis points to 67 basis points at the end of the fourth quarter 2007.
For further details on the quarter-over-quarter changes in credit quality, please see the attached Credit Quality schedule.
Earnings Conference Call and Webcast
On January 30, 2008, First Financial will host an earnings conference call that will be webcast live at 9:00 a.m. EST. The presenters will be Claude E. Davis, president and chief executive officer, and J. Franklin Hall, executive vice president and chief financial officer. Anyone may participate in the conference call by calling 1-800-860-2442 (no passcode needed) or by logging on to the company's website (http://www.bankatfirst.com/) for a live audio webcast of the call. Click on the Investor Relations link and then on Webcast. Listeners should allow an extra five minutes to be connected to the call or webcast. The event will be archived on the company's website for one year. Questions regarding this information should be directed to the Media Contact, Cheryl Lipp, or the Analyst Contact, J. Franklin Hall.
This release should be read in conjunction with the consolidated financial statements, notes, and tables attached and in the First Financial Bancorp Annual Report on Form 10-K for the year ended December 31, 2006. 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, the ability of the company to implement its Strategic Plan, the strength of the local economies in which operations are conducted, the effects of and changes in policies and laws of regulatory agencies, inflation, and interest rates. For further discussion of certain factors that may cause such forward-looking statements to differ materially from actual results, refer to the 2006 Form 10-K and other public documents filed with the SEC. These documents are available on First Financial's investor relations website at http://www.bankatfirst.com/ and on the SEC's website at http://www.sec.gov/. Additional information will also be set forth in our annual report on Form 10-K for the year ended December 31, 2007, which will be filed with the SEC by February 29, 2008.
FIRST FINANCIAL BANCORP. CONSOLIDATED FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share) (Unaudited) Three months ended, Dec. 31, Sep. 30, Jun. 30, Mar. 31, 2007 2007 2007 2007 RESULTS OF OPERATIONS Net interest income $29,079 $29,417 $29,601 $30,403 Net income $10,701 $8,373 $8,172 $8,435 Net earnings per common share - basic $0.29 $0.22 $0.21 $0.22 Net earnings per common share - diluted $0.29 $0.22 $0.21 $0.22 Dividends declared per common share $0.17 $0.16 $0.16 $0.16 KEY FINANCIAL RATIOS Return on average assets 1.27% 1.00% 1.00% 1.04% Return on average shareholders' equity 15.37% 12.03% 11.61% 11.94% Return on average tangible shareholders' equity 17.17% 13.44% 12.95% 13.31% Net interest margin 3.79% 3.88% 3.97% 4.12% Net interest margin (fully tax equivalent) (1) 3.86% 3.95% 4.05% 4.20% Average shareholders' equity to average assets 8.27% 8.34% 8.58% 8.68% Tier 1 Ratio (2) 10.29% 10.18% 11.13% 11.57% Total Capital Ratio (2) 11.38% 11.27% 12.18% 12.64% Leverage Ratio (2) 8.26% 8.21% 9.04% 9.08% AVERAGE BALANCE SHEET ITEMS Loans (3) $2,588,985 $2,576,308 $2,530,638 $2,490,252 Investment securities 350,346 349,686 364,050 367,407 Other earning assets 106,922 81,669 93,986 134,635 Total earning assets $3,046,253 $3,007,663 $2,988,674 $2,992,294 Total assets $3,338,828 $3,309,800 $3,291,756 $3,299,346 Noninterest-bearing deposits $399,304 $385,653 $405,179 $401,698 Interest-bearing deposits 2,461,464 2,450,830 2,403,919 2,406,913 Total deposits $2,860,768 $2,836,483 $2,809,098 $2,808,611 Borrowings $177,876 $176,528 $177,472 $181,613 Shareholders' equity $276,269 $276,183 $282,354 $286,453 CREDIT QUALITY RATIOS Allowance to ending loans 1.12% 1.12% 1.10% 1.10% Allowance to nonaccrual loans 205.89% 221.70% 194.92% 254.59% Allowance to nonperforming loans 197.94% 212.42% 187.35% 241.41% Nonperforming loans to total loans 0.56% 0.53% 0.59% 0.45% Nonperforming assets to ending loans, plus OREO 0.67% 0.65% 0.67% 0.56% Nonperforming assets to total assets 0.51% 0.51% 0.52% 0.42% Net charge-offs to average loans (annualized) (4) 0.26% 0.23% 0.23% 0.22% Three months Twelve months ended, ended Dec. 31, Dec. 31, 2006 2007 2006 RESULTS OF OPERATIONS Net interest income $30,104 $118,500 $125,073 Net income $827 $35,681 $21,271 Net earnings per common share - basic $0.02 $0.93 $0.54 Net earnings per common share - diluted $0.02 $0.93 $0.54 Dividends declared per common share $0.16 $0.65 $0.64 KEY FINANCIAL RATIOS Return on average assets 0.10% 1.08% 0.62% Return on average shareholders' equity 1.10% 12.73% 7.13% Return on average tangible shareholders' equity 1.24% 14.20% 8.05% Net interest margin 3.95% 3.94% 4.01% Net interest margin (fully tax equivalent) (1) 4.05% 4.01% 4.09% Average shareholders' equity to average assets 8.98% 8.47% 8.69% Tier 1 Ratio (2) 11.73% 10.29% 11.73% Total Capital Ratio (2) 12.81% 11.38% 12.81% Leverage Ratio (2) 9.02% 8.33% 8.76% AVERAGE BALANCE SHEET ITEMS Loans (3) $2,497,389 $2,546,898 $2,571,935 Investment securities 381,985 357,803 407,116 Other earning assets 142,320 104,165 141,347 Total earning assets $3,021,694 $3,008,866 $3,120,398 Total assets $3,332,388 $3,310,040 $3,432,661 Noninterest-bearing deposits $418,009 $397,918 $415,211 Interest-bearing deposits 2,392,092 2,430,986 2,461,914 Total deposits $2,810,101 $2,828,904 $2,877,125 Borrowings $192,811 $178,357 $227,146 Shareholders' equity $299,320 $280,275 $298,227 CREDIT QUALITY RATIOS Allowance to ending loans 1.10% 1.12% 1.10% Allowance to nonaccrual loans 267.55% 205.89% 267.55% Allowance to nonperforming loans 252.82% 197.94% 252.82% Nonperforming loans to total loans 0.44% 0.56% 0.44% Nonperforming assets to ending loans, plus OREO 0.53% 0.67% 0.53% Nonperforming assets to total assets 0.40% 0.51% 0.40% Net charge-offs to average loans (annualized) (4) 1.64% 0.24% 0.97% (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, 2007 regulatory capital ratios are preliminary. (3) Includes loans held for sale. (4) December 31, 2006 and the full year 2006 charge-offs include $4,375 and $12,731, respectively, in loans held for sale write-downs to the lower of cost or estimated fair value. FIRST FINANCIAL BANCORP. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands) (Unaudited) Three months ended, Twelve months ended, Dec. 31, Dec. 31, 2007 2006 % Change 2007 2006 % Change Interest income Loans, including fees $45,709 $44,972 1.6% $182,670 $177,699 2.8% Investment securities Taxable 3,641 3,925 (7.2%) 14,961 16,592 (9.8%) Tax-exempt 859 985 (12.8%) 3,542 4,142 (14.5%) Total investment securities interest 4,500 4,910 (8.4%) 18,503 20,734 (10.8%) Federal funds sold 1,224 1,894 (35.4%) 5,269 7,092 (25.7%) Total interest income 51,433 51,776 (0.7%) 206,442 205,525 0.4% Interest expense Deposits 20,238 19,349 4.6% 79,184 70,012 13.1% Short-term borrowings 1,211 1,027 17.9% 4,232 3,768 12.3% Long-term borrowings 466 609 (23.5%) 2,099 4,062 (48.3%) Subordinated debentures and capital securities 439 687 (36.1%) 2,427 2,610 (7.0%) Total interest expense 22,354 21,672 3.1% 87,942 80,452 9.3% Net interest income 29,079 30,104 (3.4%) 118,500 125,073 (5.3%) Provision for loan and lease losses 1,640 5,822 (71.8%) 7,652 9,822 (22.1%) Net interest income after provision for loan and lease losses 27,439 24,282 13.0% 110,848 115,251 (3.8%) Noninterest income Service charges on deposit accounts 5,330 5,766 (7.6%) 20,766 21,958 (5.4%) Trust and wealth management fees 4,989 3,987 25.1% 18,396 16,264 13.1% Bankcard income 1,165 1,126 3.5% 5,251 4,437 18.3% Net gains from sales of loans 295 234 26.1% 844 3,206 (73.7%) Gain on sale of merchant payment processing portfolio 5,501 0 N/M 5,501 0 N/M Gain on sale of mortgage servicing rights 0 0 N/M 1,061 0 N/M Gains on sales of branches 0 0 N/M 0 12,545 N/M Gains (losses) on sales of investment securities 0 0 N/M 367 (476) 177.1% Other 2,982 1,791 66.5% 11,402 10,050 13.5% Total noninterest income 20,262 12,904 57.0% 63,588 67,984 (6.5%) Noninterest expenses Salaries and employee benefits 16,508 18,265 (9.6%) 69,891 81,560 (14.3%) Pension settlement charges 2,222 2,969 (25.2%) 2,222 2,969 (25.2%) Net occupancy 2,842 2,699 5.3% 10,861 11,038 (1.6%) Furniture and equipment 1,742 1,496 16.4% 6,761 5,607 20.6% Data processing 825 1,574 (47.6%) 3,498 9,969 (64.9%) Marketing 523 1,022 (48.8%) 2,441 3,490 (30.1%) Communication 903 1,204 (25.0%) 3,230 3,334 (3.1%) Professional services 1,109 2,074 (46.5%) 4,142 7,835 (47.1%) Debt extinguishment 0 0 N/M 0 4,295 N/M Other 4,698 6,466 (27.3%) 17,701 22,418 (21.0%) Total noninterest expenses 31,372 37,769 (16.9%) 120,747 152,515 (20.8%) Income (loss) before income taxes 16,329 (583) N/M 53,689 30,720 74.8% Income tax expense (benefit) 5,628 (1,410) N/M 18,008 9,449 90.6% Net income $10,701 $827 N/M $35,681 $21,271 67.7% ADDITIONAL DATA Net earnings per common share - basic $0.29 $0.02 $0.93 $0.54 Net earnings per common share - diluted $0.29 $0.02 $0.93 $0.54 Dividends declared per common share $0.17 $0.16 $0.65 $0.64 Book value per common share $7.40 $7.27 $7.40 $7.27 Return on average assets 1.27% 0.10% 1.08% 0.62% Return on average shareholders' equity 15.37% 1.10% 12.73% 7.13% Interest income $51,433 $51,776 (0.7%) $206,442 $205,525 0.4% Tax equivalent adjustment 561 712 (21.2%) 2,281 2,655 (14.1%) Interest income - tax equivalent 51,994 52,488 (0.9%) 208,723 208,180 0.3% Interest expense 22,354 21,672 3.1% 87,942 80,452 9.3% Net interest income - tax equivalent $29,640 $30,816 (3.8%) $120,781 $127,728 (5.4%) Net interest margin 3.79% 3.95% 3.94% 4.01% Net interest margin (fully tax equivalent) (1) 3.86% 4.05% 4.01% 4.09% Full-time equivalent employees 1,057 1,214 1,057 1,214 (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) (Unaudited) 2007 % Change Fourth Third Second First Full Linked Quarter Quarter Quarter Quarter Year Qtr. Interest income Loans, including fees $45,709 $46,606 $45,291 $45,064 $182,670 (1.9%) Investment securities Taxable 3,641 3,667 3,762 3,891 14,961 (0.7%) Tax-exempt 859 863 911 909 3,542 (0.5%) Total investment securities interest 4,500 4,530 4,673 4,800 18,503 (0.7%) Federal funds sold 1,224 1,048 1,241 1,756 5,269 16.8% Total interest income 51,433 52,184 51,205 51,620 206,442 (1.4%) Interest expense Deposits 20,238 20,528 19,409 19,009 79,184 (1.4%) Short-term borrowings 1,211 1,041 984 996 4,232 16.3% Long-term borrowings 466 532 542 559 2,099 (12.4%) Subordinated debentures and capital securities 439 666 669 653 2,427 (34.1%) Total interest expense 22,354 22,767 21,604 21,217 87,942 (1.8%) Net interest income 29,079 29,417 29,601 30,403 118,500 (1.1%) Provision for loan and lease losses 1,640 2,558 2,098 1,356 7,652 (35.9%) Net interest income after provision for loan and lease losses 27,439 26,859 27,503 29,047 110,848 2.2% Noninterest income Service charges on deposit accounts 5,330 5,396 5,296 4,744 20,766 (1.2%) Trust and wealth management fees 4,989 4,721 4,526 4,160 18,396 5.7% Bankcard income 1,165 1,422 1,424 1,240 5,251 (18.1%) Net gains from sales of loans 295 203 184 162 844 45.3% Gain on sale of merchant payment processing portfolio 5,501 0 0 0 5,501 N/M Gain on sale of mortgage servicing rights 0 0 0 1,061 1,061 N/M Gains on sales of investment securities 0 367 0 0 367 N/M Other 2,982 2,341 2,702 3,377 11,402 27.4% Total noninterest income 20,262 14,450 14,132 14,744 63,588 40.2% Noninterest expenses Salaries and employee benefits 16,508 17,288 17,134 18,961 69,891 (4.5%) Pension settlement charges 2,222 0 0 0 2,222 N/M Net occupancy 2,842 2,728 2,484 2,807 10,861 4.2% Furniture and equipment 1,742 1,684 1,708 1,627 6,761 3.4% Data processing 825 1,010 818 845 3,498 (18.3%) Marketing 523 407 642 869 2,441 28.5% Communication 903 664 798 865 3,230 36.0% Professional services 1,109 964 1,063 1,006 4,142 15.0% Other 4,698 3,980 4,793 4,230 17,701 18.0% Total noninterest expenses 31,372 28,725 29,440 31,210 120,747 9.2% Income before income taxes 16,329 12,584 12,195 12,581 53,689 29.8% Income tax expense 5,628 4,211 4,023 4,146 18,008 33.6% Net income $10,701 $8,373 $8,172 $8,435 $35,681 27.8% ADDITIONAL DATA Net earnings per common share - basic $0.29 $0.22 $0.21 $0.22 $0.93 Net earnings per common share - diluted $0.29 $0.22 $0.21 $0.22 $0.93 Dividends declared per common share $0.17 $0.16 $0.16 $0.16 $0.65 Book value per common share $7.40 $7.26 $7.18 $7.29 $7.40 Return on average assets 1.27% 1.00% 1.00% 1.04% 1.08% Return on average shareholders' equity 15.37% 12.03% 11.61% 11.94% 12.73% Interest income $51,433 $52,184 $51,205 $51,620 $206,442 (1.4%) Tax equivalent adjustment 561 564 580 576 2,281 (0.5%) Interest income - tax equivalent 51,994 52,748 51,785 52,196 208,723 (1.4%) Interest expense 22,354 22,767 21,604 21,217 87,942 (1.8%) Net interest income - tax equivalent $29,640 $29,981 $30,181 $30,979 $120,781 (1.1%) Net interest margin 3.79% 3.88% 3.97% 4.12% 3.94% Net interest margin (fully tax equivalent) (1) 3.86% 3.95% 4.05% 4.20% 4.01% Full-time equivalent employees 1,057 1,078 1,158 1,166 1,057 (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) (Unaudited) 2006 Fourth Third Second First Full Quarter Quarter Quarter Quarter Year Interest income Loans, including fees $44,972 $45,484 $44,386 $42,857 $177,699 Investment securities Taxable 3,925 3,728 3,798 5,141 16,592 Tax-exempt 985 996 1,057 1,104 4,142 Total investment securities interest 4,910 4,724 4,855 6,245 20,734 Federal funds sold 1,894 2,116 1,500 1,582 7,092 Total interest income 51,776 52,324 50,741 50,684 205,525 Interest expense Deposits 19,349 19,176 16,554 14,933 70,012 Short-term borrowings 1,027 953 892 896 3,768 Long-term borrowings 609 686 709 2,058 4,062 Subordinated debentures and capital securities 687 686 639 598 2,610 Total interest expense 21,672 21,501 18,794 18,485 80,452 Net interest income 30,104 30,823 31,947 32,199 125,073 Provision for loan and lease losses 5,822 2,888 360 752 9,822 Net interest income after provision for loan and lease losses 24,282 27,935 31,587 31,447 115,251 Noninterest income Service charges on deposit accounts 5,766 5,672 5,431 5,089 21,958 Trust and wealth management fees 3,987 3,949 4,139 4,189 16,264 Bankcard income 1,126 1,023 1,165 1,123 4,437 Net gains from sales of loans 234 2,468 259 245 3,206 Gains on sales of branches 0 12,545 0 0 12,545 Losses on sales of investment securities 0 0 0 (476) (476) Other 1,791 2,623 2,835 2,801 10,050 Total noninterest income 12,904 28,280 13,829 12,971 67,984 Noninterest expenses Salaries and employee benefits 18,265 19,968 23,110 20,217 81,560 Pension settlement charges 2,969 0 0 0 2,969 Net occupancy 2,699 2,802 2,698 2,839 11,038 Furniture and equipment 1,496 1,297 1,334 1,480 5,607 Data processing 1,574 3,058 3,393 1,944 9,969 Marketing 1,022 1,138 647 683 3,490 Communication 1,204 821 642 667 3,334 Professional services 2,074 2,342 1,829 1,590 7,835 Debt extinguishment 0 0 0 4,295 4,295 Other 6,466 5,759 5,031 5,162 22,418 Total noninterest expenses 37,769 37,185 38,684 38,877 152,515 (Loss) income before income taxes (583) 19,030 6,732 5,541 30,720 Income tax (benefit) expense (1,410) 6,911 2,374 1,574 9,449 Net income $827 $12,119 $4,358 $3,967 $21,271 ADDITIONAL DATA Net earnings per common share - basic $0.02 $0.31 $0.11 $0.10 $0.54 Net earnings per common share - diluted $0.02 $0.31 $0.11 $0.10 $0.54 Dividends declared per common share $0.16 $0.16 $0.16 $0.16 $0.64 Book value per common share $7.27 $7.58 $7.37 $7.50 $7.27 Return on average assets 0.10% 1.40% 0.51% 0.45% 0.62% Return on average shareholders' equity 1.10% 16.09% 5.90% 5.39% 7.13% Interest income $51,776 $52,324 $50,741 $50,684 $205,525 Tax equivalent adjustment 712 586 696 661 2,655 Interest income - tax equivalent 52,488 52,910 51,437 51,345 208,180 Interest expense 21,672 21,501 18,794 18,485 80,452 Net interest income - tax equivalent $30,816 $31,409 $32,643 $32,860 $127,728 Net interest margin 3.95% 3.93% 4.11% 4.04% 4.01% Net interest margin (fully tax equivalent) (1) 4.05% 4.01% 4.20% 4.12% 4.09% Full-time equivalent employees 1,214 1,226 1,365 1,467 1,214 (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.
