Another step on the path to success 1 Investor Presentation Third Quarter 2011 EXHIBIT 99.1
Another step on the path to success 2 Certain statements contained in this presentation which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the ‘‘Act’’). In addition, certain statements in future filings by First Financial with the SEC, in press releases, and in oral and written statements made by or with the approval of First Financial which are not statements of historical fact constitute forward-looking statements within the meaning of the 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. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: • management’s ability to effectively execute its business plan; • the risk that the strength of the United States economy in general and the strength of the local economies in which we conduct operations may continue to deteriorate resulting in, among other things, a further deterioration in credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio, allowance for loan and lease losses and overall financial performance; • the effects of the potential delay or failure of the U.S. federal government to pay its debts as they become due or make payments in the ordinary course; • the ability of financial institutions to access sources of liquidity at a reasonable cost; • the impact of recent upheaval in the financial markets and the effectiveness of domestic and international governmental actions taken in response, such as the U.S. Treasury’s TARP and the FDIC’s Temporary Liquidity Guarantee Program, and the effect of such governmental actions on us, our competitors and counterparties, financial markets generally and availability of credit specifically, and the U.S. and international economies, including potentially higher FDIC premiums arising from increased payments from FDIC insurance funds as a result of depository institution failures; • 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); • inflation and possible changes in interest rates; • our ability to keep up with technological changes; • our ability to comply with the terms of loss sharing agreements with the FDIC; • mergers and acquisitions, including costs or difficulties related to the integration of acquired companies and the wind-down of non-strategic operations that may be greater than expected, such as the previous activities of Irwin Union Bank & Trust Company and its former affiliates, including the risks and uncertainties associated with the Irwin Mortgage Corporation bankruptcy proceedings; • the risk that exploring merger and acquisition opportunities may detract from management’s time and ability to successfully manage our company; • expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, and deposit attrition, customer loss and revenue loss following completed acquisitions may be greater than expected; • our ability to increase market share and control expenses; • the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and the SEC; • adverse changes in the securities and debt markets; • our success in recruiting and retaining the necessary personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services; • monetary and fiscal policies of the Board of Governors of the Federal Reserve System (Federal Reserve) and the U.S. government and other governmental initiatives affecting the financial services industry; • our ability to manage loan delinquency and charge-off rates and changes in estimation of the adequacy of the allowance for loan losses; and • the costs and effects of litigation and of unexpected or adverse outcomes in such litigation. In addition, please refer to our Annual Report on Form 10-K for the year ended December 31, 2010, as well as our other filings with the SEC, for a more detailed discussion of these risks and uncertainties and other factors. Such forward-looking statements are meaningful only on the date when such statements are made, and First Financial 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. Forward Looking Statement Disclosure
Another step on the path to success 3 Focused Business Strategy Client intimate strategy focused on long-term, profitable relationships with clients Strong sales culture that is aggressive in attracting business with the appropriate risk and return Lines of business – Commercial – Retail – Wealth Management – Franchise Finance Target clients – Individuals and small / mid-size businesses located within the regional markets we serve Ohio, Indiana and Kentucky – 116 locations primarily focused on metro and near- metro markets Primary focus and value creation is through organic growth in key regional markets Key initiatives for additional revenue growth – Mortgage – Small business banking Top SBA Lenders - SBA Fiscal Year 2011 Southwest Ohio 1 Number Annual Total Annual 2011 of Increase Loans Increase Rank Name Loans (%) ($MM) (%) 1 Huntington Bank 168 124.0 19.4$ 65.0 2 First Financial Bank 68 106.1 26.0 278.9 3 US Bank 40 (20.0) 6.0 34.4 4 Chase 19 35.7 4.2 182.6 5 RiverHi l l s Bank 18 (41.9) 4.1 (19.1) 6 Fi fth Third Bank 14 (26.3) 5.8 26.0 7 Key Bank 14 75.0 3.9 153.9 7 PNC Bank 12 100.0 1.2 (28.2) 8 Stock Yards Bank & Trust 11 37.5 2.0 33.8 Source: Small Business Administration; Business Courier 1 Counties of Butler, Clermont, Hamilton and Warren
Another step on the path to success Franchise Summary Comparison Consistent and solid profitability – LTM ROAA of 1.01% compared to peer median of 0.83% – LTM ROAE of 8.93% compared to peer median of 7.44% – LTM net interest margin of 4.63% compared to peer median of 3.79% Capital levels extremely robust and have capacity to support significant asset growth – Tangible common equity of 10.38% compared to peer median of 8.39% – Total capital ratio of 20.08% compared to peer median of 15.65% – Estimated asset growth capacity of approximately $2 billion Dividend payout ratio of 100% and yield of 6.6% – Peer median LTM dividend payout ratio of 39% – Peer median dividend yield 2.3% Low risk balance sheet – Risk weighted assets / total assets of 56% compared to peer median of 66% – Return on risk weighted assets of 1.76% compared to peer median of 1.19% Peer Group comprised of the component banks within the KBW Regional Bank Index (49 total companies excluding First Financial); peer median data as of September 30, 2011 except for risk weighted asset data which is as of June 30, 2011. Dividend valuation data as of November 4, 2011. Source: Peer Group median data obtained from SNL Financial 4
Another step on the path to success 5 Third Quarter 2011 Financial Highlights Quarterly net income of $15.6 million, or $0.27 per diluted common share Excluding pre-tax expenses not expected to recur of $3.4 million, net income totaled $17.7 million, or $0.31 per diluted common share Continued strong profitability – Return on average assets of 1.01% – Return on risk-weighted assets of 1.76% – Return on average shareholders’ equity of 8.54% Net income available to common shareholders for the nine months ended September 30, 2011 increased 13.3% compared to the similar period one year ago Adjusted pre-tax, pre-provision income increased $2.2 million, or 7.0%, compared to second quarter 2011 Quarterly net interest margin remains strong at 4.55% – Driven by yield on covered loans and continued decline in cost of deposits Legacy and originated loan portfolio increased 3.2% annualized compared to linked quarter, excluding impact of loans acquired from Liberty Savings Bank – Driven by 8.8% annualized growth in commercial portfolio Nonperforming assets / total assets declined to 1.40% from 1.50% as of June 30, 2011
Another step on the path to success 6 Pre-Tax, Pre-Provision Income Trend Adjusted pre-tax, pre-provision income represents income before taxes plus provision for all loans less FDIC loss share income and accelerated discount adjusted for significant nonrecurring items Recent growth in adjusted PTPP driven significantly by lower noninterest expenses as a result of efficiency initiatives $30,178 $28,731 $27,097 $30,871 $33,036 1.87% 1.82% 1.75% 1.99% 2.14% 3Q10 4Q10 1Q11 2Q11 3Q11 Dollars in thousands Adjusted PTPP Income Adjusted PTPP / Average Assets
Another step on the path to success 7 Components of Net Interest Margin Yield on covered loans was 11.38% during the third quarter, continuing to enhance net interest margin Available liquidity was used during the quarter to purchase limited amount of agency MBS and fund redemption of wholesale borrowings and maturing time deposits Net interest margin continues to be positively impacted by the improved deposit mix towards core transaction and savings accounts Deployment of elevated cash balances and implementation of strategic initiatives related to deposits provide ability to enhance net interest margin $5,867 $5,687 $4,801 $4,562 5.73% 5.30% 1.39% 0.93% 4.59% 4.55% 3Q10 4Q10 1Q11 2Q11 3Q11 Dollars in millions Average Earning Assets Average Interest-Bearing Liabilities Yield on Interest-Earning Assets Cost of Interest-Bearing Liabilities Net Interest Margin
Another step on the path to success 8 Capitalization Primary component of capital is common equity Capital ratios declined during the third quarter 2011 as a result of intangible assets recognized in connection with the Liberty transaction Capitalization levels still remain among industry leaders after closing of Liberty transaction and initiation of variable dividend Source: Peer Group median data obtained from SNL Financial Peer Group comprised of the component banks within the KBW Regional Bank Index (49 total companies excluding First Financial); based on most recent financial information as of November 4, 2011. 10.38% 10.33% 10.40% 11.11% 10.38%7.96% 8.06% 8.28% 8.12% 8.39% 3Q10 4Q1 1Q11 2Q1 3Q11 First Financial Peer Group Median 10.38% 10.33% 10.40% 11.11% 10.38% 7.96% 8.06% 8.28% 8.12% 8.39% 3Q10 4Q10 1Q11 2Q11 3Q11 Tangible Common Equity / Tangible Assets 10.50% 10.89% 11.09% 11.01% 10.87% 9.70% 9.44% 9.62% 9.92% 9.61% 3Q10 4Q10 1Q11 2Q11 3Q11 Tier 1 Leverage Ratio 19.91% 19.72% 21.76% 21.42% 20.08% 15.26% 15.37% 15.24% 15.47% 15.65% 3Q10 4Q10 1Q11 2Q11 3Q11 Total Capital Ratio 18.64% 18.45% 20.49% 20.14% 18.81% 13.51% 13.63% 13.57% 13.87% 13.62% 3Q10 4Q10 1Q11 2Q11 3Q11 Tier 1 Capital Ratio
Another step on the path to success 9 Variable Dividend / 100% Payout Ratio 100% dividend payout ratio comprised of two components: – Regular dividend based on stated payout of between 40% - 60% of quarterly earnings; currently $0.12 per share – Variable dividend based on the remainder of quarterly earnings; $0.15 per share based on third quarter 2011 earnings Stated capital thresholds include a tangible equity ratio of 7%, tier 1 leverage ratio of 8% and total capital ratio of 13%; current capital levels are well in excess of these thresholds and can support significant growth – Strong earnings continue to generate capital to support further growth – we are returning this incremental growth capacity to shareholders with the variable dividend Variable dividend is intended to provide an enhanced return to our shareholders and avoid adding to our capital position until capital deployment opportunities arise, such as acquisitions or organic growth, that move the Company towards its capital thresholds. Board of directors will evaluate the variable dividend on a quarterly basis but expects to approve a 100% payout ratio for the foreseeable future
Another step on the path to success 10 Low Risk Balance Sheet Stress Case Illustrates the strength of our balance sheet assuming a full charge-off of all acquired loans under FDIC loss share agreements and a full charge-off of all uncovered non-performing loans. Nonperforming Assets = $88 million Covered Loans = $1.2 billion Total Assets by Risk Weighting % As of September 30, 2011 (Dollars in millions) Return on Risk Weighted Assets = 1.76% (Peer Median(1) = 1.19%) Risk Weighted Assets / Total Assets = 55.51% (Peer Median(1) = 65.84%) (1) Peer Group comprised of the component banks within the KBW Regional Bank Index (49 total companies excluding First Financial); based on peer median financial data as of June 30, 2011 Peer % of 100% RWAs = 54.67% Chargeoff Chargeoff $2,722 43% $507 8% $2,711 43% $398 6% 100% 50% 20% 0% Risk Based Capital Ratio 20.08% 15.75% 3.16% 1.17% Peers = 15.47% Actual 9/30/2011 All Covered Loans Non-Performing Uncovered Stress Case 9/30/2011 Tangible Common Equity to Tangible Assets 7.92% 10.38% 0.80% 1.66% Peers = 8.12% Actual 9/30/2011 ll Covered Loans Non-Performing Uncovered Stress Case 9/30/2011 Source: Peer Group median data obtained from SNL Financial
Another step on the path to success 11 Credit Quality Review Total classified assets declined $40.0 million, or 18.8%, compared to September 30, 2010 Economic conditions in the Company’s markets are still challenging; real estate loan collateral and OREO valuations will continue to impact restructurings and resolutions Peer Group comprised of the component banks within the KBW Regional Bank Index (49 total companies excluding First Financial); based on most recent financial information as of November 4, 2011. Source: Peer Group median data obtained from SNL Financial 10.38% 10.33% 10.40% 11.11% 10.38%7.96% 8.06% 8.28% 8.12% 8.39% 3Q10 4Q1 1Q11 2Q1 3Q11 First Financial Peer Group Median 2.88% 2.84% 2.90% 2.65% 2.60%2.54% 2.47% 2.60% 2.55% 2.26% 3Q10 4Q10 1Q11 2Q11 3Q11 NPLs / Total Loans 1.59% 1.57% 1.51% 1.50% 1.40% 2.02% 1.94% 1.94% 1.88% 1.74% 3Q10 4Q10 1Q11 2Q11 3Q11 NPAs / Total Assets 72.0% 71.6% 66.6% 72.5% 71.4%70.4% 72.9% 73.3% 75.0% 79.5% 3Q10 4Q10 1Q11 2Q11 3Q11 Reserves / NPLs 2.07% 2.03% 1.93% 1.92% 1.86% 1.95% 1.84% 1.93% 1.88% 1.81% 3Q10 4Q10 1Q11 2Q11 3Q11 Reserves / Total Loans 0.97% 1.39% 0.61% 0.83% 0.96%0.99% 1.16% 0.72% 0.72% 0.54% 3Q10 4Q10 1Q11 2Q11 3Q11 NCOs / Avg. Loans & Leases 14.2% 14.1% 13.6% 12.6% 12.6% 22.5% 23.1% 19.9% 20.5% 20.0% 3Q10 4Q10 1Q11 2Q11 3Q11 Texas Ratio
Another step on the path to success 12 Selective Acquisitions Supplements organic growth strategy through expansion in strategic markets Transactions met all internal criteria for acquisitions Loss sharing arrangements provide significant protection on acquired loans Developed scalable covered asset and loss share management team comprised of credit, legal, accounting and finance Loan Portfolio June 30, 2009 $145 mm select performing commercial and consumer loans Peoples (FDIC) July 31, 2009 19 banking centers $521mm deposits $331mm in loss share covered loans1 No first loss position Banking Centers August 28, 2009 3 banking centers in Indiana $85mm deposits $41mm in select performing commercial and consumer loans Irwin (FDIC) September 18, 2009 27 banking centers $2.5B deposits $1.8B in loss share covered loans1 No first loss position Liberty Banking Centers September 23, 2011 16 banking centers $342mm deposits $127mm in select in-market performing loans Flagstar Banking Centers Ann. August 6, 2011 22 banking centers $328mm retail deposits $198mm government deposits 1 Estimated fair market value of loans We will continue to evaluate opportunities but never lose sight of the core franchise Core philosophy and strategy remain unchanged
Another step on the path to success 13 Liberty Savings Bank Branch Acquisition Branch Map and Deposit Market Share Significantly enhances presence in key market of Dayton Deposit composition and cost of funds similar to existing First Financial deposit base Strong growth potential in all business lines under First Financial brand Positions First Financial as largest community bank operating in the Dayton MSA Southwestern Ohio Pro Forma Deposit Market Share Dayton, OH MSA FDIC Deposit Data as of June 30, 2011 - Holding Company Level Number Total Market 2011 of Deposits Share Rank Name City, State Branches ($000s) (%) 1 Fi fth Third Bancorp Cincinnati , OH 47 2,423,183$ 23.3 2 JPMorgan Chase & Co. New York, NY 33 1,701,335 16.4 3 PNC Financia l Services Grp Inc. Pi ttsburgh, PA 32 1,549,300 14.9 4 KeyCorp Cleveland, OH 20 1,054,931 10.1 5 U.S. Bancorp Minneapol is , MN 30 756,701 7.3 6 Huntington Bancshares Inc. Columbus, OH 12 584,777 5.6 7 Pro Forma First Financial Bancorp Cincinnati, OH 16 466,620 4.5 7 U.S. Bancorp Cincinnati , OH 5 423,480 4.1 8 Liberty Capital Inc. Wilmington, OH 12 295,022 2.8 9 Park National Corp. Newark, OH 9 291,026 2.8 10 First Financial Bancorp. Cincinnati, OH 4 171,598 1.7 Other institutions 52 992,322 9.5 Market total 261 10,405,113$ 100.0 Source: SNL Financial LC
Another step on the path to success 14 Flagstar Bank Branch Acquisition Branch Map and Deposit Market Share Indiana Pro Forma Deposit Market Share Indianapolis, IN MSA FDIC Deposit Data as of June 30, 2011 - Holding Company Level Number Total Market 2011 of Deposits Share Rank Name City, State Branches ($000s) (%) 1 JPMorgan Chase & Co. New York, NY 83 7,762,689$ 25.0 2 PNC Financia l Services Grp Inc. Pi ttsburgh, PA 71 6,899,386 22.2 3 Fi fth Third Bancorp Cincinnati , OH 47 2,817,795 9.1 4 BMO Financia l Group Toronto, ON 42 2,254,450 7.3 5 Huntington Bancshares Inc. Columbus, OH 45 2,061,363 6.6 6 Natl Bank of Indianapol is Corp. Indianapol is , IN 12 1,210,994 3.9 7 Regions Financia l Corp. Birmingham, AL 29 1,207,981 3.9 8 KeyCorp Cleveland, OH 34 1,207,717 3.9 9 Old National Bancorp Evansvi l le, IN 51 762,100 2.5 10 Firs t Merchants Corp. Muncie, IN 17 596,578 1.9 11 Pro Forma First Financial Bancorp Cincinnati, OH 23 519,359 1.7 15 First Financial Bancorp. Cincinnati, OH 5 260,220 0.8 16 Flagstar Bancorp Inc. Troy, MI 18 259,139 0.8 Other institutions 138 3,801,648 12.2 Market total 592 31,102,060$ 100.0 Source: SNL Financial LC Note: Flagstar Indiana deposits do not include deposits held by Indiana-based public entities Significantly enhances presence in key market of Indianapolis Demographically desirable branch locations Strong growth potential in all business lines under First Financial brand High scarcity value – few acquisitions targets available in market with similar scale and footprint
Another step on the path to success 15 Franchise Highlights 1. Strong operating fundamentals – 84 consecutive quarters of profitability 2. Strong capital levels 3. Dividend yield of 6.6% 4. Low risk balance sheet 5. Credit metrics have remained strong throughout the economic downturn 6. Solid market share in strategic operating markets Dividend yield data as of November 4, 2011.
Another step on the path to success 16 Appendix
Another step on the path to success 17 Pre-Tax, Pre-Provision Income For the three months ended September 30, June 30, March 31, December 31, September 30, 2011 2011 2011 2010 2010 Pre-tax, pre-provision income 1 31,814$ 32,845$ 29,768$ 34,844$ 33,631$ Accelerated discount on acquired loans related to: Loan sales 198 39 3,085 - 362 Prepayments 5,009 4,717 2,698 6,113 9,086 Total accelerated discount 5,207 4,756 5,783 6,113 9,448 Plus: loss on covered OREO 2 3,755 2,621 3,112 - - Less: gain on sales of non-mortgage loans 3 700 429 - - 2,034 Plus: acceleration of deferred swap fees associated with trust preferred redemption - 590 - - - Plus: FHLB prepayment penalty - - - - 8,029 Plus: One-time expenses related to the Liberty Savings Bank branch acquisition 1,791 - - - - Plus: One-time other exit and retention costs costs 1,583 - - - - Pre-tax, pre-provision income, net of acceler t d discount, loss on covered OREO and other significant nonrecurring items 33,036$ 30,871$ 27,097$ 28,731$ 30,178$ 1 Represents income before taxes plus provision for all loans less FDIC loss sharing income 2 Reimbursements related to losses on covered OREO and other credit-related costs are included in FDIC loss sharing income, which is excluded from the pre-tax, pre-provision income above 3 Represents gain on sale of loans originated by franchise finance business
Another step on the path to success 18 Revenue by Source Strategic – Elements of the business that either existed prior to the acquisitions or were acquired with the intent to retain and grow. On a reported basis, approximately 76% of total revenue is derived from strategic businesses. Not including the FDIC loss sharing income, strategic operations represents 84% of total revenue. Acquired-Non-Strategic – Elements of the business that the Company intends to exit but will continue to support to obtain maximum economic value. No growth or replacement is expected. Revenue will decrease over time as loans and deposits will not be renewed when they mature. FDIC Loss Sharing Income – In accordance with guidance provided by the SEC, amounts recoverable from the FDIC related to credit losses on covered loans under loss sharing agreements are required to be recorded as noninterest income Accelerated Discount on Loan Prepayments and Dispositions – The acceleration of the unrealized valuation discount. Noninterest income results from the prepayment or sale of covered loans. This item will be ongoing but diminishing as covered loan balances decline over time. Total Revenue: $93.3 million For the Three Months Ended September 30, 2011 (Dollars in millions) $8.4 9% $8.7 9% $71.0 76% $5.2 6% Strategic Acquired-Non-Strategic FDIC Loss Sharing Income Accelerated Discount on Paid in Full Loans
Another step on the path to success 19 Noninterest Income and Expense Components of Noninterest Expense For the Three Months Ended September 30, 2011 (Dollars in millions) Components of Noninterest Income For the Three Months Ended September 30, 2011 (Dollars in millions) $1.4 3% -$0.4 - 1% $43.6 82% $8.5 16% Strategic Acquired-non-strategic FDIC Support Other Non-strategic $0.4 1% $8.4 30% $14.1 50% $5.2 19% Strategic FDIC Loss Sharing Income Other Non-strategic Accelerated Discount on Paid in Full Loans
Another step on the path to success 20 Deposit and Loan Composition Total Deposits = $5.3 billion As of September 30, 2011 (Dollars in millions) Gross Loans = $4.1 billion As of September 30, 2011 (Dollars in millions) Market exits are complete; acquired-non-strategic deposits consist primarily of time deposits in Western, Michigan and Louisville markets and brokered CDs. $136 3% $5,163 97% Strategic Acquired-Non-Strategic $3,469 85% $620 15%
Another step on the path to success 21 Loan Composition Covered Loans - $1.2 billion Uncovered Loans - $2.9 billion Total Loan Portfolio – September 30, 2011 $4.1 billion In-house lending limit of $15 million – significantly below legal limit 28.2% of total loans covered under FDIC loss share agreements Originated portfolio increased $148.5 million, or 21.1% annualized, compared to second quarter 2011; includes loans acquired as part of Liberty branch transaction 26% 4% 46% 10% 11% 3% Commercial Real estate - construction Real estate - commercial Real estate - residential Home equity Installment and other 19% 2% 60% 11% 6% 2% 28% 5% 41% 10% 12% 4%
Another step on the path to success 22 Uncovered Loans – RE Collateral Total Uncovered Loan Portfolio 1 – September 30, 2011 $2.9 Billion 1 Excludes loans covered by FDIC loss sharing agreements Construction and acquisition and land development loans represent small portion of overall portfolio Commercial real estate and constructions loans located primarily in Ohio and Indiana markets 5% 41% Real estate - construction Real estate - commercial $1,202,035 $136,651 Dollars in thousands 61% 36% 3% Non-owner occupied Owner occupied Acquisition & land development
Another step on the path to success 23 1.23% 1.11% 1.04% * Not included in cost of funds calculation Average Interest Bearing Liability Balances End of Period Deposit Composition 0.35% 2.12% Co s t of F u n d s Total Cost of Funds Funding Structure and Cost of Funds 0.00% 0.93% 0.32% 2.03% 0.00% 0.29% 1.99% 0.00% 0.34% 1.97% 0.00% 0.54% 0.45% 0.45% 0.24% Total Cost of Deposits 0.76% 0.84% 0.90% 0.99%
Another step on the path to success 24 Deposit Activity Quarterly growth in strategic transaction and savings accounts includes $188.4 million of deposits assumed as part of Liberty transaction Average strategic transaction and savings accounts increased over $67.9 million, or 8.0% annualized, compared to the second quarter 2011 Active management of pricing and significantly improved deposit mix resulted in a 35 bp decrease in the cost of deposit funding over the past year Implemented a deposit rationalization strategy focused on improving core customer profitability and reducing higher-cost, non-core deposit balances Deposit Activity - Third Quarter 2011 Balance as of Acquired- Balance as of June 30, Strategic Non-Strategic September 30, (Dollars in thousands) 2011 Portfolio Portfolio 2011 Transaction and savings accounts 3,392,807$ 255,114$ (6,852)$ 3,641,069$ Time deposits 1,526,731 80,013 (2,522) 1,604,222 Brokered deposits 54,872 (578) (485) 53,809 Total deposits 4,974,410$ 334,549$ (9,859)$ 5,299,100$
Another step on the path to success 25 Investment Portfolio Investment portfolio represents 18.8% of total assets Volatile market conditions limited new purchases to $38.6 million of agency mortgage backed securities during the third quarter 2011 Elevated cash balances, including cash received at closing of the Liberty transaction, will be deployed with the goal of increasing overall portfolio duration to a range of three to three-and-a-half years; current duration is approximately one year As of September 30, 2011 Book Percent of Book Cost Market Gain/ (Dollars in thousands) Value Total Yield Basis Value (Loss) Agencies 5,112$ 0.4% 5.49 100.00 101.69 85$ CMOs (agency) 660,240 55.3% 1.94 101.23 102.90 10,706 CMOs (private) 34 0.0% 0.95 100.00 100.38 - MBSs (agency) 433,005 36.3% 3.34 102.27 106.33 16,533 1,098,391 92.0% 2.51 101.64 104.22 27,324 Municipal 14,266 1.2% 7.22 99.54 102.03 354 Other 1 81,738 6.8% 3.44 102.85 102.96 82 96,004 8.0% 4.00 102.36 102.81 436 Total investment portfolio 1,194,395$ 100.0% 2.63 101.69 104.11 27,760$ Net Unrealized Gain/(Loss) 27,760$ Aggregate Gains 28,278 Aggregate Losses (518) Net Unrealized Gain/(Loss) % of Book Value 2.32% 1 Other includes $71.5 million of regulatory stock
Another step on the path to success 26 Sector Allocation Credit Quality Investment Grade = A rated securities Other Investment Grade = B rated securities Not Rated includes an immaterial amount of securities with a non-investment grade rating * Other consists primarily of regulatory stock Investment Portfolio Composition As of September 30, 2011
Another step on the path to success 27 Covered Loan Activity Covered Loan Activity - Third Quarter 2011 Reduction in Balance Due to: June 30, Contractual Net Loans With September 30, (Dollars in thousands) 2011 Sales Prepayments Activity 1 Charge-Offs 2 Coverage Rem. 2011 Commercial 251,753$ 3,721$ 17,380$ 5,232$ 1,298$ 240$ 223,882$ Real estate - construction 40,811 - 5,237 8,913 768 - 25,893 Real estate - commercial 726,885 - 27,348 3,587 6,832 1,726 687,392 Real estate - residential 134,131 - 3,483 2,193 702 - 127,753 Installment 15,197 - 713 215 91 - 14,178 Home equity 68,664 - 1,771 (1,505) 501 - 67,897 Other covered loans 5,289 - - 1,218 - - 4,071 Total covered loans 1,242,730$ 3,721$ 55,932$ 19,853$ 10,192$ 1,966$ 1,151,066$ 1 Includes partial paydow ns, accretion of the valuation discount and advances on revolving loans 2 Indemnified at 80% from the FDIC
Another step on the path to success 28 Third Quarter 2011 Loan Valuation The majority of the loans acquired as part of the FDIC-assisted transactions are accounted for under ASC Topic 310-30 which requires the Company to periodically update its forecast of expected cash flows from these loans. As a result of cumulative valuation procedures performed during the third quarter 2011, net impairment is now being observed in the majority of its loan pools. As of September 30, 2011, the allowance for loan and lease losses attributed to valuation of acquired loans was $48.1 million, a decrease of $2.9 million from the second quarter 2011. Expected payments from the FDIC, in the form of FDIC loss sharing income, offset approximately 80% of the recorded impairment and charge-offs. Covered loans continue to maintain yields significantly higher than the Company’s legacy loan portfolio. Third Quarter 2011 Valuation Results Current Prior Period Net Current Projected Life-to- Day 1 Balance as of Period Impairment Period Improvement Wtd. Avg. Date Projected Dollars in thousands Sept. 30, 2011 Impairment Recapture Impairment Rate Avg. Rate Rate Total loans 1,065,685$ 10,801$ (13,733)$ (2,932)$ 1,990$ 10.97% 1 llowance for loan and lease losses (48,112) - - - - 0.52% Total net loa s 1,017,573$ 10,801$ (13,733)$ (2,932)$ 3 1,990$ 11.49% 2 10.53% 9.10% FDIC indemnification asset 177,814$ NA NA NA NA (4.62%) 2.67% 6.50% Weighted average yield 9.09% 9.47% 8.75% 1 The actual yield realized may be different than the projected yield due to activity that occurs after the periodic valuation. 2 Accretion rates are applied to the net carrying value of the loan w hich includes the allow ance for loan and lease losses. 3 Acquired loan provision expense of $7.3 million w as comprised of net charge-offs during the period of $10.2 million and net impairment / (relief) of ($2.9) million.
Another step on the path to success 29 Covered Loan Performance While covered loans continue to decline, better than expected performance has resulted in an increasing yield on the portfolio Despite net impairment being recognized in a majority of the loan pools life-to-date, impairment recapture outweighed current impairment during the third quarter resulting in net relief for the period $(4,938) $(15,062) $(19,489) $2,932 $17,346 $20,718 $777 $1,990 4Q10 1Q11 2Q11 3Q11 Dollars in thousands Quarterly Valuation Results Net (Impairment) / Relief Improvement $1,481 $1,336 $1,243 $1,151 10.29% 10.97% 11.03% 11.38% 4Q10 1Q11 2Q11 3Q11 Dollars in millions Covered Loan Balances and Yields Ending Balance of Covered Loans Yield on Covered Loans
Another step on the path to success Components of Credit Losses Covered Assets 30 $5,693 $4,873 $2,638 1Q11 2Q11 3Q11 Actual Covered Asset Credit Losses For the three months ended September 30, Dollars in thousands 2011 Description Net incremental impairment for period ($2,932) Reduction in expected cash flows related to certain loan pools net of prior period impairment relief / recapture Net charge-offs 10,192 Represents actual, unexpected net charge-offs of acquired loans during the period 1 Provision for loan and lease losses - acquired 7,260 Loss on sale - covered OREO 2,707 Other credit-related expenses 1,048 Total gross credit losses $11,015 FDIC loss share income $8,377 Represents receivable due from FDIC on estimated credit (Nonint rest income) losses; calculated as approximately 80% of gross credit losses related to covered assets $2,638 Difference between these two amounts represents actual credit costs for the period 1 Expected losses are considered in the recorded investment value
Another step on the path to success 31 Comparison of Financial Impact 1 Extreme Cases If all acquired loans were to prepay immediately, diluted EPS would benefit by $1.15 per share as of the third quarter 2011 The absolute worst case scenario – a 100% loss on all acquired loans – would negatively impact diluted EPS by $0.88 per share as of the third quarter 2011 The tables below present a comparison of the impact on diluted earnings per share under various scenarios Best Estimate If only ASC Topic 310-30 loans were to pay as expected, the benefit to after-tax revenue per diluted share would be $4.27, earned over the remaining life of the portfolio. Current weighted average life is approximately 4 years. Extreme Scenarios - All Acquired Loans Payment as Expected Recognition of Noninterest Income Estimated Maximum Credit Loss Exposure Recognition of Interest Income Assumes All Acquired Loans Prepay Immediately Assumes 100% Loss on Total UPB Assumes Loans Amortize Over Expected Life As of As of As of Dollars in millions 9/30/11 6/30/11 Dollars in millions 9/30/11 6/30/11 Dollars in millions 9/30/11 6/30/11 Unamortized discount $228 $257 FFBC share of stated loss threshold $122 $123 Total expected cash flows $1,468 $1,569 FDIC indemnification asset 1 (172) (174) FFBC share of max. additional losses 61 61 Recorded investment 1,067 1,149 Allowance for loan losses - acquired 48 51 Maximum possible credit loss 183 184 Total accretable difference 401 420 Discount net of indemnification asset FDIC indemnification asset 1 172 174 FDIC indemnification asset 3 (16) (13) and allowa ce $104 $134 Unamortized discount (228) (257) Total net accretable difference $385 $407 Allowance for loan losses - acquired (48) (51) Adjusted max. possible credit loss $79 $50 Impact of i ediate recognition of Impact of immediate recognition of Impact of accretable difference on unamortized discount on after-tax additional credit losses on after-tax after-tax revenue per diluted share diluted earnings per share 2 $1.15 $1.48 diluted earnings per share 2 ($0.88) ($0.55) over the expected life of the loans 2 $4.27 $4.50 1 Represents the amount presented on the balance sheet less claims submitted to the FDIC but not yet received and FDIC indemnification on related to OREO 2 Based on third quarter 2011 average diluted common shares outstanding of 58,654,099 and second quarter 2011 average diluted common shares outstanding of 58,734,662; tax rate of 35% applied 3 Pro jected amortization of FDIC indemnification asset over average expected life of portfo lio
Another step on the path to success 32 Summary of Acquisition-Related Items For the Three Months Ended September 30 June 30 September 30 (Dollars in thousands) 2011 2011 2010 Income effect: Accelerated discount on covered loans 1,2 5,207$ 4,756$ 9,448$ Acquired-non-strategic net interest income 8,645 8,821 10,586 FDIC loss sharing income 1 8,377 21,643 17,800 Service charges on deposit accounts related to acquired-non-strategic operations 59 108 168 Other inc. (loss) related to acquired-non-strategic ops. 39 (593) (124) Income related to the accelerated discount on covered loans and acquired-non-strategic ops. 22,327 34,735 37,878 Expense effect: Provision for loan and lease losses - covered 7,260 23,895 20,725 Acquired-non-strategic operating expenses: 3 Salaries and employee benefits - 499 13 Occupancy (367) 64 91 Other (40) 2,110 462 Total acquired-non-strategic operating expenses (407) 2,673 566 FDIC loss share support 3 1,382 1,369 875 Loss share and covered asset expense 3 3,755 3,376 - Continued For the Three Months Ended September 30 June 30 September 30 (Dollars in thousands) 2011 2011 2010 Acquisition-related costs: 3 Integr tion-related costs 488 76 (102) Professional services fees 127 - 1,174 O her 1,260 - 433 Total acquisition-related costs 1,875 76 1,505 Transition-related items: 3 Salaries and benefits 14 81 796 Occupancy - - 50 Oth r (125) 80 - Total transition-related items (111) 161 846 Total expense effect 13,754 31,550 24,517 Total estimated effect on pre-tax earnings 8,573$ 3,185$ 13,361$ 1 Included in noninterest income 2 Net of the corresponding valuation adjustment on the FDIC indemnification asset 3 Included in noninterest expense
Another step on the path to success 33 Effect on Noninterest Items Noninterest Income Noninterest Expense For the Three Months Ended September 30 June 30 September 30 (Dollars in thousands) 2011 2011 2010 Total noninterest income 28,115$ 41,118$ 44,895$ Signif icant components of noninterest income Items likely to recur: Accelerated discou t on covered loans 1 5,207 4,756 9,448 FDIC loss sharing income 8,377 21,643 17,800 Other acquired-non-strategic items 98 (485) 44 Items expected not to recur: Gain on sale of insurance business - - 1,356 Other items not expected to recur 288 (152) (132) Total excluding items noted above 14,145$ 15,356$ 16,379$ 1 Net of the corresponding valuation adjustment on the FDIC indemnification asset For the Three Months Ended S ptember 30 June 30 September 30 (Dollars in thousands) 2011 2011 2010 Total noninterest expense 53,142$ 52,497$ 61,310$ Signif icant components of noninterest expense Items likely to recur: Acquired-non-strategic operating expenses (407) 2,673 566 Transition-related items (111) 161 846 FDIC loss share support 1,382 1,369 875 Loss shar and covered asset expense 3,755 3,376 - Items expected not to recur: Acquisitio -related costs 1,875 76 1,505 FHLB pr payment penalty - - 8,029 Other it ms not expected to recur 1,874 1,140 493 Total excluding items noted above 44,774$ 43,702$ 48,996$
Another step on the path to success 34 Another step on the path to success