Claude E. Davis - President and CEO Anthony M. Stollings - CFO and Chief Administrative Officer John Gavigan - Corporate Controller and IR.

R. Scott Siefers - Sandler O'Neill & Partners LP David Long - Raymond James Jon Arfstrom - RBC Capital Markets Emlen Harmon - Jefferies Christopher McGratty - Keefe Bruyette & Woods Inc..

Good morning. Welcome to the First Financial Bancorp Third Quarter 2014 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to John Gavigan. Please go ahead..

Thank you, Amy. Good morning, everyone, and thank you for joining us on today’s conference call to discuss First Financial Bancorp’s third quarter 2014 financial results.

Discussing our operating and financial results today will be Claude Davis, President and Chief Executive Officer; and Tony Stollings, Executive Vice President and Chief Financial Officer.

Before we get started, I would like to mention that both the press release we issued yesterday announcing our financial results for the quarter and the accompanying supplemental presentation are available on our Web site at www.bankatfirst.com under the Investor Relations section.

Additionally, please refer to the forward-looking statement disclosure contained in the third quarter 2014 earnings release, as well as our SEC filings for a full discussion of the company’s risk factors.

The information we will provide today is accurate as of September 31, 2014, and we will not be updating any forward-looking statements to reflect facts or circumstances after this call. I will now turn the call over to Claude Davis..

Thanks, John, and thanks for those joining the call today. For the quarter, we reported net income of $15.3 million or $0.26 per share versus $0.28 in the prior quarter. Our results for the quarter were impacted by acquisition-related expenses and other non-operating items, which reduced reported earnings per share by approximately $0.05.

On an adjusted basis, return on assets was 1.07% and return on tangible common equity was 12.4%.

The third quarter was an exciting period for us as we expanded into the attractive Columbus, Ohio market with the completion of The First Bexley Bank, Insight Bank and Guernsey Bank acquisitions, adding 606 million of loans and 569 million of deposits to our balance sheet.

We were pleased to welcome our new associates and new clients from those institutions during the quarter and continue to be excited with early returns we are seeing and the opportunity to further grow the First Financial brand in Central Ohio.

At this time, we had completed the data conversion and rebranding efforts on both The First Bexley and Insight acquisitions and are scheduled to complete the Guernsey data conversion of rebranding in the fourth quarter.

We continue to produce solid organic loan growth in the third quarter, as period-end loan balances, excluding loans acquired during the quarter, increased 148 million or almost 15% on an annualized basis.

The majority of organic growth occurred late in the period, as average quarter-end balances, excluding loans acquired during the period, increased 20 million or 2% on an annualized basis.

Our specialty finance team had another strong quarter, primarily driven by our business credit product and our C&I and owner occupied CRE lending and franchise finance teams had solid quarters as well. Residential mortgage activity was also strong contributing to both noninterest income and quarterly loan growth.

While our commercial pipeline remains solid entering the fourth quarter, we do expect some moderation from the record levels of growth in the third quarter, particularly within specialty finance.

Briefly, with regard to asset quality, the favorable trend experienced during the last several quarters continued as net charge-offs dropped to 7 basis points of average loan balances for the quarter.

While total nonperforming assets increased 8 million or 14% during the quarter, driven by the addition of a single large CRE credit, as well as 4 million of additions from the Columbus acquisition, nonperforming assets as a percentage of ending loans plus OREO declined 10 basis points to 1.49% during the period.

Capital levels for the third quarter reflect our investments in the Columbus market during the period, as tangible book value per share declined to $10.23 per share and we ended the period with a tangible common equity ratio of 8.71%, a Tier 1 ratio of 12.74% and a total capital ratio of 13.8%.

Adjusting for the estimated impact from both the commercial loss share expiration on October 1 and Basel III, we still have ample capital to support further organic growth and acquisitions.

On the topic of capital management, we were pleased to announce in yesterday’s earnings release that our Board of Directors approved a 6.7% increase in our quarterly dividend, $0.16 per share beginning with the next regularly scheduled dividend to be paid January 2.

This translates into a 3.8% dividend yield based on yesterday’s closing price and remains on the upper end compared to peer institutions. Finally, the close of the third quarter brought about the expiration of the five-year loss share and coverage period on commercial assets acquired in our 2009 FDIC assisted transactions.

While our loss share and coverage provide us with an added layer of loss protection for the five-year period, we have made great strides with our covered asset resolution efforts and feel we are well prepared to manage the risk associated with the remaining commercial assets without loss share or coverage.

To illustrate this point, I’ll note that total reserves both covered and uncovered as well as the remaining balance of loan marks net of an indemnification asset were 1.6% of total loans at September 30.

With the completion of the Columbus acquisition this quarter and the integration work related to the one remaining conversion well underway, we are proud of all that our associates have accomplished this quarter.

We also remain interested in exploiting further strategic opportunities and believe we have the capacity to manage additional acquisitions should they meet our strategic operational and financial criteria. With that, I will now turn it over to Tony for further discussion on our financial performance..

Thank you, Claude.

Our third quarter adjusted pre-tax, pre-provision earnings was $27.5 million, which excludes certain items related to covered loan activity, as well as other significant items, increased $3.4 million or 14% from the second quarter, primarily due to the impact in our third quarter acquisition, strong organic loan growth and a rebound in noninterest income.

As shown on Slide 3 of the supplement, pre-tax, pre-provision earnings, as a percent of average assets was 1.58% on an annualized basis, up from the second quarter’s 1.50%.

Total interest income increased $4.7 million compared to the linked quarter reflecting the impact of the earning assets acquired mid-quarter and a stabilization of the overall legacy portfolio. As Claude mentioned earlier, we had another solid quarter of loan growth with period-end balances increasing almost 15% on an annualized basis.

And I’ll add that this includes the runoff in the covered loan portfolio. We saw good growth in our fee income and the investment portfolio income was unchanged on a linked quarter basis.

While interest income continues to be impacted by a prolonged lower interest rate environment, we saw an increase in the yield earned on the uncovered loan portfolio of approximately 8 basis points. Also during the quarter, we saw some compression in the yield difference between originated loans and loans paid off.

This spread can be volatile on a quarter-to-quarter basis but was not as punitive this quarter.

Interest income from investment securities was flat on a linked quarter basis, as the impact from the marginally higher portfolio balance was offset by a 10 basis point decline in the portfolio yield due to lower reinvestment rates, higher prepaid fees on mortgage-related assets and other duration management actions.

The overall duration on the investment portfolio decreased to 3.7 years as of September 30 and 3.9 years as of June 30. Regarding the portfolio, as we balance loan growth, other balance sheet dynamics and the prospect of higher interest rates, you will likely see the portfolio decline over the course of 2015.

Quality loan growth is always our balance sheet preference and we frankly don’t see a material benefit in maintaining the current size of the portfolio given current rates and believe that this time extension risk is not a rewarded strategy.

As a result, we do not expect to reinvest in monthly cash flow generated from the portfolio going forward, which are approximately $15 million to $20 million per month. Total interest expense increased approximately $600,000 compared to the linked quarter, again primarily driven by the acquired liability.

We continue to focus on core deposit growth and have strategies in place that reward deeper client relationships and are consistent with our liability management objectives. Including acquired balances, approximately 78% of total deposits are core non-time in nature. Average transaction deposits grew 11% on an annualized basis.

In the cost of funds related to interest-bearing deposits increased 3 basis points, primarily as a result of the deposit growth, changes in the mix of the deposit base and hedging initiatives. Net interest margin declined 4 basis points to 3.66% from 3.70% for the linked quarter.

While our margin continues to be influenced by activity in the covered loan portfolio, in fact the majority of this quarter’s decline can be attributed to the covered portfolio, we saw an improvement in the underlying loan origination yield and fee income in addition to the positive impact from the acquired loan balances.

As I mentioned last quarter, we thought the crossover point between the positive impact from uncovered loan growth and the negative impact from runoff in the covered loan portfolio was expected in the second half of the year. We are encouraged by what we saw this quarter.

If our growth and runoff assumption [falls] (ph), we still believe a mid-single-digit decline remains a reasonable expectation for the fourth quarter 2014. We will provide more clarity regarding 2015 on our next call, but changes in the margin continue to be largely dependent on loan growth and covered loan runoff.

Moving now to noninterest income, excluding covered loan activity and other items that’s noted in Table 1 of the release, noninterest income increased $1.2 million from the linked quarter to $15.8 million.

The increase is driven by higher gains on the sale of mortgage loans with five contributions from both the legacy platform in the acquisition and an increase in fee income from client derivatives. We continued to see modest increases in both service charges on deposit accounts and bankcard income as well.

Noninterest expenses for the third quarter, excluding covered expenses and other items as noted in Table 2 of the release, totaled $46.6 million, an increase of $1.8 million from the linked quarter, primarily as a result of the addition of the Columbus, Ohio operations.

Additionally, our employee benefit incentive costs combined with OREO-related expenses was slightly offset by lower occupancy costs.

We remain focused on our operating cost structure by continuing to aggressively manage our vendor relationships, execute on process improvement initiatives and we actively monitor the evolution of our client banking habits and preferences that could potentially impact our delivery system.

In allowance for loan and lease losses, I’d like to make a couple of comments. At the end of the third quarter, the allowance in loan and lease loss as a percentage of period-end loans was 0.95% as compared to the second quarter ratio of 1.15%. This reduction is primarily due to the addition of the Columbus loan.

These loans were recorded at their fair value through purchase accounting and a loss allowance is not permitted to be reported with the loan. Without the impact of the acquired loans, the third quarter ratio would have approximately 1.11% consistent with what we have seen in recent quarters.

I’ll note that the Columbus loan [did show a] (ph) credit loss as a result of purchase accounting. Turning briefly to covered assets, I’ll highlight a couple of points.

First, the FDIC commercial loss share coverage of the 2009 transaction expired at the end of the quarter and we are pleased that the strong efforts of our resolution team in managing these assets.

As shown on Slide 5 of the supplement, the balance of covered loans are likely to exit declined to $49 million at September 30, representing a 26% decline from the second quarter and a 69% decline from the comparable quarter one year ago. Also, approximately $15 million of this remains covered by FDIC loss share for five more years.

Second, the balance of covered loans declined to 7% of total loans at September 30, down from over 13% of total loans one year ago and from 42% of total loans when we acquired the covered loan portfolio in the third quarter of 2009.

The impacts on the expiration of commercial loss share has minimal impact on our capital ratios and credit quality metrics in those loans will continue to be revalued each quarter. It is important to remember that the expiration of loss share does not change the overall accounting framework for these loans.

Finally, although we do not typically give earnings guidance, we believe that our adjusted third quarter results are a good indication of our current run rate performance. Going forward, loan growth and to a lesser extent the covered loan runoff remain major drivers of variability. I will now turn the call back over to Claude..

Thanks, Tony. Amy, we’ll now open the call up for questions..

(Operator Instructions). Our first question comes from Scott Siefers with Sandler O'Neill..

Good morning, guys..

Hi, Scott..

Good morning, Scott..

Let’s see, Tony, I think first question is for you. You mentioned sort of drawing down the securities or allowing the securities portfolio to runoff a bit just kind of giving your thoughts on the value of not going far out on the yield curve.

But I guess the specific question is what are you going to be doing with those cash flows? To a certain extent, I think it answers itself in that loan growth is so much stronger than what will be running off. But just curious on your specific thoughts.

And then I imagine it’s baked into your margin guidance as well, but net effect on the margin from this kind of change the impact there?.

Yes, it is baked into how we do margin, but to your first point or your first question, Scott, in our overall balance with management, as I said our preference is loan growth. Loan growth has been strong.

The yield curve is just really not that rewarding in any part of it, and we just feel like in balancing our asset growth and our bias towards asset sensitivity to what we know in a value rate environment is just the smart thing to do. I would expect that the – this will be a gradual decline over 2015 as we expected.

At this point, based on what we see around loan growth in that and certainly dependent on the positive growth as well, we’ll probably bottom out in the 1.6 billion kind of range..

Okay, that’s perfect. Thank you. And then just another question, either Tony or Claude, for either of you just on capital management. So obviously a pretty good story still given the higher dividend and the absolute level.

Just curious on your thoughts on potential repurchase since you have no – I know you’re still interested in deals, but you have no pending deals at this point.

So just curious on your thoughts on share repurchase as well?.

Yes, it’s something that we look at each quarter and frankly we just felt like it was best to stay out of the market at the moment. Again, it’s part of an overall strategy and just where we landed this quarter..

I would also say, Scott, in combination with the increase in the dividend, we felt like that was the better capital management action right now..

Okay, that sounds great. Thank you guys very much..

Thanks, Scott..

Our next question comes from David Long at Raymond James..

Good morning, guys..

Good morning, Dave..

Hi, Dave..

You gave some guidance on the net interest margin here in the fourth quarter I believe for mid single digit decline and I know there’s a lot of moving parts, but what are the few things that we can look at, the puts and takes, that can make that number come in either better or worse than your guidance?.

I think certainly one of the things that we’re looking at from the upside is while we had a very strong third quarter in loan production, most of that came at the end of the quarter. So we really didn’t see the earnings benefit of that in Q3, so we are anticipating the benefit of basically a full quarter of that reduction in the fourth quarter.

So we’re hopeful that that will translate into some margin stabilization there. We also have a partial quarter from Columbus. Those deals closed June and early August, one in late August, so we’ll get a fourth quarter benefit from that as well.

Everything else moves kind of back and forth, probably the biggest potential downside in the margin would be the covered loan and I would say at this point given where we are in our resolution strategy, it’s likely to see that covered loan portfolio runoff may be slow down a little bit than what we’ve seen over the last 15 to 18 months.

So that could be a benefit as well, but we really can’t predict that..

Okay, great.

And then shifting gears, on the Columbus acquisitions, I know we’ll see the full impact here in the fourth quarter, but as far as the timing and realizing some of the efficiencies, what should we expect there?.

Well, we have seen some already but we are really just getting in there and looking at some of the operational expenses. Certainly, staff has been reduced (indiscernible) have been centralized, so we’re just now getting into some of those operational analyses, if you will.

I think the bulk of the increase in expenses for the quarter on an adjusted basis are attributed to a Columbus operation, but as I said, we have a lot of opportunity to get in there and [garner] (ph) some efficiencies.

We also expect that over – in the upcoming quarters that we continue to see our overall loss share both on the staffing side and the resolution plus side trend down and frankly we saw a little bit of it this quarter.

We expect to see it build some of our efficiencies out of our branch rationalization strategy over the last 12 to 15 months where we continue to (indiscernible). So I think all of that is pretty good dealing about where we are on the expense side in our ability to drive these lower..

Okay, great. Thanks, Tony..

The next question comes from Jon Arfstrom at RBC Capital Markets..

Thanks. Good morning, guys..

Hi, Jon..

Just on loan growth I guess would be a place to start.

Anything specifically that drove that late end period growth?.

Jon, this is Claude. Not really, it turned out to be timing of when several deals that we had building up in the pipeline got closed finally. It was an unusually strong September and it was just a combination of factors that drove it. We went into the quarter with a really strong pipeline.

We continue to have a strong pipeline, so we’re encouraged by fourth quarter growth. It’s also the one where we don’t think we’ll repeat third quarter at 15% annualized but we still think it will be very strong..

Okay, good. And I guess on the next question, I know Tony you said you’re really not ready to talk about 2015, but I’ll ask about 2015 anyway. You got some new markets obviously, you’re doing well on them.

I’m not asking if a sustainable growth rate in the mid-teens is possible, but why does it feel like high single digit, low double digit type growth is possible year-over-year in 2015 just based on what you see today?.

We’re certainly not guiding to that. I think it is possible given the investments we’ve made and the recent activity we’ve seen really in multiple product lines and in different markets. Obviously, we’re all anxiously watching how the economy grows and builds, but as I’ve said in past calls, we’re encouraged that our clients continue to do very well.

They’re growing, they’re starting to invest and that’s really what drives our loan growth. So we certainly hope that we’ll have above market growth rates and that’s what we’re expecting, but a lot of that depend on just economic conditions. So we didn’t want to specifically guide any number, but we feel encouraged..

Okay, good.

And then Tony just on the covered loans I guess becoming uncovered, this is a ticky-tack question but does that become categorized differently or did you say that you still call them covered loans or are they just going to the ordinary loan book?.

No. Jon, it’s a good question. We feel like we’ve been very transparent and granular over the last five years, but I think going forward you’re likely to see us combine some things in tables, probably drift away from the covered loan ledger, if you will.

The pieces have been out there, it’s just something that you all could have done at any time, but I think with the commercial loss and your coverage expiring and the balance is being left material, you’ll probably see some consolidation in how we talk about things and how we present things in our financials..

Jon, I would just add that that was one of the reasons why we referenced in some of our comments talking about total credit marks including the ALLL as more a way of helping you understand what our reserve cushion is and then going forward, less about covered, uncovered and all the details associated with that, and given our loan growth numbers this quarter included the covered loan is not off yet..

Yes, I think it makes sense to clean it up, but helping us understand the reserves with the loan marks that does help as well.

And then I guess the last question I have is, I just want to be clear, when you talk about the run rate of EPS, I’m assuming you’re saying that $0.31 is the number that you’re referring to, the 26 plus the 5?.

That’s right..

Okay. Thanks a lot..

Thank you..

Your next question comes from Emlen Harmon at Jefferies..

Hi. Good morning..

Good morning..

I was hoping that you could just kind of quantify for us where you are on efficiency initiatives outside of what you’ve gotten from acquisitions? It seems like there was some good progress there this quarter?.

Yes. Emlen, we did a few remaining items, the most significant of which was we closed three additional branch locations. We completed that activity late in the third quarter, so we’ll see some additional saves from that going forward.

And as Tony referenced in his comments, we continue to aggressively look at everything from vendor relationships, contracts as well as just ongoing process efficiencies.

I would say there is a slight balance to that though and as we continue to make investments, because of the regulatory environment in our compliance systems, in our programs to make sure that we can deal with all the Dodd-Frank regulations that continue to come out.

So there will be some increased investment there but we are continuing the process of looking at efficiencies although we have no major programs left out there that we’ve talked about or have yet to complete..

Got it. Thanks.

I apologize if I missed this, but did you guys quantify just what the effect of accretable yield was from the three deals that you closed, what your expectations were there?.

No, we didn’t. And in fact we don’t have any loans that came over that fall under that accounting framework..

Okay, great. Thank you..

Thanks, Emlen..

(Operator Instructions). Our next question comes from Chris McGratty at KBW..

Hi. Good morning, everybody..

Hi, Chris..

Claude or Tony, the gain on sale income obviously increased pretty substantially in the quarter.

Is this reflective of a decent run rate going forward? Kind of what’s a partial quarter’s contribution kind of moving rates?.

As you know in the mortgage business it’s really hard to say. I do think we will have a higher sustained production level, because what came with the Columbus deals was a very strong mortgage operation both at First Bexley and at Insight. And so those were very positive adds to our mortgage business.

I hate to say anything about run rates just because that business is so volatile. We keep hoping that the housing market is turning and we’re going to see more consistent, sustained volume levels but I wouldn’t go that far yet other than to just say I think you’ll see a higher contribution from the mortgage business going forward..

Great.

A question on asset sensitivity or balance sheet positioning with the three deals that closed, can you talk about how you guys are feeling longer term about your sensitivity to rates and kind of in the context of your intentional decision to rundown the securities book couple with the covered loan issues that we’re dealing with? Any guidance aside from the fourth quarter would be helpful? Thanks..

Yes. A lot of the deals didn’t really – so they certainly didn’t make or impact us overall in our sensitivity and it’s never just one thing, it’s a combination of all the strategies, hedging initiatives, how you’re funding the loan growth, the investment portfolio.

Management is certainly something that we’ve worked hard at and trying to keep the duration at something that makes sense. So all those things are working. We talk about those every day.

I think it’s fair to say though that just about – as we see it today, just about all of our sensitivity metrics improved during the third quarter, so we’re encouraged by all the actions that we’re taking and certainly have that (indiscernible) driving rates. It’s just the matter of when..

Okay.

And last question, what’s remaining in terms of the one-time charges and when should we expect those to kind of flow through the P&L?.

I think you’ve seen the bulk of it. We’ll have a little more in the fourth quarter primarily as some of the longer retained people drift out and we do have another integration yet to go, so we’re working on that and we have people devoted to that. But I think we’ve seen the bulk of it.

I really couldn’t put a number on it yet, but it’s certainly not at the level or anywhere near the level you saw in the third quarter..

Okay. Thank you very much..

Thanks, Chris..

At this time, we show no further questions. I would like to turn the conference back over to Claude Davis for any closing remarks..

Thanks, Amy. Again, thanks everyone for joining our call today. We appreciate your interest in First Financial. Thank you..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..