Eric Stables - Director, Investor Relations Claude Davis - Chief Executive Officer Tony Stollings - Chief Operating Officer John Gavigan - Chief Financial Officer.

Brendan Nosal - Sandler O'Neill & Partners Emlen Harmon - Jefferies Jon Arfstrom - RBC Capital Michael Perito - KBW Andy Stapp - Hilliard Lyons Erik Zwick - Stephen Daniel Cardenas - Raymond James.

Good morning. And welcome to the First Financial Bancorp Third Quarter 2015 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 also note, this event is being recorded.

I would now like to turn the conference over to Eric Stables, Director of Investor Relations. Please go ahead, sir..

Thank you, Raghav. Good morning, everyone. And thank you for joining us on today’s conference call to discuss First Financial Bancorp’s third quarter 2015 financial results. Discussing our results today will be Claude Davis, Chief Executive Officer; Tony Stollings, Chief Operating Officer; and John Gavigan, Chief Financial Officer.

Before we get started, I would like to mention that the press release we issued yesterday, announcing our financial results for the quarter is available on our website at www.bankatfirst.com under the Investor Relations section.

Additionally, please refer to the forward-looking statement disclosure contained in the third quarter 2015 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 30, 2015, 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..

Great. Thanks, Eric, and thanks to those joining the call today. Yesterday afternoon we announced a significant milestone in the history of our company with our 100th consecutive quarter of profitability.

Our ability remain profitable for quarter century into some pretty tough economic environments is reflective of the resilient of the communities in which we do business, the clients we serve and the hard work of each of our associates.

This milestone achievement cast off a quarter in which we grew our core bank loan portfolio by $121 million, announcing close the acquisition of Oak Street and executed $120 million subordinated debt offering. Before I turn the call over to Tony to discuss our financial results, I want to talk briefly about our strategic and competitive advantages.

Our robust and sophisticated product mix, and high-touch service strategy differentiates us from our local competitors and our nationwide lending platforms offer unique revenue and versification characteristic. We also view the ability to continue to attract low-cost core deposits to be a primary driver of our continued success.

I believe that our company is well-positioned to continue to grow organically with mid-to-high single-digit annual growth rates. With that, I will now turn the call over to Tony..

Thank you, Claude. As Claude mentioned the third quarter marked our 100th consecutive quarter of profitability. Net income for the quarter was $18.7 million, an increase of approximately 22% over the third quarter last year.

Earnings per diluted common share for the quarter were $0.30, with return on average assets of 0.97% and return on an average tangible common equity of 12.33%.

Excluding approximately $3.3 million of pretax non-operating expenses, which were primarily related to the Oak Street acquisition, net income was $20.9 million or $0.34 per diluted common share, return on average assets was 1.09% and return on average tangible common equity was 13.77%.

As we discussed last quarter, we continue to see good opportunities to organically grow our balance sheet, with competitively priced high quality loans and longer duration low cost deposits. As John will discuss in a moment, loan growth for the quarter, excluding Oak Street, was in line with our long-term expectations of mid-to-high single-digit.

Our client relationships-centered strategy and strong cross-sell culture continues to produce sustainable growth and recent market disruptions have created new opportunities.

We are optimistic that the momentum that we're seeing in the loan origination pipeline across all products sets, particularly in our metro markets will result in continued balance growth. Likewise, the Oak Street pipeline is quite strong heading into the fourth quarter.

As we have previously discussed, the Oak Street acquisition was expected to be immediately accretive to operating earnings. For the partial third quarter, Oak Street contributed $0.02 per diluted common share, excluding deal cost and 10 basis points to net interest margin, both of which were in line with our initial projections.

We remain very optimistic about Oak Street’s long-term growth potential and product line expansion opportunities. Marking now one year anniversary, the three Columbus, Ohio acquisitions of exceeded our initial expectations and continued to perform at high level.

We are especially pleased with the strong leadership team that has enabled us to attract new clients, retain existing clients, as well as key business development, and client service associates in that market, earlier this month we opened the new banking center in the Downtown area and now have six full-service locations in Columbus.

Before I turn the call over to John, I’ll mentioned that, during the third quarter, we repurchased approximately 150,000 shares at a weighted average price of $18.68, under our previously announced share repurchase plan.

We will continue to evaluate future share repurchase opportunities on a quarter-to-quarter basis, weighing against other potential uses of capital and growth prospects.

Our ability to generate sustainable earnings growth compared with our strong capital position will continue to support additional acquisition opportunities that align with our strategic objectives, such as Oak Street, as well as significant long-term organic growth.

With that, I'll turn it over to John for the discussion of our operating performance..

Thank you, Tony, and good morning, everyone. Net interest income for the third quarter were $63.2 million, an increase of $4.5 million or 7.6% when compared to the linked quarter, a strong organic loan growth was complemented by the addition of the high-yielding Oak Street loan portfolio during the period.

Net interest margin was 3.67% on a fully tax equivalent basis compared to 3.62% in the prior quarter with the 5 basis point increase primarily resulting from higher yield on loans and investment securities, also impacted by our subordinated debt offering and the prepayment of Federal Home Loan Bank debt during the period.

The effective yield earned on the loan portfolio increased 7 basis points from the second quarter to 4.52% primarily as a result of the addition of the Oak Street loan portfolio.

While the effective yield earned on the securities portfolio increased 5 basis points to 2.39%, benefiting from reinvestment mix as well as slower prepayment activity during the quarter.

Given the continued low interest rate environment, we expect net interest margin for the fourth quarter to be in line with the third quarter though it could fluctuate a few basis points in either direction depending on production mix and prepayment activity.

Our focus remains on growing net interest income by continuing to grow loans at risk appropriate returns and growing low-cost core deposits. As Tony mentioned earlier, loan growth was stronger in the third quarter with period-end loans increasing $363 million or 30% annualized, compared to the linked quarter.

Excluding Oak Street, loan portfolio grew $121 million or 10% on an annualized basis during the quarter. Average loan balances increased $233 million or 19% annualized during the period.

Deposits also grew during the period, increasing $366 million or 25% on an annual basis over the second quarter, including approximately $212 million of short-term brokered CDs with an all-in weighted average cost of 51 basis points generated in conjunction with the Oak Street transaction.

Average total deposits increased by $188 million, or 13% on an annualized basis compared to the linked quarter with solid growth in both interest-bearing and noninterest-bearing accounts. Our overall cost of interest-bearing deposits was unchanged from the linked quarter at 42 basis points.

Noninterest income for the third quarter was $20.4 million, a 4.9% decline compared to the linked quarter driven by lower gain on sales of investment securities, FDIC loss share related income and gain on sales of mortgages partially offset by higher swap fee income during the period.

Noninterest expense increased by $4.2 million or 8.6% over the prior quarter to $53 million, primarily driven by $2.6 million of acquisition-related costs as well as the addition of the Oak Street operating expense base midway through the quarter.

Additionally, other expenses increased by $1.9 million from the linked quarter including $700,000 related to the prepayment of Federal Home Loan Bank debt and $700,000 to resolve two separate legal matters during the period. We continue to expect noninterest expenses to total approximately $50 million on an operating basis for the fourth quarter.

Turning now to asset quality. We're again pleased with our credit team's efforts and the resolution activity that occurred during the period. Total nonperforming assets as a percent of total assets declined 13 basis points to 90 basis points at September 30th, while net charge-offs declined 33% from the second quarter.

Consistent with our overall credit performance, the allowance for loan losses plus the remaining purchase accounting marks on acquired loans, net of the indemnification asset as a percentage of total loans declined to 1.17% as of September 30th from 1.27% at June 30th. We remain well reserved against potential credit losses.

Finally, capital levels for the third quarter reflect our continued investment in the franchise with the Oak Street acquisition, as well as our shareholder friendly capital management efforts to the $120 million subordinated debt offering to be completed in late August.

Total shareholder's equity increased by $10.6 million or 1.3% to $813 million during the quarter. And consistent with our expectations, tangible book value decreased to $9.74 per share as of September 30th from $10.65 per share at June 30th as a result of the goodwill generated by the Oak Street acquisition.

We ended the period with a tangible common equity ratio of 7.84%, a tier 1 capital ratio of 10.52% and a total capital ratio of 13.37%. Our capital position remains strong and will continue to support our organic growth as well as consideration of other strategic opportunities should they develop.

With that, I'll now turn the call back over to Claude..

Thanks John. And Raghav, we now turn the -- open the call up for questions..

Thank you, sir. [Operator Instructions] Our first question comes from Scott Siefers of Sandler O'Neill & Partners. Please go ahead..

Good morning guys. This is actually Brendan from Scott’s team on the line..

Hey, how are you? Good morning..

Great. Thanks. Hoping we could start with the margin, I appreciate the color you gave that you guys expect the fourth quarter to come in around at third quarter’s level.

So I think maybe you could kind of discuss some in the moving parts in there in terms of where you see core compression coming in versus any additional benefits from Oak Street that you might see in the fourth quarter?.

Sure. As you said, there was a number of moving pieces here but the primary drivers for the fourth quarter, I would say are really threefold, a four quarters' impact from Oak Street, a four quarters’ impact from the sub debt offering and then last mix in fee volatility.

So again given those moving pieces, as I said, we expect the fourth quarter margin to be in line with third quarter. We really can't place the math on margin. So our focus is on growing net interest income..

That’s great. Thanks.

And then just following up on that, was there any intent to the margin from the proceeds from the debt issuance maybe just sitting cash for the quarter before being utilized and possibly benefiting the margin a little bit?.

There was a little bit of that, but I would say was marginal..

Okay. Great. And then maybe just one last one on capital. As you mentioned, your TC ratio just a little bit below 8%, which is still a very healthy level and you guys repurchased some shares this quarter.

Do you have a sense of where you would like to see your capital levels trend over time, are you comfortable bringing them down a little more and then maybe talk a little bit about your appetite to repurchase shares going forward?.

Sure. This is Claude. What I would say is we have a range of capital levels that we look at the Board level and we talk about publicly our target ratios and I would say they are maybe comparable to where we are today with the -- like risk-based maybe being a touch higher than our target ratios.

So, I would expect plus or minus to be around where we are today. On the repurchase side, what we look at is every quarter, what are we seeing from an organic growth perspective, M&A opportunities and then we make that call..

That’s great. Thanks for the color and thanks for taking my questions..

You bet..

Our next question comes from Emlen Harmon of Jefferies. Please go ahead..

Hey. Good morning..

Hey, Emlen..

Good morning..

Just to keep it going quickly on the -- throw little bit on the repurchases. I mean it’s been quite a while since you utilized that program. I think it’s been outstanding since 2012.

I mean, for you guys to get aggressive with that repurchase program, does it take volatility in the stock like we kind of saw this quarter? I mean, are both the opportunities that you are really looking for when you utilize that?.

Well, I think it’s a factor for sure but keep in mind that we, for the first time have some tier 2 capital and have the ability to look at our whole capital stack and the efficiency of it. So, I think that plays a role in it as well since we do have another capital instrument that we can manage against the common side.

So it’s growth, it’s that and it’s just how the stock is performing..

Got it. Thanks. You took my second question there on the sub debt. So, I will throw a third one at you.

Just on the one-time expenses in the quarter, could you walk us through just kind of the different components of that because I know just reading the press release it look like Oak Street, you guys had said Oak Street added I think $2.6 million in expenses.

And I guess I’m just trying to figure out what portion of those were non-recurring versus what kind of fell into the non-recurring items? I was just having trouble adding up, kind of what were the merger expenses, the sub debts and the litigation charges?.

Sure. The $2.6 million that you referenced there that was all deal related costs and that’s all considered to be non-recurring. We also mentioned in the press release. In addition to the $2.6 million, we have about $900,000 of additional operating expenses from half a quarter with the Oak Street team onboard there.

In addition to the $2.6 million of non-recurring deal-related costs, we had $700,000 related to legal matters resolved during the period and then in addition to that, our expenses were also impacted by about $700,000 prepayment fee on the federal home loan bank debt during the quarter, right..

Okay. So if I take those three pieces, so I get about $4 million, I guess I think you guys had, out of those three pieces you get about $4 million and I think you guys said it was $3.3 million of non-operating expenses.

So was there an offset in there?.

The $3.3 million would be the $2.6 million of deal costs and the $700,000 on the litigation matters..

Got it.

So there is…yeah?.

The prepayment fee on the federal home loan bank debt are not expected to recur. We consider that an operating expense..

Got it. All right. Thank you. That does it..

Sure..

And our next question comes from Jon Arfstrom of RBC Capital. Please go ahead..

Thanks. Good morning, guys..

Hey, Jon..

Good morning, Jon..

Just one final point question and a couple bigger picture ones. John, maybe a follow-up on the margin. Appreciate the guidance in the near term, I guess they asked you to step back a little bit when you think about longer term, we will see Oak Street impact and the sub debt impact and everything else going on.

Do you feel like this kind of level around the 3.60 margin is something that is sustainable beyond Q4? I know you don’t give the longer term guidance but just help us about a little bit.

Does it feel like a decent level?.

Yeah. Jon, this is Claude. That’s a hard one not only because if you look at, what I would call core commercial bank portfolios, we don’t see an increase in rates and we see a continued significant variable rate origination model, which is what we had more of in the last year, especially with C&I and some of the other product.

That’s going to create ongoing margin pressure. So, we still experience that. I think with the Oak Street add, it helps to offset that because their core originations at higher rates, also variable but at much higher rates. So, one thing we are looking at is a real question of mix, as well as rate outlook as to what happens to the margin.

So, I think we’ve got some good senses against it but all else being equal, no rate increase. There is going to be some of that compression that we experienced..

Okay. Okay. That’s helpful. And then just follow-up on that, Claude, maybe for you or Tony. You talked about the Oak Street pipeline was strong and then some of the new product potential.

Can you help us better understand that?.

Yeah. Obviously, we are still getting our understanding as well. I mean, Oak Street had nice growth rates. If you look at their third quarter level where they are today versus third quarter last year, they are about 18% up year-over-year.

They’ve seen similar origination patterns where they tend to have a stronger late third and fourth quarter production cycle. So we’re optimistic where they’re at kind of going into the year, but they’ve -- anything 20% to 25% type growth rate.

So we’re trying to understand that better ourselves and what the forward growth rates can be, that is to give you some color on the past. As we said when we announced the deal, we view Oak Street as a good platform for other what I will call industry verticals probably in the professional services space, things like our IAA, potentially CPA firms.

So we’re looking at those, but certainly it’s way too early for us to have a good sense of what production levels that could result in, but we do see what they have and their technology platform is a good platform for us to grow.

I would also mention our other kind of industry, other line of business platforms, or pipelines, I would say they’re still solid, comparable to where they were going into the third quarter. So we’ve also been encouraged by that activity..

Okay. That’s very helpful. And then just one more maybe a little higher level.

You talk about top quartile performance as an objective, help us understand how you feel you’re going there and where you think there is still work to do?.

Sure. Certain things we’ve made progress, our view of top quartile, those banks that are now 1.10, 1.20 ROA space.

We’re continuing to look at our efficiency levels, how we continue to improve those especially given the kind of the margin challenges that all of us face as well as looking hard to expand some of our fee-based businesses, whether that’s in some of the fee areas in our commercial business, well mortgage as well as and trying to leverage the portfolio with Oak Street, now that is on board.

So I think all of those the things we’re focused John in addition to just the core bank growth that has been pretty solid for us over the last couple of years..

All right. Good. Very helpful. Thanks a lot..

You bet..

And our next question comes from Michael Perito of KBW. Please go ahead..

Hey, good morning..

Good morning..

Good morning..

First question, maybe another question on the growth, so I mean it sounds like the Oak Street pipeline is strong and the core bank is strong as well and there is some solid opportunities in the Columbus market as well where you guys opened the new banks.

And so I’m putting all the comments together and I look at your last couple quarters, I mean it’s 7% organic growth annualized in the second quarter, 10% in 3Q.

I know you guys don’t give longer-term guidance, but for trying to think about the longer-term growth potential of the combined companies now, I mean should we be gravitating more towards the 3Q number as opposed to the second quarter growth?.

What we’ve said is that we’re really targeting kind of mid to high-single digit over the longer term. There are going to be quarters where we could be close to 10 and there maybe quarter as was in the first quarter they could be flattish, just depending on what’s going on in the economy as well as what we feel the right credit risk profile is.

So I think it’s safer to think about mid to high-single digit..

Yeah, I would think that Oak Street would be a little north of that, but still we’re about 70 days into that acquisition. And the jury is still out a little bit there, but I would expect them to be a little bit higher than that..

Okay. And then another quick kind of related growth question, I saw smaller competitor of you guys and Fort Wayne announced that they hired a lending team there. Can you guys confirm that there was none -- no members of your prior team that you guys lifted out taking and also maybe just give an update on that market for you guys? Thanks..

Yeah, our core team is still in place. The Fort Wayne had a really nice initial growth year, it’s been a bit slower this year, but we’re still committed to the market. I think it gives us a good kind of long-term opportunity. And as we talk about when we entered Fort Wayne, it was a de novo market and it’s a long-term play for us.

And so we’re committed long-term to it, we feel like it creates a regional hub for us, so we’ve got some good long-term markets that we’ve been in for a long time. They are all around Fort Wayne both in Northeast Indiana as well as in Northwest Ohio. So good market, we need to invest there and we see good long-term prospects for that market for us..

Great. Thanks..

[Operator Instructions] Our next question comes from Andy Stapp of Hilliard Lyons. Please go ahead..

Good morning..

Good morning..

Good morning, Andy..

What was the purpose of the $212 million brokered deposits raised during the quarter, was that to refi Oak Street borrowings or just trying to get an understanding there?.

Yeah, that’s correct..

Okay..

Oak Street was bank line funded and so we took out the short-term brokered CDs there to repay that debt as part of that transaction..

So that came after the Oak Street acquisition, that’s part of your margin guidance?.

Correct..

Okay. Got you.

And are you seeing any moderation in the competitive environment for loan pricing?.

This is Claude, no..

Okay..

It’s still extremely competitive and we don’t see that’s changing anytime soon..

Okay.

And how should we be thinking about the FDIC loss sharing income in the accelerated discount going forward or is it just pretty much random event?.

Yeah. I mean, there is certainly some volatility in those two lines..

Okay..

They’ve been higher in recent quarters than in the past primarily because in the fourth quarter of last year, our commercial loss sharing agreement expired. So when we do have formally covered commercial loans that prepay, there is no related indemnification offset to that accelerated discount income.

So that part of the reason why you see the higher levels of accelerated discount we’ve seen over the last four quarters. I would tell you in addition to that, in the last two quarters we’ve had some larger prepay activity coming out of the formally covered franchise portfolio, so that also contributed to that this quarter..

Okay. Great. That’s it for me. Thank you..

Thank you..

And our next question comes from Erik Zwick of Stephen. Please go ahead..

Hi. Good morning, guys..

Good morning, Erik..

Good morning..

Okay. Just first a follow-up on the broker deposits.

Is that something that you would expect to be replaced with core deposits overtime? In your prepared remarks, you obviously talked about the ability to continue to attract low cost core deposits and just kind of how you think about the deposit composition today with a loan to deposit ratio around 85% or 86%?.

Yeah. We would hope that long-term we will see that replaced with core deposit growth. That’s obviously also impacted by what the core bank loan growth is. So prior to those we had no broker deposits.

So if that would stay at a level whether that lower or something bellowed, over some period of time, we’re not uncomfortable with that, just given our deposit profile. Certainly, we would prefer to be long-term, the loan to deposit ratio more in the kind of low to mid 90s for maximum efficiency and perhaps, the slightly lower investment portfolio.

But that it takes time and we’ve try to prudent around that. So at 85% we certainly like to see that number higher..

I just add to that also around the broker deposits. We did later that out between three and nine, 12 months to give us that opportunity to grow the portfolio as that broker portfolio matured..

Got it. Thanks.

And then if I could turn to maybe acquisition opportunities and what you’re seeing in the markets today and maybe with some comments on kind of seller expectations and if you’ve seen any increase in activity or interest in your markets?.

We’re always kind of looking and talking. I wouldn’t say I’ve seen any dramatic change one way or the other in those conversations. I would say I feel like we’re in a good spot where we are comfortable with the markets we’re in. We feel good about the business lines we’re in and their organic growth capability.

And we’ll certainly continue to look for good strategic opportunities but we’ll be very selective. And at least to this point, don't feel like we need to do anything in order to meet our growth and profit objectives..

Thanks. I appreciate the commentary..

You bet..

And our next question comes from Daniel Cardenas of Raymond James. Please go ahead..

Good morning, guys..

Good morning..

Good morning, Dan..

A good number of my questions have been asked and answered, maybe just quickly a cleanup question.

How should be thinking about your tax rate going forward? Is there going to be closer to that 35% plus range or kind of still in that 34% to 35% range?.

Actually Dan, I think it’s probably going to be a little bit lower than that. I think at the beginning of the year we guided to 32% to 34% range. We've been coming in right around 33%. I think full year we expect slightly higher than 33%..

Okay. Good.

And then in terms of yields on the loans that are coming in right now, how does that compare to what we’re seeing in terms of runoff? You’ve seen a higher yielding loans running off right now versus what’s coming in or is it kind of neutral?.

Well, certainly the originations, they reflected the current environment in half for a while. So that continues to be under some stress. But the flipside of that and I think that’s also a product of we've been in this rate cycle for so long that we are seeing our payoff rates at least this quarter drift a little lower as well.

I think you would expect that again given the duration of the rate cycle that we've been in. So it’s a quarter-by-quarter set of numbers that we monitor. But this quarter the payoff rates were little lower..

Great.

And any room on the funding cost to lower than or are we pretty much at the bottom of where you guys can go?.

Well, I would offer -- this is Claude. I think lot of that comes down to our ability to generate more BDA business, especially on the commercial side, which is the focus of ours. I think that’s probably the greatest opportunity we have to bring costs down.

I think the pricing we have on our interest-bearing deposits is kind of in the middle of the market and we think still competitive. So that would be our greatest opportunity..

Okay. Great. Thanks, guys..

You bet. Thanks, Dan..

Thanks.

And this concludes our question-and-answer session. I’d like to turn the conference back over to Claude Davis for any closing remarks..

Thanks, Raghav. And again, just thank everyone for your interest in First Financial and joining our call today. Thank you..

And thank you, sir. Today’s conference has now concluded. And we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day..