First Financial Bancorp 1Q2007 Earnings: A Turnaround in Progress

Implications: Earnings improved as the two year corporate restructuring First Financial Bancorp (NAQ:FFBC) has largely been completed. Return on average assets for the first quarter 2007 was 1.04% compared to 0.10% in 4Q2006 and 0.45% for 1Q2006. Return on average shareholders' equity was 11.94% for 1Q2007, up from 1.10% in 4Q2006 and 5.39% for 1Q2006.


Analysis: While not out of the woods, FFBC's 1Q2007 earnings displayed encouraging signs that FFBC has taken postive steps to a more acceptable level of profitability. That said, there is a long way to go to achieving above average performance. Several keys to the turnaround need to continue.

1. 1Q2007 period-end growth in commercial, commercial real estate, and construction loans of $192.9 million, a 15% bump up over 1Q2006 needs to continue, without any weakness in credit quality.

2. The normalized net interest margin for 1Q2007 was 4.02%, up slightly, and this margin expansion must be sustained.

3. Management projects the noninterest income annualized growth to be between 7% and 13% - which also needs to be realized.

4. Noninterest expense decreased $3.8 million or 11.1 percent, primarily due to lower pension/compensation costs and lower technology spending due to the switch to in-house processing.

5. Staying out of the M & A target zone will be difficult unless additional performance improvements are realized. In the meantime, at least shareholders are getting a better return than in recent years.