First Financial Bancorp to Acquire Flagstar Bank's Indiana-based Retail Branch Locations and Deposits

August 16, 2011

Cincinnati, Ohio – August 16, 2011 – First Financial Bancorp (Nasdaq: FFBC) (“First Financial” or the “Company”) announced that its wholly-owned subsidiary, First Financial Bank, has signed a purchase and assumption agreement to acquire all 22 of the retail banking branches of Flagstar Bank, FSB (“Flagstar”) located in Indiana.  The deposits associated with Flagstar’s Indiana franchise totaled approximately $525.9 million as of June 30, 2011.

Strategic highlights of the transaction include:

  • Significantly enhances First Financial’s presence in the key market of Indianapolis, IN
  • Branches are located in demographically attractive areas within the Indianapolis MSA
  • High scarcity value – very few acquisition targets available in the Indianapolis MSA with similar scale and branch footprint
  • Provides service capabilities in other markets within the Company’s existing Indiana footprint
  • Provides immediate scale and earlier profitability compared to building a similar branch network
  • Franchise offers strong growth potential under the First Financial brand
  • Positions First Financial as one of the largest community banks operating in the Indianapolis market

Claude Davis, President and Chief Executive Officer commented, “The acquisition of Flagstar’s Indiana-based franchise will assist in accelerating our growth plans in Indianapolis as 18 of the branches are located in the metropolitan area.  We are excited by the opportunity this transaction presents due to the high quality of the branch locations and the demographically attractive areas they serve.  We have been successful in building our commercial business in Indianapolis and the addition of the branches and consumer relationships will drive future growth not only in our retail banking business but across all business lines.

“Indianapolis has experienced significant banking consolidation as the top seven market share participants are all either regional or money center banks now controlling over 75% of the deposit base.  As a result, there are very few potential acquisition prospects available to build market share in a meaningful way.  The Flagstar branches, which are concentrated in populated areas within the market, represent one of the most attractive opportunities to continue building our brand in this strategically important market.

“Furthermore, the transaction provides us with service capabilities for the communities of Angola, Muncie, Richmond and Warsaw, adding to our banking center network within our greater strategic operating markets.
“We do not expect the capital needed to support the Flagstar deposit portfolio as well as the previously announced acquisition of Liberty Savings Bank, FSB’s Ohio-based branches to inhibit our ability to continue paying the variable dividend authorized by our board of directors under which we expect to payout 100% of quarterly earnings.”

Under the terms of the purchase and assumption agreement, First Financial will pay a 4.37% premium on total deposits assumed, or approximately $23.0 million based on the deposit balance mentioned above.  The assumed deposits consist of approximately $327.9 million of primarily retail accounts maintained in the acquired branches and $197.9 million of deposits held by public entities throughout the state.

First Financial expects the transaction to be accretive to 2013 diluted earnings per share.  However, the Company expects it to be modestly dilutive to 2012 diluted earnings per share excluding the effect of integration costs.  The Company also estimates that it will be approximately 3.7% dilutive to tangible book value per share upon closing.  Including the effect of the Liberty acquisition, the Company estimates the combined dilution to tangible book value to be approximately 7.3%. 

Subsequent to the transaction and including the impact of the Liberty acquisition, the Company estimates that its pro forma tangible common equity ratio will be approximately 9.05% and total capital ratio will be 18.90%, down from 11.11% and 21.43%, respectively, as of June 30, 2011.

The transaction is expected to close during the fourth quarter 2011 and is subject to regulatory approval and other customary closing conditions.