Jan 26, 2012
Executives
Ken Lovik - VP, IR & Corporate Development Claude Davis - President & CEO Frank Hall - EVP, CFO & COO
Analysts
Scott Siefers - Sandler O'Neill Emlen Harmon - Jefferies Jon Arfstrom - RBC Capital Markets Chris McGratty - KBW Bryce Rowe - Robert W. Baird David Long - Raymond James Kennet James - Sterne, Agee Jeff Davis - Guggenheim Securities
Operator
Good morning and welcome to the First Financial Bancorp fourth quarter and full-year 2011 earnings conference call and webcast. All participants will be in listen-only mode.
(Operator Instructions). Please note this event is being recorded.
I would now like to turn the conference over to Ken Lovik, Vice President Investor Relations and Corporate Development. Please go ahead.
Ken Lovik
Thank you, Andrew. Good morning everyone and thank you for joining us on today's conference call to discuss First Financial Bancorp’s fourth quarter and full-year 2011 financial results.
Discussing our operating and financial results today will be Claude Davis, President and Chief Executive Officer and Frank Hall, Executive Vice President, Chief Financial Officer and Chief Operating 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 year and the accompanying supplemental presentation are available on our website at www.bankatfirst.com under the Investor Relations section.
Please refer to the forward-looking statement disclosure contained in the fourth quarter 2011 earnings release as well as our SEC filings for a full discussion of the company’s risk factors. The information we provide today is accurate as of December 31st, 2011 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.
Claude Davis
Thank you, Ken and thank you to those joining the call today. We are pleased to announce another quarter of strong performance reporting net income of $17.9 million or $0.31 per diluted common share representing an increase in earnings per share of 14.8% over the prior quarter and 25.4% over the fourth quarter of 2010.
For the full year, we reported net income of $66.7 million and diluted earnings per common share of a $1.14 or increases of 12.6% and 14.9% respectively over our annual performance in 2001. Return on average assets were 1.09% and return on equity was 9.89% for the quarter and 1.06% and 9.37% for the full year, again significant increases compared to our performance one year ago.
Our adjusted pre-tax pre-provision earnings were $31.5 million for the fourth quarter remaining strong at 1.92% of average assets. The decline compared to the third quarter was significantly impacted by items related to the Branch acquisition including elevated cash balances, higher occupancy costs, core deposit intangible amortization was offset partially by higher service charges in bankcard income.
Net interest margin decreased during this quarter to 4.32% driven primarily by an increase in interest earning assets and the continued decline in our high-yielding covered loan portfolio. Frank will provide more details on these items later in the call.
In early December, we closed the Flagstar Branch acquisition successfully completing all integration activities and transferring the relationships acquired to the First Financial brand. We are pleased to welcome the new associates joining First Financial from Flagstar and look forward to building a strong relationship with all of our new clients.
2012 was a busy year for us on the acquisition front as we closed two Branch transactions that allowed us to greatly accelerate our growth plans in two keys strategic metropolitan markets. Through the Liberty and Flagstar transactions, we added 38 new banking centers to our existing network with approximately $730 million in client deposits as of December 31.
These transactions significantly enhanced our scale and brand in the Dayton and Indianapolis markets providing an immediate lift to our existing commercial teams already operating those markets. We paid our second variable dividend during the quarter representing a 100% dividend payout ration based on our third quarter’s reported earnings per share of $0.27.
The variable dividend which we believe is unique in the banking sector yielded 6% based on yesterday’s closing price of $17.90. As discussed in earnings release, the Board has authorized a regular dividend of $0.12 per share and a variable dividend of $0.19 per share for our next scheduled dividend to be paid in April of 2012, increasing the yield to 6.9% based on the same closing price.
As of December 31, our tangible common ratio was 9.23%, Tier 1 leverage ratio was 9.87% and our total risk-based capital ratio was 18.74%. Our ratios are still well in excess of our stated thresholds of a tangible equity ratio of 7%, Tier 1 leverage of 8% and total capital ratio of 13%.
Despite the assets acquired during the year related to the branch transactions, we still have the ability to support significant growth and under the most constraining of our thresholds have capacity to support approximately $1.5 billion in additional assets. Total classified assets declined for the six consecutive quarter, down $10.2 million or 5.9% compared to the linked quarter and down $39.8 million or 19.7% compared to December 31, 2010.
Total non-performing loans to total loans decreased three basis points to 2.57% during the fourth quarter and total non-performing assets to total assets declined to 1.31% from 1.40% as of September 30. As of December 31, 2011, our allowance for loan losses related to uncovered loans of $52.6 million, representing declines of $2 million compared to the linked quarter and $4.7 million compared to December 31 of 2010.
The year-over-year decline in the allowance of 8.1% is directionally consistent with the year-over-year declines and net charge-offs of 33%, non-performing assets of 10.4% and classified assets of 9.7%. We ended the year with an allowance to total loan ratio of 1.77%.
Total loans excluding the covered portfolio increased $30.8 million or 4.2% on an annualized basis compared to the prior quarter. We were able to capitalize on the strong pipeline at the end of the third quarter as originations and renewals in our commercial and commercial real estate portfolios drew a meaningful growth in these key business lines during the quarter.
Commercial and commercial real estate balances increased 16.6% and 10.2% respectively on an annualized basis. Our pipeline and level of existing commitments in the commercial and commercial real estate portfolios at yearend remained healthy and should provide solid prospects for continued growth heading in 2012.
Considering that we’re still operating in an uncertain economic and regulatory environment, we were satisfied with our results for both the quarter and the year. Throughout the year, we remained focus on the execution of our client-service based community bank business model, while our strong capital position and the dedication of our associates allowed us to capitalize on growth opportunities and seamlessly close and integrate two strategic acquisitions.
We produced solid and consistent earnings throughout the year driven by a continued emphasis on operating efficiency, implementation of deposit rationalization strategies and lower credit costs. During 2012, we remain focused on these aspects of our business while also aggressively pursuing the growth potential provided by our recent acquisitions as well as within our legacy franchise.
I will now turn the call over to Frank for further discussion on our financial performance.
Frank Hall
Thank you, Claude. I will start by providing a few comments on some of the operating results of the quarter and the major components of the performance.
We have also provided supplemental information furnished separately that is available on our website bankatfirst.com in the Investor Relations section or in the 8-K we filed last night. As in previous quarters this supplement is crucial to establishing and maintaining a clear understanding of our reported results as well as the concepts that have a material effect on our current and future performance.
As many of you know from following our company, our operating results are materially impacted by unique accounting and reporting requirements and the strategic distinctions we have made related to our 2009 acquisitions. However to aid and a clearer understanding of our strategic activities, we will focus primarily on the ongoing or strategic aspects of our business on this call.
Our earnings release and our supplemental information should provide sufficient information and transparency into the purchase accounting details and the impact of non-strategic components of our results. These complexities have also been discussed at length in our previous earnings calls and the technical accounting call that we hosted on February 4th of 2011.
This information is also available on our website. Fourth quarter 2011 GAAP earnings per diluted share were $0.31.
Our operating results are best summarized on the pre-tax pre-provision income slide, which are on pages three and four of our earning supplement. Our adjusted pre-tax pre-provision earnings were $31.5 million for the fourth quarter representing a decline of $1.6 million or 4.7% compared to the third quarter.
The decrease was driven by higher other real estate owned write-downs as well as higher occupancy costs and core deposit and tangible amortization resulting from the Liberty and Flagstar Bank acquisitions offset partially by higher service charges and bankcard income provided by the acquisitions. Higher wealth management fees and an increase in credit valuation adjustments related declined derivatives combined to offset the decline as well.
Overall our adjusted pre-tax pre-provision earnings to average assets for the quarter remain strong at 1.92%. I will note that had the total excess cash from our acquisition been fully deployed into investment securities at the time of closing each acquisition, our linked quarter pre-tax pre-provision earnings would have been approximately flat.
Net interest income on a linked quarter GAAP basis was up slightly, though as Claude mentioned our net interest margin did decrease to 4.32% due primarily to a higher earning asset base as a result of our acquisitions. A continued decline in our high yield and covered loan portfolio contributed to the margin pressure.
However, the positive impact of deposit pricing changes, coupled with loan portfolio increases will have yielded a relatively stable margin when excluding the acquisition impact on the earning asset base. With regard to our elevated cash balances, net interest margin and net interest income were negatively impacted during the quarter as we were selective in deploying cash due to the interest rate environment as well our strategy to increase the duration of our investment portfolio.
In total we received $621 million in cash from the Liberty and Flagstar acquisitions and purchased $417 million of new securities during the quarter, a majority of which did not settle until late in the quarter. Collectively these purchases had a weighted average yield of 2.44% and a duration of 3.4 years.
Taking into account additional cash flows from pay downs of covered and uncovered loans and our investments portfolio we still have a large cash balance to deploy, which will most likely occur in the investment portfolio. So far during the first quarter of 2012, we have continued to deployed cash purchasing $131 million of new securities with a weighted average yield of 2.75% and a duration of 3.9 years.
We anticipate purchasing $300 million of securities through out the remainder of the first quarter of which approximately $75 million of reinvestments of investment portfolio cash flows. In an effort to diversify our investments portfolio and increase yield we also purchased a limited amount of investment grade single issue or trust preferred securities within the companies risk tolerance guidelines.
These securities have a weighted average yield of 6.17%. We continue to purchase similar securities during the first quarter of 2012 and we’ll continue to do so in future periods on a selective basis.
The maximum targeted exposure related to various types of corporate securities is 10% of the total investments portfolio. As we noted in the third quarter, we have successfully extended the duration of the investment portfolio by executing a securities trade through which we sold $162.6 million of shorter duration CMOs with a duration of up to 2.2 years and replaced them with $161.6 million of mortgage-backed securities and CMOs with the duration of 3.8 years.
In connection with the sale portion of this trade, we realized the $2.5 million pre-tax gain. As a result of our investment activity during the quarter we increased the duration of the investment portfolio from one year as a September 30th to 2.4 years as of December 31.
In light of the recent Fed comments on interest rates, we remain confident the duration extension is the right strategy. Turning now to the liability side of our margin management; we were successful in further offsetting the margin decline as we continued to execute on our deposit rationalization strategy, which began in the third quarter of this year.
During the fourth quarter, we continued these strategies and reduced rates on our CDs and core deposit products, introduced more market rate sensitive profitability model for business and public fund relationships and developed modified renewal rates for single service CD customers where there is a limited opportunity for additional product sales to occur prior to maturity. Through these actions, we were able to lower our total cost of deposit funding to 64 basis points, a decrease of over 15% or 12 basis points compared to the linked quarter and down over 35% or 35 basis points compared to the fourth quarter of 2010.
Excluding the effect of deposits acquired is the Flagstar transaction. We reduced time deposit balances by $163 million or 9.8% during the quarter, a portion of which consisted of high cost, single service CD balances.
We have over $120 million of single service CDs maturing during the first quarter of 2012. So we expect to continue reducing time deposit balances if we if we cannot cross sell these customers additional First Financial products.
One final comment on net interest margin is that while the industry overall is faced with challenges in this area, we are in a fortunate position to still have additional leverage to pull to mitigate these challenges. Both our investment portfolio yield and our liability cost relative to our peers indicate that we have further room to improve.
Our historic performance relative to peers has been somewhat intentional as we managed the post-acquisition challenges of client retention and our investment portfolio was poised to meet any sudden liquidity demands. We are now ready to close these performance gaps.
Our deposit costs relative to peers is approximately five basis points above the medium and our investment portfolio yield is approximately 50 basis points below peer medium. While we are not suggesting that we will fully recognize a 50 basis point improvement in our investment portfolio yield, we will begin to manage a portfolio that is similar in structure to our peers.
Non-interest income earned in the fourth quarter of 2011 excluding reimbursements due from the FDIC and other covered loan activity was $15.1 million as compared to $14.1 million in the third quarter of 2011 and $16 million in the fourth quarter of 2010. The increase compared to the linked quarter was primarily driven by higher service charges on deposits and bankcard income resulting from the branch acquisitions, as well as higher trust and wealth management fees, and a credit valuation adjustment related to decline in derivatives.
Non-interest expense in the fourth quarter of 2011 excluding the effect of a acquired non-strategic operations and other acquisition and transition related items and as noted in table 2 of the earnings release, was $47.2 million as compared to $44.8 million in the third quarter 2011 and $47.6 million in the fourth quarter of 2010. The increase in non-interest expense of $2.4 million or 5.1% compared to the linked quarter was primarily driven by higher salaries and benefit expense, occupancy costs and core deposit intangible amortization resulting from the branch acquisitions, as well as higher professional service fees and valuation adjustments to uncovered OREO.
We have disclosed a tremendous amount of detail about the balances, yields and quarterly valuation results of our loans accounted for under SOP 03-3, which should aid you in evaluating our acquired loan portfolio and as I mentioned earlier I will not discuss the details of purchase accounting related items. However, I do want to highlight the actual credit cost related to covered assets experienced during the fourth quarter.
Page 10 of the supplement provides the components of credit losses, which totaled $2 million for the quarter compared to $2.6 million recognized in the third quarter. This marks the third consecutive quarterly decline of credit cost related to covered assets and continues to reflect a relatively stable credit outlook for the covered loan portfolio.
Overall the performance of the covered portfolio continues to exceed our initial estimates and the quarter-to-quarter changes continues to be positive. Claude spoke briefly to our capital ratios and while they remain strong we did have several influencing factors related to the decrease in our tangible book value.
These factors include the impact of acquisitions and the impact of assumption changes in our pension valuation models. While the discount rate used to value the pension benefit obligation declined from 5.36% in 2010 to 4.22% in 2011.
The pension valuation impact is a financial reporting convention that maybe taken somewhat out of context. Our pension remains over funded and produces pension income for the company when compared to other companies that may have under-funded pensions that require pension expense to be recorded.
And with that, I’ll now turn it back over to Claude.
Claude Davis
Great, thanks Frank. And Andrew, we’ll be happy to open the call for questions.
Operator
Thank you. We will now begin the question-and-answer session.
(Operator Instructions) The first question comes from Scott Siefers of Sandler O'Neill. Please go ahead.
Scott Siefers - Sandler O'Neill
Frank, I guess the first couple of questions for you, so it sounds like managing both the securities portfolio and even deposit costs more proactively is going to be a kind of a key to preserving or maybe even enhancing margins the next couple of quarters. I wonder if you could talk about one, how quickly are you able to effect that change on the securities’ portfolio side; you know it sounds like you kind of started in the last couple of quarters; you've been pretty active this quarter and will continue to do so.
But is that something that takes place over the full year or can you effect it pretty rapidly in the first quarter to here, how does that manifest itself and then and a related question so the trust referred purchases, can you just talk about some of the characteristics of the securities you’re purchasing just given the kind of the changing accounting treatment and what, could those be called away from you, etcetera?
Frank Hall
Sure. So I’ll start with the timing of the investment portfolio.
We do expect to be able to put our access cash to work fairly quickly and I would expect us to take a more aggressive position of managing our cash balances to lower levels. So I would expect to see that happen throughout the first quarter.
But as I noted in the prepared remarks how performance relative to peers has a lot of history baked into that performance delta. So I would expect to recover the 450 basis points, but overtime I would expect our performance to start to look similar as we’ll continue to structure our investment portfolio similar to our peers.
And then as it relates to the trust preferred securities, you know it is our expectation candidly that they do get called away. These are issued by the largest financial institutions in the countries, so we do have an expectation that they will be called away and that’s okay and we knew that going into it.
Scott Siefers - Sandler O'Neill
And I just had one question either or one additional question either for you Frank or Claude just on how you think about capital management priorities given what appears to be a pretty sustained low rate environment. So you’ve got this enormous yield given the 100% payout target and then just as you kind of counter balance that with M&A opportunities and I guess unless you buy lots of you know higher yielding assets and you know doing things like future deposit acquisitions just might not have as much value as long as rates are this low.
So you know how do you think about that kind of trade office you look at all your capital management opportunities?
Claude Davis
Sure Scott, its Claude. Yeah, it’s something we continuously evaluate and I would tell you that, you know as we stated in previous quarters that and the Board evaluate that every quarter and I think that to the extent that we don’t have deployment opportunities, we’ll continue to consider the variable dividend because we think that’s the highest and best use for shareholders.
The two branch deals that we did in 2011 were specifically done to accelerate our growth both on the deposit and on the loan side in Indianapolis and Dayton, so we did those very strategically because of those two core metropolitan markets. So that was, you know to your point about how valuable our deposit is today, just as a reminder, that’s why we did those and I get your point in terms of the return expectations on deposit only type deals.
So we’ll continue to evaluate it, we’ll certainly look at other M&A transactions if they would again make sense strategically for us or internal growth rates on the asset side when that eventually returns. We would certainly want to deploy that capital if we can in the business at the right rates of return.
If we can’t and we’re still above our capital thresholds, we’ll continue to consider the variable dividend.
Operator
The next question comes from Emlen Harmon of Jefferies. Please go ahead.
Emlen Harmon - Jefferies
It was good to see organic loan growth continue and actually even pick-up a little bit in the quarter. I was hoping you could give us a sense just to kind of what the source was there and just if you see a success and well specifically Dayton just kind of new markets that you moved into recently?
Claude Davis
Certainly, most of the growth was in commercial real estate and small business, you know a little bit of growth in the consumer portfolios but not you know the bulk of it was commercial and small business. In terms of Dayton, we have been in Dayton actually for about five years now.
And you know, so we continue to see growth in Dayton, continue to see growth in Indianapolis. What we’re hoping is with the branch acquisitions and the kind of the brand awareness improvement that provides us as well as additional clients that we’ll continue to see that growth accelerate in those markets, as well as Cincinnati and our other markets that we’re part of.
But you know it’s still a bit early to see kind of what the impact is of the branch acquisitions since they just closed in the last three to four months.
Emlen Harmon - Jefferies
And then I guess just one other question on expenses. Could you give us a sense of just kind of what you would expect for a trajectory for expenses here headed into 2012 and you know with both Liberty and Flagstar kind of on the books now.
You know, any opportunity to bring expenses down a bit as we head into the New Year?
Frank Hall
Sure, this is Frank. The expense level I think, what you’re seeing in the fourth quarter, I’ll probably call it the high watermark for our expenses.
Going forward, we have not yet fully recognized all of our cost savings opportunities related to those acquisitions and we just culturally are continually looking for ways to improve our efficiency and lower our overall cost structure.
Operator
The next question comes from Jon Arfstrom of RBC Capital Markets. Please go ahead.
Jon Arfstrom - RBC Capital Markets
Frank, just a follow-up on the securities portfolio, you mentioned targeting 300 million in purchases, but I guess 75 million of that is you know existing portfolio reimbursements. So what kind of a securities portfolio size target do you have as you know start to change the approach a bit?
Frank Hall
Sure Jon. We actually don’t have a target investment portfolio size and the reason for that is you know we just want to have our access cash fully invested.
So you know as we see what the results are both from retention of the recent acquisitions and the response to some of our deposit rationalization strategies, we think that the right target for now and that’s how we’ll manage the overall size of the portfolio. The duration is still you know while it’s approaching three years, I mean that still should provide sufficient cash flow for us to meet any of those potential liquidity demands.
Claude Davis
The only thing I would add to that Frank is that, Jon the other part of it is that with our deposit rationalization strategy you know we view that the portfolio is almost entirely core deposit funded, you know we don’t have any leverage strategy now or nor any intended.
Jon Arfstrom - RBC Capital Markets
Okay, that makes sense. And then, Claude for you, a follow-up on the loan growth; you have a lift in commercial real estate, the core commercial real estate over the past few quarters.
Can you talk a little bit about what the common theme is in the core CRE portfolio?
Claude Davis
That’s a business that we’ve always been in and continue to stay in and you know what we’ve been seeing I would say through 2011 obviously we've all been very cautious in that sector due to some of the challenges that have been experienced, where we've seen our new opportunities are really with those investors who weather the storm well, had the liquidity and the cash and the capacity to kind of grow and expand if you will, kind of win assets at a cheaper level and so we've actually seen the quality be very good from our perspective in that book. Obviously staying away from the high risk areas you know like residential development or some of the kind of the higher risk areas that you would expect that are more speculative.
So we've actually seen some really nice quality credits come our way in that area in 2011.
Jon Arfstrom - RBC Capital Markets
And your comments in the pipeline earlier that would apply to that portfolio as well.
Claude Davis
It would, I mean it’s across the board.
Operator
The next question comes from Chris McGratty of KBW. Please go ahead.
Chris McGratty - KBW
Just a question on the acquisition front. Yesterday we saw a deal in Indiana.
Two questions, one is that a type of acquisition that you would look at and two given the Fed’s kind of comment yesterday on interest rate policy, do you think this drives, this forces banks to consolidate?
Claude Davis
Well, obviously we won't comment on other deals. You know as we've always said when we think about M&A we look at markets that we believe are strategic.
So we've been pretty clear about our market area being Ohio, Indiana, Kentucky with the specific focus in terms of M&A on what I would call metropolitan market interest. So that's how we think about kind of where we focus any M&A interest that we might have.
Now I do think the Fed’s position and it’s still not clear really to us when they say 2014, is that a forecast or is that a policy statement. It first sounded like a policy statement, but the more I’ve heard last night and this morning it sounds more like a forecast to me.
But if you soon that’s the case, I think it’s obvious that all of us will have margin pressures as a result of that kind of an extended period of zero percent rates and I think that in combination with the Dodd-Frank rollout and the impact of regulations, I would certainly expect that would accelerate M&A across market areas. But I would just emphasis again our focus is on our core market areas and predominately in some of the metropolitan markets that we think are good potential growth opportunities.
Chris McGratty - KBW
And the quick follow up on the dividend. Is there, I know you guys have been pretty clear or very clear on kind of your expectations to maintain unless something a size comes about.
I guess the question becomes, are you seeing opportunities of size maybe in 2012 that you could potentially see a better use the capital or is there a magic size for a bank that you would consider to say, hey I need to reconsider the dividend?
Claude Davis
It’s like I said, we’ll keep looking at it every quarter and contemplate those organic as well as acquisition opportunities in that context because I would say just on the M&A front, I think I have mentioned this last quarter is with the two deals that we did in 2011 to really position ourselves well in Dayton and Indianapolis and with still a lot of work to do in terms of market share gain in Cincinnati, we actually don’t feel like we need to do any more deals. We feel like we’ve got lots of organic growth opportunities in those three metro markets and in our non-metro markets, even though in many of those we have large market shares.
So, I would tell you on a day-to-day basis, we are really focused more on growing those metropolitan markets that we are part of and certainly should an M&A opportunity make itself available, then we would look at it if it hit our strategic criteria. And then we will contemplate the dividend in the context of all of that and that’s the way every quarter when the Board meets, that is the discussion we have.
Chris McGratty - KBW
Okay, just a point of clarification, when that day comes, will it be a concurrent event or will you kind of try to telegraph the market ahead of time in terms of the dividend policy?
Claude Davis
Yeah. I wouldn’t want to speak for the board in that event.
Operator
The next question comes from Kevin Spellman of Dvm Asset Management. Please go ahead.
Kevin Spellman - Dvm Asset Management
I just had a quick question on the TARP ones and just wanted to verify my understanding in light of your dividend policy now because I understood that every penny above $0.17 a quarter, drops the strike price on that warrant penny for penny, is that correct?
Frank Hall
It’s not quite that simple as there is more of a formula involved with it. It’s a formulaic number that, that we are working through and working through the analysis and with it we will have to make the adjustment at the appropriate time.
Claude Davis
But your observation is correct, there is an adjustment required.
Kevin Spellman - Dvm Asset Management
Okay and where will we get that? I mean it’s above $0.17, correct?
Frank Hall
Yeah, $0.17, that was our dividend before we entered the TARP program. So yes, that is the threshold.
Claude Davis
And we will provide additional clarification on that to the market in here shortly.
Operator
The next question comes from Joe Stieven of Stieven Capital. Please go ahead.
Joe Stieven - Stieven Capital
Claude and Frank, isn’t the real issue that sort of people that beat around a bush is that you guys are showing tons of opportunities on the M&A side. But you just don’t want to take dilution and that’s why your, sort of been disciplined.
I mean, isn’t that fair to say that you’re seeing lots of stuff, but you’re just being real disciplined and you’re not just going to give the capital away to somebody?
Frank Hall
You know, we certainly don’t comment on what we look at. But again, as Claude mentioned early, our acquisition philosophy and approach to evaluating transactions is unchanged and so the strategic fit is first, can we manage the operational risk?
And second and then third is it financially compelling? So we remain disciplined and still maintain the same financial hurdles adjusted for specific situations as we’ve in the past.
So, yes if your conclusion about our previous acquisitions is that they were disciplined, then I would say, yes, that’s continuing.
Operator
The next question comes from Bryce Rowe of Robert W. Baird.
Please go ahead.
Bryce Rowe - Robert W. Baird
Frank can you help me out with the, I guess that roughly $2.5 million of expenses that are not likely to recur. That is not included in the kind of merger related expenses correct?
Frank Hall
That is correct. There are some that have to do with leasehold improvements that we accelerated and we recognized an acceleration of that amortization because of a physical change in location So there are multiple elements in there.
Bryce Rowe - Robert W. Baird
And most of those charges are in the occupancy bucket of the expense operating expenses?
Frank Hall
That is correct
Bryce Rowe - Robert W. Baird
Two more question. The core deposit intangible amortization, can you tell us what that was for the quarter.
Frank Hall
As we have acquired some deposit franchises here we recently recorded core deposit intangible and the accounting rules are that we amortize that overtime. So that is if you are looking for specific dollar amount, I don’t think on a standalone basis it was that material.
Bryce Rowe - Robert W. Baird
Okay, fair enough. And last question, I think last quarter I asked this question, single service CDs were roughly $600 million and you talked about $120 million of those maturing in the first quarter.
What’s the maturing schedule like for the CDs over the remainder of 2012.
Frank Hall
Sure give me just a moment and most of them should be coming to you in the course throughout 2012.
Bryce Rowe - Robert W. Baird
Okay. And then if my numbers is correct it’s roughly $600 million?
Frank Hall
It’s a little bit less than that now, it’s about I want to say it’s about $450 million.
Operator
The next question comes from David Long of Raymond James. Please go ahead.
David Long - Raymond James
In regard to the securities portfolio, obviously more sophistication there; how are you allocating or reallocating or adding resources to manage that.
Frank Hall
That's a fantastic question and that's actually what we are working through and why you are not seeing the instance which to a portfolio it looks similar to our peers. We are going to evaluate each asset class we think we should have exposure and understand what resources are required there before we make any trades in the space.
So each asset class will go through its own evaluation. We will look at whether or not that's a resource we need to bring to add internally or is it something we can outsource.
But we will survey best practices on what makes sense there and we will certainly provide some additional commentary on that as we execute.
Operator
The next question comes from Kennet James of Sterne, Agee. Please go ahead.
Kennet James - Sterne, Agee
If I heard you correctly in the past, a part of your reason for discipline I guess on traditional deals or maybe leaning more towards fresh deals as you haven't been in a hurry to kind of take on other people’s potential problems in the loan portfolio. Have you seen any or what have you seen I should say in regards to progression in the credit cycle to where you would be more comfortable?
If we had an inflexion point at all in the credit cycle to where you think you are more comfortable with larger traditional deals or is that a factor at all?
Claude Davis
Yeah, I know I think that’s a fair statement. But we are in a stage in the credit cycle where visibility is much as better than it was 6 or 12 months ago and I think a lot of the real estate pricing while still volatile is certainly more stable than it was 6 to 12 months ago.
So yeah I would say as we look at loan portfolios to the extent that we do or will, I think we would have more confidence about the predicting what the right mark would be, as well as our own experience of having now worked two years on two sale bank transactions and seeing kind of the outcome of some of their core problem assets. So that’s a fair point.
Kennet James - Sterne, Agee
Okay. Have you given any considerations or is it kind of a complete no-no or that you would consider of buying distress credit, given your workout experience, ample capital, liquidity, all the rest of it seems like there be a lot of it out there that can be had at a good price for someone that would buy them and have the capability to work it out.
Is that something you are ready come up?
Claude Davis
The an interesting idea and I wouldn’t tell you that it hasn’t at least been surfaced as an idea but obviously there would require a fairly extensive evaluation because there would be a fairly significant departure from our strategy. But it’s an interesting idea.
Kennet James - Sterne, Agee
And last just on the security portfolio. Given that you were managing it for low rates, are you doing anything I guess to kind of protect from pre-payment risks or premium with amortization risk if rates should fall or fall even further?
Claude Davis
That’s certainly part of our the analysis that we go through and we’ll certainly monitor that and take that in to consideration. So it is part of the evaluation that we go through.
Kennet James - Sterne, Agee
But some people I guess making a state of point if we buy 4% coupon pool, low-coupon pool is just kind of another strategy like we will only get to buy a low-coupons or we just won’t buy premiums, have any stated rules like that?
Claude Davis
Yeah. I mean, again we certainly try to avoid purchasing securities with a tremendous amount of premium risk to them.
But occasionally we will make exceptions depending on what the underlying assets are in the pools.
Kennet James - Sterne, Agee
Okay. And then just last point, just on the corporate securities at 10%.
I mean, as a trust preferred is it going to be viewed just like, I guess, investment grade, industrial would be, trust preferred for a bank, was the same thing in that 10% pool?
Frank Hall
Yes. Those securities that have credit risk associated with corporate.
Sure.
Operator
(Operator Instructions) The next question comes from Jeff Davis of Guggenheim Securities. Please go ahead.
Jeff Davis - Guggenheim Securities
Two questions; let me ask them both and then I will be quiet. One, and if you commented joined a little late, so my apologize.
Just say so, and I will read it in the transcript. Any difference in the level of activity in Cincinnati versus Indianapolis from a economic perspective in loan demand?
And then secondly, are there, that I don’t know to the extent share underwriting and whether holding in your portfolio or selling it meets your credit criteria. But in terms of the franchise finance book, are there any broad trends that can be discerned from looking at the fast food industry about the consumer and may be even a regional tail to that?
Claude Davis
Sure. The first question in terms of the Cincinnati versus Indianapolis comparison, you know our loan kind of growth if you will or loan demand has been stronger in Cincinnati.
However, you know a couple of factors are there. One, is we have a larger market share.
We’ve been here longer. We have a larger sales team.
And just in general, Cincinnati is a larger market overall than Indianapolis is. I would say we’re gaining momentum in Indianapolis.
We’ve seen some nice growth there and it’s building. And I think we’re also looking at recruiting in that market.
So you know, that’s a future expectation that we have that we will see greater growth out of the Indianapolis market, but today Cincinnati is clearly the larger and make it larger.
Jeff Davis - Guggenheim Securities
Yeah. And then let me just ask a biz, is Cincinnati then, is Cincinnati performing generally stronger than Indianapolis regardless of your growth efforts?
Claude Davis
No, I wouldn’t say so. You know, there are a lot of, I think, both markets have been slow and steady, way just I would describe them.
Both have, I think you know weathered the recession reasonably well. I think the Indianapolis real estate market has been stressed, but other parts of the Indianapolis economy has been pretty good.
And I think Indiana overall, with some of their public policy positions, I think they’ve done a good job as a state managing through the recession. So we don’t see significant differences between the two at least in terms of the clients that we work with.
On your second question on the franchise piece?
Frank Hall
Yeah, this is Frank. I would just tell you that the conventionalism of our franchise business is that, you know it’s recession proof and I think what we’ve learned by studying the business that we’ve acquired is that that’s not entirely a true statement; unfortunately the loans that we acquired there are covered loans, so that’s a lesson that we get to learn without too much downside.
In the other point that I would make is, as far as things that we can learn from that business and apply to the rest of the business. I would just remind you that it is national platform, I think similar to the question you asked about differences between Cincinnati and Indianapolis, you know much of what we see in consumer behavior is across the country, so it may not necessarily be applicable to our primary operating margins of Ohio, Kentucky and Indiana.
Jeff Davis - Guggenheim Securities
Right, I understood. But I was just more curious as the second derivative data point is, Claude as you look at, are they telling you that all of sudden the consumer America is picking it up or not; sure just more steady from what you might have seen nine months ago?
I maybe asking too much new ones, but I am just –just a second derivative question, or third derivative it would be?
Claude Davis
Fair question and I don’t know that we’ve kind of looked at it in that context or maybe the other way I would say is I don’t that we have a deepen up data to cool it, just kind of make that kind of the second derivative conclusion, because the other part I would tell you is that recent terms of what we look at, it would be very dependent also on the different concepts that we underwrite into. So you know one concept maybe doing very well, that may or may not be indicative that the consumer maybe more indicative of you know if the McDonald’s may just be doing a heck of a job right now as it relates to their product lineup.
So I don’t know that we have enough data or that we’ve even thought about it in that context.
Jeff Davis - Guggenheim Securities
So then last question on it, are they seeing more demand or consistent demand from nine months ago?
Claude Davis
I would say slightly up, but you know its not I would say significant, but you know slightly up.
Operator
We do have a question from Joe Stieven of Stieven Capital. Please go ahead.
Joe Stieven - Stieven Capital
Sorry for the follow-up, but back to the concept of capital, if you look at your capital ratio, give us a thought what you think more normalized capital for you is, because all of us who sort of like this dividend you know I guess the question is how long will it be out there and I think the easiest way without giving an answer is saying here is sort of what we think normalized capital should be for us then we can sort of extrapolate out from there? Thanks guys.
Claude Davis
Sure Joe, I understand the question and the way we tend to think about kind of capital, we stated in terms to thresholds and we've been public about our statement about our thresholds which are 7% tangible, 8% leverage and 13% total capital which means that the threshold we won't go below those levels is our target. And so with our ratios being well above that and then comparing that to what our kind of capital deployment opportunities are if that comparison and our Board goes through on a quarterly basis to say does it makes sense to continue the variable dividend or not.
And so that's the way we will continue to look at it; what’s our capital deployment opportunities versus where our current capital ratios are in the context of those thresholds.
Joe Stieven - Stieven Capital
So like I caught, so in a static environment in a vacuum that would support couple of billion dollars actually you know?
Claude Davis
Yeah, we estimate about 1.5 billion.
Joe Stieven - Stieven Capital
Yeah, exactly; yeah in a static environment, right. Okay.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Claude Davis, President and CEO for any closing remarks.
Claude Davis
Great. Thank you Andrew and again just finally thanks to all those who participated on the call.
And your interest in First Financial. Thank you.
Operator
The conference is now concluded. Thank you for attending today’s presentation.
You may now disconnect.