First Financial Bancorp of Hamilton, Ohio, is a classic super community bank. Its philosophy and prosperity both demonstrate how effective the strategy can be, even without many bells and whistles.

Analysts say that First Financial is proof that community banks can still prosper by filling the niche between superregionals and smaller community banks.

Robert Stapleton of Keefe, Bruyette & Woods Inc. in New York said First Financial's culture is similar to Banc One's, yet on a much smaller scale. First Financial's decentralized management allows its affiliates to make their own decisions on pricing products and approving loans, he said.

That makes the company attractive to smaller banks that want to be acquired, because they are often hampered by higher regulatory costs and are looking for economies of scale that a larger institution can provide.

"Our strategy is founded upon the concent of quality customer service while paying close attention to rewarding our shareholders for their continued investment," says Stan Pontius, First Financial's CEO.

"We are not looking to amass assets. Meeting customer needs and shareholders' expectations is the nonnegotiable for the company, not growth at any cost."

As a result, Mr. Pontius walked away from many merger opportunities because the financials did not work. "While we plan to double our size in five years, if we're not there but have maintained financial performance, we'll look back and say we have succeeded," says Mr. Pontius.

After being formed as a bank and thrift holding company in 1983, with about $250 million in assets, First Financial has blossomed into a $1.8 billion-asset institution with 11 affiliates and 68 branches in Ohio and Indiana.

High Net Interest Margin

First Financial's strong performance is margin driven. The company has enjoyed a high net interest margin, which has declined only 2 basis points over the past six months and currently is at 5.05%. This, coupled with strong asset quality and an effective loan origination (loan-to-deposit ratio is 78.6%), yields ROA of 1.57% year to date, and ROE of 15.8%.

Profitability is enhanced by a strong trust department, which contributes 7% of the company's fee income.

"We can generate enough fee income of our core businesses to cushion us from wide interest rate swings without building a separate business outside core banking services. Further, we feel that such fee income, which is generated from a broad base of trust accounts, is more stable than institutional businesses such as processing, where losing one large account can make a significant impact on total fee income," says Mr. Pontius.

Loyal Customers

Like many other successful super community banks, First Financial considers customer service its main market differentiation tool. "We have a very strong and loyal customer base," says Mr. Pontius.

"We compete against superregionals with a product line which is more geared to the community needs and with a service level which only the community bank can offer. Our customers feel different in our branch offices as compared to a national or superregional bank branch. We spend more money than they do on head count, and do not want to cut it back. If we did, we'll give away our marketing differential."

First Financial not only has more people in its delivery system but also retains its employees longer. Approximately 80% of the employees have been with the company over five years, a staggering figure. Research indicates the employee retention is closely related to customer retention, and some believe it is an important predictor for increased retention. First Financial's performance appears to confirm that belief.

First Financial is a prime example of a plain-vanilla super community bank in the best sense of the word. It thrives in a highly competitive market by effectively executing super community banking and focusing on the strategy's three edicts: community banking orientation, customer-transparent cost savings, and a broader product line to expand share of wallet and fee income while meeting customer needs.

The results speak for themselves: First Financial is trading at two times book, and continues to prosper in an intensely competitive market.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.