10-Q 1 q110q-2017331.htm FORM 10-Q Document

FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C.  20549

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended                                           March 31, 2017                                                   

OR

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission file number 001-34762
FIRST FINANCIAL BANCORP.
(Exact name of registrant as specified in its charter)

Ohio
 
31-1042001
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
255 East Fifth Street, Suite 700
Cincinnati, Ohio
 
45202
(Address of principal executive offices)
 
(Zip Code)

Registrant's telephone number, including area code:  (877) 322-9530

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x    No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.

Large accelerated filer x
Accelerated filer o
 
 
Non-accelerated filer o
Smaller reporting company o
 
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Exchange Act).
Yes  o No   x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
 
Outstanding at 5/4/2017
Common stock, No par value
 
62,130,532




FIRST FINANCIAL BANCORP.

INDEX


 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Glossary of Abbreviations and Acronyms

First Financial has identified the following list of abbreviations and acronyms that are used in the Notes to Consolidated Financial Statements and the Management's Discussion and Analysis of Financial Condition and Results of Operations.

the Act
Private Securities Litigation Reform Act
 
Fair Value Topic
FASB ASC Topic 825, Financial Instruments
ALLL
Allowance for loan and lease losses
 
FDIC
Federal Deposit Insurance Corporation
ASC
Accounting standards codification
 
FHLB
Federal Home Loan Bank
ASU
Accounting standards update
 
First Financial
First Financial Bancorp.
ATM
Automated teller machine
 
Form 10-K
First Financial Bancorp. Annual Report on Form 10-K
Bank
First Financial Bank
 
GAAP
U.S. Generally Accepted Accounting Principles
Basel III
Basel Committee regulatory capital reforms, Third Basel Accord
 
IRLC
Interest Rate Lock Commitment
Bp/bps
Basis point(s)
 
N/A
Not applicable
CDs
Certificates of deposit
 
NII
Net interest income
Company
First Financial Bancorp.
 
Oak Street
Oak Street Holdings Corporation
ERM
Enterprise Risk Management
 
OREO
Other real estate owned
EVE
Economic value of equity
 
SEC
United States Securities and Exchange Commission
FASB
Financial Accounting Standards Board
 
TDR
Troubled debt restructuring
 
 
 
 
 





PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

 
March 31,
2017
 
December 31,
2016
 
(Unaudited)
 
 
Assets
 
 
 
Cash and due from banks
$
117,914

 
$
121,598

Interest-bearing deposits with other banks
39,058

 
82,450

Investment securities available-for-sale, at fair value (amortized cost $1,223,188 at March 31, 2017 and $1,045,337 at December 31, 2016)
1,220,046

 
1,039,870

Investment securities held-to-maturity (fair value $732,024 at March 31, 2017 and $763,575 at December 31, 2016)
730,796

 
763,254

Other investments
50,996

 
51,077

Loans held for sale
7,657

 
13,135

Loans and leases
 
 
 
Commercial and industrial
1,779,635

 
1,781,948

Lease financing
88,888

 
93,108

Construction real estate
446,332

 
399,434

Commercial real estate
2,398,235

 
2,427,577

Residential real estate
486,601

 
500,980

Home equity
458,974

 
460,388

Installment
52,063

 
50,639

Credit card
43,354

 
43,408

Total loans and leases
5,754,082

 
5,757,482

Less:  Allowance for loan and lease losses
56,326

 
57,961

Net loans and leases
5,697,756

 
5,699,521

Premises and equipment
131,808

 
131,579

Goodwill and other intangibles
210,324

 
210,625

Accrued interest and other assets
324,815

 
324,858

Total assets
$
8,531,170

 
$
8,437,967

 
 
 
 
Liabilities
 

 
 

Deposits
 

 
 

Interest-bearing demand
$
1,494,892

 
$
1,513,771

Savings
2,284,821

 
2,142,189

Time
1,202,563

 
1,321,843

Total interest-bearing deposits
4,982,276

 
4,977,803

Noninterest-bearing
1,547,600

 
1,547,985

Total deposits
6,529,876

 
6,525,788

Federal funds purchased and securities sold under agreements to repurchase
52,484

 
120,212

Federal Home Loan Bank short-term borrowings
806,700

 
687,700

Total short-term borrowings
859,184

 
807,912

Long-term debt
119,629

 
119,589

Total borrowed funds
978,813

 
927,501

Accrued interest and other liabilities
142,416

 
119,454

Total liabilities
7,651,105

 
7,572,743

 
 
 
 
Shareholders' equity
 

 
 

Common stock - no par value
 

 
 

Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2017 and 2016
567,911

 
570,382

Retained earnings
451,073

 
437,188

Accumulated other comprehensive loss
(26,639
)
 
(28,443
)
Treasury stock, at cost, 6,596,446 shares in 2017 and 6,751,179 shares in 2016
(112,280
)
 
(113,903
)
Total shareholders' equity
880,065

 
865,224

Total liabilities and shareholders' equity
$
8,531,170

 
$
8,437,967


See Notes to Consolidated Financial Statements.


1


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)

 
Three months ended
 
March 31,
 
2017
 
2016
Interest income
 
 
 
Loans, including fees
$
66,868

 
$
63,399

Investment securities
 
 
 
Taxable
11,608

 
11,373

Tax-exempt
1,353

 
1,162

Total interest on investment securities
12,961

 
12,535

Other earning assets
(1,001
)
 
(1,139
)
Total interest income
78,828

 
74,795

Interest expense
 
 
 
Deposits
6,925

 
5,530

Short-term borrowings
1,432

 
1,170

Long-term borrowings
1,539

 
1,540

Total interest expense
9,896

 
8,240

Net interest income
68,932

 
66,555

Provision for loan and lease losses
367

 
1,655

Net interest income after provision for loan and lease losses
68,565

 
64,900

Noninterest income
 
 
 
Service charges on deposit accounts
4,644

 
4,381

Trust and wealth management fees
3,747

 
3,440

Bankcard income
3,135

 
2,882

Client derivative fees
1,103

 
1,095

Net gains from sales of loans
1,216

 
1,181

Net gains on sales of investment securities
516

 
24

Other
3,003

 
2,509

Total noninterest income
17,364

 
15,512

Noninterest expenses
 
 
 
Salaries and employee benefits
31,750

 
29,615

Net occupancy
4,515

 
4,957

Furniture and equipment
2,177

 
2,213

Data processing
3,298

 
2,718

Marketing
510

 
1,065

Communication
447

 
481

Professional services
1,758

 
1,813

State intangible tax
721

 
639

FDIC assessments
932

 
1,132

Loss (gain) - other real estate owned
24

 
(190
)
Other
4,913

 
6,277

Total noninterest expenses
51,045

 
50,720

Income before income taxes
34,884

 
29,692

Income tax expense
10,470

 
9,878

Net income
$
24,414

 
$
19,814

Net earnings per common share - basic
$
0.40

 
$
0.32

Net earnings per common share - diluted
$
0.39

 
$
0.32

Cash dividends declared per share
$
0.17

 
$
0.16

Average common shares outstanding - basic
61,398,414

 
61,036,797

Average common shares outstanding - diluted
62,140,384

 
61,840,247


See Notes to Consolidated Financial Statements.

2



FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
 
 
 
 
 
Three months ended
 
March 31,
 
2017
 
2016
Net income
$
24,414

 
$
19,814

Other comprehensive income (loss), net of tax:
 
 
 
Unrealized gains (losses) on investment securities arising during the period
1,487

 
7,043

Change in retirement obligation
189

 
200

Unrealized gain (loss) on derivatives
128

 
128

Other comprehensive income (loss)
1,804

 
7,371

Comprehensive income
$
26,218

 
$
27,185

 
 
 
 
                   See Notes to Consolidated Financial Statements.


3


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands except per share data)
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Common Stock
 
Retained
 
Accumulated other comprehensive
 
Treasury stock
 
 
 
Shares
 
Amount
 
Earnings
 
income (loss)
 
Shares
 
Amount
 
Total
Balance at January 1, 2016
68,730,731

 
$
571,155

 
$
388,240

 
$
(30,580
)
 
(7,089,051
)
 
$
(119,439
)
 
$
809,376

Net income
 

 
 
 
19,814

 
 
 
 
 
 
 
19,814

Other comprehensive income (loss)
 
 
 
 
 
 
7,371

 
 
 
 
 
7,371

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock at $0.16 per share
 
 
 
 
(9,830
)
 
 
 
 
 
 
 
(9,830
)
Excess tax benefit on share-based compensation
 
 
105

 
 
 
 
 
 
 
 
 
105

Exercise of stock options, net of shares purchased
 
 
(85
)
 
 
 
 
 
9,937

 
167

 
82

Restricted stock awards, net of forfeitures
 
 
(4,685
)
 
 
 
 
 
203,410

 
3,347

 
(1,338
)
Share-based compensation expense
 
 
1,007

 
 
 
 
 
 
 
 
 
1,007

Balance at March 31, 2016
68,730,731

 
$
567,497

 
$
398,224

 
$
(23,209
)
 
(6,875,704
)
 
$
(115,925
)
 
$
826,587

Balance at January 1, 2017
68,730,731

 
$
570,382

 
$
437,188

 
$
(28,443
)
 
(6,751,179
)
 
$
(113,903
)
 
$
865,224

Net income
 
 
 
 
24,414

 
 
 
 
 
 
 
24,414

Other comprehensive income (loss)
 
 
 
 
 
 
1,804

 
 
 
 
 
1,804

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock at $0.17 per share
 
 
 
 
(10,529
)
 
 
 
 
 
 
 
(10,529
)
Warrant Exercises
 
 
(25
)
 
 
 
 
 
1,484

 
25

 
0

Exercise of stock options, net of shares purchased
 
 
(377
)
 
 
 
 
 
34,037

 
574

 
197

Restricted stock awards, net of forfeitures
 
 
(3,556
)
 
 
 
 
 
119,212

 
1,024

 
(2,532
)
Share-based compensation expense
 
 
1,487

 
 
 
 
 
 
 
 
 
1,487

Balance at March 31, 2017
68,730,731

 
$
567,911

 
$
451,073

 
$
(26,639
)
 
(6,596,446
)
 
$
(112,280
)
 
$
880,065


See Notes to Consolidated Financial Statements.

4


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
Three months ended
 
March 31,
 
2017
 
2016
Operating activities
 
 
 
Net income
$
24,414

 
$
19,814

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan and lease losses
367

 
1,655

Depreciation and amortization
3,260

 
3,287

Stock-based compensation expense
1,487

 
1,007

Pension expense (income)
(319
)
 
(225
)
Net amortization (accretion) on investment securities
2,176

 
1,911

Net gains on sales of investment securities
(516
)
 
(24
)
Originations of loans held for sale
(32,085
)
 
(42,935
)
Net gains from sales of loans held for sale
(1,216
)
 
(1,181
)
Proceeds from sales of loans held for sale
38,633

 
49,381

Deferred income taxes
75

 
0

Decrease (increase) cash surrender value of life insurance
(448
)
 
(493
)
Decrease (increase) in interest receivable
(1,735
)
 
(2,471
)
Decrease (increase) in indemnification asset
1,244

 
1,374

(Decrease) increase in interest payable
(1,424
)
 
(1,353
)
Decrease (increase) in other assets
957

 
(15,305
)
(Decrease) increase in other liabilities
(3,082
)
 
(3,923
)
Net cash provided by (used in) operating activities
31,788

 
10,519

 
 
 
 
Investing activities
 

 
 

Proceeds from sales of securities available-for-sale
22,239

 
42,696

Proceeds from calls, paydowns and maturities of securities available-for-sale
49,418

 
31,974

Purchases of securities available-for-sale
(219,761
)
 
(36,851
)
Proceeds from calls, paydowns and maturities of securities held-to-maturity
38,497

 
22,881

Purchases of securities held-to-maturity
(14,441
)
 
0

Net decrease (increase) in interest-bearing deposits with other banks
43,392

 
18,152

Net decrease (increase) in loans and leases
1,257

 
(117,755
)
Proceeds from disposal of other real estate owned
1,162

 
2,035

Purchases of premises and equipment
(3,066
)
 
(4,900
)
Net cash provided by (used in) investing activities
(81,303
)
 
(41,768
)
 
 
 
 
Financing activities
 

 
 

Net (decrease) increase in total deposits
4,088

 
(2,847
)
Net (decrease) increase in short-term borrowings
51,272

 
31,474

Cash dividends paid on common stock
(9,811
)
 
(9,760
)
Proceeds from exercise of stock options
282

 
111

Excess tax benefit on share-based compensation
0

 
105

Net cash provided by (used in) financing activities
45,831

 
19,083

 
 
 
 
Cash and due from banks
 

 
 

Change in cash and due from banks
(3,684
)
 
(12,166
)
Cash and due from banks at beginning of period
121,598

 
114,841

Cash and due from banks at end of period
$
117,914

 
$
102,675


See Notes to Consolidated Financial Statements.

5


FIRST FINANCIAL BANCORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2017
(Unaudited)

NOTE 1:  BASIS OF PRESENTATION

The Consolidated Financial Statements of First Financial Bancorp., a bank holding company principally serving Ohio, Indiana and Kentucky, include the accounts and operations of First Financial and its wholly-owned subsidiary, First Financial Bank. All significant intercompany transactions and accounts have been eliminated in consolidation.  Certain reclassifications of prior periods' amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.
   
The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes.  These estimates, assumptions and judgments are inherently subjective and may be susceptible to significant change.  Actual realized amounts could differ materially from these estimates.  

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and serve to update the Form 10-K for the year ended December 31, 2016.  These interim financial statements may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and it is suggested that these interim statements be read in conjunction with the Form 10-K.  Management believes these unaudited consolidated financial statements reflect all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period.  The Consolidated Balance Sheet as of December 31, 2016 has been derived from the audited financial statements in the Company’s 2016 Form 10-K.

NOTE 2:  RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

In May 2014, the FASB issued an update (ASU 2014-09, Revenue from Contracts with Customers) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under the revised standard, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of the ASU’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities, such as sales of property, plant, and equipment; real estate; or intangible assets. The ASU also requires significantly expanded disclosures about revenue recognition. The provisions of ASU 2014-09 become effective for interim and annual reporting periods beginning after December 15, 2017. First Financial's revenue is balanced between net interest income on financial assets and liabilities, which is explicitly excluded from the scope of the new guidance, and noninterest income. First Financial is currently evaluating the impact of this update and does not anticipate that it will have a material impact on its Consolidated Financial Statements, however additional disclosures will be required.

In January 2016, the FASB issued an update (ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities) which requires entities to measure many equity investments at fair value and recognize changes in fair value in net income. This update does not apply to equity investments that result in consolidation, those accounted for under the equity method and certain others, and will eliminate use of the available for sale classification for equity securities while providing a new measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In February 2016, the FASB issued an update (ASU 2016-02, Leases) which requires lessees to record most leases on their balance sheet and recognize leasing expenses in the income statement. Operating leases, except for short-term leases that are subject to an accounting policy election, will be recorded on the balance sheet for lessees by establishing a lease liability and corresponding right-of-use asset. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. Given leases outstanding as of March 31, 2017, First Financial does not expect this ASU to have a material impact on the income statement, but does anticipate an increase in the

6


Company's assets and liabilities. Decisions to repurchase, modify or renew leases prior to the implementation date will impact this level of materiality.

In March 2016, the FASB issued an update (ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships) which clarifies that the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require de-designation of that hedge accounting relationship. In the event of a novation, hedge accounting relationships could continue if all other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. The guidance in this ASU became effective in the first quarter 2017 and did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued an update (ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments) which clarifies that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in ASC 815-15-25-42. Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the period of adoption. The guidance in this ASU became effective in the first quarter 2017 and did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued an update (ASU 2016-07, Investments-Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting) which eliminates the requirement to retrospectively apply the equity method when an investment that had been accounted for utilizing another method qualifies for use of the equity method. The guidance in this ASU became effective in the first quarter 2017 and did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued an update (ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting) which requires recognition of the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e., Additional Paid-in-Capital pools will be eliminated). The guidance in this ASU became effective in the first quarter 2017. Adoption of this guidance resulted in a $1.1 million reduction in income tax expense during the first quarter of 2017.

In June 2016, the FASB issued an update (ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments) which significantly changes how entities are required to measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This update will replace the current incurred loss approach for estimating credit losses with an expected loss model for instruments measured at amortized cost, including loans and leases. Expected credit losses are required to be based on amortized cost and reflect losses expected over the remaining contractual life of the asset. Management is expected to consider any available information relevant to assessing the collectability of contractual cash flows, such as information about past events, current conditions, voluntary prepayments and reasonable and supportable forecasts, when developing expected credit loss estimates.

In addition to the new framework for calculating the ALLL, this update requires allowances for available-for-sale debt securities rather than a reduction of the security's carrying amount under the current other-than-temporary impairment model. This update also simplifies the accounting model for purchased credit-impaired debt securities and loans and will require new and updated footnote disclosures.

The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities for interim and annual reporting periods beginning after December 15, 2018. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.

In August 2016, the FASB issued an update (ASU 2016-15 Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments) which may change how an entity classifies certain cash receipts and cash payments on its statement of cash flows to reduce diversity in practice. The update also provides guidance on when an entity should separate cash flows and classify them into more than one class and when an entity should classify the aggregate of those cash flows into a single class based on the predominance principle. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In January 2017, the FASB issued an update (ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business) which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update also provides a

7


more robust framework to use in determining when a set of assets and activities is a business. The guidance in this ASU will become effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods, and should be applied prospectively on or after the effective date, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In January 2017, the FASB issued an update (ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment) which simplifies the subsequent measurement of goodwill by eliminating Step 2 from goodwill impairment testing. This update requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with any loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, the update requires consideration of the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable, and eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. The guidance in this ASU will become effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted for goodwill impairment tests performed on testing dates after January 1, 2017. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In March 2017, the FASB issued an update (ASU 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of the Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost) which requires disaggregation of the service cost component from the other components of net benefit cost. This update also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The guidance in this ASU will become effective for annual periods beginning after December 15, 2017, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements, but will result in updated disclosures.

In March 2017, the FASB issued an update (ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities) which amends the amortization period for certain purchased callable debt securities held at a premium and shortens the amortization period for the premium to the earliest call date rather than as an adjustment of yield over the contractual life of the instrument. This update more closely aligns the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities, as in most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon is below market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic best interest in an attempt to more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. The guidance in this ASU will become effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.

NOTE 3:  INVESTMENTS

For the three months ended March 31, 2017, proceeds on the sale of $22.2 million of available-for-sale securities resulted in gains of $0.5 million. For the three months ended March 31, 2016, proceeds on the sale of $42.7 million of available-for-sale securities resulted in gains of $0.3 million and $0.3 million losses.

8



The following is a summary of held-to-maturity and available-for-sale investment securities as of March 31, 2017:
  
 
Held-to-maturity
 
Available-for-sale
(Dollars in thousands)
 
Amortized
cost
 
Unrecognized gain
 
Unrecognized loss
 
Fair
value
 
Amortized
cost
 
Unrealized
gain
 
Unrealized
loss
 
Fair
value
U.S. Treasuries
 
$
0

 
$
0

 
$
0

 
$
0

 
$
98

 
$
0

 
$
0

 
$
98

Securities of U.S. government agencies and corporations
 
12,522

 
0

 
(50
)
 
12,472

 
18,512

 
0

 
(67
)
 
18,445

Mortgage-backed securities - residential
 
191,301

 
2,204

 
(1,010
)
 
192,495

 
243,509

 
969

 
(2,855
)
 
241,623

Mortgage-backed securities - commercial
 
269,507

 
2,822

 
(1,923
)
 
270,406

 
159,575

 
294

 
(747
)
 
159,122

Collateralized mortgage obligations
 
181,505

 
1,155

 
(1,352
)
 
181,308

 
275,110

 
686

 
(2,177
)
 
273,619

Obligations of state and other political subdivisions
 
75,961

 
444

 
(1,062
)
 
75,343

 
104,741

 
1,711

 
(1,082
)
 
105,370

Asset-backed securities
 
0

 
0

 
0

 
0

 
347,118

 
869

 
(1,006
)
 
346,981

Other securities
 
0

 
0

 
0

 
0

 
74,525

 
1,039

 
(776
)
 
74,788

Total
 
$
730,796

 
$
6,625

 
$
(5,397
)
 
$
732,024

 
$
1,223,188

 
$
5,568

 
$
(8,710
)
 
$
1,220,046


The following is a summary of held-to-maturity and available-for-sale investment securities as of December 31, 2016:
  
 
Held-to-maturity
 
Available-for-sale
(Dollars in thousands)
 
Amortized
cost
 
Unrecognized gain
 
Unrecognized
loss
 
Fair
value
 
Amortized
cost
 
Unrealized
gain
 
Unrealized
loss
 
Fair
value
U.S. Treasuries
 
$
0

 
$
0

 
$
0

 
$
0

 
$
98

 
$
0

 
$
(1
)
 
$
97

Securities of U.S. government agencies and corporations
 
13,011

 
0

 
(110
)
 
12,901

 
7,056

 
0

 
(40
)
 
7,016

Mortgage-backed securities - residential
 
205,522

 
1,740

 
(1,166
)
 
206,096

 
184,960

 
1,175

 
(2,740
)
 
183,395

Mortgage-backed securities - commercial
 
278,728

 
3,254

 
(1,817
)
 
280,165

 
154,239

 
188

 
(826
)
 
153,601

Collateralized mortgage obligations
 
195,408

 
1,125

 
(1,476
)
 
195,057

 
232,701

 
634

 
(2,321
)
 
231,014

Obligations of state and other political subdivisions
 
70,585

 
117

 
(1,346
)
 
69,356

 
96,934

 
1,461

 
(1,514
)
 
96,881

Asset-backed securities
 
0

 
0

 
0

 
0

 
322,708

 
517

 
(2,013
)
 
321,212

Other securities
 
0

 
0

 
0

 
0

 
46,641

 
741

 
(728
)
 
46,654

Total
 
$
763,254

 
$
6,236

 
$
(5,915
)
 
$
763,575

 
$
1,045,337

 
$
4,716

 
$
(10,183
)
 
$
1,039,870


The following table provides a summary of investment securities by contractual maturity as of March 31, 2017, except for mortgage-backed securities, residential and commercial, collateralized mortgage obligations and asset-backed securities, which are shown as single totals, due to the unpredictability of the timing in principal repayments.
 
Held-to-maturity
 
Available-for-sale
(Dollars in thousands)
Amortized
cost
 
Fair
value
 
Amortized
cost
 
Fair
value
By Contractual Maturity:
 
 
 
 
 
 
 
Due in one year or less
$
207

 
$
207

 
$
1,199

 
$
1,203

Due after one year through five years
3,727

 
3,730

 
22,743

 
22,702

Due after five years through ten years
2,692

 
2,764

 
50,666

 
51,339

Due after ten years
81,857

 
81,114

 
123,268

 
123,457

Mortgage-backed securities - residential
191,301

 
192,495

 
243,509

 
241,623

Mortgage-backed securities - commercial
269,507

 
270,406

 
159,575

 
159,122

Collateralized mortgage obligations
181,505

 
181,308

 
275,110

 
273,619

Asset-backed securities
0

 
0

 
347,118

 
346,981

Total
$
730,796

 
$
732,024

 
$
1,223,188

 
$
1,220,046



9


Gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost. All securities with unrealized losses are reviewed quarterly to determine if any impairment is considered other than temporary, requiring a write-down to fair value. First Financial considers the percentage loss on a security, duration of the loss, average life or duration of the security, credit rating of the security and payment performance, as well as the Company's intent and ability to hold the security to maturity, when determining whether any impairment is other than temporary. At this time First Financial does not intend to sell, and it is not more likely than not that the Company will be required to sell, debt securities temporarily impaired prior to maturity or recovery of the recorded value. First Financial had no other than temporary impairment related to its investment securities portfolio as of March 31, 2017 or December 31, 2016.

As of March 31, 2017, the Company's investment securities portfolio consisted of 723 securities, of which 222 were in an unrealized loss position. As of December 31, 2016, the Company's investment securities portfolio consisted of 706 securities, of which 255 securities were in an unrealized loss position.

The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position, aggregated by investment category and the length of time the individual securities have been in a continuous loss position:
 
 
March 31, 2017
 
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in thousands)
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
U.S. Treasuries
 
$
98

 
$
0

 
$
0

 
$
0

 
$
98

 
$
0

Securities of U.S. Government agencies and corporations
 
26,987

 
(117
)
 
0

 
0

 
26,987

 
(117
)
Mortgage-backed securities - residential
 
222,540

 
(3,597
)
 
9,283

 
(268
)
 
231,823

 
(3,865
)
Mortgage-backed securities - commercial
 
132,085

 
(1,300
)
 
62,069

 
(1,371
)
 
194,154

 
(2,671
)
Collateralized mortgage obligations
 
202,529

 
(2,659
)
 
34,359

 
(870
)
 
236,888

 
(3,529
)
Obligations of state and other political subdivisions
 
90,403

 
(2,055
)
 
11,484

 
(88
)
 
101,887

 
(2,143
)
Asset-backed securities
 
51,352

 
(429
)
 
64,705

 
(577
)
 
116,057

 
(1,006
)
Other securities
 
12,123

 
(370
)
 
15,479

 
(406
)
 
27,602

 
(776
)
Total
 
$
738,117

 
$
(10,527
)
 
$
197,379

 
$
(3,580
)
 
$
935,496

 
$
(14,107
)

 
 
December 31, 2016
 
 
Less than 12 months
 
12 months or more
 
Total
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(Dollars in thousands)
 
value
 
loss
 
value
 
loss
 
value
 
loss
U.S. Treasuries
 
$
97

 
$
(1
)
 
$
0

 
$
0

 
$
97

 
$
(1
)
Securities of U.S. Government agencies and corporations
 
19,917

 
(150
)
 
0

 
0

 
19,917

 
(150
)
Mortgage-backed securities - residential
 
180,654

 
(3,621
)
 
9,890

 
(285
)
 
190,544

 
(3,906
)
Mortgage-backed securities - commercial
 
123,122

 
(1,200
)
 
65,007

 
(1,443
)
 
188,129

 
(2,643
)
Collateralized mortgage obligations
 
201,305

 
(2,882
)
 
42,314

 
(915
)
 
243,619

 
(3,797
)
Obligations of state and other political subdivisions
 
94,632

 
(2,710
)
 
12,023

 
(150
)
 
106,655

 
(2,860
)
Asset-backed securities
 
116,057

 
(764
)
 
92,629

 
(1,249
)
 
208,686

 
(2,013
)
Other securities
 
7,746

 
(237
)
 
21,357

 
(491
)
 
29,103

 
(728
)
Total
 
$
743,530

 
$
(11,565
)
 
$
243,220

 
$
(4,533
)
 
$
986,750

 
$
(16,098
)




10


For further detail on the fair value of investment securities, see Note 14 – Fair Value Disclosures.

NOTE 4:  LOANS AND LEASES

First Financial offers clients a variety of commercial and consumer loan and lease products with distinct interest rates and payment terms. Lending activities are primarily concentrated in states where the Bank currently operates banking centers (Ohio, Indiana and Kentucky). Additionally, First Financial has two national lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that provides loans secured by commissions and cash collateral accounts primarily to insurance agents and brokers. Commercial loan categories include commercial and industrial, commercial real estate, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card.

Credit Quality. To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate ALLL, First Financial utilizes the following categories of credit grades:

Pass - Higher quality loans that do not fit any of the other categories described below.

Special Mention - First Financial assigns a special mention rating to loans and leases with potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in First Financial's credit position at some future date.

Substandard - First Financial assigns a substandard rating to loans or leases that are inadequately protected by the current sound financial worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans and leases have well-defined weaknesses that jeopardize repayment of the debt. Substandard loans and leases are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not addressed.

Doubtful - First Financial assigns a doubtful rating to loans and leases with all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

The credit grades previously described are derived from standard regulatory rating definitions and are assigned upon initial approval of credit to borrowers and updated periodically thereafter.

First Financial considers repayment performance to be the best indicator of credit quality for consumer loans. Consumer loans that have principal and interest payments that are past due by 90 days or more are generally classified as nonperforming. Additionally, consumer loans that have been modified in a TDR are classified as nonperforming. Purchased impaired loans are not classified as nonperforming assets as the loans are considered to be performing under FASB ASC Topic 310-30.

Commercial and consumer credit exposure by risk attribute was as follows:
 
 
As of March 31, 2017
 
 
Commercial
 
Real Estate
 
Lease
 
 
(Dollars in thousands)
 
and industrial
 
Construction
 
Commercial
 
financing
 
Total
Pass
 
$
1,730,424

 
$
443,164

 
$
2,302,421

 
$
88,054

 
$
4,564,063

Special Mention
 
18,635

 
322

 
36,768

 
583

 
56,308

Substandard
 
30,576

 
2,846

 
59,046

 
251

 
92,719

Doubtful
 
0

 
0

 
0

 
0

 
0

Total
 
$
1,779,635

 
$
446,332

 
$
2,398,235

 
$
88,888

 
$
4,713,090



11


(Dollars in thousands)
 
Residential
real estate
 
Home equity
 
Installment
 
Credit card
 
Total
Performing
 
$
477,768

 
$
454,625

 
$
51,674

 
$
43,354

 
$
1,027,421

Nonperforming
 
8,833

 
4,349

 
389

 
0

 
13,571

Total
 
$
486,601

 
$
458,974

 
$
52,063

 
$
43,354

 
$
1,040,992


 
 
As of December 31, 2016
 
 
Commercial
 
Real Estate
 
Lease
 
 
(Dollars in thousands)
 
and industrial
 
Construction
 
Commercial
 
financing
 
Total
Pass
 
$
1,725,451

 
$
398,155

 
$
2,349,662

 
$
92,540

 
$
4,565,808

Special Mention
 
18,256

 
1,258

 
15,584

 
108

 
35,206

Substandard
 
38,241

 
21

 
62,331

 
460

 
101,053

Doubtful
 
0

 
0

 
0

 
0

 
0

Total
 
$
1,781,948

 
$
399,434

 
$
2,427,577

 
$
93,108

 
$
4,702,067


(Dollars in thousands)
 
Residential
real estate
 
Home equity
 
Installment
 
Credit card
 
Total
Performing
 
$
491,380

 
$
456,314

 
$
50,202

 
$
43,408

 
$
1,041,304

Nonperforming
 
9,600

 
4,074

 
437

 
0

 
14,111

Total
 
$
500,980

 
$
460,388

 
$
50,639

 
$
43,408

 
$
1,055,415


Delinquency. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the date of the scheduled payment.


12


Loan delinquency, including loans classified as nonaccrual, was as follows:
 
 
As of March 31, 2017
(Dollars in thousands)
 
30 – 59
days
past due
 
60 – 89
days
past due
 
> 90 days
past due
 
Total
past
due
 
Current
 
Subtotal
 
Purchased impaired
 
Total
 
> 90 days
past due
and still
accruing
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
3,407

 
$
3,269

 
$
1,271

 
$
7,947

 
$
1,767,241

 
$
1,775,188

 
$
4,447

 
$
1,779,635

 
$
0

Lease financing
 
0

 
0

 
0

 
0

 
88,888

 
88,888

 
0

 
88,888

 
0

Construction real estate
 
3,129

 
0

 
1,075

 
4,204

 
441,590

 
445,794

 
538

 
446,332

 
0

Commercial real estate
 
1,379

 
8,000

 
2,166

 
11,545

 
2,313,256

 
2,324,801

 
73,434

 
2,398,235

 
0

Residential real estate
 
920

 
171

 
2,218

 
3,309

 
437,737

 
441,046

 
45,555

 
486,601

 
0

Home equity
 
244

 
91

 
1,665

 
2,000

 
454,330

 
456,330

 
2,644

 
458,974

 
0

Installment
 
134

 
11

 
227

 
372

 
50,802

 
51,174

 
889

 
52,063

 
0

Credit card
 
253

 
146

 
96

 
495

 
42,859

 
43,354

 
0

 
43,354

 
96

Total
 
$
9,466

 
$
11,688

 
$
8,718

 
$
29,872

 
$
5,596,703

 
$
5,626,575

 
$
127,507

 
$
5,754,082

 
$
96


 
 
As of December 31, 2016
(Dollars in thousands)
 
30 – 59
days
past due
 
60 – 89
days
past due
 
> 90 days
past due
 
Total
past
due
 
Current
 
Subtotal
 
Purchased impaired
 
Total
 
> 90 days
past due
and still
accruing
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
1,257

 
$
208

 
$
1,339

 
$
2,804

 
$
1,773,939

 
$
1,776,743

 
$
5,205

 
$
1,781,948

 
$
0

Lease financing
 
137

 
0

 
115

 
252

 
92,856

 
93,108

 
0

 
93,108

 
0

Construction real estate
 
0

 
0

 
0

 
0

 
398,877

 
398,877

 
557

 
399,434

 
0

Commercial real estate
 
777

 
134

 
5,589

 
6,500

 
2,339,327

 
2,345,827

 
81,750

 
2,427,577

 
2,729

Residential real estate
 
821

 
37

 
2,381

 
3,239

 
450,631

 
453,870

 
47,110

 
500,980

 
0

Home equity
 
195

 
145

 
1,776

 
2,116

 
456,143

 
458,259

 
2,129

 
460,388

 
0

Installment
 
24

 
1

 
258

 
283

 
49,058

 
49,341

 
1,298

 
50,639

 
0

Other
 
457

 
177

 
142

 
776

 
42,632

 
43,408

 
0

 
43,408

 
142

Total
 
$
3,668

 
$
702

 
$
11,600

 
$
15,970

 
$
5,603,463

 
$
5,619,433

 
$
138,049

 
$
5,757,482

 
$
2,871


Nonaccrual. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan classified as nonaccrual may return to accrual status if collection of future principal and interest payments is no longer doubtful.

Purchased impaired loans are classified as performing, even though they may be contractually past due, as any nonpayment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period provision for loan and lease losses or prospective yield adjustments.

Troubled Debt Restructurings. A loan modification is considered a TDR when the borrower is experiencing financial difficulty and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. The most common types of modifications include interest rate reductions, maturity extensions and modifications to principal amortization, including interest-only structures. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is managed by the Company’s credit administration group for resolution, which may result in foreclosure in the case of real estate.

TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement.


13


First Financial had 236 TDRs totaling $37.8 million at March 31, 2017, including $29.9 million on accrual status and $7.8 million classified as nonaccrual. First Financial had $0.4 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ALLL included reserves of $1.4 million related to TDRs at March 31, 2017. For the three months ended March 31, 2017 and 2016, First Financial charged off $29 thousand and $0.2 million respectively, for the portion of TDRs determined to be uncollectible. Additionally, as of March 31, 2017, approximately $24.3 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 247 TDRs totaling $35.4 million at December 31, 2016, including $30.2 million of loans on accrual status and $5.1 million classified as nonaccrual. First Financial had $0.9 million of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2016, the ALLL included reserves of $1.9 million related to TDRs, and $22.6 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.

The following tables provide information on loan modifications classified as TDRs during the three months ended March 31, 2017 and 2016:
 
Three months ended
 
March 31, 2017
 
March 31, 2016
(Dollars in thousands)
Number of loans
 
Pre-modification loan balance
 
Period end balance
 
Number of loans
 
Pre-modification loan balance
 
Period end balance
Commercial and industrial
2

 
$
3,502

 
$
3,441

 
8

 
$
2,083

 
$
2,095

Construction real estate
0

 
0

 
0

 
0

 
0

 
0

Commercial real estate
0

 
0

 
0

 
1

 
42

 
42

Residential real estate
0

 
0

 
0

 
2

 
281

 
247

Home equity
0

 
0

 
0

 
4

 
149

 
140

Installment
0

 
0

 
0

 
2

 
7

 
7

Total
2

 
$
3,502

 
$
3,441

 
17

 
$
2,562

 
$
2,531


The following table provides information on how TDRs were modified during the three months ended March 31, 2017 and 2016:
 
Three months ended
 
March 31,
(Dollars in thousands)
2017
 
2016
Extended maturities
$
625

 
$
486

Adjusted interest rates
2,877

 
0

Combination of rate and maturity changes
0

 
162

Forbearance
0

 
0

Other (1)
0

 
1,883

Total
$
3,502

 
$
2,531

(1) Includes covenant modifications and other concessions, or combination of concessions, that do not consist of interest rate adjustments, forbearance and maturity extensions

First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications. Borrowers that are 90 days or more past due on any principal or interest payments, or who prematurely terminate a restructured loan agreement without paying off the contractual principal balance (for example, in a deed-in-lieu arrangement), are considered to be in payment default of the terms of the TDR agreement.


14


For the three months ended March 31, 2017, there were no TDRs for which there was a payment default during the period that occurred within twelve months of the loan modification. For the comparable period in 2016, there were four TDRs with a balance of $0.3 million that experienced a payment default within twelve months of the modification.
 
 
 
 
 
 
 
 
 
Impaired Loans. Loans classified as nonaccrual and loans modified as TDRs are considered impaired. The following table provides information on impaired loans, excluding purchased impaired loans:
(Dollars in thousands)
 
March 31, 2017
 
December 31, 2016
Impaired loans
 
 
 
 
Nonaccrual loans (1)
 
 
 
 
Commercial and industrial
 
$
9,249

 
$
2,419

Lease financing
 
102

 
195

Construction real estate
 
1,075

 
0

Commercial real estate
 
14,324

 
6,098

Residential real estate
 
4,520

 
5,251

Home equity
 
3,571

 
3,400

Installment
 
322

 
367

Credit card
 
0

 
0

Nonaccrual loans (1)
 
33,163

 
17,730

Accruing troubled debt restructurings
 
29,948

 
30,240

Total impaired loans
 
$
63,111

 
$
47,970

(1) Nonaccrual loans include nonaccrual TDRs of $7.8 million and $5.1 million as of March 31, 2017 and December 31, 2016, respectively.

 
Three months ended
 
March 31,
(Dollars in thousands)
2017
 
2016
Interest income effect on impaired loans
 
 
 
Gross amount of interest that would have been recorded under original terms
$
816

 
$
754

Interest included in income
 
 
 
Nonaccrual loans
142

 
76

Troubled debt restructurings
226

 
232

Total interest included in income
368

 
308

Net impact on interest income
$
448

 
$
446


First Financial individually reviews all impaired commercial loan relationships greater than $250,000, as well as consumer loan TDRs greater than $100,000, to determine if a specific allowance is necessary based on the borrower’s overall financial condition, resources and payment record, support from guarantors and the realizable value of any collateral. Specific allowances are based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.


15


First Financial's investment in impaired loans was as follows:
 
 
As of March 31, 2017
 
As of December 31, 2016
(Dollars in thousands)
 
Current balance
 
Contractual
principal
balance
 
Related
allowance
 
Current balance
 
Contractual
principal
balance
 
Related
allowance
Loans with no related allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
19,080

 
$
20,250

 
$
0

 
$
12,134

 
$
12,713

 
$
0

Lease financing
 
102

 
102

 
0

 
195

 
195

 
0

Construction real estate
 
1,075

 
1,075

 
0

 
0

 
0

 
0

Commercial real estate
 
27,646

 
30,475

 
0

 
12,232

 
14,632

 
0

Residential real estate
 
7,653

 
8,941

 
0

 
8,412

 
9,648

 
0

Home equity
 
4,249

 
5,739

 
0

 
3,973

 
5,501

 
0

Installment
 
389

 
563

 
0

 
437

 
603

 
0

Total
 
60,194

 
67,145

 
0

 
37,383

 
43,292

 
0

 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
1,118

 
1,118

 
332

 
1,069