First Financial offers clients a variety of commercial and consumer loan and lease products with distinct interest rates and payment terms. Commercial loan categories include C&I, CRE, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card.

Lending activities are primarily concentrated in states where the Bank operates banking centers (Ohio, Indiana, Kentucky and Illinois). First Financial also offers two nationwide lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that primarily provides loans that are secured by commissions and cash collateral to insurance agents and brokers.

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, lease or 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.

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 as the loans are considered to be performing under FASB ASC Topic 310-30.



	As of September 30, 2019
	Commercial		Real Estate				Lease
(Dollars in thousands)	& industrial		Construction		Commercial		financing		Total
Pass	$	2,321,468	$	515,955	$	3,939,531	$	88,866	$	6,865,820
Special Mention	90,663		0		26,147		793		117,603
Substandard	57,886		5		50,230		2,957		111,078
Doubtful	0		0		0		0		0
Total	$	2,470,017	$	515,960	$	4,015,908	$	92,616	$	7,094,501



	As of December 31, 2018
	Commercial		Real Estate				Lease
(Dollars in thousands)	& industrial		Construction		Commercial		financing		Total
Pass	$	2,432,834	$	548,323	$	3,664,434	$	90,902	$	6,736,493
Special Mention	24,594		603		38,653		0		63,850
Substandard	57,233		9		51,594		2,513		111,349
Doubtful	0		0		0		0		0
Total	$	2,514,661	$	548,935	$	3,754,681	$	93,415	$	6,911,692



	As of September 30, 2019
(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 & industrial	$	9,709	$	358	$	4,268	$	14,335	$	2,452,565	$	2,466,900	$	3,117	$	2,470,017	$	0
Lease financing	1,782		0		0		1,782		90,834		92,616		0		92,616		0
Construction real estate	0		0		0		0		515,935		515,935		25		515,960		0
Commercial real estate	637		1,267		11,298		13,202		3,961,547		3,974,749		41,159		4,015,908		0
Residential real estate	809		2,784		5,682		9,275		1,016,632		1,025,907		29,100		1,055,007		0
Home equity	2,426		1,308		2,881		6,615		767,525		774,140		2,745		776,885		0
Installment	240		29		71		340		87,638		87,978		297		88,275		0
Credit card	286		185		175		646		48,364		49,010		0		49,010		287
Total	$	15,889	$	5,931	$	24,375	$	46,195	$	8,941,040	$	8,987,235	$	76,443	$	9,063,678	$	287



	As of December 31, 2018
(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 & industrial	$	13,369	$	41	$	7,423	$	20,833	$	2,488,450	$	2,509,283	$	5,378	$	2,514,661	$	0
Lease financing	352		0		0		352		93,063		93,415		0		93,415		0
Construction real estate	0		0		0		0		548,687		548,687		248		548,935		0
Commercial real estate	6,279		1,158		12,644		20,081		3,682,455		3,702,536		52,145		3,754,681		0
Residential real estate	11,060		2,976		4,535		18,571		902,404		920,975		34,671		955,646		0
Home equity	5,245		1,228		2,578		9,051		804,835		813,886		3,396		817,282		0
Installment	420		37		145		602		92,128		92,730		482		93,212		0
Credit card	541		96		63		700		45,682		46,382		0		46,382		63
Total	$	37,266	$	5,536	$	27,388	$	70,190	$	8,657,704	$	8,727,894	$	96,320	$	8,824,214	$	63

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 none of the principal and interest is due and unpaid, and the Bank expects repayment of the remaining contractual principal and interest.

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 a concession is 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.

First Financial had 170 TDRs totaling $40.0 million at September 30, 2019, including $18.5 million on accrual status and $21.5 million classified as nonaccrual. First Financial had $2.9 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ALLL included reserves of $0.7 million related to TDRs at September 30, 2019. Additionally, as of September 30, 2019, $6.3 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 196 TDRs totaling $38.5 million at December 31, 2018, including $16.1 million of loans on accrual status and $22.4 million classified as nonaccrual. First Financial had no commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2018, the ALLL included reserves of $1.5 million related to TDRs, and $7.9 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.



	Three months ended
	September 30, 2019					September 30, 2018
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial & industrial	2	$	2,482	$	2,521	0	$	0	$	0
Construction real estate	0	0		0		0	0		0
Commercial real estate	2	1,659		1,658		0	0		0
Residential real estate	5	478		455		1	148		143
Home equity	1	35		36		1	10		10
Installment	1	30		29		0	0		0
Total	11	$	4,684	$	4,699	2	$	158	$	153

	Nine months ended
	September 30, 2019					September 30, 2018
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial & industrial	8	$	25,009	$	25,071	12	$	7,149	$	7,096
Construction real estate	0	0		0		0	0		0
Commercial real estate	9	3,024		2,932		6	2,119		2,088
Residential real estate	22	2,944		2,626		4	442		437
Home equity	13	358		330		1	10		10
Installment	1	30		29		0	0		0
Total	53	$	31,365	$	30,988	23	$	9,720	$	9,631

For TDRs identified during the three and nine months ended September 30, 2019, there were $2.3 million of chargeoffs for the portion of TDRs determined to be uncollectible. For TDRs identified during the three months ended September 30, 2018, there were $0.7 million of chargeoffs for the portion of TDRs determined to be uncollectible. For TDRs identified during the nine months ended September 30, 2018, there were $0.8 million of chargeoffs for the portion of TDRs determined to be uncollectible.



	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2019		2018		2019		2018
Extended maturities	$	0	$	143	$	2,877	$	3,031
Adjusted interest rates	0		0		5,284		52
Combination of rate and maturity changes	0		0		508		0
Forbearance	4,349		0		19,984		6,199
Other ⁽¹⁾	350		10		2,335		349
Total	$	4,699	$	153	$	30,988	$	9,631

For the three months ended September 30, 2019, there was one TDR for $0.1 million for which there was a payment default during the period that occurred within twelve months of the loan modification. For the nine months ended September 30, 2019, there were three TDR relationships totaling $7.0 million, for which there was a payment default during the period that occurred within twelve months of the loan modifications. For the three months ended September 30, 2018, 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 nine month period ended September 30, 2018, there was one TDR, insignificant in amount, for which there was a payment default during the period that occurred within twelve months of the loan modification.



(Dollars in thousands)	September 30, 2019		December 31, 2018
Impaired loans
Nonaccrual loans⁽¹⁾
Commercial & industrial	$	28,358	$	30,925
Lease financing	284		22
Construction real estate	5		9
Commercial real estate	14,889		20,500
Residential real estate	11,655		13,495
Home equity	5,427		5,580
Installment	75		169
Nonaccrual loans	60,693		70,700
Accruing troubled debt restructurings	18,450		16,109
Total impaired loans	$	79,143	$	86,809



	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2019		2018		2019		2018
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	1,568	$	1,192	$	4,648	$	3,126
Interest included in income
Nonaccrual loans	336		169		863		395
Troubled debt restructurings	184		187		689		500
Total interest included in income	520		356		1,552		895
Net impact on interest income	$	1,048	$	836	$	3,096	$	2,231

First Financial individually reviews all impaired commercial loan relationships, as well as consumer loan TDRs greater than $250,000, to determine if a specific allowance is necessary based on the borrower’s overall financial condition, 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.



	As of September 30, 2019						As of December 31, 2018
(Dollars in thousands)	Current balance		Contractual principal balance		Related allowance		Current balance		Contractual principal balance		Related allowance
Loans with no related allowance recorded
Commercial & industrial	$	36,705	$	57,623	$	0	$	36,694	$	42,561	$	0
Lease financing	0		0		0		22		22		0
Construction real estate	5		24		0		9		26		0
Commercial real estate	18,653		24,744		0		23,513		31,375		0
Residential real estate	15,838		18,421		0		17,297		19,975		0
Home equity	5,944		6,793		0		6,351		7,461		0
Installment	104		241		0		174		563		0
Total	77,249		107,846		0		84,060		101,983		0

Loans with an allowance recorded
Commercial & industrial	212		212		91		939		939		667
Lease financing	284		284		43		0		0		0
Construction real estate	0		0		0		0		0		0
Commercial real estate	1,103		2,465		127		1,509		1,509		461
Residential real estate	295		295		18		301		301		32
Home equity	0		0		0		0		0		0
Installment	0		0		0		0		0		0
Total	1,894		3,256		279		2,749		2,749		1,160

Total
Commercial & industrial	36,917		57,835		91		37,633		43,500		667
Lease financing	284		284		43		22		22		0
Construction real estate	5		24		0		9		26		0
Commercial real estate	19,756		27,209		127		25,022		32,884		461
Residential real estate	16,133		18,716		18		17,598		20,276		32
Home equity	5,944		6,793		0		6,351		7,461		0
Installment	104		241		0		174		563		0
Total	$	79,143	$	111,102	$	279	$	86,809	$	104,732	$	1,160



	Three months ended
	September 30, 2019				September 30, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded
Commercial & industrial	$	37,835	$	316	$	10,033	$	63
Lease financing	148		0		0		0
Construction real estate	6		0		17		0
Commercial real estate	18,703		94		28,689		136
Residential real estate	15,388		74		13,247		86
Home equity	5,594		29		6,463		31
Installment	150		0		318		1
Total	77,824		513		58,767		317

Loans with an allowance recorded
Commercial & industrial	4,316		1		1,578		28
Lease financing	142		0		0		0
Construction real estate	0		0		0		0
Commercial real estate	1,010		4		1,012		3
Residential real estate	668		2		1,036		7
Home equity	0		0		100		1
Installment	0		0		0		0
Total	6,136		7		3,726		39

Total
Commercial & industrial	42,151		317		11,611		91
Lease financing	290		0		0		0
Construction real estate	6		0		17		0
Commercial real estate	19,713		98		29,701		139
Residential real estate	16,056		76		14,283		93
Home equity	5,594		29		6,563		32
Installment	150		0		318		1
Total	$	83,960	$	520	$	62,493	$	356



	Nine months ended
	September 30, 2019				September 30, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded
Commercial & industrial	$	35,626	$	807	$	8,950	$	162
Lease financing	155		0		21		0
Construction real estate	7		0		22		2
Commercial real estate	20,907		295		25,044		375
Residential real estate	16,177		229		9,875		209
Home equity	5,941		95		5,339		78
Installment	162		2		299		2
Total	78,975		1,428		49,550		828

Loans with an allowance recorded
Commercial & industrial	3,213		87		891		34
Lease financing	71		0		0		0
Construction real estate	0		0		0		0
Commercial real estate	1,507		27		1,376		9
Residential real estate	484		10		1,043		21
Home equity	0		0		100		3
Installment	0		0		0		0
Total	5,275		124		3,410		67

Total
Commercial & industrial	38,839		894		9,841		196
Lease financing	226		0		21		0
Construction real estate	7		0		22		2
Commercial real estate	22,414		322		26,420		384
Residential real estate	16,661		239		10,918		230
Home equity	5,941		95		5,439		81
Installment	162		2		299		2
Total	$	84,250	$	1,552	$	52,960	$	895

Lease financing. The Company prospectively applied FASB ASC Topic 842 in the first quarter of 2019. First Financial originates both sales-type and direct financing leases, and the Company manages and reviews lease residuals in accordance with its credit policies. Sales-type lease contracts contain the ability to purchase the underlying equipment at lease maturity and profit or loss is recognized at lease commencement. Direct financing leases are generally three to five years in length and may be extended at maturity, however, early cancellation may result in a fee to the borrower. For direct financing leases, the net unearned income is deferred and amortized over the life of the lease. Income recognized in first nine months of 2019 related to the implementation of FASB ASC Topic 842 was insignificant.



	Three months ended						Nine months ended
	September 30,						September 30,
(Dollars in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	1,421		$	1,853		$	1,401		$	2,781
Additions
Commercial & industrial	217			79			353			1,269
Residential real estate	104			739			1,376			1,723
Total additions	321			818			1,729			2,992
Disposals
Commercial & industrial	(228		)	(181		)	(498		)	(2,611		)
Residential real estate	(325		)	(117		)	(709		)	(527		)
Total disposals	(553		)	(298		)	(1,207		)	(3,138		)
Valuation adjustment
Commercial & industrial	(56		)	(258		)	(111		)	(355		)
Residential real estate	480			(197		)	(199		)	(362		)
Total valuation adjustment	424			(455		)	(310		)	(717		)
Balance at end of period	$	1,613		$	1,918		$	1,613		$	1,918