First Financial offers clients a variety of commercial and consumer loan and lease products with diverse 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.

In accordance with the CARES Act, First Financial participated in offering PPP loans to its customers. These loans provide a direct incentive for small businesses to keep their workers on the payroll and to maintain their operations. PPP loans are eligible to be forgiven provided certain conditions are met. As of September 30, 2020, First Financial had $886.1 million in PPP loans, net of unearned fees of $24.2 million.

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.


(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Term Total		Revolving		Total
Commercial & industrial
Pass	$	1,254,361	$	502,248	$	384,079	$	242,588	$	153,411	$	152,890	$	2,689,577	$	468,883	$	3,158,460
Special mention	21,981		6,871		16,363		13,925		2,366		8,325		69,831		10,570		80,401
Substandard	4,513		1,086		7,802		25,010		6,804		1,626		46,841		6,611		53,452
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	1,280,855	$	510,205	$	408,244	$	281,523	$	162,581	$	162,841	$	2,806,249	$	486,064	$	3,292,313
Lease financing
Pass	$	11,084	$	30,564	$	13,872	$	7,983	$	5,971	$	3,367	$	72,841	$	0	$	72,841
Special mention	317		0		0		0		0		0		317		0		317


	As of December 31, 2019
	Commercial		Real Estate				Lease
(Dollars in thousands)	& industrial		Construction		Commercial		financing		Total
Pass	$	2,324,021	$	493,182	$	4,108,752	$	85,262	$	7,011,217
Special Mention	100,954		0		59,383		488		160,825
Substandard	40,902		0		26,516		2,614		70,032
Doubtful	0		0		0		0		0
Total	$	2,465,877	$	493,182	$	4,194,651	$	88,364	$	7,242,074


(Dollars in thousands)	Residential real estate		Home equity		Installment		Credit card		Total
Performing	$	1,040,787	$	766,169	$	82,385	$	48,983	$	1,938,324
Nonperforming	15,162		5,700		204		201		21,267
Total	$	1,055,949	$	771,869	$	82,589	$	49,184	$	1,959,591


	As of September 30, 2020
(Dollars in thousands)	30 – 59 days past due		60 – 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and still accruing
Loans
Commercial & industrial	$	54	$	133	$	2,181	$	2,368	$	3,289,945	$	3,292,313	$	0
Lease financing	0		0		0		0		74,742		74,742		0
Construction real estate	0		0		0		0		575,648		575,648		0
Commercial real estate-investor	84		7,895		1,286		9,265		3,253,948		3,263,213		0
Commercial real estate-owner	755		0		1,051		1,806		1,082,106		1,083,912		0
Residential real estate	2,816		340		4,368		7,524		1,020,178		1,027,702		0
Home equity	1,468		319		1,585		3,372		751,371		754,743		0
Installment	50		20		38		108		84,521		84,629		0
Credit card	215		183		83		481		43,426		43,907		79
Total	$	5,442	$	8,890	$	10,592	$	24,924	$	10,175,885	$	10,200,809	$	79


	As of December 31, 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	$	1,266	$	3,332	$	14,518	$	19,116	$	2,443,680	$	2,462,796	$	3,081	$	2,465,877	$	0
Lease financing	0		0		0		0		88,364		88,364		0		88,364		0
Construction real estate	0		0		0		0		493,167		493,167		15		493,182		0
Commercial real estate	776		857		5,613		7,246		4,151,513		4,158,759		35,892		4,194,651		0
Residential real estate	8,032		1,928		5,031		14,991		1,014,138		1,029,129		26,820		1,055,949		0
Home equity	2,530		1,083		2,795		6,408		762,863		769,271		2,598		771,869		0
Installment	111		50		148		309		82,022		82,331		258		82,589		0
Credit card	208		75		201		484		48,700		49,184		0		49,184		201
Total	$	12,923	$	7,325	$	28,306	$	48,554	$	9,084,447	$	9,133,001	$	68,664	$	9,201,665	$	201

For PCD assets, the delinquency status was determined individually for each loan in accordance with the individual loan's contractual repayment terms. Prior to the adoption of CECL in the first quarter of 2020, PCI loans were classified as performing, even though they may have been contractually past due, as any nonpayment of contractual principal or interest was considered in the periodic re-estimation of expected cash flows and was included in the resulting recognition of current period provision for credit losses or prospective yield adjustments.

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.

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. In accordance with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, performing loans that demonstrated limited signs of credit deterioration, but were modified to provide borrowers relief during the COVID-19 pandemic were not considered to be TDR as of September 30, 2020.

First Financial had 169 TDRs totaling $37.1 million at September 30, 2020, including $7.8 million on accrual status and $29.3 million classified as nonaccrual. First Financial had $0.2 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ACL included reserves of $5.7 million related to TDRs at September 30, 2020. Additionally, as of September 30, 2020, $5.4 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 157 TDRs totaling $30.0 million at December 31, 2019, including $11.4 million of loans on accrual status and $18.5 million classified as nonaccrual. First Financial had $2.5 million commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2019, the ALLL included reserves of $2.5 million related to TDRs, and $4.7 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.


	Three months ended
	September 30, 2020					September 30, 2019
(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	1	$	1,480	$	1,480	2	$	2,482	$	2,521
Construction real estate	0	0		0		0	0		0
Commercial real estate	0	0		0		2	1,659		1,658
Residential real estate	2	109		92		5	478		455
Home equity	4	120		118		1	35		36
Installment	0	0		0		1	30		29
Total	7	$	1,709	$	1,690	11	$	4,684	$	4,699

	Nine months ended
	September 30, 2020					September 30, 2019
(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	$	14,984	$	14,984	8	$	25,009	$	25,071
Construction real estate	0	0		0		0	0		0
Commercial real estate	0	0		0		9	3,024		2,932
Residential real estate	20	1,677		1,581		22	2,944		2,626
Home equity	10	346		344		13	358		330
Installment	1	26		15		1	30		29
Total	39	$	17,033	$	16,924	53	$	31,365	$	30,988

For TDRs identified during the three and nine months ended September 30, 2020, there were $0.6 million and $1.7 million, respectively, of chargeoffs for the portion of TDRs determined to be uncollectible. For TDRs identified during the three and nine months ended September 30, 2019, there were $2.3 million chargeoffs for the portion of TDRs determined to be uncollectible.


	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2020		2019		2020		2019
Extended maturities	$	0	$	0	$	0	$	2,877
Adjusted interest rates	0		0		0		5,284
Combination of rate and maturity changes	0		0		0		508
Forbearance	1,480		4,349		4,663		19,984
Other (1)	210		350		12,261		2,335
Total	$	1,690	$	4,699	$	16,924	$	30,988

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, are considered to be in default of the terms of the TDR agreement.

For each of the three and nine month periods ended September 30, 2020, there was one TDR relationship with an insignificant balance for which there was a payment default during the period that occurred within twelve months of the loan modifications. For the three month period ended September 30, 2019, there was one TDR relationship for $0.1 million for which there was a payment default during the period that occurred within twelve months of the loan modifications. For the nine months ended September 30, 2019, there were three TDR relationships for $7.0 million for which there was a payment default during the period that occurred within twelve months of the loan modification.

As stated in the CARES Act, loan modifications in response to COVID-19 executed on a loan that was not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or December 31, 2020 are not required to be reported as TDR. As of September 30, 2020, the Company's loan portfolio included 1,902 commercial loans with balances of $2.1 billion and 1,830 consumer loans with balances of $131.4 million that were modified in response to COVID-19 that are not considered TDRs. Of the loan balances initially modified, $1.5 billion have returned to a normal payment schedule, with $631.2 million receiving a second deferral. The second round of deferrals consist primarily of hotel and franchise loans, which comprise $438.2 million or 69% of the total balances deferred for a second time.

Nonperforming Loans. Loans classified as nonaccrual and loans modified as TDRs are considered nonperforming for September 30, 2020 and impaired as of December 31, 2019. The following table provides information on nonperforming loans:


	September 30, 2020						December 31, 2019
(Dollars in thousands)	Nonaccrual loans with a related ACL		Nonaccrual loans with no related ACL		Total nonaccrual		Total nonaccrual
Nonaccrual loans (1)
Commercial & industrial	$	20,558	$	14,128	$	34,686	$	24,346
Lease financing	0		1,092		1,092		223
Construction real estate	0		0		0		0
Commercial real estate	1,310		23,211		24,521		7,295
Residential real estate	252		11,852		12,104		10,892
Home equity	0		5,374		5,374		5,242
Installment	0		153		153		167

Total nonaccrual loans	$	22,120	$	55,810	$	77,930	$	48,165


	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2020		2019		2020		2019
Interest income effect on nonperforming loans
Gross amount of interest that would have been recorded under original terms	$	1,552	$	1,568	$	4,185	$	4,648
Interest included in income
Nonaccrual loans	689		336		1,226		863
Troubled debt restructurings	64		184		367		689
Total interest included in income	753		520		1,593		1,552
Net impact on interest income	$	799	$	1,048	$	2,592	$	3,096

First Financial individually reviews all nonperforming loan relationships greater than $250,000 to determine if an individually evaluated 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. Individually evaluated 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 December 31, 2019
(Dollars in thousands)	Current balance		Contractual principal balance		Related allowance
Loans with no related allowance recorded
Commercial & industrial	$	16,726	$	19,709	$	0
Lease financing	223		223		0
Construction real estate	0		0		0
Commercial real estate	10,160		17,897		0
Residential real estate	14,868		17,368		0
Home equity	5,700		6,462		0
Installment	204		341		0
Total	47,881		62,000		0

Loans with an allowance recorded
Commercial & industrial	10,754		21,513		2,044
Lease financing	0		0		0
Construction real estate	0		0		0
Commercial real estate	671		675		113
Residential real estate	294		294		18
Home equity	0		0		0
Installment	0		0		0
Total	11,719		22,482		2,175

Total
Commercial & industrial	27,480		41,222		2,044
Lease financing	223		223		0
Construction real estate	0		0		0
Commercial real estate	10,831		18,572		113
Residential real estate	15,162		17,662		18
Home equity	5,700		6,462		0
Installment	204		341		0
Total	$	59,600	$	84,482	$	2,175


	Three months ended				Nine months ended
	September 30, 2019				September 30, 2019
(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	$	35,626	$	807
Lease financing	148		0		155		0
Construction real estate	6		0		7		0
Commercial real estate	18,703		94		20,907		295
Residential real estate	15,388		74		16,177		229
Home equity	5,594		29		5,941		95
Installment	150		0		162		2
Total	77,824		513		78,975		1,428

Loans with an allowance recorded
Commercial & industrial	4,316		1		3,213		87
Lease financing	142		0		71		0
Construction real estate	0		0		0		0
Commercial real estate	1,010		4		1,507		27
Residential real estate	668		2		484		10
Home equity	0		0		0		0
Installment	0		0		0		0
Total	6,136		7		5,275		124

Total
Commercial & industrial	42,151		317		38,839		894
Lease financing	290		0		226		0
Construction real estate	6		0		7		0
Commercial real estate	19,713		98		22,414		322
Residential real estate	16,056		76		16,661		239
Home equity	5,594		29		5,941		95
Installment	150		0		162		2
Total	$	83,960	$	520	$	84,250	$	1,552

The following table provides collateral information by class of loan for collateral-dependent loans with a specific reserve. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral.


	September 30, 2020
	Type of Collateral
(Dollar in thousands)	Business assets		Commercial real estate		Equipment		Residential real estate		Total
Class of loan
Commercial & industrial	$	10,091	$	0	$	11,541	$	0	$	21,632
Commercial real estate-investor	0		0		0		649		649
Commercial real estate-owner	0		0		0		662		662
Residential real estate	0		0		0		1,235		1,235
Total	$	10,091	$	0	$	11,541	$	2,546	$	24,178

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 2020 and 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)	2020		2019		2020		2019
Balance at beginning of period	$	1,872	$	1,421	$	2,033	$	1,401
Additions
Commercial & industrial	187		217		510		353
Residential real estate	136		104		282		1,376
Total additions	323		321		792		1,729
Disposals
Commercial & industrial	0		(228)		(217)		(498)
Residential real estate	(510)		(325)		(1,270)		(709)
Total disposals	(510)		(553)		(1,487)		(1,207)
Valuation adjustment
Commercial & industrial	(22)		(56)		448		(111)
Residential real estate	(20)		480		(143)		(199)
Total valuation adjustment	(42)		424		305		(310)
Balance at end of period	$	1,643	$	1,613	$	1,643	$	1,613