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LOANS AND LEASES
 9 Months Ended
Sep. 30, 2022
Receivables [Abstract]  
LOANS AND LEASES LOANS AND LEASES
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 has certain lending platforms that extend beyond the geographic banking center footprint to provide financing to franchise owners and clients within the financial services industry as well as equipment lease financing to commercial businesses.

In accordance with the CARES Act and the 2021 Consolidated Appropriations 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 during the COVID-19 pandemic. PPP loans are eligible to be forgiven provided certain conditions are met. As of September 30, 2022, First Financial had $3.9 million in PPP loans, net of unearned fees of $0.2 million. As of December 31, 2021, First Financial had $55.6 million in PPP loans, net of unearned fees of $2.6 million.
Credit Quality. To facilitate the monitoring of credit quality for commercial loans, 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, 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.

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.
The following table sets forth the Company's loan portfolio at September 30, 2022 by risk attribute and origination date:
(Dollars in thousands)20222021202020192018PriorTerm TotalRevolvingTotal
Commercial & industrial
Pass$610,543 $604,315 $355,541 $226,929 $123,839 $205,820 $2,126,987 $892,286 $3,019,273 
Special mention6,554 9,305 8,426 22,670 9,679 10,806 67,440 22,922 90,362 
Substandard2,626 1,866 11,054 2,103 354 9,802 27,805 1,779 29,584 
Doubtful0 0 0 0 0 0 0 0 0 
Total$619,723 $615,486 $375,021 $251,702 $133,872 $226,428 $2,222,232 $916,987 $3,139,219 
Lease financing
Pass$102,443 $25,533 $19,591 $14,191 $10,259 $3,702 $175,719 $46 $175,765 
Special mention009000090090 
Substandard00018221142170217
Total$102,443 $25,533 $19,681 $14,373 $10,280 $3,716 $176,026 $46 $176,072 
Construction real estate
Pass$68,982 $250,178 $134,372 $4,916 $9,358 $668 $468,474 $20,972 $489,446 
Special mention0 0 0 0 0 0 0 0 0 
Substandard0 0 0 0 0 0 0 0 0 
Total$68,982 $250,178 $134,372 $4,916 $9,358 $668 $468,474 $20,972 $489,446 
Commercial real estate - investor
Pass$388,912 $507,462 $325,682 $778,916 $307,413 $547,155 $2,855,540 $20,154 $2,875,694 
Special mention0 6,950 20,496 21,123 26,410 13,861 88,840 495 89,335 
Substandard0 0 6 11,314 19,913 18,144 49,377 0 49,377 
Doubtful0 0 0 0 0 0 0 0 0 
Total$388,912 $514,412 $346,184 $811,353 $353,736 $579,160 $2,993,757 $20,649 $3,014,406 
Commercial real estate - owner
Pass$112,003 $162,872 $173,443 $105,026 $119,514 $236,444 $909,302 $8,297 $917,599 
Special mention0 211 71 1,493 0 21,044 22,819 0 22,819 
Substandard0 330 35 5,173 14,287 1,696 21,521 0 21,521 
Total$112,003 $163,413 $173,549 $111,692 $133,801 $259,184 $953,642 $8,297 $961,939 
Residential real estate
Performing$235,725 $275,240 $209,393 $115,262 $53,703 $122,481 $1,011,804 $0 $1,011,804 
Nonperforming175 1,088 1,267 2,541 1,197 6,524 12,792 0 12,792 
Total$235,900 $276,328 $210,660 $117,803 $54,900 $129,005 $1,024,596 $0 $1,024,596 
Home equity
Performing$20,744 $34,771 $39,822 $12,302 $8,836 $27,479 $143,954 $588,815 $732,769 
Nonperforming5 35 102 268 89 423 922 3,627 4,549 
Total$20,749 $34,806 $39,924 $12,570 $8,925 $27,902 $144,876 $592,442 $737,318 
Installment
Performing$92,645 $42,545 $8,163 $4,615 $3,306 $3,717 $154,991 $46,410 $201,401 
Nonperforming224 438 24 29 25 1 741 125 866 
Total$92,869 $42,983 $8,187 $4,644 $3,331 $3,718 $155,732 $46,535 $202,267 
Credit cards
Performing$0 $0 $0 $0 $0 $0 $0 $51,668 $51,668 
Nonperforming0 0 0 0 0 0 0 505 505 
Total$0 $0 $0 $0 $0 $0 $0 $52,173 $52,173 
Grand Total$1,641,581 $1,923,139 $1,307,578 $1,329,053 $708,203 $1,229,781 $8,139,335 $1,658,101 $9,797,436 
The following table sets forth the Company's loan portfolio at December 31, 2021 by risk attribute and origination date:
(Dollars in thousands)20212020201920182017PriorTerm TotalRevolvingTotal
Commercial & industrial
Pass$711,198 $442,064 $339,507 $164,273 $119,580 $154,835 $1,931,457 $700,246 $2,631,703 
Special mention389 4,867 5,993 16,057 6,511 4,918 38,735 21,505 60,240 
Substandard2,220 434 2,843 1,224 12,640 1,465 20,826 7,259 28,085 
Total$713,807 $447,365 $348,343 $181,554 $138,731 $161,218 $1,991,018 $729,010 $2,720,028 
Lease financing
Pass$31,697 $21,536 $19,095 $15,494 $6,821 $4,765 $99,408 $0 $99,408 
Special mention010,216000010,216010,216 
Substandard000000000
Total$31,697 $31,752 $19,095 $15,494 $6,821 $4,765 $109,624 $0 $109,624 
Construction real estate
Pass$95,991 $200,421 $96,726 $15,886 $317 $12,719 $422,060 $18,299 $440,359 
Special mention0 6,531 0 9,004 0 0 15,535 0 15,535 
Substandard0 0 0 0 0 0 0 0 0 
Total$95,991 $206,952 $96,726 $24,890 $317 $12,719 $437,595 $18,299 $455,894 
Commercial real estate - investor
Pass$537,183 $379,217 $944,915 $367,946 $294,147 $434,641 $2,958,049 $66,579 $3,024,628 
Special mention0 7,479 18,136 18,006 15,566 34,153 93,340 0 93,340 
Substandard1,616 6 21,312 6,628 6,918 307 36,787 0 36,787 
Total$538,799 $386,702 $984,363 $392,580 $316,631 $469,101 $3,088,176 $66,579 $3,154,755 
Commercial real estate - owner
Pass$204,291 $184,564 $121,150 $135,463 $119,489 $259,504 $1,024,461 $7,565 $1,032,026 
Special mention970 2,283 2,262 3,751 1,381 5,512 16,159 0 16,159 
Substandard162 727 6,541 12,513 1,730 1,963 23,636 38 23,674 
Doubtful0 0 0 0 0 0 0 0 0 
Total$205,423 $187,574 $129,953 $151,727 $122,600 $266,979 $1,064,256 $7,603 $1,071,859 
Residential real estate
Performing$258,537 $230,699 $138,239 $64,310 $34,606 $162,924 $889,315 $0 $889,315 
Nonperforming236 970 1,193 598 339 3,418 6,754 0 6,754 
Total$258,773 $231,669 $139,432 $64,908 $34,945 $166,342 $896,069 $0 $896,069 
Home equity
Performing$42,298 $45,638 $14,713 $11,221 $7,603 $30,588 $152,061 $553,245 $705,306 
Nonperforming72 161 44 67 56 234 634 2,459 3,093 
Total$42,370 $45,799 $14,757 $11,288 $7,659 $30,822 $152,695 $555,704 $708,399 
Installment
Performing$58,209 $12,768 $8,213 $5,541 $3,925 $2,201 $90,857 $28,353 $119,210 
Nonperforming6 61 32 9 1 56 165 79 244 
Total$58,215 $12,829 $8,245 $5,550 $3,926 $2,257 $91,022 $28,432 $119,454 
Credit cards
Performing$0 $0 $0 $0 $0 $0 $0 $51,772 $51,772 
Nonperforming0 0 0 0 0 0 0 445 445 
Total$0 $0 $0 $0 $0 $0 $0 $52,217 $52,217 
Grand Total$1,945,075 $1,550,642 $1,740,914 $847,991 $631,630 $1,114,203 $7,830,455 $1,457,844 $9,288,299 
Delinquency. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the date of the scheduled payment.

Loan delinquency, including loans classified as nonaccrual, was as follows:
 As of September 30, 2022
(Dollars in thousands)30 – 59
days
past due		60 – 89
days
past due		> 90 days
past due		Total
past
due		CurrentTotal> 90 days
past due
and still
accruing
Loans       
Commercial & industrial$3,133 $763 $441 $4,337 $3,134,882 $3,139,219 $0 
Lease financing1,851 198 204 2,253 173,819 176,072 2 
Construction real estate0 0 0 0 489,446 489,446 0 
Commercial real estate-investor7 0 0 7 3,014,399 3,014,406 0 
Commercial real estate-owner322 89 61 472 961,467 961,939 0 
Residential real estate3,309 305 4,052 7,666 1,016,930 1,024,596 0 
Home equity1,029 263 1,803 3,095 734,223 737,318 0 
Installment379 229 199 807 201,460 202,267 0 
Credit card283 85 137 505 51,668 52,173 137 
Total$10,313 $1,932 $6,897 $19,142 $9,778,294 $9,797,436 $139 

 As of December 31, 2021
(Dollars in thousands)30 – 59
days
past due		60 – 89
days
past due		> 90 days
past due		Total
past
due		CurrentTotal> 90 days
past due
and still
accruing
Loans       
Commercial & industrial$303 $2,006 $2,775 $5,084 $2,714,944 $2,720,028 $0 
Lease financing93 0 0 93 109,531 109,624 0 
Construction real estate0 0 0 0 455,894 455,894 0 
Commercial real estate-investor89 42 6,409 6,540 3,148,215 3,154,755 0 
Commercial real estate-owner56 2,207 637 2,900 1,068,959 1,071,859 0 
Residential real estate4,379 262 2,114 6,755 889,314 896,069 0 
Home equity1,214 692 1,186 3,092 705,307 708,399 0 
Installment162 37 45 244 119,210 119,454 0 
Credit card223 134 137 494 51,723 52,217 137 
Total$6,519 $5,380 $13,303 $25,202 $9,263,097 $9,288,299 $137 

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.

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.
First Financial had 132 TDRs totaling $23.8 million at September 30, 2022, including $11.0 million on accrual status and $12.8 million classified as nonaccrual. First Financial had no commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ACL included reserves of $3.6 million related to TDRs at September 30, 2022. Additionally, as of September 30, 2022, $5.3 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 150 TDRs totaling $27.6 million at December 31, 2021, including $11.6 million of loans on accrual status and $16.0 million classified as nonaccrual. First Financial had $0.2 million of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2021, the ACL included reserves of $6.3 million related to TDRs, and $5.0 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 and nine months ended September 30, 2022 and 2021:
Three months ended
September 30, 2022September 30, 2021
(Dollars in thousands)Number of loansPre-modification loan balancePeriod end balanceNumber of loansPre-modification loan balancePeriod end balance
Commercial & industrial0 $0 $0 0 $0 $0 
Construction real estate0 0 0 0 0 0 
Commercial real estate1 5,950 3,035 1 6,835 761 
Residential real estate5 430 391 1 145 142 
Home equity0 0 0 0 0 0 
Installment0 0 0 1 0 0 
Total6 $6,380 $3,426 3 $6,980 $903 
Nine months ended
September 30, 2022September 30, 2021
(Dollars in thousands)Number of loansPre-modification loan balancePeriod end balanceNumber of loansPre-modification loan balancePeriod end balance
Commercial & industrial6 $10,049 $8,825 5 $4,967 $4,831 
Construction real estate0 0 0 0 0 0 
Commercial real estate2 6,337 3,115 8 16,850 9,807 
Residential real estate11 1,094 1,034 14 1,265 1,233 
Home equity1 32 32 2 30 30 
Installment0 0 0 1 0 0 
Total20 $17,512 $13,006 30 $23,112 $15,901 

For TDRs identified during the three months ended September 30, 2022, there were no charge-offs for the portion of TDRs determined to be uncollectible. For TDRs identified during the nine months ended September 30, 2022, there were $3.2 million of charge-offs for the portion of TDRs determined to be uncollectible. For TDRs identified during each of the three and nine months ended September 30, 2021, there were $0.6 million of charge-offs for the portion of TDRs determined to be uncollectible.
The following table provides information on how TDRs were modified during the three and nine months ended September 30, 2022 and 2021:
Three months endedNine months ended
September 30,September 30,
(Dollars in thousands)2022202120222021
Extended maturities$0 $0 $3,345 $0 
Adjusted interest rates3,10703,107 0 
Combination of rate and maturity changes000 0 
Forbearance2977614,261 7,008 
Bankruptcies2214222 6,723 
Other (1)
002,271 2,170 
Total$3,426 $903 $13,006 $15,901 
(1) Includes covenant modifications and other concessions, or combination of concessions, that do not consist of interest rate adjustments, forbearance, bankruptcy 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, 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, 2022 there were two TDR relationships totaling $0.2 million for which there was a payment default during the period that occurred within twelve months of the loan modifications. For each of the three and nine month periods ended September 30, 2021, 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 modification.

As stated in the CARES Act and subsequently modified by the Consolidated Appropriations Act, loan modifications in response to COVID-19 executed on loans that were not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020 and January 1, 2022 are not required to be reported as TDR.

As of September 30, 2022, the Company's loan portfolio included no active loan modifications made under the guidance of the CARES Act that were not classified as TDR. As of December 31, 2021, the Company had $16.5 million of active loan modifications made under the guidance of the CARES Act that were not classified as TDR. These modifications were comprised of two commercial loans making interest-only payments.
Nonperforming loans. Loans classified as nonaccrual and loans modified as TDRs are considered nonperforming. The following table provides information on nonperforming loans:

September 30, 2022December 31, 2021
(Dollars in thousands)Nonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrualNonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrual
Nonaccrual loans (1)
  
Commercial & industrial$4,558 $4,161 $8,719 $11,077 $6,285 $17,362 
Lease financing0 199 199 0 203 203 
Construction real estate0 0 0 0 0 0 
Commercial real estate0 13,435 13,435 17,716 1,796 19,512 
Residential real estate0 10,250 10,250 0 8,305 8,305 
Home equity0 3,445 3,445 0 2,922 2,922 
Installment0 279 279 0 88 88 
Total nonaccrual loans$4,558 $31,769 $36,327 $28,793 $19,599 $48,392 
(1) Nonaccrual loans include nonaccrual TDRs of $12.8 million and $16.0 million as of September 30, 2022 and December 31, 2021, respectively.
Three months endedNine months ended
September 30,September 30,
(Dollars in thousands)2022202120222021
Interest income effect on nonperforming loans 
Gross amount of interest that would have been recorded under original terms$855 $1,182 $2,443 $4,260 
Interest included in income
Nonaccrual loans343 351 901 1,276 
Troubled debt restructurings126 85 288 258 
Total interest included in income469 436 1,189 1,534 
Net impact on interest income$386 $746 $1,254 $2,726 

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.

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. The following table presents the amortized cost basis of collateral dependent loans by class of loan.
September 30, 2022
Type of Collateral
(Dollar in thousands)Business
assets		Commercial real estateEquipmentLandResidential real estateOtherTotal
Class of loan
Commercial & industrial$8,644 $0 $26 $0 $0 $49 $8,719 
Lease financing00 199 0 0 0 199 
Commercial real estate-investor03,034 0 0 98 0 3,132 
Commercial real estate-owner010,218 0 35 50 0 10,303 
Residential real estate00 0 0 10,250 0 10,250 
Home equity00003,445 0 3,445 
Installment00000 279 279 
Total$8,644 $13,252 $225 $35 $13,843 $328 $36,327 
December 31, 2021
Type of Collateral
(Dollar in thousands)Business
assets		Commercial real estateEquipmentLandResidential real estateOtherTotal
Class of loan
Commercial & industrial$13,171 $15 $833 $0 $0 $3,343 $17,362 
Lease financing00 203 0 0 0 203 
Commercial real estate-investor06,362 0 0 422 0 6,784 
Commercial real estate-owner06,673 5,937 38 80 0 12,728 
Residential real estate00 0 0 8,305 0 8,305 
Home equity00002,922 0 2,922 
Installment00000 88 88 
Total$13,171 $13,050 $6,973 $38 $11,729 $3,431 $48,392 
Lease financing - Lessor. 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.

Effective December 31, 2021, First Financial acquired Summit Funding Group, Inc., which is a full-service equipment leasing company. In conjunction with this acquisition, First Financial acquired $41.9 million of financing leases, which were included in Loans and leases on the Consolidated Balance Sheets. For further detail on the acquisition, see Note 18 - Business Combinations.

The components of the Company's net investments in direct financing and sales-type leases, which are included in Lease financing on the Consolidated Balance Sheets are as follows:
(Dollar in thousands)September 30, 2022December 31, 2021
Direct financing leases
Lease receivables$47,558 $49,843 
Unguaranteed residual values16,236 19,714 
Sales-type leases
Lease receivables112,278 40,067 
Unguaranteed residual values0 0 
Total net investment in direct financing and sales-type leases$176,072 $109,624 

Interest income for direct financing and sales-type leases was $3.0 million and $0.7 million for the three months ended September 30, 2022 and September 30, 2021, respectively. Interest income for direct financing and sales-type leases was $7.9 million and $2.1 million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

The remaining maturities of lease receivables were as follows:
(Dollars in thousands)Direct financing and Sales-type
Remainder of 2022$13,518 
202338,226 
202437,316 
202524,749 
202625,129 
Thereafter38,745 
Total lease payments177,683 
Less: unearned interest income(17,847)
Net lease receivables$159,836 

OREO. OREO consists of properties acquired by the Company primarily through the loan foreclosure or repossession process, that results in partial or total satisfaction of problem loans.
Changes in OREO were as follows:
Three months endedNine months ended
 September 30,September 30,
(Dollars in thousands)2022202120222021
Balance at beginning of period$22 $340 $98 $1,287 
Additions
Commercial & industrial0 0 0 98 
Residential real estate0 0 136 0 
Total additions0 0 136 98 
Disposals  
Commercial & industrial0 0 (98)(768)
Residential real estate0 0 (72)(268)
Total disposals0 0 (170)(1,036)
Valuation adjustment  
Commercial & industrial0 0 0 (9)
Residential real estate0 0 (42)0 
Total valuation adjustment0 0 (42)(9)
Balance at end of period$22 $340 $22 $340