DERIVATIVES

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

First Financial uses certain derivative instruments, including interest rate caps, floors, swaps and foreign exchange contracts, to meet the needs of its clients while managing the interest and currency rate risk associated with certain transactions. First Financial may also utilize interest rate swaps to manage the interest rate risk profile of the Company. Interest rate payments are exchanged with counterparties based on the notional amount established in the interest rate agreement. As only interest rate payments are exchanged, the cash requirements and credit risk associated with interest rate swaps are significantly less than the notional amount and the Company’s credit risk exposure is limited to the market value of the instruments. First Financial does not use derivatives for speculative purposes.

First Financial manages market value credit risk through counterparty credit policies including a review of total derivative notional position to total assets, total credit exposure to total capital and counterparty credit exposure risk.

Client derivatives. First Financial utilizes interest rate swaps as a means to offer commercial borrowers fixed rate funding while providing the Company with floating rate assets.

At March 31, 2023, for the interest rate derivatives, the Company had a total counterparty notional amount outstanding of $2.2 billion, spread among six counterparties, with an estimated fair value of $107.7 million. At December 31, 2022, the Company had interest rate derivatives with a total counterparty notional amount outstanding of $2.2 billion, spread among six counterparties, with an estimated fair value of $145.8 million.

First Financial monitors its derivative credit exposure to borrowers by monitoring the creditworthiness of the related loan customers through the Company's normal credit review processes. Additionally, the Company monitors derivative credit risk exposure related to problem loans through its ACL Committee. First Financial considers the market value of a derivative instrument to be part of the carrying value of the related loan for these purposes as the borrower is contractually obligated to pay First Financial this amount in the event the derivative contract is terminated.

In connection with its use of derivative instruments, First Financial and its counterparties may be required to post cash collateral to offset the market position of the derivative instruments. First Financial maintains the right to offset these derivative positions with the collateral posted against them by or with the relevant counterparties.

Foreign exchange contracts. First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts, First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven foreign exchange activity. These derivatives are classified as free-standing instruments with the revaluation gain or loss recorded in Foreign exchange income in the Consolidated Statements of Income. The Company has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of currency volatility and credit equivalent exposure on these contracts, counterparty credit approvals and country limits performed by independent risk management. At March 31, 2023, the Company had total counterparty notional amount outstanding of $7.9 billion spread among five counterparties, with an estimated fair value of $21.5 million. At December 31, 2022, the Company had total counterparty notional amounts outstanding of $7.7 billion spread among five counterparties, with an estimated fair value of $17.3 million.

In connection with its use of foreign exchange contracts, First Financial and its counterparties may be required to post cash collateral to offset the market position of the derivative instruments. First Financial maintains the right to offset these derivative positions with the collateral posted against them by or with the relevant counterparties.

The following table details the classification and amounts of client derivatives and foreign exchange contracts recognized in the Consolidated Balance Sheets:


		March 31, 2023						December 31, 2022
				Estimated fair value						Estimated fair value
(Dollars in thousands)	Balance sheet classification	Notional amount		Gain		Loss		Notional amount		Gain		Loss
Client derivatives - instruments associated with loans
Matched interest rate swaps with borrower	Accrued interest and other assets	$	2,248,403	$	10,458	$	(114,269)	$	2,206,351	$	5,057	$	(147,759)
Matched interest rate swaps with counterparty	Accrued interest and other liabilities	2,248,403		114,269		(10,458)		2,206,351		147,759		(5,057)
Foreign exchange contracts
Matched foreign exchange contracts with customers	Accrued interest and other assets	7,927,466		99,348		(77,863)		7,734,395		111,078		(93,804)
Match foreign exchange contracts with counterparty	Accrued interest and other liabilities	7,881,266		77,863		(99,348)		7,681,006		93,804		(111,078)
Total		$	20,305,538	$	301,938	$	(301,938)	$	19,828,103	$	357,698	$	(357,698)

The following table discloses the gross and net amounts of client derivatives and foreign exchange contracts recognized in the Consolidated Balance Sheets:


	March 31, 2023						December 31, 2022
(Dollars in thousands)	Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets		Net amounts of (assets)/liabilities presented in the Consolidated Balance Sheets		Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets		Net amounts of (assets)/liabilities presented in the Consolidated Balance Sheets
Client derivatives (1)

Matched interest rate swaps with counterparty	$	124,727	$	(252,151)	$	(127,424)	$	152,816	$	(314,048)	$	(161,232)
Foreign exchange contracts with counterparty	177,211		(89,625)		87,586		204,882		(101,945)		102,937
Total	$	301,938	$	(341,776)	$	(39,838)	$	357,698	$	(415,993)	$	(58,295)
(1) Includes accrued interest receivable and collateral.

The following table details the derivative financial instruments, the average remaining maturities and the weighted-average interest rates being paid and received by First Financial at March 31, 2023:


(Dollars in thousands)	Notional amount		Average maturity (years)	Fair value
Client derivatives-interest rate contracts
Receive fixed, matched interest rate swaps with borrower	$	2,248,403	5.2	$	(103,811)
Pay fixed, matched interest rate swaps with counterparty	2,248,403		5.2	103,811
Client derivatives-foreign exchange contracts
Foreign exchange contracts-pay USD	7,927,466		0.6	21,485
Foreign exchange contracts-receive USD	7,881,266		0.6	(21,485)
Total client derivatives	$	20,305,538	1.6	$	0

At March 31, 2023, the derivative collateral owed by the Company to counterparty banks was $102.1 million with $26.1 million restricted within cash and due from banks on the Company's Consolidated Balance Sheets and $128.2 million recorded in short-term borrowings. Derivative collateral owed by counterparty banks to the Company at December 31, 2022 was $132.2 million with $25.0 million restricted within cash and due from banks and $157.2 million recorded in short-term borrowings.

Credit derivatives. In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty. The total notional value of these agreements totaled $386.8 million as of March 31, 2023 and $379.3 million

as of December 31, 2022. The fair value of these agreements is recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets and was insignificant at March 31, 2023 and at December 31, 2022.

Mortgage derivatives. First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure IRLCs with First Financial and the loans are intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and loans held for sale. At March 31, 2023, the notional amount of the IRLCs was $32.0 million and the notional amount of forward commitments was $27.5 million. As of December 31, 2022, the notional amount of IRLCs was $12.0 million and the notional amount of forward commitments was $15.3 million. The fair value on these agreements was $0.5 million and $4.3 million at March 31, 2023 and December 31, 2022, respectively, and was recorded in accrued interest and other assets on the Consolidated Balance Sheets.