LOANS (excluding covered loans)

9 Months Ended

Sep. 30, 2013

Loans, Excluding Covered Loans [Abstract]

LOANS (excluding covered loans)

LOANS - EXCLUDING COVERED LOANS

First Financial offers clients a variety of commercial and consumer loan and lease products with various interest rates and payment terms. Lending activities are primarily concentrated in Ohio, Indiana and Kentucky, where the Bank currently operates banking centers. Additionally, First Financial provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector throughout the United States.

Credit Quality. To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate allowance for loan and lease losses, 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, on the basis of currently existing facts, conditions and values, highly questionable and improbable. 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 described above, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter.

First Financial considers repayment performance as the best indicator of credit quality for consumer loans. Consumer loans that have principal and interest payments that are past due by ninety days or more are generally classified as nonperforming. Additionally, consumer loans that have been modified in a troubled debt restructuring (TDR) are also classified as nonperforming.

Commercial and consumer credit exposure by risk attribute was as follows:

	As of September 30, 2013
			Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total
Pass	$	914,021	$	86,942	$	1,391,039	$	2,392,002
Special Mention	29,061		225		29,786		59,072
Substandard	16,934		2,922		73,144		93,000
Doubtful	0		0		0		0
Total	$	960,016	$	90,089	$	1,493,969	$	2,544,074

(Dollars in thousands)	Real Estate Residential		Installment		Home Equity		Other		Total
Performing	$	343,484	$	48,852	$	370,968	$	110,814	$	874,118
Nonperforming	9,346		421		2,871		86		12,724
Total	$	352,830	$	49,273	$	373,839	$	110,900	$	886,842

	As of December 31, 2012
			Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total
Pass	$	803,351	$	64,866	$	1,307,370	$	2,175,587
Special Mention	29,663		65		38,516		68,244
Substandard	28,019		8,586		71,122		107,727
Doubtful	0		0		0		0
Total	$	861,033	$	73,517	$	1,417,008	$	2,351,558

(Dollars in thousands)	Real Estate Residential		Installment		Home Equity		Other		Total
Performing	$	310,341	$	56,358	$	364,248	$	84,490	$	815,437
Nonperforming	7,869		452		3,252		496		12,069
Total	$	318,210	$	56,810	$	367,500	$	84,986	$	827,506

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.

Loan delinquency, including loans classified as nonaccrual, was as follows:

	As of September 30, 2013
(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  accruing
Loans
Commercial	$	1,018	$	678	$	9,294	$	10,990	$	949,026	$	960,016	$	0
Real estate - construction	23		0		1,098		1,121		88,968		90,089		0
Real estate - commercial	8,280		2,747		23,569		34,596		1,459,373		1,493,969		0
Real estate - residential	1,705		1,230		6,484		9,419		343,411		352,830		0
Installment	389		38		371		798		48,475		49,273		0
Home equity	735		442		1,525		2,702		371,137		373,839		0
Other	424		111		351		886		110,014		110,900		265
Total	$	12,574	$	5,246	$	42,692	$	60,512	$	3,370,404	$	3,430,916	$	265

	As of December 31, 2012
(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 accruing
Loans
Commercial	$	1,770	$	832	$	4,197	$	6,799	$	854,234	$	861,033	$	0
Real estate - construction	0		0		892		892		72,625		73,517		0
Real estate - commercial	2,549		1,931		27,966		32,446		1,384,562		1,417,008		0
Real estate - residential	6,071		1,463		6,113		13,647		304,563		318,210		0
Installment	280		148		344		772		56,038		56,810		0
Home equity	1,311		869		1,440		3,620		363,880		367,500		0
Other	386		168		708		1,262		83,724		84,986		212
Total	$	12,367	$	5,411	$	41,660	$	59,438	$	3,119,626	$	3,179,064	$	212

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 ninety 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 such as insufficient collateral value. The accrual of interest income is discontinued and previously accrued, but unpaid interest is reversed when a loan is classified as nonaccrual. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan may be reclassified back to accrual status if all contractual payments have been received and collection of future principal and interest payments is no longer doubtful.

Troubled Debt Restructurings. A loan modification is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) 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 terms of the loan modification.

First Financial had 215 TDRs totaling $29.3 million at September 30, 2013, including $16.3 million on accrual status and $13.0 million classified as nonaccrual. First Financial had $0.6 million of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At September 30, 2013, the allowance for loan and lease losses included reserves of $4.0 million related to TDRs. For the three and nine months ended September 30, 2013, First Financial charged off $1.2 million and $2.4 million, respectively, for the portion of TDRs determined to be uncollectible. Additionally, at September 30, 2013, approximately $8.4 million of the accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 145 TDRs totaling $25.0 million at December 31, 2012, including $10.9 million of loans on accrual status and $14.1 million classified as nonaccrual. First Financial had $3.5 million of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2012, the allowance for loan and lease losses included reserves of $3.0 million related to TDRs. For the year ended December 31, 2012, First Financial charged off $7.2 million for the portion of TDRs determined to be uncollectible. At December 31, 2012, approximately $2.7 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, 2013 and 2012.

	Three months ended
	September 30, 2013					September 30, 2012
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial	4	$	494	$	490	6	$	3,787	$	4,027
Real estate - construction	0	0		0		0	0		0
Real estate - commercial	10	2,502		2,493		8	5,105		5,077
Real estate - residential	3	387		367		0	0		0
Installment	3	34		33		0	0		0
Home equity	5	294		216		0	0		0
Total	25	$	3,711	$	3,599	14	$	8,892	$	9,104

	Nine months ended
	September 30, 2013					September 30, 2012
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial	14	$	8,233	$	6,105	16	$	8,358	$	8,589
Real estate - construction	0	0		0		0	0		0
Real estate - commercial	17	4,752		4,719		22	9,854		9,795
Real estate - residential	33	2,356		2,178		2	164		166
Installment	14	188		115		0	0		0
Home equity	35	1,176		887		0	0		0
Total	113	$	16,705	$	14,004	40	$	18,376	$	18,550

The following table provides information on how TDRs were modified during the three and nine months ended September 30, 2013 and 2012.

	Three months ended				Nine months ended
	September 30, (2)				September 30, (2)
(Dollars in thousands)	2013		2012		2013		2012
Extended maturities	$	2,179	$	6,144	$	8,848	$	13,404
Adjusted interest rates	0		0		520		166
Combination of rate and maturity changes	613		0		850		563
Forbearance	0		2,565		0		3,801
Other (1)	807		395		3,786		616
Total	$	3,599	$	9,104	$	14,004	$	18,550

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

(2) Balances are as of period end

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

The following table provides information on TDRs for which there was a payment default during the period that occurred within twelve months of the loan modification:

	September 30,
	2013			2012
(Dollars in thousands)	Number of Loans	Period End Balance		Number of Loans	Period End Balance
Commercial	4	$	4,882	2	$	1,133
Real estate - construction	0	0		0	0
Real estate - commercial	2	63		0	0
Real estate - residential	3	185		0	0
Installment	4	26		0	0
Home equity	5	64		0	0
Total	18	$	5,220	2	$	1,133

Impaired Loans. Loans classified as nonaccrual and loans modified as TDRs are considered impaired. The following table provides information on nonaccrual loans, TDRs and total impaired loans.

(Dollars in thousands)	September 30, 2013		December 31, 2012
Impaired loans
Nonaccrual loans (1)
Commercial	$	8,554	$	15,893
Real estate-construction	1,099		2,102
Real estate-commercial	35,549		34,977
Real estate-residential	9,346		7,869
Installment	421		452
Home equity	2,871		3,252
Other	86		496
Nonaccrual loans (1)	57,926		65,041
Accruing troubled debt restructurings	16,278		10,856
Total impaired loans	$	74,204	$	75,897

(1) Nonaccrual loans include nonaccrual TDRs of $13.0 million and $14.1 million as of September 30, 2013 and December 31, 2012, respectively.

	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2013		2012		2013		2012
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	1,142	$	1,145	$	3,399	$	3,734
Interest included in income
Nonaccrual loans	130		158		472		586
Troubled debt restructurings	115		95		316		247
Total interest included in income	245		253		788		833
Net impact on interest income	$	897	$	892	$	2,611	$	2,901
Commitments outstanding to borrowers with nonaccrual loans					$	0	$	2,977

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 based on the borrower’s overall financial condition, resources and payment record, support from guarantors and the realizable value of any collateral is necessary. Specific allowances are based on expected cash flows, discounted using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.

First Financial's investment in impaired loans was as follows:

	As of September 30, 2013
(Dollars in thousands)	Current Balance		Contractual Principal Balance		Related Allowance		Average Current Balance		YTD Interest Income Recognized		Quarterly Interest Income Recognized
Loans with no related allowance recorded
Commercial	$	6,420	$	8,480	$	0	$	12,087	$	141	$	17
Real estate - construction	1,099		1,671		0		693		0		0
Real estate - commercial	16,583		20,727		0		17,615		317		108
Real estate - residential	11,042		12,866		0		10,208		111		39
Installment	489		531		0		418		4		1
Home equity	3,100		3,807		0		3,129		32		11
Other	86		86		0		185		0		0
Loans with an allowance recorded
Commercial	6,134		7,500		1,645		4,556		58		8
Real estate - construction	0		0		0		907		7		0
Real estate - commercial	27,123		31,628		6,371		23,463		89		50
Real estate - residential	2,027		2,082		348		1,992		28		10
Installment	0		0		0		0		0		0
Home equity	101		101		2		101		1		1
Other	0		0		0		209		0		0
Total
Commercial	12,554		15,980		1,645		16,643		199		25
Real estate - construction	1,099		1,671		0		1,600		7		0
Real estate - commercial	43,706		52,355		6,371		41,078		406		158
Real estate - residential	13,069		14,948		348		12,200		139		49
Installment	489		531		0		418		4		1
Home equity	3,201		3,908		2		3,230		33		12
Other	86		86		0		394		0		0
Total	$	74,204	$	89,479	$	8,366	$	75,563	$	788	$	245

	As of December 31, 2012
(Dollars in thousands)	Current Balance		Contractual Principal Balance		Related Allowance		Average Current Balance		Interest Income Recognized
Loans with no related allowance recorded
Commercial	$	14,961	$	17,269	$	0	$	9,337	$	215
Real estate - construction	462		672		0		3,857		15
Real estate - commercial	15,782		21,578		0		15,554		277
Real estate - residential	9,222		10,817		0		8,463		81
Installment	452		556		0		452		2
Home equity	3,251		4,132		0		2,423		19
Other	326		326		0		65		0
Loans with an allowance recorded
Commercial	3,560		4,252		1,151		5,350		161
Real estate - construction	1,640		2,168		838		5,033		81
Real estate - commercial	24,014		25,684		7,155		25,499		235
Real estate - residential	1,956		2,003		290		2,278		38
Installment	0		0		0		0		0
Home equity	101		101		2		81		1
Other	170		170		92		34		0
Total
Commercial	18,521		21,521		1,151		14,687		376
Real estate - construction	2,102		2,840		838		8,890		96
Real estate - commercial	39,796		47,262		7,155		41,053		512
Real estate - residential	11,178		12,820		290		10,741		119
Installment	452		556		0		452		2
Home equity	3,352		4,233		2		2,504		20
Other	496		496		92		99		0
Total	$	75,897	$	89,728	$	9,528	$	78,426	$	1,125

OREO. Other real estate owned (OREO) is comprised of properties acquired by the Company through the loan foreclosure or repossession process, or other resolution activity that results in partial or total satisfaction of problem loans. The acquired properties are recorded at the lower of cost or fair value less estimated costs of disposal (net realizable value) upon acquisition. Losses arising at the time of acquisition of such properties are charged against the allowance for loan and lease losses. Subsequent write-downs in the carrying value of OREO properties are expensed as incurred. Improvements to the properties may be capitalized if the improvements contribute to the overall value of the property, but may not be capitalized in excess of the net realizable value of the property.

Changes in OREO were as follows:

	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2013		2012		2013		2012
Balance at beginning of period	$	11,798	$	15,688	$	12,526	$	11,317
Additions
Commercial	608		539		2,924		5,888
Residential	265		406		645		2,320
Total additions	873		945		3,569		8,208
Disposals
Commercial	500		1,209		2,382		2,221
Residential	154		413		805		1,025
Total disposals	654		1,622		3,187		3,246
Write-downs
Commercial	71		1,041		632		2,181
Residential	142		58		472		186
Total write-downs	213		1,099		1,104		2,367
Balance at end of period	$	11,804	$	13,912	$	11,804	$	13,912