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 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 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 March 31, 2019
	Commercial		Real Estate				Lease
(Dollars in thousands)	& industrial		Construction		Commercial		financing		Total
Pass	$	2,443,488	$	457,508	$	3,720,197	$	92,527	$	6,713,720
Special Mention	36,936		0		25,935		365		63,236
Substandard	63,003		605		56,047		2,681		122,336
Doubtful	0		0		0		0		0
Total	$	2,543,427	$	458,113	$	3,802,179	$	95,573	$	6,899,292



	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 March 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	$	917	$	7,797	$	8,255	$	16,969	$	2,521,040	$	2,538,009	$	5,418	$	2,543,427	$	23
Lease financing	0		0		0		0		95,573		95,573		0		95,573		0
Construction real estate	0		598		0		598		457,323		457,921		192		458,113		0
Commercial real estate	1,695		1,103		13,462		16,260		3,738,962		3,755,222		46,957		3,802,179		0
Residential real estate	3,329		1,495		4,326		9,150		933,896		943,046		32,074		975,120		0
Home equity	2,960		1,046		2,702		6,708		787,129		793,837		3,281		797,118		0
Installment	317		30		84		431		89,837		90,268		421		90,689		0
Credit card	193		206		155		554		46,428		46,982		0		46,982		155
Total	$	9,411	$	12,275	$	28,984	$	50,670	$	8,670,188	$	8,720,858	$	88,343	$	8,809,201	$	178



	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 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 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.

First Financial had 201 TDRs totaling $35.9 million at March 31, 2019, including $22.8 million on accrual status and $13.1 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 ALLL included reserves of $1.4 million related to TDRs at March 31, 2019. Additionally, as of March 31, 2019, $7.5 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
	March 31, 2019					March 31, 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	5	$	7,637	$	7,661	4	$	928	$	913
Construction real estate	0	0		0		0	0		0
Commercial real estate	6	1,323		1,232		2	72		72
Residential real estate	5	458		458		2	93		93
Home equity	1	17		17		0	0		0
Installment	0	0		0		0	0		0
Total	17	$	9,435	$	9,368	8	$	1,093	$	1,078

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 the contractual principal balance (for example, in a deed-in-lieu arrangement), are considered to be in payment default of the terms of the TDR agreement.

For the three months ended March 31, 2019, there were two TDR relationships for $6.9 million, for which there was a payment default during the period that occurred within twelve months of the loan modification. 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 three months ended March 31, 2018.



(Dollars in thousands)	March 31, 2019		December 31, 2018
Impaired loans
Nonaccrual loans⁽¹⁾
Commercial & industrial	$	19,263	$	30,925
Lease financing	301		22
Construction real estate	7		9
Commercial real estate	21,082		20,500
Residential real estate	13,052		13,495
Home equity	5,581		5,580
Installment	170		169
Nonaccrual loans	59,456		70,700
Accruing troubled debt restructurings	22,817		16,109
Total impaired loans	$	82,273	$	86,809



	Three months ended
	March 31,
(Dollars in thousands)	2019		2018
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	1,613	$	802
Interest included in income
Nonaccrual loans	335		80
Troubled debt restructurings	236		124
Total interest included in income	571		204
Net impact on interest income	$	1,042	$	598

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 March 31, 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	$	30,142	$	46,215	$	0	$	36,694	$	42,561	$	0
Lease financing	301		301		0		22		22		0
Construction real estate	8		25		0		9		26		0
Commercial real estate	22,708		29,530		0		23,513		31,375		0
Residential real estate	16,637		19,237		0		17,297		19,975		0
Home equity	6,225		7,232		0		6,351		7,461		0
Installment	174		310		0		174		563		0
Total	76,195		102,850		0		84,060		101,983		0

Loans with an allowance recorded
Commercial & industrial	3,282		3,282		738		939		939		667
Lease financing	0		0		0		0		0		0
Construction real estate	0		0		0		0		0		0
Commercial real estate	2,498		3,579		651		1,509		1,509		461
Residential real estate	298		298		31		301		301		32
Home equity	0		0		0		0		0		0
Installment	0		0		0		0		0		0
Total	6,078		7,159		1,420		2,749		2,749		1,160

Total
Commercial & industrial	33,424		49,497		738		37,633		43,500		667
Lease financing	301		301		0		22		22		0
Construction real estate	8		25		0		9		26		0
Commercial real estate	25,206		33,109		651		25,022		32,884		461
Residential real estate	16,935		19,535		31		17,598		20,276		32
Home equity	6,225		7,232		0		6,351		7,461		0
Installment	174		310		0		174		563		0
Total	$	82,273	$	110,009	$	1,420	$	86,809	$	104,732	$	1,160



	Three months ended
	March 31, 2019				March 31, 2018
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Loans with no related allowance recorded
Commercial & industrial	$	33,418	$	279	$	7,867	$	26
Lease financing	162		0		41		0
Construction real estate	9		0		28		1
Commercial real estate	23,111		103		21,400		99
Residential real estate	16,967		86		6,503		47
Home equity	6,288		38		4,214		20
Installment	174		1		281		0
Total	80,129		507		40,334		193

Loans with an allowance recorded
Commercial & industrial	2,111		43		204		0
Lease financing	0		0		0		0
Construction real estate	0		0		0		0
Commercial real estate	2,004		19		1,739		3
Residential real estate	300		2		1,051		7
Home equity	0		0		101		1
Installment	0		0		0		0
Total	4,415		64		3,095		11

Total
Commercial & industrial	35,529		322		8,071		26
Lease financing	162		0		41		0
Construction real estate	9		0		28		1
Commercial real estate	25,115		122		23,139		102
Residential real estate	17,267		88		7,554		54
Home equity	6,288		38		4,315		21
Installment	174		1		281		0
Total	$	84,544	$	571	$	43,429	$	204

Lease financing. The Company prospectively applied 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 quarter of 2019 related to the implementation of Topic 842 was insignificant.



	Three months ended
	March 31,
(Dollars in thousands)	2019			2018
Balance at beginning of period	$	1,401		$	2,781
Additions
Commercial & industrial	0			170
Residential real estate	504			459
Total additions	504			629
Disposals
Commercial & industrial	(22		)	(2,104		)
Residential real estate	(161		)	(118		)
Total disposals	(183		)	(2,222		)
Valuation adjustment
Commercial & industrial	0			(97		)
Residential real estate	(57		)	(26		)
Total valuation adjustment	(57		)	(123		)
Balance at end of period	$	1,665		$	1,065