FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2014

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________ to ____________________

Commission file number 001-34762

FIRST FINANCIAL BANCORP.

(Exact name of registrant as specified in its charter)



Ohio		31-1042001
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

255 East Fifth Street, Suite 700 Cincinnati, Ohio		45202
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code (877) 322-9530

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x	Accelerated filer o

Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.



Class		Outstanding at ~~August~~November 5, 2014
Common stock, No par value		~~57,713,480~~61,372,311

Table of Contents

FIRST FINANCIAL BANCORP.

INDEX



	Page No.

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Balance Sheets ~~- June~~-September 30, 2014 (unaudited) and December 31, 2013	1

Consolidated Statements of Income - Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2014 and 2013 (unaudited)	2

Consolidated Statements of Comprehensive Income - Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2014 and 2013 (unaudited)	3

Consolidated Statements of Changes in Shareholders’ Equity - ~~Six~~Nine Months Ended ~~June~~September 30, 2014 and 2013 (unaudited)	4

Consolidated Statements of Cash Flows - ~~Six~~Nine Months Ended ~~June~~September 30, 2014 and 2013 (unaudited)	5

Notes to Consolidated Financial Statements (unaudited)	6

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	3738

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	5657

Item 4 - Controls and Procedures	5758

Part II - OTHER INFORMATION

Item 1 - Legal Proceedings	5859

Item 1A - Risk Factors	5859

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	5960

Item 6 - Exhibits	6061

Signatures	6162

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM I - FINANCIAL STATEMENTS

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	June 30, 2014			December 31, 2013			September 30, 2014			December 31, 2013
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	123,160		$	117,620		$	121,360		$	117,620
Interest-bearing deposits with other banks	39,237			25,830			22,365			25,830
Investment securities available-for-sale, at market value (cost $912,365 at June 30, 2014 and $945,052 at December 31, 2013)	897,715			913,601
Investment securities held-to-maturity (market value $901,784 at June 30, 2014 and $824,985 at December 31, 2013)	899,502			837,272
Investment securities available-for-sale, at market value (cost $944,217 at September 30, 2014 and $945,052 at December 31, 2013)							929,594			913,601
Investment securities held-to-maturity (market value $901,659 at September 30, 2014 and $824,985 at December 31, 2013)							900,521			837,272
Other investments	47,640			47,427			49,986			47,427
Loans held for sale	13,108			8,114			16,816			8,114
Loans
Commercial	1,143,693			1,035,668			1,304,782			1,035,668
Real estate-construction	113,682			80,741			193,776			80,741
Real estate-commercial	1,491,731			1,496,987			1,952,055			1,496,987
Real estate-residential	372,601			352,931			426,558			352,931
Installment	43,338			47,133			47,561			47,133
Home equity	380,746			376,454			416,099			376,454
Credit card	35,656			35,592			35,925			35,592
Lease financing	81,212			80,135			73,216			80,135
Total loans - excluding covered loans	3,662,659			3,505,641			4,449,972			3,505,641
Less: Allowance for loan and lease losses - uncovered	42,027			43,829			42,454			43,829
Net loans - excluding covered loans	3,620,632			3,461,812			4,407,518			3,461,812
Covered loans	365,603			457,873			332,265			457,873
Less: Allowance for loan and lease losses - covered	12,425			18,901			11,535			18,901
Net loans – covered	353,178			438,972
Net loans - covered							320,730			438,972
Net loans	3,973,810			3,900,784			4,728,248			3,900,784
Premises and equipment	133,418			137,110			141,851			137,110
Goodwill	95,050			95,050			137,458			95,050
Other intangibles	5,344			5,924			8,542			5,924
FDIC indemnification asset	30,420			45,091			24,160			45,091
Accrued interest and other assets	287,340			283,390			272,568			283,390
Total assets	$	6,545,744		$	6,417,213		$	7,353,469		$	6,417,213

Liabilities
Deposits
Interest-bearing	$	1,105,031		$	1,125,723		$	1,214,726		$	1,125,723
Savings	1,656,798			1,612,005			1,827,590			1,612,005
Time	973,100			952,327			1,247,334			952,327
Total interest-bearing deposits	3,734,929			3,690,055			4,289,650			3,690,055
Noninterest-bearing	1,140,198			1,147,452			1,243,367			1,147,452
Total deposits	4,875,127			4,837,507			5,533,017			4,837,507
Federal funds purchased and securities sold under agreements to repurchase	128,013			94,749			113,303			94,749
Federal Home Loan Bank short-term borrowings	686,300			654,000			806,000			654,000
Total short-term borrowings	814,313			748,749			919,303			748,749
Long-term debt	59,693			60,780			52,656			60,780
Total borrowed funds	874,006			809,529			971,959			809,529
Accrued interest and other liabilities	90,780			88,016			74,581			88,016
Total liabilities	5,839,913			5,735,052			6,579,557			5,735,052

Shareholders' equity
Common stock - no par value
Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2014 and 2013	574,206			577,076			574,209			577,076
Retained earnings	337,971			324,192			344,118			324,192
Accumulated other comprehensive loss	(21,569		)	(31,281		)	(20,888		)	(31,281		)
Treasury stock, at cost, 11,012,414 shares in 2014 and 11,197,685 shares in 2013	(184,777		)	(187,826		)
Treasury stock, at cost, 7,362,258 shares in 2014 and 11,197,685 shares in 2013							(123,527		)	(187,826		)
Total shareholders' equity	705,831			682,161			773,912			682,161
Total liabilities and shareholders' equity	$	6,545,744		$	6,417,213		$	7,353,469		$	6,417,213

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)


	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
	2014			2013			2014			2013			2014			2013			2014			2013
Interest income
Loans, including fees	$	48,877		$	55,022		$	98,024		$	111,047		$	53,725		$	52,908		$	151,749		$	163,955
Investment securities
Taxable	10,355			8,295			20,792			16,671			10,227			8,267			31,019			24,938
Tax-exempt	796			560			1,606			1,140			894			541			2,500			1,681
Total interest on investment securities	11,151			8,855			22,398			17,811			11,121			8,808			33,519			26,619
Other earning assets	(1,301		)	(1,556		)	(2,707		)	(3,028		)	(1,455		)	(2,185		)	(4,162		)	(5,213		)
Total interest income	58,727			62,321			117,715			125,830			63,391			59,531			181,106			185,361
Interest expense
Deposits	3,606			3,284			6,922			7,144			4,218			2,856			11,140			10,000
Short-term borrowings	292			305			621			634			354			286			975			920
Long-term borrowings	525			654			1,049			1,308			456			617			1,505			1,925
Total interest expense	4,423			4,243			8,592			9,086			5,028			3,759			13,620			12,845
Net interest income	54,304			58,078			109,123			116,744			58,363			55,772			167,486			172,516
Provision for loan and lease losses - uncovered	29			2,409			1,188			5,450			1,093			1,413			2,281			6,863
Provision for loan and lease losses - covered	(413		)	(8,283		)	(2,605		)	759			(200		)	5,293			(2,805		)	6,052
Net interest income after provision for loan and lease losses	54,688			63,952			110,540			110,535			57,470			49,066			168,010			159,601
Noninterest income
Service charges on deposit accounts	5,137			5,205			9,909			9,922			5,263			5,447			15,172			15,369
Trust and wealth management fees	3,305			3,497			7,051			7,447			3,207			3,366			10,258			10,813
Bankcard income	2,809			3,145			5,242			5,578			2,859			2,637			8,101			8,215
Net gains from sales of loans	737			1,089			1,133			1,795			1,660			751			2,793			2,546
Gains on sales of investment securities	0			188			50			1,724			0			0			50			1,724
FDIC loss sharing income	1,108			(7,384		)	600			1,550			(192		)	5,555			408			7,105
Accelerated discount on covered loans	621			1,935			1,636			3,870			789			1,711			2,425			5,581
Other	2,620			3,940			4,891			6,427			2,925			2,824			7,816			9,251
Total noninterest income	16,337			11,615			30,512			38,313			16,511			22,291			47,023			60,604
Noninterest expenses
Salaries and employee benefits	25,615			26,216			50,876			53,545			28,686			23,834			79,562			77,379
Pension settlement charges	0			4,316			0			4,316			0			1,396			0			5,712
Net occupancy	4,505			5,384			9,804			11,549			4,577			5,101			14,381			16,650
Furniture and equipment	1,983			2,250			4,060			4,621			2,265			2,213			6,325			6,834
Data processing	2,770			2,559			5,628			5,028			4,393			2,584			10,021			7,612
Marketing	830			1,182			1,616			2,079			939			1,192			2,555			3,271
Communication	562			781			1,185			1,614			541			865			1,726			2,479
Professional services	1,449			1,764			3,173			3,567			1,568			1,528			4,741			5,095
State intangible tax	644			1,004			1,288			2,018			648			1,010			1,936			3,028
FDIC assessments	1,074			1,148			2,208			2,273			1,126			1,107			3,334			3,380
Loss (gain) - other real estate owned	313			216			731			718			844			184			1,575			902
Loss (gain) - covered other real estate owned	398			(2,212		)	431			(2,369		)	(1,433		)	204			(1,002		)	(2,165		)
Loss sharing expense	1,465			1,578			3,034			3,864			1,002			1,724			4,036			5,588
Other	5,503			7,097			10,919			13,566			6,263			5,859			17,182			19,425
Total noninterest expenses	47,111			53,283			94,953			106,389			51,419			48,801			146,372			155,190
Income before income taxes	23,914			22,284			46,099			42,459			22,562			22,556			68,661			65,015
Income tax expense	7,961			6,455			15,042			12,806			7,218			7,645			22,260			20,451
Net income	$	15,953		$	15,829		$	31,057		$	29,653		$	15,344		$	14,911		$	46,401		$	44,564
Net earnings per common share - basic	$	0.28		$	0.28		$	0.54		$	0.52		$	0.26		$	0.26		$	0.80		$	0.78
Net earnings per common share - diluted	$	0.28		$	0.27		$	0.54		$	0.51		$	0.26		$	0.26		$	0.79		$	0.77
Cash dividends declared per share	$	0.15		$	0.24		$	0.30		$	0.52		$	0.15		$	0.27		$	0.45		$	0.79
Average common shares outstanding - basic	57,201,494			57,291,994			57,146,853			57,365,105			59,403,109			57,201,390			57,907,203			57,309,934
Average common shares outstanding - diluted	57,951,636			58,128,349			57,890,268			58,206,503			60,112,932			58,012,588			58,639,394			58,143,372

See Notes to Consolidated Financial Statements.

Table of Contents

																									FIRST FINANCIAL BANCORP. AND SUBSIDIARIES	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	(Dollars in thousands)	(Unaudited)

	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
	2014			2013			2014			2013			2014			2013			2014			2013
Net income	$	15,953		$	15,829		$	31,057		$	29,653		$	15,344		$	14,911		$	46,401		$	44,564
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities arising during the period	6,471			(15,210		)	10,333			(18,567		)	(256		)	(4,003		)	10,077			(22,570		)
Change in retirement obligation	237			10,365			474			10,810			189			1,166			663			11,976
Unrealized gain (loss) on derivatives	(637		)	690			(1,094		)	816			760			(818		)	(334		)	(2		)
Unrealized gain (loss) on foreign currency exchange	8			(15		)	(1		)	(27		)	(12		)	6			(13		)	(21		)
Other comprehensive income (loss)	6,079			(4,170		)	9,712			(6,968		)	681			(3,649		)	10,393			(10,617		)
Comprehensive income	$	22,032		$	11,659		$	40,769		$	22,685		$	16,025		$	11,262		$	56,794		$	33,947

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Dollars in thousands except per share data)

(Unaudited)



	Common Stock	Common Stock			Retained			Accumulated other comprehensive			Treasury stock								Common Stock	Common Stock			Retained			Accumulated other comprehensive			Treasury stock
	Shares	Amount			Earnings			income (loss)			Shares		Amount			Total			Shares	Amount			Earnings			income (loss)			Shares		Amount			Total
Balance at January 1, 2013	68,730,731	$	579,293		$	330,004		$	(18,677	)	(10,684,496	)	$	(180,195	)	$	710,425		68,730,731	$	579,293		$	330,004		$	(18,677	)	(10,684,496	)	$	(180,195	)	$	710,425
Net income					29,653											29,653							44,564											44,564
Other comprehensive income (loss)								(6,968		)						(6,968		)								(10,617		)						(10,617		)
Cash dividends declared:
Common stock at $0.52 per share					(30,024		)									(30,024		)
Common stock at $0.79 per share																							(45,575		)									(45,575		)
Purchase of common stock											(540,400	)	(8,339		)	(8,339		)											(540,400	)	(8,339		)	(8,339		)
Excess tax benefit on share-based compensation		30														30				133														133
Exercise of stock options, net of shares purchased		(503		)							21,526		362			(141		)		(1,016		)							44,105		741			(275		)
Restricted stock awards, net of forfeitures		(4,316		)							170,983		2,995			(1,321		)		(4,030		)							152,504		2,704			(1,326		)
Share-based compensation expense		2,137														2,137				3,049														3,049
Balance at June 30, 2013	68,730,731	$	576,641		$	329,633		$	(25,645	)	(11,032,387	)	$	(185,177	)	$	695,452
Balance at September 30, 2013																			68,730,731	$	577,429		$	328,993		$	(29,294	)	(11,028,287	)	$	(185,089	)	$	692,039
Balance at January 1, 2014	68,730,731	$	577,076		$	324,192		$	(31,281	)	(11,197,685	)	$	(187,826	)	$	682,161		68,730,731	$	577,076		$	324,192		$	(31,281	)	(11,197,685	)	$	(187,826	)	$	682,161
Net income					31,057											31,057							46,401											46,401
Other comprehensive income (loss)								9,712								9,712										10,393								10,393
Cash dividends declared:
Common stock at $0.30 per share					(17,278		)									(17,278		)
Common stock at $0.45 per share																							(26,475		)									(26,475		)
Purchase of common stock											(40,255	)	(697		)	(697		)											(40,255	)	(697		)	(697		)
Common stock issued in connection with business combinations																				(946		)							3,657,937		61,375			60,429
Excess tax benefit on share-based compensation		278														278				149														149
Exercise of stock options, net of shares purchased		(728		)							34,853		582			(146		)		(771		)							36,830		616			(155		)
Restricted stock awards, net of forfeitures		(4,337		)							190,673		3,164			(1,173		)		(4,191		)							180,915		3,005			(1,186		)
Share-based compensation expense		1,917														1,917				2,892														2,892
Balance at June 30, 2014	68,730,731	$	574,206		$	337,971		$	(21,569	)	(11,012,414	)	$	(184,777	)	$	705,831
Balance at September 30, 2014																			68,730,731	$	574,209		$	344,118		$	(20,888	)	(7,362,258	)	$	(123,527	)	$	773,912

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Six months ended						Nine months ended
	June 30,						September 30,
	2014			2013			2014			2013
Operating activities
Net income	$	31,057		$	29,653		$	46,401		$	44,564
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	(1,417		)	6,209			(524		)	12,915
Depreciation and amortization	6,230			7,630			9,465			11,057
Stock-based compensation expense	1,917			2,137			2,892			3,049
Pension (income) expense	(505		)	4,185			(853		)	5,309
Net amortization of premiums/accretion of discounts on investment securities	3,501			8,856			5,523			11,327
Gains on sales of investment securities	(50		)	(1,724		)	(50		)	(1,724		)
Originations of loans held for sale	(51,962		)	(93,248		)	(93,561		)	(126,881		)
Net gains from sales of loans held for sale	(1,133		)	(1,795		)	(2,793		)	(2,546		)
Proceeds from sales of loans held for sale	46,479			91,340			85,977			131,979
Deferred income taxes	(4,247		)	(4,454		)	(20,137		)	(5,621		)
Increase in interest receivable	(2,141		)	(570		)	(2,849		)	(462		)
Increase in cash surrender value of life insurance	(865		)	(333		)	(4,608		)	(3,781		)
Increase in prepaid expenses	(255		)	(3,178		)	(2,303		)	(2,688		)
Decrease in indemnification asset	14,671			30,641			20,931			41,475
Decrease in accrued expenses	(5,968		)	(4,199		)	(5,515		)	(6,013		)
Decrease in interest payable	(79		)	(267		)	(72		)	(418		)
Other	(16,580		)	8,848			5,917			13,699
Net cash provided by operating activities	18,653			79,731			43,841			125,240

Investing activities
Proceeds from sales of securities available-for-sale	92,573			92,684			92,573			92,684
Proceeds from calls, paydowns and maturities of securities available-for-sale	49,000			128,606			75,691			160,460
Purchases of securities available-for-sale	(100,246		)	(109,767		)	(142,307		)	(109,816		)
Proceeds from calls, paydowns and maturities of securities held-to-maturity	46,379			95,020			74,392			134,089
Purchases of securities held-to-maturity	(111,416		)	0			(140,426		)	(13,476		)
Net (increase) decrease in interest-bearing deposits with other banks	(13,407		)	21,670
Net decrease in interest-bearing deposits with other banks							3,465			13,927
Net increase in loans and leases - excluding covered loans	(161,118		)	(210,630		)	(343,050		)	(261,546		)
Net decrease in covered assets	84,171			99,995			116,701			180,074
Proceeds from disposal of other real estate owned	18,903			19,995			28,713			23,590
Purchases of premises and equipment	(2,570		)	(5,440		)	(7,591		)	(6,017		)
Net cash acquired from business combinations							34,300			0
Net cash (used in) provided by investing activities	(97,731		)	132,133			(207,539		)	213,969

Financing activities
Net increase (decrease) in total deposits	37,620			(185,204		)	126,905			(226,833		)
Net increase (decrease) in short-term borrowings	65,564			(4,640		)	95,663			(898		)
Payments on long-term borrowings	(1,073		)	(1,231		)	(28,930		)	(14,093		)
Cash dividends paid on common stock	(17,135		)	(32,237		)	(25,717		)	(45,983		)
Treasury stock purchase	(697		)	(8,339		)	(697		)	(8,339		)
Proceeds from exercise of stock options	61			0			65			0
Excess tax benefit on share-based compensation	278			30			149			133
Net cash provided by (used in) financing activities	84,618			(231,621		)	167,438			(296,013		)

Cash and due from banks:
Net increase (decrease) in cash and due from banks	5,540			(19,757		)
Net increase in cash and due from banks							3,740			43,196
Cash and due from banks at beginning of period	117,620			134,502			117,620			134,502
Cash and due from banks at end of period	$	123,160		$	114,745		$	121,360		$	177,698

Supplemental schedule for investing activities
Business combinations
Assets acquired, net of purchase considerations							$	630,451		$	0
Liabilities assumed							672,859			0
Goodwill							$	42,408		$	0

See Notes to Consolidated Financial Statements.

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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~JUNE~~SEPTEMBER 30, 2014

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

The Consolidated Financial Statements of First Financial Bancorp. (First Financial or the Company), a bank holding company principally serving Ohio, Indiana and Kentucky, include the accounts and operations of First Financial and its wholly-owned subsidiary – First Financial Bank, N.A. (First Financial Bank or the Bank). All significant intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications of prior periods’ amounts have been made to conform to the current period’s presentation and had no effect on net earnings.

The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make estimates, assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. These estimates, assumptions and judgments are inherently subjective and may be susceptible to significant change. Actual realized amounts could differ materially from these estimates.

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and serve to update the First Financial Bancorp. Annual Report on Form 10-K (Form 10-K) for the year ended December 31, 2013. These interim financial statements may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and accordingly should be read in conjunction with the financial information contained in the Form 10-K. Management believes these unaudited consolidated financial statements reflect all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. The Consolidated Balance Sheet as of December 31, 2013 has been derived from the audited financial statements in the Company’s 2013 Form 10-K.

NOTE 2: RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

In January 2014, the FASB issued an update (ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure) which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be de-recognized and the real estate property recognized. The provisions of ASU 2014-04 become effective for First Financial for the interim reporting period ended March 31, 2015. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In April 2014, the FASB issued an update (ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity) which redefines what constitutes a discontinued operation. Under the revised standard, a discontinued operation is a component of an entity or group of components that has been disposed of by sale, disposed of other than by sale or is classified as held for sale, that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results or an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. A strategic shift that has or will have a major effect on an entity’s operations and financial results could include the disposal of a major line of business, a major geographic area, a major equity method investment or other major parts of an entity. The new guidance eliminates the criteria prohibiting an entity from reporting a discontinued operation if it has certain continuing cash flows or involvement with the component after the disposal and requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The provisions of ASU 2014-08 become effective for all interim and annual periods subsequent to January 1, 2015. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In May 2014, the FASB issued an update (ASU 2014-09, Revenue from Contracts with Customers) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under the revised standard, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of the ASU’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities, such as sales of property, plant, and equipment; real estate; or intangible assets. The ASU also

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requires significantly expanded disclosures about revenue recognition. The provisions of ASU 2014-09 become effective for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.

In June 2014, the FASB issued an update (ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures) that requires repurchase-to-maturity transactions to be accounted for as secured borrowings rather than as sales with a forward repurchase commitment and eliminates current guidance on repurchase financings. The ASU requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. If the derecognition criteria are met, the initial transfer will generally be accounted for as a sale and the repurchase agreement will generally be accounted for as a secured borrowing. The ASU requires new disclosures for repurchase agreements, securities lending transactions and repurchase-to-maturity transactions that are accounted for as secured borrowings. The ASU also requires new disclosures for transfers of financial assets that are accounted for as sales that involve an agreement with the transferee entered into in contemplation of the initial transfer that result in the transferor retaining substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The provisions of ASU 2014-11 become effective for all interim and annual periods subsequent to December 15, 2014. Early adoption is prohibited. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.

In August 2014, the FASB issued an update (ASU 2014-14, Receivables - Troubled Debt Restructurings by Creditors: Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure) that requires a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if the following conditions are met: a) the loan has a government guarantee that is not separable from the loan before foreclosure, b) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and c) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this ASU become effective for all interim and annual periods subsequent to December 15, 2014. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In August 2014, the FASB issued an update (ASU 2014-15, Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern) that requires management perform a going concern evaluation similar to the auditor’s evaluation required by standards issued by the PCAOB and the AICPA. The ASU requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concern exists for both annual and interim reporting periods. If management concludes that substantial doubt about an entity’s ability to continue as a going concern, the notes to the financial statements are required to include a statement that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The provisions in this ASU become effective for interim and annual periods ending after December 15, 2016. Early adoption is permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

NOTE 3: INVESTMENTS

The following is a summary of held-to-maturity and available-for-sale investment securities as of ~~June~~September 30, 2014:


	Held-to-maturity									Available-for-sale									Held-to-maturity									Available-for-sale
(Dollars in thousands)	Amortized cost		Unrealized gain		Unrealized loss			Market value		Amortized cost		Unrealized gain		Unrealized loss			Market value		Amortized cost		Unrealized gain		Unrealized loss			Market value		Amortized cost		Unrealized gain		Unrealized loss			Market value
U.S. Treasuries	$	0	$	0	$	0		$	0	$	97	$	0	$	(2	)	$	95	$	0	$	0	$	0		$	0	$	97	$	0	$	(3	)	$	94
Securities of U.S. government agencies and corporations	18,308		0		(262		)	18,046		9,615		0		(59		)	9,556		17,917		0		(231		)	17,686		12,304		3		(37		)	12,270
Mortgage-backed securities	832,159		6,772		(4,561		)	834,370		711,113		5,574		(18,641		)	698,046		832,728		5,290		(4,656		)	833,362		700,167		4,967		(19,273		)	685,861
Obligations of state and other political subdivisions	25,138		210		(724		)	24,624		30,469		41		(1,325		)	29,185		26,308		442		(418		)	26,332		49,824		588		(1,008		)	49,404
Asset-backed securities	0		0		0			0		57,881		122		(6		)	57,997		0		0		0			0		76,693		244		(1		)	76,936
Other securities	23,897		856		(9		)	24,744		103,190		1,345		(1,699		)	102,836		23,568		770		(59		)	24,279		105,132		1,576		(1,679		)	105,029
Total	$	899,502	$	7,838	$	(5,556	)	$	901,784	$	912,365	$	7,082	$	(21,732	)	$	897,715	$	900,521	$	6,502	$	(5,364	)	$	901,659	$	944,217	$	7,378	$	(22,001	)	$	929,594

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The following is a summary of held-to-maturity and available-for-sale investment securities as of December 31, 2013:



	Held-to-maturity									Available-for-sale
(Dollars in thousands)	Amortized cost		Unrealized gain		Unrealized loss			Market value		Amortized cost		Unrealized gain		Unrealized loss			Market value
U.S. Treasuries	$	0	$	0	$	0		$	0	$	97	$	0	$	(7	)	$	90
Securities of U.S. government agencies and corporations	18,981		0		(791		)	18,190		9,980		0		(404		)	9,576
Mortgage-backed securities	775,025		1,337		(12,229		)	764,133		678,267		5,372		(28,593		)	655,046
Obligations of state and other political subdivisions	25,788		152		(1,039		)	24,901		33,410		10		(3,097		)	30,323
Asset-backed securities	0		0		0			0		114,209		1		(616		)	113,594
Other securities	17,478		283		0			17,761		109,089		262		(4,379		)	104,972
Total	$	837,272	$	1,772	$	(14,059	)	$	824,985	$	945,052	$	5,645	$	(37,096	)	$	913,601

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The following table provides a summary of investment securities by estimated weighted average life as of ~~June~~September 30, 2014. Estimated lives on certain investment securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Held-to-maturity				Available-for-sale				Held-to-maturity				Available-for-sale
(Dollars in thousands)	Amortized cost		Market value		Amortized cost		Market value		Amortized cost		Market value		Amortized cost		Market value
Due in one year or less	$	143	$	145	$	2,224	$	2,280	$	268	$	271	$	12,735	$	12,738
Due after one year through five years	378,248		378,509		354,894		354,636		402,027		401,829		348,661		346,665
Due after five years through ten years	333,126		333,058		229,056		223,006		354,896		355,179		266,513		260,869
Due after ten years	187,985		190,072		326,191		317,793		143,330		144,380		316,308		309,322
Total	$	899,502	$	901,784	$	912,365	$	897,715	$	900,521	$	901,659	$	944,217	$	929,594

The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position, aggregated by investment category and the length of time the individual securities have been in a continuous loss position:


	June 30, 2014															September 30, 2014
	Less than 12 months					12 months or more					Total					Less than 12 months					12 months or more					Total
(Dollars in thousands)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Securities of U.S. government agencies and corporations	$	0	$	0		$	27,693	$	(115	)	$	27,693	$	(115	)	$	1,470	$	(5	)	$	17,944	$	(126	)	$	19,414	$	(131	)
Mortgage-backed securities	183,542		(2,373		)	536,791		(19,929		)	720,333		(22,302		)	252,959		(2,616		)	496,254		(20,077		)	749,213		(22,693		)
Obligations of state and other political subdivisions	12,731		(299		)	38,890		(1,783		)	51,621		(2,082		)	14,267		(174		)	38,578		(1,323		)	52,845		(1,497		)
Asset-backed securities	0		0			7,583		(6		)	7,583		(6		)	10,510		(1		)	0		0			10,510		(1		)
Other securities	2,016		(14		)	31,000		(1,224		)	33,016		(1,238		)	9,254		(93		)	30,440		(1,304		)	39,694		(1,397		)
Total	$	198,289	$	(2,686	)	$	641,957	$	(23,057	)	$	840,246	$	(25,743	)	$	288,460	$	(2,889	)	$	583,216	$	(22,830	)	$	871,676	$	(25,719	)

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	December 31, 2013
	Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	value		loss			value		loss			value		loss
Securities of U.S. government agencies and corporations	$	27,851	$	(970	)	$	0	$	0		$	27,851	$	(970	)
Mortgage-backed securities	966,718		(32,432		)	108,929		(6,101		)	1,075,647		(38,533		)
Obligations of state and other political subdivisions	66,502		(5,294		)	1,935		(46		)	68,437		(5,340		)
Asset-backed securities	93,355		(616		)	0		0			93,355		(616		)
Other securities	54,866		(2,142		)	7,798		(561		)	62,664		(2,703		)
Total	$	1,209,292	$	(41,454	)	$	118,662	$	(6,708	)	$	1,327,954	$	(48,162	)

Gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost. All securities with unrealized losses are reviewed quarterly to determine if any impairment is considered other than temporary, requiring a write-down to fair value. First Financial considers the percentage loss on a security, duration of the loss, average life or duration of the security, credit rating of the security as well as payment performance and the Company's intent and ability to hold the security to maturity when determining whether any impairment is other than temporary. At this time First Financial does not intend to sell, and it is not more likely than not that the Company will be required to sell debt securities temporarily impaired prior to maturity or recovery of the recorded value. First Financial had no other than temporary impairment related to its investment securities portfolio as of ~~June~~September 30, 2014 or December 31, 2013.

For further detail on the fair value of investment securities, see Note 15 – Fair Value Disclosures.

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NOTE 4: 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~~While lending activities are primarily concentrated in Ohio, Indiana and Kentucky, where the Bank currently operates banking ~~centers. Additionally,~~centers, First Financial also provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector throughout the United States.

During the third quarter 2014, First Financial completed the mergers of The First Bexley Bank (First Bexley), Insight Bank (Insight) and Guernsey Bancorp, Inc (Guernsey). Loans acquired in connection with those mergers were recorded at estimated fair value at the acquisition date with no carryover of the related allowance for loan and lease loss (ALLL). See Note 16 – Business Combinations for further detail.

First Financial also has loans that were previously acquired that are covered under loss sharing agreements. See Note 5 – Covered Loans for further detail.

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.

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


	As of June 30, 2014								As of September 30, 2014
			Real Estate								Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total		Commercial		Construction		Commercial		Leasing		Total
Pass	$	1,101,219	$	111,815	$	1,422,809	$	2,635,843	$	1,262,525	$	188,144	$	1,867,535	$	71,314	$	3,389,518
Special Mention	24,845		65		14,223		39,133		23,592		3,830		26,917		1,902		56,241
Substandard	17,629		1,802		54,699		74,130		18,665		1,802		57,603		0		78,070
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	1,143,693	$	113,682	$	1,491,731	$	2,749,106	$	1,304,782	$	193,776	$	1,952,055	$	73,216	$	3,523,829


(Dollars in thousands)	Real Estate Residential		Installment		Home Equity		Other		Total		Real Estate Residential		Installment		Home Equity		Other		Total
Performing	$	365,795	$	42,879	$	378,181	$	116,868	$	903,723	$	419,862	$	47,163	$	413,518	$	35,925	$	916,468
Nonperforming	6,806		459		2,565		0		9,830		6,696		398		2,581		0		9,675
Total	$	372,601	$	43,338	$	380,746	$	116,868	$	913,553	$	426,558	$	47,561	$	416,099	$	35,925	$	926,143


	As of December 31, 2013								As of December 31, 2013
			Real Estate								Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total		Commercial		Construction		Commercial		Leasing		Total
Pass	$	991,161	$	78,872	$	1,422,215	$	2,492,248	$	991,161	$	78,872	$	1,422,215	$	80,135	$	2,572,383
Special Mention	23,053		65		23,832		46,950		23,053		65		23,832		0		46,950
Substandard	21,454		1,804		50,940		74,198		21,454		1,804		50,940		0		74,198
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	1,035,668	$	80,741	$	1,496,987	$	2,613,396	$	1,035,668	$	80,741	$	1,496,987	$	80,135	$	2,693,531


(Dollars in thousands)	Real Estate Residential		Installment		Home Equity		Other		Total		Real Estate Residential		Installment		Home Equity		Other		Total
Performing	$	344,325	$	46,559	$	373,472	$	115,727	$	880,083	$	344,325	$	46,559	$	373,472	$	35,592	$	799,948
Nonperforming	8,606		574		2,982		0		12,162		8,606		574		2,982		0		12,162
Total	$	352,931	$	47,133	$	376,454	$	115,727	$	892,245	$	352,931	$	47,133	$	376,454	$	35,592	$	812,110

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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 June 30, 2014														As of September 30, 2014
(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		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	$	319	$	21	$	4,231	$	4,571	$	1,139,122	$	1,143,693	$	0	$	2,063	$	333	$	1,727	$	4,123	$	1,300,659	$	1,304,782	$	0
Real estate - construction	0		0		223		223		113,459		113,682		0		0		0		223		223		193,553		193,776		0
Real estate - commercial	1,384		2,913		10,208		14,505		1,477,226		1,491,731		0		5,697		2,359		12,144		20,200		1,931,855		1,952,055		0
Real estate - residential	702		964		3,817		5,483		367,118		372,601		0		1,384		311		4,225		5,920		420,638		426,558		0
Installment	281		14		276		571		42,767		43,338		0		106		82		223		411		47,150		47,561		0
Home equity	631		371		1,230		2,232		378,514		380,746		0		1,043		553		951		2,547		413,552		416,099		0
Other	378		197		256		831		116,037		116,868		256		490		215		249		954		108,187		109,141		249
Total	$	3,695	$	4,480	$	20,241	$	28,416	$	3,634,243	$	3,662,659	$	256	$	10,783	$	3,853	$	19,742	$	34,378	$	4,415,594	$	4,449,972	$	249



	As of December 31, 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	$	2,016	$	161	$	7,136	$	9,313	$	1,026,355	$	1,035,668	$	0
Real estate - construction	0		0		223		223		80,518		80,741		0
Real estate - commercial	7,800		4,269		12,732		24,801		1,472,186		1,496,987		0
Real estate - residential	2,030		685		5,526		8,241		344,690		352,931		0
Installment	213		40		379		632		46,501		47,133		0
Home equity	985		292		1,648		2,925		373,529		376,454		0
Other	680		144		218		1,042		114,685		115,727		218
Total	$	13,724	$	5,591	$	27,862	$	47,177	$	3,458,464	$	3,505,641	$	218

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. 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 may return to accrual status if 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 restructured terms of the loan agreement.

Table of Contents

First Financial had ~~240~~246 TDRs totaling $~~23.6~~26.6 million at ~~June~~September 30, 2014, including $~~12.6~~13.4 million on accrual status and $~~11.0~~13.2 million classified as nonaccrual. First Financial had an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs at ~~June~~September 30, 2014. At ~~June~~September 30, 2014, the allowance for loan and lease losses included reserves of $~~2.5~~2.9 million related to TDRs. For the three and ~~six~~nine months ended ~~June~~September 30, 2014, First Financial charged off $~~0.2~~0.1 million and $0.9 million, respectively, for the portion of TDRs determined to be uncollectible. Additionally, at ~~June~~September 30, 2014, approximately $~~8.2~~10.8 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 217 TDRs totaling $28.1 million at December 31, 2013, including $15.1 million of loans on accrual status and $13.0 million classified as nonaccrual. First Financial had an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2013, the allowance for loan and lease losses included reserves of $4.4 million related to TDRs. For the year ended December 31, 2013, First Financial charged off $2.8 million for the portion of TDRs determined to be uncollectible. At December 31, 2013, approximately $9.0 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 ~~six~~nine months ended ~~June~~September 30, 2014 and 2013.


	Three months ended										Three months ended
	June 30, 2014					June 30, 2013					September 30, 2014					September 30, 2013
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial	3	$	153	$	151	4	$	171	$	171	6	$	3,712	$	3,384	4	$	494	$	490
Real estate - construction	0	0		0		0	0		0		0	0		0		0	0		0
Real estate - commercial	2	295		285		3	659		657		2	375		373		10	2,502		2,493
Real estate - residential	14	844		733		9	596		594		7	322		264		3	387		367
Installment	3	14		13		3	17		16		3	6		6		3	34		33
Home equity	15	512		486		6	82		81		6	126		125		5	294		216
Total	37	$	1,818	$	1,668	25	$	1,525	$	1,519	24	$	4,541	$	4,152	25	$	3,711	$	3,599


	Six months ended										Nine months ended
	June 30, 2014					June 30, 2013					September 30, 2014					September 30, 2013
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial	6	$	226	$	216	10	$	7,738	$	7,047	11	$	3,938	$	3,594	14	$	8,233	$	6,105
Real estate - construction	0	0		0		0	0		0		0	0		0		0	0		0
Real estate - commercial	8	2,152		2,085		7	2,251		2,242		11	2,583		2,453		17	4,752		4,719
Real estate - residential	23	1,390		1,263		30	1,969		1,850		30	1,712		1,527		33	2,356		2,178
Installment	4	17		13		11	154		97		6	21		19		14	188		115
Home equity	23	759		637		30	883		763		26	791		758		35	1,176		887
Total	64	$	4,544	$	4,214	88	$	12,995	$	11,999	84	$	9,045	$	8,351	113	$	16,705	$	14,004

Table of Contents

The following table provides information on how TDRs were modified during the three and ~~six~~nine months ended ~~June~~September 30, 2014 and 2013.


	Three months ended				Six months ended				Three months ended				Nine months ended
	June 30,⁽²⁾				June 30,⁽²⁾				September 30,⁽²⁾				September 30,⁽²⁾
(Dollars in thousands)	2014		2013		2014		2013		2014		2013		2014		2013
Extended maturities	$	185	$	268	$	826	$	8,068	$	3,505	$	2,179	$	4,402	$	8,848
Adjusted interest rates	0		0		289		562		0		0		301		520
Combination of rate and maturity changes	50		135		1,271		236		402		613		1,643		850
Forbearance	252		0		316		0		0		0		320		0
Other ⁽¹⁾	1,181		1,116		1,512		3,133		245		807		1,685		3,786
Total	$	1,668	$	1,519	$	4,214	$	11,999	$	4,152	$	3,599	$	8,351	$	14,004

(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. Borrowers classified as a TDR that are ninety days or more past due on any principal or interest payments, or that prematurely terminate a restructured loan agreement without satisfying 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.

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:


	June 30,						Three months ended
	2014			2013			September 30, 2014			September 30, 2013
(Dollars in thousands)	Number of loans	Period end balance		Number of loans	Period end balance		Number of loans	Period end balance		Number of loans	Period end balance
Commercial	1	$	143	3	$	6,238	0	$	0	1	$	29
Real estate - construction	0	0		0	0		0	0		0	0
Real estate - commercial	0	0		1	72		0	0		1	3
Real estate - residential	2	36		3	185		1	1		0	0
Installment	1	1		3	14		0	0		1	17
Home equity	3	93		3	17		0	0		2	54
Total	7	$	273	13	$	6,526	1	$	1	5	$	103



	Nine months ended
	September 30, 2014			September 30, 2013
(Dollars in thousands)	Number of loans	Period end balance		Number of loans	Period end balance
Commercial	1	$	143	4	$	4,882
Real estate - construction	0	0		0	0
Real estate - commercial	0	0		2	63
Real estate - residential	3	28		3	185
Installment	1	0		4	26
Home equity	3	92		5	64
Total	8	$	263	18	$	5,220

Table of Contents

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)	June 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Impaired loans
Nonaccrual loans⁽¹⁾
Commercial	$	7,077	$	7,934	$	6,486	$	7,934
Real estate-construction	223		223		223		223
Real estate-commercial	15,288		17,286		25,262		17,286
Real estate-residential	6,806		8,606		6,696		8,606
Installment	459		574		398		574
Home equity	2,565		2,982		2,581		2,982
Other	0		0		0		0
Nonaccrual loans ⁽¹⁾	32,418		37,605		41,646		37,605
Accruing troubled debt restructurings	12,607		15,094		13,369		15,094
Total impaired loans	$	45,025	$	52,699	$	55,015	$	52,699

(1) Nonaccrual loans include nonaccrual TDRs of $~~11.0~~13.2 million and $13.0 million as of ~~June~~September 30, 2014 and December 31, 2013, respectively.


	Three months ended				Six months ended				Three months ended				Nine months ended
	June 30,				June 30,				September 30,				September 30,
(Dollars in thousands)	2014		2013		2014		2013		2014		2013		2014		2013
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	695	$	1,135	$	1,504	$	2,257	$	838	$	1,142	$	2,342	$	3,399
Interest included in income
Nonaccrual loans	86		128		161		342		168		130		329		472
Troubled debt restructurings	101		100		210		201		110		115		320		316
Total interest included in income	187		228		371		543		278		245		649		788
Net impact on interest income	$	508	$	907	$	1,133	$	1,714	$	560	$	897	$	1,693	$	2,611

Commitments outstanding to borrowers with nonaccrual loans					$	25	$	2,351					$	0	$	0

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 is necessary based on the borrower’s overall financial condition, resources and payment record, support from guarantors and the realizable value of any collateral. 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.

Table of Contents

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


		As of June 30, 2014													As of September 30, 2014
(Dollars in thousands)		Current balance		Contractual principal balance		Related allowance		Average current balance		YTD interest income recognized		Quarterly interest income recognized			Current balance		Contractual principal balance		Related allowance		Average current balance		YTD interest income recognized		Quarterly interest income recognized
Loans with no related allowance recorded	Loans with no related allowance recorded													Loans with no related allowance recorded
Commercial		$	7,383	$	9,049	$	0	$	5,933	$	53	$	29		$	6,581	$	7,981	$	0	$	6,095	$	97	$	44
Real estate - construction		223		443		0		223		0		0			223		443		0		223		0		0
Real estate - commercial		12,822		16,524		0		12,225		126		61			19,031		23,970		0		13,927		201		75
Real estate - residential		8,619		9,724		0		9,595		83		41			9,077		10,520		0		9,466		128		45
Installment		524		550		0		544		4		2			415		459		0		512		6		2
Home equity		2,923		3,910		0		3,021		25		13			3,009		3,968		0		3,018		40		15
Other		0		0		0		0		0		0			0		0		0		0		0		0
Total		32,494		40,200		0		31,541		291		146			38,336		47,341		0		33,241		472		181

Loans with an allowance recorded	Loans with an allowance recorded													Loans with an allowance recorded
Commercial		2,872		3,068		775		5,233		26		17			3,076		3,284		802		4,694		43		17
Real estate - construction		0		0		0		0		0		0			0		0		0		0		0		0
Real estate - commercial		7,427		8,552		2,091		9,848		33		14			11,372		12,467		3,338		10,229		102		69
Real estate - residential		2,131		2,201		368		2,097		20		10			2,130		2,190		368		2,106		30		10
Installment		0		0		0		0		0		0			0		0		0		0		0		0
Home equity		101		101		2		101		1		0			101		101		2		101		2		1
Other		0		0		0		0		0		0			0		0		0		0		0		0
Total		12,531		13,922		3,236		17,279		80		41			16,679		18,042		4,510		17,130		177		97

Total
Commercial		10,255		12,117		775		11,166		79		46			9,657		11,265		802		10,789		140		61
Real estate - construction		223		443		0		223		0		0			223		443		0		223		0		0
Real estate - commercial		20,249		25,076		2,091		22,073		159		75			30,403		36,437		3,338		24,156		303		144
Real estate - residential		10,750		11,925		368		11,692		103		51			11,207		12,710		368		11,572		158		55
Installment		524		550		0		544		4		2			415		459		0		512		6		2
Home equity		3,024		4,011		2		3,122		26		13			3,110		4,069		2		3,119		42		16
Other		0		0		0		0		0		0			0		0		0		0		0		0
Total		$	45,025	$	54,122	$	3,236	$	48,820	$	371	$	187		$	55,015	$	65,383	$	4,510	$	50,371	$	649	$	278

Table of Contents



	As of December 31, 2013
(Dollars in thousands)	Current balance		Contractual principal balance		Related allowance		Average current balance		Interest income recognized
Loans with no related allowance recorded
Commercial	$	5,212	$	7,083	$	0	$	10,712	$	165
Real estate - construction	223		443		0		599		0
Real estate - commercial	12,355		16,431		0		16,563		380
Real estate - residential	10,291		12,087		0		10,225		152
Installment	642		663		0		463		6
Home equity	3,208		4,108		0		3,145		44
Other	0		0		0		148		0
Total	31,931		40,815		0		41,855		747

Loans with an allowance recorded
Commercial	7,013		8,353		2,080		5,047		71
Real estate - construction	0		0		0		726		7
Real estate - commercial	11,638		14,424		2,872		21,098		110
Real estate - residential	2,016		2,072		348		1,997		37
Installment	0		0		0		0		0
Home equity	101		101		2		101		2
Other	0		0		0		167		0
Total	20,768		24,950		5,302		29,136		227

Total
Commercial	12,225		15,436		2,080		15,759		236
Real estate - construction	223		443		0		1,325		7
Real estate - commercial	23,993		30,855		2,872		37,661		490
Real estate - residential	12,307		14,159		348		12,222		189
Installment	642		663		0		463		6
Home equity	3,309		4,209		2		3,246		46
Other	0		0		0		315		0
Total	$	52,699	$	65,765	$	5,302	$	70,991	$	974

Table of Contents

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.

Changes in OREO were as follows:


	Three months ended				Six months ended				Three months ended				Nine months ended
	June 30,				June 30,				September 30,				September 30,
(Dollars in thousands)	2014		2013		2014		2013		2014		2013		2014		2013
Balance at beginning of period	$	12,743	$	11,993	$	19,806	$	12,526	$	13,370	$	11,798	$	19,806	$	12,526
Additions
Commercial	557		1,759		1,391		2,316		883		608		2,274		2,924
Residential	973		233		1,343		380		174		265		1,517		645
Total additions	1,530		1,992		2,734		2,696		1,057		873		3,791		3,569
Disposals
Commercial	189		1,641		8,046		1,882		2,197		500		10,243		2,382
Residential	314		357		428		651		77		154		505		805
Total disposals	503		1,998		8,474		2,533		2,274		654		10,748		3,187
Valuation adjustment
Commercial	315		156		538		561		772		71		1,310		632
Residential	85		33		158		330		65		142		223		472
Total valuation adjustment	400		189		696		891		837		213		1,533		1,104
Balance at end of period	$	13,370	$	11,798	$	13,370	$	11,798	$	11,316	$	11,804	$	11,316	$	11,804

NOTE 5: COVERED LOANS

Loans acquired in Federal Deposit Insurance Corporation (FDIC)-assisted transactions initially covered under loss sharing agreements whereby the FDIC will reimburse First Financial for the majority of any losses incurred are referred to as covered loans. Pursuant to the terms of each loss sharing agreement, covered loans are subject to a stated loss threshold whereby the FDIC will reimburse First Financial for 80% of losses up to the stated loss threshold and 95% of losses in excess of the threshold. These loss sharing agreements provide for partial loss protection on single-family, residential loans for a period of ten years and First Financial is required to share any recoveries of previously charged-off amounts for the same time period, on the same pro-rata basis with the FDIC. All other loans are provided loss protection for a period of five years and recoveries of previously charged-off amounts must be shared with the FDIC for an additional three year period, again on the same pro-rata basis.

Covered loans totaled $332.3 million as of September 30, 2014 and $457.9 million as of December 31, 2013. The ~~five year period~~Company's loss sharing agreements with the FDIC related to non-single family loans expired effective October 1, 2014, and as a result, approximately $190.3 million, or 57.3%, of the Company's covered loan portfolio will no longer be covered by FDIC loss ~~protection will expire for the majority of First Financial's covered commercial loans and covered OREO during the third quarter of 2014.~~sharing effective that date. The ten year period of loss protection on all other covered loans and covered OREO will expire during the third quarter of 2019. The expiration of loss sharing protection will result in a reclassification of loan balances and the related allowance for loan and lease losses in the Consolidated Balance Sheets from covered loans to uncovered loans as of October 1, 2014, but will not have an effect on the accounting for these loans.

Table of Contents

The following table reflects the carrying value of all covered loans:



	September 30, 2014						December 31, 2013
(Dollars in thousands)	Loans accounted for under FASB ASC Topic 310-30		Loans excluded from FASB ASC Topic 310-30		Total covered loans		Loans accounted for under FASB ASC Topic 310-30		Loans excluded from FASB ASC Topic 310-30		Total covered loans
Commercial	$	22,403	$	1,341	$	23,744	$	41,172	$	1,144	$	42,316
Real estate - construction	1,748		0		1,748		8,556		0		8,556
Real estate - commercial	178,618		5,295		183,913		263,146		5,487		268,633
Real estate - residential	72,315		0		72,315		80,733		0		80,733
Installment	3,073		497		3,570		5,073		568		5,641
Home equity	1,128		43,730		44,858		975		48,649		49,624
Other covered loans	0		2,117		2,117		0		2,370		2,370
Total covered loans	$	279,285	$	52,980	$	332,265	$	399,655	$	58,218	$	457,873

Purchased Impaired Loans. First Financial accounts for the majority of ~~covered~~ loans acquired in FDIC transactions under FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, except loans with revolving privileges, which are outside the scope of this guidance, and loans for which cash flows could not be estimated, which are accounted for under the cost recovery method. These loans include loans previously covered under loss sharing agreements as well as loans that remain subject to FDIC loss sharing coverage. Loans accounted for under FASB ASC Topic 310-30 are referred to as purchased impaired loans.

Purchased impaired loans are not classified as nonperforming assets as the loans are considered to be performing under FASB ASC Topic 310-30. Therefore, interest income, through accretion of the difference between the carrying value of the loans and the expected cash flows (accretable difference) is recognized on all covered purchased impaired loans.

~~Table of Contents~~

~~The following table reflects the carrying value of all covered loans:~~

June 30, 2014 December 31, 2013
(Dollars in thousands)
Loans
accounted
for under
FASB ASC
Topic 310-30

Loans
excluded
from FASB
ASC Topic
310-30

Total
covered
loans

Loans
accounted
for under
FASB ASC
Topic 310-30

Loans
excluded
from FASB
ASC Topic
310-30

Total
covered
loans
Commercial $ 26,150
$ 1,338
$ 27,488
$ 41,172
$ 1,144
$ 42,316
Real estate - construction 2,021
0
2,021
8,556
0
8,556
Real estate - commercial 202,963
5,375
208,338
263,146
5,487
268,633
Real estate - residential 74,960
0
74,960
80,733
0
80,733
Installment 3,890
525
4,415
5,073
568
5,641
Home equity 1,064
45,036
46,100
975
48,649
49,624
Other covered loans 0
2,281
2,281
0
2,370
2,370
Total covered loans $ 311,048
$ 54,555
$ 365,603
$ 399,655
$ 58,218
$ 457,873

The outstanding balance of all purchased impaired loans, including all contractual principal, interest, fees and penalties, was ~~$375.9~~$337.5 million and ~~$493.6~~$493.6 million as of ~~June~~September 30, 2014 and December 31, 2013,, respectively. These balances exclude contractual interest not yet accrued.

Changes in the carrying amount of accretable difference for ~~covered~~ purchased impaired loans were as follows:


	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			2014			2013			2014			2013
Balance at beginning of period	$	131,398		$	208,670		$	133,671		$	224,694		$	127,764		$	173,920		$	133,671		$	224,694
Reclassification from/(to) nonaccretable difference	8,941			(8,459		)	22,159			(708		)	(2,295		)	(4,979		)	19,864			(5,687		)
Accretion	(8,932		)	(15,252		)	(18,650		)	(33,199		)	(8,158		)	(13,772		)	(26,808		)	(46,971		)
Other net activity ⁽¹⁾	(3,643		)	(11,039		)	(9,416		)	(16,867		)	(4,250		)	(8,347		)	(13,666		)	(25,214		)
Balance at end of period	$	127,764		$	173,920		$	127,764		$	173,920		$	113,061		$	146,822		$	113,061		$	146,822

(1) Includes the impact of loan repayments and ~~charge-offs~~charge-offs.

First Financial regularly reviews its forecast of expected cash flows for ~~covered~~ purchased impaired loans. The Company recognized ~~improvement~~a reclassification from accretable to nonaccretable difference of $2.3 million during the third quarter of 2014 due to changes in the cash flow expectations related to certain loan ~~pools resulting in the~~pools. However, First Financial recognized a $19.9 million reclassification from nonaccretable difference to accretable difference of ~~$8.9 million~~during the ~~second quarter of 2014 and $22.2 million for the~~ first ~~six~~nine months of 2014. ~~Conversely,~~During the third quarter of 2013, First Financial recognized an ~~$8.5~~a $5.0 million reclassification from accretable to nonaccretable difference ~~during the~~ ~~second~~ ~~quarter of~~ ~~2013~~and ~~$0.7~~$5.7 million for the first ~~six~~nine months of 2013. These reclassifications ~~resulted~~can result in impairment and provision expense in the current period or yield adjustments on the related loan pools on a prospective basis. For further detail on impairment and provision expense related to covered purchased impaired loans, see "Covered Loans" in Note 6 - Allowance for Loan and Lease Losses.

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Credit Quality. For further discussion of First Financial's monitoring of credit quality for commercial and consumer loans, including discussion of the risk attributes noted below, please see Note 4 - Loans, excluding covered loans.

Covered commercial and consumer credit exposure by risk attribute was as follows:


	As of June 30, 2014								As of September 30, 2014
			Real Estate								Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total		Commercial		Construction		Commercial		Total
Pass	$	17,065	$	1,598	$	158,427	$	177,090	$	14,790	$	1,605	$	150,628	$	167,023
Special Mention	877		0		6,718		7,595		418		0		4,924		5,342
Substandard	9,546		423		43,193		53,162		8,536		143		28,361		37,040
Doubtful	0		0		0		0		0		0		0		0
Total	$	27,488	$	2,021	$	208,338	$	237,847	$	23,744	$	1,748	$	183,913	$	209,405


(Dollars in thousands)	Real estate residential		Installment		Home equity		Other		Total		Real estate residential		Installment		Home equity		Other		Total
Performing	$	74,960	$	4,415	$	43,936	$	2,281	$	125,592	$	72,315	$	3,570	$	41,416	$	2,117	$	119,418
Nonperforming	0		0		2,164		0		2,164		0		0		3,442		0		3,442
Total	$	74,960	$	4,415	$	46,100	$	2,281	$	127,756	$	72,315	$	3,570	$	44,858	$	2,117	$	122,860



	As of December 31, 2013
			Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total
Pass	$	25,196	$	1,714	$	182,621	$	209,531
Special Mention	2,011		0		12,904		14,915
Substandard	14,693		6,842		73,108		94,643
Doubtful	416		0		0		416
Total	$	42,316	$	8,556	$	268,633	$	319,505



(Dollars in thousands)	Real estate residential		Installment		Home equity		Other		Total
Performing	$	80,733	$	5,636	$	47,731	$	2,370	$	136,470
Nonperforming	0		5		1,893		0		1,898
Total	$	80,733	$	5,641	$	49,624	$	2,370	$	138,368

Delinquency. Covered 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 due date of the scheduled payment.

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Covered loan delinquency, excluding loans accounted for under FASB ASC Topic 310-30, was as follows:


	As of June 30, 2014														As of September 30, 2014
(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		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	$	0	$	49	$	617	$	666	$	672	$	1,338	$	0	$	0	$	49	$	656	$	705	$	636	$	1,341	$	0
Real estate - commercial	0		0		355		355		5,020		5,375		0		0		144		251		395		4,900		5,295		0
Installment	19		1		0		20		505		525		0		0		0		0		0		497		497		0
Home equity	630		562		1,873		3,065		41,971		45,036		0		361		0		3,086		3,447		40,283		43,730		0
All other	96		5		0		101		2,180		2,281		0		23		3		3		29		2,088		2,117		3
Total	$	745	$	617	$	2,845	$	4,207	$	50,348	$	54,555	$	0	$	384	$	196	$	3,996	$	4,576	$	48,404	$	52,980	$	3



	As of December 31, 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	$	60	$	335	$	483	$	878	$	266	$	1,144	$	0
Real estate - commercial	184		0		1,263		1,447		4,040		5,487		0
Installment	0		0		5		5		563		568		0
Home equity	239		36		1,727		2,002		46,647		48,649		0
All other	9		4		0		13		2,357		2,370		0
Total	$	492	$	375	$	3,478	$	4,345	$	53,873	$	58,218	$	0

Nonaccrual.~~Covered purchased~~ 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 covered loan loss provision or prospective yield adjustments.

Similar to uncovered loans, covered loans accounted for outside FASB ASC Topic 310-30 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, 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 classified as nonaccrual are applied as a reduction to the carrying value of the loan. A loan may be returned to accrual status if collection of future principal and interest payments is no longer doubtful.

Information as to covered nonaccrual loans, excluding loans accounted for under FASB ASC Topic 310-30, was as follows:


(Dollars in thousands)	June 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Impaired loans
Nonaccrual loans ⁽¹⁾
Commercial	$	884	$	540	$	906	$	540
Real estate-commercial	356		1,349		256		1,349
Installment	0		5		0		5
Home equity	2,164		1,893		3,442		1,893
All other	0		0		0		0
Nonaccrual loans	3,404		3,787		4,604		3,787
Accruing troubled debt restructurings	70		335		70		335
Total impaired loans	$	3,474	$	4,122	$	4,674	$	4,122

(1) Nonaccrual loans include nonaccrual TDRs of ~~$0.7~~$0.9 million and $0.9 million as of ~~June~~September 30, 2014 and December 31, 2013, respectively.

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	Three months ended				Six months ended				Three months ended				Nine months ended
	June 30,				June 30,				September 30,				September 30,
(Dollars in thousands)	2014		2013		2014		2013		2014		2013		2014		2013
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	59	$	115	$	129	$	253	$	72	$	81	$	201	$	334
Interest included in income
Nonaccrual loans	7		7		16		14		18		6		34		20
Troubled debt restructurings	1		3		1		3		0		3		1		6
Total interest included in income	8		10		17		17		18		9		35		26
Net impact on interest income	$	51	$	105	$	112	$	236	$	54	$	72	$	166	$	308

Impaired Loans. Covered loans classified as nonaccrual, excluding loans accounted for under FASB ASC Topic 310-30, are considered impaired. First Financial’s investment in covered impaired loans, excluding loans accounted for under FASB ASC Topic 310-30, was as follows:


		As of June 30, 2014													As of September 30, 2014
(Dollars in thousands)		Current balance		Unpaid principal balance		Related allowance		Average balance		YTD interest income recognized		Quarterly interest income recognized			Current balance		Unpaid principal balance		Related allowance		Average balance		YTD interest income recognized		Quarterly interest income recognized
Loans with no related allowance recorded	Loans with no related allowance recorded													Loans with no related allowance recorded
Commercial		$	939	$	1,256	$	0	$	927	$	10	$	4		$	960	$	1,302	$	0	$	936	$	16	$	6
Real estate - commercial		356		516		0		1,007		1		0			256		395		0		819		2		1
Installment		0		0		0		2		0		0			0		0		0		1		0		0
Home equity		2,179		3,518		0		2,171		6		4			0		4,908		0		2,493		17		11
All other		0		0		0		0		0		0			3,458		0		0		0		0		0
Total		$	3,474	$	5,290	$	0	$	4,107	$	17	$	8		$	4,674	$	6,605	$	0	$	4,249	$	35	$	18



	As of December 31, 2013
(Dollars in thousands)	Current balance		Unpaid principal balance		Related allowance		Average balance		Interest income recognized
Loans with no related allowance recorded
Commercial	$	875	$	1,131	$	0	$	1,832	$	11
Real estate - commercial	1,349		2,648		0		1,786		4
Installment	5		5		0		2		0
Home equity	1,893		2,899		0		2,611		15
All other	0		0		0		8		0
Total	$	4,122	$	6,683	$	0	$	6,239	$	30

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Covered OREO. Covered OREO is comprised of properties acquired by the Company through the loan foreclosure or repossession process, or other resolution activities that result in partial or total satisfaction of problem covered loans. These properties remain subject to loss sharing agreements whereby the FDIC reimburses First Financial for the majority of any losses incurred.

Changes in covered OREO were as follows:


	Three months ended				Six months ended				Three months ended				Nine months ended
	June 30,				June 30,				September 30,				September 30,
(Dollars in thousands)	2014		2013		2014		2013		2014		2013		2014		2013
Balance at beginning of period	$	23,048	$	29,345	$	27,120	$	28,862	$	19,439	$	22,475	$	27,120	$	28,862
Additions
Commercial	3,207		6,029		3,937		12,491		0		8,572		3,937		21,063
Residential	263		161		291		377		118		95		409		472
Total additions	3,470		6,190		4,228		12,868		118		8,667		4,346		21,535
Disposals
Commercial	5,950		12,027		9,931		16,648		7,498		2,865		17,429		19,513
Residential	368		470		498		814		38		76		536		890
Total disposals	6,318		12,497		10,429		17,462		7,536		2,941		17,965		20,403
Valuation adjustment
Commercial	761		557		1,468		1,682		718		451		2,186		2,133
Residential	0		6		12		111		123		0		135		111
Total valuation adjustment	761		563		1,480		1,793		841		451		2,321		2,244
Balance at end of period	$	19,439	$	22,475	$	19,439	$	22,475	$	11,180	$	27,750	$	11,180	$	27,750

NOTE 6: ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans, excluding covered loans. For each reporting period, management maintains the allowance for loan and lease losses at a level that it considers sufficient to absorb probable loan and lease losses inherent in the portfolio. There were no material changes to First Financial's accounting policies or methodology related to the allowance for loan and lease losses during the first ~~six~~nine months of 2014.

The allowance is increased by provision expense and decreased by actual charge-offs, net of recoveries of amounts previously charged-off. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect the principal amount owed in full either through payments from the borrower or from the liquidation of collateral.

~~Changes in the allowance for loan and lease losses were as follows:~~


	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			2014			2013			2014			2013
Balance at beginning of period	$	43,023		$	48,306		$	43,829		$	47,777		$	42,027		$	47,047		$	43,829		$	47,777
Provision for loan and lease losses	29			2,409			1,188			5,450			1,093			1,413			2,281			6,863
Loans charged off	(2,187		)	(4,194		)	(4,611		)	(7,404		)	(1,816		)	(5,111		)	(6,427		)	(12,515		)
Recoveries	1,162			526			1,621			1,224			1,150			2,165			2,771			3,389
Balance at end of period	$	42,027		$	47,047		$	42,027		$	47,047		$	42,454		$	45,514		$	42,454		$	45,514
Total loans													$	4,449,972		$	3,430,916		$	4,449,972		$	3,430,916
Allowance for loan and lease losses to total ending loans	1.15		%	1.39		%	1.15		%	1.39		%	0.95		%	1.33		%	0.95		%	1.33		%

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Year-to-date changes in the allowance for loan and lease losses by loan category were as follows:


	Six months ended June 30, 2014																			Nine months ended September 30, 2014
				Real Estate																		Real Estate
(Dollars in thousands)	Commercial			Construction		Commercial		Residential		Installment			Home Equity		Other			Total		Commercial		Construction		Commercial		Residential		Installment			Home Equity		Other		Total
Allowance for loan and lease losses:
Balance at beginning of period	$	10,568		$	824	$	20,478	$	3,379	$	365		$	5,209	$	3,006		$	43,829	$	10,568	$	824	$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Provision for loan and lease losses	(253		)	53		1,200		104		(138		)	299		(77		)	1,188		517		274		855		61		(153		)	721		6		2,281
Gross charge-offs	1,227			0		1,242		540		142			927		533			4,611		1,310		0		1,944		701		205			1,396		871		6,427
Recoveries	619			0		448		127		127			140		160			1,621		1,185		0		771		161		173			186		295		2,771
Total net charge-offs	608			0		794		413		15			787		373			2,990		125		0		1,173		540		32			1,210		576		3,656
Ending allowance for loan and lease losses	$	9,707		$	877	$	20,884	$	3,070	$	212		$	4,721	$	2,556		$	42,027	$	10,960	$	1,098	$	20,160	$	2,900	$	180		$	4,720	$	2,436	$	42,454
Ending allowance on loans individually evaluated for impairment	$	775		$	0	$	2,091	$	368	$	0		$	2	$	0		$	3,236	$	802	$	0	$	3,338	$	368	$	0		$	2	$	0	$	4,510
Ending allowance on loans collectively evaluated for impairment	8,932			877		18,793		2,702		212			4,719		2,556			38,791		10,158		1,098		16,822		2,532		180			4,718		2,436		37,944
Ending allowance for loan and lease losses	$	9,707		$	877	$	20,884	$	3,070	$	212		$	4,721	$	2,556		$	42,027	$	10,960	$	1,098	$	20,160	$	2,900	$	180		$	4,720	$	2,436	$	42,454
Loans - excluding covered loans
Loans
Ending balance of loans individually evaluated for impairment	$	8,749		$	0	$	13,925	$	3,230	$	110		$	768	$	0		$	26,782	$	7,913	$	0	$	20,763	$	3,215	$	104		$	614	$	0	$	32,609
Ending balance of loans collectively evaluated for impairment	1,134,944			113,682		1,477,806		369,371		43,228			379,978		116,868			3,635,877		1,296,869		193,776		1,931,292		423,343		47,457			415,485		109,141		4,417,363
Total loans - excluding covered loans	$	1,143,693		$	113,682	$	1,491,731	$	372,601	$	43,338		$	380,746	$	116,868		$	3,662,659
Total loans																				$	1,304,782	$	193,776	$	1,952,055	$	426,558	$	47,561		$	416,099	$	109,141	$	4,449,972



	Twelve months ended December 31, 2013
			Real Estate
(Dollars in thousands)	Commercial		Construction			Commercial		Residential		Installment			Home Equity		Other		Total
Allowance for loan and lease losses:
Balance at beginning of period	$	7,926	$	3,268		$	24,151	$	3,599	$	522		$	5,173	$	3,138	$	47,777
Provision for loan and lease losses	5,385		(3,115		)	2,659		593		(132		)	1,937		1,387		8,714
Gross charge-offs	3,415		1			8,326		1,016		335			2,409		1,781		17,283
Recoveries	672		672			1,994		203		310			508		262		4,621
Total net charge-offs	2,743		(671		)	6,332		813		25			1,901		1,519		12,662
Ending allowance for loan and lease losses	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Ending allowance on loans individually evaluated for impairment	$	2,080	$	0		$	2,872	$	348	$	0		$	2	$	0	$	5,302
Ending allowance on loans collectively evaluated for impairment	8,488		824			17,606		3,031		365			5,207		3,006		38,527
Ending allowance for loan and lease losses	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Loans - excluding covered loans
Ending balance of loans individually evaluated for impairment	$	10,391	$	0		$	18,023	$	3,493	$	122		$	648	$	0	$	32,677
Ending balance of loans collectively evaluated for impairment	1,025,277		80,741			1,478,964		349,438		47,011			375,806		115,727		3,472,964
Total loans - excluding covered loans	$	1,035,668	$	80,741		$	1,496,987	$	352,931	$	47,133		$	376,454	$	115,727	$	3,505,641

Covered Loans. The majority of covered loans are accounted for under FASB ASC Topic 310-30, whereby First Financial is required to periodically re-estimate the expected cash flows on the loans. First Financial updated the valuations related to covered loans during the ~~second~~third quarter 2014 and realized net recoveries of $~~2.3~~0.7 million during the quarter. As a result of improved cash flow expectations from the updated valuations as well as net charge-off activity during the period, First Financial recognized negative provision expense, or impairment recapture, of $~~0.4~~0.2 million during the ~~second~~third quarter, resulting in an allowance for covered loan losses of $~~12.4~~11.5 million as of ~~June~~September 30, 2014. First Financial recognized negative provision

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expense on covered loans of ~~$2.6~~$2.8 million and realized net charge-offs of ~~$3.9~~$4.6 million for the first ~~six~~nine months of 2014. For the ~~second~~third quarter of 2013, First Financial recognized ~~negative~~ provision expense ~~or impairment recapture,~~ on covered loans of $~~8.3~~5.3 million related to net charge-offs of $~~4.3~~15.0 million during the period. For the first ~~six~~nine months of 2013, the Company recognized provision expense on covered loans of ~~$0.8~~$6.1 million and net charge-offs of ~~$13.0~~$28.0 million.

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First Financial recognized loss sharing expenses of ~~$1.5~~$1.0 million and ~~$1.6~~$1.7 million for the ~~second~~third quarters of 2014 and 2013, respectively, primarily related to attorney fees, appraisal costs and delinquent taxes. The Company also recognized gains on covered OREO of $1.4 million for the third quarter of 2014 and losses on covered OREO of ~~$0.4~~$0.2 million for the ~~second quarter of 2014 and gains on covered OREO of $2.2 million for the second~~third quarter of 2013. The net ~~receivable~~payable due ~~from~~to the FDIC under loss sharing agreements related to covered loan provision expense, gains/losses on covered OREO and loss sharing expenses of $~~1.1~~0.2 million was recognized as negative FDIC loss sharing income and a corresponding ~~increase~~decrease to the FDIC indemnification asset during the ~~second~~third quarter of 2014. The net ~~payable~~receivable due tofrom the FDIC under loss sharing agreements of $~~7.4~~5.6 million for the ~~second~~third quarter of 2013, was recognized as negative FDIC loss sharing income and a corresponding decrease to the FDIC indemnification asset.

On a year-to-date basis, First Financial recognized loss sharing expenses of ~~$3.0~~$4.0 million and ~~$3.9~~$5.6 million for 2014 and 2013 ~~respectively, primarily related to attorney fees, appraisal costs and delinquent taxes.~~respectively. Similarly, on a year-to-date basis, First Financial recognized ~~losses on covered OREO of $0.4 million for 2014 and~~ gains on covered OREO of ~~$2.4~~$1.0 million for 2014 and $2.2 million for 2013. The receivable due from the FDIC under loss sharing agreements related to covered loan provision expense, gains/losses on covered OREO and loss sharing expenses of $~~0.6~~0.4 million for the first ~~six~~nine months of 2014 and $~~1.6~~7.1 million for the comparable period in 2013, was recognized as FDIC loss sharing income and a corresponding increase to the FDIC indemnification asset.

The allowance for loan and lease losses on covered loans is presented in the table below:


(Dollars in thousands)	June 30, 2014		December 31, 2013		September 30, 2014		December 31, 2013
Commercial	$	5,255	$	9,400	$	5,468	$	9,400
Real estate - commercial	6,195		8,515		5,186		8,515
Real estate - residential	747		761		750		761
Installment	228		225		131		225
Total	$	12,425	$	18,901	$	11,535	$	18,901

Changes in the allowance for loan and lease losses on covered loans were as follows:


	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			2014			2013			2014			2013
Balance at beginning of period	$	10,573		$	45,496		$	18,901		$	45,190		$	12,425		$	32,961		$	18,901		$	45,190
Provision for loan and lease losses	(413		)	(8,283		)	(2,605		)	759			(200		)	5,293			(2,805		)	6,052
Loans charged-off	(3,485		)	(4,681		)	(10,725		)	(14,365		)	(3,053		)	(21,009		)	(13,778		)	(35,374		)
Recoveries	5,750			429			6,854			1,377			2,363			6,014			9,217			7,391
Balance at end of period	$	12,425		$	32,961		$	12,425		$	32,961		$	11,535		$	23,259		$	11,535		$	23,259
Total loans													$	332,265		$	518,524		$	332,265		$	518,524
Allowance for loan and lease losses to total ending loans													3.47		%	4.49		%	3.47		%	4.49		%

NOTE 7: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill. Assets and liabilities acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. During the third quarter of 2014, First Financial ~~had~~recorded additions to goodwill related to the acquisitions of ~~$95.1 million~~ ~~as of~~ ~~June 30, 2014~~First Bexley, Insight and ~~December 31, 2013~~.Guernsey. For further detail, see Note 16 – Business Combinations.

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Changes in the carrying amount of goodwill for the quarter ended September 30, 2014 are shown below.



(Dollars in thousands)
Balance at January 1, 2014	$	95,050
Goodwill resulting from business combinations	42,408
Balance at September 30, 2014	$	137,458

Goodwill is not amortized, but is measured for impairment on an annual basis as of October 1 of each year, or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. First Financial performed its most recent annual impairment test as of October 1, 2013 and no impairment was indicated. As of ~~June~~September 30, 2014, no events or changes in circumstances indicated that the fair value of a reporting unit was below its carrying value.

Other intangible assets. Other intangible assets consist primarily of core deposit intangibles. Core deposit intangibles represent the estimated fair value of acquired customer deposit relationships. Core deposit intangibles are recorded at their estimated fair value as of the acquisition date and are then amortized on an accelerated basis over their estimated useful lives. Core deposit intangibles were $~~5.2~~8.2 million and $5.9 million as of ~~June~~September 30, 2014 and December 31, 2013, respectively. First Financial recorded additions to core deposit intangibles of $3.5 million related to the third quarter 2014 acquisitions. First Financial's core deposit intangibles have an estimated weighted average remaining life of ~~6.3~~6.8 years. Amortization expense for the three months ended ~~June~~September 30, 2014 and 2013 was $~~0.3~~0.5 million and $0.4 million, respectively. Amortization expense recognized on intangible assets for the ~~six~~nine months ended ~~June~~September 30, 2014 and 2013 was ~~$0.7~~$1.2 million and ~~$0.8~~$1.1 million, respectively.

NOTE 8: BORROWINGS

Short-term borrowings on the Consolidated Balance Sheets include repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place, overnight advances from the Federal Loan Home Bank (FHLB) and a short-term line of credit. All repurchase agreements are subject to terms and conditions of repurchase/security agreements between First Financial Bank and the client. To secure the Bank's liability to the client, First Financial Bank is authorized to sell or repurchase U.S. Treasury, government agency and mortgage-backed securities.

First Financial had $~~686.3~~806.0 million in short-term borrowings with the FHLB at ~~June~~September 30, 2014, including $74.9 million of advances that were added as a result of acquisitions during the third quarter 2014, and $654.0 million as of December 31, 2013. These short-term borrowings are used to manage the Company's normal liquidity needs and support the Company's asset and liability management strategies.

During the second quarter of 2014, First Financial entered into a short-term credit facility with an unaffiliated bank for $15.0 million. This facility can have a variable or fixed interest rate and provides First Financial additional liquidity, if needed, for various corporate activities, including the repurchase of First Financial shares and the payment of dividends to shareholders. As of ~~June~~September 30, 2014, there was no outstanding balance. The credit agreement requires First Financial to maintain certain covenants related to asset quality and capital levels. First Financial was in compliance with all covenants associated with this line of credit as of ~~June~~September 30, 2014.

Long-term debt primarily consists of FHLB long-term advances and repurchase agreements utilizing investment securities pledged as collateral. These instruments are primarily utilized to reduce overnight liquidity risk and to mitigate interest rate sensitivity on the Consolidated Balance Sheets. First Financial has $~~52.5~~25.0 million in repurchase agreements which have remaining maturities of less than ~~2 years~~1 year and a weighted average rate of ~~3.49%~~3.54%. Securities pledged as collateral in conjunction with the repurchase agreements are included within Investment securities on the Consolidated Balance Sheets.

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The following is a summary of long-term debt:


	June 30, 2014				December 31, 2013				September 30, 2014				December 31, 2013
(Dollars in thousands)	Amount		Average rate		Amount		Average rate		Amount		Average rate		Amount		Average rate
Federal Home Loan Bank	$	6,418	3.71	%	$	7,505	3.72	%	$	26,881	3.01	%	$	7,505	3.72	%
National Market Repurchase Agreement	52,500		3.49	%	52,500		3.49	%	25,000		3.54	%	52,500		3.49	%
Capital loan with municipality	775		0.00	%	775		0.00	%	775		0.00	%	775		0.00	%
Total long-term debt	$	59,693	3.47	%	$	60,780	3.48	%	$	52,656	3.22	%	$	60,780	3.48	%

Under Federal Reserve Board guidelines, a company can issue qualifying debentures up to 25% of qualifying Tier I capital. First Financial has the capacity to issue approximately ~~$161.3~~$167.7 million in additional qualifying debentures under these guidelines.

~~Table of Contents~~

NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss). The related tax effects allocated to other comprehensive income and reclassifications out of accumulated other comprehensive income (loss) are as follows:


	Three months ended June 30, 2014																								Three months ended September 30, 2014
	Total other comprehensive income															Total accumulated other comprehensive income									Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance			Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	10,145		$	0		$	10,145		$	(3,674	)	$	6,471		$	(12,427	)	$	6,471		$	(5,956	)	$	(374	)	$	0		$	(374	)	$	118		$	(256	)	$	(5,956	)	$	(256	)	$	(6,212	)
Unrealized gain (loss) on derivatives	(1,133		)	(116		)	(1,017		)	380			(637		)	145			(637		)	(492		)	1,096			(117		)	1,213			(453		)	760			(492		)	760			268
Retirement obligation	0			(379		)	379			(142		)	237			(15,328		)	237			(15,091		)	0			(302		)	302			(113		)	189			(15,091		)	189			(14,902		)
Foreign currency translation	8			0			8			0			8			(38		)	8			(30		)	(12		)	0			(12		)	0			(12		)	(30		)	(12		)	(42		)
Total	$	9,020		$	(495	)	$	9,515		$	(3,436	)	$	6,079		$	(27,648	)	$	6,079		$	(21,569	)	$	710		$	(419	)	$	1,129		$	(448	)	$	681		$	(21,569	)	$	681		$	(20,888	)

Three months ended June 30, 2013
Total other comprehensive income
Total accumulated
other comprehensive income
(Dollars in thousands)
Prior to
Reclassification

Reclassification
from
Pre-tax Tax-effect Net of tax Beginning Balance Net Activity Ending Balance
Unrealized gain (loss) on investment securities $ (24,399 ) $ 188
$ (24,587 ) $ 9,377
$ (15,210 ) $ 9,445
$ (15,210 ) $ (5,765 )
Unrealized gain (loss) on derivatives 1,041
(68 ) 1,109
(419 ) 690
(17 ) 690
673
Retirement obligation 11,719
(4,935 ) 16,654
(6,289 ) 10,365
(30,893 ) 10,365
(20,528 )
Foreign currency translation (15 ) 0
(15 ) 0
(15 ) (10 ) (15 ) (25 )
Total $ (11,654 ) $ (4,815 ) $ (6,839 ) $ 2,669
$ (4,170 ) $ (21,475 ) $ (4,170 ) $ (25,645 )


	Six months ended June 30, 2014																								Three months ended September 30, 2013
	Total other comprehensive income															Total accumulated other comprehensive income									Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance			Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	16,243		$	50		$	16,193		$	(5,860	)	$	10,333		$	(16,289	)	$	10,333		$	(5,956	)	$	(5,956	)	$	0		$	(5,956	)	$	1,953		$	(4,003	)	$	(5,765	)	$	(4,003	)	$	(9,768	)
Unrealized gain (loss) on derivatives	(1,977		)	(231		)	(1,746		)	652			(1,094		)	602			(1,094		)	(492		)	(1,475		)	(161		)	(1,314		)	496			(818		)	673			(818		)	(145		)
Retirement obligation	0			(757		)	757			(283		)	474			(15,565		)	474			(15,091		)	0			(1,873		)	1,873			(707		)	1,166			(20,528		)	1,166			(19,362		)
Foreign currency translation	(1		)	0			(1		)	0			(1		)	(29		)	(1		)	(30		)	6			0			6			0			6			(25		)	6			(19		)
Total	$	14,265		$	(938	)	$	15,203		$	(5,491	)	$	9,712		$	(31,281	)	$	9,712		$	(21,569	)	$	(7,425	)	$	(2,034	)	$	(5,391	)	$	1,742		$	(3,649	)	$	(25,645	)	$	(3,649	)	$	(29,294	)

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	Six months ended June 30, 2013																								Nine months ended September 30, 2014
	Total other comprehensive income															Total accumulated other comprehensive income									Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance			Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	(28,256	)	$	1,724		$	(29,980	)	$	11,413		$	(18,567	)	$	12,802		$	(18,567	)	$	(5,765	)	$	15,869		$	50		$	15,819		$	(5,742	)	$	10,077		$	(16,289	)	$	10,077		$	(6,212	)
Unrealized gain (loss) on derivatives	1,177			(134		)	1,311			(495		)	816			(143		)	816			673			(881		)	(348		)	(533		)	199			(334		)	602			(334		)	268
Retirement obligation	11,719			(5,650		)	17,369			(6,559		)	10,810			(31,338		)	10,810			(20,528		)	0			(1,059		)	1,059			(396		)	663			(15,565		)	663			(14,902		)
Foreign currency translation	(27		)	0			(27		)	0			(27		)	2			(27		)	(25		)	(13		)	0			(13		)	0			(13		)	(29		)	(13		)	(42		)
Total	$	(15,387	)	$	(4,060	)	$	(11,327	)	$	4,359		$	(6,968	)	$	(18,677	)	$	(6,968	)	$	(25,645	)	$	14,975		$	(1,357	)	$	16,332		$	(5,939	)	$	10,393		$	(31,281	)	$	10,393		$	(20,888	)



	Nine months ended September 30, 2013
	Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	(34,212	)	$	1,724		$	(35,936	)	$	13,366		$	(22,570	)	$	12,802		$	(22,570	)	$	(9,768	)
Unrealized gain (loss) on derivatives	(298		)	(295		)	(3		)	1			(2		)	(143		)	(2		)	(145		)
Retirement obligation	11,719			(7,523		)	19,242			(7,266		)	11,976			(31,338		)	11,976			(19,362		)
Foreign currency translation	(21		)	0			(21		)	0			(21		)	2			(21		)	(19		)
Total	$	(22,812	)	$	(6,094	)	$	(16,718	)	$	6,101		$	(10,617	)	$	(18,677	)	$	(10,617	)	$	(29,294	)

The following table presents the activity reclassified from accumulated other comprehensive income into income during the three and ~~six months period:~~nine month periods:


	Amount reclassified from accumulated other comprehensive income ⁽¹⁾													Amount reclassified from accumulated other comprehensive income ⁽¹⁾
	Three months ended						Six months ended							Three months ended						Nine months ended
	June 30,						June 30,							September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			Affected Line Item in the Consolidated Statements of Income	2014			2013			2014			2013			Affected Line Item in the Consolidated Statements of Income
Gains and losses on cash flow hedges
Interest rate contracts	$	(116	)	$	(68	)	$	(231	)	$	(134	)	Interest expense - deposits	$	(117	)	$	(161	)	$	(348	)	$	(295	)	Interest expense - deposits
Realized gains and losses on securities available-for-sale	0			188			50			1,724			Gains on sales of investments securities	0			0			50			1,724			Gains on sales of investments securities
Defined benefit pension plan
Amortization of prior service cost ⁽²⁾	103			107			206			212			Salaries and employee benefits	103			105			309			317			Salaries and employee benefits
Recognized net actuarial loss⁽²⁾	(482		)	(726		)	(963		)	(1,546		)	Salaries and employee benefits	(405		)	(582		)	(1,368		)	(2,128		)	Salaries and employee benefits
Pension settlement charges	0			(4,316		)	0			(4,316		)	Pension settlement charges	0			(1,396		)	0			(5,712		)	Pension settlement charges
Amortization and settlement charges of defined benefit pension items	(379		)	(4,935		)	(757		)	(5,650		)		(302		)	(1,873		)	(1,059		)	(7,523		)
Total reclassifications for the period, before tax	$	(495	)	$	(4,815	)	$	(938	)	$	(4,060	)		$	(419	)	$	(2,034	)	$	(1,357	)	$	(6,094	)

(1) Negative amount are reductions to net income.

(2) Included in the computation of net periodic pension cost (see Note 13 - Employee Benefit Plans for additional details).

NOTE 10: DERIVATIVES

First Financial uses derivative instruments, including interest rate caps, floors and swaps, to meet the needs of its clients while managing the interest rate risk associated with certain transactions. First Financial primarily utilizes interest rate swaps as a means to offer borrowers credit-based products that meet their needs and may from time to time utilize interest rate swaps to manage the interest rate risk profile of the Company. First Financial does not use derivatives for speculative purposes.

Table of Contents

Interest rate swap agreements establish the basis on which interest rate payments are exchanged with counterparties, referred to as the notional amount. 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 manages this market value credit risk through counterparty credit policies. These policies require the Company to maintain a total derivative notional position of less than 35% of assets, total credit exposure of less than 3% of capital and no single counterparty credit risk exposure greater than $20.0 million. The Company is currently ~~well~~ below all single counterparty and portfolio limits. At ~~June~~September 30, 2014, the Company had a total counterparty notional amount outstanding of approximately $~~649.0~~697.4 million, spread among nine counterparties, with an outstanding liability from these contracts of $~~12.3~~8.4 million. At December 31, 2013, the Company had a total counterparty notional amount outstanding of approximately $561.6 million, spread among nine counterparties, with an outstanding liability from these contracts of $9.3 million.

~~Table of Contents~~

First Financial’s exposure to credit loss, in the event of nonperformance by a borrower, is limited to the market value of the derivative instrument associated with that borrower. First Financial monitors its derivative credit exposure to borrowers by monitoring the creditworthiness of the related loan customers through the normal credit review processes the Company performs on all borrowers. Additionally, the Company monitors derivative credit risk exposure related to problem loans through the Company's allowance for loan and lease losses 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.

Fair Value Hedges. First Financial utilizes interest rate swaps designated as fair value hedges as a means to offer commercial borrowers fixed rate funding while providing the Company with floating rate assets. The following table details the location and amounts recognized in the Consolidated Balance Sheets for fair value hedges:


			June 30, 2014							December 31, 2013									September 30, 2014							December 31, 2013
					Estimated fair value							Estimated fair value									Estimated fair value							Estimated fair value
(Dollars in thousands)		Balance sheet location	Notional amount		Gain		Loss			Notional amount		Gain		Loss				Balance sheet location	Notional amount		Gain		Loss			Notional amount		Gain		Loss
Fair value hedges - instruments associated with loans	Fair value hedges - instruments associated with loans																Fair value hedges - instruments associated with loans
Pay fixed interest rate swaps with counterparty		Accrued interest and other liabilities	$	9,445	$	0	$	(676	)	$	9,836	$	0	$	(865	)		Accrued interest and other liabilities	$	8,913	$	0	$	(528	)	$	9,836	$	0	$	(865	)
Matched interest rate swaps with borrower		Accrued interest and other assets	414,303		11,976		(702		)	451,744		11,710		(1,767		)		Accrued interest and other assets	406,276		9,373		(753		)	451,744		11,710		(1,767		)
Matched interest rate swaps with counterparty		Accrued interest and other liabilities	414,303		702		(12,085		)	451,744		1,767		(11,799		)		Accrued interest and other liabilities	406,276		753		(9,469		)	451,744		1,767		(11,799		)
Total			$	838,051	$	12,678	$	(13,463	)	$	913,324	$	13,477	$	(14,431	)			$	821,465	$	10,126	$	(10,750	)	$	913,324	$	13,477	$	(14,431	)

In connection with its use of derivative instruments, First Financial and its counterparties are required to post cash collateral to offset the market position of the derivative instruments under certain conditions. First Financial maintains the right to offset these derivative positions with the collateral posted against them by or with the relevant counterparties. First Financial classifies the derivative cash collateral outstanding with its counterparties as an adjustment to the fair value of the derivative contracts within Accrued interest and other assets or Accrued interest and other liabilities in the Consolidated Balance Sheets.

The following table discloses the gross and net amounts of liabilities recognized in the Consolidated Balance Sheets:


	June 30, 2014							December 31, 2013							September 30, 2014							December 31, 2013
(Dollars in thousands)	Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets			Net amounts of liabilities presented in the Consolidated Balance Sheets		Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets			Net amounts of liabilities presented in the Consolidated Balance Sheets		Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets			Net amounts of liabilities presented in the Consolidated Balance Sheets		Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets			Net amounts of liabilities presented in the Consolidated Balance Sheets
Fair value hedges
Pay fixed interest rate swaps with counterparty	$	676	$	0		$	676	$	865	$	(663	)	$	202	$	528	$	0		$	528	$	865	$	(663	)	$	202
Matched interest rate swaps with counterparty	12,787		(12,430		)	357		13,566		(9,533		)	4,033		10,222		(8,610		)	1,612		13,566		(9,533		)	4,033
Total	$	13,463	$	(12,430	)	$	1,033	$	14,431	$	(10,196	)	$	4,235	$	10,750	$	(8,610	)	$	2,140	$	14,431	$	(10,196	)	$	4,235

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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 ~~June~~September 30, 2014:


							Weighted-average rate										Weighted-average rate
(Dollars in thousands)	Notional amount		Average maturity (years)	Fair value			Receive		Pay		Notional amount		Average maturity (years)	Fair value			Receive		Pay
Asset conversion swaps
Pay fixed interest rate swaps with counterparty	$	9,445	2.6	$	(676	)	2.12	%	6.85	%	$	8,913	2.3	$	(528	)	2.11	%	6.85	%
Receive fixed, matched interest rate swaps with borrower	414,303		4.1	11,274			4.83	%	2.80	%	406,276		4.1	8,620			4.67	%	2.71	%
Pay fixed, matched interest rate swaps with counterparty	414,303		4.1	(11,383		)	2.80	%	4.83	%	406,276		4.1	(8,716		)	2.71	%	4.67	%
Total asset conversion swaps	$	838,051	4.1	$	(785	)	3.79	%	3.85	%	$	821,465	4.0	$	(624	)	3.67	%	3.72	%

Cash Flow Hedges. First Financial utilizes interest rate swaps designated as cash flow hedges to hedge against interest rate volatility on indexed floating rate deposits, totaling $~~200.0~~250.0 million as of ~~June~~September 30, 2014 and $100.0 million as of December 31, 2013. These interest rate swaps qualify for hedge accounting and involve the receipt by First Financial of variable-rate interest amounts in exchange for fixed-rate interest payments by First Financial and have a remaining weighted average term of approximately 5 years. Accrued interest and other ~~liabilities~~assets included $~~1.0~~0.2 million at ~~June~~September 30, 2014 ~~while accrued interest~~ and ~~other assets included~~ $0.8 million at December 31, 2013, respectively, reflecting the fair value of these cash flow hedges.

Credit Derivatives. In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with other 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 ~~$25.3~~$32.3 million as of ~~June~~September 30, 2014 and $13.3 million as of December 31, ~~2013, and the~~2013. The fair value of ~~those~~these agreements ~~resulted in a $0.1 million~~were recorded as liabilities of $49 thousand and ~~$28.0~~$28 thousand ~~liability recorded~~ on the Consolidated Balance Sheets ~~at June~~as of September 30, 2014 and December 31, 2013, respectively.

NOTE 11: INCOME TAXES

For the ~~second~~third quarter 2014, income tax expense was $~~8.0~~7.2 million, resulting in an effective tax rate of ~~33.3%~~32.0%, compared with income tax expense of $~~6.5~~7.6 million and an effective tax rate of ~~29.0%~~33.9% for the comparable period in 2013. For the first ~~six~~nine months of 2014, income tax expense was ~~$15.0~~$22.3 million, resulting in an effective tax rate of ~~32.6%~~32.4%, compared with income tax expense of ~~$12.8~~$20.5 million, and an effective tax rate of ~~30.2%~~31.5% for the comparable period in 2013. The decrease in the effective tax rate for the third quarter 2014, as compared to the same period in 2013, was primarily the result of higher tax-exempt income earned in 2014 and lower state tax expense, partially offset by non-deductible acquisition costs. The increase in the effective tax rate for the ~~second~~ ~~quarter~~ ~~2014~~ ~~and the six~~nine months ended ~~June~~September 30, 2014, as compared to the same periods in 2013, was primarily the result of a favorable tax reversal related to both an intercompany tax obligation associated with an unconsolidated former Irwin subsidiary ~~and~~as well as a favorable change in state tax laws in 2013, partially offset by higher tax-exempt income earned in 2014.

First Financial had no FASB ASC Topic 740-10 unrecognized tax benefits recorded at ~~June~~September 30, 2014, and December 31, 2013. Further, the Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months.

First Financial regularly reviews its tax positions and establishes reserves for income tax-related uncertainties based on estimates of whether it is more likely than not that the tax uncertainty would be sustained upon challenge by the appropriate tax authorities, which would then result in additional taxes, penalties and interest due. Management determined that no reserve for income tax-related uncertainties was necessary as of ~~June~~September 30, 2014 and December 31, 2013.

First Financial and its subsidiaries are subject to U.S. federal income tax as well as state and local income tax in several jurisdictions. Tax years prior to ~~2010~~2011 have been closed and are no longer subject to U.S. federal income tax examinations. The tax year 2011 is currently under examination by the federal taxing authority. At this time, First Financial is not aware of any material impact to the Company's financial position and results of operations as a result of this examination. Tax years ~~2010 through~~2012 and 2013 remain open to examination by the federal taxing authority.

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First Financial is no longer subject to state and local income tax examinations for years prior to ~~2009.~~2010. Tax years ~~2009~~2010 through 2013 remain open to state and local examination in various jurisdictions.

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NOTE 12: COMMITMENTS AND CONTINGENCIES

In the normal course of business, First Financial offers a variety of financial instruments with off-balance-sheet risk to assist clients in meeting their requirements for liquidity and credit enhancement. These financial instruments include standby letters of credit and outstanding commitments to extend credit. GAAP does not require these financial instruments to be recorded in the Consolidated Financial Statements.

First Financial’s exposure to credit loss, in the event of nonperformance by the other party to the financial instrument for standby letters of credit, and outstanding commitments to extend credit, is represented by the contractual amounts of those instruments. First Financial uses the same credit policies in issuing commitments and conditional obligations as it does for credit instruments recorded on the Consolidated Balance Sheets.

First Financial utilizes the allowance for loan and lease losses methodology to maintain a reserve that it considers sufficient to absorb probable losses inherent in standby letters of credit and outstanding loan commitments and records the reserve within Accrued interest and other liabilities on the Consolidated Balance Sheets.

Letters of credit. Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party. First Financial’s portfolio of standby letters of credit consists primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services. The risk to First Financial arises from its obligation to make payment in the event of the client's contractual default to produce the contracted good or service to a third party. First Financial issued letters of credit (including standby letters of credit) aggregating $~~18.2~~22.1 million and $14.0 million at ~~June~~September 30, 2014, and December 31, 2013, respectively. Management conducts regular reviews of these instruments on an individual client basis.

Loan commitments. Loan commitments are agreements to extend credit to a client as long as there is no violation of any condition established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by First Financial upon extension of credit, is based on management’s credit evaluation of the client. The collateral held varies, but may include securities, real estate, inventory, plant or equipment. First Financial had commitments outstanding to extend credit totaling $~~1.5~~1.7 billion and $1.4 billion at ~~June~~September 30, 2014 and December 31, 2013, respectively.

Contingencies/Litigation. First Financial and its subsidiaries are engaged in various matters of litigation, other assertions of improper or fraudulent loan practices or lending violations and other matters from time to time, and have a number of unresolved claims pending. Additionally, as part of the ordinary course of business, First Financial and its subsidiaries are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral and foreclosure interests that are incidental to our regular business activities. While the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, First Financial believes that damages, if any, and other amounts relating to pending matters are not probable or cannot be reasonably estimated as of ~~June~~September 30, 2014. Reserves are established for these various matters of litigation, when appropriate, under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel.

NOTE 13: EMPLOYEE BENEFIT PLANS

First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees and uses a December 31 measurement date for the plan.

First Financial made no cash contributions to fund the pension plan during the ~~six~~nine months ended ~~June~~September 30, 2014 and does not expect to make cash contributions to the plan through the remainder of the year. First Financial made no cash contributions to fund the pension plan in 2013. As a result of the plan’s actuarial projections for 2014, First Financial recorded income related to its pension plan of $0.3 million for the third quarter of 2014 and $~~0.5~~0.9 million for the ~~six~~nine months ended ~~June~~September 30, 2014 ~~and~~ ~~$0.3 million~~ ~~for the second quarter of 2014.~~.

As a result of lump sum distributions from the pension plan during ~~the first half of~~ 2013, First Financial was required to re-measure the plan's assets and liabilities and recognized ~~$4.3 million~~ of pension settlement charges ~~during~~of $1.4 million and $5.7 million for the ~~second quarter of 2013.~~three and nine months ended September 30, 2013, respectively. Consistent with FASB ASC Topic 715, Compensation - Retirement Benefits, pension

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settlement charges are an acceleration of previously deferred costs that would have been recognized in future periods and are triggered when lump sum distributions exceed an annual accounting threshold for the plan. Associates are eligible to request a lump sum distribution from the Company's pension plan at retirement or upon leaving the Company. ~~As a result of the pension plan re-measurement~~

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~~and pension settlement charges,~~ First Financial recorded $~~17.4~~19.2 million of pre-tax adjustments to other comprehensive income related to changes in the values of the Company's plan assets and pension obligations for the ~~six~~nine months ended ~~June~~September 30, ~~2013.~~

2013 as a result of the pension plan re-measurement and pension settlement charges discussed above. Including the pension settlement charges ~~discussed above~~ as well as the impact of the plan's updated actuarial projections, First Financial recorded expenses related to its pension plan of $1.1 million and $~~4.2~~5.3 million for the ~~six~~three months and ~~three~~nine months ended ~~June~~September 30, ~~2013.~~2013, respectively.

The accounting threshold for lump sum distributions from the plan reset on January 1, 2014. However, the Company could incur pension settlement charges again if lump sum distributions exceed the annual accounting threshold in future periods. ~~Associates are eligible to request a lump sum distribution from the Company's pension plan at retirement or upon leaving the Company.~~

The following table sets forth information concerning amounts recognized in First Financial’s Consolidated Statements of Income related to the Company's pension plan:


	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			2014			2013			2014			2013
Service cost	$	1,041		$	898		$	2,082		$	1,873		$	1,007		$	916		$	3,089		$	2,789
Interest cost	620			567			1,240			1,186			551			566			1,791			1,752
Expected return on assets	(2,292		)	(2,230		)	(4,584		)	(4,524		)	(2,208		)	(2,231		)	(6,792		)	(6,755		)
Amortization of prior service cost	(103		)	(107		)	(206		)	(212		)	(103		)	(105		)	(309		)	(317		)
Net actuarial loss	482			726			963			1,546			405			582			1,368			2,128
Settlement charge	0			4,316			0			4,316			0			1,396			0			5,712
Net periodic benefit (income) cost	$	(252	)	$	4,170		$	(505	)	$	4,185		$	(348	)	$	1,124		$	(853	)	$	5,309

NOTE 14: EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per share:


	Three months ended				Six months ended				Three months ended				Nine months ended
	June 30,				June 30,				September 30,				September 30,
(Dollars in thousands, except per share data)	2014		2013		2014		2013		2014		2013		2014		2013
Numerator
Net income available to common shareholders	$	15,953	$	15,829	$	31,057	$	29,653	$	15,344	$	14,911	$	46,401	$	44,564

Denominator
Basic earnings per common share - weighted average shares	57,201,494		57,291,994		57,146,853		57,365,105		59,403,109		57,201,390		57,907,203		57,309,934
Effect of dilutive securities —
Employee stock awards	613,919		735,440		602,863		739,927		576,543		698,194		594,082		725,862
Warrants	136,223		100,915		140,552		101,471		133,280		113,004		138,109		107,576
Diluted earnings per common share - adjusted weighted average shares	57,951,636		58,128,349		57,890,268		58,206,503		60,112,932		58,012,588		58,639,394		58,143,372

Earnings per share available to common shareholders
Basic	$	0.28	$	0.28	$	0.54	$	0.52	$	0.26	$	0.26	$	0.80	$	0.78
Diluted	$	0.28	$	0.27	$	0.54	$	0.51	$	0.26	$	0.26	$	0.79	$	0.77

Warrants to purchase 465,117 shares of the Company's common stock were outstanding as of ~~June~~September 30, 2014 and 2013. These warrants, each representing the right to purchase one share of common stock, no par value per share, have an exercise price of $12.12 and expire on December 23, 2018.

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Stock options and warrants, where the exercise price was greater than the average market price of the common shares, were not included in the computation of net income per diluted share as they would have been antidilutive. These out-of-the-money options were ~~174,426~~378,017 and ~~654,616~~596,666 at ~~June~~September 30, 2014 and 2013, respectively.

During the second quarter of 2014, the Company received shareholder authorization to issue up to 10,000,000 preferred shares. As of ~~June~~September 30, 2014, no preferred shares were issued or outstanding.

NOTE 15: FAIR VALUE DISCLOSURES

Fair Value Measurement

The fair value framework as disclosed in the Fair Value Measurements and Disclosure Topic of FASB ASC Topic 825, Financial Instruments (Fair Value Topic) includes a hierarchy which focuses on prioritizing the inputs used in valuation techniques. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), a lower priority to observable inputs other than quoted prices in active markets for identical assets and liabilities (Level 2) and the lowest priority to unobservable inputs (Level 3). When determining the fair value measurements for assets and liabilities, First Financial looks to active markets to price identical assets or liabilities whenever possible and classifies such items in Level 1. When identical assets and liabilities are not traded in active markets, First Financial looks to observable market data for similar assets and liabilities and classifies such items as Level 2. Certain assets and liabilities are not actively traded in observable markets and First Financial must use alternative techniques, based on unobservable inputs, to determine the fair value and classifies such items as Level 3. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.

The following methods, assumptions and valuation techniques were used by First Financial to measure different financial assets and liabilities at fair value and in estimating its fair value disclosures for financial instruments.

Cash and short-term investments. The carrying amounts reported in the Consolidated Balance Sheets for cash and short-term investments, such as federal funds sold, approximated the fair value of those instruments. The Company classifies cash and short-term investments in Level 1 of the fair value hierarchy.

Investment securities. Investment securities classified as trading and available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar investment securities. First Financial compiles prices from various sources who may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for the specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment securities not valued based upon the methods above are considered Level 3.

First Financial utilizes information provided by a third-party investment securities administrator in analyzing the investment securities portfolio in accordance with the fair value hierarchy of the Fair Value Topic. The administrator’s evaluation of investment security portfolio pricing is performed using a combination of prices and data from other sources, along with internally developed matrix pricing models and assistance from the administrator’s internal fixed income analysts and trading desk. The administrator’s month-end pricing process includes a series of quality assurance activities where prices are compared to recent market conditions, previous evaluation prices and between the various pricing services. These processes produce a series of quality assurance reports on which price exceptions are identified, reviewed and where appropriate, securities are repriced. In the event of a materially different price, the administrator will report the variance as a “price challenge” and review the pricing methodology in detail. The results of the quality assurance process are incorporated into the selection of pricing providers by the portfolio manager.

First Financial reviews the pricing methodologies utilized by the administrator to ensure the fair value determination is consistent with the applicable accounting guidance and that the investments are properly classified in the fair value hierarchy. Further, the Company periodically validates the fair values for a sample of securities in the portfolio by comparing the fair values provided by the administrator to prices from other independent sources for the same or similar securities. First Financial analyzes unusual or significant variances, conducts additional research with the administrator, if necessary, and takes appropriate action based on its findings.

Loans held for sale. Loans held for sale are carried at the lower of cost or fair value. These loans currently consist of one-to-four family residential real estate loans originated for sale to qualified third parties. Fair value is based on the contractual price

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to be received from these third parties, which is not materially different than cost due to the short duration between origination

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and sale (Level 2). As such, First Financial records any fair value adjustments on a nonrecurring basis. Gains and losses on the sale of loans are recorded as net gains from sales of loans within noninterest income in the Consolidated Statements of Income.

Loans - excluding covered loans. The fair value of commercial, commercial real estate, residential real estate and consumer loans were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or repricing frequency. The Company classifies the estimated fair value of uncovered loans as Level 3 in the fair value hierarchy.

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impaired loans are valued at the lower of cost or fair value for purposes of determining the appropriate amount of impairment to be allocated to the allowance for loan and lease losses. Fair value is generally measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed third party appraiser (Level 3). The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable borrower financial statements if not considered significant. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Impaired loans ~~allocated to the allowance for loan and lease losses~~ are measured at fair value on a nonrecurring ~~basis.~~basis through the Company's allowance for loan and lease losses process. Any fair value adjustments are recorded in the period incurred as provision for loan and lease losses on the Consolidated Statements of Income.

Covered loans. Fair values for covered loans accounted for under FASB ASC Topic 310-30 are based on a discounted cash flow methodology that considers factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of the loan and whether or not the loan was amortizing and a discount rate reflecting the Company's assessment of risk inherent in the cash flow estimates. These covered loans are grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. First Financial estimated the cash flows expected to be collected on these loans based upon the expected remaining life of the underlying loans, which includes the effects of estimated prepayments. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.

Fair values for covered loans accounted for outside of FASB ASC Topic 310-30 were estimated by discounting the future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or repricing frequency. The carrying amount of accrued interest approximates its fair value.

The Company classifies the estimated fair value of covered loans as Level 3 in the fair value hierarchy.

FDIC indemnification asset. Fair value of the FDIC indemnification asset was estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. The expected cash flows are discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change, and may be impacted by the relatively short remaining term of loss sharing coverage on covered commercial assets. The five year period of loss protection will expire for the majority of First Financial's covered commercial loans and covered OREO during the third quarter of 2014.change. The Company classifies the estimated fair value of the indemnification asset as Level 3 in the fair value hierarchy.

Deposits. The fair value of demand deposits, savings accounts and certain money-market deposits was the amount payable on demand at the reporting date. The carrying amounts for variable-rate certificates of deposit approximated their fair values at the reporting date. The fair value of fixed-rate certificates of deposit was estimated using a discounted cash flow calculation which applies the interest rates currently offered for deposits of similar remaining maturities. The carrying amount of accrued interest approximates its fair value. The Company classifies the estimated fair value of deposit liabilities as Level 2 in the fair value hierarchy.

Borrowings. The carrying amounts of federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings approximate their fair values. The Company classifies the estimated fair value of short-term borrowings as Level 1 of the fair value hierarchy.

The fair value of long-term debt is estimated using a discounted cash flow calculation which utilizes the interest rates currently offered for borrowings of similar remaining maturities. Third-party valuations are used for long-term debt with embedded

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options, such as call features. The Company classifies the estimated fair value of long-term debt as Level 2 in the fair value hierarchy.

Commitments to extend credit and standby letters of credit. Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding and compensating balance and other covenants or requirements. Loan commitments generally have fixed expiration dates, are variable rate and contain termination and other clauses which provide for relief from funding in the event that there is a significant deterioration in the credit quality of the client. Many loan commitments are expected to expire without being drawn upon. The rates and terms of the commitments to extend credit and the standby letters of credit are competitive with those in First Financial’s market area. The carrying amounts are reasonable estimates of the fair value of these financial instruments. Carrying amounts, which are comprised of the

unamortized fee income and, where necessary, reserves for any expected credit losses from these financial instruments, are immaterial.

Derivatives. The fair values of derivative instruments are based primarily on a net present value calculation of the cash flows related to the derivative instruments at the reporting date, using primarily observable market inputs such as interest rate yield curves. The discounted net present value calculated represents the cost to terminate the derivative instrument if First Financial should choose to do so. Additionally, First Financial utilizes the allowance for loan and lease losses methodology to value the credit risk component of both the derivative assets and liabilities. The credit valuation adjustment is recorded as an adjustment to the fair value of the derivative asset or liability on the reporting date. Derivative instruments are classified as Level 2 in the fair value hierarchy.

The estimated fair values of First Financial’s financial instruments not measured at fair value on a recurring or nonrecurring basis in the consolidated financial statements were as follows:


	Carrying		Estimated fair value								Carrying		Estimated fair value
(Dollars in thousands)	value		Total		Level 1		Level 2		Level 3		value		Total		Level 1		Level 2		Level 3
June 30, 2014
September 30, 2014
Financial assets
Cash and short-term investments	$	162,397	$	162,397	$	162,397	$	0	$	0	$	143,725	$	143,725	$	143,725	$	0	$	0
Investment securities held-to-maturity	899,502		901,784		0		901,784		0		900,521		901,659		0		901,659		0
Other investments	47,640		47,640		0		47,640		0		49,986		49,986		0		49,986		0
Loans held for sale	13,108		13,108		0		13,108		0		16,816		16,816		0		16,816		0
Loans - excluding covered loans	3,620,632		3,614,494		0		0		3,614,494		4,407,518		4,416,740		0		0		4,416,740
Covered loans	353,178		365,820		0		0		365,820		320,730		318,372		0		0		318,372
FDIC indemnification asset	30,420		16,901		0		0		16,901		24,160		12,482		0		0		12,482

Financial liabilities
Deposits
Noninterest-bearing	$	1,140,198	$	1,140,198	$	0	$	1,140,198	$	0	$	1,243,367	$	1,243,367	$	0	$	1,243,367	$	0
Interest-bearing demand	1,105,031		1,105,031		0		1,105,031		0		1,214,726		1,214,726		0		1,214,726		0
Savings	1,656,798		1,656,798		0		1,656,798		0		1,827,590		1,827,590		0		1,827,590		0
Time	973,100		974,087		0		974,087		0		1,247,334		1,244,218		0		1,244,218		0
Total deposits	4,875,127		4,876,114		0		4,876,114		0		5,533,017		5,529,901		0		5,529,901		0
Short-term borrowings	814,313		814,313		814,313		0		0		919,303		919,303		919,303		0		0
Long-term debt	59,693		60,983		0		60,983		0		52,656		54,385		0		54,385		0

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	Carrying		Estimated fair value
(Dollars in thousands)	value		Total		Level 1		Level 2		Level 3
December 31, 2013
Financial assets
Cash and short-term investments	$	143,450	$	143,450	$	143,450	$	0	$	0
Investment securities held-to-maturity	837,272		824,985		0		824,985		0
Other investments	47,427		47,427		0		47,427		0
Loans held for sale	8,114		8,114		0		8,114		0
Loans - excluding covered loans	3,461,812		3,455,776		0		0		3,455,776
Covered loans	438,972		451,545		0		0		451,545
FDIC indemnification asset	45,091		34,820		0		0		34,820

Financial liabilities
Deposits
Noninterest-bearing	$	1,147,452	$	1,147,452	$	0	$	1,147,452	$	0
Interest-bearing demand	1,125,723		1,125,723		0		1,125,723		0
Savings	1,612,005		1,612,005		0		1,612,005		0
Time	952,327		951,220		0		951,220		0
Total deposits	4,837,507		4,836,400		0		4,836,400		0
Short-term borrowings	748,749		748,749		748,749		0		0
Long-term debt	60,780		62,706		0		62,706		0

The financial assets and liabilities measured at fair value on a recurring basis in the consolidated financial statements were as follows:


	Fair value measurements using											Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Netting adjustments ⁽¹⁾			Assets/liabilities at fair value		Level 1		Level 2		Level 3		Assets/liabilities at fair value
June 30, 2014
September 30, 2014
Assets
Derivatives	$	0	$	12,678	$	0	$	(12,678	)	$	0	$	0	$	10,126	$	0	$	10,126
Investment securities available-for-sale	8,214		889,501		0		0			897,715		8,258		921,336		0		929,594
Total	$	8,214	$	902,179	$	0	$	(12,678	)	$	897,715	$	8,258	$	931,462	$	0	$	939,720

Liabilities
Derivatives	$	0	$	14,506	$	0	$	(12,678	)	$	1,828	$	0	$	10,578	$	0	$	10,578

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	Fair value measurements using											Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Netting adjustments ⁽¹⁾			Assets/liabilities at fair value		Level 1		Level 2		Level 3		Assets/liabilities at fair value
December 31, 2013
Assets
Derivatives	$	0	$	13,477	$	0	$	(13,477	)	$	0	$	0	$	13,477	$	0	$	13,477
Investment securities available-for-sale	7,976		905,625		0		0			913,601		7,976		905,625		0		913,601
Total	$	7,976	$	919,102	$	0	$	(13,477	)	$	913,601	$	7,976	$	919,102	$	0	$	927,078

Liabilities
Derivatives	$	0	$	14,431	$	0	$	(13,477	)	$	954	$	0	$	14,431	$	0	$	14,431

(1) Amounts represent the impact of legally enforceable master netting arrangements that allow First Financial to settle positive and negative positions and also cash collateral held with the same counterparties.

Certain financial assets and liabilities are measured at fair value on a nonrecurring basis. Adjustments to the fair market value of these assets usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. The following table summarizes financial assets and liabilities measured at fair value on a nonrecurring basis.


	Fair value measurements using						Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
June 30, 2014
September 30, 2014
Assets
Impaired loans ⁽¹⁾	$	0	$	0	$	7,433	$	0	$	0	$	10,308
OREO	0		0		7,791		0		0		7,316
Covered OREO	0		0		6,937		0		0		6,605



	Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3
December 31, 2013
Assets
Impaired loans ⁽¹⁾	$	0	$	0	$	13,699
OREO	0		0		5,358
Covered OREO	0		0		8,937

(1) Amounts represent the fair value of collateral for impaired loans allocated to the allowance for loan and lease losses. Fair values are determined using actual market prices (Level 1), observable market data for similar assets and liabilities (Level 2), and independent third party valuations and borrower records, discounted as appropriate (Level 3).

NOTE 16: BUSINESS COMBINATIONS

First Financial completed three business combinations in the Columbus, Ohio market during the quarter ended September 30, 2014 as follows:

First Bexley. Founded in 2006 and conducting operations out of one full service branch location in Bexley, Ohio, First Bexley served commercial and consumer clients throughout Columbus and central Ohio. Under the merger agreement, First Financial acquired First Bexley in a cash and stock transaction in which First Bexley was merged with and into First Financial Bank on August 7, 2014.

Insight. Insight was founded in 2006 and conducted operations out of one full service location in Worthington, Ohio, and a mortgage origination office in Newark, Ohio, and provided commercial and consumer banking services to clients throughout Columbus and central Ohio. Under the merger agreement, First Financial acquired Insight in a cash and stock transaction in which Insight merged with and into First Financial Bank on August 7, 2014.

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Guernsey. Headquartered in Worthington, Ohio, Guernsey conducted operations out of three full service branches, and served commercial and consumer clients throughout Columbus and central Ohio. Under the terms of the merger agreement, First Financial acquired Guernsey for cash consideration and the transfer of a single bank-owned property to Guernsey's sole shareholder. The Company also paid off all amounts due under a promissory note to a third party on behalf of Guernsey. The Guernsey Bank, an Ohio state chartered bank and wholly-owned subsidiary of Guernsey, merged with and into First Financial as part of the agreement on August 21, 2014.

The First Bexley, Insight and Guernsey transactions were accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition dates, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisitions as additional information relative to closing date fair values become available. The measurement periods end in August 2015.

The following table provides the purchase price calculation as of the acquisition dates and the identifiable assets purchased and the liabilities assumed at their estimated fair value. These fair value measurements are based on third-party valuations.



(Dollars in thousands)	First Bexley		Insight		Guernsey		Total
Purchase consideration
Cash consideration	$	10,810	$	9,880	$	13,500	$	34,190
Stock consideration	33,699		26,730		0		60,429
Other consideration	0		0		2,523		2,523
Total purchase consideration	$	44,509	$	36,610	$	16,023	$	97,142

Assets acquired
Loans	$	314,807	$	219,008	$	72,448	$	606,263
Intangible assets	1,280		1,277		999		3,556
Other assets	25,517		30,882		61,375		117,774
Total assets	$	341,604	$	251,167	$	134,822	$	727,593

Liabilities assumed
Deposits	$	273,860	$	179,330	$	115,415	$	568,605
Borrowings	40,000		44,149		10,742		94,891
Other liabilities	1,454		7,303		606		9,363
Total liabilities	$	315,314	$	230,782	$	126,763	$	672,859

Net identifiable assets	$	26,290	$	20,385	$	8,059	$	54,734
Goodwill	$	18,219	$	16,225	$	7,964	$	42,408

The amount of goodwill arising from the First Bexley, Insight and Guernsey acquisitions reflects the increased market share and related synergies that are expected to result from the acquisitions. The goodwill arising from the First Bexley and Insight transactions is not deductible for income tax purposes as the mergers were accounted for as tax-free exchanges. The tax-free exchanges resulted in a carryover of tax attributes and tax basis to the Company's subsequent income tax filings and was adjusted for any fair value adjustments required in accounting for the acquisitions. The goodwill arising from the Guernsey transaction is deductible for tax purposes as the Guernsey transaction is considered a taxable exchange.

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ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (MD&A)

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

(Unaudited)

Reclassifications of prior period amounts, if applicable, have been made to conform to the current period’s presentation and had no effect on previously reported net income amounts or financial condition.

SUMMARY

First Financial Bancorp. (First Financial or the Company) is a $~~6.5~~7.4 billion bank holding company headquartered in Cincinnati, Ohio. First Financial, through its subsidiaries, operates primarily in Ohio, Indiana and Kentucky. These subsidiaries include a commercial bank, First Financial Bank, N.A. (First Financial Bank or the Bank) with ~~105~~106 banking centers and ~~128~~129 ATMs. First Financial provides banking and financial services products through its four lines of business: commercial, consumer, wealth management and mortgage. The commercial, consumer and mortgage business lines provide credit-based products, deposit accounts, retail brokerage, corporate cash management support and other services to commercial and consumer clients. The Bank also provides lending products, primarily equipment and leasehold improvement financing, for select concepts and franchisees in the quick service and casual dining restaurant sector throughout the United States. First Financial Wealth Management provides wealth planning, portfolio management, trust and retirement plan services and had approximately ~~$2.5~~$2.4 billion in assets under management as of ~~June~~September 30, 2014.

First Financial acquired the banking operations of Peoples Community Bank (Peoples), and Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B. (collectively, Irwin), through Federal Deposit Insurance Corporation (FDIC)-assisted transactions in 2009. In connection with these FDIC-assisted transactions, First Financial entered into loss sharing agreements with the FDIC. Under the terms of these agreements the FDIC reimburses First Financial for a percentage of losses with respect to certain loans (covered loans) and other real estate owned (covered OREO) (collectively, covered assets). These agreements provide for loss protection on covered single-family, residential loans for a period of ten years and First Financial is required to share any recoveries of previously charged-off amounts for the same time period, on the same pro-rata basis with the FDIC. All other covered loans are provided loss protection for a period of five years and recoveries of previously charged-off amounts must be shared with the FDIC for an additional three year period, on the same pro-rata basis. The ~~five year period~~Company’s loss sharing indemnification from the FDIC related to non-single-family loans expired effective October 1, 2014 and, as a result, approximately $190.3 million, or 57.3%, of the Company's $332.3 million covered loan portfolio will no longer be covered by FDIC loss sharing effective that date. The loss sharing protection ~~will expire for the majority of First Financial's covered commercial loans and covered OREO during the third quarter of 2014. The ten year period of loss protection on~~related to all other covered loans ~~and covered OREO~~of approximately $142.0 million will expire ~~during~~in the third quarter of 2019. Covered assets ~~represent~~represented approximately ~~5.9%~~4.7% of First Financial’s total assets at ~~June~~September 30, 2014.

MARKET STRATEGY AND BUSINESS COMBINATIONS

~~On December 17, 2013,~~ First Financial ~~and~~completed three business combinations in the Columbus, Ohio market (the Columbus acquisitions) during the quarter ended September 30, 2014 as follows:

First Bexley. On August 7, 2014, First Financial ~~Bank entered into a definitive~~closed its merger agreement with The First Bexley Bank (First Bexley). Founded in 2006 and conducting operations out of one full service branch location in Bexley, Ohio, First Bexley ~~serves~~served commercial and consumer clients throughout Columbus and central Ohio. ~~Under the merger agreement,~~ First Financial ~~will acquire~~acquired First Bexley in a cash and stock transaction in which First Bexley ~~will merge~~merged with and into First Financial Bank. Shareholders of First Bexley will receive $30.50 for each share of First Bexley common stock consisting of $24.40 in the Company’s common stock and $6.10 in cash, subject to certain adjustment depending upon changes in the price of the Company’s common stock. Including outstanding options on First Bexley common stock, the transaction is valued at approximately $44.5 million. As of June 30,

Insight. On August 7, 2014, First ~~Bexley had total assets of $330.4 million, total loans of $303.1 million, total deposits of $262.9 million and total common shareholders’ equity of $24.9 million.~~

~~On December 19, 2013, First~~ Financial ~~and First Financial Bank signed a definitive~~also closed its merger ~~agreement~~ with Insight Bank (Insight). during the third quarter 2014. Founded in 2006 and conducting operations out of one full service location in Worthington, Ohio, and a mortgage origination office in Newark, Ohio, Insight ~~provides~~provided commercial and consumer banking services to clients throughout Columbus and central Ohio. ~~Under the merger agreement,~~ First Financial ~~will acquire~~acquired Insight in a cash and stock transaction in which Insight ~~will merge~~merged with and into First Financial Bank. Shareholders of Insight will receive $20.50 for each share of Insight common stock consisting of $16.40 in the Company’s common stock and $4.10 in cash, subject to certain adjustment depending upon changes in the price of the Company’s common stock. Including outstanding options on Insight common stock, the transaction is valued at approximately $36.6 million. As of June 30, 2014, Insight had total assets of $249.6 million, total loans of $210.9 million, total deposits of $180.2 million and total common shareholders’ equity of $20.8 million.

Guernsey. On ~~April 29,~~August 21, 2014, First Financial ~~entered into a definitive~~finalized its merger ~~agreement~~ with Guernsey Bancorp, Inc. (Guernsey). ~~Additionally, The Guernsey Bank, an Ohio state chartered bank and wholly owned subsidiary of Guernsey, will merge with and into First Financial Bank.~~ Headquartered in Worthington, Ohio, Guernsey ~~conducts~~conducted operations out of three full service

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branches and ~~serves~~served commercial and consumer clients throughout Columbus and central Ohio. Under the terms of the merger agreements, First Financial will acquire Guernsey for cash consideration of $13.5 million and the transfer of a single bank-owned property with a book value of $1.0 million to Guernsey’s sole shareholder. As of June 30, 2014, The Guernsey Bank had total assets of $120.8 million, total loans of $72.5 million, total deposits of $98.6 million and total common shareholders' equity of $8.6 million.

The First Bexley, Insight and Guernsey acquisitions ~~will~~ provide First Financial an entrance into ~~the Columbus,~~Central Ohio, ~~market,~~ and introduce the Company's diverse product set to commercial and consumer clients of those institutions. ~~When completed, these~~These acquisitions ~~will~~ position First Financial as the largest community bank serving Franklin County in the metropolitan Columbus market. The data conversions

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and rebranding efforts on both the First Bexley and Insight acquisitions ~~received approval from their respective shareholders in May 2014. Regulatory approval was received for First Bexley, Insight and Guernsey in July 2014 and the transactions are expected to close~~were completed during the third quarter ~~2014.~~2014 while the Guernsey data conversion and rebranding are expected to be completed in the fourth quarter.

The following table provides a summary of the purchase consideration, assets acquired and liabilities assumed, at their estimated fair value, and the resulting goodwill from the Columbus acquisitions. For further detail on the Columbus acquisitions, see Note 16 to the Consolidated Financial Statements, Business Combinations.



(Dollars in thousands)	Total
Purchase consideration
Cash consideration	$	34,190
Stock consideration	60,429
Other consideration	2,523
Total purchase consideration	$	97,142

Assets acquired
Loans	$	606,263
Intangible assets	3,556
Other assets	117,774
Total assets	$	727,593

Liabilities assumed
Deposits	$	568,605
Borrowings	94,891
Other liabilities	9,363
Total liabilities	$	672,859

Net identifiable assets	$	54,734
Goodwill	$	42,408

In addition to the Columbus acquisitions discussed above, First Financial also entered the Fort Wayne, Indiana market through the hiring of experienced and well-established commercial and residential mortgage lending teams in January of 2014. On a combined basis, these actions provide First Financial entrance into two new metropolitan markets that it believes have attractive demographics and future growth prospects.

As part of the on-going evaluation of its banking center network, First Financial consolidated ~~one~~three banking ~~center~~centers located in Indiana during the ~~second~~third quarter 2014. Customer relationships related to the consolidated banking ~~center~~centers were transferred to the nearest First Financial location where those customers continue to receive the same high level of service.

OVERVIEW OF OPERATIONS

~~Second~~Third quarter 2014 net income was ~~$16.0~~$15.3 million and earnings per diluted common share were ~~$0.28.~~$0.26. This compares with ~~second~~third quarter 2013 net income of ~~$15.8~~$14.9 million and earnings per diluted common share of ~~$0.27.~~$0.26. For the ~~six~~nine months ended ~~June~~September 30, 2014, net income was ~~$31.1~~$46.4 million, and earnings per diluted common share were ~~$0.54.~~$0.79. This compares with net income of ~~$29.7~~$44.6 million and earnings per diluted common share of ~~$0.51~~$0.77 for the first ~~six~~nine months of 2013.

Return on average assets for the ~~second~~third quarter 2014 was ~~0.99%~~0.88% compared to ~~1.01%~~0.96% for the comparable period in 2013. Return on average shareholders’ equity for the ~~second~~third quarter 2014 was ~~9.19%~~8.16% compared to ~~9.02%~~8.53% for the comparable period in 2013. Return on average assets for the ~~six~~nine months ended ~~June~~September 30, 2014 was ~~0.97%~~0.94% compared to ~~0.94%~~0.95% for the same period in 2013. Return on average shareholders' equity was ~~9.07%~~8.75% and ~~8.47%~~8.49% for the same periods in 2014 and 2013, respectively.

A discussion of First Financial's results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2014 follows.

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NET INTEREST INCOME

Net interest income, First Financial’s principal source of income, is the excess of interest received from earning assets over interest paid on interest-bearing liabilities, plus fees for financial services provided to clients. The amount of net interest income is determined by the volume and mix of earning assets, the rates earned on such earning assets and the volume, mix and rates paid for the deposits and borrowed money that support the earning assets.

For analytical purposes, net interest income is also presented in the table that follows, adjusted to a tax equivalent basis assuming a 35% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investments. This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully tax equivalent basis as these measures provide useful information to make peer comparisons.

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	Three months ended						Six months ended						Three months ended						Nine months ended
	June 30,						June 30,						September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			2014			2013			2014			2013
Net interest income	$	54,304		$	58,078		$	109,123		$	116,744		$	58,363		$	55,772		$	167,486		$	172,516
Tax equivalent adjustment	758			514			1,460			991			818			516			2,278			1,507
Net interest income - tax equivalent	$	55,062		$	58,592		$	110,583		$	117,735		$	59,181		$	56,288		$	169,764		$	174,023

Average earning assets	$	5,880,933		$	5,791,715		$	5,851,197		$	5,839,497		$	6,326,315		$	5,659,432		$	6,011,310		$	5,778,815

Net interest margin ⁽¹⁾	3.70		%	4.02		%	3.76		%	4.03		%	3.66		%	3.91		%	3.73		%	3.99		%
Net interest margin (fully tax equivalent) ⁽¹⁾	3.76		%	4.06		%	3.81		%	4.07		%	3.71		%	3.95		%	3.78		%	4.03		%

⁽¹⁾ Margins are calculated using annualized net interest income divided by average earning assets.

Net interest income for the ~~second~~third quarter 2014 was ~~$54.3~~$58.4 million, ~~declining $3.8~~increasing $2.6 million or ~~6.5%~~4.6% from ~~second~~third quarter 2013 net interest income of ~~$58.1~~$55.8 million. Net interest income on a fully tax-equivalent basis for the ~~second~~third quarter 2014 was $~~55.1~~59.2 million compared to $~~58.6~~56.3 million for the ~~second~~third quarter 2013. Net interest margin was ~~3.70%~~3.66% for the ~~second~~third quarter 2014 compared to ~~4.02%~~3.91% for the ~~second~~third quarter 2013. The ~~declines~~increase in net interest income ~~and~~for the third quarter 2014 as compared to the same period in 2013 was primarily driven by higher earning asset balances, partially offset by lower yields as a result of the prolonged low interest rate environment. The decline in net interest margin ~~were~~was primarily related to changes in the composition of the Company's earning assets, including the continued decline in the covered loan portfolio, as well as lower yields resulting from the ~~prolonged low~~ interest rate environment.

The ~~decline~~increase in net interest income for the ~~second~~third quarter 2014, as compared to the ~~second~~third quarter 2013, was the result of a ~~$3.6~~$3.9 million or ~~5.8% decrease~~6.5% increase in total interest income to ~~$58.7~~$63.4 million in the ~~second~~third quarter of 2014 from ~~$62.3~~$59.5 million in the ~~second~~third quarter 2013. ~~Also contributing to~~Partially offsetting the ~~decline~~increase in ~~net~~ interest income was a ~~$0.2~~corresponding increase in interest expense of $1.3 million, or ~~4.2% increase in total interest expense~~33.8%, to ~~$4.4~~$5.0 million in the ~~second~~third quarter 2014 from ~~$4.2~~$3.8 million in the ~~second~~third quarter 2013.

The ~~decline~~rise in total interest income resulted from ~~a decrease~~an increase in interest income from investment securities as well as higher interest income and fees earned on ~~loans, primarily as a result of continued paydowns and resolutions in the Company's high-yielding covered loan portfolio, as well as declining portfolio and new origination loan yields.~~loans. The ~~average balance of covered loans for the second quarter 2014 declined $266.3 million or 40.7% compared to the~~ ~~second~~ quarter 2013, contributing to the lower interest income earned on covered loans and the related decline in net interest margin. Declines in covered loan balances are a result of payments received, including full payoffs, charge-offs and other loan resolution activities.

~~The decline in covered loan balances was partially offset by growth in lower yielding assets as average uncovered loan balances increased $335.0 million or 10.2% from the~~ ~~second~~ quarter of 2013 as a result of strong new loan origination activity in recent periods. However, as a result of the low interest rate environment, new loan originations continue to be recorded at yields significantly lower than the yields on loans that pay off or mature during the period, muting the impact of increased balances on interest income and net interest margin.

~~The decline~~increase in interest income ~~and fees earned on loans was partially offset by higher interest income earned on~~from investment securities during the ~~second~~third quarter ~~2014.~~2014 was driven by higher investment securities balances and yields during the period. The average balance of investment securities increased ~~$106.0~~$275.6 million or ~~6.2%~~17.3% in the ~~second~~third quarter 2014 as compared to the ~~second~~third quarter 2013 and the average yield on investment securities increased 3917 bps, to ~~2.47%~~2.37% in the ~~second~~third quarter 2014 from ~~2.08%~~2.20% in the ~~second~~third quarter 2013. The increased yield on investment securities is primarily related to higher reinvestment rates and continued stabilization in premium amortization.

Higher interest income earned on loans primarily resulted from strong organic loan growth in recent periods as well as the Columbus acquisitions during the third quarter, partially offset by continued paydowns and resolutions in the Company's high-yielding covered loan portfolio as well as lower new origination loan yields. Average loan balances increased $418.2 million, or 10.5% from the third quarter of 2013, however, new loan originations continue to be recorded at yields significantly lower than the yields on loans that pay off or mature during the period as a result of the low interest rate environment, muting the impact of increased balances on interest income and net interest margin.

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Interest expense increased as the average balance of interest-bearing deposits increased ~~$39.4~~$386.9 million or ~~1.0% while~~10.6% and the cost of funds related to these deposits increased 310 bps to 3841 bps for the ~~second~~third quarter 2014 from 3531 bps for the comparable quarter in 2013, negatively impacting net interest margin. Interest expense ~~benefited from a decrease~~was also impacted by an increase in ~~average~~short-term borrowings of $295.6 million due primarily to balance sheet growth, including the Columbus acquisitions, which was partially offset by an $8.4 million or 13.8% decline in long-term borrowings ~~of $14.3 million or 19.3% from June 30, 2013 to June 30, 2014, which was primarily due~~when compared to the ~~maturity of a single agreement during the second half of~~third quarter 2013.

For the ~~six~~nine month period ended ~~June~~September 30, 2014, net interest income was ~~$109.1~~$167.5 million , a decline of ~~$7.6~~$5.0 million, from ~~$116.7~~$172.5 million for the comparable period in 2013. Net interest income on a fully tax-equivalent basis for the period ended ~~June~~September 30, 2014 was ~~$110.6~~$169.8 million as compared to ~~$117.7~~$174.0 million for the comparable period in 2013. ~~Similar to the quarterly year-over-year items discussed above, these~~These declines were primarily related to lower interest income due to covered loan runoff and ~~declining~~lower yields on recent loan originations, partially offset by higher income due to the increase in investment portfolio balances and ~~yields. Lower~~the contribution from the Columbus acquisitions. In addition to lower interest income ~~was partially offset by a $0.5~~during the period, interest expense increased $0.8 million, or ~~5.4% decline in interest expense~~6.0% during the ~~six~~nine months ended ~~June~~September 30, 2014 as

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compared to the ~~six~~nine months ended ~~June~~September 30, ~~2013.~~2013 to $13.6 million. The ~~decline~~increase in interest expense for the ~~six~~nine month period ended ~~June~~September 30, 2014 was primarily related to ~~a decline~~an increase in average interest-bearing deposits of ~~$25.1~~$113.8 million, or ~~0.7%~~3.0% when compared to the similar period in 2013, as well as ~~a decline~~an increase in the cost of funds related to those deposits of ~~1 bp~~3 bps from 3836 bps in 2013 to 3739 bps in 2014.

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CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS


	Quarterly Averages															Year-to-Date Averages										Quarterly Averages															Year-to-Date Averages
	June 30, 2014					March 31, 2014					June 30, 2013					June 30, 2014					June 30, 2013					September 30, 2014					June 30, 2014					September 30, 2013					September 30, 2014					September 30, 2013
(Dollars in thousands)	Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield
Earning assets
Investments
Investment securities	$	1,811,175		2.47	%	$	1,807,571		2.52	%	$	1,705,219		2.08	%	$	1,809,383		2.50	%	$	1,771,632		2.03	%	$	1,865,241		2.37	%	$	1,811,175		2.47	%	$	1,589,666		2.20	%	$	1,828,207		2.45	%	$	1,710,310		2.08	%
Interest-bearing deposits with other banks	10,697			0.45	%	2,922			1.39	%	13,890			0.32	%	6,831			0.65	%	8,503			0.36	%	29,433			0.42	%	10,697			0.45	%	4,010			0.49	%	14,448			0.49	%	6,989			0.38	%
Gross loans ⁽¹⁾	4,059,061			4.70	%	4,010,637			4.83	%	4,072,606			5.26	%	4,034,983			4.76	%	4,059,362			5.37	%	4,431,641			4.68	%	4,059,061			4.70	%	4,065,756			4.95	%	4,168,655			4.73	%	4,061,516			5.22	%
Total earning assets	5,880,933			4.01	%	5,821,130			4.11	%	5,791,715			4.32	%	5,851,197			4.06	%	5,839,497			4.35	%	6,326,315			3.98	%	5,880,933			4.01	%	5,659,432			4.17	%	6,011,310			4.03	%	5,778,815			4.29	%

Nonearning assets
Allowance for loan and lease losses	(55,149		)			(61,902		)			(92,033		)			(58,507		)			(93,763		)			(55,697		)			(55,149		)			(80,659		)			(57,560		)			(89,347		)
Cash and due from banks	118,947					123,583					119,909					121,252					115,777					125,528					118,947					120,154					122,693					117,252
Accrued interest and other assets	509,521					516,424					491,011					512,953					489,093					541,137					509,521					494,795					522,451					491,015
Total assets	$	6,454,252				$	6,399,235				$	6,310,602				$	6,426,895				$	6,350,604				$	6,937,283				$	6,454,252				$	6,193,722				$	6,598,894				$	6,297,735

Interest-bearing liabilities
Deposits
Interest-bearing demand	$	1,169,350		0.11	%	$	1,107,844		0.12	%	$	1,141,767		0.09	%	$	1,138,767		0.11	%	$	1,127,296		0.10	%	$	1,135,126		0.11	%	$	1,169,350		0.11	%	$	1,098,524		0.12	%	$	1,137,540		0.11	%	$	1,117,600		0.11	%
Savings	1,702,521			0.23	%	1,633,910			0.20	%	1,639,834			0.10	%	1,668,405			0.21	%	1,629,096			0.10	%	1,782,472			0.26	%	1,702,521			0.23	%	1,608,351			0.09	%	1,706,845			0.23	%	1,622,105			0.10	%
Time	960,424			0.98	%	953,423			0.94	%	1,011,290			1.04	%	956,943			0.96	%	1,032,775			1.12	%	1,123,657			0.97	%	960,424			0.98	%	947,436			0.90	%	1,013,125			0.96	%	1,004,016			1.05	%
Total interest-bearing deposits	3,832,295			0.38	%	3,695,177			0.36	%	3,792,891			0.35	%	3,764,115			0.37	%	3,789,167			0.38	%	4,041,255			0.41	%	3,832,295			0.38	%	3,654,311			0.31	%	3,857,510			0.39	%	3,743,721			0.36	%
Borrowed funds
Short-term borrowings	686,148			0.17	%	782,112			0.17	%	569,929			0.21	%	733,865			0.17	%	615,008			0.21	%	835,973			0.17	%	686,148			0.17	%	598,442			0.19	%	768,275			0.17	%	609,425			0.20	%
Long-term debt	59,842			3.52	%	60,367			3.52	%	74,129			3.54	%	60,103			3.52	%	74,433			3.54	%	60,355			3.00	%	59,842			3.52	%	69,264			3.53	%	60,188			3.34	%	72,691			3.54	%
Total borrowed funds	745,990			0.44	%	842,479			0.41	%	644,058			0.60	%	793,968			0.42	%	689,441			0.57	%	896,328			0.36	%	745,990			0.44	%	667,706			0.54	%	828,463			0.40	%	682,116			0.56	%
Total interest-bearing liabilities	4,578,285			0.39	%	4,537,656			0.37	%	4,436,949			0.38	%	4,558,083			0.38	%	4,478,608			0.41	%	4,937,583			0.40	%	4,578,285			0.39	%	4,322,017			0.35	%	4,685,973			0.39	%	4,425,837			0.39	%

Noninterest-bearing liabilities
Noninterest-bearing demand deposits	1,110,697					1,096,509					1,063,102					1,103,642					1,056,559					1,179,207					1,110,697					1,072,259					1,129,107					1,061,850
Other liabilities	68,661					80,738					106,747					74,666					109,118					74,764					68,661					106,288					74,699					108,164
Shareholders' equity	696,609					684,332					703,804					690,504					706,319					745,729					696,609					693,158					709,115					701,884
Total liabilities and shareholders' equity	$	6,454,252				$	6,399,235				$	6,310,602				$	6,426,895				$	6,350,604				$	6,937,283				$	6,454,252				$	6,193,722				$	6,598,894				$	6,297,735

Net interest income	$	54,304				$	54,819				$	58,078				$	109,123				$	116,744				$	58,363				$	54,304				$	55,772				$	167,486				$	172,516

Net interest spread				3.62	%				3.74	%				3.94	%				3.68	%				3.94	%				3.58	%				3.62	%				3.82	%				3.64	%				3.90	%
Contribution of noninterest-bearing sources of funds				0.08	%				0.08	%				0.08	%				0.08	%				0.09	%				0.08	%				0.08	%				0.09	%				0.09	%				0.09	%
Net interest margin ⁽²⁾				3.70	%				3.82	%				4.02	%				3.76	%				4.03	%				3.66	%				3.70	%				3.91	%				3.73	%				3.99	%


(1)	Loans held for sale, nonaccrual loans, covered loans, and indemnification asset are included in gross loans.


(2)	The net interest margin exceeds the interest spread as noninterest-bearing funding sources, demand deposits, other liabilities and shareholders' equity also support earning assets.

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RATE/VOLUME ANALYSIS

The impact of changes in the volume of interest-earning assets and interest-bearing liabilities and interest rates on net interest income is illustrated in the table below:


	Changes for the three months ended June 30, 2014																		Changes for the three months ended September 30, 2014
	Linked quarter income variance									Comparable quarter income variance									Linked quarter income variance								Comparable quarter income variance
(Dollars in thousands)	Rate			Volume			Total			Rate			Volume			Total			Rate			Volume		Total			Rate			Volume			Total
Earning assets
Investment securities	$	(240	)	$	144		$	(96	)	$	1,644		$	652		$	2,296		$	(470	)	$	440	$	(30	)	$	670		$	1,643		$	2,313
Interest-bearing deposits with other banks	(7		)	9			2			5			(4		)	1			(1		)	20		19			(1		)	27			26
Gross loans ⁽¹⁾	(1,251		)	1,084			(167		)	(5,732		)	(159		)	(5,891		)	(237		)	4,912		4,675			(2,792		)	4,313			1,521
Total earning assets	(1,498		)	1,237			(261		)	(4,083		)	489			(3,594		)	(708		)	5,372		4,664			(2,123		)	5,983			3,860
Interest-bearing liabilities
Total interest-bearing deposits	$	123		$	167		$	290		$	285		$	37		$	322		$	350		$	262	$	612		$	958		$	404		$	1,362
Borrowed funds
Short-term borrowings	0			(37		)	(37		)	(62		)	49			(13		)	(5		)	67		62			(33		)	101			68
Federal Home Loan Bank long-term debt	0			1			1			(4		)	(125		)	(129		)	(78		)	9		(69		)	(94		)	(67		)	(161		)
Total borrowed funds	0			(36		)	(36		)	(66		)	(76		)	(142		)	(83		)	76		(7		)	(127		)	34			(93		)
Total interest-bearing liabilities	123			131			254			219			(39		)	180			267			338		605			831			438			1,269
Net interest income	$	(1,621	)	$	1,106		$	(515	)	$	(4,302	)	$	528		$	(3,774	)	$	(975	)	$	5,034	$	4,059		$	(2,954	)	$	5,545		$	2,591

(1) Loans held for sale, nonaccrual loans, covered loans and indemnification asset are included in gross loans.


	Changes for the six months ended June 30, 2014									Changes for the nine months ended September 30, 2014
	Year-to-date income variance									Year-to-date income variance
(Dollars in thousands)	Rate			Volume			Total			Rate			Volume			Total
Earning assets
Investment securities	$	4,120		$	467		$	4,587		$	4,738		$	2,162		$	6,900
Interest-bearing deposits with other banks	12			(5		)	7			6			27			33
Gross loans ⁽¹⁾	(12,133		)	(576		)	(12,709		)	(14,980		)	3,792			(11,188		)
Total earning assets	(8,001		)	(114		)	(8,115		)	(10,236		)	5,981			(4,255		)
Interest-bearing liabilities
Total interest-bearing deposits	$	(176	)	$	(46	)	$	(222	)	$	811		$	329		$	1,140
Borrowed funds
Short-term borrowings	(114		)	101			(13		)	(147		)	202			55
Federal Home Loan Bank long-term debt	(9		)	(250		)	(259		)	(107		)	(313		)	(420		)
Total borrowed funds	(123		)	(149		)	(272		)	(254		)	(111		)	(365		)
Total interest-bearing liabilities	(299		)	(195		)	(494		)	557			218			775
Net interest income	$	(7,702	)	$	81		$	(7,621	)	$	(10,793	)	$	5,763		$	(5,030	)

(1) Loans held for sale, nonaccrual loans, covered loans and indemnification asset are included in gross loans.

NONINTEREST INCOME

~~Second~~Third quarter 2014 noninterest income was ~~$16.3~~$16.5 million,, representing a ~~$4.7~~$5.8 million or ~~40.7% increase~~25.9% decline from noninterest income of $~~11.6~~$22.3 million in the ~~second~~third quarter 2013. The ~~increase~~decrease in noninterest income from the comparable quarter in 2013 was due primarily to ~~an $8.5~~a $5.7 million ~~increase~~decrease in FDIC loss sharing income ~~partially offset by~~and a ~~$1.3~~$0.9 million decline in accelerated discount on covered loans ~~and~~partially offset by a ~~$1.3~~$0.9 million ~~decline~~increase in ~~other noninterest income.~~net gains from sales of loans.

FDIC loss sharing income represents the proportionate share of credit losses on covered assets that First Financial expects to receive from the FDIC. FDIC loss sharing income ~~increased $8.5~~decreased $5.7 million or ~~115.0%~~103.5% from ~~negative~~ loss sharing income of ~~$7.4~~$5.6 million during the ~~second~~third quarter 2013 to ~~$1.1~~$0.2 million of negative loss sharing income for the ~~second~~third quarter 2014. Negative FDIC loss sharing income during the third quarter 2014 reflected a net payable due to the FDIC rather than a reimbursement from the FDIC as ~~negative~~a result of net covered loan and covered OREO recoveries during the period.

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provision expense of $0.4 million was offset by losses on covered assets and loss sharing expense during the period. Negative FDIC loss sharing income during the second quarter 2013 reflected lower reimbursements expected to be received from the FDIC as a result of negative covered provision expense and covered OREO gains during the period.

Income from the accelerated discount on covered loans decreased ~~$1.3~~$0.9 million or ~~67.9%~~53.9% from ~~$1.9~~$1.7 million during ~~second~~third quarter 2013 to ~~$0.6~~$0.8 million for the ~~second~~third quarter 2014. Accelerated discounts on covered loans that prepay result from the accelerated recognition of the remaining covered loan discount that would have been recognized over the expected life of the loan had it not prepaid. Lower income from the accelerated discount on covered loans during the ~~second~~third quarter 2014 was related to declines in both the volume and size of covered loans prepaying during the period as well as declines in the size of the remaining discounts on these loans.

The ~~decline~~increase in ~~other noninterest income~~gains from sales of loans as compared to the ~~second~~third quarter 2013 was ~~primarily related to improved portfolio valuations related to customer derivatives that occurred during~~driven by a 47.0% increase in the ~~second quarter 2013~~amount of residential mortgage loans sold, reflecting strong mortgage origination activity as well as ~~a decrease in rental income earned on covered OREO properties~~the impact of Columbus origination and ~~lower income earned on customer derivatives~~sale activity during the ~~second quarter 2014.~~period.

Noninterest income for the ~~six~~nine months ended ~~June~~September 30, 2014 was ~~$30.5~~$47.0 million, which represents a ~~$7.8~~$13.6 million or ~~20.4%~~22.4% decline from noninterest income of ~~$38.3~~$60.6 million for the ~~six~~nine months ended ~~June~~September 30, 2013. The decline in noninterest income from the comparable period in 2013 was due primarily to a ~~$1.0~~$6.7 million decline in FDIC loss sharing income, a ~~$2.2~~$3.2 million decline in accelerated discount on covered loans, a $1.7 million decline in gain on sale of investment securities and a ~~$1.5~~$1.4 million decline in other noninterest ~~income and a $0.7 million decline in net gains from sales of loans.~~income.

Similar to the quarterly year-over-year items discussed above, covered loan activity was responsible for the declines in FDIC loss sharing income and accelerated discount on covered loans while lower client derivative, ~~and~~ OREO rental income and executive life insurance income drove the decline in other noninterest income for the first ~~half~~nine months of 2014 as compared to the same period in 2013. The decline in gain on sale of investment securities was primarily related to sales of agency mortgage-backed securities and collateralized mortgage obligations during 2013 in order to enhance liquidity and reduce prepayment and premium risks. ~~Lower net gains from sales of loans in 2014 reflect a decline in mortgage lending activity due to rising interest rates and the unusually harsh winter weather during the period.~~

NONINTEREST EXPENSE

~~Second~~Third quarter 2014 noninterest expense was ~~$47.1~~$51.4 million compared with ~~$53.3~~$48.8 million for the ~~second~~third quarter of 2013. The ~~$6.2~~$2.6 million or ~~11.6% decrease~~5.4% increase from the comparable quarter in 2013 was primarily attributable to a ~~$4.3~~$4.9 million increase in salaries and employee benefits and a $1.8 million increase in data processing expenses. These increases were partially offset by a $1.6 million decline in losses on sales of covered OREO, a $1.4 million decline in pension settlement charges ~~a $1.6 million decline in other noninterest expense, a $0.9 million decline in net occupancy expense, a $0.6 million decline in salaries and benefits expense~~ and a ~~$0.1~~$0.7 million decline in loss sharing ~~expense. These declines were partially offset by a $2.6 million~~expenses.

The increase in ~~loss on covered OREO.~~salaries and benefits, as well as data processing expenses, were primarily due to expenses related to the Columbus acquisitions. Acquisition-related expenses totaled $4.2 million during the third quarter 2014 and included $1.8 million of personnel costs, $1.6 million of data processing related expenses, $0.5 million of professional services expenses and $0.2 million of equipment and other miscellaneous expenses.

During the ~~second~~third quarter of 2013, First Financial recognized ~~$4.3~~$1.4 million of pension settlement charges as a result of the level of lump sum distributions from the Company's pension plan. The annual threshold for recognizing lump-sum distributions as pension settlement charges reset on January 1, 2014 and no such expense ~~was~~has been incurred for the ~~six~~nine months ended ~~June~~September 30, 2014. For further discussion of pension settlement charges, see Note 13 to the Consolidated Financial Statements, Employee Benefit Plans.

The decrease in other noninterest expense was primarily due to a $1.0 million decline in fixed asset-related costs associated with branch consolidations. The declines in net occupancy expense and salaries and benefits expense were primarily attributable to staffing reductions and branch consolidations associated with the Company's previously announced efficiency efforts.

Loss sharing expense represents costs incurred to resolve problem covered assets, including legal fees, appraisal costs and delinquent taxes. The decrease in loss sharing expense relates to a decline in collection costs as the balance of covered assets continues to decline. Losses on covered OREO and loss sharing expense are partially reimbursed by the FDIC. The Company recorded gains on sales of covered OREO during the third quarter 2014 of $1.4 million.

First Financial views the combination of provision expense on covered loans, gains or losses on covered OREO and loss sharing expense, net of the related reimbursements due under loss sharing agreements recorded as FDIC loss sharing income, as the total net credit costs associated with covered assets during the period. For additional discussion of the credit costs associated with covered assets, see "Allowance for loan and lease losses - covered loans."

Noninterest expense for the ~~six~~nine months ended ~~June~~September 30, 2014 was ~~$95.0~~$146.4 million compared with ~~$106.4~~$155.2 million in the ~~six~~nine months ended ~~June~~September 30, 2013. The ~~$11.4~~$8.8 million or ~~10.7%~~5.7% decrease from the comparable period in 2013 was primarily attributable to a

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$2.7 million decline in salaries and benefits expense and a $1.8 million decline in net occupancy expense as a result of staffing reductions and branch consolidations throughout 2013 and into 2014. Also contributing to the decline was a $4.3 $5.7 million decline in pension settlement charges as discussed ~~above,~~above. Also contributing to the decline was a ~~$2.6~~$2.3 million decline in net occupancy expense and a $2.2 million decline in other noninterest expense resulting from lower fixed asset-related costs associated with branch consolidations throughout 2013 and 2014, a ~~$0.8~~$1.6 million decline in loss sharing ~~expense.~~

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expense and a $1.1 million decline in state intangible tax due to a change in applicable tax laws. These declines were partially offset by a ~~$2.8~~$1.2 million increase in losses recorded on covered OREO as the Company recorded gains of ~~$2.4~~$2.2 million on covered OREO in the first three quarters of 2013, as well as a ~~$0.6~~$2.4 million increase in data processing expenses and a $2.2 million increase in salaries and benefits primarily related to ~~software and system implementations, including internet and mobile banking platforms as well as expenses related to pending~~the Columbus acquisitions.

INCOME TAXES

Income tax expense was ~~$8.0~~$7.2 million and ~~$6.5~~$7.6 million for the ~~second~~third quarters of 2014 and 2013, respectively. The effective tax rates for the ~~second~~third quarters of 2014 and 2013 were ~~33.3%~~32.0% and ~~29.0%~~33.9%, respectively. Income tax expense for the ~~six~~nine months ended ~~June~~September 30, 2014 and 2013 was ~~$15.0~~$22.3 million and ~~$12.8~~$20.5 million, ~~respectively. The~~respectively and the year-to-date effective tax rate through ~~June~~September 30, 2014 was ~~32.6%~~32.4% compared to ~~30.2%~~31.5% for the comparable period in 2013.

The decrease in the effective tax rate for the third quarter 2014, as compared to the same period in 2013, was primarily the result of higher tax-exempt income earned in 2014 and lower state tax expense, partially offset by non-deductible acquisition costs. The increase in the effective tax ~~rates~~rate for the ~~second~~ ~~quarter~~ ~~2014~~ ~~and the six~~nine months ended ~~June~~September 30, 2014, as compared to the same ~~periods~~period in 2013, was primarily the result of a favorable tax reversal related to ~~an intercompany tax obligation associated with an unconsolidated~~a former Irwin subsidiary and a favorable change in state tax laws in 2013, partially offset by higher tax-exempt income earned ~~during~~in 2014. While the Company's effective tax rate may fluctuate from quarter to quarter due to tax jurisdiction changes and the level of tax-enhanced assets, the overall effective tax rate for 2014 is expected to be approximately 32.0% - 34.0%.

LOANS ~~- EXCLUDING COVERED LOANS~~

First Financial continues to experience strong loan demand in 2014 as a result of the Company's sales efforts, expanded presence in key metropolitan markets and investments in a diversified product suite. Loans, excluding ~~covered loans and~~ loans held for sale, totaled ~~$3.7~~$4.8 billion as of ~~June~~September 30, 2014, increasing ~~$157.0~~$818.7 million, or ~~9.0%~~27.6% on an annualized basis, compared to December 31, 2013. The increase in loan balances from December 31, 2013 was primarily related to a ~~$108.0~~$269.1 million increase in commercial loans, a ~~$32.9~~$113.0 million increase in real estate construction loans, a $455.1 million increase in commercial real estate loans and a ~~$19.7~~$73.6 million increase in residential real estate loans, which were partially offset by a $125.6 million decline in covered loans. These increases were impacted by $606.3 million of loans, net of estimated fair value marks, from the Columbus acquisitions that closed during the quarter as well as strong loan origination activity during the period. Excluding loans acquired during the third quarter, loan balances increased $212.5 million, or 7.2% on an annualized basis, compared to December 31, 2013.

~~Second~~Third quarter 2014 average loans, excluding ~~covered loans and~~ loans held for sale, increased ~~$335.0~~$418.2 million or ~~10.2%~~10.5% from the ~~second~~third quarter of 2013. The increase in average loans, excluding ~~covered loans and~~ loans held for sale, was primarily the result of a ~~$213.5~~$258.1 million increase in commercial loans, a ~~$66.1~~$240.6 million increase in commercial real estate loans, a ~~$30.5~~$54.6 million increase in residential real estate loans, ~~an $18.1~~a $59.3 million increase in ~~lease financing~~construction real estate and ~~an $10.6~~a $28.9 million increase in home equity loans, partially offset by ~~an $8.5~~a $222.3 million decline in covered loans and a $4.1 million decline in installment loans.

~~LOANS - COVERED~~

Covered loans declined ~~$92.3 million, or 20.2%,~~ to ~~$365.6~~$332.3 million at ~~June~~September 30, 2014 from $457.9 million as of December 31, 2013. Declines in covered loan balances were expected as there were no acquisitions of loans subject to loss sharing agreements during the period. The covered loan portfolio will continue to decline through payoffs, loan sales, charge-offs and termination or expiration of loss sharing coverage unless First Financial acquires additional loans subject to loss sharing agreements in the future.

The ~~five year period~~Company’s loss sharing indemnification from the FDIC related to non-single-family loans expired effective October 1, 2014 and, as a result, approximately $190.3 million, or 57.3%, of the Company's $332.3 million covered loan portfolio will no longer be covered by FDIC loss ~~protection will expire for the majority of First Financial's covered commercial loans and covered OREO during the third quarter of 2014.~~sharing effective that date. The ten year period of loss protection on all other covered loans and covered OREO will expire during the third quarter of 2019. The expiration of loss sharing protection will result in a reclassification of loan balances and the related allowance for loan and lease losses in the Consolidated Balance Sheets from covered loans to uncovered loans as of October 1, 2014, but will not have an effect on the accounting for these loans.

ASSET QUALITY

Excluding covered assets. Due to the significant difference in the accounting for covered loans and the loss sharing agreements with the FDIC, management believes that asset quality measures excluding covered assets are generally more meaningful.

At ~~June~~September 30, 2014, loans 30-to-89 days past due decreased to ~~$5.7~~$12.1 million, or ~~0.16%~~0.27% of period end loans, as compared to $13.6 million, or 0.39%, at December 31, 2013. The Columbus acquisitions contributed $1.1 million to the total delinquent

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loans. Nonperforming assets, which consist of nonaccrual loans, accruing troubled debt restructurings (TDRs) (collectively, nonperforming loans) and OREO, decreased ~~$14.1~~$6.1 million, or ~~19.5%~~8.5%, to ~~$58.4~~$66.3 million at

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~~June~~ September 30, 2014 from $72.5 million as of December 31, 2013, due to ~~a $7.7~~an $8.5 million, or ~~14.6%, decline in nonperforming loans and a $6.4 million, or 32.5%~~42.9%, decline in OREO balances partially offset by a $2.3 million, or 4.4% increase in nonperforming loans during the first ~~six~~nine months of 2014.

The decline in nonperforming loans compared to December 31, 2013 was primarily related to payments received on six commercial and commercial real estate credits totaling $9.0 million and $4.6 million of charge-offs during the period. This activity was partially offset by the addition of two commercial and three commercial real estate credits totaling $5.5 million in the aggregate. OREO balances declined during the first ~~six~~nine months of ~~the period~~2014 as resolutions and valuation adjustments of ~~$9.2~~$12.3 million exceeded additions of ~~$2.7~~$3.8 million. While there were no individually significant additions during the first ~~six~~nine months, resolutions during the period included the sale of a single commercial property totaling $7.9 million which was added to OREO during the fourth quarter 2013.

Nonperforming loans increased to $55.0 million at September 30, 2014 from $52.7 million at December 31, 2013. The increase in nonperforming loans includes $4.3 million of nonperforming loans from the Columbus acquisitions as well the addition of two commercial and four commercial real estate credits totaling $12.1 million in the aggregate. The increase in nonperforming loans compared to December 31, 2013 was partially offset by payments received on six commercial and commercial real estate credits totaling $9.0 million in the second quarter and $6.4 million of charge-offs during nine months ended September 30, 2014.

Classified assets, which are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse, totaled ~~$103.8~~$105.9 million as of ~~June~~September 30, 2014, including $7.8 million of additions from the Columbus acquisitions during the period, net of estimated fair value marks, compared to $110.5 million at December 31, 2013. The declines in nonperforming ~~loans, nonperforming~~ assets and classified assets during the first ~~six~~nine months of 2014 continue to reflect the Company's successful resolution efforts as well as ~~modest but steady~~gradual improvement in economic conditions in the markets in which First Financial operates.

The table that follows shows the categories that are included in nonperforming and underperforming assets, excluding covered assets, as well as related credit quality ratios as of ~~June~~September 30, 2014 and the four previous quarters.

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		Quarter ended																Quarter ended
		2014						2013										2014									2013
(Dollars in thousands)		June 30,			Mar. 31,			Dec. 31,			Sep. 30,			June 30,				Sep. 30,			June 30,			Mar. 31,			Dec. 31,			Sep. 30,
Nonperforming loans, nonperforming assets, and underperforming assets
Nonaccrual loans ⁽¹⁾
Commercial		$	7,077		$	7,097		$	7,934		$	8,554		$	12,925			$	6,486		$	7,077		$	7,097		$	7,934		$	8,554
Real estate - construction		223			223			223			1,099			1,104				223			223			223			223			1,099
Real estate - commercial		15,288			16,758			17,286			35,549			35,055				25,262			15,288			16,758			17,286			35,549
Real estate - residential		6,806			8,157			8,606			9,346			9,369				6,696			6,806			8,157			8,606			9,346
Installment		459			399			574			421			249				398			459			399			574			421
Home equity		2,565			2,700			2,982			2,871			2,813				2,581			2,565			2,700			2,982			2,871
Lease financing		0			0			0			86			496				0			0			0			0			86
Nonaccrual loans		32,418			35,334			37,605			57,926			62,011				41,646			32,418			35,334			37,605			57,926
Accruing troubled debt restructurings (TDRs)		12,607			13,400			15,094			16,278			12,924				13,369			12,607			13,400			15,094			16,278
Total nonperforming loans		45,025			48,734			52,699			74,204			74,935				55,015			45,025			48,734			52,699			74,204
Other real estate owned (OREO)		13,370			12,743			19,806			11,804			11,798				11,316			13,370			12,743			19,806			11,804
Total nonperforming assets		58,395			61,477			72,505			86,008			86,733				66,331			58,395			61,477			72,505			86,008
Accruing loans past due 90 days or more		256			208			218			265			158				249			256			208			218			265
Total underperforming assets		$	58,651		$	61,685		$	72,723		$	86,273		$	86,891			$	66,580		$	58,651		$	61,685		$	72,723		$	86,273
Total classified assets		$	103,799		$	103,471		$	110,509		$	120,423		$	129,832			$	105,914		$	103,799		$	103,471		$	110,509		$	120,423

Credit quality ratios (excluding covered assets)
Allowance for loan and lease losses to	Allowance for loan and lease losses to																Allowance for loan and lease losses to
Nonaccrual loans		129.64		%	121.76		%	116.55		%	78.57		%	75.87		%		101.94		%	129.64		%	121.76		%	116.55		%	78.57		%
Nonperforming loans		93.34		%	88.28		%	83.17		%	61.34		%	62.78		%		77.17		%	93.34		%	88.28		%	83.17		%	61.34		%
Total ending loans		1.15		%	1.19		%	1.25		%	1.33		%	1.39		%		0.95		%	1.15		%	1.19		%	1.25		%	1.33		%
Nonperforming loans to total loans		1.23		%	1.35		%	1.50		%	2.16		%	2.22		%		1.24		%	1.23		%	1.35		%	1.50		%	2.16		%
Nonperforming assets to
Ending loans, plus OREO		1.59		%	1.70		%	2.06		%	2.50		%	2.56		%		1.49		%	1.59		%	1.70		%	2.06		%	2.50		%
Total assets, including covered assets		0.89		%	0.95		%	1.13		%	1.38		%	1.38		%		0.90		%	0.89		%	0.95		%	1.13		%	1.38		%
Nonperforming assets, excluding accruing TDRs to
Ending loans, plus OREO		1.25		%	1.33		%	1.63		%	2.03		%	2.17		%		1.19		%	1.25		%	1.33		%	1.63		%	2.03		%
Total assets, including covered assets		0.70		%	0.74		%	0.89		%	1.12		%	1.18		%		0.72		%	0.70		%	0.74		%	0.89		%	1.12		%
(1) Nonaccrual loans include nonaccrual TDRs of $11.0 million, $14.6 million, $13.0 million, $13.0 million, and $19.9 million, as of June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013 and June 30, 2013, respectively.
(1) Nonaccrual loans include nonaccrual TDRs of $13.2 million, $11.0 million, $14.6 million, $13.0 million, and $13.0 million, as of September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013, and September 30, 2013, respectively.																	(1) Nonaccrual loans include nonaccrual TDRs of $13.2 million, $11.0 million, $14.6 million, $13.0 million, and $13.0 million, as of September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013, and September 30, 2013, respectively.

Covered assets. Covered loans accounted for under FASB ASC Topic 310-30 were grouped into pools for purposes of periodically re-estimating the expected cash flows and recognizing impairment or improvement in the loan pools. Accordingly, loans accounted for under FASB ASC Topic 310-30 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 covered loan loss provision or future period yield adjustments.

First Financial had ~~$3.4~~$4.6 million of covered nonaccrual loans, excluding loans accounted for under FASB ASC Topic 310-30, and ~~$19.4~~$11.2 million of covered OREO at ~~June~~September 30, 2014. First Financial had $3.8 million of covered nonaccrual loans, excluding loans accounted for under FASB ASC Topic 310-30, and $27.1 million of covered OREO at December 31, 2013. Covered OREO decreased ~~$7.7~~$15.9 million, or ~~28.3%~~58.8%, from December 31, 2013 as resolutions and valuation adjustments of ~~$11.9~~$20.3 million exceeded additions of ~~$4.2~~$4.3 million during the first ~~six~~nine months of 2014.

Classified covered loan balances, which are defined by the Company as nonperforming covered assets plus performing covered loans internally rated substandard or worse, declined ~~$41.6~~$56.5 million, or ~~42.9%~~58.2% to ~~$55.3~~$40.5 million at ~~June~~September 30, 2014 from $97.0 million at December 31, 2013. The decline in classified covered loan balances during 2014 reflects the Company's continued progress in bringing troubled covered loans to resolution.

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INVESTMENTS

First Financial's investment portfolio totaled $~~1.8~~1.9 billion or ~~28.2%~~25.6% of total assets at ~~June~~September 30, 2014, compared with a balance of $1.8 billion or 28.0% of total assets at December 31, 2013. Securities available-for-sale at ~~June~~September 30, 2014 totaled $~~897.7~~929.6 million, compared with a balance of $913.6 million at December 31, 2013, while held-to-maturity securities totaled $~~899.5~~900.5 million at ~~June~~September 30, 2014 compared to $837.3 million at December 31, 2013.

The investment portfolio increased ~~$46.6~~$81.8 million, or ~~2.6%~~4.5%, during the first ~~six~~nine months of 2014 as ~~$211.7~~$282.7 million of purchases and $30.8 million of securities acquired with the Columbus acquisitions were partially offset by sales, amortizations and other portfolio reductions. The Company sold $92.5 million of securities during the first quarter 2014, consisting primarily of collateralized loan obligations (CLOs) and, to a lesser extent, hybrid securities, collateralized mortgage obligations and corporate securities, resulting in a gain of $0.1 million. Proceeds from these sales were reinvested primarily in commercial mortgage-backed securities during the period.

The sale of CLOs during the first quarter was due to the potential regulatory impact under the "Volcker Rule" of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits banks from engaging in short-term proprietary trading activities for their own account and from owning, sponsoring or having certain relationships with hedge funds or private equity funds. Under the original rule approved in December 2013, banks were required to conform investments to the requirements of the Volcker Rule or divest them by July 21, 2015. In order to mitigate risk related to the uncertain application of the Volcker Rule to the Company's CLOs and the broader impact on the CLO market, First Financial sold its CLO holdings during the first quarter 2014. Subsequently, on April 7, 2014, the Federal Reserve announced a two year extension of the deadline for banks to conform their CLO portfolios with the Volcker Rule to July 21, 2017.

The overall duration of the investment portfolio decreased to ~~3.9~~3.7 years as of ~~June~~September 30, 2014 from 4.3 years as of December 31, 2013. As in past quarters, First Financial has avoided adding to its portfolio any particular securities that would materially increase credit risk or geographic concentration risk. The Company does, however, include these risks in its evaluation of current market opportunities that would enhance the overall performance of the portfolio.

First Financial recorded, as a component of equity in accumulated other comprehensive income, a $~~6.0~~6.2 million unrealized after-tax loss on the investment portfolio at ~~June~~September 30, 2014, which declined ~~$10.3~~$10.1 million from $16.3 million at December 31, 2013 primarily due to investment gains during the period as a result of the tightening of mortgage and fixed income spreads.

First Financial will continue to monitor loan and deposit demand, as well as balance sheet and capital sensitivity, as it manages investment strategies in future periods.

DEPOSITS AND FUNDING

Total deposits as of ~~June~~September 30, 2014 were ~~$4.9~~$5.5 billion, representing an increase of ~~$37.6~~$695.5 million or ~~0.8%~~14.4% compared to December 31, ~~2013.~~2013, as total interest-bearing deposits increased $599.6 million or 16.2% and total noninterest-bearing deposits increased $95.9 million or 8.4%. The increase in total deposits at ~~June~~September 30, 2014 as compared to December 31, 2013 was driven by ~~a $44.9~~$568.6 million ~~or 1.2% increase~~of deposits, net of estimated fair value adjustments, from the Columbus acquisitions as well as strong growth in ~~total~~ interest-bearing ~~deposits offset by a $7.3 million or 0.6% decrease in total noninterest-bearing deposit balances.~~demand and time deposits.

Non-time deposit balances totaled ~~$3.9~~$4.3 billion as of ~~June~~September 30, 2014, increasing ~~$16.8~~$400.5 million, or ~~0.4%~~10.3%, compared to December 31, 2013 ~~as seasonal factors drove increases in public fund balances. Time~~while time deposit balances increased ~~$20.8~~$295.0 million, or ~~2.2%, due to an increase in consumer balances.~~31.0%.

Year-to-date average deposits increased ~~$22.0~~$181.0 million, or ~~0.5%~~3.8%, to ~~$4.9~~$5.0 billion at ~~June~~September 30, 2014 from ~~June~~September 30, 2013 primarily due to a ~~$47.1~~$67.3 million increase in average noninterest-bearing deposits and ~~a $39.3~~an $84.7 million increase in average savings deposit ~~balances,~~balances. The year-over-year growth in average deposits was due to the Columbus acquisitions, partially offset by ~~a $75.8 million decrease~~declines in ~~average time deposit balances. The year-over-year decline~~deposits earlier in ~~average time deposits was a result of~~2014 resulting from the Company's continued focus on growing core deposit relationships and reducing single service and higher-cost time deposits.

As the Company's deposit base continues to shift away from fixed-rate time deposits toward market-priced or indexed deposit products, First Financial has executed interest rate swaps to manage interest rate volatility on indexed floating rate deposits. These interest rate swaps, with a total notional amount of ~~$200.0~~$250.0 million as of ~~June~~September 30, 2014 and ~~$100.0~~$100.0 million as of December 31, 2013, involve the receipt by First Financial of variable-rate interest payments in exchange for fixed-rate interest payments by First Financial for approximately 5 ~~years~~.years. As a result, First Financial has secured fixed rate funding at a weighted average cost of funds of ~~1.42%~~1.48% for the duration of the interest rate swaps.

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Borrowed funds increased to ~~$874.0~~$972.0 million at ~~June~~September 30, 2014 from $809.5 million at December 31, 2013, primarily due to ~~a $32.3~~$74.9 million ~~increase in~~of Federal Home Loan Bank (FHLB) short-term ~~borrowings. Short-term~~borrowings and $20.0 million of long-term FHLB borrowings assumed in the Columbus acquisitions. In addition to the impact from acquisitions during the period, short-term borrowings with the FHLB, which are utilized to manage normal liquidity needs, increased ~~primarily~~ as a result of loan growth and investment security purchases in excess of deposit growth during 2014.

LIQUIDITY

Liquidity management is the process by which First Financial manages the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost. These funding commitments include withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures. Liquidity is derived primarily from deposit growth, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings. First Financial’s most stable source of liability-funded liquidity for both long and short-term needs is deposit growth and retention of the core deposit base.

First Financial also utilizes its short-term line of credit and longer-term advances from the FHLB as funding sources. First Financial's total remaining borrowing capacity from the FHLB was ~~$423.6~~$312.3 million at ~~June~~September 30, ~~2014~~.2014. First Financial had pledged certain eligible residential and farm real estate loans, home equity lines of credit and government and agency securities, totaling ~~$2.9~~$3.4 billion as collateral for borrowings from the FHLB as of ~~June~~September 30, ~~2014~~.2014. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB.

During the second quarter of 2014, First Financial entered into a short-term credit facility with an unaffiliated bank for ~~$15.0 million~~.$15.0 million. This facility can have a variable or fixed interest rate and provides First Financial additional liquidity, if needed, for various corporate activities, including the repurchase of First Financial shares and the payment of dividends to shareholders. As of ~~June~~September 30, 2014,, there was no outstanding balance. The credit agreement requires First Financial to maintain certain covenants related to asset quality and capital levels. First Financial was in compliance with all covenants associated with this line of credit as of ~~June~~September 30, ~~2014~~.2014.

First Financial's principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. The market value of investment securities classified as available-for-sale totaled ~~$897.7~~$929.6 million at ~~June~~September 30, ~~2014~~.2014. Securities classified as held-to-maturity that are maturing within a short period of time are ~~also a~~an additional source of liquidity but totaled only ~~$0.1~~$0.3 million at ~~June~~September 30, ~~2014~~.2014. Other types of assets such as cash and due from banks, interest-bearing deposits with other banks, as well as loans maturing within one year, are also sources of liquidity.

At ~~June~~September 30, 2014,, in addition to liquidity on hand of ~~$162.4~~$143.7 million,, First Financial had unused and available overnight wholesale funding of ~~$1.9~~$1.7 billion,, or ~~28.7%~~23.4% of total assets, to fund loan and deposit activities as well as general corporate requirements.

Certain restrictions exist regarding the ability of First Financial’s subsidiaries to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances. The approval of the subsidiaries’ respective primary federal regulators is required for First Financial’s subsidiaries to pay dividends in excess of regulatory limitations. Dividends paid to First Financial from its subsidiaries totaled ~~$10.4~~$20.5 million for the first ~~six~~nine months of 2014. As of ~~June~~September 30, 2014,, First Financial’s subsidiaries had retained earnings of ~~$369.8~~$454.0 million of which ~~$19.3~~$26.0 million was available for distribution to First Financial without prior regulatory approval. Additionally, First Financial had ~~$75.9~~$58.8 million in cash at the parent company as of ~~June~~September 30, 2014,, which is ~~approximately~~ ~~two~~ ~~times~~in excess of the Company’s current annual regular shareholder dividend ~~(currently $0.60 per share)~~ and operating expenses.

First Financial repurchased 40,255 shares of the Company's common stock for $0.7 million during the first ~~half~~nine months of 2014 under a previously announced share repurchase plan, with no shares being repurchased during the second ~~quarter as a result of the Company's pending merger agreements.~~or third quarters. Under this same plan, First Financial purchased 750,145 shares of the Company's common stock for $11.8 million during 2013.

Capital expenditures, such as banking center expansions and technology investments were ~~$2.6~~$7.6 million and ~~$5.4~~$6.0 million for the first ~~six~~nine months of 2014 and 2013, respectively. Management believes that First Financial has sufficient liquidity to fund its future capital expenditure commitments.

Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on First Financial’s liquidity.

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CAPITAL

Risk-Based Capital. First Financial and its subsidiary, First Financial Bank, are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate regulatory action.

Quantitative measures established and defined by regulation to ensure capital adequacy require First Financial to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and to average assets. Management believes, as of ~~June~~September 30, 2014, that First Financial met all capital adequacy requirements to which it was subject. At ~~June~~September 30, 2014, and December 31, 2013, regulatory notifications categorized First Financial as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, First Financial must maintain minimum Total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since those notifications that management believes has changed the Company's categorization.

First Financial’s Tier I capital is comprised of total shareholders’ equity less unrealized gains and losses on investment securities available-for-sale accounted for under FASB ASC Topic 320, Investments-Debt and Equity Securities, and any amounts resulting from the application of FASB ASC Topic 715, Compensation-Retirement Benefits, that is recorded within accumulated other comprehensive income (loss), intangible assets and any valuation related to mortgage servicing rights. Total risk-based capital consists of Tier I capital plus qualifying allowance for loan and lease losses and gross unrealized gains on equity securities.

For purposes of calculating the leverage ratio, average assets represents quarterly average assets less assets not qualifying for total risk-based capital including intangible assets, non-qualifying mortgage servicing rights and the allowance for loan and lease losses.

Consolidated regulatory capital ratios at ~~June~~September 30, 2014, included the leverage ratio of ~~9.99%~~9.70%, Tier 1 capital ratio of ~~14.34%~~12.74% and total capital ratio of ~~15.59%~~13.80%. All regulatory capital ratios exceeded the amounts necessary to be classified as “well capitalized,” and total regulatory capital exceeded the “minimum” requirement by $~~338.8~~301.7 million, on a consolidated basis. First Financial’s tangible common equity ratio ~~increased~~decreased to ~~9.39%~~8.71% at ~~June~~September 30, 2014 ~~as compared to~~from 9.20% at December 31, 2013.

First Financial's Tier I and Total capital ratios were negatively impacted by an increase in risk-weighted assets during 2014 due primarily to an increase in risk-weighted assets resulting from the acquisitions during the year as ~~a result of declines in lower risk-weighted covered assets offset by increases in higher risk-weighted~~well as uncovered ~~loans and investment securities.~~loan growth. First Financial's Leverage ratio was negatively impacted by an increase in average assets through ~~June~~September 30, ~~2014.~~2014 as a result of the overall growth in the balance sheet. The Company’s tangible common equity ratio declined during the quarter due to the impact from acquisitions as the increase in tangible assets outweighed the increase in tangible common equity from the common shares issued in conjunction with the acquisitions.

In July 2013, the Board of Governors of the Federal Reserve System approved a final rule implementing changes intended to strengthen the regulatory capital framework for all banking organizations (Basel III). The final rule includes transition periods to ease the potential burden, with community banks such as First Financial subject to the final rule beginning January 1, 2015. Among other things, Basel III includes new minimum risk-based and leverage capital requirements for all banks. The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a new capital conservation buffer of 2.5% of risk-weighted assets that will be phased-in over a transition period ending December 31, 2018. Further, the minimum ratio of tier 1 capital to risk-weighted assets is increased from 4.0% to 6.0% and all banks are now subject to a 4.0% minimum leverage ratio. The required total risk-based capital ratio will not change.

Failure to maintain the required common equity Tier 1 capital conservation buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. The Basel III requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets requiring higher capital allocations.

While First Financial continues to evaluate this final rule and its potential impact, management expects that the Company will continue to exceed all regulatory capital requirements under Basel III.

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The following tables illustrate the actual and required capital amounts and ratios as of ~~June~~September 30, 2014 and December 31, 2013.


	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions				Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2014
September 30, 2014
Total capital to risk-weighted assets
Consolidated	$	696,014	15.59	%	$	357,166	8.00	%	N/A		N/A		$	717,823	13.80	%	$	416,170	8.00	%	N/A		N/A
First Financial Bank	615,562		13.84	%	355,828		8.00	%	$	444,784	10.00	%	654,229		12.59	%	415,707		8.00	%	$	519,634	10.00	%

Tier 1 capital to risk-weighted assets
Consolidated	640,237		14.34	%	178,583		4.00	%	N/A		N/A		662,608		12.74	%	208,085		4.00	%	N/A		N/A
First Financial Bank	553,169		12.44	%	177,914		4.00	%	266,871		6.00	%	592,319		11.40	%	207,854		4.00	%	311,780		6.00	%

Tier 1 capital to average assets
Consolidated	640,237		9.99	%	256,226		4.00	%	N/A		N/A		662,608		9.70	%	273,264		4.00	%	N/A		N/A
First Financial Bank	553,169		8.65	%	255,859		4.00	%	319,824		5.00	%	592,319		8.68	%	272,869		4.00	%	341,086		5.00	%



	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2013
Total capital to risk-weighted assets
Consolidated	$	679,074	15.88	%	$	342,092	8.00	%	N/A		N/A
First Financial Bank	588,643		13.80	%	341,184		8.00	%	$	426,480	10.00	%

Tier 1 capital to risk-weighted assets
Consolidated	624,850		14.61	%	171,046		4.00	%	N/A		N/A
First Financial Bank	527,712		12.37	%	170,592		4.00	%	255,888		6.00	%

Tier 1 capital to average assets
Consolidated	624,850		10.11	%	247,106		4.00	%	N/A		N/A
First Financial Bank	527,712		8.55	%	246,739		4.00	%	308,423		5.00	%

Shareholder Dividends. First Financial paid a dividend of $0.15 per common share on ~~July~~October 1, 2014 to shareholders of record as of ~~May 30,~~August 29, 2014. Additionally, First Financial's board of directors authorized a dividend of ~~$0.15~~$0.16 per common share for the next regularly scheduled dividend, payable on ~~October 1, 2014~~January 2, 2015 to shareholders of record as of ~~August 29,~~November 28, 2014.

Shelf Registrations. On July 31, 2014, First Financial filed a shelf registration on Form S-3 with the Securities and Exchange Commission. This shelf registration allows First Financial to raise capital from time to time through the sale of various types of securities, subject to approval by the Company's board of directors, and expires on July 31, 2017.

Share Repurchases. In October 2012, First Financial's board of directors approved a share repurchase plan under which the Company has the ability to repurchase up to 5,000,000 shares. Under the plan, the Company ~~expects~~expected to repurchase approximately 1,000,000 shares annually. This annual target will be subject to market conditions and quarterly evaluation by the board as well as balance sheet composition and growth. The Company generally expects to return to shareholders a target

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range of 60% - 80% of earnings through a combination of its regular dividend and share repurchases while still maintaining

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capital ratios that exceed internal target thresholds, current regulatory capital requirements and proposed capital requirements under Basel III.

As discussed in the Liquidity section, the Company repurchased 40,255 shares under the 2012 share repurchase plan during the first ~~six~~nine months of 2014 at an average price of $17.32 per share and 750,145 shares at an average price of $15.70 per share during 2013. First Financial's board of directors suspended further share repurchase activity under this plan during the first quarter 2014 in connection with the Company's ~~pending~~Columbus acquisitions and ~~as such, no shares were repurchased~~has continued that suspension during the second ~~quarter 2014. The Company expects to continue the suspension~~and third quarters of ~~its share repurchase plan for the third quarter~~ 2014.

At ~~June~~September 30, 2014, 3,749,100 common shares remained available for repurchase under the 2012 share repurchase plan.

Preferred Stock. During the second quarter of 2014, the shareholders of First Financial approved an amendment to the Company's Articles of Incorporation authorizing the Company to issue up to 10,000,000 preferred shares. The Company has not issued and has no current plans, arrangements or agreements to issue any of the authorized preferred shares at this time.

RISK MANAGEMENT

First Financial manages risk through a structured enterprise risk management (ERM) approach that routinely assesses the overall level of risk, identifies specific risks and evaluates the steps being taken to mitigate those risks. First Financial continues to enhance its risk management capabilities and has, over time, embedded risk awareness as part of the culture of the Company. First Financial has identified nine types of risk that it monitors in its ERM framework. These risks include information technology, market, legal, strategic, reputation, credit, regulatory (compliance), operational and external/environmental.

For a full discussion of these risks, see the Risk Management section in Management's Discussion and Analysis in First Financial’s 2013 Annual Report. The sections that follow provide additional discussion related to credit risk and market risk.

CREDIT RISK

Credit risk represents the risk of loss due to failure of a customer or counterparty to meet its financial obligations in accordance with contractual terms. First Financial manages credit risk through its underwriting process, periodically reviewing and approving its credit exposures using credit policies and guidelines approved by its board of directors.

Allowance for loan and lease losses - excluding covered loans. First Financial records a provision for loan and lease losses (provision) in the Consolidated Statements of Income to maintain the allowance for loan and lease losses (allowance) at a level considered sufficient to absorb probable loan and lease losses inherent in the portfolio.

The allowance was ~~$42.0~~$42.5 million as of ~~June~~September 30, 2014 compared to $43.8 million as of December 31, 2013. As a percentage of period-end loans, the allowance was ~~1.15%~~0.95% as of ~~June~~September 30, 2014 compared to 1.25% as of December 31, 2013. The decrease in the allowance from December 31, 2013 was primarily the result of continued improvement in the Company's historical loss rates as well as paydowns, charge-offs and other resolution activities related to impaired loans that resulted in lower specific reserves during the period. Additionally, the allowance as a percentage of loans continues to be impacted by loan growth, as newly originated loans are generally reserved for at lower ~~rates.~~rates, as well as the $606.3 million of loans acquired in the Columbus acquisitions during the third quarter. Loans acquired during the period were recorded at their estimated fair value as of the acquisition dates and have no associated allowance. Excluding the acquired Columbus loans, the allowance as a percentage of loans at September 30, 2014 would have been more consistent with recent periods.

The decline in the allowance during the ~~second~~third quarter of 2014 was consistent with declines in net charge-offs, ~~nonaccrual loans,~~ nonperforming assets and classified assets when compared to December 31, 2013 and continues to reflect gradual improvement in property values and overall economic conditions across the Company's footprint. The allowance as a percentage of nonaccrual loans, including nonaccrual TDRs was ~~129.6%~~101.9% at ~~June~~September 30, 2014 compared with 116.6% at December 31, 2013. The allowance as a percentage of nonperforming loans, which include accruing TDRs, was ~~93.3%~~77.2% at ~~June~~September 30, 2014 compared with 83.2% at December 31, 2013. The declines in these allowance coverage ratios were driven by the addition of the acquired Columbus loans during the third quarter.

~~Second~~Third quarter 2014 net charge-offs were ~~$1.0~~$0.7 million or ~~0.11%~~0.07% of average loans and leases on an annualized basis, compared with ~~$3.7~~$2.9 million or ~~0.45%~~0.34% of average loans and leases on an annualized basis for the comparable quarter in 2013. The ~~$2.6~~$2.3 million decrease from the comparable period in 2013 was primarily the result of reduced charge-offs of commercial and

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commercial real estate ~~and home equity~~ loans, ~~as well as increased~~partially offset by a decline in recoveries on ~~commercial and commercial real estate~~ loans previously charged-off. Provision expense is a product of the Company's allowance for loan and lease losses model, as well as net charge-off activity during the period. ~~Second~~Third quarter 2014 provision expense was ~~$29 thousand~~$1.1 million compared to ~~$2.4~~$1.4 million during the comparable quarter in 2013. Provision expense was $2.3 million and $6.9 million for the nine months ended September 30, 2014 and 2013, respectively.

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See Note 6 to the Consolidated Financial Statements, Allowance for Loan and Lease Losses, for further discussion of First Financial's allowance for uncovered loans.

The table that follows includes the activity in the allowance for loan losses, excluding covered loans, for the quarterly periods presented.


	Three months ended															Six months ended						Three months ended															Nine months ended
	2014						2013									June 30,						2014									2013						September 30,
(Dollars in thousands)	June 30,			Mar. 31,			Dec. 31,			Sep. 30,			June 30,			2014			2013			Sep. 30,			June 30,			Mar. 31,			Dec. 31,			Sep. 30,			2014			2013
Allowance for loan and lease loss activity	Allowance for loan and lease loss activity																					Allowance for loan and lease loss activity
Balance at beginning of period	$	43,023		$	43,829		$	45,514		$	47,047		$	48,306		$	43,829		$	47,777		$	42,027		$	43,023		$	43,829		$	45,514		$	47,047		$	43,829		$	47,777
Provision for loan losses	29			1,159			1,851			1,413			2,409			1,188			5,450			1,093			29			1,159			1,851			1,413			2,281			6,863
Gross charge-offs
Commercial	571			656			293			1,482			859			1,227			1,640			83			571			656			293			1,482			1,310			3,122
Real estate-construction	0			0			1			0			0			0			0			0			0			0			1			0			0			0
Real estate-commercial	699			543			3,113			2,174			2,044			1,242			3,039			702			699			543			3,113			2,174			1,944			5,213
Real estate-residential	283			257			218			249			326			540			549			161			283			257			218			249			701			798
Installment	14			128			39			99			97			142			197			63			14			128			39			99			205			296
Home equity	383			544			706			411			591			927			1,292			469			383			544			706			411			1,396			1,703
All other	237			296			398			696			277			533			687			338			237			296			398			696			871			1,383
Total gross charge-offs	2,187			2,424			4,768			5,111			4,194			4,611			7,404			1,816			2,187			2,424			4,768			5,111			6,427			12,515
Recoveries
Commercial	580			39			194			92			67			619			386			566			580			39			194			92			1,185			478
Real estate-construction	0			0			46			490			0			0			136			0			0			0			46			490			0			626
Real estate-commercial	334			114			634			1,264			57			448			96			323			334			114			634			1,264			771			1,360
Real estate-residential	100			27			96			98			5			127			9			34			100			27			96			98			161			107
Installment	50			77			66			57			110			127			187			46			50			77			66			57			173			244
Home equity	37			103			136			95			225			140			277			46			37			103			136			95			186			372
All other	61			99			60			69			62			160			133			135			61			99			60			69			295			202
Total recoveries	1,162			459			1,232			2,165			526			1,621			1,224			1,150			1,162			459			1,232			2,165			2,771			3,389
Total net charge-offs	1,025			1,965			3,536			2,946			3,668			2,990			6,180			666			1,025			1,965			3,536			2,946			3,656			9,126
Ending allowance for loan and lease losses	$	42,027		$	43,023		$	43,829		$	45,514		$	47,047		$	42,027		$	47,047		$	42,454		$	42,027		$	43,023		$	43,829		$	45,514		$	42,454		$	45,514

Net charge-offs to average loans and leases (annualized)	Net charge-offs to average loans and leases (annualized)																					Net charge-offs to average loans and leases (annualized)
Commercial	0.00		%	0.24		%	0.04		%	0.59		%	0.35		%	0.11		%	0.29		%	(0.16		)%	0.00		%	0.24		%	0.04		%	0.59		%	0.01		%	0.39		%
Real estate-construction	0.00		%	0.00		%	(0.23		)%	(2.09		)%	0.00		%	0.00		%	(0.31		)%	0.00		%	0.00		%	0.00		%	(0.23		)%	(2.09		)%	0.00		%	(0.94		)%
Real estate-commercial	0.10		%	0.12		%	0.66		%	0.24		%	0.55		%	0.11		%	0.42		%	0.09		%	0.10		%	0.12		%	0.66		%	0.24		%	0.10		%	0.36		%
Real estate-residential	0.20		%	0.26		%	0.14		%	0.17		%	0.38		%	0.23		%	0.33		%	0.13		%	0.20		%	0.26		%	0.14		%	0.17		%	0.19		%	0.28		%
Installment	(0.33		)%	0.45		%	(0.22		)%	0.33		%	(0.10		)%	0.07		%	0.04		%	0.15		%	(0.33		)%	0.45		%	(0.22		)%	0.33		%	0.09		%	0.13		%
Home equity	0.37		%	0.48		%	0.60		%	0.34		%	0.40		%	0.42		%	0.56		%	0.42		%	0.37		%	0.48		%	0.60		%	0.34		%	0.42		%	0.48		%
All other	0.61		%	0.70		%	1.20		%	2.27		%	0.90		%	0.65		%	1.24		%	0.72		%	0.61		%	0.70		%	1.20		%	2.27		%	0.67		%	1.63		%
Total net charge-offs	0.11		%	0.23		%	0.41		%	0.34		%	0.45		%	0.17		%	0.38		%	0.07		%	0.11		%	0.23		%	0.41		%	0.34		%	0.13		%	0.37		%

Allowance for loan and lease losses - covered loans. The allowance for losses on covered loans was ~~$12.4~~$11.5 million and $18.9 million at ~~June~~September 30, 2014 and December 31, 2013, respectively. First Financial updated the valuations related to covered loans during the ~~second~~third quarter 2014 and, as a result of improved cash flow expectations in certain loan pools, recognized negative provision expense, or impairment recapture, of ~~$0.4 million~~.$0.2 million. First Financial recognized ~~negative~~ provision expense related to

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covered loans of ~~$8.3~~$5.3 million for the comparable period in 2013. The related declines in expected reimbursements on covered loan losses due from the FDIC under loss sharing agreements were recognized as negative FDIC loss sharing income and a corresponding ~~decreases~~decrease in the FDIC indemnification asset during the ~~second~~third quarter of ~~2014~~2014. For the quarter ended September 30, 2013, the receivables due from the FDIC related to covered provision expense were recognized as FDIC loss sharing income and ~~2013.~~a corresponding increase to the FDIC indemnification asset.

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First Financial recognized negative provision expense related to covered loans of ~~$2.6~~$2.8 million for the ~~six~~nine months ended ~~June~~September 30, 2014, and provision expense related to covered loans of ~~$0.8~~$6.1 million for the comparable period in 2013. The Company recognized a related decrease in expected reimbursements on covered loan losses due from the FDIC under loss sharing agreements as negative FDIC loss sharing income and a corresponding decrease in the FDIC indemnification asset during the ~~six~~nine months ended ~~June~~September 30, 2014. For the ~~six~~nine months ended ~~June~~September 30, 2013, the estimated reimbursement on covered loan losses due from the FDIC under loss sharing agreements was recorded as FDIC loss sharing income and a corresponding increase to the FDIC indemnification asset.

The declines in the allowance for losses on covered loans and covered provision expense reflect continued improvement in credit expectations for the covered loan portfolio and significant declines in classified covered loan balances in recent periods. See Note 6 to the Consolidated Financial Statements, Allowance for Loan and Lease Losses, for further discussion of First Financial's allowance for covered loans.

First Financial views the combination of provision expense on covered loans, losses on covered OREO and loss sharing expense, net of the related reimbursements due under loss sharing agreements recorded as FDIC loss sharing income, as the net credit costs associated with covered assets during the period. Net credit costs ~~increased $2.1~~decreased $1.9 million or ~~115.0%~~137.9%, from ~~$1.8~~$1.4 million of expense during the third quarter of 2013 to $0.5 million of income during the ~~second quarter of 2013 to $0.3 million of expense during the second~~third quarter of 2014. For the ~~six~~nine months ended ~~June~~September 30, 2014, net credit costs decreased ~~$0.2~~$2.2 million, or ~~61.3%~~121.2%, to ~~$0.2~~$0.4 million of income from ~~$0.4~~$1.8 million of expense for the comparable period in 2013.


		Three months ended															Six months ended							Three months ended															Nine months ended
		2014						2013									June 30,							2014									2013						September 30,
(Dollars in thousands)		June 30,			Mar. 31,			Dec. 31,			Sep. 30,			June 30,			2014			2013				Sep. 30,			June 30,			Mar. 31,			Dec. 31,			Sep. 30,			2014			2013
Allowance for loan and lease loss activity - Covered	Allowance for loan and lease loss activity - Covered																						Allowance for loan and lease loss activity - Covered
Balance at beginning of period		$	10,573		$	18,901		$	23,259		$	32,961		$	45,496		$	18,901		$	45,190			$	12,425		$	10,573		$	18,901		$	23,259		$	32,961		$	18,901		$	45,190
Provision for loan and lease losses		(413		)	(2,192		)	(5,857		)	5,293			(8,283		)	(2,605		)	759				(200		)	(413		)	(2,192		)	(5,857		)	5,293			(2,805		)	6,052
Loans charged-off		(3,485		)	(7,240		)	(3,850		)	(21,009		)	(4,681		)	(10,725		)	(14,365		)		(3,053		)	(3,485		)	(7,240		)	(3,850		)	(21,009		)	(13,778		)	(35,374		)
Recoveries		5,750			1,104			5,349			6,014			429			6,854			1,377				2,363			5,750			1,104			5,349			6,014			9,217			7,391
Ending allowance for covered loan losses		$	12,425		$	10,573		$	18,901		$	23,259		$	32,961		$	12,425		$	32,961			$	11,535		$	12,425		$	10,573		$	18,901		$	23,259		$	11,535		$	23,259

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MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary source of market risk for First Financial is interest rate risk. Interest rate risk is the risk to earnings and the value of the Company's equity arising from changes in market interest rates and arises in the normal course of business to the extent that there is a divergence between the amount of First Financial's interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods. First Financial seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.

First Financial monitors the Company's interest rate risk position using income simulation models and economic value of equity (EVE) sensitivity analyses that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting net interest income (NII) under a variety of interest rate scenarios including instantaneous shocks. First Financial uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process. First Financial continues to refine the assumptions used in its interest rate risk modeling.

Presented below is the estimated impact on First Financial’s NII and EVE position as of ~~June~~September 30, 2014, assuming immediate, parallel shifts in interest rates:


	% Change from base case for immediate parallel changes in rates						% Change from base case for immediate parallel changes in rates
	-100 BP ⁽¹⁾		+100 BP		+200 BP		-100 BP ⁽¹⁾		+100 BP		+200 BP
NII-Year 1	(4.42	)%	(1.66	)%	(1.07	)%	(3.70	)%	(1.34	)%	(0.56	)%
NII-Year 2	(1.66	)%	0.23	%	1.50	%	(2.86	)%	0.96	%	2.51	%
EVE	(6.35	)%	(2.32	)%	(1.39	)%	(5.20	)%	(1.96	)%	(0.85	)%

(1)Because certain current interest rates are at or below 1.00%, the 100 basis point downward shock assumes that certain corresponding interest rates approach an implied floor that, in effect, reflects a decrease of less than the full 100 basis point downward shock.

First Financial's projected results for both NII and EVE became modestly more ~~liability~~asset sensitive during the ~~second~~third quarter 2014. This was primarily the result of growth in ~~fixed-rate assets and variable~~floating rate ~~assets with extended reset periods~~securities in the ~~loan~~investment portfolio ~~as well as a~~and the continued ~~shift in~~execution of the Company's ~~deposit mix toward market-driven deposit products, partially offset by growth in longer-term consumer time deposits.~~balance sheet management strategies through the completion of an additional $50.0 million cash flow hedge on certain indexed liabilities during the third quarter. First Financial continues to manage its balance sheet with a bias toward asset sensitivity while simultaneously balancing the potential earnings impact of this strategy.

"~~Risk-neutral position"~~Risk-neutral" refers to the absence of a strong bias toward either asset or liability sensitivity. “Asset ~~sensitive position”~~sensitive” refers to an increase in interest rates, primarily short-term rates, that is expected to generate higher net interest income as rates earned on our interest-earning assets would reprice upward more quickly or in greater quantities than rates paid on our interest-bearing liabilities would reprice. Conversely, “liability ~~sensitive position”~~sensitive” refers to an increase in short-term interest rates that is expected to generate lower net interest income as rates paid on our interest-bearing liabilities would reprice upward more quickly or in greater quantities than rates earned on our interest-earning assets.

See the Net Interest Income section of Management’s Discussion and Analysis for further discussion.

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CRITICAL ACCOUNTING POLICIES

First Financial’s Consolidated Financial Statements are prepared based on the application of the Company's accounting policies. These policies require the reliance on estimates and assumptions. Changes in underlying factors, assumptions or estimates could have a material impact on First Financial’s future financial condition and results of operations. In management’s opinion, certain accounting policies have a more significant impact than others on First Financial’s financial reporting. For First Financial, these areas currently include accounting for the allowance for loan and lease losses (excluding covered loans), covered loans, the allowance for loan and lease losses - covered loans, the FDIC indemnification asset, goodwill, pension and income taxes. These accounting policies are discussed in detail in the Critical Accounting Policies section of Management’s Discussion and Analysis in First Financial’s 2013 Annual Report. There were no material changes to these accounting policies during the ~~six~~nine months ended ~~June~~September 30, 2014.

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ACCOUNTING AND REGULATORY MATTERS

Note 2 to the Consolidated Financial Statements, Recently Adopted and Issued Accounting Standards, discusses new accounting standards adopted by First Financial during 2014 and the expected impact of accounting standards recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of Management’s Discussion and Analysis and the Notes to the Consolidated Financial Statements.

FORWARD-LOOKING INFORMATION

Certain statements contained in this report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the Act). In addition, certain statements in future filings by First Financial with the SEC, in press releases, and in oral and written statements made by or with the approval of First Financial which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to, projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items, statements of plans and objectives of First Financial or its management or board of directors and statements of future economic performances and statements of assumptions underlying such statements. Words such as "believes," "anticipates," "likely," "expected," "intends," and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Management's analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:


▪	management's ability to effectively execute its business plan;


▪	the risk that the strength of the United States economy in general and the strength of the local economies in which we conduct operations may continue to deteriorate resulting in, among other things, a further deterioration in credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio, allowance for loan and lease losses and overall financial performance;


▪	U.S. fiscal debt and budget matters;


▪	the ability of financial institutions to access sources of liquidity at a reasonable cost;

▪

the impact of recent upheaval in the financial markets and the effectiveness of domestic and international governmental actions taken in response, and the effect of such governmental actions on us, our competitors and counterparties, financial markets generally and availability of credit specifically, and the U.S. and international economies, including potentially higher FDIC premiums arising from increased payments from FDIC insurance funds as a result of depository institution failures;


▪	the effect of and changes in policies and laws or regulatory agencies (notably the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act and the new capital rules promulgated by federal banking regulators);


▪	the effect of the current low interest rate environment or changes in interest rates on our net interest margin and our loan originations and securities holdings;


▪	our ability to keep up with technological changes;


▪	failure or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers;


▪	our ability to comply with the terms of loss sharing agreements with the FDIC;


▪	the expiration of loss sharing agreements with the FDIC;


▪	mergers and acquisitions, including costs or difficulties related to the integration of acquired companies and the wind-down of non-strategic operations that may be greater than expected;

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▪	the risk that exploring merger and acquisition opportunities may detract from management's time and ability to successfully manage our business;


▪	expected cost savings in connection with the consolidation of recent acquisitions may not be fully realized or realized within the expected time frames, and deposit attrition, customer loss and revenue loss following completed acquisitions may be greater than expected;


▪	our ability to increase market share and control expenses;


▪	the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and the SEC;


▪	adverse changes in the creditworthiness of our borrowers and lessees, collateral values, the value of investment securities and asset recovery values, including the value of the FDIC indemnification asset and related assets covered by FDIC loss sharing agreements;


▪	adverse changes in the securities, debt and/or derivatives markets;

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▪	our success in recruiting and retaining the necessary personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services;


▪	monetary and fiscal policies of the Board of Governors of the Federal Reserve System (Federal Reserve) and the U.S. government and other governmental initiatives affecting the financial services industry;


▪	unpredictable natural or other disasters could have an adverse effect on us in that such events could materially disrupt our operations or our vendors' operations or willingness of our customers to access the financial services we offer;


▪	our ability to manage loan delinquency and charge-off rates and changes in estimation of the adequacy of the allowance for loan losses; and


▪	the costs and effects of litigation and of unexpected or adverse outcomes in such litigation.

In addition, please refer to our Annual Report on Form 10-K for the year ended December 31, 2013, as well as our other filings with the SEC, for a more detailed discussion of these risks and uncertainties and other factors. Such forward-looking statements are meaningful only on the date when such statements are made, and First Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such a statement is made to reflect the occurrence of unanticipated events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk” of this report is incorporated herein by reference in response to this item.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rule 13a-15 of the Securities Exchange Act of 1934, that are designed to cause the material information required to be disclosed by First Financial in the reports it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized, and reported to the extent applicable within the time periods required by the Securities and Exchange Commission’s rules and forms. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

As of the end of the period covered by this report, First Financial performed an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II-OTHER INFORMATION


Item 1.	Legal Proceedings.

There have been no material changes to the disclosure in response to "Part I - Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.


Item 1A.	Risk Factors.

There are a number of factors that may adversely affect the Company's business, financial results, or stock price. See "Risk Factors" as disclosed in response to "Item 1A. to Part I - Risk Factors" of Form 10-K for the year ended December 31, 2013.

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Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds


(c)	The following table shows the total number of shares repurchased in the ~~second~~third quarter of 2014.

Issuer Purchases of Equity Securities


	(a)	(b)		(c)	(d)	(a)	(b)		(c)	(d)
Period	Total Number Of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans ⁽²⁾	Maximum Number of Shares that may yet be purchased Under the Plans	Total Number Of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans ⁽²⁾	Maximum Number of Shares that may yet be purchased Under the Plans
April 1 to April 30, 2014
July 1 to July 31, 2014
Share repurchase program	0	$	0.00	0	3,749,100	0	$	0.00	0	3,749,100
Director Fee Stock Plan	2,430	17.73		N/A	N/A	2,700	16.85		N/A	N/A
Stock Plans	3,625	18.42		N/A	N/A	0	0.00		N/A	N/A
May 1 to May 31, 2014
August 1 to August 31, 2014
Share repurchase program	0	$	0.00	0	3,749,100	0	$	0.00	0	3,749,100
Director Fee Stock Plan	0	0.00		N/A	N/A	0	0.00		N/A	N/A
Stock Plans	0	0.00		N/A	N/A	8,850	16.49		N/A	N/A
June 1 to June 30 2014
September 1 to September 30 2014
Share repurchase program	0	$	0.00	0	3,749,100	0	$	0.00	0	3,749,100
Director Fee Stock Plan	0	0.00		N/A	N/A	0	0.00		N/A	N/A
Stock Plans	1,500	17.37		N/A	N/A	0	0.00		N/A	N/A
Total
Share repurchase program	0	$	0.00	0		0	$	0.00	0
Director Fee Stock Plan	2,430	$	17.73	N/A		2,700	$	16.85	N/A
Stock Plans	5,125	$	18.11	N/A		8,850	$	16.49	N/A

(1)

Except with respect to the share repurchase program, the number of shares purchased in column (a) and the average price paid per share in column (b) include the purchase of shares other than through publicly announced plans. The shares purchased other than through publicly announced plans were purchased pursuant to First Financial’s Director Fee Stock Plan, 1999 Stock Option Plan for Non-Employee Directors, 1999 Stock Incentive Plan for Officers and Employees, 2009 Employee Stock Plan, Amended and Restated 2009 Non-Employee Director Stock Plan and 2012 Stock Plan (the last five plans are referred to hereafter as the Stock Plans.) The table shows the number of shares purchased pursuant to those plans and the average price paid per share. The purchases for the Director Fee Stock Plan were made in open-market transactions. Under the Stock Plans, shares were purchased from plan participants at the then current market value in satisfaction of stock option exercise prices.


(2)	First Financial has one previously announced stock repurchase plan under which it is authorized to purchase shares of its common stock. The plan has no expiration date. The table that follows provides additional information regarding this plan.



Announcement Date	Total Shares Approved for Repurchase	Total Shares Repurchased Under the Plan	Expiration Date
10/25/2012	5,000,000	1,250,900	None

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Item 6. Exhibits



(a)	Exhibits:

Exhibit Number
~~3.1~~		Amended Articles of Incorporation of First Financial Bancorp (reflecting all amendments filed with the Ohio Secretary of State) [for purposes of SEC reporting compliance only - not filed with the Ohio Secretary of State] (filed as exhibit 3.1 to the Form S-3 on July 31, 2014 and incorporated hereby by reference)(File No. 333-197771).

~~3.2~~		Certificate of Amendment by Shareholders to Articles of Incorporation effective June 25, 2014 (filed as exhibit 3.1 to the Form S-3 on July 31, 2014 and incorporated hereby by reference)(File No. 333-197771).

31.1		Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

31.2		Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

32.1		Certification of Periodic Financial Report by Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith.

32.2		Certification of Periodic Financial Report by Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith.

101.1		Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended ~~June~~September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, as blocks of text and in detail.⁽²⁾

First Financial will furnish, without charge, to a security holder upon request a copy of the documents and will furnish any other Exhibit upon payment of reproduction costs. Unless as otherwise noted, documents incorporated by reference involve File No. 001-34762.

(1) Compensation plan(s) or arrangement(s).


(2)	As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



		FIRST FINANCIAL BANCORP.
		(Registrant)

/s/ Anthony M. Stollings		/s/ John M. Gavigan
Anthony M. Stollings		John M. Gavigan
Executive Vice President, Chief Administrative Officer		First Vice President and Corporate Controller
and Chief Financial Officer		(Principal Accounting Officer)

Date	8/11/6/2014	Date	8/11/6/2014

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	Three months ended June 30, 2013
	Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	(24,399	)	$	188		$	(24,587	)	$	9,377		$	(15,210	)	$	9,445		$	(15,210	)	$	(5,765	)
Unrealized gain (loss) on derivatives	1,041			(68		)	1,109			(419		)	690			(17		)	690			673
Retirement obligation	11,719			(4,935		)	16,654			(6,289		)	10,365			(30,893		)	10,365			(20,528		)
Foreign currency translation	(15		)	0			(15		)	0			(15		)	(10		)	(15		)	(25		)
Total	$	(11,654	)	$	(4,815	)	$	(6,839	)	$	2,669		$	(4,170	)	$	(21,475	)	$	(4,170	)	$	(25,645	)