UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

~~FORM~~ ~~10-Q~~

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

For the quarterly period ended March 31, ~~2020~~2021

☐ 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 /OH/
(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.)

~~Ohio~~

~~31-1042001~~

~~(State or other jurisdiction of~~

~~incorporation or organization)~~

~~(I.R.S. Employer~~

~~Identification No.)~~

255 East Fifth Street, Suite 800

Cincinnati,

Ohio

45202

(Address of principal executive offices)

(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common stock, No par value

FFBC

The NASDAQ Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.


Large accelerated filer		☒	Accelerated filer	☐

~~Large accelerated~~Non-accelerated filer		☒☐	~~Accelerated filer~~Smaller reporting company	☐

~~Non-accelerated filer~~		☐	~~Smaller reporting company~~	☐

	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The registrant has one class of common stock (no par value) with ~~97,964,165~~97,281,532 shares outstanding at May ~~7, 2020.~~5, 2021.

Table of Contents

FIRST FINANCIAL BANCORP.

INDEX



			Page No.

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Balance Sheets - ~~March 31, 2020~~Mar ch 3 1 , 202 1 (unaudited) and December 31, ~~2019~~20 20			1

Consolidated Statements of Income - Three Months Ended March ~~31, 2020~~ 3 1 , 202 1 and ~~2019~~20 20 (unaudited)			2

Consolidated Statements of Comprehensive Income - Three Months Ended March ~~31, 2020~~ 3 1 , 202 1 and ~~2019~~20 20 (unaudited)			3

Consolidated Statements of Changes in Shareholders’ Equity - Three Months Ended March ~~31, 2020~~ 3 1 , 202 1 and ~~2019~~20 20 (unaudited)			4

Consolidated Statements of Cash Flows - Three Months Ended March ~~31, 2020~~ 3 1 , 202 1 and ~~2019~~20 20 (unaudited)			5

Notes to Consolidated Financial Statements (unaudited)			6

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations			4037

Item 3 - Quantitative and Qualitative Disclosures about Market Risk			5753

Item 4 - Controls and Procedures			5853

Part II - OTHER INFORMATION

Item 1 - Legal Proceedings			5954

Item 1A - Risk Factors			5954

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds			6354

Item 6 - Exhibits			6455

Signatures			6556

Table of Contents

Glossary of Abbreviations and Acronyms

First Financial has identified the following list of abbreviations and acronyms that are used in the Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations.

~~AFS~~ABL

~~Available-for-sale~~Asset backed lending

~~First Financial~~

~~First Financial Bancorp.~~

~~ACL~~

~~Allowance for credit losses~~

Form 10-K

First Financial Bancorp. Annual Report on Form 10-K

~~ALLL~~ACL

Allowance for ~~loan and lease~~credit losses

FRB

Federal Reserve Bank

~~Allowance~~AFS

Available-for-sale

GAAP

U.S. Generally Accepted Accounting Principles

Allowance

Collectively or individually, Allowance for credit losses ~~and Allowance for loan and lease losses~~

~~GAAP~~HTM

~~U.S. Generally Accepted Accounting Principles~~Held-to-maturity

AOCI

Accumulated other comprehensive income

~~HTM~~Insignificant

~~Held-to-maturity~~

~~ASC~~

~~Accounting standards codification~~

~~Insignificant~~

Less than $0.1 million

~~ASU~~ASC

Accounting standards ~~update~~codification

IRLC

Interest rate lock commitment

~~Bank~~ASU

Accounting standards update

LGD

Loss Given Default

Bank

First Financial Bank

~~LGD~~MD&A

~~Loss Given Default~~Management's Discussion and Analysis of Financial Condition and Results of Operations

Basel III

Basel Committee regulatory capital reforms, Third Basel Accord

MSFG

MainSource Financial Group, Inc.

BGF or Bannockburn

Bannockburn Global Forex, LLC

N/A

Not applicable

Bp/bps

Basis point(s)

NII

Net interest income

BOLI

Bank owned life insurance

OBS

Off-balance sheet

~~CDs~~CARES Act

~~Certificates of deposit~~Coronavirus Aid, Relief, and Economic Security Act

OREO

Other real estate owned

CDs

Certificates of deposit

PCA

Prompt corrective action

C&I

Commercial & industrial

~~PCA~~PCD

~~Prompt corrective action~~Purchased credit deteriorated

CRE

Commercial real estate

~~PCD~~PCI

~~Purchased~~Purchase credit ~~deteriorated~~impaired

Company

First Financial Bancorp.

~~PCI~~PD

~~Purchase credit impaired~~Probability of default

DDA

Demand deposit account

PDPPP

~~Probability of default~~Paycheck Protection Program

Dodd-Frank

Dodd–Frank Wall Street Reform and Consumer Protection Act

PPPLF

Paycheck Protection Program Liquidity Facility

EAD

Exposure at Default

R&S

Reasonable and Supportable

~~EAD~~ERM

~~Exposure at Default~~

~~ROU~~

~~Right-of-use~~

~~ERM~~

Enterprise risk management

~~SEC~~ROU

Right-of-use

EVE

Economic value of equity

SEC

U.S. Securities and Exchange Commission

~~EVE~~

~~Economic value of equity~~

~~SOFR~~

~~Secured Overnight Financing Rate~~

Fair Value Topic

FASB ASC Topic 820, Fair Value Measurement

SOFR

Secured Overnight Financing Rate

FASB

Financial Accounting Standards Board

Topic 842

FASB ASC Topic 842, Leasing

~~FASB~~FDIC

~~Financial Accounting Standards Board~~

~~TDR~~

~~Troubled debt restructuring~~

~~FDIC~~

Federal Deposit Insurance Corporation

~~TTS~~TDR

~~Through the cycle~~Troubled debt restructuring

FHLB

Federal Home Loan Bank

~~USD~~TTC

Through the cycle

FRB

Federal Reserve Bank

USD

United States dollars

First Financial

First Financial Bancorp.

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM I - FINANCIAL STATEMENTS

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	March 31, 2020			December 31, 2019				March 31, 2021		December 31, 2020
	(Unaudited)							(Unaudited)
Assets							Assets
Cash and due from banks	$	261,892		$	200,691		Cash and due from banks	$	210,191	$	231,054
Interest-bearing deposits with other banks	71,071			56,948			Interest-bearing deposits with other banks	19,180		20,305
Investment securities available-for-sale, at fair value (amortized cost $2,857,355 at March 31, 2020 and $2,798,298 at December 31, 2019)	2,908,688			2,852,084
Investment securities held-to-maturity (fair value $140,065 at March 31, 2020 and $142,821 at December 31, 2019)	136,744			142,862
Investment securities available-for-sale, at fair value (amortized cost $3,698,779 at March 31, 2021 and $3,330,029 at December 31, 2020)							Investment securities available-for-sale, at fair value (amortized cost $3,698,779 at March 31, 2021 and $3,330,029 at December 31, 2020)	3,753,763		3,424,580
Investment securities held-to-maturity (fair value $124,294 at March 31, 2021 and $136,698 at December 31, 2020)							Investment securities held-to-maturity (fair value $124,294 at March 31, 2021 and $136,698 at December 31, 2020)	121,945		131,687
Other investments	143,581			125,020			Other investments	131,814		133,198
Loans held for sale	27,334			13,680
Loans held for sale, at fair value							Loans held for sale, at fair value	34,590		41,103
Loans and leases							Loans and leases
Commercial & industrial	2,477,773			2,465,877			Commercial & industrial	3,044,825		3,007,509
Lease financing	82,602			88,364			Lease financing	66,574		72,987
Construction real estate	500,311			493,182			Construction real estate	642,709		636,096
Commercial real estate	4,278,257			4,194,651			Commercial real estate	4,396,582		4,307,858
Residential real estate	1,061,792			1,055,949			Residential real estate	946,522		1,003,086
Home equity	781,243			771,869			Home equity	709,667		743,099
Installment	80,085			82,589			Installment	82,421		81,850
Credit card	45,756			49,184			Credit card	44,669		48,485
Total loans and leases	9,307,819			9,201,665			Total loans and leases	9,933,969		9,900,970
Less: Allowance for credit losses ⁽¹⁾	143,885			57,650
Less: Allowance for credit losses							Less: Allowance for credit losses	169,923		175,679
Net loans and leases	9,163,934			9,144,015			Net loans and leases	9,764,046		9,725,291
Premises and equipment	212,787			214,506			Premises and equipment	204,537		207,211
Goodwill	937,771			937,771			Goodwill	937,771		937,771
Other intangibles	73,258			76,201			Other intangibles	61,984		64,552
Accrued interest and other assets	1,120,507			747,847			Accrued interest and other assets	935,250		1,056,382
Total assets	$	15,057,567		$	14,511,625		Total assets	$	16,175,071	$	15,973,134

Liabilities							Liabilities
Deposits							Deposits
Interest-bearing demand	$	2,498,109		$	2,364,881		Interest-bearing demand	$	2,914,761	$	2,914,787
Savings	2,978,250			2,960,979			Savings	4,006,181		3,680,774
Time	2,435,858			2,240,441			Time	1,731,757		1,872,733
Total interest-bearing deposits	7,912,217			7,566,301			Total interest-bearing deposits	8,652,699		8,468,294
Noninterest-bearing	2,723,341			2,643,928			Noninterest-bearing	3,995,370		3,763,709
Total deposits	10,635,558			10,210,229			Total deposits	12,648,069		12,232,003
Federal funds purchased and securities sold under agreements to repurchase	215,824			165,181			Federal funds purchased and securities sold under agreements to repurchase	181,387		166,594
FHLB short-term borrowings	1,181,900			1,151,000
Total short-term borrowings	1,397,724			1,316,181

Long-term debt	325,566			414,376			Long-term debt	583,722		776,202
Total borrowed funds	1,723,290			1,730,557			Total borrowed funds	765,109		942,796
Accrued interest and other liabilities	519,336			323,134			Accrued interest and other liabilities	502,951		516,265
Total liabilities	12,878,184			12,263,920			Total liabilities	13,916,129		13,691,064

Shareholders' equity							Shareholders' equity
Common stock - no par value							Common stock - no par value
Authorized - 160,000,000 shares; Issued - 104,281,794 shares in 2020 and 2019	1,633,950			1,640,771
Authorized - 160,000,000 shares; Issued - 104,281,794 shares in 2021 and 2020							Authorized - 160,000,000 shares; Issued - 104,281,794 shares in 2021 and 2020	1,633,137		1,638,947
Retained earnings	660,653			711,249			Retained earnings	745,220		720,429
Accumulated other comprehensive income (loss)	11,788			13,323			Accumulated other comprehensive income (loss)	18,101		48,664
Treasury stock, at cost, 6,312,836 shares in 2020 and 5,790,796 shares in 2019	(127,008		)	(117,638		)
Treasury stock, at cost, 6,764,101 shares in 2021 and 6,259,865 shares in 2020							Treasury stock, at cost, 6,764,101 shares in 2021 and 6,259,865 shares in 2020	(137,516)		(125,970)
Total shareholders' equity	2,179,383			2,247,705			Total shareholders' equity	2,258,942		2,282,070
Total liabilities and shareholders' equity	$	15,057,567		$	14,511,625		Total liabilities and shareholders' equity	$	16,175,071	$	15,973,134

~~(1) Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.~~

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
March 31,
2020 2019
Interest income
Loans and leases, including fees $ 115,775
$ 123,056
Investment securities
Taxable 19,005
24,235
Tax-exempt 4,582
4,258
Total interest on investment securities 23,587
28,493
Other earning assets 142
210
Total interest income 139,504
151,759
Interest expense
Deposits 16,365
19,243
Short-term borrowings 5,087
5,960
Long-term borrowings 3,770
5,041
Total interest expense 25,222
30,244
Net interest income 114,282
121,515
Provision for credit losses-loans and leases ⁽¹⁾
23,880
14,083
Provision for credit losses-unfunded commitments ⁽¹⁾
1,568
6
Net interest income after provision for credit losses 88,834
107,426
Noninterest income
Service charges on deposit accounts 8,435
8,903
Trust and wealth management fees 4,469
4,070
Bankcard income 2,698
5,586
Client derivative fees 3,105
1,704
Foreign exchange income 9,966
0
Net gain from sales of loans 2,831
1,890
Net gain (loss) on sales/transfers of investment securities (59 ) (178 )
Other 3,939
4,852
Total noninterest income 35,384
26,827
Noninterest expenses
Salaries and employee benefits 54,822
47,912
Net occupancy 6,104
6,630
Furniture and equipment 4,053
3,416
Data processing 6,389
5,127
Marketing 1,220
1,606
Communication 890
728
Professional services 2,275
2,252
State intangible tax 1,516
1,310
FDIC assessments 1,405
950
Intangible assets amortization 2,792
2,045
Other 8,200
6,517
Total noninterest expenses 89,666
78,493
Income before income taxes 34,552
55,760
Income tax expense 5,924
9,921
Net income $ 28,628
$ 45,839
Net earnings per common share - basic $ 0.29
$ 0.47
Net earnings per common share - diluted $ 0.29
$ 0.47
Cash dividends declared per share $ 0.23
$ 0.22
Average common shares outstanding - basic 97,736,690
97,926,088
Average common shares outstanding - diluted 98,356,214
98,436,311

~~(1) Beginning January 1, 2020, calculation is based on current expected loss methodology. Prior to January 1, 2020, calculation was based on incurred loss methodology.~~


	Three months ended
	March 31,
		2021		2020
Interest income
Loans and leases, including fees		$	98,931	$	115,775
Investment securities
Taxable		18,607		19,005
Tax-exempt		5,043		4,582
Total interest on investment securities		23,650		23,587
Other earning assets		28		142
Total interest income		122,609		139,504
Interest expense
Deposits		4,333		16,365
Short-term borrowings		67		5,087
Long-term borrowings		4,333		3,770
Total interest expense		8,733		25,222
Net interest income		113,876		114,282
Provision for credit losses - loans and leases		3,450		23,880
Provision for credit losses - unfunded commitments		538		1,568
Net interest income after provision for credit losses		109,888		88,834
Noninterest income
Service charges on deposit accounts		7,146		8,435
Trust and wealth management fees		4,398		4,469
Bankcard income		3,128		2,698
Client derivative fees		1,556		3,105
Foreign exchange income		10,757		9,966
Net gain from sales of loans		9,454		2,831
Net gain (loss) on sales/transfers of investment securities		(166)		(59)
Unrealized gain (loss) on equity securities		112		(98)


Other		3,937		4,037
Total noninterest income		40,322		35,384
Noninterest expenses
Salaries and employee benefits		61,253		54,822
Net occupancy		5,704		6,104
Furniture and equipment		3,969		4,053
Data processing		7,287		6,389
Marketing		1,361		1,220
Communication		838		890
Professional services		1,450		2,275
State intangible tax		1,202		1,516
FDIC assessments		1,349		1,405
Intangible assets amortization		2,479		2,792
Other		5,614		8,200
Total noninterest expenses		92,506		89,666
Income before income taxes		57,704		34,552
Income tax expense		10,389		5,924
Net income		$	47,315	$	28,628
Net earnings per common share - basic		$	0.49	$	0.29
Net earnings per common share - diluted		$	0.48	$	0.29
Average common shares outstanding - basic		96,873,940		97,736,690
Average common shares outstanding - diluted		97,727,527		98,356,214

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
	March 31,
		2021		2020
Net income		$	47,315	$	28,628
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on debt securities arising during the period		(30,968)		(1,863)
Change in retirement obligation		405		328


Other comprehensive income (loss)		(30,563)		(1,535)
Comprehensive income		$	16,752	$	27,093

See Notes to Consolidated Financial Statements.

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

Three months ended
March 31,
2020 2019
Net income $ 28,628
$ 45,839
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on debt securities arising during the period (1,863 ) 23,505
Change in retirement obligation 328
290
Unrealized gain (loss) on derivatives 0
72
Other comprehensive income (loss) (1,535 ) 23,867
Comprehensive income $ 27,093
$ 69,706

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			Retained		Accumulated other comprehensive		Treasury stock
	Shares	Amount		Earnings		income (loss)		Shares	Amount		Total
Balance at January 1, 2020	104,281,794	$	1,640,771	$	711,249	$	13,323	(5,790,796)	$	(117,638)	$	2,247,705
Impact of cumulative effect of adoption of new accounting principles				(56,882)		0					(56,882)
Net income				28,628							28,628
Other comprehensive income (loss)						(1,535)					(1,535)
Cash dividends declared:
Common stock at $0.23 per share				(22,342)							(22,342)
Purchase of common stock								(880,000)	(16,686)		(16,686)



Exercise of stock options, net of shares purchased		(140)						10,405	212		72
Restricted stock awards, net of forfeitures		(8,218)						347,555	7,104		(1,114)
Share-based compensation expense		1,537									1,537
Balance at March 31, 2020	104,281,794	$	1,633,950	$	660,653	$	11,788	(6,312,836)	$	(127,008)	$	2,179,383
Balance at January 1, 2021	104,281,794	$	1,638,947	$	720,429	$	48,664	(6,259,865)	$	(125,970)	$	2,282,070

Net income				47,315							47,315
Other comprehensive income (loss)						(30,563)					(30,563)
Cash dividends declared:
Common stock at $0.23 per share				(22,524)							(22,524)
Purchase of common stock								(840,115)	(17,982)		(17,982)


Exercise of stock options, net of shares purchased		(36)						3,468	70		34
Restricted stock awards, net of forfeitures		(8,616)						332,411	6,366		(2,250)
Share-based compensation expense		2,842									2,842
Balance at March 31, 2021	104,281,794	$	1,633,137	$	745,220	$	18,101	(6,764,101)	$	(137,516)	$	2,258,942

Common Stock Retained Accumulated other comprehensive Treasury stock
Shares Amount Earnings income (loss) Shares Amount Total
Balance at January 1, 2019 104,281,794
$ 1,633,256
$ 600,014
$ (44,408 ) (6,387,508 ) $ (110,613 ) $ 2,078,249
Impact of cumulative effect of adoption of new accounting principles 2,221
906
3,127
Net income
45,839
45,839
Other comprehensive income (loss) 23,867
23,867
Cash dividends declared:
Common stock at $0.22 per share (21,666 ) (21,666 )
Warrant exercises (7,830 ) 452,134
7,830
0
Exercise of stock options, net of shares purchased (264 ) 20,424
354
90
Restricted stock awards, net of forfeitures (5,604 ) 247,028
3,521
(2,083 )
Share-based compensation expense 2,996
2,996
Balance at March 31, 2019 104,281,794
$ 1,622,554
$ 626,408
$ (19,635 ) (5,667,922 ) $ (98,908 ) $ 2,130,419
Balance at January 1, 2020 104,281,794
$ 1,640,771
$ 711,249
$ 13,323
(5,790,796 ) $ (117,638 ) $ 2,247,705
Impact of cumulative effect of adoption of new accounting principles (56,882 ) (56,882 )
Net income 28,628
28,628
Other comprehensive income (loss) (1,535 ) (1,535 )
Cash dividends declared:
Common stock at $0.23 per share (22,342 ) (22,342 )
Purchase of common stock (880,000 ) (16,686 ) (16,686 )
Exercise of stock options, net of shares purchased (140 ) 10,405
212
72
Restricted stock awards, net of forfeitures (8,218 ) 347,555
7,104
(1,114 )
Share-based compensation expense 1,537
1,537
Balance at March 31, 2020 104,281,794
$ 1,633,950
$ 660,653
$ 11,788
(6,312,836 ) $ (127,008 ) $ 2,179,383

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three months ended							Three months ended
	March 31,							March 31,
	2020			2019				2021		2020
Operating activities							Operating activities
Net income	$	28,628		$	45,839		Net income	$	47,315	$	28,628
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	25,448			14,083			Provision for credit losses	3,988		25,448
Depreciation and amortization	8,464			6,489			Depreciation and amortization	8,233		8,464
Stock-based compensation expense	1,537			2,996			Stock-based compensation expense	2,842		1,537
Pension expense (income)	400			375			Pension expense (income)	850		400
Net amortization (accretion) on investment securities	3,981			2,649			Net amortization (accretion) on investment securities	9,136		3,981
Net (gain) loss on sales of investment securities	59			178			Net (gain) loss on sales of investment securities	166		59
Unrealized (gain) loss from equity securities							Unrealized (gain) loss from equity securities	(112)		98
Originations of loans held for sale	(111,112		)	(41,227		)	Originations of loans held for sale	(206,222)		(111,112)
Net gains from sales of loans held for sale	(2,831		)	(1,890		)	Net gains from sales of loans held for sale	(9,454)		(2,831)
Proceeds from sales of loans held for sale	100,288			39,273			Proceeds from sales of loans held for sale	220,374		100,288
Deferred income taxes	2,975			12,625			Deferred income taxes	3,303		2,975
Amortization of operating leases	2,020			1,826			Amortization of operating leases	1,851		2,020
Payments for operating leases	(1,288		)	(1,823		)	Payments for operating leases	(1,790)		(1,288)
Decrease (increase) cash surrender value of life insurance	(198		)	(1,534		)	Decrease (increase) cash surrender value of life insurance	(479)		(198)
Decrease (increase) in interest receivable	(878		)	(3,109		)	Decrease (increase) in interest receivable	(777)		(878)
(Decrease) increase in interest payable	(2,197		)	322			(Decrease) increase in interest payable	(518)		(2,197)
Decrease (increase) in other assets	(362,619		)	(30,168		)	Decrease (increase) in other assets	117,134		(362,717)
(Decrease) increase in other liabilities	181,099			(8,908		)	(Decrease) increase in other liabilities	(48,806)		181,099
Net cash provided by (used in) operating activities	(126,224		)	37,996			Net cash provided by (used in) operating activities	147,034		(126,224)

Investing activities							Investing activities
Proceeds from sales of securities available-for-sale	29,922			0			Proceeds from sales of securities available-for-sale	50,451		29,922
Proceeds from calls, paydowns and maturities of securities available-for-sale	151,629			95,114			Proceeds from calls, paydowns and maturities of securities available-for-sale	279,426		151,629
Purchases of securities available-for-sale	(234,589		)	(143,290		)	Purchases of securities available-for-sale	(665,723)		(234,589)

Proceeds from calls, paydowns and maturities of securities held-to-maturity	6,186			2,398			Proceeds from calls, paydowns and maturities of securities held-to-maturity	10,799		6,186
Purchases of securities held-to-maturity							Purchases of securities held-to-maturity	(1,000)		0
Purchases of other investment securities	(18,659		)	0			Purchases of other investment securities	(992)		(18,659)
Proceeds from calls, paydowns and maturities of other securities							Proceeds from calls, paydowns and maturities of other securities	2,488		0
Net decrease (increase) in interest-bearing deposits with other banks	(14,123		)	(12,486		)	Net decrease (increase) in interest-bearing deposits with other banks	1,125		(14,123)
Net decrease (increase) in loans and leases	(105,697		)	438			Net decrease (increase) in loans and leases	(40,390)		(105,697)
Proceeds from disposal of other real estate owned	900			183			Proceeds from disposal of other real estate owned	433		900
Purchases of premises and equipment	(5,805		)	(1,268		)	Purchases of premises and equipment	(2,717)		(5,805)

Net cash provided by (used in) investing activities	(190,236		)	(58,911		)	Net cash provided by (used in) investing activities	(366,100)		(190,236)

Financing activities							Financing activities
Net (decrease) increase in total deposits	425,329			(6,379		)	Net (decrease) increase in total deposits	416,066		425,329
Net (decrease) increase in short-term borrowings	81,543			6,724			Net (decrease) increase in short-term borrowings	14,793		81,543
Payments on long-term debt	(90,066		)	(25,187		)	Payments on long-term debt	(192,508)		(90,066)

Cash dividends paid on common stock	(22,531		)	(21,550		)	Cash dividends paid on common stock	(22,200)		(22,531)
Treasury stock purchase	(16,686		)	0			Treasury stock purchase	(17,982)		(16,686)
Proceeds from exercise of stock options	72			90			Proceeds from exercise of stock options	34		72
Net cash provided by (used in) financing activities	377,661			(46,302		)	Net cash provided by (used in) financing activities	198,203		377,661

Cash and due from banks							Cash and due from banks
Change in cash and due from banks	61,201			(67,217		)	Change in cash and due from banks	(20,863)		61,201
Cash and due from banks at beginning of period	200,691			236,221			Cash and due from banks at beginning of period	231,054		200,691
Cash and due from banks at end of period	$	261,892		$	169,004		Cash and due from banks at end of period	$	210,191	$	261,892

Supplemental disclosures							Supplemental disclosures
Interest paid							Interest paid	$	9,252	$	27,420
Income taxes paid, net of refunds							Income taxes paid, net of refunds	$	147	$	72

See Notes to Consolidated Financial Statements.

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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, ~~2020~~2021

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation. The Consolidated Financial Statements of First Financial Bancorp., a financial holding company principally serving Ohio, Indiana, Kentucky and Illinois, include the accounts and operations of First Financial and its wholly-owned subsidiary, First Financial Bank. All significant intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications of prior periods' amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they may not include all of the information and accompanying notes necessary to constitute a complete set of financial statements required by GAAP and should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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, ~~2019~~2020 has been derived from the audited financial statements in the Company’s ~~2019~~2020 Form 10-K.

Use of estimates. The preparation of financial statements in conformity with 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.

COVID-19. In the majority of 2020 and the first quarter of ~~2020,~~2021, First Financial's operations and financial results were significantly impacted by the COVID-19 pandemic. The spread of COVID-19 has caused significant economic disruption throughout the United States as state and local governments issued stay at home orders and temporarily closed non-essential businesses. The ~~potential~~full financial impact from the pandemic is unknown at this time, however prolonged disruption from the pandemic may adversely impact several industries within the Company's geographic footprint and impair the ability of First Financial's customers to fulfill their contractual obligations to the Company. This could cause First Financial to experience a material adverse effect on business operations, asset valuations, financial condition and results of operations. Material adverse impacts may include all or a combination of valuation impairments on First Financial's intangible assets, investments, loans, mortgage servicing rights or counter-party risk derivatives.

~~Investment securities.~~ First Financial classifies debt securities into three categories: HTM, trading and AFS. Management classifies investment securities into the appropriate category at the time of purchase and re-evaluates that classification as deemed appropriate.

~~Investment securities are classified as HTM when First Financial has the positive intent and ability to hold the securities to maturity. HTM securities are recorded at amortized cost.~~

Investment securities classified as trading are held principally for resale in the near-term and are recorded at fair value. Fair value is determined using quoted market prices. Gains or losses on trading securities, both realized and unrealized, are reported in noninterest income.

Investment securities not classified as either HTM or trading are classified as AFS. AFS securities are recorded at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.

The amortized cost of investment securities classified as either HTM or AFS is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion are considered an adjustment to the yield on the security and included in interest income from investments. Interest and dividends are also included in interest income from investment securities in the Consolidated Statements of Income. Realized gains and losses are based on the amortized cost of the security sold using the specific identification method.

~~Allowance for credit losses - held-to-maturity securities~~. Management measures expected credit losses on held-to-maturity debt securities on a collective basis by security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-maturity portfolio into the following major security types: Mortgage-backed, CMOs and Obligations of state and other political subdivisions.

Nearly all of the HTM securities held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The remainder of the Company's HTM securities are non-agency collateralized mortgage obligations and obligations of state and other political subdivisions which currently carry ratings no lower than A+. Accrued interest receivable on held-to maturity debt securities, which totaled $0.3 million as of ~~March 31, 2020, is excluded from the estimate of credit losses.~~

~~Allowance for credit losses - available-for-sale securities.~~ For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities, which totaled $12.7 million as of ~~March 31, 2020, is excluded from the estimate of credit losses.~~

~~Allowance for credit losses - loans and leases.~~The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Management's determination of the adequacy of the ACL is based on an assessment of the expected credit losses on loan and leases over the expected life of the loan. The ACL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged off when management believes that the collection of the princ~~ipal amount owed in full, either through payments from the borrower or a guarantor or from the liquidation of collateral, is unlikely.~~ ~~Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Any interest that is accrued but not collected is reversed against interest income when a loan is placed on nonaccrual status, which typically occurs prior to charging off all, or a portion, of a loan.~~ ~~Accrued interest receivable on loans and leases is excluded from the estimate of credit losses.~~

Management estimates the allowance balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired with economic forecasts provides the basis for the quantitatively modeled estimation of expected credit losses. ~~First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the Qualitative Framework.~~

First Financial quantitatively models expected credit loss using Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) over the Reasonable and Supportable ("R&S") forecast period, reversion and post-reversion periods.

Utilizing third-party software, the Bank forecasts PD by using a parameterized transition matrix approach. Average transition matrices are calculated over the Through the Cycle ("TTC") period, which was defined as the period from December 2007 to December 2016. TTC transition matrices are adjusted under forward-looking macroeconomic expectations to obtain R&S forecasts.

First Financial is not required to develop forecasts over full the contractual term of the financial asset or group of financial assets. Rather, for periods beyond which the entity is able to make or obtain R&S forecasts of expected credit losses, the

Company reverts in a straight line manner over a one year period to an average TTC loss level that is reflective of the prepayment adjusted contractual term of the financial asset or group of financial assets. The R&S period, elected by the bank to be two years, is forecasted using econometric data sourced from Moody's, an industry-leading independent third party.

FFB utilizes the non-parametric loss curve approach embedded within the third-party software for estimating LGD. The PD multiplied by LGD produces an expected loss rate that, when calculating the ACL, is applied to contractual loan cash flows, adjusted for expected future rates of principal prepayments.

The Company adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects current conditions and R&S forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The Qualitative Framework reflects changes related to relevant data, such as changes in asset quality trends, portfolio growth and composition, national and local economic factors, credit policy and administration and other factors not considered in the base model.

Loans that do not share risk characteristics are evaluated on an individual basis. First Financial will typically evaluate on an individual basis any loans that are on nonaccrual, designated as a TDR, or reasonably expected to be designated as a TDR. When management determines that foreclosure is probable or when repayment is expected to be provided substantially through the operation or sale of underlying collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs. For loans evaluated on an individual basis that are not determined to be collateral dependent, a discounted cash flow analysis is performed to determine expected credit losses.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Credit card receivables do not have stated maturities. In determining the estimated life of a credit card receivable, management first estimates the future cash flows expected to be received and then applies those expected future cash flows to the credit card balance.

~~Allowance for credit losses - unfunded commitments.~~ ~~Effective January 1, 2020, First Financial adopted ASC 326, at which time First Financial~~ estimated expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the Company's ACL methodology for loans and leases. A~~djustments to the reserve for unfunded commitments are recorded in Provision for credit losses - unfunded commitments in the Consolidated Statements of Income.~~

NOTE 2: ACCOUNTING STANDARDS RECENTLY ADOPTED OR ISSUED

Standards Adopted in 2021

During the first quarter of 2021, the Company adopted ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplified the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and added new requirements with the intention of simplifying and clarifying existing guidance. This update did not have a material impact on the Company’s Consolidated Financial Statements.

Standards Adopted in 2020

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which ~~replaces~~replaced the previously required incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell. The Company adopted ASC 326 using the modified retrospective method for all financial

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assets measured at amortized cost and ~~off-balance-sheet (OBS)~~OBS credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of~~$56.9~~ $56.9 millionas of January 1, 2020 for the cumulative effect of

adopting ASC 326. As detailed in the following table, the transition adjustment included a~~$61.5~~ $61.5 millionincrease to ACL, a~~$12.2~~ $12.2 million increase in the ACL for unfunded commitments and a $16.8 million decrease in ~~Deferred~~deferred tax ~~liability.~~liabilities.

The Company adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired and accounted for under ASC 310-30. In accordance with the standard, First Financial did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption.

The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. First Financial is adopting the capital transition relief over the five year permissible period.

January 1, 2020
(dollars in thousands) As Reported under ASC 326 Pre-ASC 326 Impact of ASC 326 Adoption
Assets
Loans
Commercial and industrial $ 28,485
$ 18,584
$ 9,901
Lease financing 1,089 971 118
Construction real estate 13,960 2,381 11,579
Commercial real estate 47,697 23,579 24,118
Residential real estate 10,789 5,299 5,490
Home equity 13,217 4,787 8,430
Installment 1,193 392 801
Credit card 2,725 1,657 1,068
Allowance for credit losses on loans $ 119,155
$ 57,650
$ 61,505

Liabilities
Deferred tax liability $ 16,252
$ 33,030
$ (16,778 )
Allowance for credit losses on OBS credit exposures 12,740 585 12,155

The impact of adopting ASC 326 was as follows:

~~For more information on the calculation of the ACL, please refer to Note 1 - Summary of Significant Accounting Policies and Note 5 - Allowance for Credit Losses.~~


	January 1, 2020
(dollars in thousands)	As Reported under ASC 326		Pre-ASC 326		Impact of ASC 326 Adoption
Assets


Loans
Commercial and industrial	$	28,485	$	18,584	$	9,901
Lease financing	1,089		971		118
Construction real estate	13,960		2,381		11,579
Commercial real estate	47,697		23,579		24,118
Residential real estate	10,789		5,299		5,490
Home equity	13,217		4,787		8,430
Installment	1,193		392		801
Credit card	2,725		1,657		1,068
Allowance for credit losses on loans	$	119,155	$	57,650	$	61,505

Liabilities
Deferred tax liability	$	16,252	$	33,030	$	(16,778)
Allowance for credit losses on OBS credit exposures	12,740		585		12,155

During the first quarter of 2020, the Company adopted ASU No. 2018-13, Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements. Under the changes, entities are no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but must disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This update did not have a material impact on the Company’s Consolidated Financial Statements.

NOTE 3: INVESTMENTS

For the three months ended March 31, 2021, there were sales of $52.1 million of AFS securities with $0.6 million of gross realized gains and $0.7 million of gross realized losses. For the three months ended March 31, 2020, there were ~~sales of~~ $29.9 million sales of AFS securities with 0 gross realized gains and $0.1 million of gross realized losses. ~~For the three months ended March 31, 2019, there were 0 sales~~

Table of AFS securities and therefore 0 associated gains or losses. In conjunction with the adoption of ASU 2017-12 in the first quarter of 2019, First Financial reclassified $268.7 million of HTM securities to AFS resulting in a $0.2 million realized loss recorded in the Consolidated Statement of Income.Contents

The following is a summary of HTM and AFS investment securities as of March 31, ~~2020:~~2021:


	Held-to-maturity								Available-for-sale
(Dollars in thousands)	Amortized cost		Unrecognized gain		Unrecognized loss		Fair value		Amortized cost		Unrealized gain		Unrealized loss		Fair value
U.S. Treasuries	$	0	$	0	$	0	$	0	$	10,257	$	3	$	0	$	10,260

Mortgage-backed securities - residential	0		0		0		0		784,407		12,488		(11,255)		785,640
Mortgage-backed securities - commercial	63,481		2,034		0		65,515		591,629		7,096		(3,680)		595,045
Collateralized mortgage obligations	17,580		109		(411)		17,278		661,322		17,796		(2,404)		676,714
Obligations of state and other political subdivisions	9,634		1,001		0		10,635		971,325		38,835		(8,541)		1,001,619
Asset-backed securities	0		0		0		0		601,836		4,075		(1,190)		604,721
Other securities	31,250		82		(466)		30,866		78,003		1,949		(188)		79,764
Total	$	121,945	$	3,226	$	(877)	$	124,294	$	3,698,779	$	82,242	$	(27,258)	$	3,753,763

Held-to-maturity Available-for-sale
(Dollars in thousands) Amortized
cost Unrecognized gain Unrecognized loss Fair
value
Amortized
cost

Unrealized
gain

Unrealized
loss
Fair
value
U.S. Treasuries $ 0
$ 0
$ 0
$ 0
$ 99
$ 5
$ 0
$ 104
Securities of U.S. government agencies and corporations 0
0
0
0
116
2
0
118
Mortgage-backed securities - residential 19,832
1,046
0
20,878
419,423
19,215
(219 ) 438,419
Mortgage-backed securities - commercial 97,073
1,671
(375 ) 98,369
506,343
7,034
(9,082 ) 504,295
Collateralized mortgage obligations 9,043
149
0
9,192
745,649
28,845
(2,479 ) 772,015
Obligations of state and other political subdivisions 10,796
830
0
11,626
723,470
30,576
(152 ) 753,894
Asset-backed securities 0
0
0
0
382,415
225
(18,841 ) 363,799
Other securities 0
0
0
0
79,840
90
(3,886 ) 76,044
Total $ 136,744
$ 3,696
$ (375 ) $ 140,065
$ 2,857,355
$ 85,992
$ (34,659 ) $ 2,908,688

The following is a summary of HTM and AFS investment securities as of December 31, ~~2019:~~2020:


	Held-to-maturity								Available-for-sale
(Dollars in thousands)	Amortized cost		Unrecognized gain		Unrecognized loss		Fair value		Amortized cost		Unrealized gain		Unrealized loss		Fair value
U.S. Treasuries	$	0	$	0	$	0	$	0	$	99	$	4	$	0	$	103
Securities of U.S. government agencies and corporations	0		0		0		0		60		0		0		60
Mortgage-backed securities - residential	13,990		197		0		14,187		704,482		15,938		(237)		720,183
Mortgage-backed securities - commercial	71,737		3,485		0		75,222		584,125		10,395		(3,584)		590,936
Collateralized mortgage obligations	5,799		79		0		5,878		634,418		21,148		(445)		655,121
Obligations of state and other political subdivisions	9,911		1,239		0		11,150		856,054		46,755		(291)		902,518
Asset-backed securities	0		0		0		0		478,539		4,158		(826)		481,871
Other securities	30,250		11		0		30,261		72,252		1,544		(8)		73,788
Total	$	131,687	$	5,011	$	0	$	136,698	$	3,330,029	$	99,942	$	(5,391)	$	3,424,580

Held-to-maturity Available-for-sale
(Dollars in thousands) Amortized
cost Unrecognized gain Unrecognized
loss Fair
value Amortized
cost Unrealized
gain Unrealized
loss Fair
value
U.S. Treasuries $ 0
$ 0
$ 0
$ 0
$ 99
$ 1
$ 0
$ 100
Securities of U.S. government agencies and corporations 0
0
0
0
156
2
0
158
Mortgage-backed securities - residential 20,818
122
(174 ) 20,766
421,945
9,709
(99 ) 431,555
Mortgage-backed securities - commercial 101,267
571
(1,225 ) 100,613
474,174
4,988
(2,644 ) 476,518
Collateralized mortgage obligations 9,763
0
(108 ) 9,655
769,076
16,753
(385 ) 785,444
Obligations of state and other political subdivisions 11,014
804
(31 ) 11,787
652,986
23,729
(462 ) 676,253
Asset-backed securities 0
0
0
0
400,081
1,414
(1,064 ) 400,431
Other securities 0
0
0
0
79,781
1,959
(115 ) 81,625
Total $ 142,862
$ 1,497
$ (1,538 ) $ 142,821
$ 2,798,298
$ 58,555
$ (4,769 ) $ 2,852,084

The following table provides a summary of investment securities by contractual maturity as of March 31, ~~2020,~~2021, except for residential and commercial mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, which are shown as single totals due to the unpredictability of the timing in principal repayments.


	Held-to-maturity				Available-for-sale
(Dollars in thousands)	Amortized cost		Fair value		Amortized cost		Fair value
By Contractual Maturity:
Due in one year or less	$	0	$	0	$	14,781	$	14,963
Due after one year through five years	0		0		56,598		58,309
Due after five years through ten years	37,135		37,662		184,348		192,197
Due after ten years	3,749		3,839		803,858		826,174
Mortgage-backed securities - residential	0		0		784,407		785,640
Mortgage-backed securities - commercial	63,481		65,515		591,629		595,045
Collateralized mortgage obligations	17,580		17,278		661,322		676,714
Asset-backed securities	0		0		601,836		604,721
Total	$	121,945	$	124,294	$	3,698,779	$	3,753,763

Held-to-maturity Available-for-sale
(Dollars in thousands)
Amortized
cost

Fair
value

Amortized
cost

Fair
value
By Contractual Maturity:
Due in one year or less $ 0
$ 0
$ 5,138
$ 5,157
Due after one year through five years 0
0
55,648
56,434
Due after five years through ten years 4,797
5,476
148,614
147,686
Due after ten years 5,999
6,150
594,125
620,883
Mortgage-backed securities - residential 19,832
20,878
419,423
438,419
Mortgage-backed securities - commercial 97,073
98,369
506,343
504,295
Collateralized mortgage obligations 9,043
9,192
745,649
772,015
Asset-backed securities 0
0
382,415
363,799
Total $ 136,744
$ 140,065
$ 2,857,355
$ 2,908,688

Unrealized 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,~~exists, requiring a write-down to fair value. For securities in an unrealized loss position, the Company first assesses

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whether it intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

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~~The Company recorded 0 reserves on investment securities ~~portfolio as of~~for the three months ended March 31, ~~2020~~2021 or the twelve months ended December 31, ~~2019.~~2020.

As of March 31, ~~2020,~~2021, the Company's investment securities portfolio consisted of ~~1,276~~1,402 securities, of which ~~194~~223 were in an unrealized loss position. As of December 31, ~~2019,~~2020, the Company's investment securities portfolio consisted of ~~1,273~~1,351 securities, of which ~~140~~94 were in an unrealized loss position.

Primarily all of First Financial’s HTM debt securities are issued by U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. The remainder of the Company's HTM securities are non-agency collateralized mortgage obligations and obligations of state and other political subdivisions which currently carry ratings no lower than A+. There were no0 HTM securities on nonaccrual status or past due as of March 31, 2021 or December 31, 2020. Therefore, the Company did not record an allowance for credit losses for these securities as of March 31, 2021 or December 31, 2020.

The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position for which an allowance for credit losses has not been recorded, aggregated by investment category and the length of time the individual securities have been in a continuous loss position:


	March 31, 2021
	Less than 12 months				12 months or more				Total
(Dollars in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss
U.S. Treasuries	$	0	$	0	$	0	$	0	$	0	$	0
Securities of U.S. Government agencies and corporations	0		0		0		0		0		0
Mortgage-backed securities - residential	482,754		(11,255)		0		0		482,754		(11,255)
Mortgage-backed securities - commercial	60,681		(1,665)		57,196		(2,015)		117,877		(3,680)
Collateralized mortgage obligations	142,823		(2,815)		1		0		142,824		(2,815)
Obligations of state and other political subdivisions	318,750		(8,527)		22,104		(14)		340,854		(8,541)
Asset-backed securities	160,329		(970)		36,344		(220)		196,673		(1,190)
Other securities	34,096		(654)		0		0		34,096		(654)
Total	$	1,199,433	$	(25,886)	$	115,645	$	(2,249)	$	1,315,078	$	(28,135)

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	March 31, 2020																December 31, 2020
	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			(Dollars in thousands)	Fair value		Unrealized loss		Fair value		Unrealized loss		Fair value		Unrealized loss
U.S. Treasuries	$	0	$	0		$	0	$	0		$	0	$	0		U.S. Treasuries	$	0	$	0	$	0	$	0	$	0	$	0
Securities of U.S. Government agencies and corporations	0		0			0		0			0		0			Securities of U.S. Government agencies and corporations	0		0		0		0		0		0
Mortgage-backed securities - residential	37,185		(219		)	0		0			37,185		(219		)	Mortgage-backed securities - residential	57,872		(237)		0		0		57,872		(237)
Mortgage-backed securities - commercial	188,990		(4,567		)	62,083		(4,890		)	251,073		(9,457		)	Mortgage-backed securities - commercial	169,825		(986)		48,158		(2,598)		217,983		(3,584)
Collateralized mortgage obligations	115,697		(1,847		)	8,267		(632		)	123,964		(2,479		)	Collateralized mortgage obligations	49,161		(445)		1		0		49,162		(445)
Obligations of state and other political subdivisions	33,083		(148		)	1,681		(4		)	34,764		(152		)	Obligations of state and other political subdivisions	60,008		(291)		0		0		60,008		(291)
Asset-backed securities	279,980		(16,048		)	59,852		(2,793		)	339,832		(18,841		)	Asset-backed securities	84,749		(435)		68,967		(391)		153,716		(826)
Other securities	46,746		(3,081		)	4,010		(805		)	50,756		(3,886		)	Other securities	4,992		(8)		0		0		4,992		(8)
Total	$	701,681	$	(25,910	)	$	135,893	$	(9,124	)	$	837,574	$	(35,034	)	Total	$	426,607	$	(2,402)	$	117,126	$	(2,989)	$	543,733	$	(5,391)

December 31, 2019
Less than 12 months 12 months or more Total
Fair Unrealized Fair Unrealized Fair Unrealized
(Dollars in thousands) value loss value loss value loss
U.S. Treasuries $ 0
$ 0
$ 0
$ 0
$ 0
$ 0
Securities of U.S. Government agencies and corporations 0
0
0
0
0
0
Mortgage-backed securities - residential 40,190
(209 ) 11,063
(64 ) 51,253
(273 )
Mortgage-backed securities - commercial 111,658
(298 ) 104,069
(3,571 ) 215,727
(3,869 )
Collateralized mortgage obligations 85,248
(297 ) 30,628
(196 ) 115,876
(493 )
Obligations of state and other political subdivisions 118,623
(457 ) 7,950
(36 ) 126,573
(493 )
Asset-backed securities 125,889
(553 ) 54,963
(511 ) 180,852
(1,064 )
Other securities 0
0
5,649
(115 ) 5,649
(115 )
Total $ 481,608
$ (1,814 ) $ 214,322
$ (4,493 ) $ 695,930
$ (6,307 )

For further detail on the fair value of investment securities, see Note 16 – Fair Value Disclosures.

NOTE 4: LOANS AND LEASES

First Financial offers clients a variety of commercial and consumer loan and lease products with ~~distinct~~diverse interest rates and payment terms. Commercial loan categories include C&I, CRE, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card.

Lending activities are primarily concentrated in states where the Bank operates banking centers (Ohio, Indiana, Kentucky and Illinois). First Financial also offers two nationwide lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that primarily provides loans that are secured by commissions and cash collateral to insurance agents and brokers.

In accordance with the CARES Act and the 2021 Consolidated Appropriations Act, First Financial participated in offering PPP loans to its customers. These loans provide a direct incentive for small businesses to keep their workers on the payroll and to maintain their operations during the COVID-19 pandemic. PPP loans are eligible to be forgiven provided certain conditions are met. As of March 31, 2021, First Financial had $690.0 million in PPP loans, net of unearned fees of $21.9 million. As of December 31, 2020, First Financial had $594.6 million in PPP loans, net of unearned fees of $13.7 million.

Credit Quality. To facilitate the monitoring of credit quality for commercial loans, First Financial utilizes the following categories of credit grades:

Pass - Higher quality loans that do not fit any of the other categories described below.

Special Mention - First Financial assigns a special mention rating to loans and leases with potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan, lease or First Financial's credit position at some future date.

Substandard - First Financial assigns a substandard rating to loans or leases that are inadequately protected by the current sound financial worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans and leases have well-defined weaknesses that jeopardize repayment of the debt. Substandard loans and leases are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not addressed.

Doubtful - First Financial assigns a doubtful rating to loans and leases with all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include

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proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.

The credit grades previously described are derived from standard regulatory rating definitions and are assigned upon initial approval of credit to borrowers and updated periodically thereafter.

First Financial considers repayment performance to be the best indicator of credit quality for consumer loans. Consumer loans that have principal and interest payments that are past due by 90 days or more are generally classified as nonperforming. Additionally, consumer loans that have been modified in a TDR are classified as nonperforming.

The following table sets forth the Company's loan portfolio at March 31, 2021 by risk attribute and origination date:


(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Term Total		Revolving		Total
Commercial & industrial
Pass	$	366,213	$	978,739	$	421,400	$	268,946	$	193,605	$	223,038	$	2,451,941	$	484,869	$	2,936,810
Special mention	0		4,012		6,521		15,318		5,520		14,225		45,596		7,444		53,040
Substandard	4		781		18,440		1,592		19,498		6,514		46,829		8,146		54,975
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	366,217	$	983,532	$	446,361	$	285,856	$	218,623	$	243,777	$	2,544,366	$	500,459	$	3,044,825
Lease financing
Pass	$	5,144	$	23,238	$	13,968	$	12,055	$	6,148	$	5,554	$	66,107	$	0	$	66,107
Special mention	0		262		0		0		0		0		262		0		262
Substandard	0		3		0		0		154		48		205		0		205
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	5,144	$	23,503	$	13,968	$	12,055	$	6,302	$	5,602	$	66,574	$	0	$	66,574
Construction real estate
Pass	$	2,020	$	111,299	$	313,468	$	119,471	$	23,109	$	13,616	$	582,983	$	26,549	$	609,532
Special mention	0		0		621		18,203		0		640		19,464		0		19,464
Substandard	0		0		13,713		0		0		0		13,713		0		13,713
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	2,020	$	111,299	$	327,802	$	137,674	$	23,109	$	14,256	$	616,160	$	26,549	$	642,709
Commercial real estate - investor
Pass	$	133,166	$	496,717	$	1,040,587	$	404,440	$	367,020	$	604,733	$	3,046,663	$	60,055	$	3,106,718
Special mention	155		1,884		17,738		15,440		54,438		69,864		159,519		49		159,568
Substandard	0		6,203		11,739		35,233		7,000		21,105		81,280		121		81,401
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	133,321	$	504,804	$	1,070,064	$	455,113	$	428,458	$	695,702	$	3,287,462	$	60,225	$	3,347,687
Commercial real estate - owner
Pass	$	25,535	$	197,722	$	156,909	$	138,347	$	126,865	$	296,748	$	942,126	$	34,262	$	976,388
Special mention	0		4,533		1,859		2,582		8,098		24,559		41,631		59		41,690
Substandard	63		649		9,964		13,169		3,006		3,928		30,779		38		30,817
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	25,598	$	202,904	$	168,732	$	154,098	$	137,969	$	325,235	$	1,014,536	$	34,359	$	1,048,895
Residential real estate
Performing	$	40,728	$	281,000	$	212,472	$	103,366	$	54,096	$	250,183	$	941,845	$	0	$	941,845
Nonperforming	0		194		521		150		376		3,436		4,677		0		4,677
Total	$	40,728	$	281,194	$	212,993	$	103,516	$	54,472	$	253,619	$	946,522	$	0	$	946,522
Home equity
Performing	$	10,325	$	56,532	$	18,679	$	15,669	$	10,278	$	45,639	$	157,122	$	549,459	$	706,581
Nonperforming	0		0		60		99		65		259		483		2,603		3,086

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(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Term Total		Revolving		Total
Total	$	10,325	$	56,532	$	18,739	$	15,768	$	10,343	$	45,898	$	157,605	$	552,062	$	709,667
Installment
Performing	$	4,883	$	19,420	$	13,567	$	9,569	$	7,462	$	4,209	$	59,110	$	23,154	$	82,264
Nonperforming	10		40		40		11		7		14		122		35		157
Total	$	4,893	$	19,460	$	13,607	$	9,580	$	7,469	$	4,223	$	59,232	$	23,189	$	82,421
Credit cards
Performing	$	0	$	0	$	0	$	0	$	0	$	555	$	555	$	43,683	$	44,238
Nonperforming	0		0		0		0		0		0		0		431		431
Total	$	0	$	0	$	0	$	0	$	0	$	555	$	555	$	44,114	$	44,669
Grand Total	$	588,246	$	2,183,228	$	2,272,266	$	1,173,660	$	886,745	$	1,588,867	$	8,693,012	$	1,240,957	$	9,933,969

The following table sets forth the Company's loan portfolio at December 31, 2020 by risk attribute and origination date:


(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Term Total		Revolving		Total
Commercial & industrial
Pass	$	1,141,163	$	460,210	$	296,221	$	208,077	$	122,686	$	138,307	$	2,366,664	$	502,286	$	2,868,950
Special mention	24,668		10,281		18,118		6,893		6,668		6,090		72,718		10,470		83,188
Substandard	6,709		2,370		8,022		26,565		5,124		1,192		49,982		5,389		55,371
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	1,172,540	$	472,861	$	322,361	$	241,535	$	134,478	$	145,589	$	2,489,364	$	518,145	$	3,007,509
Lease financing
Pass	$	22,916	$	22,397	$	12,942	$	6,967	$	4,802	$	2,368	$	72,392	$	0	$	72,392
Special mention	290		0		0		0		0		0		290		0		290
Substandard	5		0		0		180		120		0		305		0		305
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	23,211	$	22,397	$	12,942	$	7,147	$	4,922	$	2,368	$	72,987	$	0	$	72,987
Construction real estate
Pass	$	96,410	$	259,524	$	182,625	$	23,185	$	24,786	$	426	$	586,956	$	19,671	$	606,627
Special mention	0		621		18,203		9,984		661		0		29,469		0		29,469
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	96,410	$	260,145	$	200,828	$	33,169	$	25,447	$	426	$	616,425	$	19,671	$	636,096
Commercial real estate - investor
Pass	$	515,950	$	1,011,898	$	427,077	$	378,536	$	286,587	$	361,403	$	2,981,451	$	56,398	$	3,037,849
Special mention	0		17,463		15,534		44,426		32,408		43,704		153,535		559		154,094
Substandard	6,198		2,043		22,497		7,067		68		14,724		52,597		0		52,597
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	522,148	$	1,031,404	$	465,108	$	430,029	$	319,063	$	419,831	$	3,187,583	$	56,957	$	3,244,540
Commercial real estate - owner
Pass	$	185,692	$	162,480	$	147,236	$	125,275	$	128,755	$	211,519	$	960,957	$	36,721	$	997,678
Special mention	4,292		11,380		2,891		8,230		3,017		19,384		49,194		59		49,253
Substandard	668		504		7,054		5,496		306		2,321		16,349		38		16,387
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	190,652	$	174,364	$	157,181	$	139,001	$	132,078	$	233,224	$	1,026,500	$	36,818	$	1,063,318

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(Dollars in thousands) 2020 2019 2018 2017 2016 Prior Term Total Revolving Total
Commercial & industrial
Pass $ 112,198
$ 541,313
$ 463,439
$ 296,040
$ 195,719
$ 166,485
$ 1,775,194
$ 582,562
$ 2,357,756
Special mention 0
7,524
11,814
8,206
3,057
3,835
34,436
26,287
60,723
Substandard 281
830
11,555
26,492
8,449
2,027
49,634
9,660
59,294
Doubtful 0
0
0
0
0
0
0
0
0
Total $ 112,479
$ 549,667
$ 486,808
$ 330,738
$ 207,225
$ 172,347
$ 1,859,264
$ 618,509
$ 2,477,773
Lease financing
Pass $ 2,422
$ 30,362
$ 15,240
$ 12,482
$ 8,474
$ 11,374
$ 80,354
$ 0
$ 80,354
Special mention 0 0 0 0 0 6 6
0 6
Substandard 0 0 1,379 257 588 18 2,242
0 2,242
Doubtful 0 0 0 0 0 0 0
0 0
Total $ 2,422
$ 30,362
$ 16,619
$ 12,739
$ 9,062
$ 11,398
$ 82,602
$ 0
$ 82,602
Construction real estate
Pass $ 4,582
$ 127,531
$ 164,885
$ 79,198
$ 52,550
$ 56,575
$ 485,321
$ 14,990
$ 500,311
Special mention 0
0
0
0
0
0
0
0
0
Substandard 0
0
0
0
0
0
0
0
0
Doubtful 0
0
0
0
0
0
0
0
0
Total $ 4,582
$ 127,531
$ 164,885
$ 79,198
$ 52,550
$ 56,575
$ 485,321
$ 14,990
$ 500,311
Commercial real estate - investor
Pass $ 121,429
$ 1,052,858
$ 485,310
$ 455,332
$ 357,074
$ 578,729
$ 3,050,732
$ 64,503
$ 3,115,235
Special mention 966
59
957
18,881
19,243
3,261
43,367
174
43,541
Substandard 0
4,334
6,831
6,150
112
3,834
21,261
0
21,261
Doubtful 0
0
0
0
0
0
0
0
0
Total $ 122,395
$ 1,057,251
$ 493,098
$ 480,363
$ 376,429
$ 585,824
$ 3,115,360
$ 64,677
$ 3,180,037
Commercial real estate - owner
Pass $ 64,121
$ 188,827
$ 178,010
$ 162,309
$ 173,052
$ 260,262
$ 1,026,581
$ 32,492
$ 1,059,073
Special mention 0
696
4,112
289
2,549
16,456
24,102
331
24,433
Substandard 0
2,092
2,259
4,612
1,786
3,965
14,714
0
14,714
Doubtful 0
0
0
0
0
0
0
0
0
Total $ 64,121
$ 191,615
$ 184,381
$ 167,210
$ 177,387
$ 280,683
$ 1,065,397
$ 32,823
$ 1,098,220
Residential real estate
Performing $ 61,423
$ 319,956
$ 168,242
$ 95,898
$ 83,240
$ 326,053
$ 1,054,812
$ 0
$ 1,054,812
Nonperforming 0
261
221
677
363
5,458
6,980
0
6,980
Total $ 61,423
$ 320,217
$ 168,463
$ 96,575
$ 83,603
$ 331,511
$ 1,061,792
$ 0
$ 1,061,792
Home equity
Performing $ 9,019
$ 27,294
$ 23,829
$ 15,066
$ 13,639
$ 62,117
$ 150,964
$ 625,581
$ 776,545
Nonperforming 0
79
96
39
95
435
744
3,954
4,698
Total $ 9,019
$ 27,373
$ 23,925
$ 15,105
$ 13,734
$ 62,552
$ 151,708
$ 629,535
$ 781,243
Installment
Performing $ 7,267
$ 24,153
$ 17,227
$ 14,093
$ 4,260
$ 4,370
$ 71,370
$ 8,524
$ 79,894
Nonperforming 0
28
44
9
15
95
191
0
191


(Dollars in thousands)	2020		2019		2018		2017		2016		Prior		Term Total		Revolving		Total
Residential real estate
Performing	$	290,277	$	241,601	$	115,747	$	64,220	$	60,094	$	224,281	$	996,220	$	0	$	996,220
Nonperforming	321		429		673		643		87		4,713		6,866		0		6,866
Total	$	290,598	$	242,030	$	116,420	$	64,863	$	60,181	$	228,994	$	1,003,086	$	0	$	1,003,086
Home equity
Performing	$	60,967	$	20,200	$	17,445	$	11,308	$	9,744	$	41,571	$	161,235	$	577,609	$	738,844
Nonperforming	0		0		0		39		28		138		205		4,050		4,255
Total	$	60,967	$	20,200	$	17,445	$	11,347	$	9,772	$	41,709	$	161,440	$	581,659	$	743,099
Installment
Performing	$	21,584	$	15,614	$	11,041	$	8,812	$	1,954	$	3,185	$	62,190	$	19,479	$	81,669
Nonperforming	15		53		23		35		17		36		179		2		181
Total	$	21,599	$	15,667	$	11,064	$	8,847	$	1,971	$	3,221	$	62,369	$	19,481	$	81,850
Credit cards
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	47,845	$	47,845
Nonperforming	0		0		0		0		0		0		0		640		640
Total	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	48,485	$	48,485
Grand Total	$	2,378,125	$	2,239,068	$	1,303,349	$	935,938	$	687,912	$	1,075,362	$	8,619,754	$	1,281,216	$	9,900,970

(Dollars in thousands) 2020 2019 2018 2017 2016 Prior Term Total Revolving Total
Total $ 7,267
$ 24,181
$ 17,271
$ 14,102
$ 4,275
$ 4,465
$ 71,561
$ 8,524
$ 80,085
Credit cards
Performing $ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 44,920
$ 44,920
Nonperforming 0
0
0
0
0
0
0
836
836
Total $ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 0
$ 45,756
$ 45,756
Grand Total $ 383,709
$ 2,328,197
$ 1,609,712
$ 1,196,029
$ 924,268
$ 1,451,089
$ 7,893,004
$ 1,414,815
$ 9,307,819

~~Commercial and consumer credit exposure by risk attribute as of December 31, 2019 was as follows:~~

As of December 31, 2019
Commercial Real Estate Lease
(Dollars in thousands) & industrial Construction Commercial financing Total
Pass $ 2,324,021
$ 493,182
$ 4,108,752
$ 85,262
$ 7,011,217
Special Mention 100,954
0
59,383
488
160,825
Substandard 40,902
0
26,516
2,614
70,032
Doubtful 0
0
0
0
0
Total $ 2,465,877
$ 493,182
$ 4,194,651
$ 88,364
$ 7,242,074

(Dollars in thousands)
Residential
real estate
Home equity Installment Credit card Total
Performing $ 1,040,787
$ 766,169
$ 82,385
$ 48,983
$ 1,938,324
Nonperforming 15,162
5,700
204
201
21,267
Total $ 1,055,949
$ 771,869
$ 82,589
$ 49,184
$ 1,959,591

Delinquency. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the date of the scheduled payment.

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


	As of March 31, 2021
(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 still accruing
Loans
Commercial & industrial	$	358	$	1,577	$	3,728	$	5,663	$	3,039,162	$	3,044,825	$	0
Lease financing	0		0		0		0		66,574		66,574		0
Construction real estate	0		0		0		0		642,709		642,709		0
Commercial real estate-investor	1,926		0		16,489		18,415		3,329,272		3,347,687		0
Commercial real estate-owner	50		373		285		708		1,048,187		1,048,895		0
Residential real estate	1,584		596		2,498		4,678		941,844		946,522		0
Home equity	972		355		1,758		3,085		706,582		709,667		0
Installment	116		12		29		157		82,264		82,421		0
Credit card	215		122		94		431		44,238		44,669		92
Total	$	5,221	$	3,035	$	24,881	$	33,137	$	9,900,832	$	9,933,969	$	92

Table of Contents

As of March 31, 2020
(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 still
accruing
Loans
Commercial & industrial $ 2,305
$ 267
$ 16,322
$ 18,894
$ 2,458,879
$ 2,477,773
$ 0
Lease financing 0
0
0
0
82,602
82,602
0
Construction real estate 0
0
0
0
500,311
500,311
0
Commercial real estate-investor 7,225
346
1,864
9,435
3,170,602
3,180,037
0
Commercial real estate-owner 1,106
0
2,782
3,888
1,094,332
1,098,220
0
Residential real estate 1,710
990
4,280
6,980
1,054,812
1,061,792
0
Home equity 1,428
852
2,419
4,699
776,544
781,243
0
Installment 73
5
112
190
79,895
80,085
0
Credit card 383
330
122
835
44,921
45,756
120
Total $ 14,230
$ 2,790
$ 27,901
$ 44,921
$ 9,262,898
$ 9,307,819
$ 120

As of December 31, 2019
(Dollars in thousands) 30 – 59
days
past due 60 – 89
days
past due > 90 days
past due Total
past
due Current Subtotal
Purchased
impaired
Total > 90 days
past due
and still
accruing
Loans
Commercial & industrial $ 1,266
$ 3,332
$ 14,518
$ 19,116
$ 2,443,680
$ 2,462,796
$ 3,081
$ 2,465,877
$ 0
Lease financing 0
0
0
0
88,364
88,364
0
88,364
0
Construction real estate 0
0
0
0
493,167
493,167
15
493,182
0
Commercial real estate 776
857
5,613
7,246
4,151,513
4,158,759
35,892
4,194,651
0
Residential real estate 8,032
1,928
5,031
14,991
1,014,138
1,029,129
26,820
1,055,949
0
Home equity 2,530
1,083
2,795
6,408
762,863
769,271
2,598
771,869
0
Installment 111
50
148
309
82,022
82,331
258
82,589
0
Credit card 208
75
201
484
48,700
49,184
0
49,184
201
Total $ 12,923
$ 7,325
$ 28,306
$ 48,554
$ 9,084,447
$ 9,133,001
$ 68,664
$ 9,201,665
$ 201


	As of December 31, 2020
(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 still accruing
Loans
Commercial & industrial	$	6,532	$	0	$	1,861	$	8,393	$	2,999,116	$	3,007,509	$	0
Lease financing	0		0		0		0		72,987		72,987		0
Construction real estate	0		0		0		0		636,096		636,096		0
Commercial real estate-investor	136		0		24,422		24,558		3,219,982		3,244,540		0
Commercial real estate-owner	6,480		174		400		7,054		1,056,264		1,063,318		0
Residential real estate	2,809		370		3,687		6,866		996,220		1,003,086		0
Home equity	1,483		835		1,937		4,255		738,844		743,099		0
Installment	94		35		51		180		81,670		81,850		0
Credit card	303		163		174		640		47,845		48,485		169
Total	$	17,837	$	1,577��	$	32,532	$	51,946	$	9,849,024	$	9,900,970	$	169

For PCD assets, the delinquency status was determined individually for each loan in accordance with the individual loan's contractual repayment terms. Prior to the adoption of CECL in the first quarter of 2020, PCI loans were classified as performing, even though they may have been contractually past due, as any nonpayment of contractual principal or interest was considered in the periodic re-estimation of expected cash flows and was included in the resulting recognition of current period provision for credit losses or prospective yield adjustments.

Nonaccrual. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan classified as nonaccrual may return to accrual status if none of the principal and interest is due and unpaid, and the Bank expects repayment of the remaining contractual principal and interest.

Troubled Debt Restructurings. A loan modification is considered a TDR when the borrower is experiencing financial difficulty and a concession is made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. The most common types of modifications include interest rate reductions, maturity extensions and modifications to principal amortization, including interest-only structures. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is managed by the Company’s credit administration group for resolution, which may result in foreclosure in the case of real estate. In accordance with the ~~the Coronavirus Aid, Relief, and Economic Security (CARES)~~CARES Act, performing loans that demonstrated limited signs of credit deterioration, but were modified to provide borrowers relief during the COVID-19 pandemic were not considered to be TDR as of March 31, 2021 or December 31, 2020.

TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement.

First Financial had ~~171~~173 TDRs totaling ~~$40.6~~$32.5 million at March 31, ~~2020,~~2021, including ~~$22.2~~$11.6 million on accrual status and ~~$18.4~~$20.9 million classified as nonaccrual. First Financial had ~~$1.0~~$0.3 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ~~ALLL~~ACL included reserves of ~~$3.6~~$8.0 million related to TDRs at March 31, ~~2020.~~2021. Additionally, as of March 31, ~~2020,~~ ~~$4.5~~2021, $5.2 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had ~~157~~155 TDRs totaling ~~$30.0~~$21.8 million at December 31, ~~2019,~~2020, including ~~$11.4~~$7.1 million of loans on accrual status and ~~$18.5~~$14.7 million classified as nonaccrual. First Financial had ~~$2.5~~$0.3 million commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, ~~2019,~~2020, the ~~ALLL~~ACL included reserves of ~~$2.5~~$8.8 million related to TDRs, and ~~$4.7~~$5.0 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.

Table of Contents

The following tables provide information on loan modifications classified as TDRs during the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:













	Three months ended
	March 31, 2021					March 31, 2020
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial & industrial	4	$	3,206	$	3,070	2	$	11,383	$	11,383
Construction real estate	0	0		0		0	0		0
Commercial real estate	7	10,015		9,046		0	0		0
Residential real estate	10	1,023		1,000		14	1,129		1,073
Home equity	1	14		14		4	186		186
Installment	0	0		0		1	26		15
Total	22	$	14,258	$	13,130	21	$	12,724	$	12,657

Three months ended
March 31, 2020 March 31, 2019
(Dollars in thousands) Number of loans Pre-modification loan balance Period end balance Number of loans Pre-modification loan balance Period end balance
Commercial & industrial 2
$ 11,383
$ 11,383
5
$ 7,637
$ 7,661
Construction real estate 0
0
0
0
0
0
Commercial real estate 0
0
0
6
1,323
1,232
Residential real estate 14
1,129
1,073
5
458
458
Home equity 4
186
186
1
17
17
Installment 1
26
15
0
0
0
Total 21
$ 12,724
$ 12,657
17
$ 9,435
$ 9,368

For TDRs identified during the three months ended March 31, 2021, there were insignificant chargeoffs for the portion of TDRs determined to be uncollectible. For TDRs identified during the three months ended March 31, 2020, there were $0.4 million of chargeoffs for the portion of TDRs determined to be uncollectible. ~~For TDRs identified during the three months ended March 31, 2019, there were 0 chargeoffs for the portion of TDRs determined to be uncollectible.~~

The following table provides information on how TDRs were modified during the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three months ended					Three months ended
	March 31,					March 31,
(Dollars in thousands)	2020		2019		(Dollars in thousands)		2021		2020
Extended maturities	$	0	$	2,877	Extended maturities		$	0	$	0
Adjusted interest rates	0		5,284		Adjusted interest rates		0		0
Combination of rate and maturity changes	0		508		Combination of rate and maturity changes		0		0
Forbearance	1,008		557		Forbearance		6,163		1,008
Other ⁽¹⁾	11,649		142		Other (1)		6,967		11,649
Total	$	12,657	$	9,368	Total		$	13,130	$	12,657

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

First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications. Borrowers that are 90 days or more past due on any principal or interest payments, or who prematurely terminate a restructured loan agreement without paying off the contractual principal balance, are considered to be in default of the terms of the TDR agreement.

For ~~the~~both three ~~months~~month periods ended March 31, 2021 and 2020, there were 0 TDR relationships for which there was a payment default during the period that occurred within twelve months of the loan modifications. For the three month period ended March 31, 2019, there were 2 TDR relationships for $6.9 million for which there was a payment default during the period that occurred within twelve months of the loan modification.

As stated in the CARES Act and subsequently modified by the Consolidated Appropriations Act, loan modifications in response to COVID-19 ~~that are~~ executed on ~~a loan~~loans that was not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or ~~December 31, 2020~~January 1, 2022 are not required to be reported as TDR. ~~Through April 30, 2020,~~

As of March 31, 2021, the ~~Company modified 1,055~~Company's loan portfolio included $251.1 million of active loan modifications made under the guidance of the CARES Act that were not classified as TDR. These modifications included $225.8 million of borrowers making interest only payments and $25.3 million of modifications deferring full principal and interest payments. Active modifications were concentrated in hotel and franchise loans, which were $153.0 million and $44.1 million respectively as of March 31, 2021, or 60.9% and 17.6% of the total active modifications at March 31, 2021. Total active deferrals were comprised of 67 commercial loans with balances of ~~$1.6 billion~~$248.4 million and ~~979~~25 consumer loans with balances of ~~$129.5~~$2.7 million as of March 31, 2021.

Table of Contents

As of December 31, 2020, the Company's loan portfolio included $320.2 million of active loan modifications made under the guidance of the CARES Act that were not classified as TDR. These modifications included $291.5 million of borrowers making interest only payments at year end, and full principal and interest deferrals of $28.7 million. Active modifications as of December 31, 2020 were primarily hotel and franchise loans, which were $186.2 million and $44.3 million respectively, or 58.2% and 13.8% of the total active modifications at December 31, 2020. As of December 31, 2020, the Company's loan portfolio included 90 commercial loans with balances of $312.5 million and 53 consumer loans with balances of $7.7 million modified in response to COVID-19 that are not considered TDRs.

Nonperforming Loans. Loans classified as nonaccrual and loans modified as TDRs are considered ~~nonperforming for 2020 and impaired as of December 31, 2019.~~nonperforming. The following table provides information on nonperforming loans:


	March 31, 2020						December 31, 2019			March 31, 2021						December 31, 2020
(Dollars in thousands)	Nonaccrual loans with a related ACL		Nonaccrual loans with no related ACL		Total nonaccrual		Total nonaccrual		(Dollars in thousands)	Nonaccrual loans with a related ACL		Nonaccrual loans with no related ACL		Total nonaccrual		Nonaccrual loans with a related ACL		Nonaccrual loans with no related ACL		Total nonaccrual
Nonaccrual loans⁽¹⁾									Nonaccrual loans (1)
Commercial & industrial	$	10,754	$	10,372	$	21,126	$	24,346	Commercial & industrial	$	12,505	$	12,436	$	24,941	$	18,711	$	10,519	$	29,230
Lease financing	0		222		222		223		Lease financing	0		0		0		0		0		0
Construction real estate	0		0		0		0		Construction real estate	0		0		0		0		0		0
Commercial real estate	4,206		5,844		10,050		7,295		Commercial real estate	18,402		26,112		44,514		6,957		27,725		34,682
Residential real estate	0		11,163		11,163		10,892		Residential real estate	0		11,359		11,359		251		11,350		11,601
Home equity	0		5,821		5,821		5,242		Home equity	0		4,286		4,286		0		5,076		5,076
Installment	0		145		145		167		Installment	0		146		146		0		163		163
Total nonaccrual loans	$	14,960	$	33,567	$	48,527	$	48,165	Total nonaccrual loans	$	30,907	$	54,339	$	85,246	$	25,919	$	54,833	$	80,752

⁽¹⁾ Nonaccrual loans include nonaccrual TDRs of ~~$18.4~~$20.9 million and ~~$18.5~~$14.7 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Three months ended
March 31,
(Dollars in thousands) 2020 2019
Interest income effect on nonperforming loans
Gross amount of interest that would have been recorded under original terms $ 1,306
$ 1,613
Interest included in income
Nonaccrual loans 167
335
Troubled debt restructurings 235
236
Total interest included in income 402
571
Net impact on interest income $ 904
$ 1,042


	Three months ended
	March 31,
(Dollars in thousands)		2021		2020
Interest income effect on nonperforming loans
Gross amount of interest that would have been recorded under original terms		$	1,487	$	1,306
Interest included in income
Nonaccrual loans		483		167
Troubled debt restructurings		86		235
Total interest included in income		569		402
Net impact on interest income		$	918	$	904

First Financial individually reviews all nonperforming ~~commercial~~ loan relationships ~~as well as consumer loan TDRs~~ greater than $250,000 to determine if an individually evaluated allowance is necessary based on the borrower’s overall financial condition, resources and payment record, support from guarantors and the realizable value of any collateral. Individually evaluated allowances are based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.

~~First Financial's investment in impaired loans as of December 31, 2019 was as follows:~~

As of December 31, 2019
(Dollars in thousands) Current balance Contractual
principal
balance Related
allowance
Loans with no related allowance recorded
Commercial & industrial $ 16,726
$ 19,709
$ 0
Lease financing 223
223
0
Construction real estate 0
0
0
Commercial real estate 10,160
17,897
0
Residential real estate 14,868
17,368
0
Home equity 5,700
6,462
0
Installment 204
341
0
Total 47,881
62,000
0

Loans with an allowance recorded
Commercial & industrial 10,754
21,513
2,044
Lease financing 0
0
0
Construction real estate 0
0
0
Commercial real estate 671
675
113
Residential real estate 294
294
18
Home equity 0
0
0
Installment 0
0
0
Total 11,719
22,482
2,175

Total
Commercial & industrial 27,480
41,222
2,044
Lease financing 223
223
0
Construction real estate 0
0
0
Commercial real estate 10,831
18,572
113
Residential real estate 15,162
17,662
18
Home equity 5,700
6,462
0
Installment 204
341
0
Total $ 59,600
$ 84,482
$ 2,175

Table of Contents

~~First Financial's average impaired loans and interest income recognized by class for the three months ended March 31, 2019 were as follows:~~

Three months ended
March 31, 2019
(Dollars in thousands) Average
Recorded
Investment Interest
Income
Recognized
Loans with no related allowance recorded
Commercial & industrial $ 33,418
$ 279
Lease financing 162
0
Construction real estate 9
0
Commercial real estate 23,111
103
Residential real estate 16,967
86
Home equity 6,288
38
Installment 174
1
Total 80,129
507

Loans with an allowance recorded
Commercial & industrial 2,111
43
Lease financing 0
0
Construction real estate 0
0
Commercial real estate 2,004
19
Residential real estate 300
2
Home equity 0
0
Installment 0
0
Total 4,415
64

Total
Commercial & industrial 35,529
322
Lease financing 162
0
Construction real estate 9
0
Commercial real estate 25,115
122
Residential real estate 17,267
88
Home equity 6,288
38
Installment 174
1
Total $ 84,544
$ 571

~~The following table provides collateral information by class of loan for collateral-dependent loans with a specific reserve.~~ A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. The following table presents the amortized cost basis of collateral dependent loans by class of loan.


	March 31, 2021
	Type of Collateral
(Dollar in thousands)	Business assets		Commercial real estate		Equipment		Land		Residential real estate		Other		Total
Class of loan
Commercial & industrial	$	22,215	$	1,874	$	417	$	0	$	0	$	435	$	24,941
Commercial real estate-investor	0		25,115		0		6,198		214		0		31,527
Commercial real estate-owner	5,842		6,779		0		40		326		0		12,987
Residential real estate	0		0		0		0		11,359		0		11,359
Home equity	0		0		0		0		4,286		0		4,286
Installment	0		0		0		0		0		146		146
Total	$	28,057	$	33,768	$	417	$	6,238	$	16,185	$	581	$	85,246


	December 31, 2020
	Type of Collateral
(Dollar in thousands)	Business assets		Commercial real estate		Equipment		Land		Residential real estate		Other		Total
Class of loan
Commercial & industrial	$	30,961	$	6,130	$	2,608	$	865	$	0	$	4,892	$	45,456
Commercial real estate-investor	0		20,212		661		5,537		872		0		27,282
Commercial real estate-owner	5,842		3,495		0		42		344		0		9,723
Residential real estate	0		0		0		0		11,601		0		11,601
Home equity	0		0		0		0		5,076		0		5,076
Installment	0		0		0		0		0		163		163
Total	$	36,803	$	29,837	$	3,269	$	6,444	$	17,893	$	5,055	$	99,301

As of March 31, 2020
Type of Collateral
(Dollar in thousands) Commercial real estate Equipment Residential real estate Total
Class of loan
Commercial & industrial $ 0
$ 10,755
$ 0
$ 10,755
Commercial real estate-investor 4,205
0
0
4,205
Commercial real estate-owner 333
0
0
333
Residential real estate 0
0
1,005
1,005
Total $ 4,538
$ 10,755
$ 1,005
$ 16,298

Lease financing. ~~The Company prospectively applied FASB ASC Topic 842 in the first quarter of 2019.~~ First Financial originates both sales-type and direct financing leases, and the Company manages and reviews lease residuals in accordance with its credit policies. Sales-type lease contracts contain the ability to purchase the underlying equipment at lease maturity and profit or loss is recognized at lease commencement. Direct financing leases are generally three to five years in length and may be extended at maturity, however, early cancellation may result in a fee to the borrower. For direct financing leases, the net unearned income is deferred and amortized over the life of the lease. ~~Income recognized in first three months~~

Table of ~~2020 and 2019 related to the implementation of FASB ASC Topic 842 was insignificant.~~Contents

OREO. OREO consists of properties acquired by the Company primarily through the loan foreclosure or repossession process, that results in partial or total satisfaction of problem loans.

Changes in OREO were as follows:


	Three months ended
	March 31,
(Dollars in thousands)		2021		2020
Balance at beginning of period		$	1,287	$	2,033
Additions
Commercial & industrial		0		247
Residential real estate		0		146
Total additions		0		393
Disposals
Commercial & industrial		(246)		(179)
Residential real estate		(187)		(721)
Total disposals		(433)		(900)
Valuation adjustment
Commercial & industrial		0		0
Residential real estate		0		(59)
Total valuation adjustment		0		(59)
Balance at end of period		$	854	$	1,467

Three months ended
March 31,
(Dollars in thousands) 2020 2019
Balance at beginning of period $ 2,033
$ 1,401
Additions
Commercial & industrial 247
0
Residential real estate 146
504
Total additions 393
504
Disposals

Commercial & industrial (179 ) (22 )
Residential real estate (721 ) (161 )
Total disposals (900 ) (183 )
Valuation adjustment

Commercial & industrial 0
0
Residential real estate (59 ) (57 )
Total valuation adjustment (59 ) (57 )
Balance at end of period $ 1,467
$ 1,665

NOTE 5: ALLOWANCE FOR CREDIT LOSSES

Allowance for credit losses - loans and leases. The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL is increased by provision expense and decreased by 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 a guarantor or from the liquidation of collateral. Expected recoveries do not

exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable on loans and leases, which totaled ~~$27.4~~$38.2 million and $37.7 million as of March 31, 2021 and December 31, 2020, respectively, is excluded from the estimate of credit losses.

Management estimates the allowance balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired with economic forecasts provides the basis for the quantitatively modeled estimation of expected credit losses. First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the Qualitative Framework.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the ACL using the following methods:

Commercial and industrial – C&I loans include revolving lines of credit and term loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, leasehold improvements or other projects. C&I loans are generally underwritten individually and secured with the assets of the Company and/or the personal guarantee of the business owners. C&I loans also include ABL, equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and commission-based loans to insurance agents and brokers. ABL transactions typically involve larger commercial clients and are secured by specific assets, such as inventory, accounts receivable, machinery and equipment. In the franchise lending space, First Financial focuses on a limited number of restaurant concepts that have sound economics, low closure rates and strong brand awareness within specified local, regional or national markets. Within the insurance lending platform, First Financial serves insurance agents and brokers that are looking to maximize their book-of-business value and grow their agency business.

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Current period default rates are utilized in the modeling of the ACL for C&I loans, and are adjusted for forecasted changes in the treasury term spread and market volatility index. Changes in current period defaults or forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

Lease financing – Lease financing consists of lease transactions for the acquisition of both new and used business equipment for commercial clients. Lease products may include tax leases, finance leases, lease lines of credit and interim funding. The credit underwriting for lease transactions includes detailed analysis of the lessee's industry and business model, nature of the equipment, equipment resale values, historical and projected cash flow analysis, secondary sources of repayment and guarantor support in addition to other considerations.

The ACL model for leases sources expected default rates from the C&I portfolio model. Therefore, changes in forecasted expectations for the treasury term spread and market volatility index could result in volatility in the Company's ACL in future periods.

Construction real estate – Real estate construction loans are term loans to individuals, companies or developers used for the construction or development of a commercial or residential property for which repayment will be generated by the sale or permanent financing of the property. Generally, these loans are for construction projects that have been pre-sold, pre-leased or have secured permanent financing, as well as loans to real estate companies with significant equity invested in the project. An independent credit team underwrites construction real estate loans, which are managed by experienced lending officers and monitored through the construction phase by a centralized funding desk that manages loan disbursements.

The construction ACL model is adjusted for forecasted changes in rental vacancy rates in the Bank's geographic footprint and the housing price index. Changes in forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

Commercial real estate - owner & investor – Commercial real estate loans consist of term loans secured by a mortgage lien on real estate properties such as apartment buildings, office and industrial buildings and retail shopping centers. Additionally, the Company's franchise lending activities discussed in the "Commercial and Industrial" section often include the financing of real estate in addition to equipment. The credit underwriting for both owner-occupied and investor income producing real estate loans includes detailed market analysis, historical and projected cash flow analysis, appropriate equity margins, assessment of lessees and lessors, environmental risks and the type, age, condition and location of real estate, among other factors.

First Financial models owner-occupied and investor CRE separately when determining the ACL. For owner occupied CRE, current period default rates are utilized in the modeling, and are adjusted for forecasted changes in the BAA bond spread, national rental vacancy rates and the consumer confidence index. Current period default rates are also utilized in the modeling of investor CRE loans, and are adjusted for forecasted changes in the BAA bond spread, multifamily building permits within

the Bank’s geographic footprint and national rental vacancy rates. Changes in current period defaults and forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

Residential real estate – Residential real estate loans represent loans to consumers for the financing of a residence. These loans generally have a 15 to 30 year term and a fixed interest rate, but may have a shorter term to maturity with an adjustable interest rate. In most cases, these loans are extended to borrowers to finance their primary residence. First Financial sells residential real estate loan originations into the secondary market on both servicing retained and servicing released bases. Residential real estate loans are generally underwritten to secondary market lending standards, utilizing underwriting processes that rely on empirical data to assess credit risk as well as analysis of the borrower's ability to repay their obligations, credit history, the amount of any down payment and the market value or other characteristics of the property. First Financial also offers a residential mortgage product that features similar borrower credit characteristics but a more streamlined underwriting process than typically required to sell to government-sponsored enterprises and thus is retained on the Consolidated Balance Sheets.

The ~~retail~~residential real estate ACL model is adjusted for forecasted changes in the housing price index, housing starts within the Bank’s geographic footprint and national single-family existing home sales. Changes in forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

Home equity – Home equity lending includes both home equity loans and revolving lines of credit secured by a first or second lien on the borrower’s residence. Home equity lending underwriting considerations include the borrower's credit history as well as to debt-to-income and loan-to-value policy limits.

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The home equity ACL model is adjusted for forecasted changes in the consumer credit growth rate within the Bank’s geographic footprint and the working-age labor participation rate. Changes in forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

Installment – Installment lending consists of consumer loans not secured by real estate, including loans secured by automobiles and unsecured personal loans.

The ACL model for installment loans sources expected default rates from the residential real estate and home equity portfolio models and is paired with installment specific LGD rates. Changes in forecasted expectations for the consumer credit growth rate within the Bank’s geographic footprint, the working-age labor participation rate, the housing price index, housing starts within the Bank’s geographic footprint and national existing single-family existing home sales could result in volatility in the Company's ACL in future periods.

Credit card – Credit card lending consists of secured and unsecured revolving lines of credit to consumer and business customers. Credit card lines are generally available for an indefinite period of time as long as the borrower's credit characteristics do not materially or adversely change, but lines are unconditionally cancellable by the Company at any time.

The ACL model for credit card loans sources expected default rates from the residential real estate and home equity portfolio models and is paired with credit card specific LGD rates. Changes in forecasted expectations for the consumer credit growth rate within the Bank’s geographic footprint, the working-age labor participation rate, the housing price index, housing starts within the Bank’s geographic footprint and national existing single-family existing home sales could result in volatility in the Company's ACL in future periods.

First Financial's ACL is influenced by loan volumes, risk rating migration or delinquency status, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. For the three months ended March 31, 2020 the ACL increased primarily due to First Financial's expectation of higher credit losses resulting from the COVID-19 pandemic.

The Company utilized the final Moody's March baseline forecast as its R&S forecast in the quantitative model, which included consideration of the impact from both the COVID-19 pandemic and the related government stimulus response. For reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts, slower prepayment speeds and increased default rates. These alternative analyses were utilized to inform the Company's qualitative adjustments. Additionally, First Financial considered its credit exposure to certain industries believed to be at risk for future credit stress related to the COVID-19 pandemic, such as franchise, hotel and investor commercial real estate lending when making qualitative adjustments to the ~~first quarter 2020~~ ACL model.

First Financial's ACL is influenced by loan volumes, risk rating migration or delinquency status, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. For the three months ended March 31, 2021, the ACL declined slightly due to improvements in economic forecasts and the Company's improved credit outlook.

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Changes in the allowance by loan category were as follows:

Three months ended March 31, 2020
Real Estate
(Dollars in thousands) Commercial & industrial Lease financing Construction real estate Commercial real estate Residential real estate Home Equity Installment Credit card Total
Allowance for credit losses:
Balance at beginning of period $ 18,584
$ 971
$ 2,381
$ 23,579
$ 5,299
$ 4,787
$ 392
$ 1,657
$ 57,650
Impact of adopting ASC 326 9,901
118
11,579
24,118
5,490
8,430
801
1,068
61,505
Provision for credit losses 16,016
405
(449 ) 5,227
558
1,538
75
510
23,880
Gross charge-offs (1,091 ) 0
0
(4 ) (115 ) (267 ) (61 ) (311 ) (1,849 )
Recoveries 2,000
0
0
234
52
339
31
43
2,699
Total net charge-offs 909
0
0
230
(63 ) 72
(30 ) (268 ) 850
Ending allowance for credit losses $ 45,410
$ 1,494
$ 13,511
$ 53,154
$ 11,284
$ 14,827
$ 1,238
$ 2,967
$ 143,885

Three months ended March 31, 2019
(Dollars in thousands) Commercial & industrial Lease financing Construction real estate Commercial real estate Residential real estate Home Equity Installment Credit card Total
Allowance for credit losses:
Balance at beginning of period $ 18,746
$ 1,130
$ 3,413
$ 21,048
$ 4,964
$ 5,348
$ 362
$ 1,531
$ 56,542
Provision for credit losses 13,268
343
(683 ) 493
125
185
19
333
14,083
Loans charged off (12,328 ) (100 ) 0
(1,214 ) (82 ) (468 ) (49 ) (341 ) (14,582 )
Recoveries 240
0
63
73
36
185
48
34
679
Total net charge-offs (12,088 ) (100 ) 63
(1,141 ) (46 ) (283 ) (1 ) (307 ) (13,903 )
Ending allowance for credit losses $ 19,926
$ 1,373
$ 2,793
$ 20,400
$ 5,043
$ 5,250
$ 380
$ 1,557
$ 56,722


	Three months ended March 31, 2021
(Dollars in thousands)	Commercial & industrial		Lease financing		Construction real estate		Commercial real estate		Residential real estate		Home equity		Installment		Credit card		Total
Allowance for credit losses:
Beginning balance	$	51,454	$	995	$	21,736	$	76,795	$	8,560	$	11,869	$	1,215	$	3,055	$	175,679

Provision for credit losses	1,258		20		1,000		2,929		(855)		(675)		22		(249)		3,450
Loans charged off	(7,910)		0		(2)		(1,250)		(1)		(611)		(36)		(222)		(10,032)
Recoveries	337		0		0		195		44		177		34		39		826
Total net charge-offs	(7,573)		0		(2)		(1,055)		43		(434)		(2)		(183)		(9,206)
Ending allowance for credit losses	$	45,139	$	1,015	$	22,734	$	78,669	$	7,748	$	10,760	$	1,235	$	2,623	$	169,923

	Three months ended March 31, 2020
(Dollars in thousands)	Commercial & industrial		Lease financing		Construction real estate		Commercial real estate		Residential real estate		Home equity		Installment		Credit card		Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326	$	18,584	$	971	$	2,381	$	23,579	$	5,299	$	4,787	$	392	$	1,657	$	57,650
Impact of adopting ASC 326	9,901		118		11,579		24,118		5,490		8,430		801		1,068		61,505
Provision for credit losses	16,016		405		(449)		5,227		558		1,538		75		510		23,880
Loans charged off	(1,091)		0		0		(4)		(115)		(267)		(61)		(311)		(1,849)
Recoveries	2,000		0		0		234		52		339		31		43		2,699
Total net charge-offs	909		0		0		230		(63)		72		(30)		(268)		850
Ending allowance for credit losses	$	45,410	$	1,494	$	13,511	$	53,154	$	11,284	$	14,827	$	1,238	$	2,967	$	143,885

~~The ACL balance and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 was as follows:~~

As of December 31, 2019
(Dollars in thousands) Commercial & industrial Lease financing Construction real estate Commercial real estate Residential real estate Home equity Installment Credit card Total
Ending allowance balance attributable to loans
Individually evaluated for impairment $ 2,044
$ 0
$ 0
$ 113
$ 18
$ 0
$ 0
$ 0
$ 2,175
Collectively evaluated for impairment 16,540
971
2,381
23,466
5,281
4,787
392
1,657
55,475
Ending allowance for credit losses $ 18,584
$ 971
$ 2,381
$ 23,579
$ 5,299
$ 4,787
$ 392
$ 1,657
$ 57,650

Loans

Individually evaluated for impairment $ 27,480
$ 223
$ 0
$ 10,831
$ 15,162
$ 5,700
$ 204
$ 0
$ 59,600
Collectively evaluated for impairment 2,438,397
88,141
493,182
4,183,820
1,040,787
766,169
82,385
49,184
9,142,065
Total loans $ 2,465,877
$ 88,364
$ 493,182
$ 4,194,651
$ 1,055,949
$ 771,869
$ 82,589
$ 49,184
$ 9,201,665

Allowance for credit losses - unfunded commitments. First Financial estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the Company's ACL methodology for loans and leases.

The ACL on unfunded commitments was ~~$14.3~~$13.0 million as of March 31, ~~2020~~2021 and ~~$0.6~~$12.5 million as of December 31, ~~2019.~~2020. Additionally, First Financial recorded ~~$1.6 million of~~ provision for credit losses on unfunded commitments of $0.5 million and $1.6 million for the three ~~months~~month periods ended March 31, 2021 and 2020, ~~compared to an insignificant amount in the comparative period in 2019.~~respectively.

NOTE 6: 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 of the purchase price of the acquisition over the fair value of net assets acquired is recorded as goodwill.

Changes in the carrying amount of goodwill for the three months ended March 31, ~~2020~~2021 and ~~the year ended December~~March 31, ~~2019~~2020 were as follows:


	Three months ended
	March 31,
(Dollars in thousands)		2021		2020
Balance at beginning of period		$	937,771	$	937,771
Goodwill resulting from business combinations		0		0
Balance at end of period		$	937,771	$	937,771

(Dollars in thousands) March 31,
2020 March 31,
2019
Balance at beginning of year $ 937,771
$ 880,251
Goodwill resulting from business combinations 0
(524 )
Balance at end of period $ 937,771
$ 879,727

During the third quarter of 2019, First Financial recorded $58.0 million of additions to goodwill resulting from the Bannockburn acquisition. In the first quarter of 2019, First Financial recorded its final adjustments to goodwill related to the 2018 MSFG merger. For further detail on the acquisition of Bannockburn, see Note 17 - Business Combinations.

Goodwill is evaluated 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. In response to the COVID-19 pandemic and the related deterioration in general economic conditions, First Financial performed an interim impairment test as of March 31, 2020. As of March 31, 2020, First Financial does not believe that there is a sustained decrease in its share price in either absolute terms or in relation to peers. Therefore, First Financial did not record an impairment in the first quarter of 2020, but will continue to monitor the status of its goodwill and intangible assets in the coming periods for signs of further deterioration and potential impairment. First Financial performed its most recent annual impairment test as of October 1, ~~2019~~2020 and no impairment was indicated. As of March 31, 2021, no events or changes in circumstances indicated at that ~~time.~~the fair value of a reporting unit was below its carrying value.

Other intangible assets. Other intangible assets consist primarily of core deposit, customer list and other miscellaneous intangibles.

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Core deposit intangibles represent the estimated fair value of acquired customer deposit relationships on the date of acquisition and are amortized on an accelerated basis over their estimated useful lives. First Financial's core deposit intangibles have an estimated weighted average remaining life of ~~7.7 years~~.6.8 years.

First Financial recorded a $39.4 million customer list intangible asset in conjunction with the Bannockburn merger to account for the obligation or advantage on the part of either the Company or the customer to continue the pre-existing relationship subsequent to the merger. The customer list intangible asset is amortized on a straight-line basis over its estimated useful life of 11 years.

Other miscellaneous intangibles include purchase commissions, non-compete agreements and trade name intangibles. Other intangible assets are included in Other intangibles in the Consolidated Balance Sheets.

Amortization expense recognized on intangible assets for the three months ended March 31, 2021 and March 31, 2020 was $2.5 million and ~~2019 was~~ $2.8 million, ~~and $2.0 million,~~ respectively.

The gross carrying amount and accumulated amortization of other intangible assets at March 31, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:


(Dollars in thousands)	March 31, 2021				December 31, 2020
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Amortized intangible assets
Core deposit intangibles	$	51,031	$	(28,834)	$	51,031	$	(27,524)
Customer list	39,420		(5,674)		39,420		(4,778)
Other	10,146		(4,105)		10,113		(3,710)


Total	$	100,597	$	(38,613)	$	100,564	$	(36,012)

(Dollars in thousands) March 31, 2020 December 31, 2019

Gross
carrying
amount

Accumulated
amortization

Gross
carrying
amount

Accumulated
amortization
Amortized intangible assets
Core deposit intangibles $ 51,031
$ (22,743 ) $ 51,031
$ (21,149 )
Customer list 39,420
(2,090 ) 39,420
(1,195 )
Other 10,093
(2,453 ) 10,093
(1,999 )
Total $ 100,544
$ (27,286 ) $ 100,544
$ (24,343 )

NOTE 7: LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. First Financial is primarily the lessee in its leasing agreements, and substantially all of those agreements are for real estate property for branches, ATM locations ~~and~~or office space.

On January 1, 2019, the Company adopted Topic 842 and all subsequent modifications. For First Financial, this adoption primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Substantially all of the Company's leases are classified as operating leases, and therefore, were previously not recognized on the Company’s Consolidated Balance Sheets.

With the adoption of Topic 842, operating lease agreements were required to be recognized on the Consolidated Balance Sheets as an ROU asset and a corresponding lease liability. The Company's right to use an asset over the life of a lease is recorded as a "right of use" asset in Accrued interest and other assets on the Consolidated Balance ~~Sheet~~Sheets and was ~~$65.7~~$57.7 million and ~~$58.6~~$63.9 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received. First Financial recorded a ~~$71.9~~$67.7 million and ~~$64.3~~$71.7 million lease liability in Accrued interest and other liabilities on the Consolidated Balance Sheet at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate was based upon the remaining lease term as of that date.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and First Financial recognizes lease expense for these leases on a straight-line basis over the term of the lease. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of renewal options on operating leases is at the Company's sole discretion, and certain leases may include options to purchase the leased property. If at lease

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inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. First Financial does not enter into lease agreements which contain material residual value guarantees or material restrictive covenants.

Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements and leases generally also include real estate taxes and common area maintenance charges in the annual rental payments.

The components of lease expense were as follows:


	Three months ended
	March 31,
(Dollars in thousands)		2021		2020
Operating lease cost		$	1,851	$	2,020



Short-term lease cost		29		41
Variable lease cost		679		641
Total operating lease cost		$	2,559	$	2,702

Three months ended
March 31,
(Dollars in thousands) 2020 2019
Operating lease cost $ 2,020
$ 1,826
Short-term lease cost 41
1
Variable lease cost 641
597
Total operating lease cost $ 2,702
$ 2,424

Future minimum commitments due under these lease agreements as of March 31, ~~2020~~2021 are as follows:


(Dollars in thousands)	Operating leases
2021 (remaining nine months)	$	5,036
2022	6,850
2023	6,952
2024	6,647
2025	6,038
Thereafter	53,150
Total lease payments	84,673
Less imputed interest	17,009
Total	$	67,664

(Dollars in thousands) Operating leases
2020 (remaining nine months) $ 5,611
2021 7,213
2022 6,891
2023 6,856
2024 6,531
Thereafter 60,918
Total lease payments 94,020
Less imputed interest 22,072
Total $ 71,948

The weighted average remaining lease term and discount rate for the Company's operating leases were as follows:

March 31, 2021

December 31, 2020

Operating leases

Weighted-average remaining lease term

13.8 years

15.1 years

Weighted-average discount rate

2.95

3.07

March 31, 2020 December 31, 2019
Operating leases
Weighted-average remaining lease term 15.2 years
15.6 years
Weighted-average discount rate 3.27 % 3.43 %

Supplemental cash information at March 31, ~~2020~~2021 and ~~2019~~2020 related to leases was as follows:


	Three months ended
	March 31,
(Dollars in thousands)		2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		$	1,790	$	1,288


ROU assets obtained in exchange for lease obligations
Operating leases		5,761		8,862

Three months ended
March 31,
(Dollars in thousands) 2020 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 1,288
$ 1,823
ROU assets obtained in exchange for lease obligations
Operating leases 8,862
60,249

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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, federal funds purchased, overnight advances from the FHLB and a short-term line of credit. All repurchase agreements are subject to terms and conditions agreed to by the Bank and the client. To secure its liability to the client, the Bank is authorized to sell or repurchase U.S. Treasury, government agency and mortgage-backed securities.

The following shows the remaining contractual maturity of repurchase agreements by collateral pledged:


(Dollars in thousands)	Overnight and continuous
Repurchase agreements
Mortgage-backed securities	$	88,964
Collateralized mortgage obligations	40,423
Total	$	129,387

(Dollars in thousands) Overnight and continuous
Repurchase agreements
Mortgage-backed securities $ 10,279
Collateralized mortgage obligations 84,545
Total $ 94,824

Securities sold under agreements to repurchase were secured by securities with a carrying amount of ~~$94.8~~$129.7 million and ~~$90.2~~$126.7 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

First Financial had ~~$121.0~~$181.4 million federal funds purchased at March 31, ~~2020~~2021 and ~~$165.2~~$166.6 million as of December 31, ~~2019.~~2020. The Company ~~also~~ had ~~$1.2 billion~~ in0 short-term borrowings with the FHLB at ~~both~~ March 31, ~~2020 and~~2021 or December 31, ~~2019.~~2020. These short-term borrowings are used to manage normal liquidity needs and support the Company's asset and liability management strategies.

~~First Financial has a~~
~~$30.0 million~~ short-term credit facility with an unaffiliated bank that matures in September 2020. 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 common stock and the payment of dividends to shareholders. As of March 31, 2020 and December 31, 2019, there was 0 outstanding balance. The credit agreement requires First Financial to comply with certain covenants including those related to asset quality and capital levels, and First Financial was in compliance with all covenants associated with this facility as of March 31, 2020 and December 31, 2019.

First Financial had ~~$325.6~~$583.7 million and ~~$414.4~~$776.2 million of long-term debt as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020 respectively, which included FRB borrowings, subordinated notes, FHLB long term advances and an interest free loan with a municipality.

First Financial participates in the PPPLF, which is a program created by the FRB to extend credit to eligible financial institutions that originate PPP loans. The bank had outstanding PPPLF advances of $270.9 million and $435.0 million as of March 31, 2021 and December 31, 2020, respectively, with an average interest rate of 35 basis points for both periods. These borrowings are secured by pledged PPP loans and prepay in conjunction with reductions in the principal balances of those loans.

The following is a summary of First Financial's long-term debt:


	March 31, 2020					December 31, 2019						March 31, 2021				December 31, 2020
(Dollars in thousands)	Amount			Average rate		Amount			Average rate		(Dollars in thousands)	Amount		Average rate		Amount		Average rate
FRB borrowings											FRB borrowings	$	270,874	0.35	%	$	434,982	0.35	%
FHLB borrowings	$	152,787		1.75	%	$	242,428		1.94	%	FHLB borrowings	0		0.00	%	19,971		1.43	%
Subordinated notes	171,071			4.70	%	170,967			4.97	%	Subordinated notes	312,906		4.82	%	321,384		4.86	%
Unamortized debt issuance costs	(963		)	N/A		(1,007		)	N/A		Unamortized debt issuance costs	(2,673)		N/A		(2,770)		N/A
Lease liability	1,896			3.81	%	1,213			4.48	%	Lease liability	1,840		3.81	%	1,860		3.81	%
Capital loan with municipality	775			0.00	%	775			0.00	%	Capital loan with municipality	775		0.00	%	775		0.00	%
Total long-term debt	$	325,566		3.31	%	$	414,376		3.20	%	Total long-term debt	$	583,722	2.76	%	$	776,202	2.25	%

In April 2020, First Financial issued $150.0 million of fixed to floating rate subordinated notes. These subordinated notes have an initial fixed interest rate of 5.25% to, but excluding, May 15, 2025, payable semi-annually in arrears. From, and including, May 15, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark rate, which is expected to be the then-current three-month term SOFR, plus 509 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030. These notes are redeemable by the Company in whole or in part beginning with the interest payment date of May 15, 2025.

In 2015, First Financial issued $120.0 million of subordinated notes, which have a fixed interest rate of ~~5.125%~~5.13% payable semiannually and ~~maturing~~mature in August 2025. These notes are not redeemable by the Company, or callable by the holders of the notes prior to maturity. In addition, First Financial acquired $49.5 million of variable rate subordinated notes in the MSFG merger that were issued to previously formed trusts in exchange for the trust proceeds. Interest on the acquired subordinated

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notes is payable quarterly, in arrears, and the Company has the option to defer interest payments for a period not to exceed 20 consecutive quarters. These acquired subordinated notes mature 30 years after the date of original issuance and may be called at par following the 5 year anniversary of issuance. First Financial also acquired $8.4 million of 6.00% fixed rate private placement subordinated debt in conjunction with the MSFG merger that was issued in 2015 and ~~matures~~matured in 2025. These notes ~~are~~were redeemable by the Company at par following the 5 year anniversary of issuance. These subordinated notes were redeemed by the Company in the first quarter of 2021. The subordinated notes are treated as Tier 2 capital for regulatory capital purposes and are included in Long-term debt on the Consolidated Balance Sheets.

In addition to subordinated notes, long-term debt included ~~$152.8 million and $242.4~~$20.0 million of fixed rate FHLB long-term advances as of ~~March 31, 2020 and~~ December 31, ~~2019, respectively. As~~2020. This FHLB long-term debt matured in the first quarter of 2021, and as a result, as of March 31, ~~2020,~~2021, the Company had 0 long-term FHLB ~~advances had a weighted average interest rate of 1.75%~~advances. These instruments are primarily utilized to reduce overnight liquidity risk and to mitigate interest rate sensitivity on the Consolidated Balance Sheets.

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 March 31, 2020
Total other comprehensive income (loss)
Total accumulated
other comprehensive income (loss)
(Dollars in thousands) Prior to
reclass Reclass
from Pre-tax Tax effect Net of tax Beginning balance Net activity Ending balance
Unrealized gain (loss) on debt securities $ (2,434 ) $ (59 ) $ (2,375 ) $ 512
$ (1,863 ) $ 41,264
$ (1,863 ) $ 39,401
Retirement obligation 0
(425 ) 425
(97 ) 328
(27,941 ) 328
(27,613 )
Total $ (2,434 ) $ (484 ) $ (1,950 ) $ 415
$ (1,535 ) $ 13,323
$ (1,535 ) $ 11,788


	Three months ended March 31, 2021
	Total other comprehensive income (loss)										Total accumulated other comprehensive income (loss)
(Dollars in thousands)	Prior to reclass		Reclass from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance
Unrealized gain (loss) on debt securities	$	(39,658)	$	(166)	$	(39,492)	$	8,524	$	(30,968)	$	73,576	$	(30,968)	$	42,608

Retirement obligation	0		(525)		525		(120)		405		(24,912)		405		(24,507)
Total	$	(39,658)	$	(691)	$	(38,967)	$	8,404	$	(30,563)	$	48,664	$	(30,563)	$	18,101


	Three months ended March 31, 2019																							Three months ended March 31, 2020
	Total other comprehensive income (loss)												Total accumulated other comprehensive income (loss)											Total other comprehensive income (loss)										Total accumulated other comprehensive income (loss)
(Dollars in thousands)	Prior to reclass		Reclass from			Pre-tax		Tax effect			Net of tax		Beginning balance			Net activity		Cumulative effect of new standard		Ending balance			(Dollars in thousands)	Prior to reclass		Reclass from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance
Unrealized gain (loss) on debt securities	$	29,725	$	(178	)	$	29,903	$	(6,398	)	$	23,505	$	(11,601	)	$	23,505	$	906	$	12,810		Unrealized gain (loss) on debt securities	$	(2,434)	$	(59)	$	(2,375)	$	512	$	(1,863)	$	41,264	$	(1,863)	$	39,401
Unrealized gain (loss) on derivatives	93		0			93		(21		)	72		(217		)	72		0		(145		)

Retirement obligation	0		(375		)	375		(85		)	290		(32,590		)	290		0		(32,300		)	Retirement obligation	0		(425)		425		(97)		328		(27,941)		328		(27,613)
Total	$	29,818	$	(553	)	$	30,371	$	(6,504	)	$	23,867	$	(44,408	)	$	23,867	$	906	$	(19,635	)	Total	$	(2,434)	$	(484)	$	(1,950)	$	415	$	(1,535)	$	13,323	$	(1,535)	$	11,788

The following table presents the activity reclassified from accumulated other comprehensive income into income during the three month periods ended March 31, 2021 and 2020, ~~and 2019,~~ respectively:


		Amount reclassified from accumulated other comprehensive income (loss)									Amount reclassified from accumulated other comprehensive income (loss)
		Three months ended								Three months ended
		March 31,								March 31,
(Dollars in thousands)		2020			2019			Affected Line Item in the Consolidated Statements of Income	(Dollars in thousands)		2021		2020		Affected Line Item in the Consolidated Statements of Income

Realized gain (loss) on securities available-for-sale		$	(59	)	$	(178	)	Net gain (loss) on sales of investments securities	Realized gain (loss) on securities available-for-sale		$	(166)	$	(59)	Net gain (loss) on sales of investments securities
Defined benefit pension plan	Defined benefit pension plan								Defined benefit pension plan
Amortization of prior service cost ⁽¹⁾		100			100			Other noninterest expense	Amortization of prior service cost (1)		100		100		Other noninterest expense
Recognized net actuarial loss⁽¹⁾		(525		)	(475		)	Other noninterest expense	Recognized net actuarial loss (1)		(625)		(525)		Other noninterest expense
Defined benefit pension plan total		(425		)	(375		)		Defined benefit pension plan total		(525)		(425)
Total reclassifications for the period, before tax		$	(484	)	$	(553	)		Total reclassifications for the period, before tax		$	(691)	$	(484)

⁽¹⁾ Included in the computation of net periodic pension cost (see Note 13 - Employee Benefit Plans for additional details).

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NOTE 10: DERIVATIVES

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

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

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

At March 31, ~~2020,~~2021, for the interest rate derivatives, the Company had a total counterparty notional amount outstanding of ~~$2.1~~$2.3 billion, spread among 1920 counterparties, with an estimated fair value of ~~$191.0~~$98.9 million. At December 31, ~~2019,~~2020, the Company had interest rate derivatives with a total counterparty notional amount outstanding of ~~$1.9~~$2.3 billion, spread among 1820 counterparties, with an estimated fair value of ~~$67.5~~$182.3 million.

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

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

Foreign exchange contracts. First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts, First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven foreign exchange activity. These derivatives are classified as free-standing instruments with the revaluation gain or loss recorded in Foreign exchange income in the Consolidated Statements of Income. The ~~Bancorp~~Company has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of currency volatility and credit equivalent exposure on these contracts, counterparty credit approvals and country limits performed by independent risk management. At March 31, ~~2020,~~2021, the Company had total counterparty notional amount outstanding of ~~$2.1~~$4.6 billion spread among 5 counterparties, with an estimated fair value of $31.9 million. At December 31, 2020, the Company had total counterparty notional amounts outstanding of $3.6 billion spread among 6 counterparties, with an estimated fair value of ~~$19.8 million. At December 31, 2019, the Company had total counterparty notional amounts outstanding of $1.9 billion spread among 6 counterparties, with an estimated fair value of $18.3~~$33.1 million.

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

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


		March 31, 2021						December 31, 2020
				Estimated fair value						Estimated fair value
(Dollars in thousands)	Balance sheet classification	Notional amount		Gain		Loss		Notional amount		Gain		Loss
Client derivatives - instruments associated with loans
Matched interest rate swaps with borrower	Accrued interest and other assets	$	2,326,382	$	111,765	$	(10,317)	$	2,300,336	$	184,777	$	(107)
Matched interest rate swaps with counterparty	Accrued interest and other liabilities	2,326,382		10,317		(111,874)		2,300,336		107		(184,884)
Foreign exchange contracts
Matched foreign exchange contracts with customers	Accrued interest and other assets	4,606,916		68,291		(36,409)		3,637,509		60,366		(27,249)
Match foreign exchange contracts with counterparty	Accrued interest and other liabilities	4,606,916		36,409		(68,291)		3,637,509		27,249		(60,366)
Total		$	13,866,596	$	226,782	$	(226,891)	$	11,875,690	$	272,499	$	(272,606)

March 31, 2020 December 31, 2019
Estimated fair value Estimated fair value
(Dollars in thousands) Balance sheet classification
Notional
amount
Gain Loss
Notional
amount
Gain Loss
Client derivatives - instruments associated with loans
Matched interest rate swaps with borrower Accrued interest and other assets $ 2,094,136
$ 197,886
$ (6,306 ) $ 1,923,375
$ 70,799
$ (2,636 )
Matched interest rate swaps with counterparty Accrued interest and other liabilities 2,094,136
6,306
(197,955 ) 1,923,375
2,636
(70,808 )
Foreign exchange contracts
Matched foreign exchange contracts with customers Accrued interest and other assets 2,107,052
42,411
(62,216 ) 1,869,934
28,739
(10,433 )
Match foreign exchange contracts with counterparty Accrued interest and other liabilities 2,107,052
62,216
(42,411 ) 1,869,934
10,433
(28,739 )
Total $ 8,402,376
$ 308,819
$ (308,888 ) $ 7,586,618
$ 112,607
$ (112,616 )

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


	March 31, 2021						December 31, 2020
(Dollars in thousands)	Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets		Net amounts of liabilities (assets) presented in the Consolidated Balance Sheets		Gross amounts of recognized liabilities		Gross amounts offset in the Consolidated Balance Sheets		Net amounts of liabilities (assets) presented in the Consolidated Balance Sheets
Client derivatives

Matched interest rate swaps with counterparty	$	122,191	$	(249,003)	$	(126,812)	$	184,991	$	(385,088)	$	(200,097)
Foreign exchange contracts with counterparty	104,700		(10,253)		94,447		87,615		(17,392)		70,223
Total	$	226,891	$	(259,256)	$	(32,365)	$	272,606	$	(402,480)	$	(129,874)

March 31, 2020 December 31, 2019
(Dollars in thousands) Gross amounts of recognized liabilities Gross amounts offset in the Consolidated Balance Sheets Net amounts of liabilities (assets) presented in the Consolidated Balance Sheets Gross amounts of recognized liabilities Gross amounts offset in the Consolidated Balance Sheets Net amounts of liabilities (assets) presented in the Consolidated Balance Sheets
Client derivatives
Matched interest rate swaps with counterparty $ 204,261
$ (406,685 ) $ (202,424 ) $ 73,444
$ (147,193 ) $ (73,749 )
Foreign exchange contracts with counterparty 104,627
(93,015 ) 11,612
39,172
(41,202 ) (2,030 )
Total $ 308,888
$ (499,700 ) $ (190,812 ) $ 112,616
$ (188,395 ) $ (75,779 )

The following table details the derivative financial instruments, the average remaining maturities and the weighted-average interest rates being paid and received by First Financial at March 31, ~~2020:~~2021:


(Dollars in thousands)	Notional amount		Average maturity (years)	Fair value
Client derivatives-interest rate contracts
Receive fixed, matched interest rate swaps with borrower	$	2,326,382	6.1	$	101,448
Pay fixed, matched interest rate swaps with counterparty	2,326,382		6.1	(101,557)
Client derivatives-foreign exchange contracts
Foreign exchange contracts-pay USD	$	4,606,916	0.6	31,882
Foreign exchange contracts-receive USD	$	4,606,916	0.6	(31,882)
Total client derivatives	$	13,866,596	2.4	$	(109)

(Dollars in thousands)
Notional
amount

Average
maturity
(years)

Fair
value
Client derivatives-interest rate contracts
Receive fixed, matched interest rate swaps with borrower $ 2,094,136
5.7 $ 191,580
Pay fixed, matched interest rate swaps with counterparty 2,094,136
5.7 (191,649 )
Client derivatives-foreign exchange contracts
Foreign exchange contracts-pay USD $ 2,107,052
0.5 (19,805 )
Foreign exchange contracts-receive USD $ 2,107,052
0.5 19,805
Total client derivatives $ 8,402,376
3.1 $ (69 )

Credit derivatives. In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty. The total notional value of these agreements totaled ~~$234.0~~$250.5 million as of March 31, ~~2020~~2021 and ~~$216.2~~$242.4 million as of December 31, ~~2019.~~2020. The fair value of these agreements is recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets and was ~~$0.4~~$0.2 million at March 31, ~~2020~~2021 and ~~$0.2~~$0.3 million at December 31, ~~2019.~~2020.

Mortgage derivatives. First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure IRLCs with First Financial and the loans are intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and loans held for sale. At March 31, ~~2020,~~

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2021, the notional amount of the IRLCs was ~~$189.5~~$125.2 million and the notional amount of forward commitments was ~~$147.0~~$114.8 million. As of December 31, ~~2019,~~2020, the notional amount of IRLCs was ~~$33.4~~$114.2 million and the notional amount of forward commitments was ~~$37.8~~$112.6 million. The fair value ofon these agreements was ~~a loss of $1.8~~$0.6 million and ~~$0.9~~$2.7 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, and were recorded in accrued interest and other assets on the Consolidated Balance Sheets.

NOTE 11: COMMITMENTS AND CONTINGENCIES

First Financial offers a variety of financial instruments including loan commitments and letters of credit to assist clients in meeting their requirement for liquidity and credit enhancement. GAAP does not require these financial instruments to be recorded in the Consolidated Financial Statements.

First Financial utilizes the same credit policies in issuing commitments and conditional obligations as it does for credit instruments recorded on the Consolidated Balance Sheets. First Financial’s exposure to credit loss in the event of non-performance by the counterparty was represented by the contractual amounts of those instruments. Effective January 1, 2020, First Financial adopted ASC 326, at which time First Financial estimated expected credit losses over the contractual period in

which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the Company's ACL methodology for loans and leases. Adjustments to the reserve for unfunded commitments are recorded in Provision for credit losses - unfunded commitments in the Consolidated Statements of Income. First Financial had ~~$14.3~~$13.0 million ~~of ACL for unfunded commitments recorded in Accrued interest~~ and ~~other liabilities on the Consolidated Balance Sheets as of March 31, 2020.~~

Prior to the adoption of ASC 326, First Financial maintained its reserve to absorb probable losses incurred in standby letters of credit and outstanding loan commitments. First Financial determined the adequacy of this reserve based upon an evaluation of the unfunded credit facilities, which included consideration of historical commitment utilization experience, credit risk ratings and historical loss rates, consistent with the Company's ALLL methodology at the time. First Financial had $0.6$12.5 million of reserves for unfunded commitments recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets at March 31, 2021 and December 31, ~~2019.~~2020, respectively.

Loan commitments. Loan commitments are agreements to extend credit to a client, absent any violation of conditions 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 will expire without being fully 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 ~~$3.3~~$3.7 billion at ~~both~~ March 31, ~~2020~~2021 and $3.4 billion at December 31, ~~2019.~~2020. As of March 31, 2021, loan commitments with a fixed interest rate totaled $127.3 million while commitments with variable interest rates totaled $3.6 billion. At December 31, 2020, loan commitments with a fixed interest rate totaled ~~$154.4~~$123.6 million while commitments with variable interest rates totaled ~~$3.1 billion. At December 31, 2019, loan commitments with a fixed interest rate totaled $123.7 million while commitments with variable interest rates totaled $3.2~~$3.3 billion. First Financial's fixed rate loan commitments have interest rates ranging from 0.00% to 21.00% for both March 31, ~~2020~~2021 and December 31, ~~2019~~2020 and have maturities ranging from less than 1one year to ~~30.9~~30.0 years for March 31, ~~2020~~2021 and less than ~~1.0~~one year to ~~31.6~~30.8 years for December 31, ~~2019.~~2020.

The following table presents by type First Financial's active loan balances and related~~contractual~~ obligations to extend ~~credit, excluding obligations that are unconditionally cancellable,~~ ~~by type, as of March 31, 2020.~~credit:


	March 31, 2021				December 31, 2020
(dollars in thousands)	Unfunded commitment		Loan balance		Unfunded commitment		Loan balance
Commercial & industrial	$	1,335,354	$	3,044,825	$	1,270,765	$	3,007,509
Lease financing	8,663		66,574		0		72,987
Construction real estate	347,676		642,709		374,008		636,096
Commercial real estate-investor	167,654		3,347,687		139,754		3,244,540
Commercial real estate-owner	42,809		1,048,895		51,637		1,063,318
Residential real estate	32,256		946,522		28,895		1,003,086
Home equity	777,786		709,667		762,406		743,099
Installment	17,644		82,421		18,229		81,850
Credit card	212,230		44,669		207,365		48,485
Total	$	2,942,072	$	9,933,969	$	2,853,059	$	9,900,970

(dollars in thousands) Unfunded commitment Loan balance
Commercial & industrial $ 1,090,309
$ 2,477,773
Lease financing 0 82,602
Construction real estate 462,460 500,311
Commercial real estate-investor 152,602 3,180,037
Commercial real estate-owner 45,889 1,098,220
Residential real estate 30,807 1,061,792
Home equity 717,625 781,243
Installment 21,457 80,085
Credit card 185,606 45,756
Total $ 2,706,755
$ 9,307,819

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 letters of credit consist 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

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issued letters of credit aggregating ~~$32.7~~$36.4 million and ~~$33.4~~$36.1 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Management conducts regular reviews of these instruments on an individual client basis.

Investments in affordable housing tax credits. First Financial has made investments in certain qualified affordable housing tax credits. These credits are an indirect federal ~~subsidy~~subsidies that provide tax incentives to encourage investment in the acquisition, development, and rehabilitation of affordable rental housing, and allow investors to claim tax credits and other tax benefits (such as deductions from taxable income for operating losses) on their federal income tax returns. The principal risk associated with qualified affordable housing investments is the potential for noncompliance with the tax code requirements, such as failure to rent property to qualified tenants, resulting in the unavailability or recapture of the tax credits and other tax benefits.

Investments in affordable housing projects are accounted for under the proportional amortization method and are included in Accrued interest and other assets in the Consolidated Balance Sheets.

First Financial's affordable housing commitments totaled ~~$35.6~~$44.8 million and ~~$38.5~~$47.5 million as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. ~~The Company~~First Financial recognized tax credits of ~~$1.9~~$2.2 million and ~~$1.6~~$1.9 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. The Company recognized amortization expense, which was included in income tax expense, of ~~$2.1~~$2.0 million and ~~$1.6~~$2.1 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively. First Financial had 0 affordable housing contingent commitments as of March 31, ~~2020~~2021 or December 31, ~~2019.~~2020.

Investments in historic tax credits. First Financial has noncontrolling financial investments in private investment funds and partnerships which are not consolidated. These investments may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. Investments in historic tax credits are accounted for under the equity method of accounting and are carried in Accrued interest and other assets on the Consolidated Balance Sheets. The Company’s recorded investment in these entities was approximately ~~$3.8~~$3.5 million at March 31, ~~2020~~2021 and ~~$3.1~~$3.6 million at December 31, ~~2019.~~2020. The maximum exposure to loss related to these investments was ~~$6.7~~$3.9 million at March 31, ~~2020~~2021 and ~~$5.1~~$4.0 million at December 31, ~~2019,~~2020, representing the Company’s investment balance and its unfunded commitments to invest additional amounts. Investments in historic tax credits resulted in $0.1 million of tax credits for each of the three months ended March 31, ~~2020~~2021 and ~~were insignificant for the three months ended~~ March 31, ~~2019.~~2020, respectively.

Investments in renewable energy tax credits. First Financial has noncontrolling financial investments in renewable energy projects which are not consolidated. These investments may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. Investments in renewable energy tax credits are accounted for under the equity method of accounting and are included in Accrued interest and other assets on the Consolidated Balance Sheets. The Company’s recorded investment in renewable energy projects was approximately $15.2 million and $5.2 million at March 31, 2021 and December 31, 2020, respectively. The maximum exposure to loss related to these investments was $14.3 million and $7.7 million at March 31, 2021 and December 31, 2020, respectively, representing the Company’s investment balance and its unfunded commitments to invest additional amounts.

Contingencies/Litigation. First Financial and its subsidiaries are engaged in various matters of litigation 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 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 March 31, ~~2020.~~2021. 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. First Financial had 0 reserves related to litigation matters as of March 31, ~~2020~~2021 or December 31, ~~2019.~~2020.

NOTE 12: INCOME TAXES

For the first three months of ~~2020,~~2021, income tax expense was ~~$5.9~~$10.4 million, resulting in an effective tax rate of ~~17.1%~~18.0% compared with income tax expense of ~~$9.9~~$5.9 million and an effective tax rate of ~~17.8%~~17.1% for the comparable period in ~~2019.~~2020. The ~~decrease~~increase in the effective tax rate is primarily due to ~~lower~~higher pre-tax income in the first quarter of 2021 as compared to the first quarter of 2020. Also, in the first quarter of 2020, ~~and~~the Company recorded the tax benefit of the carryback of certain net operating losses as allowed under the CARES ~~Act. These adjustments were partially offset by an unfavorable impact related~~Act, which contributed to ~~stock compensation activity.~~a lower effective tax rate in the quarter.

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At both March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, First Financial had ~~$2.4~~$1.9 million of unrecognized tax benefits, as determined under FASB ASC Topic 740-10, Income Taxes, that if recognized would favorably impact the effective income tax rate in future periods. The unrecognized tax benefits relate to state income tax exposures ~~from taking tax positions~~ where the Company believes it is likely that, upon examination, a state may take a position contrary to the position taken by First Financial. The Company believes that resolution regarding our uncertain tax positions is reasonably possible within the next twelve months and could result in full, partial or no recognition of the benefit. First Financial recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had 0 interest or penalties recorded.

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 ~~2016~~2017 have been closed and are no longer subject to U.S. federal income tax examinations. Tax years ~~2016~~2017 through ~~2019~~2020 remain open to examination by the federal taxing authority.

With limited exception, First Financial is no longer subject to state and local income tax examinations for years prior to ~~2011. Tax years 2011 through 2019 remain open to state and local examination in various jurisdictions.~~2017.

NOTE 13: EMPLOYEE BENEFIT PLANS

First Financial sponsors a non-contributory defined benefit pension plan which covers substantially all employees and uses a December 31 measurement date for the plan. Plan assets are primarily invested in fixed income and publicly traded equity mutual funds. The pension plan does not directly own any shares of First Financial common stock or any other First Financial security or product.

First Financial made 0 cash contributions to fund the pension plan during the three months ended March 31, ~~2020,~~2021, or the year ended December 31, ~~2019,~~2020, and does not expect to make cash contributions to the plan through the remainder of ~~2020.~~2021.

As a result of the plan’s actuarial projections, First Financial recorded expense as set forth in the following table. The amounts are recognized in First Financial’s Consolidated Statements of Income related to the Company's pension plan.


	Three months ended
	March 31,
(Dollars in thousands)		2021		2020
Service cost		$	2,350	$	1,850
Interest cost		525		600
Expected return on assets		(2,550)		(2,475)
Amortization of prior service cost		(100)		(100)
Net actuarial loss		625		525
Net periodic benefit cost (income)		$	850	$	400

Three months ended
March 31,
(Dollars in thousands) 2020 2019
Service cost $ 1,850
$ 1,750
Interest cost 600
700
Expected return on assets (2,475 ) (2,450 )
Amortization of prior service cost (100 ) (100 )
Net actuarial loss 525
475
Net periodic benefit cost (income) $ 400
$ 375

NOTE 14: REVENUE RECOGNITION

The majority of the ~~Company's~~Company’s revenues come from ~~interest~~sources that are outside of the scope of ASU 2014-09, Revenue from Contracts with Customers. Income sources that are outside of this standard include income ~~and other sources, including~~earned on loans, leases, securities, derivatives and foreign exchange ~~that are outside the scope of ASU No. 2014-09, Revenue from Contracts with Customers.~~ The Company's services that fall within the scope of ASU ~~2019-09~~2014-09 are presented within Noninterest income and are recognized as revenue when the Company satisfies its obligation to the customer. Services within the scope of this guidance include service charges on deposits, trust and wealth management fees, bankcard income, gain/loss on the sale of OREO and investment brokerage fees.

Service charges on deposit accounts. The Company earns revenues from its deposit customers for transaction-based fees, account maintenance fees and overdraft fees. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Similarly, overdraft fees are recognized at the point in time that the overdraft occurs as this corresponds with the Company's performance obligation. Service charges on deposit accounts are withdrawn from the customer's deposit account.

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Trust and wealth management fees. Trust and wealth management fees are primarily asset-based, but can also include flat fees based upon a specific service rendered, such as tax preparation services. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fees. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and wealth management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, as incurred.

Bankcard income. The Company earns interchange fees from cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized concurrent with the transaction processing services provided to the cardholder. Interchange income is presented on the Consolidated Statements of Income net of expenses. Gross interchange income for the first quarter of ~~2020~~2021 was $5.7 million, which was partially offset by $3.0 million of expenses within Noninterest income. ~~Gross~~Similarly, gross interchange income for the first quarter of ~~2019~~2020 was ~~$8.5~~$5.7 million, which was partially offset by ~~$2.9~~$3.0 million of expenses.

Other. Other noninterest income consists of other recurring revenue streams such as transaction fees, safe deposit rental income, insurance commissions, merchant referral income, gain (loss) on sale of OREO and brokerage revenue. Transaction

fees primarily include check printing sales commissions, collection fees and wire transfer fees which arise from in-branch transactions. Safe deposit rental income arises from fees charged to the customer on an annual basis and recognized upon receipt of payment. Insurance commissions are agent commissions earned by the Company and earned upon the effective date of the bound coverage. Merchant referral income is associated with a program whereby the Company receives a share of processing revenue that is generated from clients that were referred by First Financial to the service provider. Revenue is recognized at the point in time when the transaction occurs.

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of the executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectibility of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

Brokerage revenue represents fees from investment brokerage services provided to customers by a third party provider. The Company receives commissions from the third-party service provider on a monthly basis based upon customer activity for the month. The fees are recognized monthly and a receivable is recorded until commissions are paid the following month. Because the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, investment brokerage fees are presented net of related costs.

NOTE 15: EARNINGS PER COMMON SHARE

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


	Three months ended
	March 31,
(Dollars in thousands, except per share data)		2021		2020
Numerator
Net income available to common shareholders		$	47,315	$	28,628

Denominator
Weighted average shares outstanding for basic earnings per common share		96,873,940		97,736,690
Effect of dilutive securities
Employee stock awards		853,587		619,524

Adjusted weighted average shares for diluted earnings per common share		97,727,527		98,356,214

Earnings per share available to common shareholders
Basic		$	0.49	$	0.29
Diluted		$	0.48	$	0.29

Three months ended
March 31,
(Dollars in thousands, except per share data) 2020 2019
Numerator
Net income available to common shareholders $ 28,628
$ 45,839

Denominator
Weighted average shares outstanding for basic earnings per common share 97,736,690
97,926,088
Effect of dilutive securities
Employee stock awards 619,524
510,223
Adjusted weighted average shares for diluted earnings per common share 98,356,214
98,436,311

Earnings per share available to common shareholders
Basic $ 0.29
$ 0.47
Diluted $ 0.29
$ 0.47

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Stock options and warrants with exercise prices 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. Using the end of period price of the Company's common shares, there were 0 antidilutive options at March 31, ~~2020~~2021 and March 31, ~~2019.~~ 2020.

NOTE 16: FAIR VALUE DISCLOSURES

The fair value framework as disclosed in the 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 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
(Dollars in thousands)	value		Total		Level 1		Level 2		Level 3
March 31, 2021
Financial assets
Cash and short-term investments	$	229,371	$	229,371	$	229,371	$	0	$	0
Investment securities held-to-maturity	121,945		124,294		0		124,294		0
Other investments	131,814		131,814		949		121,457		9,408

Loans and leases	9,764,046		9,767,354		0		0		9,767,354
Accrued interest receivable	51,520		51,520		0		13,299		38,221

Financial liabilities
Deposits




Deposits	12,648,069		12,652,266		0		12,652,266		0
Short-term borrowings	181,387		181,387		181,387		0		0
Long-term debt	583,722		581,177		0		581,177		0
Accrued interest payable	5,723		5,723		0		5,723		0

Carrying Estimated fair value
(Dollars in thousands) value Total Level 1 Level 2 Level 3
March 31, 2020
Financial assets
Cash and short-term investments $ 332,963
$ 332,963
$ 332,963
$ 0
$ 0
Investment securities held-to-maturity 136,744
140,065
0
140,065
0
Other investments 143,581
N/A
N/A
N/A
N/A
Loans held for sale 27,334
27,334
0
27,334
0
Loans and leases 9,163,934
8,877,637
0
0
8,877,637
Accrued interest receivable 40,386
40,386
0
12,937
27,449

Financial liabilities
Deposits 10,635,558
10,644,873
0
10,644,873
0
Short-term borrowings 1,397,724
1,397,724
1,397,724
0
0
Long-term debt 325,566
338,778
0
338,778
0
Accrued interest payable 11,474
11,474
2,347
9,127
0

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	Carrying		Estimated fair value
(Dollars in thousands)	value		Total		Level 1		Level 2		Level 3
December 31, 2020
Financial assets
Cash and short-term investments	$	251,359	$	251,359	$	251,359	$	0	$	0
Investment securities held-to-maturity	131,687		136,698		0		136,698		0
Other investments	133,198		133,198		837		122,953		9,408

Loans and leases	9,725,291		9,743,497		0		0		9,743,497
Accrued interest receivable	50,903		50,903		0		13,221		37,682

Financial liabilities





Deposits	12,232,003		12,238,058		0		12,238,058		0
Short-term borrowings	166,594		166,594		166,594		0		0
Long-term debt	776,202		774,674		0		774,674		0
Accrued interest payable	6,240		6,240		14		6,226		0

Carrying Estimated fair value
(Dollars in thousands) value Total Level 1 Level 2 Level 3
December 31, 2019
Financial assets

Cash and short-term investments $ 257,639
$ 257,639
$ 257,639
$ 0
$ 0
Investment securities held-to-maturity 142,862
142,821
0
142,821
0
Other investments 125,020
N/A
N/A
N/A
N/A
Loans held for sale 13,680
13,680
0
13,680
0
Loans and leases 9,144,015
9,134,215
0
0
9,134,215
Accrued interest receivable 39,591
39,591
0
12,743
26,848

Financial liabilities
Deposits 10,210,229
10,209,790
0
10,209,790
0
Short-term borrowings 1,316,181
1,316,181
1,316,181
0
0
Long-term debt 414,376
414,937
0
414,937
0
Accrued interest payable 13,671
13,671
1,899
11,772
0

The following methods, assumptions and valuation techniques were used by First Financial to measure different financial assets and liabilities at fair value on a recurring or nonrecurring basis.

Investment securities. Investment securities classified as 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 previously described are considered Level 3.

First Financial utilizes values provided by third-party pricing vendors to price the investment securities portfolio in accordance with the fair value hierarchy of the Fair Value Topic and reviews the pricing methodologies utilized by the pricing vendors to ensure that the fair value determination is consistent with the applicable accounting guidance. First Financial’s pricing process includes a series of quality assurance activities where prices are compared to recent market conditions, historical prices and other independent pricing services. Further, the Company periodically validates the fair value of a sample of securities in the portfolio by comparing the fair values to prices from other independent sources for the same or similar securities. First Financial analyzes unusual or significant variances, conducts additional research with the pricing vendor, and if necessary, takes appropriate action based on its findings. The results of the quality assurance process are incorporated into the selection of pricing providers by the portfolio manager.

Loans held for sale. The fair value of the Company’s residential mortgage loans held for sale is determined on a recurring basis based on quoted prices for similar loans in active markets, and therefore, is classified as a Level 2 measurement.

Derivatives. The fair values of derivative instruments are based primarily on a net present value calculation of the cash flows related to the interest rate swaps and foreign exchange contracts at the reporting date, using primarily observable market inputs such as interest rate yield curves which represents the cost to terminate the swap if First Financial should choose to do so. Additionally, First Financial utilizes an internally-developed model to value the credit risk component of derivative assets and liabilities, which 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.

~~Nonperforming~~Collateral dependent loans. ~~The~~Collateral dependent loans carried at fair value have been partially charged-off or receive specific allocations of ~~nonperforming~~the allowance for credit losses. For collateral dependent loans, ~~are specifically reviewed for purposes of determining the appropriate amount of impairment to be allocated to the ACL. Fair~~fair value is generally ~~measured~~ based on ~~the value of the collateral securing the loans. Collateral may be in the form of~~ real estate appraisals, a calculation of enterprise value or a valuation of business assets including equipment, inventory and accounts receivable. These loans had a principal amount of $30.9 million and $45.3 million at March 31, 2021 and December 31, 2020, respectively, with a valuation allowance of $10.2 million and $13.5 million at March 31, 2021 and December 31, 2020, respectively.

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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). These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Collateral dependent loans are evaluated on a quarterly basis for additional write-downs and are adjusted accordingly.

Enterprise value is defined as imputed value for the entire underlying business. To determine an appropriate range of enterprise value, FFB relies on a standardized set of valuation methodologies that take into account future projected cash flows, market based multiples as well as asset values. Valuations involve both quantitative and qualitative considerations and professional judgments concerning differences in financial and operating characteristics in addition to other factors that may impact values over time (Level 3).

The value of business equipment is based on an outside appraisal, if deemed significant, or the net book value on the applicable borrower financial statements. 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). ~~Nonperforming~~

The fair value of collateral dependent loans ~~are~~is measured at fair value on a

nonrecurring basis. Any fair value adjustments are recorded in the period ~~expected to occur~~incurred as provision for credit losses on the Consolidated Statements of Income.

OREO. Assets acquired through loan foreclosure are recorded at fair value less costs to sell, with any difference between the fair value of the property and the carrying value of the loan recorded as a ~~charge-off. If the fair value is higher than the carrying amount of the loan, the excess is recognized first as~~charge-off establishing a ~~recovery and then as noninterest income.~~new cost basis. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in noninterest expense. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value differs from the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. The Company classifies OREO in level 3 of the fair value hierarchy.

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
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/liabilities at fair value
March 31, 2021
Assets
Investment securities available-for-sale	$	10,260	$	3,703,825	$	39,678	$	3,753,763
Loans held for sale	0		34,590		0		34,590
Interest rate derivative contracts	0		122,156		0		122,156
Foreign exchange derivative contracts	0		104,700		0		104,700
Total	$	10,260	$	3,965,271	$	39,678	$	4,015,209

Liabilities
Interest rate derivative contracts	$	0	$	122,592	$	0	$	122,592
Foreign exchange derivative contracts	0		104,700		0		104,700
Total	$	0	$	227,292	$	0	$	227,292

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Fair value measurements using
(Dollars in thousands) Level 1 Level 2 Level 3
Assets/liabilities
at fair value
March 31, 2020
Assets
Investment securities available-for-sale $ 104
$ 2,864,334
$ 44,250
$ 2,908,688
Interest rate derivative contracts 0
204,351
0
204,351
Foreign exchange derivative contracts 0
104,627
0
104,627
Total $ 104
$ 3,173,312
$ 44,250
$ 3,217,666

Liabilities

Interest rate derivative contracts $ 0
$ 205,505
$ 0
$ 205,505
Foreign exchange derivative contracts 0
104,627
0
104,627
Total $ 0
$ 310,132
$ 0
$ 310,132

Fair value measurements using
(Dollars in thousands) Level 1 Level 2 Level 3
Assets/liabilities
at fair value
December 31, 2019
Assets
Investment securities available-for-sale $ 100
$ 2,842,794
$ 9,190
$ 2,852,084
Interest rate derivative contracts 0
73,558
0
73,558
Foreign exchange derivative contracts 0
39,172
0
39,172
Total $ 100
$ 2,955,524
$ 9,190
$ 2,964,814

Liabilities

Interest rate derivative contracts $ 0
$ 73,750
$ 0
$ 73,750
Foreign exchange derivative contracts $ 0
$ 39,172
$ 0
$ 39,172
Total $ 0
$ 112,922
$ 0
$ 112,922


	Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/liabilities at fair value
December 31, 2020
Assets
Investment securities available-for-sale	$	103	$	3,383,902	$	40,575	$	3,424,580
Loans held for sale	0		41,103		0		41,103
Interest rate derivative contracts	0		185,032		0		185,032
Foreign exchange derivative contracts	0		87,615		0		87,615
Total	$	103	$	3,697,652	$	40,575	$	3,738,330

Liabilities
Interest rate derivative contracts	$	0	$	186,124	$	0	$	186,124
Foreign exchange derivative contracts	$	0	$	87,615	$	0	$	87,615
Total	$	0	$	273,739	$	0	$	273,739

The following table presents a reconciliation for certain AFS securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, ~~2020~~2021 and March 31, ~~2019.~~2020.


	Three months ended
	March 31,
(dollars in thousands)		2021		2020
Beginning balance		$	40,575	$	9,190
Accretion (amortization)		(9)		16
Increase (decrease) in fair value		12		(30)
Settlements		(900)		35,074
Ending balance		$	39,678	$	44,250

Three months ended
(dollars in thousands) March 31, 2020 March 31, 2019
Beginning balance $ 9,190
$ 14,715
Accretion (amortization) 16
7
Increase (decrease) in fair value (30 ) 21
Settlements 35,074
(1,388 )
Ending balance $ 44,250
$ 13,355

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 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
(Dollars in thousands)	Level 1		Level 2		Level 3
March 31, 2021
Assets
Collateral dependent loans
Commercial	$	0	$	0	$	10,732
Commercial real estate	0		0		9,986

OREO	0		0		54

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	Fair value measurements using							Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		(Dollars in thousands)	Level 1		Level 2		Level 3
March 31, 2020
December 31, 2020							December 31, 2020
Assets							Assets
Impaired loans	$	0	$	0	$	13,180
Collateral dependent loans							Collateral dependent loans
Commercial							Commercial	$	0	$	0	$	25,367
Commercial real estate							Commercial real estate	0		0		6,432

OREO	0		0		554		OREO	0		0		54

Fair value measurements using
(Dollars in thousands) Level 1 Level 2 Level 3
December 31, 2019
Assets
Impaired loans $ 0
$ 0
$ 9,268
OREO 0
0
1,088

~~NOTE 17: BUSINESS COMBINATIONS~~

~~In August, 2019,~~Fair value option. First Financial may elect to report most financial instruments and certain other items at fair value on an instrument-by instrument basis with changes in fair value reported in net income. After the ~~Company completed~~initial adoption, the election is made at the acquisition of ~~Bannockburn Global Forex, LLC. Pursuant to~~an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.

The Company elected the ~~acquisition agreement, First Financial agreed to acquire all~~fair value option for residential mortgage loans held for sale. This election allows for a more effective offset of the ~~issued and outstanding membership interests of BGF for aggregate consideration of approximately $114.6 million consisting of $53.7 million~~changes in cash and $60.9 million of First Financial common stock. BGF was a privately held capital markets trading firm specializing in foreign currency advisory, hedge analytics, and transaction processing for closely held enterprises. Upon completionfair values of the ~~transaction, Bannockburn became a division~~loans held for sale and the derivative financial instruments used to financially hedge them without having to apply complex hedge accounting requirements. The fair value of the ~~Bank, but continues to operate as Bannockburn Global Forex, taking advantage of its existing brand recognition within the foreign exchange industry.~~Company’s residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets.

The ~~Bannockburn transaction~~aggregate fair value of the Company’s residential mortgage loans held for sale as of March 31, 2021 and December 31, 2020 was ~~accounted~~$34.6 million and $41.1 million, respectively. The aggregate unpaid principal balance of the Company’s residential mortgage loans held for ~~using~~sale as of March 31, 2021 and December 31, 2020 was $30.3 million and $35.5 million, respectively. The resulting difference between the ~~acquisition method~~aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected was $4.3 million and $5.6 million as of ~~accounting~~March 31, 2021 and ~~accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at~~December 31, 2020, respectively.

Changes in the estimated fair value onof residential mortgage loans held for sale are reported as a component of Net gain from sales of loans in the ~~acquisition date,~~Company’s Consolidated Statements of Income. For the three months ended March 31, 2021 and 2020, the net loss from the change in ~~accordance with FASB ASC Topic 805, Business Combinations. The~~ fair value ~~measurements~~ of ~~assets acquired and liabilities assumed were $74.9~~the Company’s residential mortgage loans held for sale was $1.3 million and ~~$18.4~~$0.9 million, respectively, and are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values became available. The measurement period ends in August 2020. Goodwill arising from the BGF acquisition was $58.0 million and reflects the business’s high growth potential and the expectation that the acquisition will provide additional revenue growth and diversification. The goodwill is deductible for income tax purposes as the transaction is considered a taxable exchange. For further detail, see Note 6 – Goodwill and Other Intangible Assets.respectively.

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~~NOTE 18: SUBSEQUENT EVENT~~

In April 2020, First Financial issued $150.0 million of fixed to floating rate subordinated notes. The subordinated notes have an initial fixed interest rate of 5.25% to, but excluding, May 15, 2025, payable semi-annually in arrears. From, and including, May 15, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark rate, which is expected to be the then-current three-month term SOFR, plus 509 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030. These notes are redeemable by the Company in whole or in part beginning with

the interest payment date of May 15, 2025. The subordinated notes are treated as Tier 2 capital for regulatory capital purposes and will be included in Long-term debt on the Consolidated Balance Sheets.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS ~~(MD&A)~~

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

(Unaudited)

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

EXECUTIVE SUMMARY

First Financial Bancorp. is a ~~$15.1~~$16.2 billion financial holding company headquartered in Cincinnati, Ohio, which operates through its subsidiaries primarily in Ohio, Indiana, Kentucky and Illinois. These subsidiaries include First Financial Bank, an

Ohio-chartered commercial bank, which operated ~~145~~143 full service banking centers as of March 31, ~~2020.~~2021. First Financial

provides banking and financial services products to business and retail clients through its six lines of business: Commercial,

Retail Banking, Mortgage Banking, Wealth Management, Investment Commercial Real Estate and Commercial Finance.

Commercial Finance provides equipment and leasehold improvement financing for franchisees in the quick service and casual

dining restaurant sector and commission-based financing, primarily to insurance agents and brokers, throughout the United

States. Wealth Management had ~~$2.6~~$3.1 billion in assets under management as of March 31, ~~2020~~2021 and provides the following

services: financial planning, investment management, trust administration, estate settlement, brokerage services and retirement planning.

MARKET STRATEGY

First Financial aims to develop a competitive advantage by utilizing a local market focus to provide superior service and build long-term relationships with clients while helping them achieve greater financial success. First Financial serves a combination of metropolitan and community markets in Ohio, Indiana, Kentucky and Illinois through its full-service banking centers, and provides financing to franchise owners and clients within the financial services industry throughout the United States. First Financial’s market selection process includes a number of factors, but markets are primarily chosen for their potential for ~~growth~~long-term profitability and ~~long-term profitability.~~growth. First Financial intends to concentrate plans for future growth and capital investment within its current metropolitan markets, and will continue to evaluate additional growth opportunities in metropolitan markets located within, or in close proximity to, the Company's current geographic footprint. Additionally, First Financial may assess strategic acquisitions that provide product line extensions or additional industry verticals that compliment its existing business and diversify its product suite and revenue streams. First Financial's investment in community markets is an important part of the Bank's core funding base and has historically provided stable, low-cost funding sources.

~~BUSINESS COMBINATIONS~~

In August 2019, the Company acquired Bannockburn Global Forex, LLC, an industry-leading capital markets firm. The Cincinnati-based company provides transactional currency payments, foreign exchange hedging and other advisory products to closely held enterprises, financial sponsors and financial institutions across the United States. Bannockburn became a division of the Bank and continues to operate as Bannockburn Global Forex, taking advantage of its existing brand recognition within the foreign exchange industry. The total purchase consideration was $114.6 million, consisting of $53.7 million in cash and $60.9 million in First Financial common stock. The transaction resulted in First Financial recording $58.0 million of goodwill on the Consolidated Balance Sheet, which reflects the business’s high growth potential, and the expectation that the acquisition will provide additional revenue growth and diversification. The goodwill is deductible for income tax purposes as the transaction is considered a taxable exchange.

The BGF transaction was accounted for using the acquisition method of accounting. Accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations.

~~See Note 17 – Business Combinations in the Notes to Consolidated Financial Statements for further discussion of these transactions.~~

COVID-19 CONSIDERATIONS

The Company's operations and financial results for the majority of 2020 and the first quarter ~~financial results~~of 2021 were substantially influenced by the COVID-19 pandemic. The Company updated operating protocols to continuously provide virtually all banking services while ~~protecting~~prioritizing the health and safety of both ~~our~~its clients and ~~our~~ associates. ~~Over 96% of our banking~~Banking centers ~~remained~~offered drive through services without interruption, while lobbies were fully open ~~and the Company offered drive-through~~

~~capabilities~~or accessible to clients via appointment, conditional to virus trends at any point in ~~almost all locations. In addition, sales~~time. Sales associates, support teams and management ~~effectively transitioned to working remotely resulting~~largely worked remotely; however, associates located in the ~~majority~~Company's corporate offices and operations centers began to gradually return to those locations at reduced capacity levels in the third quarter of ~~First Financial associates working from home.~~2020. In addition, the Company ~~continues to focus~~has remained focused on enhancing remote, mobile and online processes to better support a bank anytime anywhere environment.

~~The~~To assist clients during the pandemic, the Company ~~quickly~~ implemented distinct COVID-19 relief programs to provide ~~comprehensive financial assistance to clients through~~ payment deferrals and fee waivers, ~~and suspension of~~in addition to suspending vehicle repossessions and residential property ~~foreclosures, among others. In addition,~~foreclosures. Additionally, the Company actively monitored the actions of federal and state governments to proactively assist clients and ~~proactively assisted clients to~~ ensure ~~that they were aware~~awareness of each financial assistance program ~~available to them.~~available.

The Bank underwent a significant level of cross training and redeployment of associate resources to rapidly meet the influx of

client requests in response to the passage of the CARES Act, ~~and~~ the establishment of the ~~Payroll~~Paycheck Protection Program ~~("PPP").~~and the

approval of the Consolidated Appropriations Act. The Company's response to the PPP resulted in ~~early~~ successes in providing

customer ~~relief. As~~relief, and as of ~~April 30, 2020,~~March 31, 2021, the Company had ~~received 6,603~~outstanding PPP ~~loan requests representing $1.0 billion dollars, ultimately securing SBA funding for 6,085~~ loans ~~representing $917.4~~totaling $690.0 million ~~dollars.~~in balances, net of $21.9 million of unearned fees.

~~Through April 30, 2020,~~Further, as of March 31, 2021, the Company ~~modified 1,055~~provided relief to borrowers adversely impacted by the pandemic through payment deferrals on $248.4 million of commercial loans ~~with balances~~and $2.7 million of ~~$1.6 billion and 979~~ consumer ~~loans with balances of $129.5 million in response to COVID-19.~~loans. As stated in the CARES Act, ~~these~~and

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subsequently amended by the Consolidated Appropriations Act, loan modifications ~~are not required to be reported as TDR as they were executed after March 1, 2020, and~~ in response to COVID-19 ~~for borrowers~~ that were executed on a loan that was not more than 30 days past due as of December 31, ~~2019.~~2019 and executed between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or January 1, 2022 are not required to be reported as TDR.

~~Additionally, First Financial contributed $1.0 million to help fund agencies providing COVID-19 relief efforts in the communities throughout its footprint.~~

OVERVIEW OF OPERATIONS

First quarter 2021 net income was $47.3 million and earnings per diluted common share were $0.48. This compares with first quarter 2020 net income ~~was~~of $28.6 million and earnings per diluted common share ~~were~~of $0.29. ~~This compares with net income of $45.8 million and earnings per diluted common share of $0.47 for the first three months of 2019.~~

Return on average assets for the first quarter ~~2020~~2021 was ~~0.79%~~1.20% compared to ~~1.33%~~0.79% for the same period in ~~2019,~~2020, and return on average shareholders’ equity for the first quarter ~~2020~~2021 was ~~5.21%~~8.44% compared to ~~8.88%~~5.21% for the first quarter ~~2019.~~2020.

A discussion of First Financial's operating results for the three months ended March 31, ~~2020~~2021 follows.

NET INTEREST INCOME

First Financial’s principal source of income is net interest income, which is the excess of interest received from earning assets, including loan-related fees and purchase accounting accretion, less interest paid on interest-bearing liabilities. The amount of net interest income is determined by the volume and mix of earning assets, the rates earned on such assets and the volume, mix and rates paid for the deposits and borrowed money that support the earning assets. Earning assets consist of interest-bearing loans to customers as well as marketable investment securities.

For analytical purposes, net interest income is also presented in the table that follows, adjusted to a tax equivalent basis assuming a 21% marginal tax rate. Net interest income is presented on a tax equivalent basis to consistently reflect income from tax-exempt assets, such as municipal loans and investments, in order to facilitate a comparison between taxable and tax-exempt amounts. Management believes 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.


	Three months ended							Three months ended
	March 31,							March 31,
(Dollars in thousands)	2020			2019			(Dollars in thousands)		2021			2020
Net interest income	$	114,282		$	121,515		Net interest income		$	113,876		$	114,282
Tax equivalent adjustment	1,624			1,523			Tax equivalent adjustment		1,652			1,624
Net interest income - tax equivalent	$	115,906		$	123,038		Net interest income - tax equivalent		$	115,528		$	115,906

Average earning assets	$	12,375,698		$	12,163,751		Average earning assets		$	13,781,760		$	12,375,698

Net interest margin ⁽¹⁾	3.71		%	4.05		%	Net interest margin (1)		3.35		%	3.71		%
Net interest margin (fully tax equivalent) ⁽¹⁾	3.77		%	4.10		%	Net interest margin (fully tax equivalent) (1)		3.40		%	3.77		%

⁽¹⁾ Calculated using annualized net interest income divided by average earning assets.

Net interest income for the first quarter ~~2020~~of 2021 was ~~$114.3~~$113.9 million, a decrease of ~~$7.2~~$0.4 million, or ~~6.0%~~0.4%, from first quarter ~~2019~~2020 net interest income of ~~$121.5~~$114.3 million. This change was primarily driven by a ~~$12.3~~$16.9 million, or ~~8.1%~~12.1%, decrease in interest income, partially offset by a ~~$5.0~~$16.5 million, or ~~16.6%~~65.4%, decrease in interest expense. Net interest income on a fully tax equivalent basis for the first quarter ~~2020~~2021 was ~~$115.9~~$115.5 million compared to ~~$123.0~~$115.9 million for the first quarter ~~2019.~~2020.

Net interest margin on a fully tax equivalent basis ~~decreased 33 bps to 3.77%~~ for the first quarter ~~2020~~of 2021 was 3.40%, a decrease of 37 bps compared to ~~4.10% for~~ the ~~comparable quarter~~same period in ~~2019~~2020 as interest rates declined and accretion on acquired loans ~~moderated.~~continued to moderate.

Interest income decreased ~~$12.3~~$16.9 million, or ~~8.1%~~12.1%, in the first quarter of ~~2020~~2021 when compared to the same quarter in ~~2019~~2020 as a 91 bp decrease in the yield on earning assets ~~to 4.52% from 5.06%~~ more than offset the impact of higher earning asset balances. The declining yield on earning assets ~~reflected~~resulted from a ~~225 basis point~~ reduction in the fed funds target rate ~~from March 31, 2019.~~in response to the pandemic. Average earning assets increased to ~~$12.4~~$13.8 billion in the first quarter ~~2020~~2021 from ~~$12.2~~$12.4 billion in the same quarter of ~~2019~~2020 as ~~higher~~ loan balances ~~offset lower~~grew largely due to PPP activity and a larger investment ~~security balances.~~securities portfolio, which grew as the Company deployed excess balance sheet liquidity.

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Interest expense decreased ~~$5.0~~$16.5 million, or ~~16.6%~~65.4%, in the first quarter of ~~2020~~2021 when compared to the comparable quarter in ~~2019~~2020 due to lower rates paid on deposits, ~~and short-term borrowings in addition to~~ a ~~favorable~~ shift in funding mix ~~during~~and the ~~period. The~~Company's deliberate management of funding costs. Lower interest rates led to a decline in the cost of interest-bearing deposits, which was ~~0.86%~~0.21% in the first quarter of ~~2020~~2021 compared to ~~1.03%~~0.86% for the same period in the prior ~~year as a result of falling interest rates and the Company's ability to successfully manage deposit costs.~~year. The cost of borrowed funds decreased to ~~2.05%~~2.01% for the first quarter ~~2020~~of 2021 from ~~2.81%~~2.05% during the first quarter ~~2019,~~of 2020, reflecting the decline in interest rates and a ~~favorable mix~~ shift ~~from longer~~to FRB long term borrowings, which were used to ~~more short-term funding.~~fund PPP activity and carry a relatively modest interest rate of 0.35%.

CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS


	Quarterly Averages											Year-to-Date Averages
	March 31, 2020					March 31, 2019							March 31, 2021	March 31, 2020
(Dollars in thousands)	Balance			Yield		Balance			Yield		(Dollars in thousands)				Balance		Yield		Balance		Yield
Earning assets											Earning assets
Investments											Investments
Investment securities	$	3,115,723		3.04	%	$	3,355,732		3.44	%	Investment securities				$	3,782,993	2.54	%	$	3,115,723	3.04	%
Interest-bearing deposits with other banks	39,332			1.45	%	34,709			2.45	%	Interest-bearing deposits with other banks				46,912		0.24	%	39,332		1.45	%
Gross loans ⁽¹⁾	9,220,643			5.04	%	8,773,310			5.69	%	Gross loans (1)				9,951,855		4.03	%	9,220,643		5.04	%
Total earning assets	12,375,698			4.52	%	12,163,751			5.06	%	Total earning assets				13,781,760		3.61	%	12,375,698		4.52	%

Nonearning assets											Nonearning assets
Allowance for loan and lease losses	(121,126		)			(57,088		)
Allowance for credit losses											Allowance for credit losses				(177,863)				(121,126)
Cash and due from banks	235,696					181,695					Cash and due from banks				232,275				235,696
Accrued interest and other assets	2,034,154					1,664,193					Accrued interest and other assets				2,206,482				2,034,154
Total assets	$	14,524,422				$	13,952,551				Total assets				$	16,042,654			$	14,524,422

Interest-bearing liabilities											Interest-bearing liabilities
Deposits											Deposits
Interest-bearing demand	$	2,418,193		0.45	%	$	2,269,948		0.50	%	Interest-bearing demand				$	2,948,682	0.07	%	$	2,418,193	0.45	%
Savings	2,976,518			0.45	%	3,115,557			0.76	%	Savings				3,815,314		0.13	%	2,976,518		0.45	%
Time	2,196,080			1.88	%	2,224,587			1.94	%	Time				1,767,826		0.60	%	2,196,080		1.88	%
Total interest-bearing deposits	7,590,791			0.86	%	7,610,092			1.03	%	Total interest-bearing deposits				8,531,822		0.21	%	7,590,791		0.86	%
Borrowed funds											Borrowed funds
Short-term borrowings	1,353,858			1.51	%	1,017,121			2.38	%	Short-term borrowings				251,705		0.11	%	1,353,858		1.51	%
Long-term debt	381,909			3.96	%	569,947			3.59	%	Long-term debt				634,674		2.77	%	381,909		3.96	%
Total borrowed funds	1,735,767			2.05	%	1,587,068			2.81	%	Total borrowed funds				886,379		2.01	%	1,735,767		2.05	%
Total interest-bearing liabilities	9,326,558			1.08	%	9,197,160			1.33	%	Total interest-bearing liabilities				9,418,201		0.38	%	9,326,558		1.08	%

Noninterest-bearing liabilities											Noninterest-bearing liabilities
Noninterest-bearing demand deposits	2,643,240					2,457,587					Noninterest-bearing demand deposits				3,840,046				2,643,240
Other liabilities	344,891					203,570					Other liabilities				511,658				344,891
Shareholders' equity	2,209,733					2,094,234					Shareholders' equity				2,272,749				2,209,733
Total liabilities and shareholders' equity	$	14,524,422				$	13,952,551				Total liabilities and shareholders' equity				$	16,042,654			$	14,524,422

Net interest income	$	114,282				$	121,515				Net interest income				$	113,876			$	114,282

Net interest spread				3.44	%				3.73	%	Net interest spread						3.23	%			3.44	%
Contribution of noninterest-bearing sources of funds				0.27	%				0.32	%	Contribution of noninterest-bearing sources of funds						0.12	%			0.27	%
Net interest margin ⁽²⁾				3.71	%				4.05	%	Net interest margin (2)						3.35	%			3.71	%

Tax equivalent adjustment				0.06	%				0.05	%	Tax equivalent adjustment						0.05	%			0.06	%
Net interest margin (fully tax equivalent) ⁽²⁾				3.77	%				4.10	%	Net interest margin (fully tax equivalent) (2)						3.40	%			3.77	%

⁽¹⁾ Loans held for sale and nonaccrual loans 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 on net interest income from changes in interest rates as well as the volume of interest-earning assets and interest-bearing liabilities is illustrated in the table below:


	Changes for the three months ended March 31, 2020											Changes for the three months ended March 31, 2021
	Comparable quarter income variance										Comparable quarter income variance
(Dollars in thousands)	Rate			Volume			Total			(Dollars in thousands)			Rate		Volume		Total
Earning assets										Earning assets
Investment securities	$	(3,368	)	$	(1,538	)	$	(4,906	)	Investment securities			$	(3,892)	$	3,955	$	63
Interest-bearing deposits with other banks	(86		)	18			(68		)	Interest-bearing deposits with other banks			(118)		4		(114)
Gross loans ⁽¹⁾	(14,108		)	6,827			(7,281		)	Gross loans (1)			(23,094)		6,250		(16,844)
Total earning assets	(17,562		)	5,307			(12,255		)	Total earning assets			(27,104)		10,209		(16,895)
Interest-bearing liabilities										Interest-bearing liabilities
Total interest-bearing deposits	(3,017		)	139			(2,878		)	Total interest-bearing deposits			(12,467)		435		(12,032)
Borrowed funds										Borrowed funds
Short-term borrowings	(2,180		)	1,307			(873		)	Short-term borrowings			(4,723)		(297)		(5,020)
Long-term debt	523			(1,794		)	(1,271		)	Long-term debt			(1,134)		1,697		563
Total borrowed funds	(1,657		)	(487		)	(2,144		)	Total borrowed funds			(5,857)		1,400		(4,457)
Total interest-bearing liabilities	(4,674		)	(348		)	(5,022		)	Total interest-bearing liabilities			(18,324)		1,835		(16,489)
Net interest income	$	(12,888	)	$	5,655		$	(7,233	)	Net interest income			$	(8,780)	$	8,374	$	(406)

⁽¹⁾Loans held for sale and nonaccrual loans are included in gross loans.

NONINTEREST INCOME

First quarter ~~2020~~2021 noninterest income was ~~$35.4~~$40.3 million, increasing ~~$8.6~~$4.9 million, or ~~31.9%~~14.0%, compared to ~~$26.8~~$35.4 million for the ~~comparable~~first quarter of ~~2019.~~2020. This increase was ~~primarily attributed to~~driven by higher gains on sales of loans, increased foreign exchange income, ~~client derivative fees~~ and ~~gain on sale of loans, which~~higher bankcard income. These increases were partially offset by lower client derivative fees and service charges on deposits. Net gains from sales of loans increased $6.6 million, or 233.9%, to $9.5 million due to higher mortgage origination activity driven by low interest rates, while bankcard ~~and other noninterest income. The increase in foreign~~income increased $0.4 million, or 15.9%, compared to the first quarter of 2020 as client spending habits increased amid the easing of pandemic-related concerns. Foreign exchange income ~~was~~increased $0.8 million from the comparable period in 2020 due to ~~the BGF acquisition in August of 2019 as well as strong~~increased customer demand for currency transactions in the ~~current~~first quarter ~~leading~~of 2021. Service charges on deposit accounts decreased $1.3 million, or 15.3%, in the first quarter of 2021 as deposit balances grew significantly due to ~~First Financial recording $10.0 million of foreign exchange income during the period. Commercial loan growth~~customers retaining stimulus payments and ~~the current interest rate environment led to an increase in customer demand~~tax refunds. Demand for back to back swaps slowed in the first quarter of 2021 as loan growth moderated, resulting in a ~~$1.4~~$1.5 million, or ~~82.2%~~49.9%, ~~increase~~decrease in client derivative fees compared to the same quarter in ~~2019. Net gains from sales of loans increased $0.9~~2020.

NONINTEREST EXPENSE

First quarter 2021 noninterest expense was $92.5 million, increasing $2.8 million, or ~~49.8%, largely due to higher mortgage origination and sales activity. Bankcard income declined $2.9 million, or 51.7%~~3.2%, compared to $89.7 million for the first quarter of 2019 due to the impact of the Durbin amendment cap on interchange fees, which became applicable to First Financial in the third quarter of 2019. Other noninterest income decreased $0.9 million, or 18.8%, from the first quarter of 20192020 primarily driven by a valuation adjustment to the Company's mortgage servicing rights due to the large decline in interest rates, as well as lower income from limited partnership investments and smaller unrealized gains on equity securities.

~~NONINTEREST EXPENSE~~

~~First quarter 2020 noninterest expense was $89.7 million, increasing $11.2 million, or 14.2%, compared to $78.5 million for the comparable quarter of 2019~~ due to higher ~~salaries~~salary and ~~benefits,~~benefit expenses and data processing ~~expenses, intangible asset amortization~~costs, which were partially offset by lower professional services and other noninterest expenses. Salaries and employee benefits of ~~$54.8~~$61.3 million increased ~~$6.9~~$6.4 million, or ~~14.4%~~11.7%, ~~due to~~driven by higher incentive ~~payments driven by strong foreign exchange and client derivative~~compensation tied to increased fee income, ~~in addition to higher healthcare~~annual compensation adjustments, $1.3 million of severance costs and ~~annual compensation adjustments.~~higher health care costs. Data processing expenses increased ~~$1.3~~$0.9 million, or ~~24.6%~~14.1%, to ~~$6.4~~$7.3 million in the first quarter of 2021 compared to 2020 as the Company continued to make strategic investments to enhance its digital capabilities. ~~Intangible assets recorded~~Professional services decreased $0.8 million, or 36.3%, due to a reimbursement of previously expensed legal fees received in ~~conjunction with the BGF acquisition resulted in higher intangible asset amortization during~~ the first quarter of ~~2020. Other~~2021 and elevated IT consulting costs in the first quarter of 2020, while other noninterest expenses ~~rose $1.7~~decreased $2.6 million, or ~~25.8%~~31.5%, ~~largely~~in the first quarter of 2021 from the comparable quarter in 2020 due to a $1.0 million charitable donation made in 2020 at at the inception of the pandemic and lower travel expenses in 2021 due to the ~~First Financial Foundation to fund COVID-19 relief in the Company's geographic footprint.~~pandemic.

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INCOME TAXES

~~Income~~First quarter 2021 income tax expense was ~~$5.9~~$10.4 million, ~~for the first quarter of 2020,~~ resulting in an effective tax rate of ~~17.1%~~18.0%. This compared to ~~$9.9~~an income tax expense of $5.9 million and ~~17.8%~~an effective tax rate of 17.1% for the ~~comparable period in 2019.~~first quarter of 2020. The ~~decrease~~increase in the effective tax rate in 2021 is primarily due to ~~lower~~higher pre-tax income in the ~~first quarter~~period, in addition to the Company recording the tax benefit of ~~2020 and~~ the carryback of certain net operating losses as allowed under the CARES ~~Act. These adjustments were partially offset by an unfavorable impact related to stock compensation activity.~~Act in the first quarter of 2020.

The Company's effective tax rate may fluctuate from quarter to quarter due to changes in tax jurisdictions, tax-enhanced assets and tax credit investments.

LOANS

Loans, excluding Loans held for sale, totaled ~~$9.3~~$9.9 billion as of March 31, ~~2020~~2021 and ~~$9.2 billion as of~~ December 31, ~~2019, representing a $106.2~~2020. While total loan balances were relatively unchanged in 2021, commercial real estate loans increased $88.7 million, or 2.1% to $4.4 billion, and C&I loans increased $37.3 million, or 1.2%, ~~increase period over period. The increase~~to $3.0 billion. These increases were offset by a $56.6 million, or 5.6%, decline in ~~loan balances was driven by an increase in commercial~~residential real estate loans ~~which increased $83.6~~to $946.5 million and a $33.4 million, or ~~2.0%~~4.5%, decline in HELOC loans to ~~$4.3 billion, and higher C&I loan balances, which increased $11.9 million, or 0.5%, to $2.5 billion.~~$709.7 million. First quarter ~~2020~~2021 average loans, excluding loans held for sale, increased ~~$440.6~~$714.7 million, or ~~5.0%~~7.8%, from the first quarter of ~~2019.~~ 2020 primarily due to PPP activity.

OFF-BALANCE SHEET ARRANGEMENTS

Off-balance sheet arrangements include commitments to extend credit and financial guarantees. Loan commitments are agreements to extend credit to a client absent any 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. First Financial had commitments outstanding to extend credit, totaling $3.7 billion and $3.4 billion at March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, loan commitments with a fixed interest rate totaled $127.3 million while commitments with variable interest rates totaled $3.6 billion. Comparatively, as of December 31, 2020, loan commitments with a fixed interest rate totaled $123.6 million while commitments with variable interest rates totaled $3.3 billion The fixed rate loan commitments have interest rates ranging from 0% to 21% for both March 31, 2021 and December 31, 2020. The fixed rate loan commitments have maturities ranging from less than 1 year to 30.0 years at March 31, 2021 and less than 1 year to 30.8 years at December 31, 2020.

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 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. First Financial has issued letters of credit aggregating $36.4 million and $36.1 million at March 31, 2021 and December 31, 2020, respectively. Management conducts regular reviews of these instruments on an individual client basis.

First Financial is a party in risk participation transactions of interest rate swaps, which had total notional amount of $250.5 million and $242.4 million at March 31, 2021 and December 31, 2020, respectively.

ASSET QUALITY

Nonperforming assets consist of nonaccrual loans, accruing TDRs (collectively, nonperforming loans) and OREO. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to a borrower's continued failure to adhere to contractual payment terms, coupled with other pertinent factors. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed.

Nonperforming assets were ~~$72.2~~$97.7 million, or ~~0.48%~~0.60% of total assets, at March 31, ~~2020~~2021 compared to ~~$61.6~~$89.1 million, or ~~0.42%~~0.56% of total assets, at December 31, ~~2019. This $10.6~~2020, an increase of $8.6 million, or ~~17.1%,~~9.6%. This increase was ~~primarily~~ driven by ~~a single specialty finance credit that was modified~~the downgrade of two relationships to nonaccrual during the ~~period and classified as a TDR.~~period.

Loans are classified as TDRs when borrowers are experiencing financial difficulties and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. 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. TDRs totaled ~~$40.6~~$32.5 million at March 31, ~~2020,~~2021, which represents an increase of $10.6 million, or ~~35.4%~~48.6%, from ~~$30.0~~$21.8 million at December 31, ~~2019.~~2020. This increase was ~~attributed~~driven primarily by two relationships which were classified as TDRs subsequent to ~~the aforementioned specialty finance credit designated as a TDR~~modifications made during the ~~quarter.~~period.

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Through April 30, 2020, the Company modified 1,055 commercial loans with balances of $1.6 billion and 979 consumer loans with balances of $129.5 million in response to COVID-19. As stated in the CARES Act, these loan modifications are not required to be reported as TDR as they were executed after March 1, 2020, and in response to COVID-19 for borrowers that were not more than 30 days past due as of December 31, 2019.

Classified assets, which are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse, totaled ~~$124.5~~$196.8 million as of March 31, ~~2020~~2021 compared to ~~$89.3~~$142.0 million at December 31, ~~2019. Classified assets increased $35.3 million, or 39.5%, as three large relationships, including the previously mentioned TDR, received risk rating downgrades during the period.~~2020. Classified assets were 83122 bps as a percentage of total assets at March 31, ~~2020,~~2021, compared to 6289 bps as of December 31, ~~2019.~~2020. The $54.8 million, or 38.6%, increase in Classified assets compared to the linked quarter was primarily driven by COVID related credit rating downgrades during the period.

The following table details nonperforming, underperforming and classified assets, in addition to related credit quality ratios as of March 31, ~~2020~~2021 and the four previous quarters.


	Three months ended
	2021		2020
(Dollars in thousands)	Mar. 31,		Dec. 31,		Sep. 30,		June 30,		Mar. 31,
Nonperforming loans, nonperforming assets, and underperforming assets
Nonaccrual loans (1)
Commercial and industrial	$	24,941	$	29,230	$	34,686	$	33,906	$	21,126
Lease financing	0		0		1,092		1,353		222
Construction real estate	0		0		0		0		0
Commercial real estate	44,514		34,682		24,521		14,002		10,050
Residential real estate	11,359		11,601		12,104		12,813		11,163
Home equity	4,286		5,076		5,374		5,604		5,821
Installment	146		163		153		201		145

Nonaccrual loans	85,246		80,752		77,930		67,879		48,527
Accruing troubled debt restructurings	11,608		7,099		7,759		8,377		22,206
Total nonperforming loans	96,854		87,851		85,689		76,256		70,733
Other real estate owned	854		1,287		1,643		1,872		1,467
Total nonperforming assets	97,708		89,138		87,332		78,128		72,200
Accruing loans past due 90 days or more	92		169		79		124		120
Total underperforming assets	$	97,800	$	89,307	$	87,411	$	78,252	$	72,320
Total classified assets	$	196,782	$	142,021	$	134,002	$	125,543	$	124,510

Credit quality ratios
Allowance for loan and lease losses to
Nonaccrual loans	199.33%		217.55%		216.28%		233.74%		296.51		%
Nonperforming loans	175.44%		199.97%		196.69%		208.06%		203.42		%
Total ending loans	1.71%		1.77%		1.65%		1.56%		1.55		%
Nonperforming loans to total loans	0.97%		0.89%		0.84%		0.75%		0.76		%
Nonperforming assets to
Ending loans, plus OREO	0.98%		0.90%		0.86%		0.77%		0.78		%
Total assets	0.60%		0.56%		0.55%		0.49%		0.48		%
Nonperforming assets, excluding accruing TDRs to
Ending loans, plus OREO	0.87%		0.83%		0.78%		0.68%		0.54		%
Total assets	0.53%		0.51%		0.50%		0.44%		0.33		%
Classified assets to total assets	1.22%		0.89%		0.84%		0.79%		0.83		%
(1) Nonaccrual loans include nonaccrual TDRs of $20.9 million, $14.7 million, $29.3 million, $32.7 million and $18.4 million as of March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, respectively.

Three months ended
2020 2019
(Dollars in thousands) Mar. 31, Dec. 31, Sep. 30, June 30, Mar. 31,
Nonperforming loans, nonperforming assets, and underperforming assets
Nonaccrual loans ⁽¹⁾

Commercial and industrial $ 21,126
$ 24,346
$ 28,358
$ 18,502
$ 19,263
Lease financing 222
223
284
295
301
Construction real estate 0
0
5
6
7
Commercial real estate 10,050
7,295
14,889
15,981
21,082
Residential real estate 11,163
10,892
11,655
11,627
13,052
Home equity 5,821
5,242
5,427
4,745
5,581
Installment 145
167
75
195
170
Nonaccrual loans 48,527
48,165
60,693
51,351
59,456
Accruing troubled debt restructurings 22,206
11,435
18,450
37,420
22,817
Total nonperforming loans 70,733
59,600
79,143
88,771
82,273
Other real estate owned 1,467
2,033
1,613
1,421
�� 1,665
Total nonperforming assets 72,200
61,633
80,756
90,192
83,938
Accruing loans past due 90 days or more 120
201
287
107
178
Total underperforming assets $ 72,320
$ 61,834
$ 81,043
$ 90,299
$ 84,116
Total classified assets $ 124,510
$ 89,250
$ 132,500
$ 147,753
$ 142,014

Credit quality ratios
Allowance for loan and lease losses to
Nonaccrual loans 296.51 % 119.69 % 93.18 % 119.86 % 95.40 %
Nonperforming loans 203.42 % 96.73 % 71.46 % 69.33 % 68.94 %
Total ending loans 1.55 % 0.63 % 0.62 % 0.69 % 0.64 %
Nonperforming loans to total loans 0.76 % 0.65 % 0.87 % 0.99 % 0.93 %
Nonperforming assets to
Ending loans, plus OREO 0.78 % 0.67 % 0.89 % 1.00 % 0.95 %
Total assets 0.48 % 0.42 % 0.56 % 0.62 % 0.60 %
Nonperforming assets, excluding accruing TDRs to
Ending loans, plus OREO 0.54 % 0.55 % 0.69 % 0.59 % 0.69 %
Total assets 0.33 % 0.35 % 0.43 % 0.37 % 0.43 %
Classified assets to total assets 0.83 % 0.62 % 0.92 % 1.02 % 1.01 %
⁽¹⁾ Nonaccrual loans include nonaccrual TDRs of $18.4 million, $18.5 million, $21.5 million, $11.0 million, and $13.1 million as of March 31, 2020, December 31,2019, September 30, 2019, June 30, 2019, and March 31, 2019, respectively.

INVESTMENTS

First Financial's investment portfolio totaled ~~$3.2~~$4.0 billion, or ~~21.2%~~24.8% of total assets, at March 31, ~~2020~~2021 and ~~$3.1~~$3.7 billion, or ~~21.5%~~23.1% of total assets, at December 31, ~~2019.~~2020. AFS securities totaled ~~$2.9~~$3.8 billion at ~~both~~ March 31, ~~2020~~2021 and $3.4 billion at December 31, ~~2019,~~2020, while HTM securities totaled ~~$136.7~~$121.9 million at March 31, ~~2020~~2021 and ~~$142.9~~$131.7 million at December 31, ~~2019.~~2020. The increase in the investment securities portfolio was a result of the Company deploying excess balance sheet liquidity resulting from an

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increase in deposits during the period. The effective duration of the investment portfolio ~~declined~~increased to ~~3.1~~3.8 years ~~as of~~at March 31, ~~2020, compared to 3.4~~2021 from 3.2 years as of December 31, ~~2019, as~~2020, primarily due to the ~~Company has positioned~~increase in the ~~investment~~size of the portfolio ~~to optimize performance with a flattened yield curve.~~and the moderation of prepayment speeds on MBS during the period.

The Company invests in certain securities whose realization is dependent on future principal and interest repayments, thus carrying credit risk. Prior to purchase, First Financial performs a detailed collateral and structural analysis on these securities and strategically invests in asset classes in which First Financial has expertise and experience, as well as a senior position in the capital structure. First Financial continuously monitors credit risk and geographic concentration risk in its evaluation of market opportunities that enhance the overall performance of the portfolio.

At March 31, ~~2020,~~2021, the Company's Consolidated Financial Statements reflected a ~~$39.4~~$42.6 million unrealized after-tax gain on debt securities as a component of equity in accumulated other comprehensive income and a $0.1 million unrealized ~~loss~~gain on equity securities within other noninterest income. Comparatively, the Company's Consolidated Financial Statements reflected a $73.6 million unrealized after-tax gain on debt securities as a component of equity in accumulated other comprehensive income and a $9.0 million unrealized gain on equity securities within other noninterest income as of December 31, 2020. The decline in unrealized gains was driven by a decline in bond prices in the first quarter driven by a significant rise in interest rates.

First Financial will continue to monitor loan demand and deposit activity, as well as balance sheet composition, capital sensitivity and the interest rate environment when considering future investment strategies.

DEPOSITS AND FUNDING

Total deposits were ~~$10.6~~$12.6 billion as of March 31, ~~2020~~2021 and ~~$10.2~~$12.2 billion as of December 31, ~~2019.~~2020. This ~~increase~~change was driven by a ~~$195.4~~$325.4 million, or 8.7% increase in time deposits, a $133.2 million, or 5.6% increase in interest bearing demand deposits, a $79.4 million, or 3.0%, increase in noninterest bearing demand deposits; and a $17.3 million, or 0.6%8.8%, increase in savings deposits ~~compared to December 31, 2019. Brokered CDs, which are periodically used by First Financial as an alternative to short~~ and ~~long-term borrowings, accounted for the majority of the increase in time deposits, while higher public fund deposit balances drove the increase in interest bearing demand deposits.~~

~~Average deposits for the first quarter 2020 increased $166.4~~a $231.7 million, or ~~1.7%, to $10.2 billion from $10.1 billion for the comparable quarter of 2019. This increase was driven by a $185.7 million, or 7.6%~~6.2%, increase in ~~average noninterest-bearing and a $148.2 million, or 6.5%, increase in average interest-bearing~~noninterest bearing demand deposits, which were partially offset by a ~~$139.0~~decrease of $141.0 million, or ~~4.5%~~7.5%, ~~decline~~ in time deposits. The increase in total deposits was attributed to increased consumer savings rates resulting from customers retaining stimulus payments, PPP loan proceeds and tax refunds.

Average deposits for the first quarter 2021 increased $2.1 billion, or 20.9%, to $12.4 billion from $10.2 billion for the comparable quarter of 2020. This increase was driven by a $1.2 billion, or 45.3%, increase in average noninterest-bearing deposits; an $838.8 million, or 28.2%, increase in average savings deposits; and a ~~$28.5~~$530.5 million, or ~~1.3% decline~~21.9%, increase in average interest-bearing demand deposits, partially offset by a $428.3 million, or 19.5%, decrease in average time ~~deposit balances.~~deposits.

Borrowed funds were ~~$1.7 billion~~$765.1 million as of ~~both~~ March 31, ~~2020 and~~2021 compared to $942.8 million as of December 31, ~~2019.~~2020. First Financial ~~utilizes~~may utilize short-term borrowings and long-term advances from the FHLB as wholesale funding sources.

First Financial had ~~$1.2 billion in~~no short-term borrowings with the FHLB at March 31, ~~2020 and~~2021 or December 31, ~~2019. In addition to FHLB borrowings, short-term~~2020. Short-term borrowings included fed funds purchased and repurchase agreements of ~~$215.8~~$181.4 million and ~~$165.2~~$166.6 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Long-term debt, which included FRB and FHLB long-term advances, subordinated notes ~~FHLB long term advances~~ and an interest free loan with a municipality, was ~~$325.6~~$583.7 million and ~~$414.4~~$776.2 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. ~~Outstanding subordinated debt totaled $170.1~~The Company had $270.9 million of FRB advances included in long-term borrowings as of March 31, ~~2020~~2021 from the PPPLF. The PPPLF was established by the Federal Reserve to supply a source of liquidity and ~~$170.0 million as of December 31, 2019.~~term financing to financial institutions participating in the PPP. These borrowings carry a 0.35% interest rate and are secured by the Company's PPP loans. First Financial had no FHLB long-term advances ~~declined $89.6 million, or 37.0%, to $152.8 million~~ at March 31, ~~2020 from $242.4 million as of December 31, 2019~~2021 as the Company utilized the PPPLF and implemented other funding strategies to manage liquidity and interest rate risk. FHLB long-term advances were $20.0 million as of December 31, 2020. First Financial's total remaining borrowing capacity from the FHLB was ~~$778.9~~$1.7 billion as of March 31, 2021.

Outstanding subordinated debt totaled $310.2 million as of March 31, 2021 and $318.6 million as of December 31, 2020. The decline in subordinated debt resulted from the Company redeeming $8.4 million of 6.00% fixed rate private placement subordinated debt that had been acquired in conjunction with the MSFG merger.

~~As discussed in Note 18 - Subsequent Event, in April 2020, First Financial~~The Company issued $150.0 million of fixed to floating rate subordinated ~~notes. The~~notes in the second quarter of 2020. These subordinated notes have an initial fixed interest rate of 5.25% to, but excluding May 15, 2025, payable semi-annually in arrears. From, and including, May 15, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark rate, which is expected to be the then-current three-month term SOFR, plus 509 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030. These notes are redeemable by the Company in whole or

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in part beginning with the interest payment date of May 15, 2025. The subordinated notes are treated as Tier 2 capital for regulatory capital purposes and are included in Long-term debt on the Consolidated Balance Sheets.

See Note 8 – Borrowings in the Notes to Consolidated Financial Statements for further discussion of First Financial's borrowed funds.

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, and access to wholesale funding sources.

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. In addition to core deposit funding, First Financial also utilizes a variety of other short and long-term funding sources, which include subordinated notes, longer-term advances from the FRB and FHLB and its short-term line of credit.

First Financial maintains a short-term credit facility with an unaffiliated bank for $30.0 million that matures in September 2020. This facility can have a variable or fixed interest rate and, if needed, provides First Financial additional liquidity for various corporate activities, including the repurchase of First Financial shares and payment of dividends to shareholders. As of March 31, 2020 and December 31, 2019, there was no outstanding balance. The credit agreement requires First Financial to comply with certain covenants including those related to asset quality and capital levels, and First Financial was in compliance with all covenants associated with this facility as of March 31, 2020 and December 31, 2019.

Both First Financial and the Bank received investment grade credit ratings from Kroll Bond Rating Agency, Inc, an independent rating agency. These credit ratings impact the cost and availability of financing to First Financial, and a downgrade to these credit ratings could affect First Financial's or the Bank’s ability to access the credit markets and potentially increase borrowing costs, negatively impacting financial condition and liquidity. Key factors in maintaining high credit ratings include consistent and diverse earnings, strong credit quality and capital ratios, diverse funding sources and disciplined liquidity monitoring procedures. The ratings of First Financial and the Bank at March 31, ~~2020~~2021 were as follows:



	First Financial Bancorp	First Financial Bank
Senior Unsecured Debt	BBB+	A-
Subordinated Debt	BBB	BBB+
Short-Term Debt	K2	K2
Deposit	N/A	A-
Short-Term Deposit	N/A	K2

For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged ~~$6.2~~$6.3 billion of certain eligible residential, commercial and farm real estate loans, home equity lines of credit and government, agency and CMBS securities as collateral for borrowings from the FHLB as of March 31, ~~2020.~~ 2021.

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 AFS totaled ~~$2.9~~$3.8 billion and $3.4 billion at ~~both~~ March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. HTM securities that are maturing within a short period of time can be an additional source of liquidity. As of both March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company had no HTM securities maturing within one year.

Other sources of liquidity include cash and due from banks plus interest-bearing deposits with other banks. At March 31, ~~2020,~~2021, these balances totaled ~~$333.0 million.~~$229.4 million, and First Financial ~~also~~ had unused and available overnight wholesale funding sources of ~~$2.8~~$4.6 billion, or ~~18.4%~~28.5% of total assets, to fund loan and deposit activities in addition to other general corporate requirements.

Certain restrictions exist regarding the Bank's ability to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances and the approval of the Bank's primary federal regulator is required to pay dividends in excess of regulatory limitations. Dividends paid to First Financial from the Bank totaled ~~$50.0~~$35.0 million for the first three months of ~~2020.~~2021. As of March 31, ~~2020,~~2021, the Bank had retained earnings of ~~$587.5~~$713.0 million, of which ~~$86.1~~$132.0 million was available for distribution to First Financial without prior regulatory approval. As an additional source of liquidity, First Financial had ~~$74.4~~$156.6 million in cash at the parent company as of March 31, ~~2020.~~2021.

Share repurchases also impact First Financial's liquidity. For further information regarding share repurchases, see the Capital section that follows.

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Capital expenditures, such as banking center expansions and technology investments, were ~~$5.8~~$2.7 million and ~~$1.3~~$5.8 million for the first three months of ~~2020~~2021 and ~~2019,~~2020, respectively. Management believes that sufficient liquidity exists 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.

CAPITAL

Risk-based capital. The Board of Governors of the Federal Reserve System approved Basel III in order to strengthen the regulatory capital framework for all banking organizations, subject to a phase-in period for certain provisions. Basel III established and defined quantitative measures to ensure capital adequacy. These measures require First Financial to maintain minimum amounts and ratios of Common equity Tier 1 capital, Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets (Leverage ratio).

Basel III includes a minimum ratio of Common equity Tier 1 capital to risk-weighted assets of 7.0% at both March 31, ~~2020~~2021 and December 31, ~~2019~~2020 and includes a fully phased-in capital conservation buffer of 2.5% of risk-weighted ~~assets that began on January 1, 2016 at 0.625% and was fully phased-in on January 1, 2019.~~assets. Further, the minimum ratio of Tier 1 capital to risk-weighted assets ~~increased to~~is 8.5% ~~at December 31, 2019~~ and all banks are subject to a 4.0% minimum leverage ratio. The required Total risk-based capital ratio is 10.5%. 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 pay discretionary compensation to its employees. The capital 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, such as highly volatile commercial real estate and nonaccrual loans.

First Financial's tier 1 capital ~~decreased to 11.27%~~was 12.19% at March 31, ~~2020 from 11.69%~~2021 and 12.20% at December 31, ~~2019 as First Financial's total assets exceeded $15.0 billion as of March 31,~~ 2020, ~~and trust preferred securities that were previously included in~~while the ~~calculation of tier 1 capital were excluded and are now considered tier 2 as prescribed by Dodd-Frank. The~~ total capital ratio ~~increased slightly~~decreased to ~~13.54%~~15.41% from ~~13.39% during the same period, while the~~15.55%. The leverage ratio decreased to ~~9.18%~~9.34% at March 31, ~~2020~~2021 compared to ~~9.58%~~9.55% as of December 31, ~~2019. The~~2020, while the Company’s tangible common equity ratio decreased to ~~8.25%~~8.22% at March 31, ~~2020~~2021 from ~~9.07%~~8.47% at December 31, ~~2019~~2020. The slight decline in the Company's capital ratios was primarily due to lower other comprehensive income, which was driven by lower unrealized gains on the ~~adoption of CECL during the period.~~Company's AFS securities at March 31, 2021.

As of March 31, ~~2020,~~2021, management believes that First Financial met all capital adequacy requirements to which it was subject. The Company's most recent regulatory notifications categorized First Financial as "well-capitalized" under the regulatory framework for prompt corrective action. There have been no conditions or events since those notifications that management believes have changed the Company's categorization. Total regulatory capital exceeded the minimum requirement by ~~$335.2~~$554.8 million on a consolidated basis at March 31, ~~2020.~~2021.

The following tables present the actual and required capital amounts and ratios as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels based on the phase-in provisions of the Basel III Capital Rules as of the period presented. Capital levels required to be considered "well capitalized" are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

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		Actual				Minimum capital required - Basel III				PCA requirement to be considered well capitalized					Actual				Minimum capital required - Basel III				PCA requirement to be considered well capitalized
(Dollars in thousands)		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		(Dollars in thousands)	Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio
March 31, 2020
March 31, 2021														March 31, 2021
Common equity Tier 1 capital to risk-weighted assets	Common equity Tier 1 capital to risk-weighted assets													Common equity Tier 1 capital to risk-weighted assets
Consolidated		$	1,243,152	11.27	%	$	771,914	7.00	%	N/A		N/A		Consolidated	$	1,334,882	11.81	%	$	791,281	7.00	%	N/A		N/A
First Financial Bank		1,324,111		12.01	%	771,670		7.00	%	$	716,551	6.50	%	First Financial Bank	1,471,665		13.03	%	790,670		7.00	%	$	734,193	6.50	%

Tier 1 capital to risk-weighted assets	Tier 1 capital to risk-weighted assets													Tier 1 capital to risk-weighted assets
Consolidated		1,243,256		11.27	%	937,324		8.50	%	N/A		N/A		Consolidated	1,377,892		12.19	%	960,841		8.50	%	N/A		N/A
First Financial Bank		1,324,215		12.01	%	937,028		8.50	%	881,909		8.00	%	First Financial Bank	1,471,769		13.03	%	960,099		8.50	%	903,623		8.00	%

Total capital to risk-weighted assets	Total capital to risk-weighted assets													Total capital to risk-weighted assets
Consolidated		1,493,100		13.54	%	1,157,871		10.50	%	N/A		N/A		Consolidated	1,741,755		15.41	%	1,186,921		10.50	%	N/A		N/A
First Financial Bank		1,409,673		12.79	%	1,157,506		10.50	%	1,102,386		10.00	%	First Financial Bank	1,575,805		13.95	%	1,186,005		10.50	%	1,129,528		10.00	%

Leverage ratio														Leverage ratio
Consolidated		1,243,256		9.18	%	541,654		4.00	%	N/A		N/A		Consolidated	1,377,892		9.34	%	590,170		4.00	%	N/A		N/A
First Financial Bank		1,324,215		9.79	%	541,219		4.00	%	676,524		5.00	%	First Financial Bank	1,471,769		9.98	%	589,596		4.00	%	736,995		5.00	%


	Actual				Minimum capital required - Basel III				PCA requirement to be considered well capitalized
(Dollars in thousands)	Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio
December 31, 2020
Common equity tier 1 capital to risk-weighted assets
Consolidated	$	1,325,922	11.82	%	$	785,338	7.00	%	N/A		N/A
First Financial Bank	1,452,403		12.95	%	784,807		7.00	%	$	728,749	6.50	%

Tier 1 capital to risk-weighted assets
Consolidated	1,368,818		12.20	%	953,625		8.50	%	N/A		N/A
First Financial Bank	1,452,507		12.96	%	952,980		8.50	%	896,922		8.00	%

Total capital to risk-weighted assets
Consolidated	1,744,802		15.55	%	1,178,007		10.50	%	N/A		N/A
First Financial Bank	1,560,457		13.92	%	1,177,211		10.50	%	1,121,153		10.00	%

Leverage ratio
Consolidated	1,368,818		9.55	%	573,526		4.00	%	N/A		N/A
First Financial Bank	1,452,507		10.14	%	573,094		4.00	%	716,367		5.00	%

Actual Minimum capital
required - Basel III PCA requirement to be
considered well
capitalized
(Dollars in thousands) Capital
amount Ratio Capital
amount Ratio Capital
amount Ratio
December 31, 2019
Common equity tier 1 capital to risk-weighted assets
Consolidated $ 1,245,746
11.30 % $ 771,666
7.00 % N/A
N/A
First Financial Bank 1,333,978
12.11 % 770,997
7.00 % $ 715,926
6.50 %

Tier 1 capital to risk-weighted assets
Consolidated 1,288,185
11.69 % 937,023
8.50 % N/A
N/A
First Financial Bank 1,334,082
12.11 % 936,211
8.50 % 881,140
8.00 %

Total capital to risk-weighted assets

Consolidated 1,475,813
13.39 % 1,157,498
10.50 % N/A
N/A
First Financial Bank 1,399,817
12.71 % 1,156,496
10.50 % 1,101,425
10.00 %

Leverage ratio

Consolidated 1,288,185
9.58 % 537,606
4.00 % N/A
N/A
First Financial Bank 1,334,082
9.93 % 537,299
4.00 % 671,623
5.00 %

First Financial generally seeks to balance the return of earnings to shareholders through shareholder dividends and share repurchases with capital retention, in order to maintain adequate levels of capital and support the Company's growth plans.

Shareholder dividends. First Financial paid a dividend of $0.23 per common share on March ~~16, 2020~~15, 2021 to shareholders of record as of March ~~2, 2020.~~1, 2021. Additionally, First Financial's board of directors authorized a dividend of $0.23 per common share, payable on June 15, ~~2020~~2021 to shareholders of record as of June 1, ~~2020.~~2021.

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Share repurchases. In January ~~2019,~~2021, First Financial's board of directors approved a stock repurchase plan, replacing the plan approved in ~~2012.~~2019. The ~~2019~~2021 plan authorizes the purchase of up to 5,000,000 shares of the Company's common stock. First Financial repurchased ~~880,000~~840,115 shares at an average market price of ~~$18.96~~$21.40 under this plan during the three month period ending March 31, ~~2020. First Financial did not repurchase any shares under this plan during the three month period ending March 31, 2019.~~2021. At March 31, ~~2020, 1,366,728~~2021, 4,159,885 common shares remained available for repurchase under the ~~2019~~2021 plan.

~~ATM offering.~~ In March 2017, First Financial initiated an "at-the-market" equity offering program to provide flexibility with respect to capital planning and to support future growth. First Financial was not active through the ATM program during the current period.

Shareholders' equity. Total shareholders’ equity was ~~$2.2~~$2.3 billion at both March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

For further detail, see the Consolidated Statements of Changes in Shareholders’ Equity.

RISK MANAGEMENT

First Financial manages risk through a structured ERM approach that routinely assesses the overall level of risk, identifies specific risks and evaluates specific actions to mitigate those risks. First Financial continues to enhance its risk management capabilities and has embedded risk awareness into the culture of the Company. First Financial has identified the following types of risk that it monitors in its ERM framework: credit, market (composed of interest rate, liquidity, capital, foreign exchange and financial risk), operational, compliance, strategic, reputation, information technology, cyber and legal.

For a full discussion of these risks, see the Enterprise Risk Management section in Management's Discussion and Analysis in First Financial’s ~~2019~~2020 Annual Report on Form 10-K. 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 the board of directors.

ACL. The ACL is a reserve accumulated on the Consolidated Balance Sheets through the recognition of the provision for ~~loan and lease~~credit losses. First Financial records a provision ~~for loan and lease losses~~expense in the Consolidated Statements of Income to maintain the ACL at a level considered sufficient to absorb expected credit ~~losses.~~losses for financial assets in the portfolio over their expected remaining lives with consideration given to current and forward looking information.

The ACL on loans and leases was ~~$143.9~~$169.9 million as of March 31, ~~2020~~2021 and ~~$57.7~~$175.7 million as of December 31, ~~2019.~~2020. As a percentage of period-end loans, the ACL was ~~1.55%~~1.71% as of March 31, ~~2020~~2021 and ~~0.63%~~1.77% as of December 31, ~~2019. As detailed in Note 2 - Accounting Standards Recently Adopted or Issued,~~ ~~$61.5 million~~ ~~of the increase~~2020. The slight decline in ACL was ~~attributed to~~primarily driven by improvements in economic forecasts and the ~~adoption of CECL.~~Company's improved credit outlook.

The Company utilized the ~~revised~~ Moody's March baseline forecast as its R&S forecast in the quantitative model, which included consideration of the impact from both the COVID-19 pandemic and the related government stimulus response. For reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts, slower prepayment speeds and increased default rates. These alternative analyses were utilized to inform the Company's qualitative adjustments. Additionally, First Financial considered its credit exposure to certain industries believed to be at risk for future credit stress related to the COVID-19 pandemic, such as franchise, hotel and investor commercial real estate lending when making qualitative adjustments to the ~~first quarter 2020~~ ACL model.

The ACL as a percentage of nonaccrual loans was ~~296.51%~~199.33% at March 31, ~~2020~~2021 and ~~119.69%~~217.55% at December 31, ~~2019.~~2020. The ACL as a percentage of nonperforming loans, including accruing TDRs, ~~rose~~fell to ~~203.42%~~175.44% as of March 31, ~~2020~~2021 from ~~96.73%~~199.97% as of December 31, ~~2019.~~2020. These ~~increases~~decreases were driven by the ~~increase~~decline in the ACL and the increase in nonaccrual loans during the period.

The Company recorded net charge-offs of $9.2 million, or 0.38% of average loans and leases on an annualized basis, in the first quarter ~~of 2020, which included the adoption of CECL and consideration of the impact from the COVID-19 pandemic on future credit losses.~~

~~The Company recorded~~2021, compared to net recoveries of $0.9 million, or 0.04% of average loans and leases on an annualized basis, infor the first quarter ~~2020, compared to net charge-offs~~ of ~~$13.9 million, or 0.64% of average loans and leases on an annualized basis for the comparable quarter in 2019. Elevated~~2020. Higher net charge-offs in the first quarter of ~~2019~~2021 were ~~attributed to~~driven by a $7.1 million charge-off of a single ~~franchise credit.~~C&I relationship during the period.

Provision expense is a product of the Company's ACL model combined with net charge-off activity during the period. First quarter ~~2020~~2021 provision expense was ~~$23.9~~$3.5 million compared to a provision of ~~$14.1~~$23.9 million during the first quarter in ~~2019. Substantially all of~~2020. The decline in provision expense was driven by elevated provision in the first quarter of 2020 ~~provision expense was related~~due to the ~~expected economic impact from COVID-19.~~onset of the COVID pandemic.

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The ACL on unfunded commitments was ~~$14.3~~$13.0 million as of March 31, ~~2020~~2021 and ~~$0.6~~$12.5 million as of December 31, ~~2019.~~2020. Additionally, First Financial recorded ~~$1.6~~$0.5 million of provision for credit losses on unfunded commitments for the three months ended March 31, ~~2020,~~2021, compared to ~~an insignificant amount~~$1.6 million in the ~~comparative period in 2019. Similar to the~~first quarter of 2020. The increase in ACL ~~and provision expense on loans and leases, the increase in ACL and provision expense~~ on unfunded commitments compared to December 31, 2020 was ~~related to~~driven by the ~~adoption~~the moderation of ~~CECL and consideration of~~prepayment speeds utilized in the ~~impact from~~modeling for the ~~COVID-19 pandemic~~ACL on ~~future credit losses.~~unfunded commitments.

See Note 5 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements for further discussion of First Financial's ACL.

The table that follows includes the activity in the ACL for the quarterly periods presented.


	Three months ended
	2021			2020
(Dollars in thousands)	Mar. 31,			Dec. 31,			Sep. 30,			June 30,			Mar. 31,
Allowance for credit loss activity
Balance at beginning of period	$	175,679		$	168,544		$	158,661		$	143,885		$	57,650
Impact of adopting ASC 326	0			0			0			0			61,505
Provision for loan losses	3,450			13,758			15,299			17,859			23,880
Gross charge-offs
Commercial and industrial	7,910			1,505			1,467			1,282			1,091
Lease financing	0			0			852			0			0
Construction real estate	2			0			0			0			0
Commercial real estate	1,250			6,270			3,789			2,037			4
Residential real estate	1			203			22			148			115
Home equity	611			386			460			428			267
Installment	36			21			59			7			61
Credit card	222			169			171			234			311
Total gross charge-offs	10,032			8,554			6,820			4,136			1,849
Recoveries
Commercial and industrial	337			367			265			275			2,000
Lease financing	0			(6)			6			0			0
Construction real estate	0			3			0			14			0
Commercial real estate	195			844			760			424			234
Residential real estate	44			145			91			93			52
Home equity	177			428			209			156			339
Installment	34			65			35			27			31
Credit card	39			85			38			64			43
Total recoveries	826			1,931			1,404			1,053			2,699
Total net charge-offs	9,206			6,623			5,416			3,083			(850)
Ending allowance for credit losses	$	169,923		$	175,679		$	168,544		$	158,661		$	143,885













Net charge-offs to average loans and leases (annualized)
Commercial and industrial	1.01		%	0.14		%	0.14		%	0.13		%	(0.15)		%
Lease financing	0.00		%	0.03		%	4.29		%	0.00		%	0.00		%
Construction real estate	0.00		%	0.00		%	0.00		%	(0.01)		%	0.00		%
Commercial real estate	0.10		%	0.50		%	0.28		%	0.15		%	(0.02)		%
Residential real estate	(0.02)		%	0.02		%	(0.03)		%	0.02		%	0.02		%
Home equity	0.24		%	(0.02)		%	0.13		%	0.14		%	(0.04)		%
Installment	0.01		%	(0.21)		%	0.12		%	(0.10)		%	0.15		%
Credit card	1.59		%	0.69		%	1.16		%	1.54		%	2.15		%
Total net charge-offs	0.38		%	0.26		%	0.21		%	0.12		%	(0.04)		%

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Three months ended
2020 2019
(Dollars in thousands) Mar. 31, Dec. 31, Sep. 30, June 30, Mar. 31,
Allowance for credit loss activity
Balance at beginning of period $ 57,650
$ 56,552
$ 61,549
$ 56,722
$ 56,542
Impact of adopting ASC 326 61,505
0
0
0
0
Provision for loan losses 23,880
4,629
5,228
6,658
14,083
Gross charge-offs
Commercial and industrial 1,091
2,919
9,556
1,873
12,328
Lease financing 0
62
0
0
100
Construction real estate 0
0
0
0
0
Commercial real estate 4
1,854
535
86
1,214
Residential real estate 115
167
278
150
82
Home equity 267
807
627
689
468
Installment 61
31
65
78
49
Credit card 311
319
598
289
341
Total gross charge-offs 1,849
6,159
11,659
3,165
14,582
Recoveries
Commercial and industrial 2,000
1,796
556
291
240
Lease financing 0
0
0
0
0
Construction real estate 0
0
0
5
63
Commercial real estate 234
439
347
254
73
Residential real estate 52
72
64
101
36
Home equity 339
243
335
572
185
Installment 31
49
93
61
48
Credit card 43
29
39
50
34
Total recoveries 2,699
2,628
1,434
1,334
679
Total net charge-offs (850 ) 3,531
10,225
1,831
13,903
Ending allowance for credit losses $ 143,885
$ 57,650
$ 56,552
$ 61,549
$ 56,722

Net charge-offs to average loans and leases (annualized)
Commercial and industrial (0.15 )% 0.18 % 1.42 % 0.25 % 1.95 %
Lease financing 0.00 % 0.27 % 0.00 % 0.00 % 0.45 %
Construction real estate 0.00 % 0.00 % 0.00 % 0.00 % (0.05 )%
Commercial real estate (0.02 )% 0.14 % 0.02 % (0.02 )% 0.12 %
Residential real estate 0.02 % 0.04 % 0.08 % 0.02 % 0.02 %
Home equity (0.04 )% 0.29 % 0.15 % 0.06 % 0.14 %
Installment 0.15 % (0.08 )% (0.13 )% 0.08 % 0.00 %
Credit card 2.15 % 2.27 % 4.40 % 1.92 % 2.62 %
Total net charge-offs (0.04 )% 0.15 % 0.45 % 0.08 % 0.64 %

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 ~~which~~and liquidity risk.

Interest rate risk is the risk to earnings and the value of the Company's equity arising from changes in market interest rates. Interest rate risk arises in the normal course of business to the extent that there is a divergence between the amount of 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 from shifts in market interest rates.

First Financial monitors its interest rate risk position using income simulation models and EVE sensitivity analyses that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting NII under a variety of interest rate scenarios. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. First Financial uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. For both NII and EVE modeling, First Financial leverages instantaneous parallel shocks to evaluate interest rate risk exposure across rising and falling rate scenarios. Additional scenarios evaluated include various non-parallel yield curve twists.

First Financial’s interest rate risk models are based on the contractual and assumed cash flows and repricing characteristics for the Company’s assets, liabilities and off-balance sheet exposure. A number of assumptions are also incorporated into the interest rate risk models, including prepayment behaviors and repricing spreads for assets in addition to attrition and repricing rates for liabilities. Assumptions are primarily derived from behavior studies of the Company’s historical client base and are continually refined. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process.

Non-maturity deposit modeling is particularly dependent on the assumption for repricing sensitivity known as a beta. Beta is the amount by which First Financial’s interest bearing non-maturity deposit rates will increase when short-term interest rates rise. The Company utilized a weighted average deposit beta of 36% in its interest rate risk modeling as of March 31, ~~2020.~~2021. First Financial also includes an assumption for the migration of non-maturity deposit balances into CDs for all upward rate scenarios beginning with the +100 bps scenario, thereby increasing deposit costs and reducing asset sensitivity.

Presented below is the estimated impact on First Financial’s NII and EVE position as of March 31, ~~2020,~~2021, assuming immediate, parallel shifts in interest rates:


	% Change from base case for immediate parallel changes in rates
	-100 bps(1)		+100 bps		+200 bps
NII-Year 1	(5.11)	%	8.69	%	16.72	%
NII-Year 2	(7.61)	%	12.28	%	23.48	%
EVE	(10.09)	%	7.06	%	13.33	%
(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.

% Change from base case for
immediate parallel changes in rates

-100 bps⁽¹⁾
+100 bps +200 bps
NII-Year 1 (6.63 )% 4.70 % 8.56 %
NII-Year 2 (7.15 )% 5.71 % 10.73 %
EVE (6.26 )% 4.18 % 8.20 %
⁽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.

“Risk-neutral” refers to the absence of a strong bias toward either asset or liability sensitivity. “Asset sensitivity” is when a company's interest-earning assets reprice more quickly or in greater quantities than interest-bearing liabilities. Conversely, “liability sensitivity” is when a company's interest-bearing liabilities reprice more quickly or in greater quantities than interest-earning assets. In a rising interest rate environment, asset sensitivity results in higher net interest income while liability sensitivity results in lower net interest income. In a declining interest rate environment, asset sensitivity results in lower net interest income while liability sensitivity results in higher net interest income.

First Financial was within policy limits set for the disclosed interest rate scenarios as of March 31, ~~2020.~~2021. The projected results for NII and EVE reflected an asset sensitive position, ~~which has increased in recent quarters~~ due to ~~elevated variable rate loan production.~~the significant addition of low cost transactional deposits replacing wholesale borrowings. First Financial continues to manage its balance sheet with a bias toward ~~neutrality or slight~~ asset sensitivity while simultaneously balancing the potential earnings impact of this strategy.

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First Financial continually evaluates the sensitivity of its interest rate risk position to modeling assumptions. The following table reflects First Financial’s estimated NII sensitivity profile as of March 31, ~~2020~~2021 assuming a 25% increase and a 25% reduction to the beta assumption on managed rate deposits:


	Beta sensitivity (% change from base)
	+100 BP				+200 BP
	Beta 25% lower		Beta 25% higher		Beta 25% lower		Beta 25% higher
NII-Year 1	10.05	%	7.33	%	18.03	%	15.40	%
NII-Year 2	13.69	%	10.87	%	24.84	%	22.12	%

Beta sensitivity (% change from base)
+100 BP +200 BP
Beta 25% lower Beta 25% higher Beta 25% lower Beta 25% higher
NII-Year 1 5.68 % 3.72 % 9.51 % 7.61 %
NII-Year 2 6.67 % 4.75 % 11.66 % 9.80 %

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

Liquidity risk is the potential that an entity will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain funding or that it cannot easily unwind or offset exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Management focuses on maintaining and enhancing liquidity by maximizing collateral based liquidity availability. First Financial manages liquidity in relation to the trend and stability of deposits; degree and reliance on short-term, volatile sources of funds, including any undue reliance on borrowings or brokered deposits to fund longer-term assets. Management identifies, measures, monitors and controls liquidity while seeking to maintain diversification of funding sources, both on- and off-balance-sheet.

The bank has continued to update liquidity risk management processes, such as refining the contingency funding plan, proactively meeting more frequently during the pandemic, securing additional contingent borrowing capacity, and developing additional ad-hoc liquidity reporting to monitor funding inflows and outflows related to the PPP funding and forgiveness. Management is closely monitoring the usage of excess business deposits, the balance of personal deposits and the broader macroeconomic environment during this period of heightened uncertainty and profound fiscal and monetary stimulus. For further discussion of the Company's liquidity, please see the Liquidity section within Management's Discussion and Analysis.

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 which are inherently subjective and may be susceptible to significant change. 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 policies currently include accounting for the ACL - loans and leases, 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 ~~2019~~2020 Annual Report. There were no changes to the accounting policies for the ACL, goodwill, pension ~~and~~or income taxes during the three months ended March 31, ~~2020. Subsequent to the adoption of ASC 326 in the first quarter of 2020, the Company's accounting policy for the ACL - loans and leases is now as follows:~~

2021.

~~Allowance for credit losses - loans and leases.~~The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Management's determination of the adequacy of the ACL is based on an assessment of the expected credit losses on loan and leases over the expected life of the loan. The ACL is generally increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged off when management believes that the collection of the princ~~ipal amount owed in full, either through payments from the borrower or from the liquidation of collateral, is unlikely.~~ ~~Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Any interest that is accrued but not collected is reversed against interest income when a loan is placed on nonaccrual status, which typically occurs prior to charging off all, or a portion, of a loan.~~ ~~Accrued interest receivable on loans and leases is excluded from the estimate of credit losses.~~

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience paired with economic forecasts provides the basis for the quantitatively modeled estimation of expected credit losses. ~~First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the Qualitative Framework.~~

First Financial quantitatively models expected credit loss using Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) over the Reasonable and Supportable (“R&S”) forecast, reversion and post-reversion periods.

First Financial is not required to develop forecasts over the full contractual term of the financial asset or group of financial assets. Rather, for periods beyond which the entity is able to make or obtain R&S forecasts of expected credit losses, the Company reverts in a straight line manner over a one year period to an average TTC loss level that is reflective of the prepayment adjusted contractual term of the financial asset or group of financial assets. The R&S forecast period, elected by the bank to be two years, is forecasted using econometric data sourced from an industry-leading independent third party.

~~To the extent actual outcomes differ from management's estimates, additional provision for credit losses may be required that would impact First Financial's operating results.~~

ACCOUNTING AND REGULATORY MATTERS

Note 2 - Recently Adopted and Issued Accounting Standards in the Notes to Consolidated Financial Statements discusses new accounting standards adopted by First Financial in 2020 and 2021, as well as the expected impact of accounting standards issued but not yet 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 Notes to the Consolidated Financial Statements and sections of Management’s Discussion and Analysis.

FORWARD-LOOKING STATEMENT

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 of 1995. Words such as ‘‘believes,’’ ‘‘anticipates,’’ “likely,” “expected,” “estimated,” ‘‘intends’’ and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Examples of ~~forward-looking~~forward looking statements include, but are not limited to, statements we make about (i) our future operating or financial performance, including revenues, income or loss and earnings or loss per share, (ii) future common stock dividends, (iii) our capital structure, including future capital levels, (iv) our plans, objectives and strategies, and (v) the assumptions that underlie our forward-looking statements.

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As with any forecast or projection, forward-looking statements are subject to inherent uncertainties, risks and changes in circumstances that may cause actual results to differ materially from those set forth in the ~~forward-looking~~forward looking statements. Forward-looking statements are not historical facts but instead express only management’s beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management’s control. It is possible that actual results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-looking statements. Important factors that could cause actual results to differ materially from those in our forward-looking statements include the following, without limitation:

•economic, market, liquidity, credit, interest rate, operational and technological risks associated with the Company’s business;

•future credit quality and performance, including our expectations regarding future loan losses and our allowance for credit losses;

•the effect of and changes in policies and laws or regulatory agencies, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and other legislation and regulation relating to the banking industry; ~~(iv) management’s~~

•Management’s ability to effectively execute its business plans;

•mergers and acquisitions, including costs or difficulties related to the integration of acquired companies;

•the possibility that any of the anticipated benefits of the Company’s acquisitions will not be realized or will not be realized within the expected time period;

•the effect of changes in accounting policies and practices;

•changes in consumer spending, borrowing and saving and changes in unemployment;

•changes in customers’ performance and creditworthiness;

•the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;

•current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth;

•the adverse impact on the U.S. economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (“COVID-19”), global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan and lease portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products;

•our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable ~~terms;~~terms:

•financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;

•the effect of the current interest rate environment or changes in interest rates or in the level or composition of our assets or liabilities on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;

•the effect of a fall in stock market prices on our brokerage, asset and wealth management businesses;

•a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber attacks;

•the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin; ~~and~~

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•our ability to develop and execute effective business plans and strategies.

Additional factors that may cause our actual results to differ materially from those described in our forward-looking statements can be found in ~~the~~our Form 10-K for the year ended December 31, ~~2019,~~2020, as well as our other filings with the SEC, which are available on the SEC website at www.sec.gov.

All forward-looking statements included in this filing are made as of the date hereof and are based on information available at the time of the filing. Except as required by law, the Company does not assume any obligation to update any forward-looking statement.

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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.

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

Effective January 1, 2020, First Financial adopted the CECL accounting standard. The Company designed new controls and modified existing controls in conjunction with its adoption. These additional controls over financial reporting included controls over model creation and design, model governance and model assumptions, among others. There were no other changes in First Financial's internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, First Financial's internal control over financial reporting.

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PART II-OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings.~~

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, ~~2019.~~2020.


~~Item 1A.~~	~~Risk Factors.~~

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, ~~2019.~~2020.

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019, except as described below.~~

~~The COVID-19 pandemic is adversely affecting us~~2020 and ~~our customers, employees, and third-party service providers, and~~updated in the ~~adverse impacts on our business, financial position, results of operations, and prospects could be significant.~~

The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, increased unemployment levels and decreased consumer confidence generally. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. The pandemic could influence the recognition of credit losses in our loan portfolios and increase our allowance for credit losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. Furthermore, the pandemic could affect the stability of our deposit base as well as our capital and liquidity position, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, result in lost revenue and cause us to incur additional expenses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairments in future periods on the securities we hold as well as reductions in other comprehensive income.

~~The extent~~“Risk Factors” section of the impact of the COVID-19 pandemic on our capital, liquidity, and other financial positions and on our business, results of operations, and prospects will depend on a number of evolving factors, including:


•	~~The duration, extent, and severity of the pandemic.~~ ~~COVID-19 has not been contained and could affect significantly more households and businesses. The duration and severity of the pandemic continue to be impossible to predict.~~

•

~~The response of governmental and nongovernmental authorities.~~ Many of the actions taken by authorities have been directed at curtailing personal and business activity to contain COVID-19 while simultaneously deploying fiscal-and monetary-policy measures to assist in mitigating the adverse effects on individuals and businesses. These actions are not consistent across jurisdictions but, in general, have been rapidly expanding in scope and intensity.


•	~~The effect on our customers, counterparties, employees, and third-party service providers.~~ COVID-19 and its associated consequences and uncertainties may affect individuals, households, and businesses differently and unevenly. In the near-term if not longer, however, our credit, operational, and other risks are generally expected to increase.


•	~~The effect on economies and markets.~~ Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional, and local economies and markets could suffer disruptions that are lasting.

•

~~The success of hardship relief efforts to bridge the gap to reopening the economy.~~ The U.S. government has implemented programs to directly compensate individuals and grant or loan money to businesses in an effort to provide funding while the economy is shut down. Many banks, including the Bank, have implemented hardship relief programs that include payment deferral and short-term funding options. The success of these programs could mute the effect on the Company's credit losses, which may be difficult to determine.

The duration of these business interruptions and related impacts on our business and operations, which will depend on future developments, are highly uncertain and cannot be reasonably estimated at this time. The pandemic could cause us to experience higher credit losses in our lending portfolio, impairment of our goodwill and other financial assets, reduced demand for our products and services, and other negative impacts on our financial position, results of operations, and prospects. You should consider that the effects of COVID-19 could be particularly pronounced with respect to certain of our lending portfolios:


•	~~Commercial real estate-retail~~, including retail shopping centers, due to declining interest in such spaces by their users and declining interest in visiting large shared spaces. As of March 31, 2020, the retail portion of our ICRE portfolio was $846 million, or 11% of our loan portfolio.


•	~~Residential real estate, due to customers' potential loss of income. As of March 31, 2020, this portfolio was $1.1 billion, or 12% of our loan portfolio.~~


•	~~Franchise, which primarily includes quick service and casual dining, due to stay at home orders and requirements that restaurants provide carry-out only service. As of March 31, 2020, this portfolio was $455 million, or 4.9% of our loan portfolio.~~


•	~~Hospitality~~, including hotel and motel lending, due to travel limitations implemented by governments and businesses as well as declining interest in travel generally. As of March 31, 2020, this portfolio was $401 million, or 4.3% of our loan portfolio.

In March 2020, we announced programs to support customers, employees, and communities during the COVID-19 pandemic. A significant number of our borrowers have enrolled in one of our programs to defer all loan payments for up to 90 days. These programs may negatively impact our revenue and other results of operations in the near term and, if not effective in mitigating the effect of COVID-19 on our customers, may adversely affect our business and results of operations more substantially over a longer period of time.

The cumulative effects of COVID-19 and the measures implemented by governments to combat the pandemic on the mortgaged properties may cause borrowers to be unable to meet their payment obligations under mortgage loans that we hold and may result in significant losses. In addition, we have sold mortgage loans in the secondary market. When we sell loans, we are required to make customary representations and warranties about such loans to the loan purchaser. Our mortgage loan sale agreements may require us to repurchase or substitute loans or indemnify investors in the event we breach a representation or warranty given to the loan purchaser or in the event of an early payment default. Higher delinquencies as a result of COVID-19 may result in our having to repurchase a significantly larger amount of delinquent mortgage loans than are currently reserved for in our financial statements and result in them being placed on our books, subjecting us to the risk of a potential default.

The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after COVID-19 has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus's global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the "Risk Factors" section of our AnnualCompany’s Quarterly Report on Form ~~10-K~~10-Q for the ~~fiscal year ended December 31, 2019.~~

The outbreak of COVID-19, or an outbreak of other highly infectious or contagious diseases, could disrupt banking and other financial activity in the areas in which we operate and could potentially create widespread business continuity issues for us.

Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions. We rely upon our third-party vendors to conduct business and to process, record, and monitor transactions. If any of these vendors are unable to continue to provide us with these services, it could negatively impact our ability to serve our customers. Furthermore, the outbreak could negatively impact the ability of our employees and customers to engage in banking and other financial transactions in the geographic areas in which we operate and could create widespread business continuity issues for us. We have already shifted a substantial portion of our workforce to work remotely and have restricted access to our branch lobbies. However, we could be adversely affected if key personnel or a significant number of employees were to become unavailable due to the effects and restrictions of a COVID-19 outbreak in one or more of our market areas. We also face heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements.

Changes in market interest rates or capital markets, including volatility resulting from the COVID-19 pandemic, could affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital or liquidity.

The COVID-19 pandemic has significantly affected the financial markets and has resulted in a number of Federal Reserve actions. Market interest rates have declined significantly. On March 3, 2020, the 10-year Treasury yield fell below 1.00% for the first time, and the Federal Reserve reduced the target federal funds rate by 50 basis points to 1.00% to 1.25%. On March 15, 2020, the Federal Reserve further reduced the target federal funds rate by 100 basis points to 0.00% to 0.25% and

announced a $700 billion quantitative easing program in response to the expected economic downturn caused by the COVID-19 pandemic. The Federal Reserve reduced the interest that it pays on excess reserves from 1.60% to 1.10% on March 3, 2020, and then to 0.10% on March 15, 2020. We expect that these reductions in interest rates, especially if prolonged, could adversely affect our net interest income and margins and our profitability.

Given our business mix, and the fact that most of our assets and liabilities are financial in nature, we tend to be sensitive to market interest rate movements and the performance of the financial markets. Our primary source of income is net interest income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of loans and, to a lesser extent, securities) and the interest expense generated by our interest-bearing liabilities. Prevailing economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, significantly affect financial institutions' net interest income. If the interest we pay on deposits and other borrowings increases at a faster rate than increases in the interest we receive on loans and investments, net interest income, and, therefore, our earnings, could be affected. Earnings could also be affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on deposits and other borrowings.

~~In addition to the general impact of the economy, changes in interest rates or in valuations in the debt or equity markets could directly impact us in one or more of the following ways:~~

~~the yield on earning assets and rates paid on interest bearing liabilities may change in disproportionate ways;~~

~~the value of certain balance sheet and off-balance sheet financial instruments or the value of equity investments that we hold could decline;~~

~~the value of assets for which we provide processing services could decline;~~

~~the demand for loans and refinancings may decline, which could negatively impact income related to loan originations; or~~

~~to the extent we access capital markets to raise funds to support our business, such changes could affect the cost of such funds or the ability to raise such funds.~~

In addition, the continued spread of COVID-19 has also led to disruption and volatility in financial markets, which could increase our cost of capital and adversely affect our ability to access financial markets, which may in turn affect the value of the subordinated notes. In addition, in March 2020, Moody's Investor Services downgraded its outlook on U.S. banks to "negative" from "stable" due in part to the concerns presented by the coronavirus pandemic. This market volatility has resulted in a significant decline, and we may continue to experience further declines, in our stock price and market capitalization, which could result in goodwill impairment charges.

Declining values of real estate, increases in unemployment, insurance market disruptions and the related effects on local economies, including impacts related to the COVID-19 pandemic, may increase our credit losses, which would negatively affect our financial results.

We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Many of our loans are secured by real estate (both residential and commercial) within our market area. A major change in the real estate market, such as deterioration in the value of collateral, or in the local or national economy, could affect our customers' ability to pay these loans, which in turn could impact our results of operations and financial condition. Additionally, increases in unemployment also may affect the ability of certain clients to repay loans and the financial results of commercial clients in localities with higher unemployment, may result in loan defaults and foreclosures and may impair the value of our collateral. Additionally, a concentration of natural disasters or a significant disruption in the insurance market could impact the risk relating to our insurance lending business. We cannot fully eliminate credit risk, and as a result, credit losses may increase in the future.

The sharp deterioration in the United States economy that has resulted from the COVID-19 virus and the actions taken by the federal and state governments to slow the spread of that virus have resulted in a significant increase in the unemployment rate throughout the United States, including in the local economies in which we conduct business. We anticipate that this increase in unemployment will affect the ability of some of our clients to repay their loans on a timely basis and will adversely affect the financial results of our commercial clients in localities with high unemployment, resulting in loan defaults and the possible impairments in the value of our collateral. These developments could adversely impact our results of operations and financial condition, although the extent of such impact cannot be determined at this time and may be muted by the Bank's implementation of hardship relief programs that include payment deferral and short-term funding options.

~~Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.~~

Like all financial institutions, we maintain an allowance for credit losses to provide for loans in our portfolio that may not be repaid in their entirety. Our allowance for credit losses may not be sufficient to cover actual loan losses, and future provision for credit losses could materially and affect our operating results. The accounting measurements related to impairment and the allowance for credit losses require significant estimates which are subject to uncertainty and change related to new information

and changing circumstances. Our estimates of the risk of loss and amount of loss on any loan are complicated by the significant uncertainties surrounding our borrowers' abilities to successfully execute their business models through changing economic environments, competitive challenges and other factors. Because of the degree of uncertainty and susceptibility of these factors to change, our actual losses may vary from our current estimates.

Our regulators, as an integral part of their examination process, periodically review our allowance for credit losses and may require us to increase our allowance for credit losses by recognizing additional provision for losses charged to expense, or to decrease our allowance for credit losses by recognizing loan charge-offs, net of recoveries. Any such additional provision for loan losses or charge-offs, as required by these regulatory agencies, could have a material effect on our financial condition and results of operations.

~~We adopted CECL in the first quarter of 2020, including the regulatory phase-in. As a result, credit loss allowances increased in the quarter~~quarterly period ended March 31, 2020, by approximately $100.0 million, resulting in a corresponding decrease in retained earnings and a delayed impact to regulatory capital. CECL implementation poses operational risk, including the failure to properly transition internal processes or systems, which could lead to errors, financial misstatements or operational losses. As a result of CECL, our financial results may be negatively affected as soon as weak or deteriorating economic conditions are forecasted and alter our expectations for credit losses. As a result of COVID-19, we incurred a significant provision expense of $23.9 million in the first quarter of 2020 and may incur significant provision expense for credit losses in future periods as well.2021.

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

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

~~(c)~~

~~The following table shows the total number of shares repurchased in the first quarter of 2020.~~

~~Issuer Purchases of Equity Securities~~

(a) (b) (c) (d)
Period
Total Number
of Shares
Purchased

Average
Price Paid
Per Share

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans

Maximum Number of
Shares that may yet
be purchased Under
the Plans
January 1 to January 31, 2020 0
$ 0.00
0
2,246,728
February 1 to February 29, 2020 170,000
$ 21.90
170,000
2,076,728
March 1 to March 31, 2020 710,000
$ 18.26
710,000
1,366,728
Total 880,000
$ 18.96
880,000

In ~~January 2019,~~December 2018, the ~~First Financial~~ Board ~~of Directors~~ approved a stock repurchase plan pursuant to which the Company iswas authorized to repurchase up to 5,000,000 shares of stock through December 31, 2020. On December 22, 2020, the Board announced that it authorized a new repurchase plan that provided for the purchase of up to 5,000,000 additional shares of common stock of the Company (the 2020 Repurchase Plan). The 2020 Repurchase Plan became effective January 1, 2021, upon the expiration of the previously authorized stock repurchase plan, and will expire December 31, 2022. The Company purchased 840,115 shares at an average price of $21.40 under the Stock Repurchase Plan in the first quarter of 2021.

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Item 6. Exhibits


(a)		Exhibits:

~~(a)~~		~~Exhibits:~~
Exhibit Number
~~Exhibit Number~~3.1
~~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 3.2 to the Form S-3 on July 31, 2014 and incorporated herein by reference) (File No. 333-197771).

3.2			Amended and Restated Regulations of First Financial Bancorp, amended as of July 28, 2015 (filed as Exhibit 3.1 to the Form 8-K filed on July 29, 2015 and incorporated herein by reference).

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~~101.INS			~~Financial statements from~~XBRL Instance Document – the ~~Quarterly Report on Form 10-Q of~~instance document does not appear in the ~~Company for~~Interactive Data File because its XBRL tags are embedded within the ~~quarter ended March 31, 2020, formatted~~Inline XBRL document. *

101.SCH			Inline XBRL Taxonomy Extension Schema. *

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase. *

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase. *

101.LAB			Inline XBRL Taxonomy Extension Labels Linkbase. *

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase. *

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained 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.Exhibit 101). *

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.

* 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.

** Compensatory plan or arrangement

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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/ James M. Anderson

/s/ Scott T. Crawley

James M. Anderson

Scott T. Crawley

Executive Vice President and Chief Financial Officer

First Vice President and Controller

(Principal Accounting Officer)

Date

5/6/2021

~~FIRST FINANCIAL BANCORP.~~

Date

~~(Registrant)~~

~~/s/ James M. Anderson~~

~~/s/ Scott T. Crawley~~

~~James M. Anderson~~

~~Scott T. Crawley~~

~~Executive Vice President and Chief Financial Officer~~

~~First Vice President and Controller~~

~~(Principal Accounting Officer)~~

~~Date~~

5/~~8/2020~~

~~Date~~

~~5/8/2020~~6/2021



	As of December 31, 2019
	Commercial		Real Estate				Lease
(Dollars in thousands)	& industrial		Construction		Commercial		financing		Total
Pass	$	2,324,021	$	493,182	$	4,108,752	$	85,262	$	7,011,217
Special Mention	100,954		0		59,383		488		160,825
Substandard	40,902		0		26,516		2,614		70,032
Doubtful	0		0		0		0		0
Total	$	2,465,877	$	493,182	$	4,194,651	$	88,364	$	7,242,074



(Dollars in thousands)	Residential real estate		Home equity		Installment		Credit card		Total
Performing	$	1,040,787	$	766,169	$	82,385	$	48,983	$	1,938,324
Nonperforming	15,162		5,700		204		201		21,267
Total	$	1,055,949	$	771,869	$	82,589	$	49,184	$	1,959,591



	As of March 31, 2020
(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 still accruing
Loans
Commercial & industrial	$	2,305	$	267	$	16,322	$	18,894	$	2,458,879	$	2,477,773	$	0
Lease financing	0		0		0		0		82,602		82,602		0
Construction real estate	0		0		0		0		500,311		500,311		0
Commercial real estate-investor	7,225		346		1,864		9,435		3,170,602		3,180,037		0
Commercial real estate-owner	1,106		0		2,782		3,888		1,094,332		1,098,220		0
Residential real estate	1,710		990		4,280		6,980		1,054,812		1,061,792		0
Home equity	1,428		852		2,419		4,699		776,544		781,243		0
Installment	73		5		112		190		79,895		80,085		0
Credit card	383		330		122		835		44,921		45,756		120
Total	$	14,230	$	2,790	$	27,901	$	44,921	$	9,262,898	$	9,307,819	$	120



	As of December 31, 2019
(Dollars in thousands)	Current balance		Contractual principal balance		Related allowance
Loans with no related allowance recorded
Commercial & industrial	$	16,726	$	19,709	$	0
Lease financing	223		223		0
Construction real estate	0		0		0
Commercial real estate	10,160		17,897		0
Residential real estate	14,868		17,368		0
Home equity	5,700		6,462		0
Installment	204		341		0
Total	47,881		62,000		0

Loans with an allowance recorded
Commercial & industrial	10,754		21,513		2,044
Lease financing	0		0		0
Construction real estate	0		0		0
Commercial real estate	671		675		113
Residential real estate	294		294		18
Home equity	0		0		0
Installment	0		0		0
Total	11,719		22,482		2,175

Total
Commercial & industrial	27,480		41,222		2,044
Lease financing	223		223		0
Construction real estate	0		0		0
Commercial real estate	10,831		18,572		113
Residential real estate	15,162		17,662		18
Home equity	5,700		6,462		0
Installment	204		341		0
Total	$	59,600	$	84,482	$	2,175



(Dollars in thousands)	March 31, 2020		March 31, 2019
Balance at beginning of year	$	937,771	$	880,251
Goodwill resulting from business combinations	0		(524		)
Balance at end of period	$	937,771	$	879,727



(Dollars in thousands)	Operating leases
2020 (remaining nine months)	$	5,611
2021	7,213
2022	6,891
2023	6,856
2024	6,531
Thereafter	60,918
Total lease payments	94,020
Less imputed interest	22,072
Total	$	71,948



	% Change from base case for immediate parallel changes in rates
	-100 bps⁽¹⁾		+100 bps		+200 bps
NII-Year 1	(6.63	)%	4.70	%	8.56	%
NII-Year 2	(7.15	)%	5.71	%	10.73	%
EVE	(6.26	)%	4.18	%	8.20	%
⁽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.



	(a)	(b)		(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that may yet be purchased Under the Plans
January 1 to January 31, 2020	0	$	0.00	0	2,246,728
February 1 to February 29, 2020	170,000	$	21.90	170,000	2,076,728
March 1 to March 31, 2020	710,000	$	18.26	710,000	1,366,728
Total	880,000	$	18.96	880,000