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LOANS AND LEASES

3 Months Ended

Mar. 31, 2021

First Financial offers clients a variety of commercial and consumer loan and lease products with 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

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


(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


(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

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


	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.

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

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

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

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.

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


	Three months ended
	March 31,
(Dollars in thousands)		2021		2020
Extended maturities		$	0	$	0
Adjusted interest rates		0		0
Combination of rate and maturity changes		0		0
Forbearance		6,163		1,008
Other (1)		6,967		11,649
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 both three month periods ended March 31, 2021 and 2020, there were no TDR relationships for which there was a payment default during the period that occurred within twelve months of the loan modifications.

As stated in the CARES Act and subsequently modified by the Consolidated Appropriations Act, loan modifications in response to COVID-19 executed on 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 January 1, 2022 are not required to be reported as TDR.

As of March 31, 2021, the 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 $248.4 million and 25 consumer loans with balances of $2.7 million as of March 31, 2021.

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. The following table provides information on nonperforming loans:


	March 31, 2021						December 31, 2020
(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)
Commercial & industrial	$	12,505	$	12,436	$	24,941	$	18,711	$	10,519	$	29,230
Lease financing	0		0		0		0		0		0
Construction real estate	0		0		0		0		0		0
Commercial real estate	18,402		26,112		44,514		6,957		27,725		34,682
Residential real estate	0		11,359		11,359		251		11,350		11,601
Home equity	0		4,286		4,286		0		5,076		5,076
Installment	0		146		146		0		163		163
Total nonaccrual loans	$	30,907	$	54,339	$	85,246	$	25,919	$	54,833	$	80,752

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


	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 loan relationships 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.

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

Lease financing. 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.

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