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LOANS AND LEASES

3 Months Ended

Mar. 31, 2022

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, 2022, First Financial had $21.2 million in PPP loans, net of unearned fees of $1.0 million. As of December 31, 2021, First Financial had $55.6 million in PPP loans, net of unearned fees of $2.6 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, 2022 by risk attribute and origination date:


(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Term Total		Revolving		Total
Commercial & industrial
Pass	$	150,380	$	674,218	$	431,251	$	306,741	$	149,846	$	244,872	$	1,957,308	$	771,029	$	2,728,337
Special mention	0		366		4,536		5,619		14,446		4,512		29,479		13,895		43,374
Substandard	446		1,977		372		3,037		1,132		11,493		18,457		8,410		26,867
Doubtful	0		0		0		0		0		1,631		1,631		0		1,631
Total	$	150,826	$	676,561	$	436,159	$	315,397	$	165,424	$	262,508	$	2,006,875	$	793,334	$	2,800,209
Lease financing
Pass	$	12,252	$	34,717	$	24,430	$	20,619	$	16,885	$	11,283	$	120,186	$	0	$	120,186


(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Term Total		Revolving		Total
Special mention	0		0		5,681		0		0		0		5,681		0		5,681
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	12,252	$	34,717	$	30,111	$	20,619	$	16,885	$	11,283	$	125,867	$	0	$	125,867
Construction real estate
Pass	$	8,621	$	184,917	$	149,551	$	78,048	$	10,417	$	12,178	$	443,732	$	20,477	$	464,209
Special mention	0		0		6,531		0		9,004		0		15,535		0		15,535
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	8,621	$	184,917	$	156,082	$	78,048	$	19,421	$	12,178	$	459,267	$	20,477	$	479,744
Commercial real estate - investor
Pass	$	71,292	$	552,818	$	355,042	$	861,599	$	379,791	$	663,270	$	2,883,812	$	37,072	$	2,920,884
Special mention	0		0		20,438		27,176		17,903		27,716		93,233		0		93,233
Substandard	0		1,550		6		22,638		3,816		16,992		45,002		0		45,002
Doubtful	0		0		0		0		2,546		0		2,546		0		2,546
Total	$	71,292	$	554,368	$	375,486	$	911,413	$	404,056	$	707,978	$	3,024,593	$	37,072	$	3,061,665
Commercial real estate - owner
Pass	$	20,749	$	171,894	$	176,879	$	113,416	$	129,873	$	316,827	$	929,638	$	9,121	$	938,759
Special mention	0		295		2,261		2,577		3,603		3,287		12,023		0		12,023
Substandard	0		1,467		423		718		12,334		4,095		19,037		0		19,037
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	20,749	$	173,656	$	179,563	$	116,711	$	145,810	$	324,209	$	960,698	$	9,121	$	969,819
Residential real estate
Performing	$	52,459	$	262,465	$	222,466	$	129,617	$	59,558	$	182,217	$	908,782	$	0	$	908,782
Nonperforming	0		268		466		1,168		643		2,511		5,056		0		5,056
Total	$	52,459	$	262,733	$	222,932	$	130,785	$	60,201	$	184,728	$	913,838	$	0	$	913,838
Home equity
Performing	$	6,787	$	38,358	$	43,585	$	14,145	$	10,466	$	34,215	$	147,556	$	556,832	$	704,388
Nonperforming	0		21		117		41		19		432		630		2,955		3,585
Total	$	6,787	$	38,379	$	43,702	$	14,186	$	10,485	$	34,647	$	148,186	$	559,787	$	707,973
Installment
Performing	$	17,114	$	51,736	$	11,031	$	7,034	$	4,678	$	5,327	$	96,920	$	34,866	$	131,786
Nonperforming	0		229		0		24		33		48		334		77		411
Total	$	17,114	$	51,965	$	11,031	$	7,058	$	4,711	$	5,375	$	97,254	$	34,943	$	132,197
Credit cards
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	49,719	$	49,719
Nonperforming	0		0		0		0		0		0		0		586		586
Total	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	50,305	$	50,305
Grand Total	$	340,100	$	1,977,296	$	1,455,066	$	1,594,217	$	826,993	$	1,542,906	$	7,736,578	$	1,505,039	$	9,241,617

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


(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Term Total		Revolving		Total
Commercial & industrial
Pass	$	711,198	$	442,064	$	339,507	$	164,273	$	119,580	$	154,835	$	1,931,457	$	700,246	$	2,631,703
Special mention	389		4,867		5,993		16,057		6,511		4,918		38,735		21,505		60,240


(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Term Total		Revolving		Total
Substandard	2,220		434		2,843		1,224		12,640		1,465		20,826		7,259		28,085
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	713,807	$	447,365	$	348,343	$	181,554	$	138,731	$	161,218	$	1,991,018	$	729,010	$	2,720,028
Lease financing
Pass	$	31,697	$	21,536	$	19,095	$	15,494	$	6,821	$	4,765	$	99,408	$	0	$	99,408
Special mention	0		10,216		0		0		0		0		10,216		0		10,216
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	31,697	$	31,752	$	19,095	$	15,494	$	6,821	$	4,765	$	109,624	$	0	$	109,624
Construction real estate
Pass	$	95,991	$	200,421	$	96,726	$	15,886	$	317	$	12,719	$	422,060	$	18,299	$	440,359
Special mention	0		6,531		0		9,004		0		0		15,535		0		15,535
Substandard	0		0		0		0		0		0		0		0		0
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	95,991	$	206,952	$	96,726	$	24,890	$	317	$	12,719	$	437,595	$	18,299	$	455,894
Commercial real estate - investor
Pass	$	537,183	$	379,217	$	944,915	$	367,946	$	294,147	$	434,641	$	2,958,049	$	66,579	$	3,024,628
Special mention	0		7,479		18,136		18,006		15,566		34,153		93,340		0		93,340
Substandard	1,616		6		21,312		6,628		6,918		307		36,787		0		36,787
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	538,799	$	386,702	$	984,363	$	392,580	$	316,631	$	469,101	$	3,088,176	$	66,579	$	3,154,755
Commercial real estate - owner
Pass	$	204,291	$	184,564	$	121,150	$	135,463	$	119,489	$	259,504	$	1,024,461	$	7,565	$	1,032,026
Special mention	970		2,283		2,262		3,751		1,381		5,512		16,159		0		16,159
Substandard	162		727		6,541		12,513		1,730		1,963		23,636		38		23,674
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	205,423	$	187,574	$	129,953	$	151,727	$	122,600	$	266,979	$	1,064,256	$	7,603	$	1,071,859
Residential real estate
Performing	$	258,537	$	230,699	$	138,239	$	64,310	$	34,606	$	162,924	$	889,315	$	0	$	889,315
Nonperforming	236		970		1,193		598		339		3,418		6,754		0		6,754
Total	$	258,773	$	231,669	$	139,432	$	64,908	$	34,945	$	166,342	$	896,069	$	0	$	896,069
Home equity
Performing	$	42,298	$	45,638	$	14,713	$	11,221	$	7,603	$	30,588	$	152,061	$	553,245	$	705,306
Nonperforming	72		161		44		67		56		234		634		2,459		3,093
Total	$	42,370	$	45,799	$	14,757	$	11,288	$	7,659	$	30,822	$	152,695	$	555,704	$	708,399
Installment
Performing	$	58,209	$	12,768	$	8,213	$	5,541	$	3,925	$	2,201	$	90,857	$	28,353	$	119,210
Nonperforming	6		61		32		9		1		56		165		79		244
Total	$	58,215	$	12,829	$	8,245	$	5,550	$	3,926	$	2,257	$	91,022	$	28,432	$	119,454
Credit cards
Performing	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	51,772	$	51,772
Nonperforming	0		0		0		0		0		0		0		445		445
Total	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	52,217	$	52,217


(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Term Total		Revolving		Total
Grand Total	$	1,945,075	$	1,550,642	$	1,740,914	$	847,991	$	631,630	$	1,114,203	$	7,830,455	$	1,457,844	$	9,288,299

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, 2022
(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	$	236	$	262	$	3,622	$	4,120	$	2,796,089	$	2,800,209	$	0
Lease financing	856		270		93		1,219		124,648		125,867		93
Construction real estate	0		0		0		0		479,744		479,744		0
Commercial real estate-investor	16		0		6,403		6,419		3,055,246		3,061,665		0
Commercial real estate-owner	187		0		2,269		2,456		967,363		969,819		0
Residential real estate	2,504		1,079		1,472		5,055		908,783		913,838		0
Home equity	1,826		265		1,494		3,585		704,388		707,973		0
Installment	112		13		63		188		132,009		132,197		0
Credit card	341		334		133		808		49,497		50,305		87
Total	$	6,078	$	2,223	$	15,549	$	23,850	$	9,217,767	$	9,241,617	$	180


	As of December 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	$	303	$	2,006	$	2,775	$	5,084	$	2,714,944	$	2,720,028	$	0
Lease financing	93		0		0		93		109,531		109,624		0
Construction real estate	0		0		0		0		455,894		455,894		0
Commercial real estate-investor	89		42		6,409		6,540		3,148,215		3,154,755		0
Commercial real estate-owner	56		2,207		637		2,900		1,068,959		1,071,859		0
Residential real estate	4,379		262		2,114		6,755		889,314		896,069		0
Home equity	1,214		692		1,186		3,092		705,307		708,399		0
Installment	162		37		45		244		119,210		119,454		0
Credit card	223		134		137		494		51,723		52,217		137
Total	$	6,519	$	5,380	$	13,303	$	25,202	$	9,263,097	$	9,288,299	$	137

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.

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 142 TDRs totaling $24.2 million at March 31, 2022, including $8.1 million on accrual status and $16.2 million classified as nonaccrual. First Financial had insignificant commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ACL included reserves of $3.7 million related to TDRs at March 31, 2022. Additionally, as of March 31, 2022, $4.8 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 150 TDRs totaling $27.6 million at December 31, 2021, including $11.6 million of loans on accrual status and $16.0 million classified as nonaccrual. First Financial had $0.2 million commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2021, the ACL included reserves of $6.3 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, 2022 and 2021:













	Three months ended
	March 31, 2022					March 31, 2021
(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	3	$	4,465	$	3,241	4	$	3,206	$	3,070
Construction real estate	0	0		0		0	0		0
Commercial real estate	1	387		80		7	10,015		9,046
Residential real estate	3	340		326		10	1,023		1,000
Home equity	1	32		32		1	14		14
Installment	0	0		0		0	0		0
Total	8	$	5,224	$	3,679	22	$	14,258	$	13,130

For TDRs identified during the three months ended March 31, 2022, there were $2.5 million of charge-offs for the portion of TDRs determined to be uncollectible. For TDRs identified during the three months ended March 31, 2021, there were insignificant charge-offs 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, 2022 and 2021:


	Three months ended
	March 31,
(Dollars in thousands)		2022		2021
Extended maturities		$	0	$	0
Adjusted interest rates		0		0
Combination of rate and maturity changes		0		0
Forbearance		3,647		6,163
Bankruptcies		0		6,559
Other (1)		32		408
Total		$	3,679	$	13,130

(1) Includes covenant modifications and other concessions, or combination of concessions, that do not consist of interest rate adjustments, forbearance, bankruptcy 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 each of the three month periods ended March 31, 2022 and March 31, 2021, 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 were not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020 and January 1, 2022 are not required to be reported as TDR.

As of March 31, 2022 and December 31, 2021, the Company's loan portfolio included $16.7 million and $16.5 million, respectively, of active loan modifications made under the guidance of the CARES Act that were not classified as TDR. These modifications were comprised of two commercial loans making interest only payments for both periods.

Nonperforming loans. Loans classified as nonaccrual and loans modified as TDRs are considered nonperforming. The following table provides information on nonperforming loans:


	March 31, 2022						December 31, 2021
(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	$	8,621	$	5,769	$	14,390	$	11,077	$	6,285	$	17,362
Lease financing	0		249		249		0		203		203
Construction real estate	0		0		0		0		0		0
Commercial real estate	6,362		13,481		19,843		17,716		1,796		19,512
Residential real estate	0		7,432		7,432		0		8,305		8,305
Home equity	0		3,377		3,377		0		2,922		2,922
Installment	0		163		163		0		88		88
Total nonaccrual loans	$	14,983	$	30,471	$	45,454	$	28,793	$	19,599	$	48,392

(1) Nonaccrual loans include nonaccrual TDRs of $16.2 million and $16.0 million as of March 31, 2022 and December 31, 2021, respectively.


	Three months ended
	March 31,
(Dollars in thousands)		2022		2021
Interest income effect on nonperforming loans
Gross amount of interest that would have been recorded under original terms		$	773	$	1,487
Interest included in income
Nonaccrual loans		290		483
Troubled debt restructurings		51		86
Total interest included in income		341		569
Net impact on interest income		$	432	$	918

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, 2022
	Type of Collateral
(Dollar in thousands)	Business assets		Commercial real estate		Equipment		Land		Residential real estate		Other		Total
Class of loan
Commercial & industrial	$	11,399	$	0	$	1,560	$	0	$	0	$	1,431	$	14,390
Lease financing	0		0		249		0		0		0		249
Commercial real estate-investor	0		6,362		0		41		106		0		6,509
Commercial real estate-owner	0		7,523		5,703		37		71		0		13,334
Residential real estate	0		0		0		0		7,432		0		7,432
Home equity	0		0		0		0		3,377		0		3,377
Installment	0		0		0		0		0		163		163
Total	$	11,399	$	13,885	$	7,512	$	78	$	10,986	$	1,594	$	45,454


	December 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	$	13,171	$	15	$	833	$	0	$	0	$	3,343	$	17,362
Leasing	0		0		203		0		0		0		203
Commercial real estate-investor	0		6,362		0		0		422		0		6,784
Commercial real estate-owner	0		6,673		5,937		38		80		0		12,728
Residential real estate	0		0		0		0		8,305		0		8,305
Home equity	0		0		0		0		2,922		0		2,922
Installment	0		0		0		0		0		88		88
Total	$	13,171	$	13,050	$	6,973	$	38	$	11,729	$	3,431	$	48,392

Lease financing - Lessor. 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.

Effective December 31, 2021, First Financial acquired Summit Funding Group, Inc., which is a full-service equipment leasing company. In conjunction with this acquisition, First Financial acquired $41.8 million of financing leases, which were included in Loans and leases on the Consolidated Balance Sheets. For further detail on the acquisition, see Note 18 - Business Combinations.

The components of the Company's net investments in direct financing and sales-type leases, which are included in Lease financing on the Consolidated Balance Sheets are as follows:


(Dollar in thousands)	March 31, 2022		December 31, 2021
Direct finance leases
Lease receivables	$	46,856	$	17,164
Unguaranteed residual values	8,007		4,431
Sales-type leases
Lease receivables	17,653		17,925
Unguaranteed residual values	0		0
Total net investment in direct financing and sales-type leases	$	72,516	$	39,520

There were no significant changes in the balance of the Company's unguaranteed residual assets for the three months ended March 31, 2022 or March 31, 2021. Interest income for direct financing and sales-type leases was $0.5 million and $0.4 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

The remaining maturities of lease receivables were as follows:



(Dollars in thousands)	Direct financing and Sales-type
Remainder of 2022	$	5,781
2023	7,481
2024	17,136
2025	10,190
2026	14,500
Thereafter	21,478
Total lease payments	76,566
Less: unearned interest income and guaranteed residual value	(8,762)
Net lease receivables	$	67,804

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)		2022		2021
Balance at beginning of period		$	98	$	1,287
Additions
Commercial & industrial		0		0
Residential real estate		72		0
Total additions		72		0
Disposals
Commercial & industrial		(98)		(246)
Residential real estate		0		(187)
Total disposals		(98)		(433)
Valuation adjustment
Commercial & industrial		0		0
Residential real estate		0		0
Total valuation adjustment		0		0
Balance at end of period		$	72	$	854