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LOANS AND LEASES
 3 Months Ended
Mar. 31, 2023
Receivables [Abstract]  
LOANS AND LEASES LOANS AND LEASES
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 has certain lending platforms that extend beyond the geographic banking center footprint to provide financing to franchise owners and clients within the financial services industry as well as equipment lease financing to commercial businesses.

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. In 2022 and all years prior that are presented below, consumer loans that had been modified in a TDR were classified as nonperforming.

The following table sets forth the Company's loan portfolio at March 31, 2023 by risk attribute and origination date as well as current period gross chargeoffs:
(Dollars in thousands)20232022202120202019PriorTerm TotalRevolvingTotal
Commercial & industrial
Pass$165,984 $869,449 $538,860 $336,469 $202,246 $290,318 $2,403,326 $928,212 $3,331,538 
Special mention198 13,090 4,198 3,901 10,194 2,217 33,798 13,855 47,653 
Substandard0 2,812 15,308 10,008 6,653 19,550 54,331 15,767 70,098 
Doubtful0 0 0 0 0 0 0 0 0 
Total$166,182 $885,351 $558,366 $350,378 $219,093 $312,085 $2,491,455 $957,834 $3,449,289 
YTD Gross chargeoffs$0 $22 $6 $0 $19 $683 $730 $0 $730 
Lease financing
Pass$29,221 $187,765 $23,349 $11,891 $10,465 $6,925 $269,616 $0 $269,616 
Special mention000000000
Substandard04,10700158174,28204,282
Total$29,221 $191,872 $23,349 $11,891 $10,623 $6,942 $273,898 $0 $273,898 
YTD Gross chargeoffs$0 $0 $13 $0 $0 $0 $13 $0 $13 
Construction real estate
Pass$8,249 $185,065 $209,847 $75,338 $6,177 $6,869 $491,545 $19,966 $511,511 
Special mention0 0 14,395 0 0 0 14,395 0 14,395 
Substandard0 0 0 0 0 0 0 0 0 
Total$8,249 $185,065 $224,242 $75,338 $6,177 $6,869 $505,940 $19,966 $525,906 
YTD Gross chargeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial real estate - investor
Pass$66,536 $665,650 $454,273 $300,956 $689,958 $742,866 $2,920,239 $28,390 $2,948,629 
Special mention0 0 13,060 17,134 9,229 51,437 90,860 295 91,155 
Substandard0 0 0 13,874 3,992 44,795 62,661 0 62,661 
Doubtful0 0 0 0 0 0 0 0 0 
(Dollars in thousands)20232022202120202019PriorTerm TotalRevolvingTotal
Total$66,536 $665,650 $467,333 $331,964 $703,179 $839,098 $3,073,760 $28,685 $3,102,445 
YTD Gross chargeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Commercial real estate - owner
Pass$27,575 $167,222 $148,857 $159,185 $99,257 $308,493 $910,589 $9,974 $920,563 
Special mention0 578 11 1,136 870 14,113 16,708 0 16,708 
Substandard0 0 456 842 5,054 9,909 16,261 650 16,911 
Total$27,575 $167,800 $149,324 $161,163 $105,181 $332,515 $943,558 $10,624 $954,182 
YTD Gross chargeoffs$0 $0 $0 $0 $0 $66 $66 $0 $66 
Residential real estate
Performing$65,711 $336,483 $272,688 $201,737 $108,797 $145,008 $1,130,424 $0 $1,130,424 
Nonperforming0 499 1,277 2,135 2,743 7,991 14,645 0 14,645 
Total$65,711 $336,982 $273,965 $203,872 $111,540 $152,999 $1,145,069 $0 $1,145,069 
YTD Gross chargeoffs$0 $0 $0 $0 $0 $0 $0 $0 $0 
Home equity
Performing$4,421 $25,913 $32,296 $37,089 $11,365 $30,299 $141,383 $578,148 $719,531 
Nonperforming0 5 128 197 0 503 833 4,308 5,141 
Total$4,421 $25,918 $32,424 $37,286 $11,365 $30,802 $142,216 $582,456 $724,672 
YTD Gross chargeoffs$0 $0 $7 $0 $0 $84 $91 $0 $91 
Installment
Performing$3,282 $94,791 $34,611 $6,118 $3,141 $5,319 $147,262 $55,284 $202,546 
Nonperforming1 666 590 30 71 32 1,390 436 1,826 
Total$3,283 $95,457 $35,201 $6,148 $3,212 $5,351 $148,652 $55,720 $204,372 
YTD Gross chargeoffs$0 $710 $769 $33 $0 $12 $1,524 $0 $1,524 
Credit cards
Performing$0 $0 $0 $0 $0 $0 $0 $53,393 $53,393 
Nonperforming0 0 0 0 0 0 0 159 159 
Total$0 $0 $0 $0 $0 $0 $0 $53,552 $53,552 
YTD Gross chargeoffs$0 $0 $0 $0 $0 $0 $0 $217 $217 
The following table sets forth the Company's loan portfolio at December 31, 2022 by risk attribute and origination date:
(Dollars in thousands)20222021202020192018PriorTerm TotalRevolvingTotal
Commercial & industrial
Pass$879,836 $561,890 $348,123 $209,758 $112,282 $206,656 $2,318,545 $971,080 $3,289,625 
Special mention2,740 13,821 4,125 14,047 8,523 5,544 48,800 18,055 66,855 
Substandard2,335 5,176 11,886 8,016 3,331 13,812 44,556 9,236 53,792 
Total$884,911 $580,887 $364,134 $231,821 $124,136 $226,012 $2,411,901 $998,371 $3,410,272 
Lease financing
Pass$167,035 $25,638 $13,705 $12,797 $9,402 $2,930 $231,507 $0 $231,507 
Special mention007000070070 
Substandard4,363001641194,54704,547
Total$171,398 $25,638 $13,775 $12,961 $9,413 $2,939 $236,124 $0 $236,124 
Construction real estate
Pass$89,116 $276,639 $96,823 $4,902 $390 $353 $468,223 $23,266 $491,489 
Special mention0 14,395 0 0 6,166 0 20,561 0 20,561 
Substandard0 0 0 0 0 0 0 0 0 
Total$89,116 $291,034 $96,823 $4,902 $6,556 $353 $488,784 $23,266 $512,050 
Commercial real estate - investor
Pass$643,174 $470,085 $301,510 $719,699 $300,772 $508,639 $2,943,879 $26,153 $2,970,032 
Special mention0 13,090 23,111 9,297 26,079 13,804 85,381 861 86,242 
Substandard0 6,950 6 4,025 17,178 9,631 37,790 0 37,790 
Total$643,174 $490,125 $324,627 $733,021 $344,029 $532,074 $3,067,050 $27,014 $3,094,064 
Commercial real estate - owner
Pass$165,411 $155,041 $170,587 $101,137 $112,063 $211,377 $915,616 $11,125 $926,741 
Special mention0 0 0 1,479 0 14,040 15,519 0 15,519 
Substandard0 525 844 5,114 3,501 6,451 16,435 0 16,435 
Doubtful0 0 0 0 0 0 0 0 0 
Total$165,411 $155,566 $171,431 $107,730 $115,564 $231,868 $947,570 $11,125 $958,695 
Residential real estate
Performing$320,676 $274,816 $205,948 $110,745 $51,583 $114,642 $1,078,410 $0 $1,078,410 
Nonperforming414 1,615 1,286 2,554 1,755 6,231 13,855 0 13,855 
Total$321,090 $276,431 $207,234 $113,299 $53,338 $120,873 $1,092,265 $0 $1,092,265 
Home equity
Performing$26,411 $33,414 $38,226 $11,733 $8,051 $24,985 $142,820 $585,712 $728,532 
Nonperforming5 136 298 78 104 430 1,051 4,208 5,259 
Total$26,416 $33,550 $38,524 $11,811 $8,155 $25,415 $143,871 $589,920 $733,791 
Installment
Performing$100,256 $38,694 $7,244 $3,915 $2,861 $3,242 $156,212 $51,854 $208,066 
Nonperforming650 794 18 6 20 42 1,530 299 1,829 
Total$100,906 $39,488 $7,262 $3,921 $2,881 $3,284 $157,742 $52,153 $209,895 
Credit cards
Performing$0 $0 $0 $0 $0 $0 $0 $51,287 $51,287 
Nonperforming0 0 0 0 0 0 0 528 528 
Total$0 $0 $0 $0 $0 $0 $0 $51,815 $51,815 
Grand Total$2,402,422 $1,892,719 $1,223,810 $1,219,466 $664,072 $1,142,818 $8,545,307 $1,753,664 $10,298,971 
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, 2023
(Dollars in thousands)30 – 59
days
past due		60 – 89
days
past due		> 89 days
past due		Total
past
due		CurrentTotal> 89 days
past due
and still
accruing
Loans       
Commercial & industrial$2,604 $607 $540 $3,751 $3,445,538 $3,449,289 $0 
Lease financing20,776 1,446 101 22,323 251,575 273,898 0 
Construction real estate0 0 0 0 525,906 525,906 0 
Commercial real estate-investor18 5 0 23 3,102,422 3,102,445 0 
Commercial real estate-owner67 85 5,258 5,410 948,772 954,182 0 
Residential real estate3,341 1,639 2,610 7,590 1,137,479 1,145,069 0 
Home equity1,680 472 1,810 3,962 720,710 724,672 0 
Installment795 555 371 1,721 202,651 204,372 0 
Credit card175 122 160 457 53,095 53,552 159 
Total$29,456 $4,931 $10,850 $45,237 $10,388,148 $10,433,385 $159 

 As of December 31, 2022
(Dollars in thousands)30 – 59
days
past due		60 – 89
days
past due		> 89 days
past due		Total
past
due		CurrentTotal> 89 days
past due
and still
accruing
Loans       
Commercial & industrial$5,375 $72 $501 $5,948 $3,404,324 $3,410,272 $0 
Lease financing5,212 1,052 843 7,107 229,017 236,124 742 
Construction real estate0 0 0 0 512,050 512,050 0 
Commercial real estate-investor0 0 0 0 3,094,064 3,094,064 0 
Commercial real estate-owner26 5,216 44 5,286 953,409 958,695 0 
Residential real estate4,254 2,074 3,260 9,588 1,082,677 1,092,265 0 
Home equity1,725 729 1,209 3,663 730,128 733,791 0 
Installment874 490 414 1,778 208,117 209,895 0 
Credit card261 150 116 527 51,288 51,815 115 
Total$17,727 $9,783 $6,387 $33,897 $10,265,074 $10,298,971 $857 

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.

Financial Difficulty Modifications. Effective January 1, 2023, First Financial prospectively adopted ASU 2022-02 which eliminated the accounting for TDRs while establishing a new standard for the treatment of modifications made to borrowers experiencing financial difficulties, defined by First Financial as FDMs or Financial Difficulty Modifications. As such, effective with the adoption of the standard, the Company prospectively will not include FDMs in the calculation of nonperforming loans, nonperforming assets or classified assets. Prior period data, which included TDRs, has not been adjusted.

FDM might result when a borrower is in financial distress and may be in the form of principal forgiveness, an interest rate reduction, a term extension or an other-than-insignificant payment delay. In some cases, the Company might provide multiple types of modifications for a single loan. One type of modification, such as delay, may be granted initially. However, if the borrower continues to experience financial difficulty, another modification, such as term extension and/or interest rate reduction might be granted. Loans included in the "combination" column in the table that follows have more than one modification made to the same loan within the current reporting period. Additionally, modifications with a term extension or interest rate reduction
are intended to reduce the borrower’s monthly payment, while modifications with a payment delay, which typically allow borrowers to make monthly payments, interest only payments for a period of time, are structured to cure the payment defaults by making delinquent payments due at maturity. Payment deferrals may be up to one year and have minimal financial impact since the deferred payments are paid at maturity.

The following table provides the amortized cost basis of FDM as of March 31, 2023 by class of loan and type of modification:
March 31, 2023
(Dollars in thousands)Principal forgivenessPayment delayTerm extensionInterest rate reductionCombination: Term extension and interest rate reductionTotalPercent of total class of loans
Residential real estate$0 $725 $106 $0 $58 $889 0.08 %
Home equity0 0 0 0 15 150.00 %
Total$0 $725 $106 $0 $73 $904 0.08 %

The following table provides the financial effect of FDM as of March 31, 2023:
March 31, 2023
(Dollars in thousands)Principal forgivenessWeighted average interest rate reductionWeighted average term extension
Residential real estate$0 2.00 %11.6 years
Home equity0 0.31 %22.6 years
Total$0 1.66 %12.5 years

The Company has committed to lend no additional amounts to the borrowers experiencing financial difficulty. Additionally, there were no loan modifications made to borrowers experiencing financial difficulty during the quarter ended March 31, 2023, that subsequently defaulted.

The Company closely monitors the performance of FDM to understand the effectiveness of its modification efforts. The following table provides the performance of loans that have been modified since the January 1, 2023 adoption date of ASU 2022-02:
Payment status as of
March 31, 2023
(Dollars in thousands)Current30 – 59 days past due60 – 89 days past due> 89 days past due
Residential real estate$889 $0 $0 $0 
Home equity15 0 0 0 
Total$904 $0 $0 $0 

Nonperforming loans. Effective January 1, 2023, loans classified as nonaccrual are considered nonperforming. Prior to the adoption of ASU 2022-02, nonperforming loans included nonaccrual loans as well as TDRs.

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.
The following table provides information on nonperforming loans:

March 31, 2023December 31, 2022
(Dollars in thousands)Nonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrualNonaccrual loans with a related ACLNonaccrual loans with no related ACLTotal nonaccrual
Nonaccrual loans (1)
  
Commercial & industrial$9,748 $4,223 $13,971 $6,692 $1,550 $8,242 
Lease financing0 175 175 0 178 178 
Construction real estate0 0 0 0 0 0 
Commercial real estate0 5,362 5,362 5,216 570 5,786 
Residential real estate0 11,129 11,129 0 10,691 10,691 
Home equity0 3,399 3,399 0 3,123 3,123 
Installment0 544 544 0 603 603 
Total nonaccrual loans$9,748 $24,832 $34,580 $11,908 $16,715 $28,623 
(1) Nonaccrual loans include nonaccrual TDRs of $10.0 million as of December 31, 2022.

Three months ended
March 31,
(Dollars in thousands)20232022
Interest income effect on nonperforming loans
Gross amount of interest that would have been recorded under original terms$716 $773 
Interest included in income
Nonaccrual loans308 290 
Troubled debt restructurings0 51 
Total interest included in income308 341 
Net impact on interest income$408 $432 
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, 2023
Type of Collateral
(Dollar in thousands)Business
assets		Commercial real estateEquipmentLandResidential real estateOtherTotal
Class of loan
Commercial & industrial$11,054 $0 $2,569 $0 $0 $348 $13,971 
Lease financing00 175 0 0 0 175 
Commercial real estate-investor05 0 0 20 0 25 
Commercial real estate-owner03,326 1,893 118 0 0 5,337 
Residential real estate00 0 0 11,129 0 11,129 
Home equity00003,399 0 3,399 
Installment00000 544 544 
Total$11,054 $3,331 $4,637 $118 $14,548 $892 $34,580 
December 31, 2022
Type of Collateral
(Dollar in thousands)Business
assets		Commercial real estateEquipmentLandResidential real estateOtherTotal
Class of loan
Commercial & industrial$8,205 $0 $0 $0 $0 $37 $8,242 
Lease financing00 178 0 0 0 178 
Commercial real estate-investor0353 0 0 22 0 375 
Commercial real estate-owner03,399 1,893 119 0 0 5,411 
Residential real estate00 0 0 10,691 0 10,691 
Home equity00003,123 0 3,123 
Installment00000 603 603 
Total$8,205 $3,752 $2,071 $119 $13,836 $640 $28,623 

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. Payments are generally fixed, however, in some agreements, lease payments may be indexed to a rate or index. 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.
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, 2023December 31, 2022
Direct financing leases
Lease receivables$31,978 $35,081 
Unguaranteed residual values14,387 16,058 
Sales-type leases
Lease receivables227,533 184,985 
Unguaranteed residual values0 0 
Total net investment in direct financing and sales-type leases$273,898 $236,124 

Interest income for direct financing and sales-type leases was $4.9 million and $0.5 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

The remaining maturities of lease receivables were as follows:
(Dollars in thousands)Direct financing and Sales-type
Remainder of 2023$51,984 
202463,846 
202556,909 
202652,425 
202729,928 
Thereafter41,426 
Total lease payments296,518 
Less: unearned interest income(37,007)
Net lease receivables$259,511 

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)20232022
Balance at beginning of period$191 $98 
Additions
Commercial & industrial0 0 
Residential real estate0 72 
Total additions0 72 
Disposals 
Commercial & industrial0 (98)
Residential real estate0 0 
Total disposals0 (98)
Valuation adjustment 
Commercial & industrial0 0 
Residential real estate0 0 
Total valuation adjustment0 0 
Balance at end of period$191 $72