FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

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

For the quarterly period ended September 30, ~~2013~~2014

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

For the transition period from ____________________ to ____________________

Commission file number ~~0-12379~~001-34762

FIRST FINANCIAL BANCORP.

(Exact name of registrant as specified in its charter)



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

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

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

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

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

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



Large accelerated filer x	Accelerated filer o

Non-accelerated filer o	Smaller reporting company o

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

Yes o No x

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



Class		Outstanding at November 5, ~~2013~~2014
Common stock, No par value		~~57,652,925~~61,372,311

Table of Contents

FIRST FINANCIAL BANCORP.

INDEX



	Page No.

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Balance Sheets ~~- September~~-September 30, ~~2013~~2014 (unaudited) and December 31, ~~2012~~2013	1

Consolidated Statements of Income - Three and Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013 (unaudited)	2

Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013 (unaudited)	3

Consolidated Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013 (unaudited)	4

Consolidated Statements of Cash Flows - Nine Months Ended September 30, ~~2013~~2014 and ~~2012~~2013 (unaudited)	5

Notes to Consolidated Financial Statements (unaudited)	6

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	3938

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	57

Item 4 - Controls and Procedures	58

Part II - OTHER INFORMATION

Item 1 - Legal Proceedings	59

Item 1A - Risk Factors	59

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 6 - Exhibits	61

Signatures	62

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM I - FINANCIAL STATEMENTS

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	September 30, 2013			December 31, 2012			September 30, 2014			December 31, 2013
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	177,698		$	134,502		$	121,360		$	117,620
Interest-bearing deposits with other banks	10,414			24,341			22,365			25,830
Investment securities available-for-sale, at market value (cost $875,928 at September 30, 2013 and $1,017,104 at December 31, 2012)	854,747			1,032,096
Investment securities held-to-maturity (market value $661,685 at September 30, 2013 and $778,474 at December 31, 2012)	669,093			770,755
Investment securities available-for-sale, at market value (cost $944,217 at September 30, 2014 and $945,052 at December 31, 2013)							929,594			913,601
Investment securities held-to-maturity (market value $901,659 at September 30, 2014 and $824,985 at December 31, 2013)							900,521			837,272
Other investments	75,945			71,492			49,986			47,427
Loans held for sale	10,704			16,256			16,816			8,114
Loans
Commercial	960,016			861,033			1,304,782			1,035,668
Real estate-construction	90,089			73,517			193,776			80,741
Real estate-commercial	1,493,969			1,417,008			1,952,055			1,496,987
Real estate-residential	352,830			318,210			426,558			352,931
Installment	49,273			56,810			47,561			47,133
Home equity	373,839			367,500			416,099			376,454
Credit card	34,285			34,198			35,925			35,592
Lease financing	76,615			50,788			73,216			80,135
Total loans - excluding covered loans	3,430,916			3,179,064			4,449,972			3,505,641
Less: Allowance for loan and lease losses - uncovered	45,514			47,777			42,454			43,829
Net loans - excluding covered loans	3,385,402			3,131,287			4,407,518			3,461,812
Covered loans	518,524			748,116			332,265			457,873
Less: Allowance for loan and lease losses - covered	23,259			45,190			11,535			18,901
Net loans – covered	495,265			702,926
Net loans - covered							320,730			438,972
Net loans	3,880,667			3,834,213			4,728,248			3,900,784
Premises and equipment	139,125			146,716			141,851			137,110
Goodwill	95,050			95,050			137,458			95,050
Other intangibles	6,249			7,648			8,542			5,924
FDIC indemnification asset	78,132			119,607			24,160			45,091
Accrued interest and other assets	255,617			244,372			272,568			283,390
Total assets	$	6,253,441		$	6,497,048		$	7,353,469		$	6,417,213

Liabilities
Deposits
Interest-bearing	$	1,068,067		$	1,160,815		$	1,214,726		$	1,125,723
Savings	1,593,895			1,623,614			1,827,590			1,612,005
Time	926,029			1,068,637			1,247,334			952,327
Total interest-bearing deposits	3,587,991			3,853,066			4,289,650			3,690,055
Noninterest-bearing	1,141,016			1,102,774			1,243,367			1,147,452
Total deposits	4,729,007			4,955,840			5,533,017			4,837,507
Federal funds purchased and securities sold under agreements to repurchase	105,472			122,570			113,303			94,749
Federal Home Loan Bank short-term borrowings	518,200			502,000			806,000			654,000
Total short-term borrowings	623,672			624,570			919,303			748,749
Long-term debt	61,088			75,202			52,656			60,780
Total borrowed funds	684,760			699,772			971,959			809,529
Accrued interest and other liabilities	147,635			131,011			74,581			88,016
Total liabilities	5,561,402			5,786,623			6,579,557			5,735,052

Shareholders' equity
Common stock - no par value
Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2013 and 2012	577,429			579,293
Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2014 and 2013							574,209			577,076
Retained earnings	328,993			330,004			344,118			324,192
Accumulated other comprehensive loss	(29,294		)	(18,677		)	(20,888		)	(31,281		)
Treasury stock, at cost, 11,028,287 shares in 2013 and 10,684,496 shares in 2012	(185,089		)	(180,195		)
Treasury stock, at cost, 7,362,258 shares in 2014 and 11,197,685 shares in 2013							(123,527		)	(187,826		)
Total shareholders' equity	692,039			710,425			773,912			682,161
Total liabilities and shareholders' equity	$	6,253,441		$	6,497,048		$	7,353,469		$	6,417,213

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(Unaudited)


	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
	2013			2012			2013			2012			2014			2013			2014			2013
Interest income
Loans, including fees	$	52,908		$	59,536		$	163,955		$	189,362		$	53,725		$	52,908		$	151,749		$	163,955
Investment securities
Taxable	8,267			8,358			24,938			29,254			10,227			8,267			31,019			24,938
Tax-exempt	541			111			1,681			366			894			541			2,500			1,681
Total interest on investment securities	8,808			8,469			26,619			29,620			11,121			8,808			33,519			26,619
Other earning assets	(2,185		)	(1,700		)	(5,213		)	(5,657		)	(1,455		)	(2,185		)	(4,162		)	(5,213		)
Total interest income	59,531			66,305			185,361			213,325			63,391			59,531			181,106			185,361
Interest expense
Deposits	2,856			5,730			10,000			19,827			4,218			2,856			11,140			10,000
Short-term borrowings	286			54			920			103			354			286			975			920
Long-term borrowings	617			675			1,925			2,030			456			617			1,505			1,925
Total interest expense	3,759			6,459			12,845			21,960			5,028			3,759			13,620			12,845
Net interest income	55,772			59,846			172,516			191,365			58,363			55,772			167,486			172,516
Provision for loan and lease losses - uncovered	1,413			3,613			6,863			15,235			1,093			1,413			2,281			6,863
Provision for loan and lease losses - covered	5,293			6,622			6,052			25,620			(200		)	5,293			(2,805		)	6,052
Net interest income after provision for loan and lease losses	49,066			49,611			159,601			150,510			57,470			49,066			168,010			159,601

Noninterest income
Service charges on deposit accounts	5,447			5,499			15,369			15,784			5,263			5,447			15,172			15,369
Trust and wealth management fees	3,366			3,374			10,813			10,542			3,207			3,366			10,258			10,813
Bankcard income	2,637			2,387			8,215			7,502			2,859			2,637			8,101			8,215
Net gains from sales of loans	751			1,319			2,546			3,391			1,660			751			2,793			2,546
Gains on sales of investment securities	0			2,617			1,724			2,617			0			0			50			1,724
FDIC loss sharing income	5,555			8,496			7,105			29,592			(192		)	5,555			408			7,105
Accelerated discount on covered loans	1,711			3,798			5,581			11,207			789			1,711			2,425			5,581
Other	2,824			3,340			9,251			15,665			2,925			2,824			7,816			9,251
Total noninterest income	22,291			30,830			60,604			96,300			16,511			22,291			47,023			60,604

Noninterest expenses
Salaries and employee benefits	23,834			27,212			77,379			85,121			28,686			23,834			79,562			77,379
Pension settlement charges	1,396			0			5,712			0			0			1,396			0			5,712
Net occupancy	5,101			5,153			16,650			15,560			4,577			5,101			14,381			16,650
Furniture and equipment	2,213			2,332			6,834			6,899			2,265			2,213			6,325			6,834
Data processing	2,584			2,334			7,612			6,311			4,393			2,584			10,021			7,612
Marketing	1,192			1,592			3,271			3,984			939			1,192			2,555			3,271
Communication	865			788			2,479			2,595			541			865			1,726			2,479
Professional services	1,528			1,304			5,095			5,602			1,568			1,528			4,741			5,095
State intangible tax	1,010			961			3,028			2,957			648			1,010			1,936			3,028
FDIC assessments	1,107			1,164			3,380			3,597			1,126			1,107			3,334			3,380
Loss (gain) - other real estate owned	184			1,372			902			2,681			844			184			1,575			902
Loss (gain) - covered other real estate owned	204			(25		)	(2,165		)	2,500			(1,433		)	204			(1,002		)	(2,165		)
Loss sharing expense	1,724			3,584			5,588			8,420			1,002			1,724			4,036			5,588
Other	5,859			7,515			19,425			22,296			6,263			5,859			17,182			19,425
Total noninterest expenses	48,801			55,286			155,190			168,523			51,419			48,801			146,372			155,190
Income before income taxes	22,556			25,155			65,015			78,287			22,562			22,556			68,661			65,015
Income tax expense	7,645			8,913			20,451			27,249			7,218			7,645			22,260			20,451
Net income	$	14,911		$	16,242		$	44,564		$	51,038		$	15,344		$	14,911		$	46,401		$	44,564

Net earnings per common share - basic	$	0.26		$	0.28		$	0.78		$	0.88		$	0.26		$	0.26		$	0.80		$	0.78
Net earnings per common share - diluted	$	0.26		$	0.28		$	0.77		$	0.87		$	0.26		$	0.26		$	0.79		$	0.77
Cash dividends declared per share	$	0.27		$	0.30		$	0.79		$	0.90		$	0.15		$	0.27		$	0.45		$	0.79
Average common shares outstanding - basic	57,201,390			57,976,943			57,309,934			57,902,102			59,403,109			57,201,390			57,907,203			57,309,934
Average common shares outstanding - diluted	58,012,588			58,940,179			58,143,372			58,930,570			60,112,932			58,012,588			58,639,394			58,143,372

See Notes to Consolidated Financial Statements.

Table of Contents

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

	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
	2013			2012			2013			2012			2014			2013			2014			2013
Net income	$	14,911		$	16,242		$	44,564		$	51,038		$	15,344		$	14,911		$	46,401		$	44,564
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities arising during the period	(4,003		)	(934		)	(22,570		)	1,662			(256		)	(4,003		)	10,077			(22,570		)
Change in retirement obligation	1,166			419			11,976			1,129			189			1,166			663			11,976
Unrealized gain (loss) on derivatives	(818		)	(182		)	(2		)	(182		)	760			(818		)	(334		)	(2		)
Unrealized gain (loss) on foreign currency exchange	6			14			(21		)	26			(12		)	6			(13		)	(21		)
Other comprehensive income (loss)	(3,649		)	(683		)	(10,617		)	2,635			681			(3,649		)	10,393			(10,617		)
Comprehensive income	$	11,262		$	15,559		$	33,947		$	53,673		$	16,025		$	11,262		$	56,794		$	33,947

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Dollars in thousands except per share data)

(Unaudited)



	Common Stock	Common Stock			Retained			Accumulated other comprehensive			Treasury stock								Common Stock	Common Stock			Retained			Accumulated other comprehensive			Treasury stock
	Shares	Amount			Earnings			income (loss)			Shares		Amount			Total			Shares	Amount			Earnings			income (loss)			Shares		Amount			Total
Balance at January 1, 2012	68,730,731	$	579,871		$	331,351		$	(21,490	)	(10,463,677	)	$	(177,511	)	$	712,221
Net income					51,038											51,038
Other comprehensive income (loss)								2,635								2,635
Cash dividends declared:
Common stock at $0.90 per share					(52,375		)									(52,375		)
Excess tax benefit on share-based compensation		417														417
Exercise of stock options, net of shares purchased		(1,193		)							71,391		1,211			18
Restricted stock awards, net of forfeitures		(4,053		)							172,471		2,978			(1,075		)
Share-based compensation expense		3,087														3,087
Balance at September 30, 2012	68,730,731	$	578,129		$	330,014		$	(18,855	)	(10,219,815	)	$	(173,322	)	$	715,966
Balance at January 1, 2013	68,730,731	$	579,293		$	330,004		$	(18,677	)	(10,684,496	)	$	(180,195	)	$	710,425		68,730,731	$	579,293		$	330,004		$	(18,677	)	(10,684,496	)	$	(180,195	)	$	710,425
Net income					44,564											44,564							44,564											44,564
Other comprehensive income (loss)								(10,617		)						(10,617		)								(10,617		)						(10,617		)
Cash dividends declared:
Common stock at $0.79 per share					(45,575		)									(45,575		)					(45,575		)									(45,575		)
Purchase of common stock											(540,400	)	(8,339		)	(8,339		)											(540,400	)	(8,339		)	(8,339		)
Excess tax benefit on share-based compensation		133														133				133														133
Exercise of stock options, net of shares purchased		(1,016		)							44,105		741			(275		)		(1,016		)							44,105		741			(275		)
Restricted stock awards, net of forfeitures		(4,030		)							152,504		2,704			(1,326		)		(4,030		)							152,504		2,704			(1,326		)
Share-based compensation expense		3,049														3,049				3,049														3,049
Balance at September 30, 2013	68,730,731	$	577,429		$	328,993		$	(29,294	)	(11,028,287	)	$	(185,089	)	$	692,039		68,730,731	$	577,429		$	328,993		$	(29,294	)	(11,028,287	)	$	(185,089	)	$	692,039
Balance at January 1, 2014																			68,730,731	$	577,076		$	324,192		$	(31,281	)	(11,197,685	)	$	(187,826	)	$	682,161
Net income																							46,401											46,401
Other comprehensive income (loss)																										10,393								10,393
Cash dividends declared:
Common stock at $0.45 per share																							(26,475		)									(26,475		)
Purchase of common stock																													(40,255	)	(697		)	(697		)
Common stock issued in connection with business combinations																				(946		)							3,657,937		61,375			60,429
Excess tax benefit on share-based compensation																				149														149
Exercise of stock options, net of shares purchased																				(771		)							36,830		616			(155		)
Restricted stock awards, net of forfeitures																				(4,191		)							180,915		3,005			(1,186		)
Share-based compensation expense																				2,892														2,892
Balance at September 30, 2014																			68,730,731	$	574,209		$	344,118		$	(20,888	)	(7,362,258	)	$	(123,527	)	$	773,912

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Nine months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2014			2013
Operating activities
Net income	$	44,564		$	51,038		$	46,401		$	44,564
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	12,915			40,855			(524		)	12,915
Depreciation and amortization	11,057			11,812			9,465			11,057
Stock-based compensation expense	3,049			3,087			2,892			3,049
Pension expense (income)	5,309			(392		)
Pension (income) expense							(853		)	5,309
Net amortization of premiums/accretion of discounts on investment securities	11,327			8,461			5,523			11,327
Gains on sales of investment securities	(1,724		)	(2,617		)	(50		)	(1,724		)
Originations of loans held for sale	(126,881		)	(173,115		)	(93,561		)	(126,881		)
Net gains from sales of loans held for sale	(2,546		)	(3,391		)	(2,793		)	(2,546		)
Proceeds from sales of loans held for sale	131,979			175,180			85,977			131,979
Deferred income taxes	(5,621		)	(10,618		)	(20,137		)	(5,621		)
(Increase) decrease in interest receivable	(462		)	2,896
(Increase) decrease in cash surrender value of life insurance	(3,781		)	1,845
(Increase) decrease in prepaid expenses	(2,688		)	2,758
Increase in interest receivable							(2,849		)	(462		)
Increase in cash surrender value of life insurance							(4,608		)	(3,781		)
Increase in prepaid expenses							(2,303		)	(2,688		)
Decrease in indemnification asset	41,475			42,533			20,931			41,475
Decrease in accrued expenses	(6,013		)	(4,447		)	(5,515		)	(6,013		)
Decrease in interest payable	(418		)	(1,281		)	(72		)	(418		)
Other	13,699			2,438			5,917			13,699
Net cash provided by operating activities	125,240			147,042			43,841			125,240

Investing activities
Proceeds from sales of securities available-for-sale	92,684			57,663			92,573			92,684
Proceeds from calls, paydowns and maturities of securities available-for-sale	160,460			209,399			75,691			160,460
Purchases of securities available-for-sale	(109,816		)	(465,303		)	(142,307		)	(109,816		)
Proceeds from calls, paydowns and maturities of securities held-to-maturity	134,089			98,283			74,392			134,089
Purchases of securities held-to-maturity	(13,476		)	0			(140,426		)	(13,476		)
Net decrease in interest-bearing deposits with other banks	13,927			353,903			3,465			13,927
Net increase in loans and leases - excluding covered loans	(261,546		)	(121,810		)	(343,050		)	(261,546		)
Net decrease in covered assets	180,074			191,069			116,701			180,074
Proceeds from disposal of other real estate owned	23,590			30,017			28,713			23,590
Purchases of premises and equipment	(6,017		)	(18,605		)	(7,591		)	(6,017		)
Net cash provided by investing activities	213,969			334,616
Net cash acquired from business combinations							34,300			0
Net cash (used in) provided by investing activities							(207,539		)	213,969

Financing activities
Net decrease in total deposits	(226,833		)	(698,229		)
Net (decrease) increase in short-term borrowings	(898		)	271,759
Net increase (decrease) in total deposits							126,905			(226,833		)
Net increase (decrease) in short-term borrowings							95,663			(898		)
Payments on long-term borrowings	(14,093		)	(1,002		)	(28,930		)	(14,093		)
Cash dividends paid on common stock	(45,983		)	(50,392		)	(25,717		)	(45,983		)
Treasury stock purchase	(8,339		)	0			(697		)	(8,339		)
Proceeds from exercise of stock options	0			317			65			0
Excess tax benefit on share-based compensation	133			417			149			133
Net cash used in financing activities	(296,013		)	(477,130		)
Net cash provided by (used in) financing activities							167,438			(296,013		)

Cash and due from banks:
Net increase in cash and due from banks	43,196			4,528			3,740			43,196
Cash and due from banks at beginning of period	134,502			149,653			117,620			134,502
Cash and due from banks at end of period	$	177,698		$	154,181		$	121,360		$	177,698

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

See Notes to Consolidated Financial Statements.

Table of Contents

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, ~~2013~~2014

(Unaudited)

NOTE 1: BASIS OF PRESENTATION

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

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

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and serve to update the First Financial Bancorp. Annual Report on Form 10-K (Form 10-K) for the year ended December 31, ~~2012~~2013. These interim financial statements may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and accordingly should be read in conjunction with the financial information contained in the Form 10-K. Management believes these unaudited consolidated financial statements reflect all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. The Consolidated Balance Sheet as of December 31, ~~2012~~2013, has been derived from the audited financial statements in the Company’s ~~2012~~2013 Form 10-K.

NOTE 2: RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

In ~~December 2011,~~January 2014, the FASB issued an update (ASU ~~2011-11, Disclosures About Offsetting Assets~~2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure) which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be de-recognized and ~~Liabilities) which creates new disclosure requirements about~~ the ~~nature of an entity's rights of offset and related arrangements associated with its financial instruments and derivative instruments. These~~ ~~disclosure requirements are required for~~real estate property recognized financial and derivative instruments that are offset in accordance with the guidance in FASB ASC Topic 210-20-45, Balance Sheet - Offsetting - Other Presentation Matters, FASB ASC Topic 815-10-45, Derivatives and Hedging - Other Presentation Matters, or are ~~subject to an enforceable master netting arrangement or similar agreement. Subsequently, the FASB issued ASU 2013-01,~~ ~~Scope Clarification of Disclosures about Offsetting Assets and Liabilities,~~ ~~which limits the scope of ASU 2011-11 to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and lending transactions~~.~~Companies are~~ required to disclose information to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on its financial position, including the effect or potential effect of rights of set-off associated with certain financial instruments and derivative instruments. The provisions of ASU ~~2011-11 became~~2014-04 become effective for First Financial for the interim reporting period ended March 31, ~~2013 and resulted in additional disclosures related to the Company's derivatives programs.~~ ~~For further detail, see Note 6 - Derivatives.~~

~~In July 2012, the FASB issued an update (ASU 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment) which allows~~ ~~an entity testing an indefinite-lived intangible asset for impairment the option of performing a qualitative assessment before calculating the fair value of the asset.~~ ~~This update also addresses circumstances that a company should consider in interim periods, but~~2015. First Financial does not ~~remove the requirement for testing of~~ ~~indefinite-lived intangible assets~~ ~~for impairment annually and between annual tests if there is a change in events and circumstances. The provisions of ASU 2012-02~~ ~~became effective for the interim reporting period ended March 31, 2013 and did not~~anticipate this update will have a material impact on ~~the Company's~~its Consolidated Financial Statements.

In ~~October 2012,~~April 2014, the FASB issued an update (ASU ~~2012-06, Business Combinations (Topic 805):~~ ~~Subsequent Accounting~~2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity) which redefines what constitutes a discontinued operation. Under the revised standard, a discontinued operation is a component of an entity or group of components that has been disposed of by sale, disposed of other than by sale or is classified as held for sale, that represents a strategic shift that has or will have a major effect on an ~~Indemnification Asset Recognized at~~entity’s operations and financial results or an acquired business or nonprofit activity that is classified as held for sale on the ~~Acquisition Date as~~date of the acquisition. A strategic shift that has or will have a ~~Result~~major effect on an entity’s operations and financial results could include the disposal of a ~~Government-Assisted Acquisition~~major line of business, a major geographic area, a major equity method investment or other major parts of an entity. The new guidance eliminates the criteria prohibiting an entity from reporting a discontinued operation if it has certain continuing cash flows or involvement with the component after the disposal and requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The provisions of ASU 2014-08 become effective for all interim and annual periods subsequent to January 1, 2015. First Financial ~~Institution)~~does not anticipate this update will have a material impact on its Consolidated Financial Statements.

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

Table of Contents

subject to indemnification), the company should subsequently account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the contractual term of the indemnification agreement (that is, the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets).requires significantly expanded disclosures about revenue recognition. The provisions of ASU ~~2012-06 became~~2014-09 become effective for interim and annual reporting periods beginning after December 15, 2016. Early application is not permitted. First Financial is currently evaluating the ~~interim reporting period ended March 31, 2013 and did not~~ ~~have a material~~ impact of this update on ~~the Company's~~its Consolidated Financial Statements.

~~On February 5, 2013,~~In June 2014, the FASB issued an update (ASU ~~2013-02,Reporting~~2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures) that requires repurchase-to-maturity transactions to be accounted for as secured borrowings rather than as sales with a forward repurchase commitment and eliminates current guidance on repurchase financings. The ASU requires separate accounting for a transfer of ~~Amounts Reclassified Out of Accumulated Other Comprehensive Income (AOCI))~~ ~~which~~a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. If the derecognition criteria are met, the initial transfer will generally be accounted for as a sale and the repurchase agreement will generally be accounted for as a secured borrowing. The ASU requires ~~preparers to report in one place information about reclassifications out of AOCI.~~new disclosures for repurchase agreements, securities lending transactions and repurchase-to-maturity transactions that are accounted for as secured borrowings. The ASU also requires ~~companies~~new disclosures for transfers of financial assets that are accounted for as sales that involve an agreement with the transferee entered into in contemplation of the initial transfer that result in the transferor retaining substantially all of the exposure to ~~report changes in AOCI balances and~~ ~~expands~~ the disclosure requirements in FASB ASC Topic 220, Comprehensive Income (ASC 220), for presentation of changes in AOCI. This ASU requires companies to disaggregate the total change of each component of other comprehensive income and separately present (1) reclassification adjustments and (2) current-period OCI. ASU 2013-02 also requires companies to present information about significant items reclassified out of AOCI by component either (1)economic return on the ~~face~~transferred financial assets throughout the term of the ~~statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements.~~transaction. The provisions of ASU ~~2013-02 became~~2014-11 become effective for all interim and annual periods subsequent to December 15, 2014. Early adoption is prohibited. First Financial is currently evaluating the interim reporting period ended March 31, 2013 and resulted in additional disclosures related to reclassifications from AOCI. For further detail, see Note 14 - Accumulated Other Comprehensive Income (Loss).impact of this update on its Consolidated Financial Statements.

~~On July 17, 2013,~~In August 2014, the FASB issued an update (ASU ~~2013-10,~~ ~~Derivatives~~2014-14, Receivables - Troubled Debt Restructurings by Creditors: Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure) that requires a mortgage loan be derecognized and ~~Hedging (Topic 815): Inclusion~~a separate other receivable be recognized upon foreclosure if the following conditions are met: a) the loan has a government guarantee that is not separable from the loan before foreclosure, b) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and c) at the time of foreclosure, any amount of the ~~Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes) which~~ ~~amends FASB ASC Topic 815, Disclosures about Derivatives and Hedging Activities (ASC 815), to allow entities to use~~claim that is determined on the ~~Fed Funds Effective Swap Rate, which is~~basis of the ~~Overnight Index Swap rate, or OIS, in the U.S., in addition to U.S. Treasury rates and LIBOR, as a benchmark interest rate in accounting for~~ fair value ~~and cash flow hedges in the United States.~~ ~~Companies can designate the Fed Funds Effective Swap Rate as a benchmark interest rate on a prospective basis in new or redesignated hedging relationships as~~ of the ~~date~~real estate is fixed. Upon foreclosure, the ~~final guidance was issued. Existing interest rate swaps designated as benchmark interest rate hedges must~~separate other receivable should be redesignated in new hedge relationships with new hedge documentation if a company wants to change the hedged risk to the OIS rate. The FASB also eliminated the restriction in ASC 815 on designating different benchmark interest rate hedges for “similar hedges.” The provisions of ASU 2013-10 are effective prospectively for qualifying new hedging relationships entered into on or after July 17, 2013, and did not ~~have a material impact~~measured based on the ~~Company's Consolidated Financial Statements.~~

On July 18, 2013, the FASB issued an update (ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists) which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction asamount of the ~~reporting date.~~loan balance (principal and interest) expected to be recovered from the guarantor. The ~~provisions of~~amendments in this ASU ~~2013-11~~ become effective for ~~the~~all interim ~~reporting period ending March 31,~~and annual periods subsequent to December 15, 2014. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

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

NOTE 3: ~~GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~Goodwill.~~ Assets and liabilities of acquired entities are recorded at their estimated fair values as of the acquisition date. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. Goodwill is not amortized, but is measured for impairment on an annual basis as of October 1 of each year or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. First Financial performed its most recent annual impairment test as of October 1, 2012 and no impairment was indicated. As of ~~September 30, 2013, no events or changes in circumstances indicated that the fair value of a reporting unit was below its carrying value. First Financial had goodwill of~~ ~~$95.1 million~~ ~~as of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~.

~~Other intangible assets.~~ ~~Other intangible assets consist primarily of core deposit intangibles. Core deposit intangibles are recorded at their estimated fair value as of the acquisition date and are then amortized on an~~ ~~accelerated basis~~ ~~over their estimated useful lives. Core deposit intangibles were~~ ~~$6.2 million~~ ~~and~~ ~~$7.4 million~~ ~~as of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012, respectively. First Financial's core deposit intangibles have an estimated weighted average remaining life of~~ ~~7.1 years. Amortization expense for the three months ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012~~ ~~was~~ ~~$0.4 million~~ ~~and~~ ~~$0.7 million, respectively. Amortization expense recognized on intangible assets for the nine months ended~~ ~~September 30, 2013~~ ~~and~~ ~~2012, was~~ ~~$1.1 million~~ ~~and~~ ~~$2.1 million, respectively.~~

~~NOTE 4: COMMITMENTS AND CONTINGENCIES~~

~~Table of Contents~~

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

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

~~Letters of credit.~~ Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party. First Financial’s portfolio of standby letters of credit consists primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services. The risk to First Financial arises from its obligation to make payment in the event of the client's contractual default to produce the contracted good or service to a third party. First Financial issued letters of credit (including standby letters of credit) aggregating ~~$13.2 million~~ ~~and~~ ~~$14.8 million~~ at ~~September 30, 2013, and~~ ~~December 31, 2012, respectively. Management conducts regular reviews of these instruments on an individual client basis.~~

~~Loan commitments.~~ Loan commitments are agreements to extend credit to a client as long as there is no violation of any condition established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by First Financial upon extension of credit, is based on management’s credit evaluation of the client. The collateral held varies, but may include securities, real estate, inventory, plant or equipment. First Financial had commitments outstanding to extend credit totaling ~~$1.4 billion~~ at ~~September 30, 2013, and~~ ~~$1.2 billion~~ at ~~December 31, 2012~~.

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

~~Contingencies/Litigation.~~ First Financial and its subsidiaries are engaged in various matters of litigation, other assertions of improper or fraudulent loan practices or lending violations and other matters from time to time, and have a number of unresolved claims pending. Additionally, as part of the ordinary course of business, First Financial and its subsidiaries are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral and foreclosure interests, that is incidental to our regular business activities. While the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, First Financial believes that damages, if any, and other amounts relating to pending matters are not probable or cannot be reasonably estimated as of ~~September 30, 2013. Reserves are established for these various matters of litigation, when appropriate under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel.~~

~~NOTE 5:~~ INVESTMENTS

The following is a summary of held-to-maturity and available-for-sale investment securities as of September 30, ~~2013~~2014:


	Held-to-Maturity									Available-for-Sale									Held-to-maturity									Available-for-sale
(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss			Market Value		Amortized Cost		Unrealized Gain		Unrealized Loss			Market Value		Amortized cost		Unrealized gain		Unrealized loss			Market value		Amortized cost		Unrealized gain		Unrealized loss			Market value
U.S. Treasuries	$	0	$	0	$	0		$	0	$	97	$	0	$	(4	)	$	93	$	0	$	0	$	0		$	0	$	97	$	0	$	(3	)	$	94
Securities of U.S. government agencies and corporations	19,462		0		(864		)	18,598		10,266		0		(142		)	10,124		17,917		0		(231		)	17,686		12,304		3		(37		)	12,270
Mortgage-backed securities	637,170		768		(6,561		)	631,377		652,808		6,093		(20,818		)	638,083		832,728		5,290		(4,656		)	833,362		700,167		4,967		(19,273		)	685,861
Obligations of state and other political subdivisions	12,461		157		(908		)	11,710		34,005		31		(2,294		)	31,742		26,308		442		(418		)	26,332		49,824		588		(1,008		)	49,404
Asset-backed securities	0		0		0			0		67,816		0		(359		)	67,457		0		0		0			0		76,693		244		(1		)	76,936
Other securities	0		0		0			0		110,936		126		(3,814		)	107,248		23,568		770		(59		)	24,279		105,132		1,576		(1,679		)	105,029
Total	$	669,093	$	925	$	(8,333	)	$	661,685	$	875,928	$	6,250	$	(27,431	)	$	854,747	$	900,521	$	6,502	$	(5,364	)	$	901,659	$	944,217	$	7,378	$	(22,001	)	$	929,594

Table of Contents

The following is a summary of held-to-maturity and available-for-sale investment securities as of December 31, ~~2012~~2013:


	Held-to-Maturity									Available-for-Sale									Held-to-maturity									Available-for-sale
(Dollars in thousands)	Amortized Cost		Unrealized Gain		Unrealized Loss			Market Value		Amortized Cost		Unrealized Gain		Unrealized Loss			Market Value		Amortized cost		Unrealized gain		Unrealized loss			Market value		Amortized cost		Unrealized gain		Unrealized loss			Market value
U.S. Treasuries																			$	0	$	0	$	0		$	0	$	97	$	0	$	(7	)	$	90
Securities of U.S. government agencies and corporations	$	20,512	$	679	$	0		$	21,191	$	15,562	$	333	$	0		$	15,895	18,981		0		(791		)	18,190		9,980		0		(404		)	9,576
Mortgage-backed securities	740,891		8,077		(1,290		)	747,678		854,150		14,564		(1,485		)	867,229		775,025		1,337		(12,229		)	764,133		678,267		5,372		(28,593		)	655,046
Obligations of state and other political subdivisions	9,352		265		(12		)	9,605		35,913		169		(84		)	35,998		25,788		152		(1,039		)	24,901		33,410		10		(3,097		)	30,323
Asset-backed securities	0		0		0			0		57,000		90		(1		)	57,089		0		0		0			0		114,209		1		(616		)	113,594
Other securities	0		0		0			0		54,479		1,569		(163		)	55,885		17,478		283		0			17,761		109,089		262		(4,379		)	104,972
Total	$	770,755	$	9,021	$	(1,302	)	$	778,474	$	1,017,104	$	16,725	$	(1,733	)	$	1,032,096	$	837,272	$	1,772	$	(14,059	)	$	824,985	$	945,052	$	5,645	$	(37,096	)	$	913,601

The following table provides a summary of investment securities by estimated weighted average life as of September 30, ~~2013~~2014. Estimated lives on certain investment securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Held-to-Maturity				Available-for-Sale				Held-to-maturity				Available-for-sale
(Dollars in thousands)	Amortized Cost		Market Value		Amortized Cost		Market Value		Amortized cost		Market value		Amortized cost		Market value
Due in one year or less	$	215	$	218	$	5,009	$	5,152	$	268	$	271	$	12,735	$	12,738
Due after one year through five years	409,559		407,787		250,089		251,177		402,027		401,829		348,661		346,665
Due after five years through ten years	258,526		252,762		361,949		351,776		354,896		355,179		266,513		260,869
Due after ten years	793		918		258,881		246,642		143,330		144,380		316,308		309,322
Total	$	669,093	$	661,685	$	875,928	$	854,747	$	900,521	$	901,659	$	944,217	$	929,594

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

September 30, 2013
Less than 12 Months 12 Months or More Total
(Dollars in thousands)
Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss
Securities of U.S. government agencies and corporations $ 28,806
$ (756 ) $ 0
$ 0
$ 28,806
$ (756 )
Mortgage-backed securities 807,599
(24,767 ) 41,679
(261 ) 849,278
(25,028 )
Obligations of state and other political subdivisions 64,895
(4,357 ) 0
0
64,895
(4,357 )
Asset-backed securities 59,003
(359 ) 0
0
59,003
(359 )
Other securities 72,326
(2,531 ) 1,244
(129 ) 73,570
(2,660 )
Total $ 1,032,629
$ (32,770 ) $ 42,923
$ (390 ) $ 1,075,552
$ (33,160 )


	December 31, 2012
	Less than 12 Months					12 Months or More					Total					September 30, 2014
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Less than 12 months					12 months or more					Total
(Dollars in thousands)	Value		Loss			Value		Loss			Value		Loss			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Securities of U.S. government agencies and corporations																$	1,470	$	(5	)	$	17,944	$	(126	)	$	19,414	$	(131	)
Mortgage-backed securities	$	240,641	$	(1,635	)	$	25,513	$	(405	)	$	266,154	$	(2,040	)	252,959		(2,616		)	496,254		(20,077		)	749,213		(22,693		)
Obligations of state and other political subdivisions	21,341		(96		)	0		0			21,341		(96		)	14,267		(174		)	38,578		(1,323		)	52,845		(1,497		)
Asset-backed securities	9,999		(1		)	0		0			9,999		(1		)	10,510		(1		)	0		0			10,510		(1		)
Other securities	8,454		(163		)	0		0			8,454		(163		)	9,254		(93		)	30,440		(1,304		)	39,694		(1,397		)
Total	$	280,435	$	(1,895	)	$	25,513	$	(405	)	$	305,948	$	(2,300	)	$	288,460	$	(2,889	)	$	583,216	$	(22,830	)	$	871,676	$	(25,719	)

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

Gains and losses on debt securities are generally due to ~~higher~~fluctuations in current market yields relative to the yields of the debt securities at their amortized cost. All securities with unrealized losses are reviewed quarterly to determine if any impairment is considered other than temporary, requiring a write-down to fair ~~market~~ value. First Financial considers the percentage loss on a security, duration of the loss, average life or duration of the security, credit rating of the security ~~and~~as well as payment performance ~~as well as~~and the Company's intent and ability to hold the security to maturity when determining whether any impairment is other than temporary. At this time First Financial does not intend to sell, and it is not more likely than not that the Company will be required to sell debt securities temporarily impaired prior to maturity or recovery of the recorded value. First Financial had no other than temporary impairment related to its investment securities portfolio as of September 30, ~~2013~~2014 or December 31, ~~2012~~2013.

For further detail on the fair value of investment securities, see Note 1315 – Fair Value Disclosures.

NOTE ~~6: DERIVATIVES~~

While authorized to use a variety of derivative products, First Financial primarily utilizes interest rate swaps as a means to offer borrowers credit-based products that meet their needs and may from time to time utilize interest rate swaps to manage the interest rate risk profile of the Company. The interest rate swap agreements establish the basis on which interest rate payments are exchanged with counterparties referred to as the notional amount.

~~The following table summarizes the notional values of derivative financial instruments utilized by First Financial by the nature of the underlying asset or liability:~~

(Dollars in thousands) September 30, 2013 December 31, 2012
Fair value hedges
Instruments associated with loans $ 916,011
$ 935,493

As only interest rate payments are exchanged, the cash requirements and credit risk associated with interest rate swaps are significantly less than the notional amount and the Company’s credit risk exposure is limited to the market value of the instruments. First Financial manages the market value credit risk associated with counterparties through counterparty credit policies. These policies require the Company to maintain a total derivative notional position of less than ~~35%~~ ~~of assets, total credit exposure of less than~~ 3% ~~of capital and no single counterparty credit risk exposure greater than~~ ~~$20.0 million. The Company is currently well below all single counterparty and portfolio limits. At~~ ~~September 30, 2013, the Company had a total counterparty notional amount outstanding of approximately~~ ~~$563.2 million, spread among~~ ~~nine~~ ~~counterparties, with an outstanding liability from these contracts of~~ ~~$13.6 million. At~~ ~~December 31, 2012, the Company had a total counterparty notional amount outstanding of approximately~~ ~~$509.1 million, spread among~~ ~~eight~~ ~~counterparties, with an outstanding liability from these contracts of~~ ~~$26.0 million~~.

First Financial’s exposure to credit loss, in the event of nonperformance by a borrower, is limited to the market value of the derivative instrument associated with that borrower. First Financial monitors its derivative credit exposure to borrowers through the normal credit review processes the Company performs on all borrowers. Additionally, the Company monitors derivative credit risk exposure related to problem loans through the Company's allowance for loan and lease losses committee. First Financial considers the market value of a derivative instrument to be part of the carrying value of the related loan for these purposes as the borrower is contractually obligated to pay First Financial this amount in the event the derivative contract is terminated.

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~~The following table summarizes the derivative financial instruments utilized by First Financial and their balances:~~

September 30, 2013 December 31, 2012
Estimated fair value Estimated fair value
(Dollars in thousands) Balance Sheet Classification
Notional
amount
Gain Loss
Notional
amount
Gain Loss
Fair value hedges
Pay fixed interest rate swaps with counterparty Accrued interest and other liabilities $ 10,431
$ 0
$ (999 ) $ 12,739
$ 0
$ (1,445 )
Matched interest rate swaps with borrower Accrued interest and other assets 452,790
13,798
(1,050 ) 461,377
24,135
0
Matched interest rate swaps with counterparty Accrued interest and other liabilities 452,790
1,050
(13,995 ) 461,377
0
(24,978 )
Total $ 916,011
$ 14,848
$ (16,044 ) $ 935,493
$ 24,135
$ (26,423 )

In connection with its use of derivative instruments, from time to time First Financial and its counterparties are 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. First Financial classifies the derivative cash collateral outstanding with its counterparties as an adjustment to the fair value of the derivative contracts within Accrued interest and other assets or Accrued interest and other liabilities in the Consolidated Balance Sheets.

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

September 30, 2013 December 31, 2012
(Dollars in thousands) Gross amounts of recognized liabilities Gross amounts offset in the Consolidated Balance Sheets Net amounts of liabilities presented in the Consolidated Balance Sheets Gross amounts of recognized liabilities Gross amounts offset in the Consolidated Balance Sheets Net amounts of liabilities presented in the Consolidated Balance Sheets
Fair value hedges
Pay fixed interest rate swaps with counterparty $ 999
$ (393 ) $ 606
$ 1,445
$ (669 ) $ 776
Matched interest rate swaps with counterparty 15,045
(12,103 ) 2,942
24,978
(23,057 ) 1,921
Total $ 16,044
$ (12,496 ) $ 3,548
$ 26,423
$ (23,726 ) $ 2,697

~~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~~ ~~September 30, 2013~~:

Weighted-average rate
(Dollars in thousands)
Notional
amount

Average
maturity
(years)

Fair
value
Receive Pay
Asset conversion swaps
Pay fixed interest rate swaps with counterparty $ 10,431
3.0 $ (999 ) 2.21 % 6.85 %
Receive fixed, matched interest rate swaps with borrower 452,790
4.1 12,748
4.88 % 2.94 %
Pay fixed, matched interest rate swaps with counterparty 452,790
4.1 (12,945 ) 2.94 % 4.88 %
Total asset conversion swaps $ 916,011
4.1 $ (1,196 ) 3.89 % 3.95 %

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative instrument and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

~~Fair Value Hedges.~~ First Financial utilizes interest rate swaps designated as fair value hedges as a means to offer commercial borrowers products that meet their needs, but are also designed to achieve First Financial’s desired interest rate risk profile. First Financial accomplishes this by entering into swap agreements with commercial borrowers and simultaneously

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entering into offsetting swap agreements, with substantially matching terms, with institutional counterparties. These interest rate swap agreements generally involve the receipt by First Financial of floating rate amounts from counterparties in exchange for payments to these counterparties by First Financial of fixed rate amounts received from commercial borrowers over the life of the agreements. These interest rate swap agreements do not involve an exchange of the underlying principal or notional amount. This results in First Financial’s loan customers receiving fixed rate funding, while providing First Financial with a floating rate asset. First Financial's matched interest rate swaps economically hedge offsetting "receive fixed" and "pay fixed" exposures, but do not qualify for hedge accounting.

The net interest receivable or payable on matched interest rate swaps is accrued and recognized as an adjustment to the interest income of the hedged item. The fair value of matched interest rate swaps is included within Accrued interest and other assets and Accrued interest and other liabilities on the Consolidated Balance Sheets.

For the unmatched, pay fixed interest rate swaps, which qualify for hedge accounting, the corresponding fair-value adjustment is included on the Consolidated Balance Sheets in the carrying value of the hedged item. The net interest receivable or payable on unmatched interest rate swaps is accrued and recognized as an adjustment to the interest income of the hedged item. Gains and losses from derivatives not considered effective in hedging the change in fair value of the hedged item, if any, are recognized in income immediately.

~~The following table details the location and amounts recognized for fair value hedges:~~

Decrease to Interest income
(Dollars in thousands) Three months ended Nine months ended
Derivatives in fair value hedging relationships Location of change in fair value September 30, September 30,
2013 2012 2013 2012
Interest rate contracts
Loans Interest income - loans $ (123 ) $ (167 ) $ (393 ) $ (555 )
Total $ (123 ) $ (167 ) $ (393 ) $ (555 )

~~Cash Flow Hedges.~~ First Financial utilizes interest rate swaps designated as cash flow hedges to manage the variability of cash flows, primarily net interest income, attributable to changes in interest rates. The net interest receivable or payable on an interest rate swap designated as a cash flow hedge is accrued and recognized as an adjustment to interest income or interest expense while the fair value is included within Accrued interest and other assets or Accrued interest and other liabilities on the Consolidated Balance Sheets. Changes in the fair value of interest rate swaps designated as cash flow hedges are included in accumulated other comprehensive income (loss). Gains and losses from derivatives not considered effective in hedging the cash flows related to the hedged items, if any, are recognized in income immediately.

~~First Financial utilizes interest rate swaps designated as cash flow hedges to hedge against interest rate volatility on indexed floating rate deposits, totaling~~ ~~$100.0 million~~ ~~as of September 30, 2013 and~~ ~~$35.0 million~~ as of December 31, 2012. These interest rate swaps qualify for hedge accounting and involve the receipt by First Financial of variable-rate interest amounts in exchange for fixed-rate interest payments by First Financial and have a remaining weighted average term of approximately ~~6 years. Accrued interest and other liabilities included~~ ~~$0.3 million~~ at ~~September 30, 2013~~ ~~and~~ ~~$0.2 million~~ at ~~December 31, 2012, respectively, reflecting the fair value of these cash flow hedges.~~

~~NOTE 7: BORROWINGS~~

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

~~First Financial had~~ ~~$518.2 million~~ ~~in short-term borrowings with the FHLB at~~ ~~September 30, 2013~~ ~~and~~ ~~$502.0 million~~ ~~as of~~ ~~December 31, 2012. These short-term borrowings are used to manage the Company's normal liquidity needs and support the Company's asset and liability management strategies.~~

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~~remaining maturities of less than~~ ~~2 years~~ ~~and a weighted average rate of~~ ~~3.49%. Securities pledged as collateral in conjunction with the repurchase agreements are included within Investment securities available-for-sale on the Consolidated Balance Sheets.~~

~~The following is a summary of long-term debt:~~

September 30, 2013 December 31, 2012
(Dollars in thousands) Amount Average Rate Amount Average Rate
Federal Home Loan Bank $ 7,813
3.74 % $ 9,427
3.74 %
National Market Repurchase Agreement 52,500
3.49 % 65,000
3.50 %
Capital loan with municipality 775
0.00 % 775
0.00 %
Total long-term debt $ 61,088
3.48 % $ 75,202
3.49 %

~~Under Federal Reserve Board guidelines, a company can issue qualifying debentures up to~~ ~~25%~~ ~~of qualifying Tier I capital. First Financial has the capacity to issue approximately~~ ~~$159.5 million~~ ~~in additional qualifying debentures under these guidelines.~~

~~NOTE 8:~~4: LOANS - EXCLUDING COVERED LOANS

First Financial offers clients a variety of commercial and consumer loan and lease products with various interest rates and payment terms. ~~Lending~~While lending activities are primarily concentrated in Ohio, Indiana and Kentucky, where the Bank currently operates banking ~~centers. Additionally,~~centers, First Financial also provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector throughout the United States.

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

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

Credit Quality. To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate allowance for loan and lease losses, First Financial utilizes the following categories of credit grades:

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

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

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

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

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

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

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


	As of September 30, 2013								As of September 30, 2014
			Real Estate								Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total		Commercial		Construction		Commercial		Leasing		Total
Pass	$	914,021	$	86,942	$	1,391,039	$	2,392,002	$	1,262,525	$	188,144	$	1,867,535	$	71,314	$	3,389,518
Special Mention	29,061		225		29,786		59,072		23,592		3,830		26,917		1,902		56,241
Substandard	16,934		2,922		73,144		93,000		18,665		1,802		57,603		0		78,070
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	960,016	$	90,089	$	1,493,969	$	2,544,074	$	1,304,782	$	193,776	$	1,952,055	$	73,216	$	3,523,829


(Dollars in thousands)	Real Estate Residential		Installment		Home Equity		Other		Total		Real Estate Residential		Installment		Home Equity		Other		Total
Performing	$	343,484	$	48,852	$	370,968	$	110,814	$	874,118	$	419,862	$	47,163	$	413,518	$	35,925	$	916,468
Nonperforming	9,346		421		2,871		86		12,724		6,696		398		2,581		0		9,675
Total	$	352,830	$	49,273	$	373,839	$	110,900	$	886,842	$	426,558	$	47,561	$	416,099	$	35,925	$	926,143


	As of December 31, 2012								As of December 31, 2013
			Real Estate								Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total		Commercial		Construction		Commercial		Leasing		Total
Pass	$	803,351	$	64,866	$	1,307,370	$	2,175,587	$	991,161	$	78,872	$	1,422,215	$	80,135	$	2,572,383
Special Mention	29,663		65		38,516		68,244		23,053		65		23,832		0		46,950
Substandard	28,019		8,586		71,122		107,727		21,454		1,804		50,940		0		74,198
Doubtful	0		0		0		0		0		0		0		0		0
Total	$	861,033	$	73,517	$	1,417,008	$	2,351,558	$	1,035,668	$	80,741	$	1,496,987	$	80,135	$	2,693,531


(Dollars in thousands)	Real Estate Residential		Installment		Home Equity		Other		Total		Real Estate Residential		Installment		Home Equity		Other		Total
Performing	$	310,341	$	56,358	$	364,248	$	84,490	$	815,437	$	344,325	$	46,559	$	373,472	$	35,592	$	799,948
Nonperforming	7,869		452		3,252		496		12,069		8,606		574		2,982		0		12,162
Total	$	318,210	$	56,810	$	367,500	$	84,986	$	827,506	$	352,931	$	47,133	$	376,454	$	35,592	$	812,110

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

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


	As of September 30, 2013														As of September 30, 2014
(Dollars in thousands)	30 – 59 days past due		60 – 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing		30 – 59 days past due		60 – 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing
Loans
Commercial	$	1,018	$	678	$	9,294	$	10,990	$	949,026	$	960,016	$	0	$	2,063	$	333	$	1,727	$	4,123	$	1,300,659	$	1,304,782	$	0
Real estate - construction	23		0		1,098		1,121		88,968		90,089		0		0		0		223		223		193,553		193,776		0
Real estate - commercial	8,280		2,747		23,569		34,596		1,459,373		1,493,969		0		5,697		2,359		12,144		20,200		1,931,855		1,952,055		0
Real estate - residential	1,705		1,230		6,484		9,419		343,411		352,830		0		1,384		311		4,225		5,920		420,638		426,558		0
Installment	389		38		371		798		48,475		49,273		0		106		82		223		411		47,150		47,561		0
Home equity	735		442		1,525		2,702		371,137		373,839		0		1,043		553		951		2,547		413,552		416,099		0
Other	424		111		351		886		110,014		110,900		265		490		215		249		954		108,187		109,141		249
Total	$	12,574	$	5,246	$	42,692	$	60,512	$	3,370,404	$	3,430,916	$	265	$	10,783	$	3,853	$	19,742	$	34,378	$	4,415,594	$	4,449,972	$	249


	As of December 31, 2012														As of December 31, 2013
(Dollars in thousands)	30 - 59 days past due		60 - 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing		30 - 59 days past due		60 - 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing
Loans
Commercial	$	1,770	$	832	$	4,197	$	6,799	$	854,234	$	861,033	$	0	$	2,016	$	161	$	7,136	$	9,313	$	1,026,355	$	1,035,668	$	0
Real estate - construction	0		0		892		892		72,625		73,517		0		0		0		223		223		80,518		80,741		0
Real estate - commercial	2,549		1,931		27,966		32,446		1,384,562		1,417,008		0		7,800		4,269		12,732		24,801		1,472,186		1,496,987		0
Real estate - residential	6,071		1,463		6,113		13,647		304,563		318,210		0		2,030		685		5,526		8,241		344,690		352,931		0
Installment	280		148		344		772		56,038		56,810		0		213		40		379		632		46,501		47,133		0
Home equity	1,311		869		1,440		3,620		363,880		367,500		0		985		292		1,648		2,925		373,529		376,454		0
Other	386		168		708		1,262		83,724		84,986		212		680		144		218		1,042		114,685		115,727		218
Total	$	12,367	$	5,411	$	41,660	$	59,438	$	3,119,626	$	3,179,064	$	212	$	13,724	$	5,591	$	27,862	$	47,177	$	3,458,464	$	3,505,641	$	218

Nonaccrual. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are ninety days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors such as insufficient collateral value. ~~The~~When a loan is classified as nonaccrual, the accrual of interest income is discontinued, and previously accrued but unpaid interest is ~~reversed when a loan is classified as nonaccrual.~~reversed. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan may ~~be reclassified back~~return to accrual status if ~~all contractual payments have been received and~~ collection of future principal and interest payments is no longer doubtful.

Troubled Debt Restructurings. A loan modification is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. The most common types of modifications include interest rate reductions, maturity extensions and modifications to principal amortization, including interest only structures. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is managed by the Company’s credit administration group for resolution, which may result in foreclosure in the case of real estate.

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

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First Financial had ~~215~~246 TDRs totaling $~~29.3~~26.6 million at September 30, ~~2013~~2014, including $~~16.3~~13.4 million on accrual status and $~~13.0~~13.2 million classified as nonaccrual. First Financial had ~~$0.6 million~~an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms ~~had~~have been modified through ~~TDRs.~~TDRs at September 30, 2014. At September 30, ~~2013~~2014, the allowance for loan and lease losses included reserves of $~~4.0~~2.9 million related to TDRs. For the three and nine months ended September 30, ~~2013~~2014, First Financial charged off $~~1.2~~$0.1 million and ~~$2.4~~$0.9 million,, respectively, for the portion of TDRs determined to be uncollectible. Additionally, at September 30, ~~2013~~2014, approximately $~~8.4~~10.8 million of ~~the~~ accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had ~~145~~217 TDRs totaling $~~25.0~~28.1 million at December 31, ~~2012~~2013, including $~~10.9~~15.1 million of loans on accrual status and $~~14.1~~13.0 million classified as nonaccrual. First Financial had ~~$3.5 million~~an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, ~~2012~~2013, the allowance for loan and lease losses included reserves of $~~3.0~~4.4 million related to TDRs. For the year ended December 31, ~~2012~~2013, First Financial charged off $~~7.2~~2.8 million for the portion of TDRs determined to be uncollectible. At December 31, ~~2012~~2013, approximately $~~2.7~~9.0 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.

The following tables provide information on loan modifications classified as TDRs during the three and nine months ended September 30, ~~2013~~2014 and ~~2012~~2013.


	Three months ended										Three months ended
	September 30, 2013					September 30, 2012					September 30, 2014					September 30, 2013
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial	4	$	494	$	490	6	$	3,787	$	4,027	6	$	3,712	$	3,384	4	$	494	$	490
Real estate - construction	0	0		0		0	0		0		0	0		0		0	0		0
Real estate - commercial	10	2,502		2,493		8	5,105		5,077		2	375		373		10	2,502		2,493
Real estate - residential	3	387		367		0	0		0		7	322		264		3	387		367
Installment	3	34		33		0	0		0		3	6		6		3	34		33
Home equity	5	294		216		0	0		0		6	126		125		5	294		216
Total	25	$	3,711	$	3,599	14	$	8,892	$	9,104	24	$	4,541	$	4,152	25	$	3,711	$	3,599


	Nine months ended										Nine months ended
	September 30, 2013					September 30, 2012					September 30, 2014					September 30, 2013
(Dollars in thousands)	Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial	14	$	8,233	$	6,105	16	$	8,358	$	8,589	11	$	3,938	$	3,594	14	$	8,233	$	6,105
Real estate - construction	0	0		0		0	0		0		0	0		0		0	0		0
Real estate - commercial	17	4,752		4,719		22	9,854		9,795		11	2,583		2,453		17	4,752		4,719
Real estate - residential	33	2,356		2,178		2	164		166		30	1,712		1,527		33	2,356		2,178
Installment	14	188		115		0	0		0		6	21		19		14	188		115
Home equity	35	1,176		887		0	0		0		26	791		758		35	1,176		887
Total	113	$	16,705	$	14,004	40	$	18,376	$	18,550	84	$	9,045	$	8,351	113	$	16,705	$	14,004

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The following table provides information on how TDRs were modified during the three and nine months ended September 30, ~~2013~~2014 and ~~2012~~2013.


	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,⁽²⁾				September 30,⁽²⁾				September 30,⁽²⁾				September 30,⁽²⁾
(Dollars in thousands)	2013		2012		2013		2012		2014		2013		2014		2013
Extended maturities	$	2,179	$	6,144	$	8,848	$	13,404	$	3,505	$	2,179	$	4,402	$	8,848
Adjusted interest rates	0		0		520		166		0		0		301		520
Combination of rate and maturity changes	613		0		850		563		402		613		1,643		850
Forbearance	0		2,565		0		3,801		0		0		320		0
Other ⁽¹⁾	807		395		3,786		616		245		807		1,685		3,786
Total	$	3,599	$	9,104	$	14,004	$	18,550	$	4,152	$	3,599	$	8,351	$	14,004

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

(2) Balances are as of period end

First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications. ~~A borrower~~Borrowers classified as a TDR that isare ninety days or more past due on any principal or interest payments, ~~for a TDR,~~ or ~~who~~that prematurely ~~terminates~~terminate a restructured loan agreement without satisfying the contractual principal balance (for example, in a deed-in-lieu arrangement), isare considered to be in payment default of the terms of the TDR agreement.

The following table provides information on TDRs for which there was a payment default during the period that occurred within twelve months of the loan modification:


	September 30,						Three months ended
	2013			2012			September 30, 2014			September 30, 2013
(Dollars in thousands)	Number of Loans	Period End Balance		Number of Loans	Period End Balance		Number of loans	Period end balance		Number of loans	Period end balance
Commercial	4	$	4,882	2	$	1,133	0	$	0	1	$	29
Real estate - construction	0	0		0	0		0	0		0	0
Real estate - commercial	2	63		0	0		0	0		1	3
Real estate - residential	3	185		0	0		1	1		0	0
Installment	4	26		0	0		0	0		1	17
Home equity	5	64		0	0		0	0		2	54
Total	18	$	5,220	2	$	1,133	1	$	1	5	$	103



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

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Impaired Loans. Loans classified as nonaccrual and loans modified as TDRs are considered impaired. The following table provides information on nonaccrual loans, TDRs and total impaired loans.


(Dollars in thousands)	September 30, 2013		December 31, 2012		September 30, 2014		December 31, 2013
Impaired loans
Nonaccrual loans⁽¹⁾
Commercial	$	8,554	$	15,893	$	6,486	$	7,934
Real estate-construction	1,099		2,102		223		223
Real estate-commercial	35,549		34,977		25,262		17,286
Real estate-residential	9,346		7,869		6,696		8,606
Installment	421		452		398		574
Home equity	2,871		3,252		2,581		2,982
Other	86		496		0		0
Nonaccrual loans ⁽¹⁾	57,926		65,041		41,646		37,605
Accruing troubled debt restructurings	16,278		10,856		13,369		15,094
Total impaired loans	$	74,204	$	75,897	$	55,015	$	52,699

(1) Nonaccrual loans include nonaccrual TDRs of $~~13.0~~13.2 million and $~~14.1~~13.0 million as of September 30, ~~2013~~2014 and December 31, ~~2012,~~2013, respectively.


	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
(Dollars in thousands)	2013		2012		2013		2012		2014		2013		2014		2013
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	1,142	$	1,145	$	3,399	$	3,734	$	838	$	1,142	$	2,342	$	3,399
Interest included in income
Nonaccrual loans	130		158		472		586		168		130		329		472
Troubled debt restructurings	115		95		316		247		110		115		320		316
Total interest included in income	245		253		788		833		278		245		649		788
Net impact on interest income	$	897	$	892	$	2,611	$	2,901	$	560	$	897	$	1,693	$	2,611

Commitments outstanding to borrowers with nonaccrual loans					$	0	$	2,977					$	0	$	0

First Financial individually reviews all impaired commercial loan relationships greater than $250,000, as well as consumer loan TDRs greater than $100,000, to determine if a specific allowance is necessary based on the borrower’s overall financial condition, resources and payment record, support from guarantors and the realizable value of any ~~collateral is necessary.~~collateral. Specific allowances are based on expected cash flows, discounted using the loan's initial effective interest rate, or the fair value of the collateral for certain collateral dependent loans.

1814

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


		As of September 30, 2013													As of September 30, 2014
(Dollars in thousands)		Current Balance		Contractual Principal Balance		Related Allowance		Average Current Balance		YTD Interest Income Recognized		Quarterly Interest Income Recognized			Current balance		Contractual principal balance		Related allowance		Average current balance		YTD interest income recognized		Quarterly interest income recognized
Loans with no related allowance recorded	Loans with no related allowance recorded													Loans with no related allowance recorded
Commercial		$	6,420	$	8,480	$	0	$	12,087	$	141	$	17		$	6,581	$	7,981	$	0	$	6,095	$	97	$	44
Real estate - construction		1,099		1,671		0		693		0		0			223		443		0		223		0		0
Real estate - commercial		16,583		20,727		0		17,615		317		108			19,031		23,970		0		13,927		201		75
Real estate - residential		11,042		12,866		0		10,208		111		39			9,077		10,520		0		9,466		128		45
Installment		489		531		0		418		4		1			415		459		0		512		6		2
Home equity		3,100		3,807		0		3,129		32		11			3,009		3,968		0		3,018		40		15
Other		86		86		0		185		0		0			0		0		0		0		0		0
Total															38,336		47,341		0		33,241		472		181

Loans with an allowance recorded	Loans with an allowance recorded													Loans with an allowance recorded
Commercial		6,134		7,500		1,645		4,556		58		8			3,076		3,284		802		4,694		43		17
Real estate - construction		0		0		0		907		7		0			0		0		0		0		0		0
Real estate - commercial		27,123		31,628		6,371		23,463		89		50			11,372		12,467		3,338		10,229		102		69
Real estate - residential		2,027		2,082		348		1,992		28		10			2,130		2,190		368		2,106		30		10
Installment		0		0		0		0		0		0			0		0		0		0		0		0
Home equity		101		101		2		101		1		1			101		101		2		101		2		1
Other		0		0		0		209		0		0			0		0		0		0		0		0
Total															16,679		18,042		4,510		17,130		177		97

Total
Commercial		12,554		15,980		1,645		16,643		199		25			9,657		11,265		802		10,789		140		61
Real estate - construction		1,099		1,671		0		1,600		7		0			223		443		0		223		0		0
Real estate - commercial		43,706		52,355		6,371		41,078		406		158			30,403		36,437		3,338		24,156		303		144
Real estate - residential		13,069		14,948		348		12,200		139		49			11,207		12,710		368		11,572		158		55
Installment		489		531		0		418		4		1			415		459		0		512		6		2
Home equity		3,201		3,908		2		3,230		33		12			3,110		4,069		2		3,119		42		16
Other		86		86		0		394		0		0			0		0		0		0		0		0
Total		$	74,204	$	89,479	$	8,366	$	75,563	$	788	$	245		$	55,015	$	65,383	$	4,510	$	50,371	$	649	$	278

1915

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	As of December 31, 2012										As of December 31, 2013
(Dollars in thousands)	Current Balance		Contractual Principal Balance		Related Allowance		Average Current Balance		Interest Income Recognized		Current balance		Contractual principal balance		Related allowance		Average current balance		Interest income recognized
Loans with no related allowance recorded
Commercial	$	14,961	$	17,269	$	0	$	9,337	$	215	$	5,212	$	7,083	$	0	$	10,712	$	165
Real estate - construction	462		672		0		3,857		15		223		443		0		599		0
Real estate - commercial	15,782		21,578		0		15,554		277		12,355		16,431		0		16,563		380
Real estate - residential	9,222		10,817		0		8,463		81		10,291		12,087		0		10,225		152
Installment	452		556		0		452		2		642		663		0		463		6
Home equity	3,251		4,132		0		2,423		19		3,208		4,108		0		3,145		44
Other	326		326		0		65		0		0		0		0		148		0
Total											31,931		40,815		0		41,855		747

Loans with an allowance recorded
Commercial	3,560		4,252		1,151		5,350		161		7,013		8,353		2,080		5,047		71
Real estate - construction	1,640		2,168		838		5,033		81		0		0		0		726		7
Real estate - commercial	24,014		25,684		7,155		25,499		235		11,638		14,424		2,872		21,098		110
Real estate - residential	1,956		2,003		290		2,278		38		2,016		2,072		348		1,997		37
Installment	0		0		0		0		0		0		0		0		0		0
Home equity	101		101		2		81		1		101		101		2		101		2
Other	170		170		92		34		0		0		0		0		167		0
Total											20,768		24,950		5,302		29,136		227

Total
Commercial	18,521		21,521		1,151		14,687		376		12,225		15,436		2,080		15,759		236
Real estate - construction	2,102		2,840		838		8,890		96		223		443		0		1,325		7
Real estate - commercial	39,796		47,262		7,155		41,053		512		23,993		30,855		2,872		37,661		490
Real estate - residential	11,178		12,820		290		10,741		119		12,307		14,159		348		12,222		189
Installment	452		556		0		452		2		642		663		0		463		6
Home equity	3,352		4,233		2		2,504		20		3,309		4,209		2		3,246		46
Other	496		496		92		99		0		0		0		0		315		0
Total	$	75,897	$	89,728	$	9,528	$	78,426	$	1,125	$	52,699	$	65,765	$	5,302	$	70,991	$	974

Table of Contents

OREO. Other real estate owned (OREO) is comprised of properties acquired by the Company through the loan foreclosure or repossession process, or other resolution activity that results in partial or total satisfaction of problem loans. The acquired properties are recorded at the lower of cost or fair value less estimated costs of disposal (net realizable value) upon acquisition. Losses arising at the time of acquisition of such properties are charged against the allowance for loan and lease losses. Subsequent write-downs in the carrying value of OREO properties are expensed as incurred. Improvements to the properties may be capitalized if the improvements contribute to the overall value of the property, but may not be capitalized in excess of the net realizable value of the property.

~~Table of Contents~~

Changes in OREO were as follows:


	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
(Dollars in thousands)	2013		2012		2013		2012		2014		2013		2014		2013
Balance at beginning of period	$	11,798	$	15,688	$	12,526	$	11,317	$	13,370	$	11,798	$	19,806	$	12,526
Additions
Commercial	608		539		2,924		5,888		883		608		2,274		2,924
Residential	265		406		645		2,320		174		265		1,517		645
Total additions	873		945		3,569		8,208		1,057		873		3,791		3,569
Disposals
Commercial	500		1,209		2,382		2,221		2,197		500		10,243		2,382
Residential	154		413		805		1,025		77		154		505		805
Total disposals	654		1,622		3,187		3,246		2,274		654		10,748		3,187
Write-downs
Valuation adjustment
Commercial	71		1,041		632		2,181		772		71		1,310		632
Residential	142		58		472		186		65		142		223		472
Total write-downs	213		1,099		1,104		2,367
Total valuation adjustment									837		213		1,533		1,104
Balance at end of period	$	11,804	$	13,912	$	11,804	$	13,912	$	11,316	$	11,804	$	11,316	$	11,804

NOTE 9:5: COVERED LOANS

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

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

Table of Contents

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



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

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

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

~~Table of Contents~~

~~The following table reflects the carrying value of all covered purchased impaired and nonimpaired covered loans:~~

September 30, 2013 December 31, 2012
(Dollars in thousands)
Loans
accounted
for under
FASB ASC
Topic 310-30

Loans
excluded
from FASB
ASC Topic
310-30

Total
purchased
loans

Loans
accounted
for under
FASB ASC
Topic 310-30

Loans
excluded
from FASB
ASC Topic
310-30

Total
purchased
loans
Commercial $ 51,077
$ 1,199
$ 52,276
$ 94,775
$ 7,351
$ 102,126
Real estate - construction 8,692
0
8,692
10,631
0
10,631
Real estate - commercial 306,345
6,453
312,798
458,066
7,489
465,555
Real estate - residential 84,418
0
84,418
100,694
0
100,694
Installment 5,552
583
6,135
7,911
763
8,674
Home equity 1,009
50,683
51,692
2,080
55,378
57,458
Other covered loans 0
2,513
2,513
0
2,978
2,978
Total covered loans $ 457,093
$ 61,431
$ 518,524
$ 674,157
$ 73,959
$ 748,116

The outstanding balance of all purchased impaired ~~and nonimpaired~~ loans, ~~accounted for under FASB ASC Topic 310-30,~~ including all contractual principal, interest, fees and penalties, was ~~$569.9~~$337.5 million and ~~$852.9~~$493.6 million as of September 30, ~~2013~~2014 and December 31, ~~2012~~,2013, respectively. These balances exclude contractual interest not yet accrued.

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


	Three Months Ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
(Dollars in thousands)	2013			2012			2013			2012			2014			2013			2014			2013
Balance at beginning of period	$	173,920		$	283,296		$	224,694		$	344,410		$	127,764		$	173,920		$	133,671		$	224,694
Reclassification (to)/from nonaccretable difference	(4,979		)	2,338			(5,687		)	25,780
Reclassification from/(to) nonaccretable difference													(2,295		)	(4,979		)	19,864			(5,687		)
Accretion	(13,772		)	(21,730		)	(46,971		)	(71,674		)	(8,158		)	(13,772		)	(26,808		)	(46,971		)
Other net activity ⁽¹⁾	(8,347		)	(11,749		)	(25,214		)	(46,361		)	(4,250		)	(8,347		)	(13,666		)	(25,214		)
Balance at end of period	$	146,822		$	252,155		$	146,822		$	252,155		$	113,061		$	146,822		$	113,061		$	146,822

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

First Financial regularly reviews its forecast of expected cash flows for ~~covered~~ purchased impaired loans. ~~During the second quarter 2013 the~~The Company implemented certain enhancements to its valuation methodology and the estimation of impairment to place greater emphasis on changes in total expected cash flows and less emphasis on changes in the net present value of expected cash flows. These enhancements contributed torecognized a ~~net~~ reclassification from accretable ~~difference~~ to nonaccretable difference of ~~$5.0~~$2.3 million ~~and resulted in lower yields on certain loan pools~~ during the third quarter ~~2013. Conversely,~~of 2014 due to changes in the cash flow expectations related to certain loan pools. However, First Financial recognized a ~~$2.3~~$19.9 million reclassification from nonaccretable difference to accretable difference ~~and higher yields on certain loan pools~~ during the first nine months of 2014. During the third quarter of ~~2012~~ ~~related to improvement in the cash flow expectations for certain loan pools. For the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 2013,~~, the Company~~ First Financial recognized a ~~net~~$5.0 million reclassification of ~~$5.7 million~~fromaccretable ~~difference~~ to nonaccretable difference asand $5.7 million for the first nine months of 2013. These reclassifications can result in impairment and provision expense in the current period or yield adjustments on the related loan pools on a ~~result of the enhancements to the valuation methodology. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2012, the Company recognized a net reclassification of~~ ~~$25.8 million~~ ~~from nonaccretable difference to accretable difference.~~prospective basis. For further detail on impairment and provision expense related to covered purchased impaired loans, see "Covered Loans" in Note 106 - Allowance for Loan and Lease Losses.

2218

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Credit Quality. For further discussion of First Financial's monitoring of credit quality for commercial and consumer loans, including discussion of the risk attributes noted below, please see Note 84 - Loans, excluding covered loans.

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


	As of September 30, 2013								As of September 30, 2014
			Real Estate								Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total		Commercial		Construction		Commercial		Total
Pass	$	27,580	$	1,714	$	175,085	$	204,379	$	14,790	$	1,605	$	150,628	$	167,023
Special Mention	7,933		0		41,478		49,411		418		0		4,924		5,342
Substandard	15,973		6,978		96,235		119,186		8,536		143		28,361		37,040
Doubtful	790		0		0		790		0		0		0		0
Total	$	52,276	$	8,692	$	312,798	$	373,766	$	23,744	$	1,748	$	183,913	$	209,405


(Dollars in thousands)	Real estate residential		Installment		Home equity		Other		Total		Real estate residential		Installment		Home equity		Other		Total
Performing	$	84,418	$	6,135	$	49,680	$	2,507	$	142,740	$	72,315	$	3,570	$	41,416	$	2,117	$	119,418
Nonperforming	0		0		2,012		6		2,018		0		0		3,442		0		3,442
Total	$	84,418	$	6,135	$	51,692	$	2,513	$	144,758	$	72,315	$	3,570	$	44,858	$	2,117	$	122,860


	As of December 31, 2012								As of December 31, 2013
			Real Estate								Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Total		Commercial		Construction		Commercial		Total
Pass	$	48,213	$	2,304	$	213,143	$	263,660	$	25,196	$	1,714	$	182,621	$	209,531
Special Mention	16,293		7		70,894		87,194		2,011		0		12,904		14,915
Substandard	35,596		8,320		181,345		225,261		14,693		6,842		73,108		94,643
Doubtful	2,024		0		173		2,197		416		0		0		416
Total	$	102,126	$	10,631	$	465,555	$	578,312	$	42,316	$	8,556	$	268,633	$	319,505


(Dollars in thousands)	Real estate residential		Installment		Home equity		Other		Total		Real estate residential		Installment		Home equity		Other		Total
Performing	$	100,694	$	8,674	$	53,231	$	2,967	$	165,566	$	80,733	$	5,636	$	47,731	$	2,370	$	136,470
Nonperforming	0		0		4,227		11		4,238		0		5		1,893		0		1,898
Total	$	100,694	$	8,674	$	57,458	$	2,978	$	169,804	$	80,733	$	5,641	$	49,624	$	2,370	$	138,368

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

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


	As of September 30, 2013														As of September 30, 2014
(Dollars in thousands)	30 - 59 days past due		60 - 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing		30 - 59 days past due		60 - 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing
Loans
Commercial	$	59	$	136	$	379	$	574	$	625	$	1,199	$	0	$	0	$	49	$	656	$	705	$	636	$	1,341	$	0
Real estate - commercial	59		5		1,809		1,873		4,580		6,453		0		0		144		251		395		4,900		5,295		0
Installment	6		0		0		6		577		583		0		0		0		0		0		497		497		0
Home equity	722		459		1,052		2,233		48,450		50,683		0		361		0		3,086		3,447		40,283		43,730		0
All other	3		0		49		52		2,461		2,513		43		23		3		3		29		2,088		2,117		3
Total	$	849	$	600	$	3,289	$	4,738	$	56,693	$	61,431	$	43	$	384	$	196	$	3,996	$	4,576	$	48,404	$	52,980	$	3


	As of December 31, 2012														As of December 31, 2013
(Dollars in thousands)	30 - 59 days past due		60 - 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing		30 - 59 days past due		60 - 89 days past due		> 90 days past due		Total past due		Current		Total		> 90 days past due and accruing
Loans
Commercial	$	351	$	148	$	3,781	$	4,280	$	3,071	$	7,351	$	0	$	60	$	335	$	483	$	878	$	266	$	1,144	$	0
Real estate - commercial	138		1,149		2,201		3,488		4,001		7,489		0		184		0		1,263		1,447		4,040		5,487		0
Installment	0		0		0		0		763		763		0		0		0		5		5		563		568		0
Home equity	286		296		3,697		4,279		51,099		55,378		0		239		36		1,727		2,002		46,647		48,649		0
All other	19		26		42		87		2,891		2,978		31		9		4		0		13		2,357		2,370		0
Total	$	794	$	1,619	$	9,721	$	12,134	$	61,825	$	73,959	$	31	$	492	$	375	$	3,478	$	4,345	$	53,873	$	58,218	$	0

Nonaccrual.~~Covered purchased~~ Purchased impaired loans are classified as performing, even though they may be contractually past due, as any nonpayment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or prospective yield adjustments.

Similar to uncovered loans, covered loans accounted for outside FASB ASC Topic 310-30 are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are ~~ninety~~90 days or more past due. Generally, ~~these~~ loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower coupled with other pertinent factors, such as insufficient collateral value. The accrual of interest income is discontinued and previously accrued, but unpaid interest is reversed when a loan is classified as nonaccrual. Any payments received while a loan is classified as nonaccrual are applied as a reduction to the carrying value of the loan. A loan may be ~~reclassified as~~returned to accrual status if ~~all contractual payments have been received and~~ collection of future principal and interest payments is no longer doubtful.

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



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

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

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	Three months ended				Nine months ended
	September 30,				September 30,
(Dollars in thousands)	2014		2013		2014		2013
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	72	$	81	$	201	$	334
Interest included in income
Nonaccrual loans	18		6		34		20
Troubled debt restructurings	0		3		1		6
Total interest included in income	18		9		35		26
Net impact on interest income	$	54	$	72	$	166	$	308

Impaired Loans. Covered loans ~~placed on~~classified as nonaccrual, ~~status and covered loans modified as TDRs,~~ excluding loans accounted for under FASB ASC Topic 310-30, are considered impaired. ~~Information on covered nonaccrual loans, TDRs and impaired loans was as follows:~~

(Dollars in thousands) September 30, 2013 December 31, 2012
Impaired loans
Nonaccrual loans
Commercial $ 438
$ 4,498
Real estate-commercial 1,899
2,986
Installment 0
0
Home equity 2,012
4,227
All other 6
11
Nonaccrual loans 4,355
11,722
Accruing troubled debt restructurings 351
0
Total impaired loans $ 4,706
$ 11,722

Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2013 2012 2013 2012
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms $ 81
$ 146
$ 334
$ 504
Interest included in income
Nonaccrual loans 6
9
20
70
Troubled debt restructurings 3
0
6
0
Total interest included in income 9
9
26
70
Net impact on interest income $ 72
$ 137
$ 308
$ 434

First Financial’s investment in covered impaired loans, excluding loans accounted for under FASB ASC Topic 310-30, was as follows:


		As of September 30, 2013													As of September 30, 2014
(Dollars in thousands)		Current Balance		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		YTD Interest Income Recognized		Quarterly Interest Income Recognized			Current balance		Unpaid principal balance		Related allowance		Average balance		YTD interest income recognized		Quarterly interest income recognized
Loans with no related allowance recorded	Loans with no related allowance recorded													Loans with no related allowance recorded
Commercial		$	789	$	1,045	$	0	$	2,072	$	11	$	3		$	960	$	1,302	$	0	$	936	$	16	$	6
Real estate - commercial		1,899		3,342		0		1,895		3		1			256		395		0		819		2		1
Installment		0		0		0		2		0		0			0		0		0		1		0		0
Home equity		2,012		2,739		0		2,790		12		5			0		4,908		0		2,493		17		11
All other		6		6		0		10		0		0			3,458		0		0		0		0		0
Total		$	4,706	$	7,132	$	0	$	6,769	$	26	$	9		$	4,674	$	6,605	$	0	$	4,249	$	35	$	18



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

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As of December 31, 2012
(Dollars in thousands) Current Balance
Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment

Interest
Income
Recognized
Loans with no related allowance recorded
Commercial $ 4,498
$ 4,660
$ 0
$ 4,526
$ 62
Real estate - commercial 2,986
3,216
0
2,153
18
Home equity 4,227
5,260
0
2,006
5
All other 11
11
0
13
0
Total $ 11,722
$ 13,147
$ 0
$ 8,698
$ 85

Covered OREO. Covered OREO is comprised of properties acquired by the Company through the loan foreclosure or repossession process, or other resolution activities that result in partial or total satisfaction of problem covered loans. These properties remain subject to loss sharing agreements whereby the FDIC reimburses First Financial for the majority of any losses incurred. The acquired properties are recorded at the lower of cost or fair value upon acquisition. Losses arising at the time of acquisition of such properties are charged against the allowance for loan and lease losses. Subsequent write-downs in the carrying value of covered OREO properties are expensed as incurred. Estimated reimbursements due from the FDIC under loss sharing agreements related to any losses upon acquisition or subsequent write-downs in the carrying value of covered OREO are recorded as noninterest income and an increase to the FDIC indemnification asset in the same period. Improvements to the properties may be capitalized if the improvements contribute to the overall value of the property, but may not be capitalized in excess of the net realizable value of the property.

Changes in covered OREO were as follows:


	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
(Dollars in thousands)	2013		2012		2013		2012		2014		2013		2014		2013
Balance at beginning of period	$	22,475	$	25,408	$	28,862	$	44,818	$	19,439	$	22,475	$	27,120	$	28,862
Additions
Commercial	8,572		8,578		21,063		13,677		0		8,572		3,937		21,063
Residential	95		737		472		3,423		118		95		409		472
Total additions	8,667		9,315		21,535		17,100		118		8,667		4,346		21,535
Disposals
Commercial	2,865		5,858		19,513		24,417		7,498		2,865		17,429		19,513
Residential	76		0		890		2,354		38		76		536		890
Total disposals	2,941		5,858		20,403		26,771		7,536		2,941		17,965		20,403
Write-downs
Valuation adjustment
Commercial	451		249		2,133		5,665		718		451		2,186		2,133
Residential	0		0		111		866		123		0		135		111
Total write-downs	451		249		2,244		6,531
Total valuation adjustment									841		451		2,321		2,244
Balance at end of period	$	27,750	$	28,616	$	27,750	$	28,616	$	11,180	$	27,750	$	11,180	$	27,750

NOTE ~~10:~~6: ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans, - excluding covered loans. For each reporting period, management maintains the allowance for loan and lease losses at a level that it considers sufficient to absorb probable loan and lease losses inherent in the portfolio. Management determines the adequacy of the allowance based on historical loss experience as well as other significant factors such as composition of the portfolio, economic conditions, geographic footprint, the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans and any other adverse situations that may affect a specific borrower's ability to repay (including the timing of future payments). This evaluation is inherently subjective as it requires utilizing material estimates that may be susceptible to significant change.

~~Table of Contents~~

~~In the commercial portfolio, which includes commercial loans, construction and commercial real estate loans and lease financing, impaired loan relationships greater than~~ ~~$250,000~~ are evaluated to determine the need for a specific allowance based on the borrower's overall financial condition, resources and payment record, support from guarantors and the realizable value of any collateral. Loans are considered impaired when, in the judgment of management, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected.

~~The allowance for non-impaired commercial loans and impaired commercial loan relationships less than~~ ~~$250,000~~ includes a process of estimating the probable losses inherent in the portfolio by category, based on First Financial's internal system of credit risk ratings and historical loss data. These estimates may also be adjusted for management's estimate of probable losses on specific loan types dependent upon trends in the values of the underlying collateral, delinquent and nonaccrual loans, prevailing economic conditions, changes in lending strategies and other influencing factors.

With the exception of loans modified as TDRs, consumer loans are evaluated by loan type (i.e. residential real estate, installment, etc.), as these loans exhibit homogeneous characteristics. The allowance for consumer loans, which includes residential real estate, installment, home equity, credit card loans and overdrafts, is established by estimating losses inherent in each particular category of consumer loans. The estimate of losses is primarily based on historical loss rates for each category, as well as trends in delinquent and nonaccrual loans, prevailing economic conditions and other significant influencing factors. Consumer loans modified as TDRs greater than ~~$100,000~~ ~~are individually reviewed to determine if a specific allowance is necessary.~~

There were no material changes to First Financial's accounting policies or methodology related to the allowance for loan and lease losses during the first nine months of 2013, however certain modifications were made to the estimation process in the third quarter of 2012 to place greater emphasis on quantitative factors such as historical loan losses and less emphasis on qualitative factors. This resulted in a shift in the allocation of the allowance between certain consumer and commercial loan types but had no significant impact on the total allowance for loan and lease losses at ~~September 30, 2013~~.2014.

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

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


	Three Months Ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
(Dollars in thousands)	2013			2012			2013			2012			2014			2013			2014			2013
Balance at beginning of period	$	47,047		$	50,952		$	47,777		$	52,576		$	42,027		$	47,047		$	43,829		$	47,777
Provision for loan and lease losses	1,413			3,613			6,863			15,235			1,093			1,413			2,281			6,863
Loans charged off	(5,111		)	(5,804		)	(12,515		)	(19,764		)	(1,816		)	(5,111		)	(6,427		)	(12,515		)
Recoveries	2,165			431			3,389			1,145			1,150			2,165			2,771			3,389
Balance at end of period	$	45,514		$	49,192		$	45,514		$	49,192		$	42,454		$	45,514		$	42,454		$	45,514
Total loans													$	4,449,972		$	3,430,916		$	4,449,972		$	3,430,916
Allowance for loan and lease losses to total ending loans	1.33		%	1.60		%	1.33		%	1.60		%	0.95		%	1.33		%	0.95		%	1.33		%

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


	Nine Months Ended September 30, 2013																		Nine months ended September 30, 2014
			Real Estate																		Real Estate
(Dollars in thousands)	Commercial		Construction			Commercial		Residential		Installment			Home Equity		Other		Total		Commercial		Construction		Commercial		Residential		Installment			Home Equity		Other		Total
Allowance for loan and lease losses:
Balance at beginning of period	$	7,926	$	3,268		$	24,151	$	3,599	$	522		$	5,173	$	3,138	$	47,777	$	10,568	$	824	$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Provision for loan and lease losses	3,675		(3,166		)	3,691		260		(105		)	1,707		801		6,863		517		274		855		61		(153		)	721		6		2,281
Gross charge-offs	3,122		0			5,213		798		296			1,703		1,383		12,515		1,310		0		1,944		701		205			1,396		871		6,427
Recoveries	478		626			1,360		107		244			372		202		3,389		1,185		0		771		161		173			186		295		2,771
Total net charge-offs	2,644		(626		)	3,853		691		52			1,331		1,181		9,126		125		0		1,173		540		32			1,210		576		3,656
Ending allowance for loan and lease losses	$	8,957	$	728		$	23,989	$	3,168	$	365		$	5,549	$	2,758	$	45,514	$	10,960	$	1,098	$	20,160	$	2,900	$	180		$	4,720	$	2,436	$	42,454
Ending allowance on loans individually evaluated for impairment	$	1,645	$	0		$	6,371	$	348	$	0		$	2	$	0	$	8,366	$	802	$	0	$	3,338	$	368	$	0		$	2	$	0	$	4,510
Ending allowance on loans collectively evaluated for impairment	7,312		728			17,618		2,820		365			5,547		2,758		37,148		10,158		1,098		16,822		2,532		180			4,718		2,436		37,944
Ending allowance for loan and lease losses	$	8,957	$	728		$	23,989	$	3,168	$	365		$	5,549	$	2,758	$	45,514	$	10,960	$	1,098	$	20,160	$	2,900	$	180		$	4,720	$	2,436	$	42,454
Loans - excluding covered loans
Loans
Ending balance of loans individually evaluated for impairment	$	10,203	$	1,099		$	38,162	$	3,624	$	0		$	515	$	0	$	53,603	$	7,913	$	0	$	20,763	$	3,215	$	104		$	614	$	0	$	32,609
Ending balance of loans collectively evaluated for impairment	949,813		88,990			1,455,807		349,206		49,273			373,324		110,900		3,377,313		1,296,869		193,776		1,931,292		423,343		47,457			415,485		109,141		4,417,363
Total loans - excluding covered loans	$	960,016	$	90,089		$	1,493,969	$	352,830	$	49,273		$	373,839	$	110,900	$	3,430,916
Total loans																			$	1,304,782	$	193,776	$	1,952,055	$	426,558	$	47,561		$	416,099	$	109,141	$	4,449,972


	Twelve Months Ended December 31, 2012																		Twelve months ended December 31, 2013
			Real Estate																		Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Residential		Installment			Home Equity			Other		Total		Commercial		Construction			Commercial		Residential		Installment			Home Equity		Other		Total
Allowance for loan and lease losses:
Balance at beginning of period	$	10,289	$	4,424	$	18,228	$	4,994	$	1,659		$	10,751		$	2,231	$	52,576	$	7,926	$	3,268		$	24,151	$	3,599	$	522		$	5,173	$	3,138	$	47,777
Provision for loan and lease losses	1,556		1,528		16,670		346		(883		)	(2,032		)	1,932		19,117		5,385		(3,115		)	2,659		593		(132		)	1,937		1,387		8,714
Gross charge-offs	4,312		2,684		11,012		1,814		577			3,661			1,252		25,312		3,415		1			8,326		1,016		335			2,409		1,781		17,283
Recoveries	393		0		265		73		323			115			227		1,396		672		672			1,994		203		310			508		262		4,621
Total net charge-offs	3,919		2,684		10,747		1,741		254			3,546			1,025		23,916		2,743		(671		)	6,332		813		25			1,901		1,519		12,662
Ending allowance for loan and lease losses	$	7,926	$	3,268	$	24,151	$	3,599	$	522		$	5,173		$	3,138	$	47,777	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Ending allowance on loans individually evaluated for impairment	$	1,151	$	838	$	7,155	$	290	$	0		$	2		$	92	$	9,528	$	2,080	$	0		$	2,872	$	348	$	0		$	2	$	0	$	5,302
Ending allowance on loans collectively evaluated for impairment	6,775		2,430		16,996		3,309		522			5,171			3,046		38,249		8,488		824			17,606		3,031		365			5,207		3,006		38,527
Ending allowance for loan and lease losses	$	7,926	$	3,268	$	24,151	$	3,599	$	522		$	5,173		$	3,138	$	47,777	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Loans - excluding covered loans
Ending balance of loans individually evaluated for impairment	$	16,661	$	2,076	$	35,422	$	2,604	$	0		$	101		$	496	$	57,360	$	10,391	$	0		$	18,023	$	3,493	$	122		$	648	$	0	$	32,677
Ending balance of loans collectively evaluated for impairment	844,372		71,441		1,381,586		315,606		56,810			367,399			84,490		3,121,704		1,025,277		80,741			1,478,964		349,438		47,011			375,806		115,727		3,472,964
Total loans - excluding covered loans	$	861,033	$	73,517	$	1,417,008	$	318,210	$	56,810		$	367,500		$	84,986	$	3,179,064	$	1,035,668	$	80,741		$	1,496,987	$	352,931	$	47,133		$	376,454	$	115,727	$	3,505,641

Covered Loans. In accordance with the accounting guidance for business combinations, there was no allowance brought forward on covered loans as any credit deterioration evident in the loans at the time of acquisition was included in the determination of the fair value of the loans at the acquisition date.

The majority of covered loans are accounted for under FASB ASC Topic 310-30, whereby First Financial is required to periodically re-estimate the expected cash flows on the loans. For purposes of applying the guidance under FASB ASC Topic 310-30, First Financial grouped acquired loans into pools based on common risk characteristics. Generally, a decline in expected cash flows for a pool of loans is referred to as impairment and recorded as provision expense, and a related allowance for loan and lease losses on covered loans, on a discounted basis during the period. Estimated reimbursements due from the FDIC under loss sharing agreements related to any declines in expected cash flows for a pool of loans are recorded as noninterest income and an increase to the FDIC indemnification asset in the same period. Improvement in expected cash flows

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for a pool of loans, once any previously recorded impairment is recaptured, is recognized prospectively as an adjustment to the yield on the loans in the pool and a related adjustment to the yield on the FDIC indemnification asset.

First Financial performs periodic valuation procedures to re-estimate the expected cash flows on covered loans accounted for under FASB ASC Topic 310-30 and compare the present value of expected cash flows to the carrying value of the loans at the pool level. In order to estimate expected cash flows, First Financial specifically reviews a sample of these covered loans to assist in the determination of appropriate probability of default and loss given default assumptions to be applied to the remainder of the portfolio. The estimate of expected cash flows may also be adjusted for management's estimate of probable losses on specific loan types dependent upon trends in observable market and industry data, such as prepayment speeds and collateral values. Additionally, during the second quarter of 2013, the Company implemented certain enhancements to its valuation methodology and the estimation of impairment to place greater emphasis on changes in total expected cash flows and less emphasis on changes in the net present value of expected cash flows. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.

First Financial updated the valuations related to covered loans during the third quarter ~~2013~~2014 and asrealized net recoveries of $0.7 million during the quarter. As a result of ~~impairment in certain loan pools,~~improved cash flow expectations from the updated valuations as well as net charge-off activity during the period, First Financial recognized negative provision expense, or impairment recapture, of $~~5.3 million~~ ~~and realized net charge-offs of~~ ~~$15.0~~0.2 million during the third quarter, resulting in an allowance for covered loan losses of $~~23.3~~11.5 million as of September 30, ~~2013~~2014. First Financial recognized negative provision

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expense on covered loans of ~~$6.1~~$2.8 million and realized net charge-offs of ~~$28.0~~$4.6 million for the first nine months of ~~2013~~.2014. For the third quarter of ~~2012~~2013, First Financial recognized provision expense on covered loans of $~~6.6~~5.3 million related to net charge-offs of $~~6.1~~15.0 million during the period. ~~Likewise, for~~For the first nine months of ~~2012~~,2013, the Company recognized provision expense on covered loans of ~~$25.6~~$6.1 million and net charge-offs of ~~$19.6 million~~.$28.0 million.

First Financial ~~also~~ recognized loss sharing ~~expense~~expenses of ~~$1.7~~$1.0 million and ~~$3.6~~$1.7 million for the third ~~quarter~~quarters of ~~2013~~2014 and ~~2012,~~2013, respectively, primarily related to attorney fees, appraisal costs and delinquent ~~taxes during the periods. Additionally, the~~taxes. The Company also recognized ~~losses~~gains on ~~sales of~~ covered OREO of $1.4 million for the third quarter of 2014 and losses on covered OREO of $0.2 million for the third quarter of 2013. The net payable due to the FDIC under loss sharing agreements related to covered loan provision expense, gains/losses on covered OREO and loss sharing expenses of $0.2 million was recognized as negative FDIC loss sharing income and a corresponding decrease to the FDIC indemnification asset during the third quarter of 2014. The net receivable due from the FDIC under loss sharing agreements of $5.6 million for the third quarter of 2013, was recognized as negative FDIC loss sharing income and a corresponding decrease to the FDIC indemnification asset.

On a year-to-date basis, First Financial recognized loss sharing expenses of $4.0 million and $5.6 million for 2014 and 2013 ~~and~~respectively. Similarly, on a year-to-date basis, First Financial recognized gains on covered OREO of ~~$25.0 thousand~~$1.0 million for ~~the~~ ~~third~~ ~~quarter of 2012.~~2014 and $2.2 million for 2013. The receivable due from the FDIC under loss sharing agreements related to covered loan provision expense, gains/losses on covered OREO and loss sharing expenses of $~~5.6 million~~ ~~and~~ ~~$8.5~~0.4 million for the ~~third~~ ~~quarter~~first nine months of ~~2013~~2014 and~~2012, respectively, was recognized as FDIC loss sharing income and a corresponding increase to the FDIC indemnification asset.~~

~~On a year-to-date basis, First Financial recognized loss sharing expense of~~ ~~$5.6 million~~ ~~and~~ ~~$8.4 million~~ ~~for 2013 and 2012 respectively. Similarly, on a year-to-date basis, the Company recognized gains on covered OREO of~~ ~~$2.2 million~~ ~~for 2013 and losses on covered OREO of~~ ~~$2.5 million~~ ~~for 2012. The receivable due from the FDIC under loss sharing agreements related to covered loan provision expense, gains/losses on covered OREO and loss sharing expenses of~~ $7.1 million for the ~~first~~ ~~nine~~ ~~months of~~ ~~2013~~ ~~and~~ ~~$29.6 million~~ ~~for the~~ comparable period in ~~2012~~,2013, was recognized as FDIC loss sharing income and a corresponding increase to the FDIC indemnification asset.

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

September 30, 2013
Real Estate
(Dollars in thousands) Commercial Commercial Residential Installment Total
Ending allowance on loans acquired with deteriorated credit quality (ASC 310-30) $ 8,587
$ 13,508
$ 993
$ 171
$ 23,259
Ending allowance on acquired loans outside the scope of ASC 310-30 0
0
0
0
0
Ending allowance on covered loans $ 8,587
$ 13,508
$ 993
$ 171
$ 23,259



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

December 31, 2012
Real Estate
(Dollars in thousands) Commercial Commercial Residential Installment Total
Ending allowance on loans acquired with deteriorated credit quality (ASC 310-30) $ 19,136
$ 22,918
$ 2,599
$ 537
$ 45,190
Ending allowance on acquired loans outside the scope of ASC 310-30 0
0
0
0
0
Ending allowance on covered loans $ 19,136
$ 22,918
$ 2,599
$ 537
$ 45,190

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


	Three Months Ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
(Dollars in thousands)	2013			2012			2013			2012			2014			2013			2014			2013
Balance at beginning of period	$	32,961		$	48,327		$	45,190		$	42,835		$	12,425		$	32,961		$	18,901		$	45,190
Provision for loan and lease losses	5,293			6,622			6,052			25,620			(200		)	5,293			(2,805		)	6,052
Loans charged-off	(21,009		)	(9,058		)	(35,374		)	(24,339		)	(3,053		)	(21,009		)	(13,778		)	(35,374		)
Recoveries	6,014			3,004			7,391			4,779			2,363			6,014			9,217			7,391
Balance at end of period	$	23,259		$	48,895		$	23,259		$	48,895		$	11,535		$	23,259		$	11,535		$	23,259
Total loans													$	332,265		$	518,524		$	332,265		$	518,524
Allowance for loan and lease losses to total ending loans													3.47		%	4.49		%	3.47		%	4.49		%

NOTE 7: GOODWILL AND OTHER INTANGIBLE ASSETS

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

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



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

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

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

NOTE 8: BORROWINGS

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

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

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

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

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The following is a summary of long-term debt:



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

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

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 September 30, 2014
	Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	(374	)	$	0		$	(374	)	$	118		$	(256	)	$	(5,956	)	$	(256	)	$	(6,212	)
Unrealized gain (loss) on derivatives	1,096			(117		)	1,213			(453		)	760			(492		)	760			268
Retirement obligation	0			(302		)	302			(113		)	189			(15,091		)	189			(14,902		)
Foreign currency translation	(12		)	0			(12		)	0			(12		)	(30		)	(12		)	(42		)
Total	$	710		$	(419	)	$	1,129		$	(448	)	$	681		$	(21,569	)	$	681		$	(20,888	)



	Three months ended September 30, 2013
	Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	(5,956	)	$	0		$	(5,956	)	$	1,953		$	(4,003	)	$	(5,765	)	$	(4,003	)	$	(9,768	)
Unrealized gain (loss) on derivatives	(1,475		)	(161		)	(1,314		)	496			(818		)	673			(818		)	(145		)
Retirement obligation	0			(1,873		)	1,873			(707		)	1,166			(20,528		)	1,166			(19,362		)
Foreign currency translation	6			0			6			0			6			(25		)	6			(19		)
Total	$	(7,425	)	$	(2,034	)	$	(5,391	)	$	1,742		$	(3,649	)	$	(25,645	)	$	(3,649	)	$	(29,294	)

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	Nine months ended September 30, 2014
	Total other comprehensive income															Total accumulated other comprehensive income
(Dollars in thousands)	Prior to Reclassification			Reclassification from			Pre-tax			Tax-effect			Net of tax			Beginning Balance			Net Activity			Ending Balance
Unrealized gain (loss) on investment securities	$	15,869		$	50		$	15,819		$	(5,742	)	$	10,077		$	(16,289	)	$	10,077		$	(6,212	)
Unrealized gain (loss) on derivatives	(881		)	(348		)	(533		)	199			(334		)	602			(334		)	268
Retirement obligation	0			(1,059		)	1,059			(396		)	663			(15,565		)	663			(14,902		)
Foreign currency translation	(13		)	0			(13		)	0			(13		)	(29		)	(13		)	(42		)
Total	$	14,975		$	(1,357	)	$	16,332		$	(5,939	)	$	10,393		$	(31,281	)	$	10,393		$	(20,888	)



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

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



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

(1) Negative amount are reductions to net income.

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

NOTE 10: DERIVATIVES

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

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

First Financial’s exposure to credit loss, in the event of nonperformance by a borrower, is limited to the market value of the derivative instrument associated with that borrower. First Financial monitors its derivative credit exposure to borrowers by monitoring the creditworthiness of the related loan customers through the normal credit review processes the Company performs on all borrowers. Additionally, the Company monitors derivative credit risk exposure related to problem loans through the Company's allowance for loan and lease losses committee. First Financial considers the market value of a derivative instrument to be part of the carrying value of the related loan for these purposes as the borrower is contractually obligated to pay First Financial this amount in the event the derivative contract is terminated.

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



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

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

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



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

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The following table details the derivative financial instruments, the average remaining maturities and the weighted-average interest rates being paid and received by First Financial at September 30, 2014:



							Weighted-average rate
(Dollars in thousands)	Notional amount		Average maturity (years)	Fair value			Receive		Pay
Asset conversion swaps
Pay fixed interest rate swaps with counterparty	$	8,913	2.3	$	(528	)	2.11	%	6.85	%
Receive fixed, matched interest rate swaps with borrower	406,276		4.1	8,620			4.67	%	2.71	%
Pay fixed, matched interest rate swaps with counterparty	406,276		4.1	(8,716		)	2.71	%	4.67	%
Total asset conversion swaps	$	821,465	4.0	$	(624	)	3.67	%	3.72	%

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

Credit Derivatives. In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with other counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty. The total notional value of these agreements totaled $32.3 million as of September 30, 2014 and $13.3 million as of December 31, 2013. The fair value of these agreements were recorded as liabilities of $49 thousand and $28 thousand on the Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013, respectively.

NOTE 11: INCOME TAXES

For the third quarter ~~2013~~2014, income tax expense was $~~7.6~~7.2 million, resulting in an effective tax rate of ~~33.9%~~32.0%, compared with income tax expense of $~~8.9~~7.6 million and an effective tax rate of ~~35.4%~~33.9% for the comparable period in ~~2012.~~2013. For the first nine months of ~~2013,~~2014, income tax expense was ~~$20.5~~$22.3 million,, resulting in an effective tax rate of ~~31.5%~~32.4%, compared with income tax expense of ~~$27.2~~$20.5 million, and an effective tax rate of ~~34.8%~~31.5% for the comparable period in ~~2012~~.2013. The ~~decline~~decrease in the effective tax rate for the third quarter ~~2013~~2014, as compared to the ~~third quarter~~ ~~2012~~same period in 2013, was primarily the result of higher tax-exempt income earned in 2014 and lower state tax planning strategies implemented during 2013, including the formation of a captive real estate investment trust, as well as higher income earned on tax-exempt investment securities. Similarly, the declineexpense, partially offset by non-deductible acquisition costs. The increase in the effective tax rate for the nine months ended September 30, ~~2013~~2014, as compared to the same ~~period~~periods in ~~2012~~2013, was primarily the result of ~~state tax planning strategies and higher income earned on tax-exempt investment securities as well as~~a favorable tax ~~reversals~~reversal related to both an intercompany tax obligation associated with an unconsolidated former Irwin subsidiary ~~and an adjustment to deferred tax liabilities relating to~~as well as a favorable change in state tax laws in ~~2013.~~2013, partially offset by higher tax-exempt income earned in 2014.

At ~~September 30, 2013, and~~ ~~December 31, 2012~~, First Financial had no FASB ASC Topic 740-10 unrecognized tax benefits ~~recorded. First Financial~~recorded at September 30, 2014, and December 31, 2013. Further, the Company does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months.

~~First Financial recognizes interest and penalties on income tax assessments or income tax refunds in the Consolidated Financial Statements as a component of noninterest expense.~~

First Financial regularly reviews its tax positions and establishes reserves for income tax-related uncertainties based on estimates of whether it is more likely than not that the tax uncertainty would be sustained upon challenge by the appropriate tax authorities, which would then result in additional taxes, penalties and interest due. These evaluations are inherently subjective as they require material estimates and may be susceptible to significant change. Provision for tax reserves, if any, is included in income tax expense in the Consolidated Financial Statements. Management determined that no reserve for income tax-related uncertainties was necessary as of September 30, ~~2013~~2014 and December 31, ~~2012~~2013.

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

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First Financial is no longer subject to state and local income tax examinations for years prior to ~~2009.~~2010. Tax years ~~2009~~2010 through ~~2012~~2013 remain open to state and local examination in various jurisdictions.

NOTE 12: COMMITMENTS AND CONTINGENCIES

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

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

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

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

NOTE 13: EMPLOYEE BENEFIT PLANS

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

First Financial made no cash contributions to fund the pension plan during the nine months ended September 30, ~~2013~~2014 and does not expect to make cash contributions to the plan through the remainder of the year. First Financial made no cash contributions to fund the pension plan in ~~2012.~~ 2013. As a result of the plan’s actuarial projections for 2014, First Financial recorded income related to its pension plan of $0.3 million for the third quarter of 2014 and $0.9 million for the nine months ended September 30, 2014.

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

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settlement charges are an acceleration of previously deferred costs that would have been recognized in future periods and are triggered when lump sum distributions exceed an annual accounting threshold for the plan. ~~These pension settlement charges were~~Associates are eligible to request a ~~result of employee-related actions, including staff retirements as well as recent efficiency initiatives, and the resulting~~ lump sum ~~distributions~~distribution from ~~First Financial's~~the Company's pension ~~plan. First Financial recognized pension settlement charges of~~ ~~$1.4 million~~ ~~and~~ ~~$5.7 million~~ ~~for~~plan at retirement or upon leaving the ~~three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2013, respectively.~~Company.

~~Primarily as a result of the pension plan re-measurement and pension settlement charges during the second and third quarters,~~ First Financial recorded $19.2 million of pre-tax adjustments to other comprehensive income related to changes in the values of the Company's ~~pension~~plan assets and pension obligations for the nine months ended September 30, 2013~~. As~~ as a result of the ~~plan’s updated actuarial projections for 2013~~pension plan re-measurement and pension settlement charges discussed above. Including the pension settlement charges as well as the ~~previously mentioned settlement charges,~~impact of the plan's updated actuarial projections, First Financial recorded expenses related to its pension plan of $1.1 million and $5.3 million for the three months and nine months ended September 30, 2013,~~, compared to income of~~ ~~$0.4 million~~ ~~for the same period in 2012. Similarly, First Financial recorded pension plan expenses of~~ ~~$1.1 million~~ ~~in the~~ ~~third~~ ~~quarter of 2013 compared to pension plan income of~~ ~~$0.1 million~~ ~~in the~~ ~~third~~ ~~quarter of 2012.~~ respectively.

As First Financial has exceeded the annual accounting threshold for lump sum distributions for 2013, the Company will continue to recognize a proportionate share of any further lump sum distributions from its pension plan as additional pension settlement charges through the remainder of the year. The accounting threshold for lump sum distributions ~~will~~from the plan reset aton January 1, 2014. However, the ~~beginning of 2014.~~Company could incur pension settlement charges again if lump sum distributions exceed the annual accounting threshold in future periods.

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


	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
(Dollars in thousands)	2013			2012			2013			2012			2014			2013			2014			2013
Service cost	$	916		$	894		$	2,789		$	2,559		$	1,007		$	916		$	3,089		$	2,789
Interest cost	566			606			1,752			1,986			551			566			1,791			1,752
Expected return on assets	(2,231		)	(2,281		)	(6,755		)	(6,751		)	(2,208		)	(2,231		)	(6,792		)	(6,755		)
Amortization of prior service cost	(105		)	(106		)	(317		)	(316		)	(103		)	(105		)	(309		)	(317		)
Net actuarial loss	582			780			2,128			2,130			405			582			1,368			2,128
Settlement charge	1,396			0			5,712			0			0			1,396			0			5,712
Net periodic benefit cost (income)	$	1,124		$	(107	)	$	5,309		$	(392	)
Net periodic benefit (income) cost													$	(348	)	$	1,124		$	(853	)	$	5,309

NOTE ~~13:~~14: EARNINGS PER COMMON SHARE

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



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

Denominator
Basic earnings per common share - weighted average shares	59,403,109		57,201,390		57,907,203		57,309,934
Effect of dilutive securities —
Employee stock awards	576,543		698,194		594,082		725,862
Warrants	133,280		113,004		138,109		107,576
Diluted earnings per common share - adjusted weighted average shares	60,112,932		58,012,588		58,639,394		58,143,372

Earnings per share available to common shareholders
Basic	$	0.26	$	0.26	$	0.80	$	0.78
Diluted	$	0.26	$	0.26	$	0.79	$	0.77

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

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

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

NOTE 15: FAIR VALUE DISCLOSURES

Fair Value Measurement

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

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

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

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

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

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

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

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to be received from these third parties, which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, First Financial records any fair value adjustments on a nonrecurring basis. Gains and losses on the sale of loans are recorded as net gains from sales of loans within noninterest income in the Consolidated Statements of Income.

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

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

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

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includes the effects of estimated prepayments. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.

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

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

FDIC indemnification asset. ~~The accounting for FDIC indemnification assets is closely related to the accounting for the underlying, indemnified assets.~~ Fair value of the FDIC indemnification asset was estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. First Financial re-estimates the expected indemnification asset cash flows in conjunction with the periodic re-estimation of cash flows on covered loans accounted for under FASB ASC Topic 310-30. Improvements in cash flow expectations on covered loans generally result in a related decline in the expected indemnification cash flows while declines in cash flow expectations on covered loans generally result in an increase in expected indemnification cash flows.

The expected cash flows are discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. The Company classifies the estimated fair value of the indemnification asset as Level 3 in the fair value hierarchy.

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

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

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

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

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

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

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

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


	Carrying		Estimated Fair Value								Carrying		Estimated fair value
(Dollars in thousands)	value		Total		Level 1		Level 2		Level 3		value		Total		Level 1		Level 2		Level 3
September 30, 2013
September 30, 2014
Financial assets
Cash and short-term investments	$	188,112	$	188,112	$	188,112	$	0	$	0	$	143,725	$	143,725	$	143,725	$	0	$	0
Investment securities held-to-maturity	669,093		661,685		0		661,685		0		900,521		901,659		0		901,659		0
Other investments	75,945		75,945		0		75,945		0		49,986		49,986		0		49,986		0
Loans held for sale	10,704		10,704		0		10,704		0		16,816		16,816		0		16,816		0
Loans - excluding covered loans	3,385,402		3,379,595		0		0		3,379,595		4,407,518		4,416,740		0		0		4,416,740
Covered loans	495,265		504,781		0		0		504,781		320,730		318,372		0		0		318,372
FDIC indemnification asset	78,132		57,978		0		0		57,978		24,160		12,482		0		0		12,482

Financial liabilities
Deposits
Noninterest-bearing	$	1,141,016	$	1,141,016	$	0	$	1,141,016	$	0	$	1,243,367	$	1,243,367	$	0	$	1,243,367	$	0
Interest-bearing demand	1,068,067		1,068,067		0		1,068,067		0		1,214,726		1,214,726		0		1,214,726		0
Savings	1,593,895		1,593,895		0		1,593,895		0		1,827,590		1,827,590		0		1,827,590		0
Time	926,029		921,933		0		921,933		0		1,247,334		1,244,218		0		1,244,218		0
Total deposits	4,729,007		4,724,911		0		4,724,911		0		5,533,017		5,529,901		0		5,529,901		0
Short-term borrowings	623,672		623,672		623,672		0		0		919,303		919,303		919,303		0		0
Long-term debt	61,088		63,338		0		63,338		0		52,656		54,385		0		54,385		0

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	Carrying		Estimated Fair Value								Carrying		Estimated fair value
(Dollars in thousands)	value		Total		Level 1		Level 2		Level 3		value		Total		Level 1		Level 2		Level 3
December 31, 2012
December 31, 2013
Financial assets
Cash and short-term investments	$	158,843	$	158,843	$	158,843	$	0	$	0	$	143,450	$	143,450	$	143,450	$	0	$	0
Investment securities held-to-maturity	770,755		778,474		0		778,474		0		837,272		824,985		0		824,985		0
Other investments	71,492		71,492		0		71,492		0		47,427		47,427		0		47,427		0
Loans held for sale	16,256		16,256		0		16,256		0		8,114		8,114		0		8,114		0
Loans - excluding covered loans	3,131,287		3,145,120		0		0		3,145,120		3,461,812		3,455,776		0		0		3,455,776
Covered loans	702,926		713,797		0		0		713,797		438,972		451,545		0		0		451,545
FDIC indemnification asset	119,607		106,380		0		0		106,380		45,091		34,820		0		0		34,820

Financial liabilities
Deposits
Noninterest-bearing	$	1,102,774	$	1,102,774	$	0	$	1,102,774	$	0	$	1,147,452	$	1,147,452	$	0	$	1,147,452	$	0
Interest-bearing demand	1,160,815		1,160,815		0		1,160,815		0		1,125,723		1,125,723		0		1,125,723		0
Savings	1,623,614		1,623,614		0		1,623,614		0		1,612,005		1,612,005		0		1,612,005		0
Time	1,068,637		1,072,201		0		1,072,201		0		952,327		951,220		0		951,220		0
Total deposits	4,955,840		4,959,404		0		4,959,404		0		4,837,507		4,836,400		0		4,836,400		0
Short-term borrowings	624,570		624,570		624,570		0		0		748,749		748,749		748,749		0		0
Long-term debt	75,202		78,941		0		78,941		0		60,780		62,706		0		62,706		0

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


	Fair Value Measurements Using											Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Netting Adjustments ⁽¹⁾			Assets/Liabilities at Fair Value		Level 1		Level 2		Level 3		Assets/liabilities at fair value
September 30, 2013
September 30, 2014
Assets
Derivatives	$	0	$	14,848	$	0	$	(14,848	)	$	0	$	0	$	10,126	$	0	$	10,126
Available-for-sale investment securities	185		854,562		0		0			854,747
Investment securities available-for-sale												8,258		921,336		0		929,594
Total	$	185	$	869,410	$	0	$	(14,848	)	$	854,747	$	8,258	$	931,462	$	0	$	939,720

Liabilities
Derivatives	$	0	$	16,044	$	0	$	(14,848	)	$	1,196	$	0	$	10,578	$	0	$	10,578

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	Fair Value Measurements Using											Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Netting Adjustments ⁽¹⁾			Assets/Liabilities at Fair Value		Level 1		Level 2		Level 3		Assets/liabilities at fair value
December 31, 2012
December 31, 2013
Assets
Derivatives	$	0	$	24,135	$	0	$	(24,135	)	$	0	$	0	$	13,477	$	0	$	13,477
Available-for-sale investment securities	144		1,031,952		0		0			1,032,096
Investment securities available-for-sale												7,976		905,625		0		913,601
Total	$	144	$	1,056,087	$	0	$	(24,135	)	$	1,032,096	$	7,976	$	919,102	$	0	$	927,078

Liabilities
Derivatives	$	0	$	26,652	$	0	$	(24,135	)	$	2,517	$	0	$	14,431	$	0	$	14,431

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

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


	Fair Value Measurements Using						Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
September 30, 2013
September 30, 2014
Assets
Impaired loans ⁽¹⁾	$	0	$	0	$	21,390	$	0	$	0	$	10,308
OREO	0		0		6,346		0		0		7,316
Covered OREO	0		0		7,722		0		0		6,605


	Fair Value Measurements Using						Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
December 31, 2012
December 31, 2013
Assets
Impaired loans ⁽¹⁾	$	0	$	0	$	19,564	$	0	$	0	$	13,699
OREO	0		0		5,651		0		0		5,358
Covered OREO	0		0		14,059		0		0		8,937

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

NOTE 16: BUSINESS COMBINATIONS

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

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

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

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~~NOTE 14: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)~~Guernsey. Headquartered in Worthington, Ohio, Guernsey conducted operations out of three full service branches, and served commercial and consumer clients throughout Columbus and central Ohio. Under the terms of the merger agreement, First Financial acquired Guernsey for cash consideration and the transfer of a single bank-owned property to Guernsey's sole shareholder. The Company also paid off all amounts due under a promissory note to a third party on behalf of Guernsey. The Guernsey Bank, an Ohio state chartered bank and wholly-owned subsidiary of Guernsey, merged with and into First Financial as part of the agreement on August 21, 2014.

~~Shareholders’ equity is affected by~~The First Bexley, Insight and Guernsey transactions were accounted for using the acquisition method of accounting and ~~valuations~~accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition dates, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of ~~asset~~assets acquired and ~~liability positions that require adjustments~~liabilities assumed are subject to ~~accumulated other comprehensive income (loss).~~refinement for up to one year after the closing date of the acquisitions as additional information relative to closing date fair values become available. The ~~related tax effects allocated to other comprehensive income and reclassifications out of accumulated other comprehensive income (loss) are as follows:~~

September 30, 2013
Total other comprehensive income
Total accumulated
other comprehensive income
(Dollars in thousands)
Prior to
Reclassification

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

September 30, 2012
Total other comprehensive income
Total accumulated
other comprehensive income
(Dollars in thousands) Pre-tax Tax-effect Net of tax Beginning Balance Net Activity Ending Balance
Unrealized gain (loss) on investment securities $ 2,671
$ (1,009 ) $ 1,662
$ 12,669
$ 1,662
$ 14,331
Unrealized gain (loss) on cash flow hedges (292 ) 110
(182 ) 0
(182 ) (182 )
Retirement obligation 1,814
(685 ) 1,129
(34,136 ) 1,129
(33,007 )
Foreign currency translation 26
0
26
(23 ) 26
3
Total $ 4,219
$ (1,584 ) $ 2,635
$ (21,490 ) $ 2,635
$ (18,855 )
measurement periods end in August 2015.

The following table ~~details~~provides the ~~activity reclassified from accumulated other comprehensive income into income during~~purchase price calculation as of the ~~period:~~acquisition dates and the identifiable assets purchased and the liabilities assumed at their estimated fair value. These fair value measurements are based on third-party valuations.

September 30, 2013
(Dollars in thousands)
Amount Reclassified from Accumulated Other Comprehensive Income ⁽¹⁾
Affected Line Item in the Consolidated Statements of Income
Gains and losses on cash flow hedges
Interest rate contracts $ (295 ) Interest expense - deposits

Realized gains and losses on securities available-for-sale 1,724
Gains on sales of investments securities

Defined benefit pension plan
Amortization of prior service cost 317

⁽²⁾
Recognized net actuarial loss (2,128 )
⁽²⁾
Pension settlement charges (5,712 ) Pension settlement charges
Amortization and settlement charges of defined benefit pension items (7,523 )

Total reclassifications for the period, before tax $ (6,094 )



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

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

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

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

~~(1) Negative~~The amount of goodwill arising from the First Bexley, Insight and Guernsey acquisitions reflects the increased market share and related synergies that are ~~debits~~expected to ~~profit/loss.~~

~~(2) Included~~result from the acquisitions. The goodwill arising from the First Bexley and Insight transactions is not deductible for income tax purposes as the mergers were accounted for as tax-free exchanges. The tax-free exchanges resulted in a carryover of tax attributes and tax basis to the ~~computation of net periodic pension cost (see employee benefit footnote~~Company's subsequent income tax filings and was adjusted for ~~additional details).~~any fair value adjustments required in accounting for the acquisitions. The goodwill arising from the Guernsey transaction is deductible for tax purposes as the Guernsey transaction is considered a taxable exchange.

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~~NOTE 15: EARNINGS PER COMMON SHARE~~

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

Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands, except per share data) 2013 2012 2013 2012
Numerator
Net income available to common shareholders $ 14,911
$ 16,242
$ 44,564
$ 51,038

Denominator
Basic earnings per common share - weighted average shares 57,201,390
57,976,943
57,309,934
57,902,102
Effect of dilutive securities —
Employee stock awards 698,194
842,833
725,862
905,210
Warrants 113,004
120,403
107,576
123,258
Diluted earnings per common share - adjusted weighted average shares 58,012,588
58,940,179
58,143,372
58,930,570

Earnings per share available to common shareholders

Basic $ 0.26
$ 0.28
$ 0.78
$ 0.88
Diluted $ 0.26
$ 0.28
$ 0.77
$ 0.87

~~Warrants to purchase~~ ~~465,117~~ ~~shares of the Company's common stock were outstanding as of~~ ~~September 30, 2013~~ ~~and~~ ~~2012. These warrants, each representing the right to purchase one share of common stock, no par value per share, have an exercise price of~~ ~~$12.12~~ ~~and expire on December 23, 2018.~~

Stock options and warrants, where the exercise price was greater than the average market price of the common shares were not included in the computation of net income per diluted share as they would have been antidilutive. These out-of-the-money options were ~~596,666~~ ~~and~~ ~~354,876~~ at ~~September 30, 2013~~ ~~and~~ ~~2012, respectively.~~

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ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (MD&A)

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

(Unaudited)

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

SUMMARY

First Financial Bancorp. (First Financial or the Company) is a $~~6.3~~7.4 billion bank holding company headquartered in Cincinnati, Ohio. ~~As of~~ ~~September 30, 2013~~First Financial, through its subsidiaries, ~~operated~~operates primarily in Ohio, Indiana and Kentucky. These subsidiaries include a commercial bank, First Financial Bank, N.A. (First Financial Bank or the Bank) with ~~110~~106 banking centers and ~~138~~129 ATMs. First Financial provides banking and financial services products through its four lines of business: commercial, consumer, wealth management and mortgage. The commercial, consumer and mortgage ~~units~~business lines provide ~~traditional banking~~credit-based products, deposit accounts, retail brokerage, corporate cash management support and other services to ~~business~~commercial and ~~retail~~consumer clients. ~~First Financial Wealth Management~~The Bank also provides wealth planning, portfolio management, trust and estate, brokerage and retirement plan services and had approximately $2.6 billion in assets under management as of September 30, 2013. Additionally, the Bank provides franchise lending products, primarily equipment and leasehold improvement financing, for select ~~franchisees~~concepts and ~~concepts~~franchisees in the quick service and casual dining restaurant sector throughout the United States. First Financial Wealth Management provides wealth planning, portfolio management, trust and ~~estate, brokerage and~~ retirement plan ~~services.~~ services and had approximately $2.4 billion in assets under management as of September 30, 2014.

First Financial acquired the banking operations of Peoples Community Bank (Peoples), and Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B. (collectively, Irwin), through Federal Deposit Insurance Corporation (FDIC)-assisted transactions in 2009. ~~The acquisitions of the Peoples and Irwin franchises significantly expanded the First Financial footprint, opened new markets and strengthened the Company through the generation of additional capital.~~

In connection with ~~the Peoples and Irwin~~these FDIC-assisted transactions, First Financial entered into loss sharing agreements with the FDIC. Under the terms of these agreements the FDIC reimburses First Financial for a percentage of losses with respect to certain loans (covered loans) and other real estate owned (covered OREO) (collectively, covered assets). These agreements provide for loss protection on covered single-family, residential loans for a period of ten years and First Financial is required to share any recoveries of previously charged-off amounts for the same time period, on the same pro-rata basis with the FDIC. All other covered loans are provided loss protection for a period of five years and recoveries of previously charged-off amounts must be shared with the FDIC for an additional three year period, ~~again~~ on the same pro-rata basis. The ~~FDIC's obligation~~Company’s loss sharing indemnification from the FDIC related to ~~reimburse First Financial for losses with respect~~non-single-family loans expired effective October 1, 2014 and, as a result, approximately $190.3 million, or 57.3%, of the Company's $332.3 million covered loan portfolio will no longer be covered by FDIC loss sharing effective that date. The loss sharing protection related to all other covered ~~assets for all three assisted transactions began with~~loans of approximately $142.0 million will expire in the ~~first dollar of loss incurred.~~

third quarter 2019. Covered assets ~~represent~~represented approximately 9%4.7% of First Financial’s total assets at September 30, ~~2013~~2014.

MARKET STRATEGY AND BUSINESS COMBINATIONS

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

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

Insight. On August 7, 2014, First Financial also closed its merger with Insight Bank (Insight) during the third quarter 2014. Founded in 2006 and conducting operations out of one full service location in Worthington, Ohio, and a mortgage origination office in Newark, Ohio, Insight provided commercial and consumer banking services to clients throughout Columbus and central Ohio. First Financial acquired Insight in a cash and stock transaction in which Insight merged with and into First Financial Bank.

Guernsey. On August 21, 2014, First Financial finalized its merger with Guernsey Bancorp, Inc. (Guernsey). Headquartered in Worthington, Ohio, Guernsey conducted operations out of three full service branches and served commercial and consumer clients throughout Columbus and central Ohio.

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

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and rebranding efforts on both the First Bexley and Insight acquisitions were completed during the third quarter 2014 while the Guernsey data conversion and rebranding are expected to be completed in the fourth quarter.

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



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

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

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

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

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

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

OVERVIEW OF OPERATIONS

Third quarter ~~2013~~2014 net income was ~~$14.9~~$15.3 million and earnings per diluted common share were $0.26. This compares with third quarter ~~2012~~2013 net income of ~~$16.2~~$14.9 million and earnings per diluted common share of ~~$0.28.~~$0.26. For the nine months ended September 30, ~~2013~~,2014, net income was ~~$44.6~~$46.4 million,, and earnings per diluted common share were ~~$0.77~~.$0.79. This compares with net income of ~~$51.0~~$44.6 million and earnings per diluted common share of ~~$0.87~~$0.77 for the first nine months of ~~2012.~~2013.

Return on average assets for the third quarter ~~2013~~2014 was ~~0.96%~~0.88% compared to ~~1.05%~~0.96% for the comparable period in ~~2012.~~2013. Return on average shareholders’ equity for the third quarter ~~2013~~2014 was ~~8.53%~~8.16% compared to ~~9.01%~~8.53% for the comparable period in ~~2012.~~2013. Return on average assets ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2013~~ ~~was 0.95% compared to 1.08% for the same period in 2012. Return on average shareholders' equity was 8.49% and 9.56%~~ for the nine months ended September 30, ~~2013~~2014 was 0.94% compared to 0.95% for the same period in 2013. Return on average shareholders' equity was 8.75% and ~~2012,~~8.49% for the same periods in 2014 and 2013, respectively.

A discussion of First Financial's results of operations for the three and nine months ended September 30, ~~2013~~2014 follows.

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NET INTEREST INCOME

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

For analytical purposes, net interest income is also presented in the table that follows, adjusted to a tax equivalent basis assuming a 35% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investments. This is to recognize the income tax savings that facilitates a comparison between taxable and

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tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully tax equivalent ~~basis. Therefore, management believes~~basis as these measures provide useful information to make peer comparisons.


	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
(Dollars in thousands)	2013			2012			2013			2012			2014			2013			2014			2013
Net interest income	$	55,772		$	59,846		$	172,516		$	191,365		$	58,363		$	55,772		$	167,486		$	172,516
Tax equivalent adjustment	516			255			1,507			689			818			516			2,278			1,507
Net interest income - tax equivalent	$	56,288		$	60,101		$	174,023		$	192,054		$	59,181		$	56,288		$	169,764		$	174,023

Average earning assets	$	5,659,432		$	5,658,059		$	5,778,815		$	5,806,615		$	6,326,315		$	5,659,432		$	6,011,310		$	5,778,815

Net interest margin ⁽¹⁾	3.91		%	4.21		%	3.99		%	4.40		%	3.66		%	3.91		%	3.73		%	3.99		%
Net interest margin (fully tax equivalent) ⁽¹⁾	3.95		%	4.23		%	4.03		%	4.42		%	3.71		%	3.95		%	3.78		%	4.03		%

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

Net interest income for the third quarter ~~2013~~2014 was ~~$55.8~~$58.4 million, ~~declining $4.1~~increasing $2.6 million or ~~6.8%~~4.6% from third quarter ~~2012~~2013 net interest income of ~~$59.8~~$55.8 million. Net interest income on a fully tax-equivalent basis for the third quarter ~~2013~~2014 was $~~56.3~~59.2 million as compared to $~~60.1~~56.3 million for the third quarter ~~2012.~~2013. Net interest margin was ~~3.91%~~3.66% for the third quarter ~~2013 as~~2014 compared to ~~4.21%~~3.91% for the third quarter ~~2012.~~2013. The ~~declines~~increase in net interest income ~~and~~for the third quarter 2014 as compared to the same period in 2013 was primarily driven by higher earning asset balances, partially offset by lower yields as a result of the prolonged low interest rate environment. The decline in net interest margin ~~were~~was primarily related to changes in the composition of the Company's earning assets, including the continued decline in the covered loan portfolio, as well as lower yields resulting from the ~~current low~~ interest rate ~~environment for loans and investment securities.~~environment.

The ~~decline~~increase in net interest income for the third quarter ~~2013~~2014, as compared to the third quarter ~~2012~~2013, was the result of a ~~$6.8~~$3.9 million or ~~10.2% decrease~~6.5% increase in total interest income ~~partially offset by~~to $63.4 million in the third quarter of 2014 from $59.5 million in the third quarter 2013. Partially offsetting the increase in interest income was a ~~$2.7~~corresponding increase in interest expense of $1.3 million, or ~~41.8% decrease~~33.8%, to $5.0 million in ~~total interest expense.~~ the third quarter 2014 from $3.8 million in the third quarter 2013.

The ~~decline~~rise in total interest income resulted from ~~a decrease~~an increase in interest income from investment securities as well as higher interest income and fees earned on loans. The increase in interest income from investment securities during the third quarter 2014 was driven by higher investment securities balances and yields during the period. The average balance of investment securities increased $275.6 million or 17.3% in the third quarter 2014 as compared to the third quarter 2013 and the average yield on investment securities increased 17 bps, to 2.37% in the third quarter 2014 from 2.20% in the third quarter 2013. The increased yield on investment securities is primarily related to higher reinvestment rates and continued stabilization in premium amortization.

Higher interest income earned on loans primarily resulted from strong organic loan growth in recent periods as ~~a result of~~well as the Columbus acquisitions during the third quarter, partially offset by continued paydowns and resolutions in the Company's high-yielding covered loan portfolio as well as ~~declining yields on covered loans and~~lower new origination loan yields. Average loan balances increased ~~amortization of the related FDIC indemnification asset.~~

~~The average balance of covered loans for~~$418.2 million, or 10.5% from the third quarter of 2013, ~~declined $293.2 million or 33.8% compared to the~~ ~~third~~ quarter 2012, contributing to the lower interest income earned on loans and a related decline in net interest margin. Declines in covered loan balances are a result of payments received, including full payoffs, charge-offs and other loan resolution activities. The decline in covered loan balances during the third quarter 2013 was elevated compared to recent quarters and was impacted by significant resolution activities during the period, including sales, payoffs and transfers to covered OREO. The decline in covered loan balances was partially offset by growth in lower yielding assets as average uncovered loan balances increased $385.1 million or 12.8% from the ~~third~~ ~~quarter of 2012.~~

~~While average uncovered loan balances increased from the~~ ~~third~~ ~~quarter 2012 as a result of strong new loan origination activity in recent periods, payoff activity has also been elevated. As a result of the low interest rate environment and heightened competition,~~however, new loan originations continue to be recorded at yields significantly lower than the yields on loans that ~~paid~~pay off or mature during the ~~same~~ period as a result of the low interest rate environment, muting the impact of increased balances on interest income ~~earned~~ and net interest margin.

~~The decline in total interest income was partially offset by higher interest income earned on investment securities. While the average balance~~

Table of ~~investment securities decreased modestly in the~~ ~~third~~ ~~quarter 2013 as compared to the~~ ~~third~~ ~~quarter 2012, the average yield on investment securities increased 11 basis points, to 2.20% in the~~ ~~third~~ ~~quarter 2013 from 2.09% in the~~ ~~third~~ ~~quarter 2012. The higher yields on investment securities are primarily related to stabilization in premium amortization as prepayment activity has moderated in recent periods.~~Contents

Interest expense ~~and net interest margin continued to benefit from the impact of the Company's deposit pricing and rationalization strategies~~increased as the average balance of interest-bearing deposits ~~declined $358.8~~increased $386.9 million or ~~8.9%~~10.6% and the cost of funds related to these deposits ~~decreased 26 basis points~~increased 10 bps to ~~31 basis points~~41 bps for the third quarter ~~2013 compared to 57 basis points~~2014 from 31 bps for the comparable quarter in ~~2012. However, interest expense and~~2013, negatively impacting net interest ~~margin were~~margin. Interest expense was also impacted by ~~a $416.5 million~~an increase in ~~the average balance of~~ short-term borrowings ~~for~~of $295.6 million due primarily to balance sheet growth, including the Columbus acquisitions, which was partially offset by an $8.4 million or 13.8% decline in long-term borrowings when compared to the third quarter ~~2013 as compared with the third quarter 2012. Short-term borrowings, which are utilized to manage the Company's normal liquidity needs, increased as a result of loan~~

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~~demand as well as deposit rationalization, banking center consolidation and investment portfolio strategies during 2012 and~~ 2013.

For the nine month period ended September 30, ~~2013,~~2014, net interest income was ~~$172.5~~$167.5 million , a decline of ~~$18.8~~$5.0 million, from ~~$191.4~~$172.5 million for the comparable period in ~~2012.~~2013. Net interest income on a fully tax-equivalent basis for the period ended September 30, ~~2013,~~2014 was ~~$174.0~~$169.8 million as compared to ~~$192.1~~$174.0 million for the comparable period in ~~2012. Similar to the quarterly year-over-year items discussed above, these~~2013. These declines were primarily related to lower interest income due to covered loan ~~balances, increased amortization of the FDIC indemnification asset~~runoff and lower yields on recent loan ~~originations.~~

~~Net~~originations, partially offset by higher income due to the increase in investment portfolio balances and the contribution from the Columbus acquisitions. In addition to lower interest ~~margin on a fully tax-equivalent basis~~income during the period, interest expense increased $0.8 million, or 6.0% during the nine months ended September 30, 2014 as compared to the nine months ended September 30, 2013 to $13.6 million. The increase in interest expense for the nine month period ended September 30, 2014 was primarily related to an increase in average interest-bearing deposits of $113.8 million, or 3.0% when compared to the similar period in 2013, ~~declined~~as well as an increase in the cost of funds related to those deposits of 3 bps from 36 bps in 2013 to 39 bps ~~to 4.03% from 4.42% for the comparable period~~ in ~~2012.~~

~~The Consolidated Average Balance Sheets and Net Interest Income Analysis that follows are presented on a GAAP basis.~~

2014.

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CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS


	Quarterly Averages																Year-to Date Averages										Quarterly Averages															Year-to-Date Averages
	September 30, 2013					June 30, 2013						September 30, 2012					September 30, 2013					September 30, 2012					September 30, 2014					June 30, 2014					September 30, 2013					September 30, 2014					September 30, 2013
(Dollars in thousands)	Balance			Yield		Balance			Yield			Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield
Earning assets
Investments:
Investments
Investment securities	$	1,589,666		2.20	%	$	1,705,219		2.08	%		$	1,606,313		2.09	%	$	1,710,310		2.08	%	$	1,661,285		2.38	%	$	1,865,241		2.37	%	$	1,811,175		2.47	%	$	1,589,666		2.20	%	$	1,828,207		2.45	%	$	1,710,310		2.08	%
Interest-bearing deposits with other banks	4,010			0.49	%	13,890			0.32	%		11,390			0.45	%	6,989			0.38	%	47,260			0.29	%	29,433			0.42	%	10,697			0.45	%	4,010			0.49	%	14,448			0.49	%	6,989			0.38	%
Gross loans ⁽¹⁾	4,065,756			4.95	%	4,072,606			5.26	%		4,040,356			5.68	%	4,061,516			5.22	%	4,098,070			5.99	%	4,431,641			4.68	%	4,059,061			4.70	%	4,065,756			4.95	%	4,168,655			4.73	%	4,061,516			5.22	%
Total earning assets	5,659,432			4.17	%	5,791,715			4.32	%		5,658,059			4.65	%	5,778,815			4.29	%	5,806,615			4.91	%	6,326,315			3.98	%	5,880,933			4.01	%	5,659,432			4.17	%	6,011,310			4.03	%	5,778,815			4.29	%

Nonearning assets
Allowance for loan and lease losses	(80,659		)			(92,033		)				(102,636		)			(89,347		)			(100,547		)			(55,697		)			(55,149		)			(80,659		)			(57,560		)			(89,347		)
Cash and due from banks	120,154					119,909						118,642					117,252					121,121					125,528					118,947					120,154					122,693					117,252
Accrued interest and other assets	494,795					491,011						492,602					491,015					499,083					541,137					509,521					494,795					522,451					491,015
Total assets	$	6,193,722				$	6,310,602					$	6,166,667				$	6,297,735				$	6,326,272				$	6,937,283				$	6,454,252				$	6,193,722				$	6,598,894				$	6,297,735

Interest-bearing liabilities
Deposits:
Deposits
Interest-bearing demand	$	1,098,524		0.12	%	$	1,141,767		0.09	%		$	1,164,111		0.13	%	$	1,117,600		0.11	%	$	1,213,876		0.13	%	$	1,135,126		0.11	%	$	1,169,350		0.11	%	$	1,098,524		0.12	%	$	1,137,540		0.11	%	$	1,117,600		0.11	%
Savings	1,608,351			0.09	%	1,639,834			0.10	%		1,588,708			0.12	%	1,622,105			0.10	%	1,627,068			0.13	%	1,782,472			0.26	%	1,702,521			0.23	%	1,608,351			0.09	%	1,706,845			0.23	%	1,622,105			0.10	%
Time	947,436			0.90	%	1,011,290			1.04	%		1,260,329			1.53	%	1,004,016			1.05	%	1,414,295			1.62	%	1,123,657			0.97	%	960,424			0.98	%	947,436			0.90	%	1,013,125			0.96	%	1,004,016			1.05	%
Total interest-bearing deposits	3,654,311			0.31	%	3,792,891			0.35	%		4,013,148			0.57	%	3,743,721			0.36	%	4,255,239			0.62	%	4,041,255			0.41	%	3,832,295			0.38	%	3,654,311			0.31	%	3,857,510			0.39	%	3,743,721			0.36	%
Borrowed fund:
Borrowed funds
Short-term borrowings	598,442			0.19	%	569,929			0.21	%	��	181,905			0.12	%	609,425			0.20	%	142,636			0.10	%	835,973			0.17	%	686,148			0.17	%	598,442			0.19	%	768,275			0.17	%	609,425			0.20	%
Long-term debt	69,264			3.53	%	74,129			3.54	%		75,435			3.55	%	72,691			3.54	%	75,589			3.59	%	60,355			3.00	%	59,842			3.52	%	69,264			3.53	%	60,188			3.34	%	72,691			3.54	%
Total borrowed funds	667,706			0.54	%	644,058			0.60	%		257,340			1.12	%	682,116			0.56	%	218,225			1.31	%	896,328			0.36	%	745,990			0.44	%	667,706			0.54	%	828,463			0.40	%	682,116			0.56	%
Total interest-bearing liabilities	4,322,017			0.35	%	4,436,949			0.38	%		4,270,488			0.60	%	4,425,837			0.39	%	4,473,464			0.66	%	4,937,583			0.40	%	4,578,285			0.39	%	4,322,017			0.35	%	4,685,973			0.39	%	4,425,837			0.39	%

Noninterest-bearing liabilities
Noninterest-bearing demand deposits	1,072,259					1,063,102						1,052,421					1,061,850					1,009,548					1,179,207					1,110,697					1,072,259					1,129,107					1,061,850
Other liabilities	106,288					106,747						126,961					108,164					129,763					74,764					68,661					106,288					74,699					108,164
Shareholders' equity	693,158					703,804						716,797					701,884					713,497					745,729					696,609					693,158					709,115					701,884
Total liabilities and shareholders' equity	$	6,193,722				$	6,310,602					$	6,166,667				$	6,297,735				$	6,326,272				$	6,937,283				$	6,454,252				$	6,193,722				$	6,598,894				$	6,297,735

Net interest income	$	55,772				$	58,078					$	59,846				$	172,516				$	191,365				$	58,363				$	54,304				$	55,772				$	167,486				$	172,516

Net interest spread				3.82	%				3.94	%					4.05	%				3.90	%				4.25	%				3.58	%				3.62	%				3.82	%				3.64	%				3.90	%
Contribution of noninterest-bearing sources of funds				0.09	%				0.08	%					0.16	%				0.09	%				0.15	%				0.08	%				0.08	%				0.09	%				0.09	%				0.09	%
Net interest margin ⁽²⁾				3.91	%				4.02	%					4.21	%				3.99	%				4.40	%				3.66	%				3.70	%				3.91	%				3.73	%				3.99	%


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


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

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RATE/VOLUME ANALYSIS

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


	Changes for the Three Months Ended September 30, 2013																		Changes for the three months ended September 30, 2014
	Linked Qtr. Income Variance									Comparable Qtr. Income Variance									Linked quarter income variance								Comparable quarter income variance
(Dollars in thousands)	Rate			Volume			Total			Rate			Volume			Total			Rate			Volume		Total			Rate			Volume			Total
Earning assets
Investment securities	$	491		$	(538	)	$	(47	)	$	431		$	(92	)	$	339		$	(470	)	$	440	$	(30	)	$	670		$	1,643		$	2,313
Other earning assets	6			(12		)	(6		)	1			(9		)	(8		)
Interest-bearing deposits with other banks																			(1		)	20		19			(1		)	27			26
Gross loans ⁽¹⁾	(3,204		)	467			(2,737		)	(7,422		)	317			(7,105		)	(237		)	4,912		4,675			(2,792		)	4,313			1,521
Total earning assets	(2,707		)	(83		)	(2,790		)	(6,990		)	216			(6,774		)	(708		)	5,372		4,664			(2,123		)	5,983			3,860
Interest-bearing liabilities
Total interest-bearing deposits	$	(352	)	$	(76	)	$	(428	)	$	(2,594	)	$	(280	)	$	(2,874	)	$	350		$	262	$	612		$	958		$	404		$	1,362
Borrowed funds
Short-term borrowings	(36		)	17			(19		)	33			199			232			(5		)	67		62			(33		)	101			68
Federal Home Loan Bank long-term debt	(1		)	(36		)	(37		)	(3		)	(55		)	(58		)	(78		)	9		(69		)	(94		)	(67		)	(161		)
Total borrowed funds	(37		)	(19		)	(56		)	30			144			174			(83		)	76		(7		)	(127		)	34			(93		)
Total interest-bearing liabilities	(389		)	(95		)	(484		)	(2,564		)	(136		)	(2,700		)	267			338		605			831			438			1,269
Net interest income	$	(2,318	)	$	12		$	(2,306	)	$	(4,426	)	$	352		$	(4,074	)	$	(975	)	$	5,034	$	4,059		$	(2,954	)	$	5,545		$	2,591

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


	Changes for the Nine Months Ended September 30, 2013									Changes for the nine months ended September 30, 2014
	Year-to-Date Income Variance									Year-to-date income variance
(Dollars in thousands)	Rate			Volume			Total			Rate			Volume			Total
Earning assets
Investment securities	$	(3,764	)	$	763		$	(3,001	)	$	4,738		$	2,162		$	6,900
Other earning assets	31			(115		)	(84		)
Interest-bearing deposits with other banks										6			27			33
Gross loans ⁽¹⁾	(23,450		)	(1,429		)	(24,879		)	(14,980		)	3,792			(11,188		)
Total earning assets	(27,183		)	(781		)	(27,964		)	(10,236		)	5,981			(4,255		)
Interest-bearing liabilities
Total interest-bearing deposits	$	(8,461	)	$	(1,366	)	$	(9,827	)	$	811		$	329		$	1,140
Borrowed funds
Short-term borrowings	112			705			817			(147		)	202			55
Federal Home Loan Bank long-term debt	(28		)	(77		)	(105		)	(107		)	(313		)	(420		)
Total borrowed funds	84			628			712			(254		)	(111		)	(365		)
Total interest-bearing liabilities	(8,377		)	(738		)	(9,115		)	557			218			775
Net interest income	$	(18,806	)	$	(43	)	$	(18,849	)	$	(10,793	)	$	5,763		$	(5,030	)

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

NONINTEREST INCOME

Third quarter ~~2013~~2014 noninterest income was ~~$22.3~~$16.5 million,~~, an $8.5~~ representing a $5.8 million or ~~27.7% decrease~~25.9% decline from noninterest income of $~~30.8~~$22.3 million in the third quarter ~~2012.~~2013. The ~~decline~~decrease in noninterest income from the comparable quarter in ~~2012~~2013 was due primarily to a ~~$2.9~~$5.7 million ~~decline~~decrease in FDIC loss sharing income and a ~~$2.6 million decline in gain on the sale of investments securities, a $2.1~~$0.9 million decline in accelerated discount on covered loans partially offset by a ~~$0.6~~$0.9 million ~~decline~~increase in net gains from sales of ~~loans and a $0.5 million decline in other noninterest income. These declines were partially offset by a $0.3 million increase in bankcard income.~~loans.

When losses are incurred on covered loans, the Company recognizes those credit losses as provision expense, while losses incurred on covered OREO are recognized as noninterest expense. Reimbursements due from the FDIC under loss sharing agreements related to these credit losses are referred to as FDIC loss sharing income represents the proportionate share of credit losses on covered assets that First Financial expects to receive from the FDIC. FDIC loss sharing income decreased $5.7 million or 103.5% from loss sharing income of $5.6 million during the third quarter 2013 to $0.2 million of negative loss sharing income for the third quarter 2014. Negative FDIC loss sharing income during the third quarter 2014 reflected a net payable due to the FDIC rather than a reimbursement from the FDIC as a result of net covered loan and ~~are recorded as noninterest income.~~ covered OREO recoveries during the period.

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~~The impact on earnings of this offsetting activity is~~

Income from the ~~net effect of the credit losses and FDIC reimbursement, representing the Company’s proportionate share of the credit losses realized~~accelerated discount on covered ~~assets. Lower FDIC loss sharing income~~loans decreased $0.9 million or 53.9% from $1.7 million during third quarter 2013 to $0.8 million for the third quarter ~~2013 as compared to~~2014. Accelerated discounts on covered loans that prepay result from the ~~third quarter 2012 was~~accelerated recognition of the ~~result of declines in provision expense for~~remaining covered loan ~~and lease losses and loss sharing expense.~~

~~Accelerated~~ discount isthat would have been recognized ~~when covered loans, which are generally recorded on~~over the ~~Company’s balance sheet at an amount less than~~expected life of the ~~unpaid principal balance, prepay at an amount greater than their recorded book value. Prepayments can occur either through customer driven payments before the maturity date or~~ loan ~~sales. The amount of discount attributable to the credit loss component of each loan varies and the recognized amount is offset by a related reduction in the FDIC indemnification asset.~~had it not prepaid. Lower income from the accelerated discount on covered loans during the third quarter ~~2013~~2014 was related to declines in both the volume and size of covered loans prepaying during the period as well as declines in the size of the remaining discounts on these loans.

The ~~decline~~increase in ~~gains on sales of investment securities was related to a significantly lower volume of sales activity during the third quarter 2013 as compared to the same period in 2012. The decline in net~~ gains from sales of loans ~~was also related~~as compared to lower sales volume during the third quarter of 2013 as recent increases in long-term interest rates have impacted demand for residential mortgage loans. The decline in other noninterest income was primarily related to lower swap fee income during the third quarter 2013 was driven by a 47.0% increase in the amount of residential mortgage loans sold, reflecting strong mortgage origination activity as ~~compared to~~well as the ~~same period in 2012 as demand for customer swaps has been impacted by increased regulatory requirements around borrower eligibility.~~impact of Columbus origination and sale activity during the period.

Noninterest income for the nine months ended September 30, ~~2013~~2014 was ~~$60.6~~$47.0 million,, which represents a ~~$35.7~~$13.6 million or ~~37.1% decrease~~22.4% decline from noninterest income of ~~$96.3~~$60.6 million for the nine months ended September 30, ~~2012.~~2013. The decline in noninterest income from the comparable period in ~~2012~~2013 was due primarily ~~related~~ to a ~~$22.5~~$6.7 million decline in FDIC loss sharing income, as a ~~result of lower provision expense for covered loan and lease losses and loss sharing expense in 2013. A $5.6~~$3.2 million decline in accelerated discount on covered loans, a ~~$6.4~~$1.7 million decline in gain on sale of investment securities and a $1.4 million decline in other noninterest income.

Similar to the quarterly year-over-year items discussed above, covered loan activity was responsible for the declines in FDIC loss sharing income and accelerated discount on covered loans while lower client derivative, OREO rental income and executive life insurance income drove the decline in other noninterest income for the first nine months of 2014 as compared to the same period in 2013. The decline in gain on sale of investment securities was primarily related to ~~a $5.0 million litigation settlement received~~sales of agency mortgage-backed securities and collateralized mortgage obligations during 2013 in ~~the second quarter of 2012~~order to enhance liquidity and ~~a $1.3 million decline in swap fee income in 2013 also contributed to the decline.~~reduce prepayment and premium risks.

NONINTEREST EXPENSE

First Financial completed a comprehensive efficiency study across all business lines and support functions during the third quarter 2012. As a result, the Company identified approximately $17.1 million of annualized cost savings impacting several expense categories. In the third quarter 2013, the Company incurred certain pre-tax expenses resulting from its efficiency initiative and other staffing-related changes of $1.1 million. Approximately $0.7 million was related to employee benefit expenses associated with staffing reductions and $0.3 million was related to expenses associated with real estate consolidation and closure plans. The Company estimates that it has achieved annualized run rate savings exceeding the initial target of $17.1 million as all initiatives have now been implemented, and it remains on track to realize 85% of the annual target in 2013 results. In connection with execution of the current plan, the Company has identified additional initiatives that it is implementing in the fourth quarter 2013. These initiatives are expected to produce $5.0 million of added cost savings that will be realized in 2014 full year results across multiple expense categories. Ultimately, the continued achievement of these cost savings will be contingent upon management's ability to successfully implement the efficiency plan while managing external factors, such as regulatory changes and a dynamic business environment, without impacting service levels throughout the Company and to our customers.

Third quarter ~~2013~~2014 noninterest expense was ~~$48.8~~$51.4 million compared with ~~$55.3~~$48.8 million for the third quarter of ~~2012.~~2013. The ~~$6.5~~$2.6 million or ~~11.7% decrease~~5.4% increase from the comparable quarter in ~~2012~~2013 was primarily attributable to a ~~$3.4~~$4.9 million increase in salaries and employee benefits and a $1.8 million increase in data processing expenses. These increases were partially offset by a $1.6 million decline in ~~salaries~~losses on sales of covered OREO, a $1.4 million decline in pension settlement charges and ~~benefits expense,~~ a ~~$1.9~~$0.7 million decline in loss sharing ~~expense, a $1.7~~expenses.

The increase in salaries and benefits, as well as data processing expenses, were primarily due to expenses related to the Columbus acquisitions. Acquisition-related expenses totaled $4.2 million ~~decline in~~during the third quarter 2014 and included $1.8 million of personnel costs, $1.6 million of data processing related expenses, $0.5 million of professional services expenses and $0.2 million of equipment and other ~~noninterest expense, a $1.2 million decline in losses recorded on uncovered OREO and a $0.4 million decline in marketing expense. These declines were partially offset by~~miscellaneous expenses.

During the third quarter of 2013, First Financial recognized $1.4 million of pension settlement charges as a result of the level of lump sum distributions from the Company's pension plan. The annual threshold for recognizing lump-sum distributions as pension settlement charges reset on January 1, 2014 and ~~a $0.3 million increase in data processing expense.~~no such expense has been incurred for the nine months ended September 30, 2014. For further discussion of pension settlement charges, see Note 13 to the Consolidated Financial Statements, Employee Benefit Plans.

The decline in salaries and benefits expenses was primarily attributable to staffing reductions and branch consolidations associated with the Company's previously announced efficiency efforts throughout 2012 and into 2013. Loss sharing expense represents costs incurred to resolve problem covered assets, including legal fees, appraisal costs and delinquent taxes. The decrease in loss sharing expense relates to a decline in collection costs as the balance of covered assets continues to decline. Losses on covered OREO and loss sharing expense are partially reimbursed by the FDIC. The Company recorded gains on sales of covered OREO during the third quarter 2014 of $1.4 million.

First Financial views the combination of provision expense on covered loans, gains or losses on covered OREO and loss sharing expense, net of the related reimbursements due under loss sharing agreements recorded as FDIC loss sharing income,

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as the total net credit costs associated with covered assets during the period. For additional discussion of the credit costs associated with covered assets, see "Allowance for loan and lease losses - covered loans."

~~The decline in other noninterest~~Noninterest expense was primarily due to $0.4 million of accelerated amortization expense recognized in 2012 related to intangible assets associated with the disposal of certain acquired branches as well as a $0.5 million decline in the reserve for unfunded commitments period over period. Gains or losses on OREO are generally the result of declines in the estimated fair value, and gains or losses on final disposition of OREO properties during the period. Higher data processing expense during the third quarter 2013 was due to software and system implementations, including new internet and mobile banking platforms introduced in late 2012.

During the third quarter 2013, First Financial recognized $1.4 million of pension settlement charges as a result of the year to date level of lump sum distributions from the Company's pension plan. Consistent with FASB ASC Topic 715, Compensation - Retirement Benefits, pension settlement charges are an acceleration of previously deferred costs that would have been recognized in future periods and are triggered when lump sum distributions exceed an annual accounting threshold for the plan. First Financial incurred these pension settlement charges as a result of employee-related actions, including staff retirements as well as recent efficiency initiatives, and the resulting lump sum distributions from the plan. As First Financial has exceeded the annual accounting threshold for lump sum distributions for 2013, the Company will continue to recognize a proportionate share of any further lump sum distributions from its pension plan as additional pension settlement charges through the remainder of the year. The accounting threshold for lump sum distributions will reset at the beginning of 2014.

~~On a year-to-date basis, noninterest expense declined $13.3 million or 7.9%, from~~ ~~$168.5 million~~ for the nine months ended September 30, ~~2012 to~~ ~~$155.2~~2014 was $146.4 million ~~for~~ compared with $155.2 million in the nine months ended September 30, 2013. ~~Similar to~~The $8.8 million or 5.7% decrease from the ~~drivers of the noninterest expense decline for the third quarter 2013 as compared to the same~~comparable period in ~~2012, the year-to-date decline~~2013 was primarily attributable to a ~~$7.7~~$5.7 million decline in ~~salaries and benefits expense,~~pension settlement charges as discussed above. Also contributing to the decline was a ~~$6.4~~$2.3 million decline in ~~losses recorded on both covered~~net occupancy expense and ~~uncovered OREO,~~ a ~~$2.9~~$2.2 million decline in other noninterest expense resulting from lower fixed asset-related costs associated with branch consolidations throughout 2013 and 2014, a ~~$2.8~~$1.6 million decline in loss sharing

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expense and a ~~$0.7~~$1.1 million decline in ~~marketing expense and~~state intangible tax due to a ~~$0.5 million decline~~change in ~~professional services expense.~~applicable tax laws. These declines were partially offset by ~~increases~~a $1.2 million increase in losses recorded on covered OREO as the Company recorded gains of ~~$1.3~~$2.2 million on covered OREO in the first three quarters of 2013, as well as a $2.4 million increase in data processing expenses and a $2.2 million increase in salaries and benefits primarily related to the new internet and mobile banking platforms, $1.1 million in net occupancy expense associated with facilities that came online during 2012 as well as occupancy costs associated with the Company's efficiency efforts and $5.7 million of pension settlement charges in 2013.Columbus acquisitions.

INCOME TAXES

Income tax expense was ~~$7.6~~$7.2 million and ~~$8.9~~$7.6 million for the third quarters of ~~2013~~2014 and ~~2012,~~2013, respectively. The effective tax rates for the third quarters of 2014 and 2013 were 32.0% and ~~2012 were~~ 33.9% ~~and 35.4%~~, respectively. Income tax expense for the nine months ended September 30, 2014 and 2013 was $22.3 million and ~~2012 was~~ $20.5 million, respectively and ~~$27.2 million, respectively. The~~the year-to-date effective tax rate through September 30, ~~2013~~2014 was ~~31.5%~~32.4% compared to ~~34.8%~~31.5% for the comparable period in ~~2012.~~2013.

The ~~decline~~decrease in the effective tax rate for the third quarter ~~2013~~2014, as compared to the ~~third quarter~~ ~~2012~~same period in 2013, was primarily the result of higher tax-exempt income earned in 2014 and lower state tax planning strategies implemented during 2013, including the formation of a captive real estate investment trust, as well as higher income earned on tax-exempt investment securities. Similarly, the declineexpense, partially offset by non-deductible acquisition costs. The increase in the effective tax rate for the nine months ended September 30, ~~2013~~2014, as compared to the same period in ~~2012~~2013, was primarily the result of ~~state tax planning strategies and higher income earned on tax-exempt investment securities as well as~~a favorable tax ~~reversals~~reversal related to ~~an intercompany tax obligation associated with an unconsolidated~~a former Irwin subsidiary and ~~an adjustment to deferred tax liabilities relating to~~ a favorable change in state tax laws in ~~2013.~~2013, partially offset by higher tax-exempt income earned in 2014. While the Company's effective tax rate may fluctuate from quarter to quarter due to tax jurisdiction changes and the level of tax-enhanced assets, the overall effective tax rate for 2014 is expected to be approximately 32.0% - 34.0%.

~~LOANS - EXCLUDING COVERED~~ LOANS

First Financial continues to experience strong loan demand in ~~2013~~2014 as a result of the Company's sales efforts, expanded presence in key metropolitan markets and investments in a diversified product suite. Loans, excluding ~~covered loans and~~ loans held for sale, totaled ~~$3.4~~$4.8 billion as of September 30, ~~2013,~~2014, increasing ~~$251.9~~$818.7 million, or ~~10.6%~~27.6% on an annualized basis, compared to December 31, ~~2012.~~2013. The increase in loan balances from December 31, ~~2012~~2013 was primarily related to a ~~$99.0~~$269.1 million increase in commercial loans, ~~and~~ a ~~$77.0~~$113.0 million increase in real estate construction loans, a $455.1 million increase in commercial real estate loans ~~with contributions also coming~~and a $73.6 million increase in residential real estate loans, which were partially offset by a $125.6 million decline in covered loans. These increases were impacted by $606.3 million of loans, net of estimated fair value marks, from ~~residential mortgage, construction lending and lease financing, which~~the Columbus acquisitions that closed during the quarter as well as strong loan origination activity during the period. Excluding loans acquired during the third quarter, loan balances increased ~~$34.6~~$212.5 million, ~~$16.6 million and $25.8 million, respectively.~~or 7.2% on an annualized basis, compared to December 31, 2013.

Third quarter ~~2013~~2014 average loans, excluding ~~covered loans and~~ loans held for sale, increased ~~$385.1~~$418.2 million or ~~12.8%~~10.5% from the third quarter of ~~2012.~~2013. The increase in average loans, excluding ~~covered loans and~~ loans held for sale, was primarily the result of a ~~$165.7~~$258.1 million increase in commercial loans, a $240.6 million increase in commercial real estate loans, a ~~$125.9~~$54.6 million ~~increase in commercial loans, a $53.7 million~~

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increase in residential real estate loans, ~~and~~ a ~~$41.7~~$59.3 million increase in ~~lease financing,~~construction real estate and a $28.9 million increase in home equity loans, partially offset by a ~~$10.6~~$222.3 million decline in covered loans and a $4.1 million decline in installment loans.

~~LOANS - COVERED~~

Covered loans ~~continued~~declined to ~~decline during the quarter, totaling $518.5~~$332.3 million at September 30, ~~2013, a $229.6~~2014 from $457.9 million ~~or 30.7% decline compared to~~as of December 31, ~~2012.~~2013. Declines in covered loan balances were expected as there were no acquisitions of loans subject to loss sharing agreements during the period. The covered loan portfolio will continue to decline through payoffs, loan sales, charge-offs and termination or expiration of loss ~~share~~sharing coverage unless First Financial acquires additional loans subject to loss sharing agreements in the future. Loans with coverage terminated, or removed, generally represent loans to primarily high quality borrowers involving a change in loan terms which caused the respective loans to no longer qualify for reimbursement

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

ASSET QUALITY

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

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

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loans. Nonperforming assets, which consist of nonaccrual loans, accruing troubled debt restructurings (TDRs) (collectively, nonperforming loans) and OREO, decreased $6.1 million, or 8.5%, to $66.3 million at September 30, 2014 from $72.5 million as of December 31, 2013, due to an $8.5 million, or 42.9%, decline in OREO balances partially offset by a $2.3 million, or 4.4% increase in nonperforming loans during the first nine months of 2014.

OREO balances declined during the first nine months of 2014 as resolutions and valuation adjustments of $12.3 million exceeded additions of $3.8 million. While there were no individually significant additions during the first nine months, resolutions during the period included the sale of a single commercial property totaling $7.9 million which was added to OREO during the fourth quarter 2013.

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

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

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

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

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

Covered assets. Covered loans accounted for under FASB ASC Topic 310-30 were grouped into pools for purposes of periodically re-estimating the expected cash flows and recognizing impairment or improvement in the loan pools. Accordingly, loans accounted for under FASB ASC Topic 310-30 are classified as performing, even though they may be contractually past due, as any nonpayment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period covered loan loss provision or future period yield adjustments.

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

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

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INVESTMENTS

First Financial's investment portfolio totaled $~~1.6~~1.9 billion or 25.6% of total assets at September 30, ~~2013~~2014, compared with a balance of ~~$1.9~~$1.8 billion or ~~28.8%~~28.0% of total assets at December 31, ~~2012.~~2013. Securities available-for-sale at September 30, ~~2013~~2014, totaled $~~854.7~~929.6 million, compared with a balance of ~~$1.0 billion~~$913.6 million at December 31, ~~2012,~~2013, while held-to-maturity securities totaled $~~669.1~~900.5 million at September 30, ~~2013~~2014 compared ~~with a balance of $770.8~~to $837.3 million at December 31, ~~2012.~~2013.

The investment portfolio ~~decreased $274.6~~increased $81.8 million, or ~~14.6%~~4.5%, during the first nine months of ~~2013~~2014 as ~~$158.1~~$282.7 million of purchases and $30.8 million of securities acquired with the Columbus acquisitions were partially offset by sales, amortizations and ~~paydowns in the portfolio.~~other portfolio reductions. The Company ~~also~~ sold ~~$90.3~~$92.5 million of ~~agency MBSs~~securities during the first quarter 2014, consisting primarily of collateralized loan obligations (CLOs) and, to a lesser extent, hybrid securities, collateralized mortgage obligations ~~(CMOs) during the year in order to enhance liquidity~~ and ~~reduce prepayment and premium risks,~~corporate securities, resulting in a gain of ~~$1.7~~$0.1 million. Proceeds from these sales were reinvested primarily in commercial mortgage-backed securities during the period.

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

The overall duration of the investment portfolio ~~increased~~decreased to ~~4.1~~3.7 years as of September 30, ~~2013~~2014 from ~~2.8~~4.3 years as of December 31, ~~2012 primarily due to rising long-term interest rates, which are impactful to mortgage related assets and the primary driver of maturity extension risk.~~

2013. As in past quarters, First Financial ~~had previously implemented a strategy during the third quarter of 2012~~has avoided adding to ~~pre-fund the next twelve months of estimated~~its portfolio any particular securities ~~portfolio run-off with short-term borrowings.~~that would materially increase credit risk or geographic concentration risk. The Company ~~began to unwind this strategy early~~does, however, include these risks in ~~2013 by slowing~~its evaluation of current market opportunities that would enhance the pace of reinvestment in the securities portfolio in order to balance loan demand and deposit outflows. This strategy continued into the third quarter of 2013 as a result of sustained loan demand and as partoverall performance of the Company's strategies to manage the potential impact of rising long-term interest rates on balance sheet sensitivity and capital. The Company completed its efforts to unwind the pre-funding strategy and began reinvesting proceeds from the portfolio during the third quarter 2013 using a barbell approach, investing approximately 60 to 70% of proceeds in fixed rate securities and 30 to 40% in floating rate securities.portfolio.

First Financial recorded, as a component of equity in accumulated other comprehensive income, a $~~9.8~~6.2 million unrealized after-tax loss on the investment portfolio at September 30, ~~2013~~2014, which declined ~~$22.6~~$10.1 million from ~~a $12.8~~$16.3 million ~~unrealized after-tax gain~~ at December 31, ~~2012. The declines in value of the Company's investment portfolio at~~ ~~September 30,~~ 2013 is primarily due to investment gains during the ~~impact from rising interest rates~~period as a result of the tightening of mortgage and ~~the effect on asset prices during 2013.~~fixed income spreads.

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

DEPOSITS AND FUNDING

First Financial's deposit balances continue to be impacted by the Company's efforts to improve core relationship profitability and deposit funding costs, as well as attrition resulting from banking center consolidation activities in recent periods. Total deposits as of September 30, ~~2013~~2014 were ~~$4.7~~$5.5 billion, ~~a decrease~~representing an increase of ~~$226.8~~$695.5 million or ~~4.6%~~14.4% compared to December 31, ~~2012.~~2013, as total interest-bearing deposits increased $599.6 million or 16.2% and total noninterest-bearing deposits increased $95.9 million or 8.4%. The ~~decrease~~increase in total deposits at September 30, ~~2013~~2014 as compared to December 31, ~~2012~~2013 was driven by ~~a $142.6~~$568.6 million ~~or 13.3% decline in total time~~of deposits, net of estimated fair value adjustments, from the Columbus acquisitions as well as ~~an $84.2~~strong growth in interest-bearing demand and time deposits.

Non-time deposit balances totaled $4.3 billion as of September 30, 2014, increasing $400.5 million, or ~~2.2% decline in total non-time deposit balances. The decline in~~10.3%, compared to December 31, 2013 while time deposit balances was primarily the result of lower consumer balances stemming from the Company's continued efforts to manage deposit funding costs, as well as declines in certain public fund deposits. The decline in non-time deposit balances was driven primarily by a $76.2increased $295.0 million, ~~decrease in public fund balances.~~or 31.0%.

Year-to-date average deposits ~~declined~~increased $181.0 million, or 3.8%, to ~~$4.8~~$5.0 billion at September 30, ~~2013~~2014 from ~~$5.3 billion at~~ September 30, ~~2012~~2013 primarily due to ~~decreases~~a $67.3 million increase in average ~~interest-bearing demand~~noninterest-bearing deposits ~~of $96.3~~and an $84.7 million ~~and~~increase in average ~~time~~savings deposit balances. The year-over-year growth in average deposits ~~of $410.3 million,~~was due to the Columbus acquisitions, partially offset by ~~an increase~~declines in ~~noninterest-bearing~~ deposits ~~of $52.3 million. The year-over-year decline~~earlier in ~~average time deposits was a result of~~2014 resulting from the Company's continued ~~efforts to reduce~~focus on growing core deposit relationships and reducing single service and higher-cost time deposits.

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As the Company's deposit base continues to shift away from fixed-rate time deposits toward ~~market-driven~~market-priced or indexed deposit products, First Financial has executed interest rate swaps to ~~hedge against~~manage interest rate volatility on indexed floating rate deposits. These interest rate swaps, ~~totaling~~ ~~$100.0~~with a total notional amount of $250.0 million as of September 30, ~~2013~~2014 and ~~$35.0~~$100.0 million as of December 31, ~~2012,~~2013, involve the receipt by First Financial of variable-rate interest payments in exchange for fixed-rate interest payments by First Financial for approximately ~~6 years~~.5 years. As a result, First Financial has secured fixed rate funding ~~associated with these swaps~~ at a weighted average cost of funds of ~~1.45%~~1.48% for the duration of the interest rate swaps. ~~Additionally, in a rising interest rate environment, the market value of these interest rate swaps increases, resulting in an increase in Other Comprehensive Income.~~

Borrowed funds decreased to $684.8 million at September 30, 2013 from $699.8 million at December 31, 2012, primarily due to the maturity of a $12.5 million repurchase agreement during the third quarter 2013.

~~For further discussion of First Financial's borrowing capacity and liquidity management, see the Liquidity section of Management's Discussion and Analysis.~~

~~RISK MANAGEMENT~~

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

~~For further discussion of these risks, see the Risk Management section in Management's Discussion and Analysis in First Financial’s 2012 Annual Report and the information below.~~

~~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 and periodically reviewing and approving its credit exposures using credit policies and guidelines approved by its board of directors. Due to the significant differences in the accounting for covered loans and the loss sharing agreements with the FDIC, management believes that asset quality measures excluding covered loans are generally more meaningful. Therefore, management has included asset quality measures that exclude covered loans in this section.

~~Allowance for loan and lease losses - excluding covered loans.~~ Management maintains the allowance for loan and lease losses at a level that it considers sufficient to absorb probable loan and lease losses inherent in the portfolio. Management determines the adequacy of the allowance based on historical loss experience and other significant factors. This evaluation is inherently subjective as it requires utilizing material estimates that may be susceptible to significant change. See Note 10, Allowance for Loan and Lease Losses, to the Consolidated Financial Statements for further discussion of First Financial's allowance for uncovered loans.

~~The allowance for uncovered loan and lease losses was $45.5 million as of~~ ~~September 30, 2013~~ ~~compared to $47.8 million as of December 31, 2012. As a percentage of period-end loans, the allowance for loan and lease losses was 1.33% as of~~ ~~September 30, 2013~~ compared to 1.50% as of December 31, 2012. The decrease in the allowance for uncovered loan and lease losses from December 31, 2012 was primarily the result of paydowns, charge-offs and other resolution activities related to impaired loans that resulted in lower specific reserves as well as modest improvement in historical loss rates and consumer loan credit expectations. Additionally, the allowance as a percentage of loans continues to be impacted by loan growth as well, as newly originated loans are generally reserved for at lower rates.

Third quarter 2013 net charge-offs were $2.9 million or 0.34% of average loans and leases on an annualized basis, compared with $5.4 million or 0.71% of average loans and leases on an annualized basis for the comparable quarter in 2012. The $2.4 million decrease from the comparable period in 2012 was primarily the result of increases in recoveries of previously charged-off commercial real estate and construction real estate loans, as well as reduced charge-offs of commercial, residential real estate and construction real estate loans.

~~Net charge-offs for the nine months ended~~ ~~September 30, 2013, were $9.1 million or 0.37% of average loans and leases on an annualized basis compared to $18.6 million or 0.83% of average loans and leases on an annualized basis for the same period in~~

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~~2012. The $9.5 million decrease in net charge-offs for the nine months ended~~ ~~September 30, 2013~~ compared to September 30, 2012 was also primarily related to declines in commercial real estate and construction real estate net charge-offs. The timing and amount of net charge-offs are dependent on the individual credit characteristics of each loan relationship as well as the Company's resolution strategies and can vary from period to period.

Provision expense related to uncovered loans and leases is a product of the Company's allowance for loan and lease losses model as well as net charge-off activity during the period. Third quarter 2013 provision expense related to uncovered loans and leases was $1.4 million as compared to $3.6 million during the comparable quarter in 2012. Provision expense for the nine months ended ~~September 30, 2013~~ ~~was $6.9 million compared to $15.2 million for the comparable period in 2012.~~

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

Three months ended Nine months ended
2013 2012 September 30,
(Dollars in thousands) Sep. 30, June 30, Mar. 31, Dec. 31, Sep. 30, 2013 2012
Allowance for loan and lease loss activity

Balance at beginning of period $ 47,047
$ 48,306
$ 47,777
$ 49,192
$ 50,952
$ 47,777
$ 52,576
Provision for loan losses 1,413
2,409
3,041
3,882
3,613
6,863
15,235
Gross charge-offs
Commercial 1,482
859
781
657
1,340
3,122
3,655
Real estate-construction 0
0
0
0
180
0
2,684
Real estate-commercial 2,174
2,044
995
2,221
2,736
5,213
8,791
Real estate-residential 249
326
223
454
565
798
1,360
Installment 99
97
100
267
134
296
310
Home equity 411
591
701
1,722
380
1,703
1,939
All other 696
277
410
227
469
1,383
1,025
Total gross charge-offs 5,111
4,194
3,210
5,548
5,804
12,515
19,764
Recoveries
Commercial 92
67
319
71
202
478
322
Real estate-construction 490
0
136
0
0
626
0
Real estate-commercial 1,264
57
39
46
38
1,360
219
Real estate-residential 98
5
4
3
33
107
70
Installment 57
110
77
53
72
244
270
Home equity 95
225
52
32
31
372
83
All other 69
62
71
46
55
202
181
Total recoveries 2,165
526
698
251
431
3,389
1,145
Total net charge-offs 2,946
3,668
2,512
5,297
5,373
9,126
18,619
Ending allowance for loan and lease losses $ 45,514
$ 47,047
$ 48,306
$ 47,777
$ 49,192
$ 45,514
$ 49,192

Net charge-offs to average loans and leases (annualized)

Commercial 0.59 % 0.35 % 0.22 % 0.28 % 0.56 % 0.39 % 0.54 %
Real estate-construction (2.09 )% 0.00 % (0.68 )% 0.00 % 0.78 % (0.94 )% 3.54 %
Real estate-commercial 0.24 % 0.55 % 0.27 % 0.63 % 0.81 % 0.36 % 0.89 %
Real estate-residential 0.17 % 0.38 % 0.27 % 0.58 % 0.72 % 0.28 % 0.59 %
Installment 0.33 % (0.10 )% 0.17 % 1.46 % 0.41 % 0.13 % 0.08 %
Home equity 0.34 % 0.40 % 0.72 % 1.82 % 0.38 % 0.48 % 0.69 %
All other 2.27 % 0.90 % 1.63 % 0.94 % 2.51 % 1.63 % 1.99 %
Total net charge-offs 0.34 % 0.45 % 0.32 % 0.68 % 0.71 % 0.37 % 0.83 %

~~Allowance for loan and lease losses - covered loans.~~ ~~The majority of the Company's covered loans are accounted for under FASB ASC Topic 310-30, whereby First Financial is required to periodically re-estimate the expected cash flows from the~~

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loans. For purposes of applying the guidance under FASB ASC Topic 310-30, First Financial grouped acquired loans into pools based on common risk characteristics. A decline in expected cash flows for a pool of loans is referredBorrowed funds increased to as impairment and recorded as provision expense, and a related allowance for loan and lease losses on covered loans, on a discounted basis during the period. Estimated reimbursements due from the FDIC under loss sharing agreements related to any declines in expected loan cash flows are recorded as noninterest income and an increase to the FDIC indemnification asset in the same period. Improvement in expected cash flows for a pool of loans, once any previously recorded impairment is recaptured, is recognized prospectively as an adjustment to the yield on the loans in the pool and a related adjustment to the yield on the FDIC indemnification asset. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. See Note 10, Allowance for Loan and Lease Losses, to the Consolidated Financial Statements for further discussion of First Financial's allowance for covered loans.

~~The Company recognized provision expense on covered loans of~~ ~~$5.3~~$972.0 million ~~and realized net charge-offs of~~ ~~$15.0 million~~ ~~during the quarter, resulting in an allowance for covered loan losses of~~ ~~$23.3 million~~ ~~as of~~ ~~September 30, 2013. For the~~ ~~third~~ ~~quarter~~ ~~2012, First Financial recognized provision expense on covered loans of~~ ~~$6.6 million~~ ~~and realized net charge-offs of~~ ~~$6.1 million~~ ~~during the period, resulting in an allowance for covered loan losses of~~ ~~$48.9 million~~ ~~as of September 30, 2012. Similarly, First Financial recognized provision expense on covered loans of~~ ~~$6.1 million~~ ~~and realized net charge-offs of~~ ~~$28.0 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2013~~ ~~while the Company recognized provision expense on covered loans of~~ ~~$25.6 million~~ ~~and net charge-offs of~~ ~~$19.6 million~~ ~~for the~~ ~~nine~~ ~~months ended September 30, 2012. The difference between provision expense and net charge-offs primarily relates to the quarterly re-estimation of cash flow expectations.~~

Lower levels of provision expense and higher levels of net charge-offs related to covered loans for the three and nine months ended September 30, 2013 as compared with the same periods in 2012 were impacted by a significant level of resolutions and paydowns in the covered loan portfolio, as well as enhancements to the Company's valuation methodology, during 2013. First Financial implemented certain enhancements to its valuation methodology to place greater emphasis on changes in total expected cash flows and less emphasis on changes in the net present value of expected cash flows during the second quarter 2013. These enhancements, as well as net charge-off activity related to increased problem loan resolutions, contributed to the decline in the allowance for loan losses related to covered loans in 2013.

During the third quarter 2013, First Financial also incurred loss sharing and covered asset expenses of $1.7 million, consisting primarily of credit expenses, and $0.2 million of net losses related to covered OREO. For the third quarter of 2012, the Company incurred loss sharing and covered asset expenses of $3.6 million and modest net gains on covered OREO. For the ~~nine~~ ~~months ended~~ ~~September 30, 2013~~, the Company incurred loss sharing and covered asset expenses of $5.6 million offset by $2.2 million of net gains related to covered OREO. For the comparable period in 2012, First Financial incurred loss sharing and covered asset expenses of $8.4 million and $2.5 million of net losses related to covered OREO.

The receivables due from the FDIC under loss sharing agreements related to covered provision expense, loss sharing expense and losses on covered OREO of $5.6 million and $8.5 million for the three months ended September 30, 2013 and 2012, respectively, were recognized as FDIC loss sharing income and corresponding increases to the FDIC indemnification asset in those periods.

For the nine months ended September 30, 2013 and 2012, the receivables due from the FDIC under loss sharing agreements related to covered provision expense, loss sharing expense and losses on covered OREO of $7.1 million and $29.6 million were recognized as FDIC loss sharing income and corresponding increases to the FDIC indemnification asset in those periods. The lower FDIC loss sharing income in 2013 reflects the declines in provision expense on covered loans, losses on covered OREO and loss sharing expense during the year.

Three months ended Nine months ended
2013 2012 September 30,
(Dollars in thousands) Sep. 30, June 30, Mar. 31, Dec. 31, Sep. 30, 2013 2012
Balance at beginning of period $ 32,961
$ 45,496
$ 45,190
$ 48,895
$ 48,327
$ 45,190
$ 42,835
Provision for loan and lease losses 5,293
(8,283 ) 9,042
5,283
6,622
6,052
25,620
Loans charged-off (21,009 ) (4,681 ) (9,684 ) (9,568 ) (9,058 ) (35,374 ) (24,339 )
Recoveries 6,014
429
948
580
3,004
7,391
4,779
Ending allowance for covered loan losses $ 23,259
$ 32,961
$ 45,496
$ 45,190
$ 48,895
$ 23,259
$ 48,895

~~Delinquent Loans - excluding covered loans.~~ ~~At September 30, 2013, loans 30-to-89 days past due decreased to $10.4 million, or 0.30% of period end loans, as compared to $16.3 million, or 0.51%, at December 31, 2012. The decrease in~~

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delinquent loans compared to December 31, 2012 was driven primarily by the reclassification of a $2.0 million commercial real estate credit to nonaccrual status as well as a commercial real estate credit and an equipment finance credit, totaling $3.7 million in the aggregate, that were brought current by the borrowers.

~~Nonaccrual/Nonperforming Assets - excluding covered assets.~~ ~~Nonaccrual loans, including troubled debt restructurings (TDRs) classified as nonaccrual, totaled~~ ~~$57.9 million~~ ~~as of September 30, 2013 compared to $65.0 million as of December 31, 2012, representing a $7.1 million, or 10.9% decrease. Nonperforming loans totaled~~ ~~$74.2 million~~ ~~and nonperforming assets totaled~~ ~~$86.0 million~~ as of September 30, 2013 compared with $75.9 million and $88.4 million, respectively, at December 31, 2012. While the levels of nonperforming loans and nonperforming assets have declined modestly, the composition has improved as accruing TDRs represent a larger share of nonperforming loans and nonperforming assets at September 30, ~~2013.~~

~~The third quarter 2013 allowance for loan and lease losses as a percentage of nonaccrual loans, including nonaccrual TDRs was~~ ~~78.6%~~ ~~compared with 73.5% at December 31, 2012. The allowance for loan and lease losses as a percentage of nonperforming loans, which include accruing TDRs, was~~ ~~61.3%~~ ~~at September 30, 2013 compared with 63.0% at December 31, 2012.~~

~~Total classified assets as of September 30, 2013 totaled $120.4 million compared to $129.0~~2014 from $809.5 million at December 31, ~~2012. Classified assets~~2013, primarily due to $74.9 million of Federal Home Loan Bank (FHLB) short-term borrowings and $20.0 million of long-term FHLB borrowings assumed in the Columbus acquisitions. In addition to the impact from acquisitions during the period, short-term borrowings with the FHLB, which are ~~defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse.~~

~~Troubled Debt Restructurings - excluding covered loans.~~ ~~TDRs totaled $29.3 million at September 30, 2013, a $4.3 million increase from December 31, 2012. Accruing TDRs~~utilized to manage normal liquidity needs, increased ~~$5.4 million from December 31, 2012, generally~~ as a result of ~~renewals~~loan growth and ~~term extensions~~investment security purchases in excess of performing, substandard-rated loans that are experiencing operating cash flow stress but have strong underlying collateral and guarantor support. TDRs classified as nonaccrual decreased $1.1 million from December 31, 2012.

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 terms of the loan modification.

~~Other Real Estate Owned.~~ At September 30, 2013, First Financial had OREO properties originating from uncovered loans totaling $11.8 million, compared with $12.5 million at December 31, 2012. Uncovered OREO decreased $0.7 million from December 31, 2012 to September 30, 2013 as resolutions and valuation adjustments of $4.3 million exceeded $3.6 million of additionsdeposit growth during ~~the first nine months of 2013.~~

OREO originating from covered loans was $27.7 million at September 30, 2013, compared with $28.9 million at December 31, 2012. Covered OREO decreased $1.1 million, or 3.9%, from December 31, 2012 as resolutions and valuation adjustments of $22.6 million exceeded additions of $21.5 million during the first nine months of 2013.

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Quarter ended
2013 2012
(Dollars in thousands) Sep. 30, June 30, Mar. 31, Dec. 31, Sep. 30,
Nonperforming loans, nonperforming assets, and underperforming assets
Nonaccrual loans
Commercial $ 8,554
$ 12,925
$ 16,296
$ 15,893
$ 10,105
Real estate - construction 1,099
1,104
2,094
2,102
3,702
Real estate - commercial 35,549
35,055
33,871
34,977
38,763
Real estate - residential 9,346
9,369
8,295
7,869
7,070
Installment 421
249
341
452
284
Home equity 2,871
2,813
3,059
3,252
2,497
Lease financing 86
496
496
496
0
Nonaccrual loans 57,926
62,011
64,452
65,041
62,421
Accruing troubled debt restructurings (TDRs) 16,278
12,924
12,757
10,856
11,604
Total nonperforming loans 74,204
74,935
77,209
75,897
74,025
Other real estate owned (OREO) 11,804
11,798
11,993
12,526
13,912
Total nonperforming assets 86,008
86,733
89,202
88,423
87,937
Accruing loans past due 90 days or more 265
158
157
212
108
Total underperforming assets $ 86,273
$ 86,891
$ 89,359
$ 88,635
$ 88,045
Total classified assets $ 120,423
$ 129,832
$ 130,436
$ 129,040
$ 133,382

Credit quality ratios (excluding covered assets)
Allowance for loan and lease losses to
Nonaccrual loans 78.57 % 75.87 % 74.95 % 73.46 % 78.81 %
Nonperforming loans 61.34 % 62.78 % 62.57 % 62.95 % 66.45 %
Total ending loans 1.33 % 1.39 % 1.49 % 1.50 % 1.60 %
Nonperforming loans to total loans 2.16 % 2.22 % 2.38 % 2.39 % 2.41 %
Nonperforming assets to
Ending loans, plus OREO 2.50 % 2.56 % 2.74 % 2.77 % 2.86 %
Total assets, including covered assets 1.38 % 1.38 % 1.40 % 1.36 % 1.41 %
Nonperforming assets, excluding accruing TDRs to
Ending loans, plus OREO 2.03 % 2.17 % 2.34 % 2.43 % 2.48 %
Total assets, including covered assets 1.12 % 1.18 % 1.20 % 1.19 % 1.22 %
2014.

~~MARKET RISK~~

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary source of market risk for First Financial is interest rate risk. Interest rate risk is the risk to earnings and the value of equity arising from changes in market interest rates, and arises in the normal course of business to the extent that there is a divergence between the amount of First Financial’s interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or that mature in specified periods. First Financial seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates. First Financial’s board of directors establishes policy limits with respect to interest rate risk and changes in the economic value of equity. First Financial’s Asset and Liability Committee (ALCO), a group of senior officers from the lending, deposit gathering, finance, risk management and treasury areas, oversees market risk management, monitoring risk measures, limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective interest rate risk management begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk position given business activities, management objectives, market expectations and ALCO policy limits and guidelines.

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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 ~~financial~~funding commitments include withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures. Liquidity is monitored and closely managed by ALCO. It is ALCO’s responsibility to ensure First Financial has the necessary level of funds available for normal operations as well as to maintain a contingency funding policy to ensure that liquidity stress events are quickly identified and management's plans to respond are in place. This is accomplished through the use of policies which establish limits and require measurements to monitor liquidity trends, including modeling and management reporting that identifies the amounts and costs of all available funding sources. These sources are periodically tested for funding availability.

Liquidity is derived primarily from deposit growth, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings. First Financial’s most stable source of liability-funded liquidity for both ~~short~~long and ~~long-term~~short-term needs is deposit growth and retention of the core deposit base. The deposit base is diversified among individuals, partnerships, corporations, public entities and geographic markets. This diversification helps First Financial minimize dependence on large concentrations of wholesale funding sources.

First Financial also utilizes its short-term line of credit and longer-term advances from the ~~Federal Home Loan Bank (FHLB)~~FHLB as funding sources. At ~~September 30, 2013, the Company had~~ ~~$518.2 million~~ ~~in short-term borrowings from the FHLB. At~~ ~~December 31, 2012, the Company had~~ ~~$502.0 million~~ ~~in short-term borrowings from the FHLB. At~~ ~~September 30, 2013, and~~ ~~December 31, 2012, total long-term borrowings from the FHLB were~~ ~~$7.8 million~~ ~~and~~ ~~$9.4 million, respectively.~~ First Financial's total remaining borrowing capacity from the FHLB was ~~$353.3~~$312.3 million at September 30, ~~2013~~.

2014. First Financial had pledged certain eligible residential and farm real estate loans, home equity lines of credit and government and agency securities, totaling ~~$3.0~~$3.4 billion as collateral for borrowings from the FHLB as of September 30, ~~2013~~.2014. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB.

First Financial's principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. The market value of investment securities classified as available-for-sale totaled ~~$854.7~~$929.6 million at September 30, ~~2013~~.2014. Securities classified as held-to-maturity that are maturing within a short period of time are ~~also a~~an additional source of liquidity ~~and~~but totaled ~~$0.2~~only $0.3 million at September 30, ~~2013~~.2014. Other types of assets such as cash and due from banks, interest-bearing deposits with other banks, as well as loans maturing within one year, are also sources of liquidity.

InAt September 30, 2014, in addition to liquidity on hand at ~~September 30, 2013~~of ~~$188.1~~$143.7 million,, First Financial had unused and available overnight wholesale funding of ~~$1.8~~$1.7 billion,, or ~~28.4%~~23.4% of total assets, to fund ~~new loans, any~~loan and deposit ~~runoff that may occur~~activities as ~~a result of continued deposit rationalization efforts and from markets that the Company is exiting or for~~well as general corporate requirements.

Certain restrictions exist regarding the ability of First Financial’s subsidiaries to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances. The approval of the subsidiaries’ respective primary federal regulators is required for First Financial’s subsidiaries to pay dividends in excess of regulatory limitations. Dividends paid to First Financial from its subsidiaries totaled ~~$46.0~~$20.5 million for the first nine months of ~~2013.~~2014. As of September 30, ~~2013~~,2014, First Financial’s subsidiaries had retained earnings of ~~$353.6~~$454.0 million of which ~~$28.3~~$26.0 million was available for distribution to First Financial without prior regulatory approval. Additionally, First Financial had ~~$91.7~~$58.8 million in cash at the parent company as of September 30, ~~2013~~,2014, which is ~~more than~~ ~~two~~ ~~times~~in excess of the Company’s current annual regular shareholder dividend ~~(currently $0.60 per share)~~ and operating expenses.

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

Capital expenditures, such as banking center expansions and technology investments were ~~$6.0~~$7.6 million and ~~$18.6~~$6.0 million for the first nine months of ~~2013~~2014 and ~~2012,~~2013, respectively. Management believes that First Financial has sufficient liquidity to fund its future capital expenditure commitments.

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

5249

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CAPITAL

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

Quantitative measures established and defined by regulation to ensure capital adequacy require First Financial to maintain minimum amounts and ratios ~~as defined by the regulations~~ of Total and Tier 1 capital to risk-weighted assets and to average assets. Management believes, as of September 30, ~~2013~~2014, that First Financial met all capital adequacy requirements to which it was subject. At September 30, ~~2013~~2014, and December 31, ~~2012~~2013, regulatory notifications categorized First Financial as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, First Financial must maintain minimum Total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since those notifications that management believes has changed the Company's categorization.

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

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

Consolidated regulatory capital ratios at September 30, ~~2013~~2014, included the leverage ratio of ~~10.29%~~9.70%, Tier 1 capital ratio of ~~15.26%~~12.74% and total capital ratio of ~~16.53%~~13.80%. All regulatory capital ratios exceeded the amounts necessary to be classified as “well capitalized,” and total regulatory capital exceeded the “minimum” requirement by $~~353.1~~301.7 million, on a consolidated basis. First Financial’s tangible common equity ratio ~~increased~~decreased to ~~9.60%~~8.71% at September 30, ~~2013~~2014 ~~as compared to~~from ~~9.50%~~9.20% at December 31, ~~2012~~2013.

First Financial's Tier I and Total capital ratios were negatively impacted by an increase in ~~risk weighted~~risk-weighted assets during ~~2013~~2014 due primarily to an increase in risk-weighted assets resulting from the acquisitions during the year as ~~a result of declines in lower risk weighted covered assets offset by increases in higher risk weighted~~well as uncovered ~~loans and investment securities.~~loan growth. First Financial's Leverage ratio was ~~positively~~negatively impacted by ~~a decline~~an increase in average assets through September 30, ~~2013. Contributions to shareholders’ equity from earnings were limited in both 2013 and 2012~~2014 as a result of the ~~Company's variable dividend payout.~~overall growth in the balance sheet. The Company’s tangible common equity ratio declined during the quarter due to the impact from acquisitions as the increase in tangible assets outweighed the increase in tangible common equity from the common shares issued in conjunction with the acquisitions.

OnIn July 2, 2013, the Board of Governors of the Federal Reserve System approved a final rule implementing changes intended to strengthen the regulatory capital framework for all banking organizations (Basel III). The final rule includes transition periods to ease the potential burden, with community banks such as First Financial subject to the final rule beginning January 1, 2015. Among other things, Basel III includes new minimum risk-based and leverage capital requirements for all banks. The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a new capital conservation buffer of 2.5% of risk-weighted assets that will be phased-in over a transition period ending December 31, 2018. Further, the minimum ratio of tier 1 capital to risk-weighted assets is increased from 4.0% to 6.0% and all banks are now subject to a 4.0% minimum leverage ratio. The required total risk-based capital ratio will not change.

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

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

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The following tables illustrate the actual and required capital amounts and ratios as of September 30, ~~2013~~2014 and December 31, ~~2012~~2013.

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Actual
For Capital
Adequacy Purposes

To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
September 30, 2013
Total capital to risk-weighted assets
Consolidated $ 684,363
16.53 % $ 331,245
8.00 % N/A
N/A
First Financial Bank 593,732
14.40 % 329,835
8.00 % $ 412,294
10.00 %

Tier 1 capital to risk-weighted assets

Consolidated 631,846
15.26 % 165,622
4.00 % N/A
N/A
First Financial Bank 534,475
12.96 % 164,918
4.00 % 247,376
6.00 %

Tier 1 capital to average assets

Consolidated 631,846
10.29 % 245,692
4.00 % N/A
N/A
First Financial Bank 534,475
8.71 % 245,330
4.00 % 306,662
5.00 %


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions				Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2012
September 30, 2014
Total capital to risk-weighted assets
Consolidated	$	686,961	17.60	%	$	312,328	8.00	%	N/A		N/A		$	717,823	13.80	%	$	416,170	8.00	%	N/A		N/A
First Financial Bank	586,023		15.04	%	311,618		8.00	%	$	389,523	10.00	%	654,229		12.59	%	415,707		8.00	%	$	519,634	10.00	%

Tier 1 capital to risk-weighted assets
Consolidated	637,176		16.32	%	156,164		4.00	%	N/A		N/A		662,608		12.74	%	208,085		4.00	%	N/A		N/A
First Financial Bank	529,196		13.59	%	155,809		4.00	%	233,714		6.00	%	592,319		11.40	%	207,854		4.00	%	311,780		6.00	%

Tier 1 capital to average assets
Consolidated	637,176		10.25	%	248,761		4.00	%	N/A		N/A		662,608		9.70	%	273,264		4.00	%	N/A		N/A
First Financial Bank	529,196		8.52	%	248,408		4.00	%	310,511		5.00	%	592,319		8.68	%	272,869		4.00	%	341,086		5.00	%



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

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

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

Shareholder Dividends. First Financial paid a dividend of $0.15 per common share on October 1, 2014 to shareholders of record as of August 29, 2014. Additionally, First Financial's board of directors authorized a ~~regular~~ dividend of ~~$0.15~~$0.16 per common share for the next regularly scheduled dividend, payable on January 2, ~~2014~~2015 to shareholders of record as of November ~~29, 2013.~~28, 2014.

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

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

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range of 60% - 80% of earnings through a combination of its regular dividend and share repurchases while still maintaining capital ratios that exceed internal target thresholds, current regulatory capital requirements and proposed capital requirements under ~~the~~ Basel III. ~~The~~

As discussed in the Liquidity section, the Company repurchased ~~460,500~~40,255 shares under ~~this~~the 2012 share repurchase plan during the ~~fourth quarter~~first nine months of ~~2012~~2014 at an average price of ~~$14.78~~$17.32 per share and ~~540,400~~750,145 shares at an average price of ~~$15.43~~$15.70 per share during 2013. First Financial's board of directors suspended further share repurchase activity under this plan during the first ~~six months of 2013. Since~~quarter 2014 in connection with the ~~Company reached its annual target of 1,000,000 shares repurchased in~~Company's Columbus acquisitions and has continued that suspension during the second ~~quarter, no shares were purchased during the~~and third ~~quarter~~quarters of ~~2013.~~ 2014.

At September 30, ~~2013~~2014, ~~3,999,100~~3,749,100 common shares remained available for repurchase under the 2012 share repurchase plan.

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

RISK MANAGEMENT

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

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

CREDIT RISK

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

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

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

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

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

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

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



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

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

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

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

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

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

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



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

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MARKET RISK

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

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



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

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

First Financial's projected results for both NII and EVE became modestly more asset sensitive during the third quarter 2014. This was primarily the result of growth in floating rate securities in the investment portfolio and the continued execution of the Company's balance sheet management strategies through the completion of an additional $50.0 million cash flow hedge on certain indexed liabilities during the third quarter. First Financial continues to manage its balance sheet with a bias toward asset sensitivity while simultaneously balancing the potential earnings impact of this strategy.

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

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

CRITICAL ACCOUNTING POLICIES

First Financial’s Consolidated Financial Statements are prepared based on the application of the Company's accounting policies. These policies require the reliance on estimates and assumptions. Changes in underlying factors, assumptions or estimates could have a material impact on First Financial’s future financial condition and results of operations. In management’s opinion, certain accounting policies have a more significant impact than others on First Financial’s financial reporting. For First Financial, these areas currently include accounting for the allowance for loan and lease losses (excluding covered loans), covered loans, the allowance for loan and lease losses - covered loans, the FDIC indemnification asset, goodwill, pension and income taxes. These accounting policies are discussed in detail in the Critical Accounting Policies section of Management’s Discussion and Analysis in First Financial’s ~~2012~~2013 Annual Report. There were no material changes to these accounting policies during the nine months ended September 30, ~~2013~~2014.

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ACCOUNTING AND REGULATORY MATTERS

Note 2 to the Consolidated Financial Statements,Recently Adopted and Issued Accounting Standards, discusses new accounting standards adopted by First Financial during ~~2013~~2014 and the expected impact of accounting standards recently issued but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of Management’s Discussion and Analysis and the Notes to the Consolidated Financial Statements.

FORWARD-LOOKING INFORMATION

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


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


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


▪	U.S. fiscal debt and budget matters;


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

▪

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


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


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


▪	our ability to keep up with technological changes;


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


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


▪	the expiration of loss sharing agreements with the FDIC;


▪	mergers and acquisitions, including costs or difficulties related to the integration of acquired companies and the wind-down of non-strategic operations that may be greater than ~~expected, such as the risks and uncertainties associated with the Irwin Mortgage Corporation bankruptcy proceedings and other acquired subsidiaries;~~expected;

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


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


▪	our ability to increase market share and control expenses;


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


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


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

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


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


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


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


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

In addition, please refer to our Annual Report on Form 10-K for the year ended December 31, ~~2012,~~2013, as well as our other filings with the SEC, for a more detailed discussion of these risks and uncertainties and other factors. Such forward-looking statements are meaningful only on the date when such statements are made, and First Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such a statement is made to reflect the occurrence of unanticipated events.

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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 is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary source of market risk for First Financial is interest rate risk. Interest rate risk is the risk to earnings and the value of equity arising from changes in market interest rates and arises in the normal course of business to the extent that there is a divergence between the amount of First Financial's interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods. First Financial seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates. First Financial's board of directors establishes policy limits with respect to interest rate risk. First Financial's ALCO oversees market risk management, monitoring risk measures, limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital.

Interest rate risk for First Financial's Consolidated Balance Sheets consists of repricing, option and basis risks. Repricing risk results from differences in the maturity, or repricing, of interest-bearing assets and liabilities. Option risk in financial instruments arises from embedded options such as loan prepayments, early withdrawal of certificates of deposits and calls on investments and debt instruments that are primarily driven by third party or client behavior. Basis risk refers to the potential for changes in the underlying relationship between market rates or indices, which subsequently result in a narrowing of the net interest margin. Basis risk is also present in managed rate liabilities, such as interest-bearing checking accounts and savings accounts, where historical pricing relationships to market rates may change due to the level or directional change in market interest rates or competitive pressures.

The interest rate risk position is measured and monitored using income simulation models and economic value of equity (EVE) sensitivity analysis that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting net interest income (NII) under a variety of interest rate scenarios including instantaneous shocks. First Financial uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios.

~~Presented below is the estimated impact on First Financial’s NII and EVE position as of~~ ~~September 30, 2013, assuming immediate, parallel shifts in interest rates:~~

% Change from Base Case for
Immediate Parallel Changes in Rates

-100 BP ⁽¹⁾
+100 BP +200 BP
NII-Year 1 (4.98 )% (0.94 )% 1.22 %
NII-Year 2 (6.07 )% 0.82 % 3.93 %
EVE (6.00 )% 0.76 % 3.68 %

~~(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.

Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process. These assumptions are periodically reviewed in the context of balance sheet changes, product offerings, external economic factors and anticipated client behavior. In addition, the Company internally evaluates the impact of yield curve twist scenarios (i.e. flattening, steepening and inversions of the yield curve) on NII and EVE. First Financial's projected results for near-term earnings at risk indicate a risk-neutral to modestly asset-sensitive position. Long-term NII and EVE modeling indicate the Company is asset sensitive. First Financial is actively managing its balance sheet with a bias toward asset sensitivity while simultaneously balancing the potential earnings impactRisk” of this ~~strategy.~~report is incorporated herein by reference in response to this item.

First Financial's NII position was relatively unchanged from both a near-term and long-term perspective, during the third quarter 2013. Similarly, the Company's EVE sensitivity to a +100 basis point interest rate shock also did not change materially. The Company's EVE sensitivity to a +200 basis point interest rate shock became modestly less asset sensitive as a result of clients continuing to seek longer-term fixed rate loans to take advantage of the low interest rate environment, coupled with a

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continued shift in the Company's deposit mix away from time deposits toward market-driven deposit products. The Company continued to actively manage loan and deposit trends through the use of interest rate swaps designated as cash flow hedges during the quarter (See Note 6 to the Consolidated Financial Statements for further discussion of First Financial's use of derivatives).

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

The interest rate risk analysis provides a framework as to what First Financial's overall sensitivity is as of the Company's most recent reported position. Management strategies may impact future reporting periods, as actual results may differ from simulated results due to the timing, magnitude and frequency of interest rate changes, the difference between actual experience and the characteristics assumed, as well as changes in portfolio composition and market conditions. Market based and historical experience prepayment speeds are factored into the analysis for loan and securities portfolios. Deposit premiums and rate sensitivity for transactional deposit accounts are modeled based on both historical experience and external industry studies. Due to the current low interest rate environment, funding rates on deposit and wholesale funding instruments were not reduced below 0.0% in the down 100 basis point scenario. First Financial continues to refine the assumptions used in its interest rate risk modeling.

~~See also “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations—Net Interest Income.”~~

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

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

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PART II-OTHER INFORMATION


Item 1.	Legal Proceedings.

~~Except as set forth below, there~~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, ~~2012.~~

~~With respect to the matter titled~~ ~~Irwin Mortgage Corporation Bankruptcy~~, on April 1, 2013, the Bankruptcy Court issued an order confirming IMC's plan. IMC and First Financial reached a global settlement with respect to all claims which did not have a material adverse effect on the financial statements of First Financial. The effective date of the plan was on June 28, 2013. ~~Pursuant to the plan, a liquidating trust has been established to administer the liquidation of all remaining assets of IMC in accordance with law.~~


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, ~~2012.~~2013.

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


(c)	The following table shows the total number of shares repurchased in the third quarter of ~~2013~~2014.

Issuer Purchases of Equity Securities


	(a)	(b)		(c)	(d)	(a)	(b)		(c)	(d)
Period	Total Number Of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans ⁽²⁾	Maximum Number of Shares that may yet be purchased Under the Plans	Total Number Of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans ⁽²⁾	Maximum Number of Shares that may yet be purchased Under the Plans
July 1 to July 31, 2013
July 1 to July 31, 2014
Share repurchase program	0	$	0.00	0	3,999,100	0	$	0.00	0	3,749,100
Director Fee Stock Plan	3,022	15.85		N/A	N/A	2,700	16.85		N/A	N/A
Stock Plans	104,551	15.95		N/A	N/A	0	0.00		N/A	N/A
August 1 to August 31, 2013
August 1 to August 31, 2014
Share repurchase program	0	$	0.00	0	3,999,100	0	$	0.00	0	3,749,100
Director Fee Stock Plan	0	0.00		N/A	N/A	0	0.00		N/A	N/A
Stock Plans	67,142	16.28		N/A	N/A	8,850	16.49		N/A	N/A
September 1 to September 30, 2013
September 1 to September 30 2014
Share repurchase program	0	$	0.00	0	3,999,100	0	$	0.00	0	3,749,100
Director Fee Stock Plan	0	0.00		N/A	N/A	0	0.00		N/A	N/A
Stock Plans	0	0.00		N/A	N/A	0	0.00		N/A	N/A
Total
Share repurchase program	0	$	0.00	0		0	$	0.00	0
Director Fee Stock Plan	3,022	$	15.85	N/A		2,700	$	16.85	N/A
Stock Plans	171,693	$	16.08	N/A		8,850	$	16.49	N/A

(1)

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


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

Announcement

Date

Total Shares
Approved for

Repurchase

Total Shares

Repurchased
Under

the Plan

Expiration

Date

Total Shares
Approved for

Repurchase

Total Shares

Repurchased
Under

the Plan

Expiration

Date

10/25/2012

5,000,000

1,000,900

None

5,000,000

1,250,900

None

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Item 6. Exhibits



(a)	Exhibits:

Exhibit Number
~~10.1~~		Form of Agreement for Restricted Stock Awards under the First Financial Bancorp. 2012 Stock Plan (3-year vesting/accrual of dividends) (filed as Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2013 and incorporated herein by reference).⁽¹⁾

~~10.2~~		Agreement for Performance-Based Restricted Stock Awards under the First Financial Bancorp. 2012 Stock Plan between Bancorp and Claude E. Davis (filed as Exhibit 10.2 to the Form 10-Q for the quarter ended June 30, 2013 and incorporated herein by reference).⁽¹⁾

~~10.3~~		Employment and Non-Competition Agreement between First Financial Bancorp and Anthony M. Stollings, EVP - Chief Financial Officer and Chief Administrative Officer dated November 1, 2013 (filed as Exhibit 10.1 to the Form 8-K filed on November 5, 2013 and incorporated herein by reference). ⁽¹⁾

~~10.4~~		Severance and Change in Control Agreement between First Financial Bancorp and Kevin T. Langford, President - Consumer Banking dated November 1, 2013 (filed as Exhibit 10.2 to the Form 8-K filed on November 5, 2013 and incorporated herein by reference). ⁽¹⁾

~~10.5~~		Consulting Agreement between First Financial Bancorp and Gregory A Gehlmann, EVP and General Counsel effective November 2, 2013 (filed as Exhibit 10.3 to the Form 8-K filed on November 5, 2013 and incorporated herein by reference). ⁽¹⁾

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

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

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

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

101.1		Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, ~~2013,~~2014, formatted in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements, as blocks of text and in detail.⁽²⁾

First Financial will furnish, without charge, to a security holder upon request a copy of the documents and will furnish any other Exhibit upon payment of reproduction costs. Unless as otherwise noted, documents incorporated by reference involve File No. ~~000-12379.~~001-34762.

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


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

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SIGNATURES

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



		FIRST FINANCIAL BANCORP.
		(Registrant)

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

Date	11/6/~~2013~~2014	Date	11/6/~~2013~~2014



		Decrease to Interest income
(Dollars in thousands)		Three months ended						Nine months ended
Derivatives in fair value hedging relationships	Location of change in fair value	September 30,						September 30,
		2013			2012			2013			2012
Interest rate contracts
Loans	Interest income - loans	$	(123	)	$	(167	)	$	(393	)	$	(555	)
Total		$	(123	)	$	(167	)	$	(393	)	$	(555	)



	September 30, 2013
(Dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income ⁽¹⁾			Affected Line Item in the Consolidated Statements of Income
Gains and losses on cash flow hedges
Interest rate contracts	$	(295	)	Interest expense - deposits

Realized gains and losses on securities available-for-sale	1,724			Gains on sales of investments securities

Defined benefit pension plan
Amortization of prior service cost	317			⁽²⁾
Recognized net actuarial loss	(2,128		)	⁽²⁾
Pension settlement charges	(5,712		)	Pension settlement charges
Amortization and settlement charges of defined benefit pension items	(7,523		)

Total reclassifications for the period, before tax	$	(6,094	)