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 endedSeptember 30, ~~2014~~2015

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 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, ~~2014~~2015
Common stock, No par value		~~61,372,311~~61,644,723

Table of Contents

FIRST FINANCIAL BANCORP.

INDEX



	Page No.

Part I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Balance Sheets ~~-September~~- September 30, ~~2014 (unaudited)~~2015 and December 31, ~~2013~~2014 (unaudited)	1

Consolidated Statements of Income - Three and Nine Months Ended September 30, ~~2014~~2015 and ~~2013~~2014 (unaudited)	2

Consolidated Statements of Comprehensive Income - Three and Nine Months Ended September 30, ~~2014~~2015 and ~~2013~~2014 (unaudited)	3

Consolidated Statements of Changes in Shareholders’ Equity - Nine Months Ended September 30, ~~2014~~2015 and ~~2013~~2014 (unaudited)	4

Consolidated Statements of Cash Flows - Nine Months Ended September 30, ~~2014~~2015 and ~~2013~~2014 (unaudited)	5

Notes to Consolidated Financial Statements (unaudited)	6

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	3835

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	5751

Item 4 - Controls and Procedures	5852

Part II - OTHER INFORMATION

Item 1 - Legal Proceedings	5953

Item 1A - Risk Factors	5953

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds	6054

Item 6 - Exhibits	6155

Signatures	6256

Table of Contents

Glossary of Abbreviations and Acronyms

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



the Act	Private Securities Litigation Reform Act	FDIC	Federal Deposit Insurance Corporation
ALLL	Allowance for loan and lease losses	FHLB	Federal Home Loan Bank
ASC	Accounting standards codification	First Financial	First Financial Bancorp.
ASU	Accounting standards update	First Financial Bank	First Financial Bank, N.A.
ATM	Automated teller machine	Form 10-K	First Financial Bancorp. Annual Report on Form 10-K
Bank	First Financial Bank, N.A.	GAAP	U.S. Generally Accepted Accounting Principles
Basel III	Basel Committee regulatory capital reforms, Third Basel Accord	IRLC	Interest Rate Lock Commitment
BP	basis point	N/A	Not applicable
CDs	certificates of deposits	NII	Net interest income
Company	First Financial Bancorp.	Oak Street	Oak Street Holdings Corporation
ERM	Enterprise Risk Management	OREO	Other real estate owned
EVE	Economic value of equity	SEC	United States Securities and Exchange Commission
FASB	Financial Accounting Standards Board	TDR	Troubled debt restructuring

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM I - FINANCIAL STATEMENTS

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	September 30, 2014			December 31, 2013			September 30, 2015			December 31, 2014
	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	121,360		$	117,620		$	112,298		$	110,122
Interest-bearing deposits with other banks	22,365			25,830			24,191			22,630
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
Investment securities available-for-sale, at market value (cost $1,071,558 at September 30, 2015 and $849,504 at December 31, 2014)							1,069,667			840,468
Investment securities held-to-maturity (market value $770,512 at September 30, 2015 and $874,749 at December 31, 2014)							756,035			867,996
Other investments	49,986			47,427			53,431			52,626
Loans held for sale	16,816			8,114			26,287			11,005
Loans
Loans and leases
Commercial	1,304,782			1,035,668			1,637,467			1,315,114
Real estate-construction	193,776			80,741			276,240			197,571
Real estate-commercial	1,952,055			1,496,987			2,169,662			2,140,667
Real estate-residential	426,558			352,931			506,653			501,894
Installment	47,561			47,133			39,974			47,320
Home equity	416,099			376,454			463,629			458,627
Credit card	35,925			35,592			39,759			38,475
Lease financing	73,216			80,135			82,679			77,567
Total loans - excluding covered loans	4,449,972			3,505,641
Less: Allowance for loan and lease losses - uncovered	42,454			43,829
Net loans - excluding covered loans	4,407,518			3,461,812
Covered loans	332,265			457,873
Less: Allowance for loan and lease losses - covered	11,535			18,901
Net loans - covered	320,730			438,972
Net loans	4,728,248			3,900,784
Total loans and leases							5,216,063			4,777,235
Less: Allowance for loan and lease losses							53,332			52,858
Net loans and leases							5,162,731			4,724,377
Premises and equipment	141,851			137,110			139,020			141,381
Goodwill	137,458			95,050
Other intangibles	8,542			5,924
Goodwill and other intangibles							211,732			145,853
FDIC indemnification asset	24,160			45,091			18,931			22,666
Accrued interest and other assets	272,568			283,390			306,210			278,697
Total assets	$	7,353,469		$	6,417,213		$	7,880,533		$	7,217,821

Liabilities
Deposits
Interest-bearing	$	1,214,726		$	1,125,723		$	1,330,673		$	1,225,378
Savings	1,827,590			1,612,005			1,979,627			1,889,473
Time	1,247,334			952,327			1,440,223			1,255,364
Total interest-bearing deposits	4,289,650			3,690,055			4,750,523			4,370,215
Noninterest-bearing	1,243,367			1,147,452			1,330,905			1,285,527
Total deposits	5,533,017			4,837,507			6,081,428			5,655,742
Federal funds purchased and securities sold under agreements to repurchase	113,303			94,749			62,317			103,192
Federal Home Loan Bank short-term borrowings	806,000			654,000			701,200			558,200
Total short-term borrowings	919,303			748,749			763,517			661,392
Long-term debt	52,656			60,780			119,515			48,241
Total borrowed funds	971,959			809,529			883,032			709,633
Accrued interest and other liabilities	74,581			88,016			103,061			68,369
Total liabilities	6,579,557			5,735,052			7,067,521			6,433,744

Shareholders' equity
Common stock - no par value
Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2014 and 2013	574,209			577,076
Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2015 and 2014							570,025			574,643
Retained earnings	344,118			324,192			378,258			352,893
Accumulated other comprehensive loss	(20,888		)	(31,281		)	(17,219		)	(21,409		)
Treasury stock, at cost, 7,362,258 shares in 2014 and 11,197,685 shares in 2013	(123,527		)	(187,826		)
Treasury stock, at cost, 7,017,098 shares in 2015 and 7,274,184 shares in 2014							(118,052		)	(122,050		)
Total shareholders' equity	773,912			682,161			813,012			784,077
Total liabilities and shareholders' equity	$	7,353,469		$	6,417,213		$	7,880,533		$	7,217,821

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,
	2014			2013			2014			2013			2015			2014			2015			2014
Interest income
Loans, including fees	$	53,725		$	52,908		$	151,749		$	163,955		$	58,694		$	53,725		$	167,744		$	151,749
Investment securities
Taxable	10,227			8,267			31,019			24,938			9,986			10,227			28,875			31,019
Tax-exempt	894			541			2,500			1,681			1,163			894			3,419			2,500
Total interest on investment securities	11,121			8,808			33,519			26,619			11,149			11,121			32,294			33,519
Other earning assets	(1,455		)	(2,185		)	(4,162		)	(5,213		)	(1,168		)	(1,455		)	(3,511		)	(4,162		)
Total interest income	63,391			59,531			181,106			185,361			68,675			63,391			196,527			181,106
Interest expense
Deposits	4,218			2,856			11,140			10,000			4,861			4,218			14,302			11,140
Short-term borrowings	354			286			975			920			374			354			930			975
Long-term borrowings	456			617			1,505			1,925			281			456			876			1,505
Total interest expense	5,028			3,759			13,620			12,845			5,516			5,028			16,108			13,620
Net interest income	58,363			55,772			167,486			172,516			63,159			58,363			180,419			167,486
Provision for loan and lease losses - uncovered	1,093			1,413			2,281			6,863
Provision for loan and lease losses - covered	(200		)	5,293			(2,805		)	6,052
Provision for loan and lease losses													2,647			893			7,777			(524		)
Net interest income after provision for loan and lease losses	57,470			49,066			168,010			159,601			60,512			57,470			172,642			168,010
Noninterest income
Service charges on deposit accounts	5,263			5,447			15,172			15,369			4,934			5,263			14,260			15,172
Trust and wealth management fees	3,207			3,366			10,258			10,813			3,134			3,207			10,042			10,258
Bankcard income	2,859			2,637			8,101			8,215			2,909			2,859			8,501			8,101
Net gains from sales of loans	1,660			751			2,793			2,546			1,758			1,660			5,146			2,793
Gains on sales of investment securities	0			0			50			1,724
Net gains on sales of investment securities													409			0			1,503			50
FDIC loss sharing income	(192		)	5,555			408			7,105			(973		)	(192		)	(2,323		)	408
Accelerated discount on covered loans	789			1,711			2,425			5,581
Accelerated discount on covered/formerly covered loans													3,820			789			10,006			2,425
Other	2,925			2,824			7,816			9,251			4,364			2,925			12,248			7,816
Total noninterest income	16,511			22,291			47,023			60,604			20,355			16,511			59,383			47,023
Noninterest expenses
Salaries and employee benefits	28,686			23,834			79,562			77,379			27,768			28,686			82,160			79,562
Pension settlement charges	0			1,396			0			5,712
Net occupancy	4,577			5,101			14,381			16,650			4,510			4,577			13,895			14,381
Furniture and equipment	2,265			2,213			6,325			6,834			2,165			2,265			6,537			6,325
Data processing	4,393			2,584			10,021			7,612			2,591			4,393			8,020			10,021
Marketing	939			1,192			2,555			3,271			810			939			2,671			2,555
Communication	541			865			1,726			2,479			531			541			1,659			1,726
Professional services	1,568			1,528			4,741			5,095			4,092			1,568			7,789			4,741
State intangible tax	648			1,010			1,936			3,028			579			648			1,733			1,936
FDIC assessments	1,126			1,107			3,334			3,380			1,103			1,126			3,307			3,334
Loss (gain) - other real estate owned	844			184			1,575			902			196			(589		)	1,089			573
Loss (gain) - covered other real estate owned	(1,433		)	204			(1,002		)	(2,165		)
Loss sharing expense	1,002			1,724			4,036			5,588			574			1,002			1,451			4,036
Other	6,263			5,859			17,182			19,425			8,073			6,263			19,535			17,182
Total noninterest expenses	51,419			48,801			146,372			155,190			52,992			51,419			149,846			146,372
Income before income taxes	22,562			22,556			68,661			65,015			27,875			22,562			82,179			68,661
Income tax expense	7,218			7,645			22,260			20,451			9,202			7,218			26,936			22,260
Net income	$	15,344		$	14,911		$	46,401		$	44,564		$	18,673		$	15,344		$	55,243		$	46,401
Net earnings per common share - basic	$	0.26		$	0.26		$	0.80		$	0.78		$	0.31		$	0.26		$	0.90		$	0.80
Net earnings per common share - diluted	$	0.26		$	0.26		$	0.79		$	0.77		$	0.30		$	0.26		$	0.89		$	0.79
Cash dividends declared per share	$	0.15		$	0.27		$	0.45		$	0.79		$	0.16		$	0.15		$	0.48		$	0.45
Average common shares outstanding - basic	59,403,109			57,201,390			57,907,203			57,309,934			61,135,749			59,403,109			61,088,794			57,907,203
Average common shares outstanding - diluted	60,112,932			58,012,588			58,639,394			58,143,372			61,987,795			60,112,932			61,858,724			58,639,394

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,
	2014			2013			2014			2013			2015		2014			2015			2014
Net income	$	15,344		$	14,911		$	46,401		$	44,564		$	18,673	$	15,344		$	55,243		$	46,401
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on investment securities arising during the period	(256		)	(4,003		)	10,077			(22,570		)	3,057		(256		)	4,287			10,077
Change in retirement obligation	189			1,166			663			11,976			220		189			624			663
Unrealized gain (loss) on derivatives	760			(818		)	(334		)	(2		)	128		760			(771		)	(334		)
Unrealized gain (loss) on foreign currency exchange	(12		)	6			(13		)	(21		)	91		(12		)	50			(13		)
Other comprehensive income (loss)	681			(3,649		)	10,393			(10,617		)	3,496		681			4,190			10,393
Comprehensive income	$	16,025		$	11,262		$	56,794		$	33,947		$	22,169	$	16,025		$	59,433		$	56,794

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, 2013	68,730,731	$	579,293		$	330,004		$	(18,677	)	(10,684,496	)	$	(180,195	)	$	710,425
Net income					44,564											44,564
Other comprehensive income (loss)								(10,617		)						(10,617		)
Cash dividends declared:
Common stock at $0.79 per share					(45,575		)									(45,575		)
Purchase of common stock											(540,400	)	(8,339		)	(8,339		)
Excess tax benefit on share-based compensation		133														133
Exercise of stock options, net of shares purchased		(1,016		)							44,105		741			(275		)
Restricted stock awards, net of forfeitures		(4,030		)							152,504		2,704			(1,326		)
Share-based compensation expense		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
Balance at January 1, 2014	68,730,731	$	577,076		$	324,192		$	(31,281	)	(11,197,685	)	$	(187,826	)	$	682,161		68,730,731	$	577,076		$	324,192		$	(31,281	)	(11,197,685	)	$	(187,826	)	$	682,161
Net income					46,401											46,401							46,401											46,401
Other comprehensive income (loss)								10,393								10,393										10,393								10,393
Cash dividends declared:
Common stock at $0.45 per share					(26,475		)									(26,475		)					(26,475		)									(26,475		)
Purchase of common stock											(40,255	)	(697		)	(697		)											(40,255	)	(697		)	(697		)
Common stock issued in connection with business combinations		(946		)							3,657,937		61,375			60,429				(946		)							3,657,937		61,375			60,429
Excess tax benefit on share-based compensation		149														149				149														149
Exercise of stock options, net of shares purchased		(771		)							36,830		616			(155		)		(771		)							36,830		616			(155		)
Restricted stock awards, net of forfeitures		(4,191		)							180,915		3,005			(1,186		)		(4,191		)							180,915		3,005			(1,186		)
Share-based compensation expense		2,892														2,892				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		68,730,731	$	574,209		$	344,118		$	(20,888	)	(7,362,258	)	$	(123,527	)	$	773,912
Balance at January 1, 2015																			68,730,731	$	574,643		$	352,587		$	(21,409	)	(7,274,184	)	$	(122,050	)	$	783,771
Net income																							55,243											55,243
Other comprehensive income (loss)																										4,190								4,190
Cash dividends declared:
Common stock at $0.48 per share																							(29,572		)									(29,572		)
Purchase of common stock																													(148,935	)	(2,783		)	(2,783		)
Warrant Exercises																				(645		)							39,217		658			13
Excess tax benefit on share-based compensation																				85														85
Exercise of stock options, net of shares purchased																				(195		)							30,458		511			316
Restricted stock awards, net of forfeitures																				(6,869		)							336,346		5,612			(1,257		)
Share-based compensation expense																				3,006														3,006
Balance at September 30, 2015																			68,730,731	$	570,025		$	378,258		$	(17,219	)	(7,017,098	)	$	(118,052	)	$	813,012

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,
	2014			2013			2015			2014
Operating activities
Net income	$	46,401		$	44,564		$	55,243		$	46,401
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses	(524		)	12,915			7,777			(524		)
Depreciation and amortization	9,465			11,057			9,697			9,465
Stock-based compensation expense	2,892			3,049			3,006			2,892
Pension (income) expense	(853		)	5,309
Pension expense (income)							(900		)	(853		)
Net amortization of premiums/accretion of discounts on investment securities	5,523			11,327			5,874			5,523
Gains on sales of investment securities	(50		)	(1,724		)	(1,503		)	(50		)
Originations of loans held for sale	(93,561		)	(126,881		)	(197,621		)	(93,561		)
Net gains from sales of loans held for sale	(2,793		)	(2,546		)	(5,146		)	(2,793		)
Proceeds from sales of loans held for sale	85,977			131,979			187,364			85,977
Deferred income taxes	(20,137		)	(5,621		)	2,954			(20,137		)
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	20,931			41,475
Decrease in accrued expenses	(5,515		)	(6,013		)
Decrease in interest payable	(72		)	(418		)
Decrease (increase) in interest receivable							(1,912		)	(2,849		)
Decrease (increase) in cash surrender value of life insurance							(4,889		)	(4,608		)
Decrease (increase) in prepaid expenses							(443		)	(2,303		)
Decrease (increase) in indemnification asset							3,735			20,931
(Decrease) increase in accrued expenses							(1,630		)	(5,515		)
(Decrease) increase in interest payable							706			(72		)
Other	5,917			13,699			(4,561		)	5,917
Net cash provided by operating activities	43,841			125,240
Net cash provided by (used in) operating activities							57,751			43,841

Investing activities
Proceeds from sales of securities available-for-sale	92,573			92,684			68,615			92,573
Proceeds from calls, paydowns and maturities of securities available-for-sale	75,691			160,460			88,336			75,691
Purchases of securities available-for-sale	(142,307		)	(109,816		)	(375,244		)	(142,307		)
Proceeds from calls, paydowns and maturities of securities held-to-maturity	74,392			134,089			111,499			74,392
Purchases of securities held-to-maturity	(140,426		)	(13,476		)	(3,520		)	(140,426		)
Net decrease in interest-bearing deposits with other banks	3,465			13,927
Net increase in loans and leases - excluding covered loans	(343,050		)	(261,546		)
Net decrease in covered assets	116,701			180,074
Net decrease (increase) in interest-bearing deposits with other banks							(1,561		)	3,465
Net decrease (increase) in loans and leases							(213,936		)	(226,349		)
Proceeds from disposal of other real estate owned	28,713			23,590			12,238			28,713
Purchases of premises and equipment	(7,591		)	(6,017		)	(6,371		)	(7,591		)
Net cash acquired from business combinations	34,300			0
Net cash (used in) provided by investing activities	(207,539		)	213,969
Net cash (paid) acquired from business combinations							(305,591		)	34,300
Net cash provided by (used in) investing activities							(625,535		)	(207,539		)

Financing activities
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	(28,930		)	(14,093		)
Net (decrease) increase in total deposits							425,686			126,905
Net (decrease) increase in short-term borrowings							102,125			95,663
Payments on long-term debt							(46,238		)	(28,930		)
Proceeds from issuance of long-term debt							120,000			0
Cash dividends paid on common stock	(25,717		)	(45,983		)	(29,282		)	(25,717		)
Treasury stock purchase	(697		)	(8,339		)	(2,783		)	(697		)
Proceeds from exercise of stock options	65			0			367			65
Excess tax benefit on share-based compensation	149			133			85			149
Net cash provided by (used in) financing activities	167,438			(296,013		)	569,960			167,438

Cash and due from banks:
Net increase in cash and due from banks	3,740			43,196
Cash and due from banks
Net increase (decrease) in cash and due from banks							2,176			3,740
Cash and due from banks at beginning of period	117,620			134,502			110,122			117,620
Cash and due from banks at end of period	$	121,360		$	177,698		$	112,298		$	121,360

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.

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FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~September 30, ~~2014~~2015

(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’~~periods' amounts, including covered loans and the related allowance for loan and lease losses in the Consolidated Balance Sheets have been made to conform to ~~the~~ current ~~period’s presentation and~~year presentation. Such reclassifications had no effect on net earnings.

Effective October 1, 2014, the five-year loss sharing coverage period for non-single family assets expired and the majority of the Company’s covered assets were no longer subject to FDIC loss sharing protection. As a result of this expiration, and the insignificant balance of assets that remain subject to FDIC loss sharing protection through October 1, 2019 relative to the Company’s total assets, all covered loans and the related allowance for loan and lease losses, as well as provision for covered loan and lease losses, have been reclassified in the Consolidated Financial Statements, and all credit quality metrics have been updated to include covered and formerly covered assets.

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

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, ~~2013~~.2014. 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~~it is suggested that these interim statements 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, ~~2013~~2014 has been derived from the audited financial statements in the Company’s ~~2013~~2014 Form 10-K.

NOTE 2: RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

In January 2014, the FASB issued an update (ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects) that permits First Financial to make an accounting policy election to account for its investments in qualified

affordable housing projects using a proportional amortization method if certain conditions are met. Under the proportional

amortization method, First Financial would amortize the initial cost of the investment in proportion to the tax credits and other

tax benefits received and recognize the net investment performance in the income statement as a component of income tax

expense. The amended guidance requires disclosure of the nature of First Financial’s investments in qualified affordable

housing projects, and the effect of the measurement of the investments in qualified affordable housing projects and the related

tax credits on First Financial’s financial position and results of operation. The provisions of this update became effective for the interim reporting period ended March 31, 2015. First Financial made the election to adopt the proportional amortization method during the first quarter 2015 and had $23.6 million of affordable housing commitments as of September 30, 2015. This update did not have a material impact on the Company's Consolidated Financial Statements.

In January 2014, the FASB issued an update (ASU 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 the real estate property recognized. The provisions of ~~ASU 2014-04 become~~this update became effective ~~for First Financial~~ for the interim reporting period ended March 31, 2015. ~~First Financial does~~This update did not ~~anticipate this update will~~ have a material impact on ~~its~~the Company's Consolidated Financial Statements.

In April 2014, the FASB issued an update (ASU 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

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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 entity’s operations and financial results, or an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. A strategic shift that has or will have a major effect on an entity’s operations and financial results could include the disposal of a 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~~this update became effective for ~~all~~the interim ~~and annual periods subsequent to January 1,~~reporting period ended March 31, 2015. ~~First Financial does~~This update did not ~~anticipate this update will~~ have a material impact on ~~its~~the Company's Consolidated Financial Statements.

In May 2014, the FASB issued an update (ASU 2014-09, Revenue from Contracts with Customers) which 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 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 those goods or services. The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of the ASU’s provisions also apply to transfers of 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

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requires significantly expanded disclosures about revenue recognition. The provisions of ASU 2014-09 become effective for interim and annual reporting periods beginning after December 15, ~~2016.~~2017. Early ~~application~~adoption is ~~not permitted.~~permitted beginning January 1, 2017. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.

In June 2014, the FASB issued an update (ASU 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 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 new disclosures for repurchase agreements, securities lending transactions and repurchase-to-maturity transactions that are accounted for as secured borrowings. The ASU also requires 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 the economic return on the transferred financial assets throughout the term of the transaction. The provisions of ~~ASU 2014-11 become~~this update became effective for ~~all~~the interim ~~and annual periods subsequent to December 15, 2014. Early adoption is prohibited. First Financial is currently evaluating~~reporting period ended March 31, 2015. This update did not have a material impact on the ~~impact of this update on its~~Company's Consolidated Financial Statements.

In August 2014, the FASB issued an update (ASU 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 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 claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The ~~amendments in~~provisions of this ~~ASU become~~update became effective for ~~all~~the interim ~~and annual periods subsequent to December 15, 2014. First Financial does~~reporting period ended March 31, 2015. This update did not ~~anticipate this update will~~ have a material impact on ~~its~~the Company's 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 inof this ~~ASU~~update 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.

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In April 2015, the FASB issued an update (ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs) that requires debt issuance costs to be presented as a deduction from the corresponding debt liability. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. The provisions of this update are effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. First Financial adopted this accounting standard during the third quarter of 2015 and recorded $1.7 million of deferred debt issuance costs as a reduction to long-term debt in the Consolidated Balance Sheets as of September 30, 2015. Management concluded that the debt issuance costs capitalized in prior periods was immaterial as a component of other assets, total assets, total long-term debt and total liabilities, and as such, the Company's prior periods have not been restated. The amount of unamortized debt issuance costs not reclassified was $0.1 million as of December 31, 2014.

In May 2015, the FASB issued an update (ASU 2015-07, Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share) which will eliminate the requirement to categorize investments whose fair values are measured at net asset value within the fair value hierarchy using the practical expedient. This update will require entities to disclose the fair values of such investments so that financial statement users can reconcile amounts reported in the fair value hierarchy table and the amounts reported on the balance sheet. The provisions of this update become effective for the interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In September 2015, the FASB issued an update (ASU 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments) which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. This update will require acquiring companies to recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The guidance in this ASU is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

NOTE 3: INVESTMENTS

The following is a summary of held-to-maturity and available-for-sale investment securities as of September 30, ~~2014~~:2015:


	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	$	(3	)	$	94	$	0	$	0	$	0		$	0	$	98	$	1	$	0		$	99
Securities of U.S. government agencies and corporations	17,917		0		(231		)	17,686		12,304		3		(37		)	12,270		15,968		222		0			16,190		8,717		247		0			8,964
Mortgage-backed securities	832,728		5,290		(4,656		)	833,362		700,167		4,967		(19,273		)	685,861		707,124		15,048		(520		)	721,652		660,881		5,040		(6,879		)	659,042
Obligations of state and other political subdivisions	26,308		442		(418		)	26,332		49,824		588		(1,008		)	49,404		28,138		168		(317		)	27,989		75,845		2,311		(928		)	77,228
Asset-backed securities	0		0		0			0		76,693		244		(1		)	76,936		0		0		0			0		215,036		221		(1,801		)	213,456
Other securities	23,568		770		(59		)	24,279		105,132		1,576		(1,679		)	105,029		4,805		0		(124		)	4,681		110,981		919		(1,022		)	110,878
Total	$	900,521	$	6,502	$	(5,364	)	$	901,659	$	944,217	$	7,378	$	(22,001	)	$	929,594	$	756,035	$	15,438	$	(961	)	$	770,512	$	1,071,558	$	8,739	$	(10,630	)	$	1,069,667

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The following is a summary of held-to-maturity and available-for-sale investment securities as of December 31, ~~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	$	(7	)	$	90	$	0	$	0	$	0		$	0	$	97	$	0	$	0		$	97
Securities of U.S. government agencies and corporations	18,981		0		(791		)	18,190		9,980		0		(404		)	9,576		17,570		24		(23		)	17,571		11,814		67		(1		)	11,880
Mortgage-backed securities	775,025		1,337		(12,229		)	764,133		678,267		5,372		(28,593		)	655,046		801,465		7,813		(2,064		)	807,214		611,497		4,462		(13,211		)	602,748
Obligations of state and other political subdivisions	25,788		152		(1,039		)	24,901		33,410		10		(3,097		)	30,323		44,164		1,275		(193		)	45,246		73,649		883		(947		)	73,585
Asset-backed securities	0		0		0			0		114,209		1		(616		)	113,594		0		0		0			0		74,784		155		(103		)	74,836
Other securities	17,478		283		0			17,761		109,089		262		(4,379		)	104,972		4,797		0		(79		)	4,718		77,663		1,193		(1,534		)	77,322
Total	$	837,272	$	1,772	$	(14,059	)	$	824,985	$	945,052	$	5,645	$	(37,096	)	$	913,601	$	867,996	$	9,112	$	(2,359	)	$	874,749	$	849,504	$	6,760	$	(15,796	)	$	840,468

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The following table provides a summary of investment securities by estimated weighted average life as of September 30, ~~2014~~.2015. 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	$	268	$	271	$	12,735	$	12,738	$	4,473	$	4,587	$	22,066	$	22,118
Due after one year through five years	402,027		401,829		348,661		346,665		534,431		543,735		667,783		666,906
Due after five years through ten years	354,896		355,179		266,513		260,869		217,131		222,190		334,447		332,881
Due after ten years	143,330		144,380		316,308		309,322		0		0		47,262		47,762
Total	$	900,521	$	901,659	$	944,217	$	929,594	$	756,035	$	770,512	$	1,071,558	$	1,069,667

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


	September 30, 2014															September 30, 2015
	Less than 12 months					12 months or more					Total					Less than 12 months					12 months or more					Total
(Dollars in thousands)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss			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	252,959		(2,616		)	496,254		(20,077		)	749,213		(22,693		)	$	216,209	$	(856	)	$	257,294	$	(6,543	)	$	473,503	$	(7,399	)
Obligations of state and other political subdivisions	14,267		(174		)	38,578		(1,323		)	52,845		(1,497		)	1,268		(3		)	36,309		(1,242		)	37,577		(1,245		)
Asset-backed securities	10,510		(1		)	0		0			10,510		(1		)	157,585		(1,781		)	5,780		(20		)	163,365		(1,801		)
Other securities	9,254		(93		)	30,440		(1,304		)	39,694		(1,397		)	37,492		(540		)	25,483		(606		)	62,975		(1,146		)
Total	$	288,460	$	(2,889	)	$	583,216	$	(22,830	)	$	871,676	$	(25,719	)	$	412,554	$	(3,180	)	$	324,866	$	(8,411	)	$	737,420	$	(11,591	)

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	December 31, 2013															December 31, 2014
	Less than 12 months					12 months or more					Total					Less than 12 months					12 months or more					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Dollars in thousands)	value		loss			value		loss			value		loss			value		loss			value		loss			value		loss
Securities of U.S. government agencies and corporations	$	27,851	$	(970	)	$	0	$	0		$	27,851	$	(970	)	$	493	$	(1	)	$	97	$	0		$	590	$	(1	)
Mortgage-backed securities	966,718		(32,432		)	108,929		(6,101		)	1,075,647		(38,533		)	119,641		(420		)	428,486		(13,780		)	548,127		(14,200		)
Obligations of state and other political subdivisions	66,502		(5,294		)	1,935		(46		)	68,437		(5,340		)	12,746		(126		)	37,516		(1,014		)	50,262		(1,140		)
Asset-backed securities	93,355		(616		)	0		0			93,355		(616		)	32,045		(103		)	0		0			32,045		(103		)
Other securities	54,866		(2,142		)	7,798		(561		)	62,664		(2,703		)	12,831		(317		)	30,005		(1,296		)	42,836		(1,613		)
Total	$	1,209,292	$	(41,454	)	$	118,662	$	(6,708	)	$	1,327,954	$	(48,162	)	$	177,756	$	(967	)	$	496,104	$	(16,090	)	$	673,860	$	(17,057	)

Gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost. All securities with unrealized losses are reviewed quarterly to determine if any impairment is considered other than temporary, requiring a write-down to fair 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 payment performance as well as ~~payment performance 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, ~~2014~~2015 or December 31, ~~2013~~.2014.

For further detail on the fair value of investment securities, see Note 1514 – Fair Value Disclosures.

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NOTE 4: LOANS ~~- EXCLUDING COVERED LOANS~~AND LEASES

First Financial offers clients a variety of commercial and consumer loan and lease products with various interest rates and payment terms. ~~While lending~~Lending activities are primarily concentrated in ~~Ohio, Indiana and Kentucky,~~states where the Bank currently operates banking centers (Ohio, Indiana and Kentucky). Additionally, First Financial ~~also~~has two national lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector ~~throughout the United States.~~and another that provides loans secured by commissions and cash collateral accounts exclusively to insurance agents and brokers. Commercial loan categories include commercial and industrial (commercial), commercial real estate, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card.

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

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 purchased impaired loans. First Financial had purchased impaired loans totaling $207.8 million and $264.9 million, at September 30, 2015 and December 31, 2014, respectively. The outstanding balance of all purchased impaired loans, including all contractual principal, interest, fees and penalties, was $236.5 million and $314.5 million as of September 30, 2015 and December 31, 2014, respectively. These balances exclude contractual interest not yet accrued.

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



	Three months ended						Nine months ended
	September 30,						September 30,
(Dollars in thousands)	2015			2014			2015			2014
Balance at beginning of period	$	78,945		$	127,764		$	106,622		$	133,671
Reclassification from/(to) nonaccretable difference	76			(2,295		)	(2,048		)	19,864
Accretion	(4,945		)	(8,158		)	(17,046		)	(26,808		)
Other net activity ⁽¹⁾	(4,746		)	(4,250		)	(18,198		)	(13,666		)
Balance at end of period	$	69,330		$	113,061		$	69,330		$	113,061

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

First Financial regularly reviews its forecast of expected cash flows for purchased impaired loans. The Company recognized reclassifications from nonaccretable to accretable difference of $0.1 million for the third quarter of 2015, however, during the nine months ended September 30, 2015, the Company recognized reclassifications from accretable to nonaccretable difference of $2.0 million. During the third quarter of 2014, First Financial ~~completed~~recognized $2.3 million of reclassifications from accretable to nonaccretable difference, while in the ~~mergers~~nine months ended September 30, 2014, the Company recognized reclassifications from nonaccretable to accretable difference of ~~The First Bexley Bank (First Bexley), Insight Bank (Insight)~~$19.9 million due to changes in the cash flow expectations related to certain loan pools. Reclassifications from nonaccretable to accretable difference can result in impairment and ~~Guernsey Bancorp, Inc (Guernsey).~~ provision expense in the current period and reclassifications from accretable to nonaccretable difference can result in yield adjustments on the related loan pools on a prospective basis.

Covered loans. 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~~FDIC-assisted transactions covered under loss sharing ~~agreements. See Note 5 –~~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 the loss sharing agreements, covered loans are subject to a stated loss threshold whereby the FDIC will reimburse First Financial for 80% of losses up to a 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 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 an additional three year period, on the same pro-rata basis.

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The Company's loss sharing agreements with the FDIC related to non-single family loans expired effective October 1, 2014, and the ten year period of loss protection on all other covered loans and covered OREO expires October 1, 2019. Covered ~~Loans for further detail.~~loans totaled $117.6 million as of September 30, 2015 and $135.7 million as of December 31, 2014.

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 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 asto be the best indicator of credit quality for consumer loans. Consumer loans that have principal and interest payments that are past due by ~~ninety~~90 days or more are generally classified as nonperforming. Additionally, consumer loans that have been modified in a ~~troubled debt restructuring (TDR)~~TDR are ~~also~~ classified as nonperforming.

~~Table of Contents~~

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


	As of September 30, 2014										As of September 30, 2015
			Real Estate										Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Leasing		Total		Commercial		Construction		Commercial		Leasing		Total
Pass	$	1,262,525	$	188,144	$	1,867,535	$	71,314	$	3,389,518	$	1,571,656	$	275,197	$	2,081,930	$	81,053	$	4,009,836
Special Mention	23,592		3,830		26,917		1,902		56,241		40,433		130		20,414		1,626		62,603
Substandard	18,665		1,802		57,603		0		78,070		25,378		913		67,318		0		93,609
Doubtful	0		0		0		0		0		0		0		0		0		0
Total	$	1,304,782	$	193,776	$	1,952,055	$	73,216	$	3,523,829	$	1,637,467	$	276,240	$	2,169,662	$	82,679	$	4,166,048

(Dollars in thousands)
Real Estate
Residential
Installment Home Equity Other Total
Performing $ 419,862
$ 47,163
$ 413,518
$ 35,925
$ 916,468
Nonperforming 6,696
398
2,581
0
9,675
Total $ 426,558
$ 47,561
$ 416,099
$ 35,925
$ 926,143

As of December 31, 2013
Real Estate
(Dollars in thousands) Commercial Construction Commercial Leasing Total
Pass $ 991,161
$ 78,872
$ 1,422,215
$ 80,135
$ 2,572,383
Special Mention 23,053
65
23,832
0
46,950
Substandard 21,454
1,804
50,940
0
74,198
Doubtful 0
0
0
0
0
Total $ 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	$	344,325	$	46,559	$	373,472	$	35,592	$	799,948	$	497,643	$	39,547	$	457,893	$	39,759	$	1,034,842
Nonperforming	8,606		574		2,982		0		12,162		9,010		427		5,736		0		15,173
Total	$	352,931	$	47,133	$	376,454	$	35,592	$	812,110	$	506,653	$	39,974	$	463,629	$	39,759	$	1,050,015

1011

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	As of December 31, 2014
			Real Estate
(Dollars in thousands)	Commercial		Construction		Commercial		Leasing		Total
Pass	$	1,265,116	$	195,787	$	2,027,897	$	75,839	$	3,564,639
Special Mention	30,903		0		25,928		1,728		58,559
Substandard	19,095		1,784		86,842		0		107,721
Doubtful	0		0		0		0		0
Total	$	1,315,114	$	197,571	$	2,140,667	$	77,567	$	3,730,919



(Dollars in thousands)	Real Estate Residential		Installment		Home Equity		Other		Total
Performing	$	490,314	$	46,806	$	452,281	$	38,475	$	1,027,876
Nonperforming	11,580		514		6,346		0		18,440
Total	$	501,894	$	47,320	$	458,627	$	38,475	$	1,046,316

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.

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


	As of September 30, 2014														As of September 30, 2015
(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		Subtotal		Purchased impaired		Total		> 90 days past due and still accruing
Loans
Commercial	$	2,063	$	333	$	1,727	$	4,123	$	1,300,659	$	1,304,782	$	0	$	949	$	887	$	4,125	$	5,961	$	1,622,274	$	1,628,235	$	9,232	$	1,637,467	$	0
Real estate - construction	0		0		223		223		193,553		193,776		0		0		0		79		79		275,351		275,430		810		276,240		0
Real estate - commercial	5,697		2,359		12,144		20,200		1,931,855		1,952,055		0		1,094		1,120		14,510		16,724		2,018,164		2,034,888		134,774		2,169,662		0
Real estate - residential	1,384		311		4,225		5,920		420,638		426,558		0		1,964		391		2,365		4,720		442,154		446,874		59,779		506,653		0
Installment	106		82		223		411		47,150		47,561		0		20		50		257		327		37,531		37,858		2,116		39,974		0
Home equity	1,043		553		951		2,547		413,552		416,099		0		512		150		3,309		3,971		458,574		462,545		1,084		463,629		0
Other	490		215		249		954		108,187		109,141		249		684		131		58		873		121,565		122,438		0		122,438		58
Total	$	10,783	$	3,853	$	19,742	$	34,378	$	4,415,594	$	4,449,972	$	249	$	5,223	$	2,729	$	24,703	$	32,655	$	4,975,613	$	5,008,268	$	207,795	$	5,216,063	$	58


	As of December 31, 2013														As of December 31, 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		Subtotal		Purchased impaired		Total		> 90 days past due and still accruing
Loans
Commercial	$	2,016	$	161	$	7,136	$	9,313	$	1,026,355	$	1,035,668	$	0	$	1,002	$	3,647	$	2,110	$	6,759	$	1,290,975	$	1,297,734	$	17,380	$	1,315,114	$	0
Real estate - construction	0		0		223		223		80,518		80,741		0		276		0		223		499		195,773		196,272		1,299		197,571		0
Real estate - commercial	7,800		4,269		12,732		24,801		1,472,186		1,496,987		0		8,356		838		13,952		23,146		1,944,207		1,967,353		173,314		2,140,667		0
Real estate - residential	2,030		685		5,526		8,241		344,690		352,931		0		1,198		344		4,224		5,766		426,908		432,674		69,220		501,894		0
Installment	213		40		379		632		46,501		47,133		0		133		17		272		422		44,235		44,657		2,663		47,320		0
Home equity	985		292		1,648		2,925		373,529		376,454		0		697		466		4,079		5,242		452,357		457,599		1,028		458,627		0
Other	680		144		218		1,042		114,685		115,727		218		1,133		128		216		1,477		114,565		116,042		0		116,042		216
Total	$	13,724	$	5,591	$	27,862	$	47,177	$	3,458,464	$	3,505,641	$	218	$	12,795	$	5,440	$	25,076	$	43,311	$	4,469,020	$	4,512,331	$	264,904	$	4,777,235	$	216

Table of Contents

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~~90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors such as insufficient collateral value. ~~When a loan is classified as nonaccrual, the~~The accrual of interest income is discontinued, and previously accrued but unpaid interest is ~~reversed.~~reversed when a loan is classified as nonaccrual. 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 return to accrual status if collection of future principal and interest payments is no longer doubtful.

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 loan loss provision or prospective yield adjustments.

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 agreement.

~~Table of Contents~~

First Financial had ~~246~~271 TDRs totaling $~~26.6~~33.8 million at September 30, ~~2014~~,2015, including ~~$13.4~~$20.2 million on accrual status and ~~$13.2~~$13.6 million classified as nonaccrual. First Financial had an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs at September 30, ~~2014~~.2015. At September 30, ~~2014~~,2015, the allowance for loan and lease losses included reserves of ~~$2.9~~$2.4 million related to TDRs. For the three and nine months ended September 30, ~~2014~~,2015, First Financial charged off ~~$0.1~~$0.7 million and ~~$0.9~~$2.5 million, respectively, for the portion of TDRs determined to be uncollectible. Additionally, at September 30, ~~2014~~,2015, approximately $~~10.8~~8.8 million of accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had ~~217~~262 TDRs totaling $~~28.1~~28.2 million at December 31, ~~2013~~,2014, including ~~$15.1~~$15.9 million of loans on accrual status and ~~$13.0~~$12.3 million classified as nonaccrual. First Financial had an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, ~~2013~~,2014, the allowance for loan and lease losses included reserves of $~~4.4~~3.7 million related to TDRs. For the year ended December 31, ~~2013~~,2014, First Financial charged off $~~2.8~~1.0 million for the portion of TDRs determined to be uncollectible. At December 31, ~~2013~~,2014, approximately $~~9.0~~10.5 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.

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The following tables provide information on loan modifications classified as TDRs during the three and nine months ended September 30, ~~2014~~2015 and ~~2013~~.2014:


	Three months ended										Three months ended
	September 30, 2014					September 30, 2013					September 30, 2015					September 30, 2014
(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	6	$	3,712	$	3,384	4	$	494	$	490	5	$	171	$	166	6	$	3,712	$	3,384
Real estate - construction	0	0		0		0	0		0		0	0		0		0	0		0
Real estate - commercial	2	375		373		10	2,502		2,493		2	2,159		2,000		2	375		373
Real estate - residential	7	322		264		3	387		367		6	920		901		7	322		264
Installment	3	6		6		3	34		33		2	50		50		3	6		6
Home equity	6	126		125		5	294		216		6	231		229		6	126		125
Total	24	$	4,541	$	4,152	25	$	3,711	$	3,599	21	$	3,531	$	3,346	24	$	4,541	$	4,152

											Nine months ended
											September 30, 2015					September 30, 2014
(Dollars in thousands)											Number of loans	Pre-modification loan balance		Period end balance		Number of loans	Pre-modification loan balance		Period end balance
Commercial											27	$	1,686	$	1,676	11	$	3,938	$	3,594
Real estate - construction											0	0		0		0	0		0
Real estate - commercial											14	17,499		13,734		11	2,583		2,453
Real estate - residential											9	1,282		1,228		30	1,712		1,527
Installment											9	96		96		6	21		19
Home equity											16	2,281		1,768		26	791		758
Total											75	$	22,844	$	18,502	84	$	9,045	$	8,351

Nine months ended
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
Commercial 11
$ 3,938
$ 3,594
14
$ 8,233
$ 6,105
Real estate - construction 0
0
0
0
0
0
Real estate - commercial 11
2,583
2,453
17
4,752
4,719
Real estate - residential 30
1,712
1,527
33
2,356
2,178
Installment 6
21
19
14
188
115
Home equity 26
791
758
35
1,176
887
Total 84
$ 9,045
$ 8,351
113
$ 16,705
$ 14,004

~~Table of Contents~~

The following table provides information on how TDRs were modified during the three and nine months ended September 30, ~~2014~~2015 and ~~2013~~.2014.


	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,⁽²⁾				September 30,⁽²⁾				September 30,				September 30,
(Dollars in thousands)	2014		2013		2014		2013		2015		2014		2015		2014
Extended maturities	$	3,505	$	2,179	$	4,402	$	8,848	$	2,166	$	3,505	$	12,827	$	4,402
Adjusted interest rates	0		0		301		520		0		0		0		301
Combination of rate and maturity changes	402		613		1,643		850		0		402		1,219		1,643
Forbearance	0		0		320		0		0		0		260		320
Other ⁽¹⁾	245		807		1,685		3,786		1,180		245		4,196		1,685
Total	$	4,152	$	3,599	$	8,351	$	14,004	$	3,346	$	4,152	$	18,502	$	8,351

(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. Borrowers classified as a TDR that are ~~ninety~~90 days or more past due on any principal or interest payments, or ~~that~~who prematurely terminate a restructured loan agreement without ~~satisfying~~paying off the contractual principal balance (for example, in a deed-in-lieu arrangement), are considered to be in payment default of the terms of the TDR agreement.

Table of Contents

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:


	Three months ended						Three months ended
	September 30, 2014			September 30, 2013			September 30, 2015			September 30, 2014
(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	0	$	0	1	$	29	2	$	344	0	$	0
Real estate - construction	0	0		0	0		0	0		0	0
Real estate - commercial	0	0		1	3		0	0		0	0
Real estate - residential	1	1		0	0		0	0		1	1
Installment	0	0		1	17		0	0		0	0
Home equity	0	0		2	54		1	14		0	0
Total	1	$	1	5	$	103	3	$	358	1	$	1

							Nine months ended
							September 30, 2015			September 30, 2014
(Dollars in thousands)							Number of loans	Period end balance		Number of loans	Period end balance
Commercial							2	$	344	1	$	143
Real estate - construction							0	0		0	0
Real estate - commercial							4	1,146		0	0
Real estate - residential							1	73		3	28
Installment							0	0		1	0
Home equity							1	14		3	92
Total							8	$	1,577	8	$	263

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

~~Table of Contents~~

Impaired Loans. Loans classified as nonaccrual, excluding purchased impaired loans, 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, 2014		December 31, 2013		September 30, 2015		December 31, 2014
Impaired loans
Nonaccrual loans⁽¹⁾
Commercial	$	6,486	$	7,934	$	7,438	$	6,627
Real estate-construction	223		223		79		223
Real estate-commercial	25,262		17,286		17,732		27,969
Real estate-residential	6,696		8,606		4,940		7,241
Installment	398		574		321		451
Home equity	2,581		2,982		5,203		5,958
Other	0		0
Nonaccrual loans ⁽¹⁾	41,646		37,605		35,713		48,469
Accruing troubled debt restructurings	13,369		15,094		20,226		15,928
Total impaired loans	$	55,015	$	52,699	$	55,939	$	64,397

(1) Nonaccrual loans include nonaccrual TDRs of $~~13.2~~13.6 million and $~~13.0~~12.3 million as of September 30, ~~2014~~2015 and December 31, ~~2013,~~2014, respectively.

Table of Contents


	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
(Dollars in thousands)	2014		2013		2014		2013		2015		2014		2015		2014
Interest income effect on impaired loans
Gross amount of interest that would have been recorded under original terms	$	838	$	1,142	$	2,342	$	3,399	$	852	$	910	$	2,750	$	2,543
Interest included in income
Nonaccrual loans	168		130		329		472		91		186		370		363
Troubled debt restructurings	110		115		320		316		168		110		436		321
Total interest included in income	278		245		649		788		259		296		806		684
Net impact on interest income	$	560	$	897	$	1,693	$	2,611	$	593	$	614	$	1,944	$	1,859

Commitments outstanding to borrowers with nonaccrual loans					$	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. Specific allowances are based on ~~expected~~discounted cash flows ~~discounted~~ using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.

1416

Table of Contents

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


		As of September 30, 2014													As of September 30, 2015
(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		$	6,581	$	7,981	$	0	$	6,095	$	97	$	44		$	9,981	$	11,848	$	0	$	8,981	$	153	$	47
Real estate - construction		223		443		0		223		0		0			79		383		0		187		0		0
Real estate - commercial		19,031		23,970		0		13,927		201		75			20,834		26,044		0		20,129		263		77
Real estate - residential		9,077		10,520		0		9,466		128		45			7,452		8,787		0		8,317		136		44
Installment		415		459		0		512		6		2			427		460		0		412		6		2
Home equity		3,009		3,968		0		3,018		40		15			5,635		7,503		0		5,725		58		19
Other		0		0		0		0		0		0			0		0		0		0		0		0
Total		38,336		47,341		0		33,241		472		181			44,408		55,025		0		43,751		616		189

Loans with an allowance recorded	Loans with an allowance recorded													Loans with an allowance recorded
Commercial		3,076		3,284		802		4,694		43		17			868		868		478		1,513		16		6
Real estate - construction		0		0		0		0		0		0			0		0		0		0		0		0
Real estate - commercial		11,372		12,467		3,338		10,229		102		69			9,004		9,633		938		14,072		145		54
Real estate - residential		2,130		2,190		368		2,106		30		10			1,558		1,570		235		1,734		27		9
Installment		0		0		0		0		0		0			0		0		0		0		0		0
Home equity		101		101		2		101		2		1			101		101		2		101		2		1
Other		0		0		0		0		0		0			0		0		0		0		0		0
Total		16,679		18,042		4,510		17,130		177		97			11,531		12,172		1,653		17,420		190		70

Total
Commercial		9,657		11,265		802		10,789		140		61			10,849		12,716		478		10,494		169		53
Real estate - construction		223		443		0		223		0		0			79		383		0		187		0		0
Real estate - commercial		30,403		36,437		3,338		24,156		303		144			29,838		35,677		938		34,201		408		131
Real estate - residential		11,207		12,710		368		11,572		158		55			9,010		10,357		235		10,051		163		53
Installment		415		459		0		512		6		2			427		460		0		412		6		2
Home equity		3,110		4,069		2		3,119		42		16			5,736		7,604		2		5,826		60		20
Other		0		0		0		0		0		0			0		0		0		0		0		0
Total		$	55,015	$	65,383	$	4,510	$	50,371	$	649	$	278		$	55,939	$	67,197	$	1,653	$	61,171	$	806	$	259

1517

Table of Contents


	As of December 31, 2013										As of and for the year December 31, 2014
(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	$	5,212	$	7,083	$	0	$	10,712	$	165	$	7,611	$	9,284	$	0	$	7,146	$	146
Real estate - construction	223		443		0		599		0		223		443		0		223		0
Real estate - commercial	12,355		16,431		0		16,563		380		19,285		23,631		0		15,653		285
Real estate - residential	10,291		12,087		0		10,225		152		9,561		10,867		0		9,485		182
Installment	642		663		0		463		6		514		577		0		513		8
Home equity	3,208		4,108		0		3,145		44		6,246		9,041		0		5,658		85
Other	0		0		0		148		0		0		0		0		0		0
Total	31,931		40,815		0		41,855		747		43,440		53,843		0		38,678		706

Loans with an allowance recorded
Commercial	7,013		8,353		2,080		5,047		71		2,398		2,605		739		4,234		57
Real estate - construction	0		0		0		726		7		0		0		0		0		0
Real estate - commercial	11,638		14,424		2,872		21,098		110		16,439		17,662		4,002		11,471		187
Real estate - residential	2,016		2,072		348		1,997		37		2,019		2,080		310		2,088		40
Installment	0		0		0		0		0		0		0		0		0		0
Home equity	101		101		2		101		2		101		101		2		101		3
Other	0		0		0		167		0		0		0		0		0		0
Total	20,768		24,950		5,302		29,136		227		20,957		22,448		5,053		17,894		287

Total
Commercial	12,225		15,436		2,080		15,759		236		10,009		11,889		739		11,380		203
Real estate - construction	223		443		0		1,325		7		223		443		0		223		0
Real estate - commercial	23,993		30,855		2,872		37,661		490		35,724		41,293		4,002		27,124		472
Real estate - residential	12,307		14,159		348		12,222		189		11,580		12,947		310		11,573		222
Installment	642		663		0		463		6		514		577		0		513		8
Home equity	3,309		4,209		2		3,246		46		6,347		9,142		2		5,759		88
Other	0		0		0		315		0		0		0		0		0		0
Total	$	52,699	$	65,765	$	5,302	$	70,991	$	974	$	64,397	$	76,291	$	5,053	$	56,572	$	993

1618

Table of Contents

OREO. ~~Other real estate owned (OREO)~~OREO is comprised of properties acquired by the Company primarily through the loan foreclosure or repossession process, or other resolution activity that results in partial or total satisfaction of problem loans.

Changes in OREO were as follows:

Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2014 2013 2014 2013
Balance at beginning of period $ 13,370
$ 11,798
$ 19,806
$ 12,526
Additions
Commercial 883
608
2,274
2,924
Residential 174
265
1,517
645
Total additions 1,057
873
3,791
3,569
Disposals

Commercial 2,197
500
10,243
2,382
Residential 77
154
505
805
Total disposals 2,274
654
10,748
3,187
Valuation adjustment

Commercial 772
71
1,310
632
Residential 65
142
223
472
Total valuation adjustment 837
213
1,533
1,104
Balance at end of period $ 11,316
$ 11,804
$ 11,316
$ 11,804

~~NOTE 5: COVERED LOANS~~



	Three months ended						Nine months ended
	September 30,						September 30,
(Dollars in thousands)	2015 ⁽¹⁾			2014 ⁽¹⁾			2015 ⁽¹⁾			2014 ⁽¹⁾
Balance at beginning of period	$	16,401		$	32,809		$	22,674		$	46,926
Additions
Commercial	178			883			2,745			6,211
Residential	1,405			292			3,210			1,926
Total additions	1,583			1,175			5,955			8,137
Disposals
Commercial	(852		)	(9,695		)	(9,394		)	(27,672		)
Residential	(1,708		)	(115		)	(2,844		)	(1,041		)
Total disposals	(2,560		)	(9,810		)	(12,238		)	(28,713		)
Valuation adjustment
Commercial	(183		)	(1,490		)	(963		)	(3,496		)
Residential	(54		)	(188		)	(241		)	(358		)
Total valuation adjustment	(237		)	(1,678		)	(1,204		)	(3,854		)
Balance at end of period	$	15,187		$	22,496		$	15,187		$	22,496

~~Loans acquired in Federal Deposit Insurance Corporation (FDIC)-assisted transactions initially covered under~~(1) Includes OREO subject to loss sharing agreements ~~whereby~~of $1.4 million and $11.2 million at September 30, 2015 and 2014, respectively.

FDIC indemnification asset. Changes in the balance of the FDIC ~~will reimburse~~ indemnification asset and the related impact to the Consolidated Statements of Income are presented in the table that follows:



	Three months ended						Nine months ended
	September 30,						September 30,
(Dollars in thousands)	2015			2014			2015			2014			Affected Line Item in the Consolidated Statements of Income
Balance at beginning of period	$	20,338		$	30,420		$	22,666		$	45,091
Adjustments not reflected in income
Net FDIC claims (received) / paid	758			(1,423		)	2,382			(7,422		)
Adjustments reflected in income
Amortization	(1,192		)	(1,486		)	(3,562		)	(4,215		)	Interest income, other earning assets
FDIC loss sharing income	(973		)	(192		)	(2,323		)	408			Noninterest income, FDIC loss sharing income
Offset to accelerated discount	0			(3,159		)	(232		)	(9,702		)	Noninterest income, accelerated discount on covered loans
Balance at end of period	$	18,931		$	24,160		$	18,931		$	24,160

The accounting for FDIC indemnification assets is closely related to the accounting for the underlying, indemnified assets as well as on-going assessment of the collectibility of the indemnification assets. The primary activities impacting the FDIC indemnification asset are FDIC claims, amortization, FDIC loss sharing income and accelerated discount.

FDIC claims - 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 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 sharedfiles quarterly certifications with the FDIC and submits claims for ~~an additional three year period, again on~~losses, valuation adjustments and collection expenses incurred, less recoveries of any previous amounts claimed that are reimbursable back to the ~~same pro-rata basis.~~

~~Covered loans totaled $332.3 million~~FDIC, as ~~of September 30, 2014 and $457.9 million as of December 31, 2013. The Company's~~allowed under the loss sharing ~~agreements with the FDIC related to non-single family loans expired effective October 1, 2014,~~agreements. Cash reimbursements are generally received within 30 days of filing and are recorded as a ~~result, approximately $190.3 million, or 57.3%, of~~credit to the Company's 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 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.

indemnification asset balance, thus reducing its carrying value.

1719

~~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 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.

The outstanding balance of all purchased impaired loans, including all contractual principal, interest, fees and penalties, was $337.5 million and $493.6 million as of September 30, 2014 and December 31, 2013, respectively. These balances exclude contractual interest not yet accrued.

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

Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2014 2013 2014 2013
Balance at beginning of period $ 127,764
$ 173,920
$ 133,671
$ 224,694
Reclassification from/(to) nonaccretable difference (2,295 ) (4,979 ) 19,864
(5,687 )
Accretion (8,158 ) (13,772 ) (26,808 ) (46,971 )
Other net activity ⁽¹⁾
(4,250 ) (8,347 ) (13,666 ) (25,214 )
Balance at end of period $ 113,061
$ 146,822
$ 113,061
$ 146,822

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

First Financial regularly reviews its forecast of expected cash flows for purchased impaired loans. The Company recognized a reclassification from accretable to nonaccretable difference of $2.3 million during the third quarter of 2014 due to changes in the cash flow expectations related to certain loan pools. However, First Financial recognized a $19.9 million reclassification from nonaccretable difference to accretable difference during the first nine months of 2014. During the third quarter of 2013, First Financial recognized a $5.0 million reclassification from accretable to nonaccretable difference and $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 prospective basis. For further detail on impairment and provision expense related to covered purchased impaired loans, see "Covered Loans" in Note 6 - Allowance for Loan and Lease Losses.

Table of Contents

~~Credit Quality.~~Amortization - ~~For further discussion~~As the yield on covered loans increased over time as a result of ~~First Financial's monitoring~~improvement in the expected cash flows on covered loans, the yield on the indemnification asset declined. The yield on the indemnification asset became negative in the first quarter of ~~credit quality for commercial and consumer loans, including discussion of~~2011 at which time the ~~risk attributes noted below, please see Note 4 - Loans, excluding covered loans.~~indemnification asset began to decline through monthly amortization at the negative yield.

~~Covered commercial~~FDIC loss sharing income - FDIC loss sharing income represents the proportionate share of credit costs on covered assets that First Financial expects to receive from the FDIC. Credit costs on covered assets include provision expense on covered loans, losses on covered OREO and ~~consumer credit exposure by risk attribute was~~other covered collection and asset resolution costs recorded as ~~follows:~~

As of September 30, 2014
Real Estate
(Dollars in thousands) Commercial Construction Commercial Total
Pass $ 14,790
$ 1,605
$ 150,628
$ 167,023
Special Mention 418
0
4,924
5,342
Substandard 8,536
143
28,361
37,040
Doubtful 0
0
0
0
Total $ 23,744
$ 1,748

$ 183,913
$ 209,405

(Dollars in thousands)
Real estate
residential
Installment Home equity Other Total
Performing $ 72,315
$ 3,570
$ 41,416
$ 2,117
$ 119,418
Nonperforming 0
0
3,442
0
3,442
Total $ 72,315
$ 3,570
$ 44,858
$ 2,117
$ 122,860

As of December 31, 2013
Real Estate
(Dollars in thousands) Commercial Construction Commercial Total
Pass $ 25,196
$ 1,714
$ 182,621
$ 209,531
Special Mention 2,011
0
12,904
14,915
Substandard 14,693
6,842
73,108
94,643
Doubtful 416
0
0
416
Total $ 42,316
$ 8,556
$ 268,633
$ 319,505

(Dollars in thousands)
Real estate
residential
Installment
Home
equity
Other Total
Performing $ 80,733
$ 5,636
$ 47,731
$ 2,370
$ 136,470
Nonperforming 0
5
1,893
0
1,898
Total $ 80,733
$ 5,641
$ 49,624
$ 2,370
$ 138,368
loss sharing expense under noninterest expenses in the Consolidated Statements of Income.

~~Delinquency.~~Offset to accelerated discount - ~~Covered~~Accelerated discounts on covered loans ~~are considered past due or delinquent~~occur when covered loans prepay and represent the ~~contractual principal or interest due in accordance with~~accelerated recognition of the ~~terms~~remaining discount that would have been recognized over the life of the loan ~~agreement or any~~had the loan not prepaid. In conjunction with the recognition of accelerated discount, First Financial also recognizes a related offset through noninterest income and reduction to the indemnification asset for a portion ~~thereof remains unpaid after the due date~~ of the ~~scheduled payment.~~

~~Table of Contents~~

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

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
Loans
Commercial $ 0
$ 49
$ 656
$ 705
$ 636
$ 1,341
$ 0
Real estate - commercial 0
144
251
395
4,900
5,295
0
Installment 0
0
0
0
497
497
0
Home equity 361
0
3,086
3,447
40,283
43,730
0
All other 23
3
3
29
2,088
2,117
3
Total $ 384
$ 196
$ 3,996
$ 4,576
$ 48,404
$ 52,980
$ 3

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
Loans
Commercial $ 60
$ 335
$ 483
$ 878
$ 266
$ 1,144
$ 0
Real estate - commercial 184
0
1,263
1,447
4,040
5,487
0
Installment 0
0
5
5
563
568
0
Home equity 239
36
1,727
2,002
46,647
48,649
0
All other 9
4
0
13
2,357
2,370
0
Total $ 492
$ 375
$ 3,478
$ 4,345
$ 53,873
$ 58,218
$ 0

~~Nonaccrual.~~ 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 ofdiscount representing expected ~~cash flows and is~~credit loss included in the ~~resulting recognition of current period covered loan loss provision or prospective yield adjustments.~~discount recorded at acquisition.

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 90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower coupled with other pertinent factors, 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 returned to accrual status if 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.~~

~~Table of Contents~~

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 classified as nonaccrual, excluding loans accounted for under FASB ASC Topic 310-30, are considered impaired. 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, 2014
(Dollars in thousands) Current balance
Unpaid
principal
balance

Related
allowance

Average
balance

YTD interest
income
recognized

Quarterly interest
income
recognized
Loans with no related allowance recorded
Commercial $ 960
$ 1,302
$ 0
$ 936
$ 16
$ 6
Real estate - commercial 256
395
0
819
2
1
Installment 0
0
0
1
0
0
Home equity 0
4,908
0
2,493
17
11
All other 3,458
0
0
0
0
0
Total $ 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

~~Table of Contents~~

~~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.

~~Changes in covered OREO were as follows:~~

Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2014 2013 2014 2013
Balance at beginning of period $ 19,439
$ 22,475
$ 27,120
$ 28,862
Additions
Commercial 0
8,572
3,937
21,063
Residential 118
95
409
472
Total additions 118
8,667
4,346
21,535
Disposals

Commercial 7,498
2,865
17,429
19,513
Residential 38
76
536
890
Total disposals 7,536
2,941
17,965
20,403
Valuation adjustment

Commercial 718
451
2,186
2,133
Residential 123
0
135
111
Total valuation adjustment 841
451
2,321
2,244
Balance at end of period $ 11,180
$ 27,750
$ 11,180
$ 27,750

NOTE 6:5: ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans ~~excluding covered loans.~~and leases. For each reporting period, management maintains the ~~allowance for loan and lease losses~~ALLL 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. 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 ~~2014.~~2015.

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.

Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands) 2014 2013 2014 2013
Balance at beginning of period $ 42,027
$ 47,047
$ 43,829
$ 47,777
Provision for loan and lease losses 1,093
1,413
2,281
6,863
Loans charged off (1,816 ) (5,111 ) (6,427 ) (12,515 )
Recoveries 1,150
2,165
2,771
3,389
Balance at end of period $ 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 0.95 % 1.33 % 0.95 % 1.33 %

~~Table~~In the third quarter of ~~Contents~~

~~Year-to-date changes~~2015, First Financial closed its merger with Oak Street. Loans acquired in this transaction were recorded at estimated fair value at the ~~allowance~~acquisition date with no carryover of the related ALLL. See Note 15 - Business Combinations for ~~loan and lease losses by loan category were as follows:~~

Nine months ended September 30, 2014
Real Estate
(Dollars in thousands) Commercial Construction Commercial Residential Installment Home Equity Other Total
Allowance for loan and lease losses:
Balance at beginning of period $ 10,568
$ 824
$ 20,478
$ 3,379
$ 365
$ 5,209
$ 3,006
$ 43,829
Provision for loan and lease losses 517
274
855
61
(153 ) 721
6
2,281
Gross charge-offs 1,310
0
1,944
701
205
1,396
871
6,427
Recoveries 1,185
0
771
161
173
186
295
2,771
Total net charge-offs 125
0
1,173
540
32
1,210
576
3,656
Ending allowance for loan and lease losses $ 10,960
$ 1,098
$ 20,160
$ 2,900
$ 180
$ 4,720
$ 2,436
$ 42,454
Ending allowance on loans individually evaluated for impairment $ 802
$ 0
$ 3,338
$ 368
$ 0
$ 2
$ 0
$ 4,510
Ending allowance on loans collectively evaluated for impairment 10,158
1,098
16,822
2,532
180
4,718
2,436
37,944
Ending allowance for loan and lease losses $ 10,960
$ 1,098
$ 20,160
$ 2,900
$ 180
$ 4,720
$ 2,436
$ 42,454
Loans

Ending balance of loans individually evaluated for impairment $ 7,913
$ 0
$ 20,763
$ 3,215
$ 104
$ 614
$ 0
$ 32,609
Ending balance of loans collectively evaluated for impairment 1,296,869
193,776
1,931,292
423,343
47,457
415,485
109,141
4,417,363
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, 2013
Real Estate
(Dollars in thousands) 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
Provision for loan and lease losses 5,385
(3,115 ) 2,659
593
(132 ) 1,937
1,387
8,714
Gross charge-offs 3,415
1
8,326
1,016
335
2,409
1,781
17,283
Recoveries 672
672
1,994
203
310
508
262
4,621
Total net charge-offs 2,743
(671 ) 6,332
813
25
1,901
1,519
12,662
Ending allowance for loan and lease losses $ 10,568
$ 824
$ 20,478
$ 3,379
$ 365
$ 5,209
$ 3,006
$ 43,829
Ending allowance on loans individually evaluated for impairment $ 2,080
$ 0
$ 2,872
$ 348
$ 0
$ 2
$ 0
$ 5,302
Ending allowance on loans collectively evaluated for impairment 8,488
824
17,606
3,031
365
5,207
3,006
38,527
Ending allowance for loan and lease losses $ 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 $ 10,391
$ 0
$ 18,023
$ 3,493
$ 122
$ 648
$ 0
$ 32,677
Ending balance of loans collectively evaluated for impairment 1,025,277
80,741
1,478,964
349,438
47,011
375,806
115,727
3,472,964
Total loans - excluding covered loans $ 1,035,668
$ 80,741
$ 1,496,987
$ 352,931
$ 47,133
$ 376,454
$ 115,727
$ 3,505,641
further detail.

~~Covered Loans.~~Covered/formerly covered loans. The majority of covered/formerly covered loans are ~~accounted for under FASB ASC Topic 310-30,~~purchased impaired loans, whereby First Financial is required to periodically re-estimate the expected cash flows on the loans. First Financial updated the valuations related to covered/formerly covered loans during the third quarter ~~2014~~of 2015. First Financial recognized provision expense of $1.3 million and net charge-offs of $1.0 million during the third quarter of 2015, resulting in an ending allowance of $11.0 million as of September 30, 2015. First Financial recognized provision expense of $1.7 million and realized net ~~recoveries~~charge-offs of ~~$0.7~~$0.7 million ~~during~~ for the ~~quarter. As a result~~first nine months of ~~improved cash flow expectations from~~2015. For the ~~updated valuations as well as net charge-off activity during the period,~~third quarter of 2014, First Financial recognized negative provision expense, or impairment recapture, on covered loans of ~~$0.2~~$0.2 million ~~during the third quarter,~~ and net charge-offs of $0.7 million, resulting in an ending allowance ~~for covered loan losses~~ of ~~$11.5 million~~ as$11.5 million. For the first nine months of ~~September 30,~~ 2014,~~. First Financial~~ the Company recognized negative provision

~~Table of Contents~~

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

First Financial recognized loss sharing expenses of ~~$1.0~~$0.6 million and ~~$1.7~~$1.0 million for the third quarters of 2015 and 2014, ~~and 2013, respectively, primarily related to attorney fees, appraisal costs and delinquent taxes.~~respectively. The Company also recognized losses on covered/formerly covered OREO of $0.1 million for the third quarter of 2015 and gains on 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.~~2014. The net payable due to the FDIC under loss sharing agreements related to covered loan ~~provision expense,~~recoveries, gains/losses on covered OREO and loss sharing expenses of $~~0.2~~1.0 million was recognized as negative FDIC loss sharing income ~~and a corresponding decrease to the FDIC indemnification asset~~ during the third quarter of ~~2014.~~2015. The net ~~receivable~~payable due ~~from~~to the FDIC under loss sharing agreements of $~~5.6~~0.2 million for the third quarter of ~~2013~~,2014, 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 $1.5 million and $4.0 million for the nine months ended September 30, 2015 and ~~$5.6~~2014, respectively. First Financial also recognized losses on covered/formerly covered OREO of $0.5 million for ~~2014~~the nine months ended September 30, 2015 and ~~2013 respectively. Similarly,~~gains on ~~a year-to-date basis, First Financial recognized gains on~~covered/formerly covered OREO of $1.0 million for ~~2014 and $2.2~~the nine months ended September 30, 2014. The net payable due to the FDIC under loss sharing agreements of $2.3 million for ~~2013.~~the first nine months of 2015 was recognized as negative loss sharing income. The receivable due from the FDIC under loss sharing

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agreements ~~related to covered loan provision expense, gains/losses on covered OREO and loss sharing expenses~~ of ~~$0.4~~$0.4 million for the first nine months of 2014, ~~and~~ ~~$7.1 million~~ ~~for the comparable period in 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 table below:~~

(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

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



	Three months ended						Nine months ended
	September 30,						September 30,
(Dollars in thousands)	2015			2014			2015			2014
Changes in the allowance for loan and lease losses on loans, excluding covered/formerly covered loans
Balance at beginning of period	$	42,128		$	42,027		$	42,820		$	43,829
Provision for loan and lease losses	1,382			1,093			6,114			2,281
Loans charged-off	(2,385		)	(1,816		)	(9,200		)	(6,427		)
Recoveries	1,194			1,150			2,585			2,771
Balance at end of period	$	42,319		$	42,454		$	42,319		$	42,454

Changes in the allowance for loan and lease losses on covered/formerly covered loans
Balance at beginning of period	$	10,748		$	12,425		$	10,038		$	18,901
Provision for loan and lease losses	1,265			(200		)	1,663			(2,805		)
Loans charged-off	(1,577		)	(3,053		)	(5,078		)	(13,778		)
Recoveries	577			2,363			4,390			9,217
Balance at end of period	$	11,013		$	11,535		$	11,013		$	11,535

Changes in the allowance for loan and lease losses on total loans
Balance at beginning of period	$	52,876		$	54,452		$	52,858		$	62,730
Provision for loan and lease losses	2,647			893			7,777			(524		)
Loans charged-off	(3,962		)	(4,869		)	(14,278		)	(20,205		)
Recoveries	1,771			3,513			6,975			11,988
Balance at end of period	$	53,332		$	53,989		$	53,332		$	53,989

Table of Contents

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



	Nine months ended September 30, 2015
			Real Estate
(Dollars in thousands)	Comm		Constr		Comm			Resid		Install		Home Equity		Other		Total		Covered/formerly covered		Grand Total
Allowance for loan and lease losses:
Balance at beginning of period	$	11,259	$	1,045	$	20,668		$	2,828	$	323	$	4,260	$	2,437	$	42,820	$	10,038	$	52,858
Provision for loan and lease losses	5,034		540		(2,282		)	1,324		77		905		516		6,114		1,663		7,777
Gross charge-offs	2,528		84		3,664			665		267		1,185		807		9,200		5,078		14,278
Recoveries	586		39		977			174		163		478		168		2,585		4,390		6,975
Total net charge-offs	1,942		45		2,687			491		104		707		639		6,615		688		7,303
Ending allowance for loan and lease losses	$	14,351	$	1,540	$	15,699		$	3,661	$	296	$	4,458	$	2,314	$	42,319	$	11,013	$	53,332
Ending allowance on loans individually evaluated for impairment	$	478	$	0	$	938		$	235	$	0	$	2	$	0	$	1,653	$	0	$	1,653
Ending allowance on loans collectively evaluated for impairment	13,873		1,540		14,761			3,426		296		4,456		2,314		40,666		11,013		51,679
Ending allowance for loan and lease losses	$	14,351	$	1,540	$	15,699		$	3,661	$	296	$	4,458	$	2,314	$	42,319	$	11,013	$	53,332
Loans
Ending balance of loans individually evaluated for impairment	$	7,651	$	0	$	22,287		$	2,742	$	0	$	362	$	0	$	33,042	$	0	$	33,042
Ending balance of loans collectively evaluated for impairment	1,620,696		275,430		2,019,783			444,132		37,609		427,038		120,508		4,945,196		237,825		5,183,021
Total loans	$	1,628,347	$	275,430	$	2,042,070		$	446,874	$	37,609	$	427,400	$	120,508	$	4,978,238	$	237,825	$	5,216,063


	Three months ended						Nine months ended						Twelve months ended December 31, 2014
	September 30,						September 30,								Real Estate
(Dollars in thousands)	2014			2013			2014			2013			Comm		Constr		Comm		Resid		Install		Home Equity		Other		Total		Covered/formerly covered			Grand Total
Allowance for loan and lease losses:
Balance at beginning of period	$	12,425		$	32,961		$	18,901		$	45,190		$	10,568	$	824	$	20,478	$	3,379	$	365	$	5,209	$	3,006	$	43,829	$	18,901		$	62,730
Provision for loan and lease losses	(200		)	5,293			(2,805		)	6,052			871		221		1,325		181		23		565		183		3,369		(1,841		)	1,528
Loans charged-off	(3,053		)	(21,009		)	(13,778		)	(35,374		)
Gross charge-offs													1,440		0		2,329		922		283		1,745		1,158		7,877		18,096			25,973
Recoveries	2,363			6,014			9,217			7,391			1,260		0		1,194		190		218		231		406		3,499		11,074			14,573
Balance at end of period	$	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		%
Total net charge-offs													180		0		1,135		732		65		1,514		752		4,378		7,022			11,400
Ending allowance for loan and lease losses													$	11,259	$	1,045	$	20,668	$	2,828	$	323	$	4,260	$	2,437	$	42,820	$	10,038		$	52,858
Ending allowance on loans individually evaluated for impairment													$	739	$	0	$	4,002	$	310	$	0	$	2	$	0	$	5,053	$	0		$	5,053
Ending allowance on loans collectively evaluated for impairment													10,520		1,045		16,666		2,518		323		4,258		2,437		37,767		10,038			47,805
Ending allowance for loan and lease losses													$	11,259	$	1,045	$	20,668	$	2,828	$	323	$	4,260	$	2,437	$	42,820	$	10,038		$	52,858
Loans - excluding covered loans
Ending balance of loans individually evaluated for impairment													$	6,122	$	0	$	25,938	$	2,963	$	0	$	609	$	0	$	35,632	$	0		$	35,632
Ending balance of loans collectively evaluated for impairment													1,291,190		196,272		1,948,757		429,712		44,269		415,420		113,969		4,439,589		302,014			4,741,603
Total loans - excluding covered loans													$	1,297,312	$	196,272	$	1,974,695	$	432,675	$	44,269	$	416,029	$	113,969	$	4,475,221	$	302,014		$	4,777,235

NOTE 7:6: GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill. Assets and liabilities acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. During the third quarter of ~~2014,~~2015, First Financial recorded additions to goodwill ~~related to~~resulting from the ~~acquisitions of First Bexley, Insight and Guernsey.~~Oak Street acquisition. For further detail on the Oak Street acquisition, see Note 1615 – Business Combinations.

2422

Table of Contents

Changes in the carrying amount of goodwill for the quarter ended September 30, 2015 and the year ended December 31, 2014 are shown below.


(Dollars in thousands)			September 30, 2015		December 31, 2014
Balance at January 1, 2014	$	95,050
Balance at beginning of year			$	137,739	$	95,050
Goodwill resulting from business combinations	42,408		66,276		42,689
Balance at September 30, 2014	$	137,458
Balance at end of period			$	204,015	$	137,739

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~~2014 and no impairment was indicated. As of September 30, ~~2014~~,2015, 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~~ As of September 30, 2015 and December 31, 2014, First Financial has $7.7 million and $8.1 million, respectively, of other intangibles which are included in Goodwill and other intangibles in the Consolidated Balance Sheets and primarily 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~~6.4 million and $~~5.9~~7.7 million as of September 30, ~~2014~~2015 and December 31, ~~2013~~,2014, 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~~5.9 years. Amortization expense was $0.4 million and $0.5 million for the three months ended September 30, ~~2014~~2015 and ~~2013~~ ~~was~~ ~~$0.5 million~~ ~~and $0.4 million,~~2014, respectively. Amortization expense recognized on intangible assets for the nine months ended September 30, 2015 and 2014 ~~and 2013~~ was ~~$1.2~~$1.3 million and ~~$1.1~~$1.2 million, respectively.

NOTE 8:7: BORROWINGS

Short-term borrowings on the Consolidated Balance Sheets include repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place, 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/~~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~~701.2 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,~~2015 and $~~654.0~~558.2 million as of December 31, ~~2013~~.2014. 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~~has a$15.0 million short-term credit facility with an unaffiliated bank ~~for~~ ~~$15.0 million~~.that matures on May 30, 2016. 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, 2015 and December 31, 2014,, there was no outstanding balance. The credit agreement requires First Financial to ~~maintain~~comply with certain covenants including those related to asset quality and capital ~~levels.~~levels, and First Financial was in compliance with all covenants associated with this ~~line of credit~~facility as of September 30, ~~2014~~2015 and December 31, 2014..

During the third quarter of 2015, First Financial issued $120.0 million of subordinated notes. The subordinated notes have a fixed interest rate of 5.125% payable semiannually and mature on August 25, 2025. These notes are not redeemable by the Company or callable by the holders of the notes prior to maturity. The subordinated notes will be treated as Tier 2 capital for regulatory capital purposes and are included in Long-term debt on the Consolidated Balance Sheets.

Long-term debt ~~primarily consists~~also includes $0.5 million and $22.5 million of FHLB long-term advances as of September 30, 2015 and ~~repurchase agreements utilizing investment securities pledged as collateral.~~December 31, 2014, respectively. These instruments are primarily utilized to reduce overnight liquidity risk and to mitigate interest rate sensitivity on the Consolidated Balance Sheets. As of December 31, 2014, First Financial ~~has~~also had $25.0 million in repurchase agreements recorded in Long-term debt on the Consolidated Balance Sheets which ~~have remaining maturities~~matured during the third quarter of ~~less than~~ ~~1 year~~ ~~and a weighted average rate of~~ ~~3.54%~~.2015. Securities pledged as collateral in conjunction with the repurchase agreements ~~are~~were included within Investment securities on the Consolidated Balance Sheets.

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The following is a summary of First Financial's 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.~~



	September 30, 2015				December 31, 2014
(Dollars in thousands)	Amount		Average rate		Amount		Average rate
Subordinated debt	$	118,286	5.20	%	$	0	0.00	%
FHLB advances	454		2.36	%	22,466		2.52	%
National market repurchase agreement	0		0.00	%	25,000		3.54	%
Capital loan with municipality	775		0.00	%	775		0.00	%
Total long-term debt	$	119,515	5.15	%	$	48,241	3.01	%

NOTE 9:8: 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																								Three months ended September 30, 2015
	Total other comprehensive income															Total accumulated other comprehensive income									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			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	)	$	5,213	$	409		$	4,804	$	(1,747	)	$	3,057	$	(1,276	)	$	3,057	$	1,781
Unrealized gain (loss) on derivatives	1,096			(117		)	1,213			(453		)	760			(492		)	760			268			203		0			203		(75		)	128		(1,848		)	128		(1,720		)
Retirement obligation	0			(302		)	302			(113		)	189			(15,091		)	189			(14,902		)	0		(350		)	350		(130		)	220		(17,500		)	220		(17,280		)
Foreign currency translation	(12		)	0			(12		)	0			(12		)	(30		)	(12		)	(42		)	91		0			91		0			91		(91		)	91		0
Total	$	710		$	(419	)	$	1,129		$	(448	)	$	681		$	(21,569	)	$	681		$	(20,888	)	$	5,507	$	59		$	5,448	$	(1,952	)	$	3,496	$	(20,715	)	$	3,496	$	(17,219	)


	Three months ended September 30, 2013																								Three months ended September 30, 2014
	Total other comprehensive income															Total accumulated other comprehensive income									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			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	)	$	(374	)	$	0		$	(374	)	$	118		$	(256	)	$	(5,956	)	$	(256	)	$	(6,212	)
Unrealized gain (loss) on derivatives	(1,475		)	(161		)	(1,314		)	496			(818		)	673			(818		)	(145		)	1,096			(117		)	1,213			(453		)	760			(492		)	760			268
Retirement obligation	0			(1,873		)	1,873			(707		)	1,166			(20,528		)	1,166			(19,362		)	0			(302		)	302			(113		)	189			(15,091		)	189			(14,902		)
Foreign currency translation	6			0			6			0			6			(25		)	6			(19		)	(12		)	0			(12		)	0			(12		)	(30		)	(12		)	(42		)
Total	$	(7,425	)	$	(2,034	)	$	(5,391	)	$	1,742		$	(3,649	)	$	(25,645	)	$	(3,649	)	$	(29,294	)	$	710		$	(419	)	$	1,129		$	(448	)	$	681		$	(21,569	)	$	681		$	(20,888	)



	Nine months ended September 30, 2015
	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	$	8,219		$	1,503		$	6,716		$	(2,429	)	$	4,287		$	(2,506	)	$	4,287		$	1,781
Unrealized gain (loss) on derivatives	(1,222		)	0			(1,222		)	451			(771		)	(949		)	(771		)	(1,720		)
Retirement obligation	0			(1,050		)	1,050			(426		)	624			(17,904		)	624			(17,280		)
Foreign currency translation	50			0			50			0			50			(50		)	50			0
Total	$	7,047		$	453		$	6,594		$	(2,404	)	$	4,190		$	(21,409	)	$	4,190		$	(17,219	)

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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:~~period:


	Amount reclassified from accumulated other comprehensive income ⁽¹⁾														Amount reclassified from accumulated other comprehensive income ⁽¹⁾
	Three months ended						Nine months ended								Three months ended						Nine months ended
	September 30,						September 30,								September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			Affected Line Item in the Consolidated Statements of Income		2015			2014			2015			2014			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		$	0		$	(117	)	$	0		$	(348	)	Interest expense - deposits
Realized gains and losses on securities available-for-sale	0			0			50			1,724			Gains on sales of investments securities		409			0			1,503			50			Gains on sales of investments securities
Defined benefit pension plan														Defined benefit pension plan
Amortization of prior service cost ⁽²⁾	103			105			309			317			Salaries and employee benefits		100			103			300			309			Salaries and employee benefits
Recognized net actuarial loss⁽²⁾	(405		)	(582		)	(1,368		)	(2,128		)	Salaries and employee benefits		(450		)	(405		)	(1,350		)	(1,368		)	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		)			(350		)	(302		)	(1,050		)	(1,059		)	Salaries and employee benefits
Total reclassifications for the period, before tax	$	(419	)	$	(2,034	)	$	(1,357	)	$	(6,094	)			$	59		$	(419	)	$	453		$	(1,357	)

(1) Negative ~~amount~~amounts are reductions to net income.

(2) Included in the computation of net periodic pension cost (see Note 1312 - Employee Benefit Plans for additional details).

NOTE ~~10:~~9: 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 does not use derivatives for speculative purposes.

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~~,2015, the Company had a total counterparty notional amount outstanding of approximately $~~697.4~~528.5 million, spread among seven counterparties, with an outstanding liability from these contracts of $18.3 million. At December 31, 2014,

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the Company had a total counterparty notional amount outstanding of approximately $566.2 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~~12.4 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									September 30, 2015							December 31, 2014
					Estimated fair value							Estimated fair value									Estimated fair value							Estimated fair value
(Dollars in thousands)		Balance sheet location	Notional amount		Gain		Loss			Notional amount		Gain		Loss				Balance sheet location	Notional amount		Gain		Loss			Notional amount		Gain		Loss
Fair value hedges - instruments associated with loans	Fair value hedges - instruments associated with loans																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	)		Accrued interest and other liabilities	$	6,261	$	0	$	(235	)	$	8,739	$	0	$	(440	)
Matched interest rate swaps with borrower		Accrued interest and other assets	406,276		9,373		(753		)	451,744		11,710		(1,767		)		Accrued interest and other assets	522,260		18,555		0			407,423		11,150		(249		)
Matched interest rate swaps with counterparty		Accrued interest and other liabilities	406,276		753		(9,469		)	451,744		1,767		(11,799		)		Accrued interest and other liabilities	522,260		0		(18,601		)	407,423		249		(11,227		)
Total			$	821,465	$	10,126	$	(10,750	)	$	913,324	$	13,477	$	(14,431	)			$	1,050,781	$	18,555	$	(18,836	)	$	823,585	$	11,399	$	(11,916	)

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							September 30, 2015							December 31, 2014
(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		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 assets presented in the Consolidated Balance Sheets
Fair value hedges
Pay fixed interest rate swaps with counterparty	$	528	$	0		$	528	$	865	$	(663	)	$	202	$	235	$	(84	)	$	151	$	440	$	0		$	440
Matched interest rate swaps with counterparty	10,222		(8,610		)	1,612		13,566		(9,533		)	4,033		18,600		(17,916		)	684		11,476		(12,260		)	(784		)
Total	$	10,750	$	(8,610	)	$	2,140	$	14,431	$	(10,196	)	$	4,235	$	18,835	$	(18,000	)	$	835	$	11,916	$	(12,260	)	$	(344	)

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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~~:2015:


							Weighted-average rate										Weighted-average rate
(Dollars in thousands)	Notional amount		Average maturity (years)	Fair value			Receive		Pay		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	%	$	6,261	2.0	$	(235	)	2.01	%	6.85	%
Receive fixed, matched interest rate swaps with borrower	406,276		4.1	8,620			4.67	%	2.71	%	522,260		4.7	18,555			4.46	%	2.56	%
Pay fixed, matched interest rate swaps with counterparty	406,276		4.1	(8,716		)	2.71	%	4.67	%	522,260		4.7	(18,601		)	2.56	%	4.46	%
Total asset conversion swaps	$	821,465	4.0	$	(624	)	3.67	%	3.72	%	$	1,050,781	4.7	$	(281	)	3.51	%	3.53	%

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.~~deposits. 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~~Financial. As of December 31, 2014, the Company had active interest rate swaps with a ~~remaining weighted average term~~notional value of ~~approximately~~ ~~5 years~~.$150.0 million. Accrued interest and other ~~assets~~liabilities included $~~0.2~~1.7 million at ~~September 30, 2014~~ ~~and~~ ~~$0.8 million~~ at December 31, ~~2013, respectively,~~2014, reflecting the fair value of ~~these~~the cash flow hedges. First Financial terminated all cash flow hedges during the second quarter 2015.

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~~$31.0 million as of September 30, ~~2014~~2015 and ~~$13.3~~$26.4 million as of December 31, ~~2013.~~2014. The fair value of these agreements were recorded ~~as liabilities of $49 thousand and $28 thousand~~ on the Consolidated Balance Sheets as Accrued interest and other liabilities of $0.1 million as of September 30, ~~2014~~2015 and December 31, ~~2013, respectively.~~2014.

Mortgage Derivatives. First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure an IRLC with First Financial and the loan is intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and and Loans held for sale. At September 30, 2015, the notional amount of the IRLCs was $29.0 million and the notional amount of forward commitments was $60.3 million. The fair value of these agreements was $0.3 million as of September 30, 2015 and was recorded on the Consolidated Balance Sheets in Accrued interest and other assets.

NOTE ~~11:~~10: INCOME TAXES

For the third quarter ~~2014~~,2015, income tax expense was $~~7.2~~9.2 million, resulting in an effective tax rate of ~~32.0%~~33.0%, compared with income tax expense of $~~7.6~~7.2 million and an effective tax rate of ~~33.9%~~32.0% for the comparable period in ~~2013.~~2014. For the first nine months of ~~2014,~~2015, income tax expense was ~~$22.3~~$26.9 million, resulting in an effective tax rate of ~~32.4%,~~32.8%. compared with income tax expense of ~~$20.5~~$22.3 million and an effective tax rate of ~~31.5%~~32.4% for the comparable period in 2013. The decrease in the effective tax rate for the third quarter 2014, as compared to the same period in 2013, was primarily the result of higher tax-exempt income earned in 2014 and lower state tax expense, partially offset by non-deductible acquisition costs. The increase in the effective tax rate for the nine months ended September 30, 2014, as compared to the same periods in ~~2013~~, was primarily the result of a favorable tax reversal related to both an intercompany tax obligation associated with an unconsolidated former Irwin subsidiary as well as a favorable change in state tax laws in 2013, partially offset by higher tax-exempt income earned in 2014.

At September 30, 2015, and December 31, 2014, First Financial had no FASB ASC Topic 740-10 unrecognized tax benefits ~~recorded at~~ ~~September 30, 2014, and~~ ~~December 31, 2013. Further, the Company~~recorded. First Financial does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months.

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. Management determined that no reserve for income tax-related uncertainties was necessary as of September 30, ~~2014~~2015 and December 31, ~~2013~~.2014.

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 2011 have been closed and are no longer subject to U.S. federal income tax examinations.~~ The examination for the tax year ~~2011 is currently under examination by~~2012 was completed in the ~~federal taxing authority. At this time, First Financial is not aware~~third quarter of ~~any material~~2015. There was no impact to the Company's financial position and results of operations as a result of this examination. Tax years ~~2012~~ prior to 2013 have been closed

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and are no longer subject to U.S. federal income tax examinations. Tax years 2013 and 2014 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 2010. Tax years 2010 through ~~2013~~2014 remain open to state and local examination in various jurisdictions.

NOTE ~~12:~~11: 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.

First Financial utilizes the same credit policies in issuing commitments and conditional obligations as it does for credit instruments recorded on the Consolidated Balance Sheets. First Financial’s exposure to credit loss, in the event of nonperformance by the ~~other party~~counterparty 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.~~

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.

Loan commitments. Loan commitments are agreements to extend credit to a client, absent any violation of conditions established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments 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 $1.8 billion at both September 30, 2015 and December 31, 2014.

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~~17.0 million and $~~14.0~~22.8 million at September 30, ~~2014~~,2015, and December 31, ~~2013~~,2014, respectively. Management conducts regular reviews of these instruments on an individual client basis.

~~Loan commitments.~~ Investments in Affordable housing projects.~~Loan commitments~~ First Financial has made investments in certain qualified affordable housing projects. These projects are ~~agreements~~an indirect federal subsidy that provide tax incentives to ~~extend credit to a client as long as there is no violation of any condition established~~encourage investment in the ~~commitment agreement. Commitments generally have fixed expiration dates~~development, acquisition and rehabilitation of affordable rental housing, and allow investors to claim tax credits and other tax benefits (such as deductions from taxable income for operating losses) on their federal income tax returns. The principal risk associated with qualified affordable housing investments is the potential for noncompliance with the tax code requirements, such as, failure to rent property to qualified tenants, resulting in unavailability or ~~other termination clauses and may require payment of a fee. Since many~~recapture of the tax credits and other tax benefits. First Financial's affordable housing commitments ~~are expected to expire without being drawn upon,~~totaled $23.6 million and $14.9 million as of September 30, 2015 and December 31, 2014, respectively. The affordable housing investments resulted in $0.4 million and $0.3 million of tax credits for 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 ofthree months ended September 30, 2015 and 2014, respectively, and $1.1 million and $0.8 million for the ~~client. The collateral held varies, but may include securities, real estate, inventory, plant or equipment.~~nine months ended September 30, 2015 and 2014, respectively. First Financial had no affordable housing contingent commitments ~~outstanding to extend credit totaling~~ ~~$1.7 billion~~ ~~and $1.4 billion at~~ as of September 30, ~~2014~~ ~~and~~ 2015 or December 31, ~~2013, respectively.~~2014.

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~~.2015. Reserves are established for these various matters of litigation, when appropriate, under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel. First Financial had $1.3 million and $0.6 million of reserves related to litigation matters as of September 30, 2015 and December 31, 2014, respectively.

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NOTE ~~13:~~12: 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 the plan.

First Financial made no cash contributions to fund the pension plan during the nine months ended September 30, ~~2014~~2015 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 ~~2013.~~2014. As a result of the plan’s actuarial projections for ~~2014,~~2015, First Financial recorded income of $0.3 million for each quarter ended September 30, 2015 and 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~~.

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

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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. Associates are eligible to request a lump sum distribution from the Company's pension plan at retirement or upon leaving the Company.

~~First Financial recorded~~ ~~$19.2 million~~ ~~of pre-tax adjustments to other comprehensive income related to changes in the values of the Company's plan assets and pension obligations for~~ the nine months ended September 30, ~~2013 as a result of the pension plan re-measurement~~2015 and pension settlement charges discussed above. Including the pension settlement charges as well as the 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,~~2014, respectively.

The accounting threshold for lump sum distributions from the plan reset on January 1, 2014. However, the 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 Statements of 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)	2014			2013			2014			2013			2015			2014			2015			2014
Service cost	$	1,007		$	916		$	3,089		$	2,789		$	1,175		$	1,007		$	3,525		$	3,089
Interest cost	551			566			1,791			1,752			550			551			1,650			1,791
Expected return on assets	(2,208		)	(2,231		)	(6,792		)	(6,755		)	(2,375		)	(2,208		)	(7,125		)	(6,792		)
Amortization of prior service cost	(103		)	(105		)	(309		)	(317		)	(100		)	(103		)	(300		)	(309		)
Net actuarial loss	405			582			1,368			2,128			450			405			1,350			1,368
Settlement charge	0			1,396			0			5,712
Net periodic benefit (income) cost	$	(348	)	$	1,124		$	(853	)	$	5,309		$	(300	)	$	(348	)	$	(900	)	$	(853	)

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

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


	Three months ended				Nine months ended				Three months ended				Nine months ended
	September 30,				September 30,				September 30,				September 30,
(Dollars in thousands, except per share data)	2014		2013		2014		2013		2015		2014		2015		2014
Numerator
Net income available to common shareholders	$	15,344	$	14,911	$	46,401	$	44,564	$	18,673	$	15,344	$	55,243	$	46,401

Denominator
Basic earnings per common share - weighted average shares	59,403,109		57,201,390		57,907,203		57,309,934		61,135,749		59,403,109		61,088,794		57,907,203
Effect of dilutive securities —
Effect of dilutive securities
Employee stock awards	576,543		698,194		594,082		725,862		715,585		576,543		643,536		594,082
Warrants	133,280		113,004		138,109		107,576		136,461		133,280		126,394		138,109
Diluted earnings per common share - adjusted weighted average shares	60,112,932		58,012,588		58,639,394		58,143,372		61,987,795		60,112,932		61,858,724		58,639,394

Earnings per share available to common shareholders
Basic	$	0.26	$	0.26	$	0.80	$	0.78	$	0.31	$	0.26	$	0.90	$	0.80
Diluted	$	0.26	$	0.26	$	0.79	$	0.77	$	0.30	$	0.26	$	0.89	$	0.79

Warrants to purchase ~~465,117~~369,377 and 465,117 shares of the Company's common stock were outstanding as of September 30, ~~2014~~2015 and ~~2013~~.2014, respectively. 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~~Using the period-end price, there were no out-of-the-money options ~~were~~at September 30, 2015 and 378,017 ~~and~~ ~~596,666~~out-of-the-money options at September 30, ~~2014~~ ~~and~~ ~~2013, respectively.~~2014.

During the second quarter of 2014, the Company received shareholder authorization to issue up to 10,000,000 preferred shares. As of September 30, 2015 and September 30, 2014, no preferred shares were issued or outstanding.

NOTE ~~15:~~14: 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.

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~~values provided by a third-party ~~investment securities administrator in analyzing~~pricing vendors to price the investment securities portfolio in accordance with the fair value hierarchy of the Fair Value ~~Topic. The administrator’s evaluation of investment security portfolio~~Topic and reviews the pricing methodologies utilized by the pricing vendors to ensure that the fair value determination is ~~performed using a combination of prices and data from other sources, along~~consistent with ~~internally developed matrix pricing models and assistance from~~ the ~~administrator’s internal fixed income analysts and trading desk. The administrator’s~~applicable accounting guidance. First Financial’s month-end pricing process includes a series of quality assurance activities where prices are compared to recent market conditions, ~~previous evaluation~~historical prices and ~~between the various~~other independent 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~~of 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,~~pricing vendor, and if necessary, ~~and~~ takes appropriate action based on its findings. The results of the quality assurance process are incorporated into the selection of pricing providers by the portfolio manager.

Loans held for sale. 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 market price or 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.~~and leases. 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.

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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~~specifically reviewed 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~~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 through the Company's allowance for loan and lease losses process.~~basis. 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~~purchased impaired loans ~~accounted for under FASB ASC Topic 310-30~~ are based on a discounted cash flow methodology that ~~considers~~consider 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~~are treated in the aggregate when applying various valuation techniques. First Financial ~~estimated~~estimates the cash flows expected to be collected on these loans based upon the expected remaining life of the underlying loans, which 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~~acquired loans accounted for outside of FASB ASC Topic 310-30 ~~were~~are 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. 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. 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 five year period of loss protection expired for the majority of First Financial's covered commercial loans and covered OREO effective October 1, 2014. The Company classifies the estimated fair value of the indemnification asset as Level 3 in the fair value hierarchy.

Deposits. The fair value of demand deposits, savings accounts and certain money-market deposits ~~was~~represents the amount payable on demand at the reporting date. The carrying amounts for variable-rate ~~certificates of deposit~~CDs approximated their fair values at the reporting date. The fair value of fixed-rate ~~certificates of deposit~~CDs 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 ofin 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 ~~derivative instruments~~interest rate swaps 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 ~~derivative instrument~~swap if First Financial should choose to do so. Additionally, First Financial utilizes ~~the allowance for loan and lease losses methodology~~a vendor-developed, proprietary model 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, 2014
September 30, 2015
Financial assets
Cash and short-term investments	$	143,725	$	143,725	$	143,725	$	0	$	0	$	136,489	$	136,489	$	136,489	$	0	$	0
Investment securities held-to-maturity	900,521		901,659		0		901,659		0		756,035		770,512		0		770,512		0
Other investments	49,986		49,986		0		49,986		0		53,431		53,431		0		53,431		0
Loans held for sale	16,816		16,816		0		16,816		0		26,287		26,287		0		26,287		0
Loans - excluding covered loans	4,407,518		4,416,740		0		0		4,416,740
Covered loans	320,730		318,372		0		0		318,372
Loans and leases, net of ALLL											5,162,731		5,256,031		0		0		5,256,031
FDIC indemnification asset	24,160		12,482		0		0		12,482		18,931		10,547		0		0		10,547

Financial liabilities
Deposits
Noninterest-bearing	$	1,243,367	$	1,243,367	$	0	$	1,243,367	$	0	$	1,330,905	$	1,330,905	$	0	$	1,330,905	$	0
Interest-bearing demand	1,214,726		1,214,726		0		1,214,726		0		1,330,673		1,330,673		0		1,330,673		0
Savings	1,827,590		1,827,590		0		1,827,590		0		1,979,627		1,979,627		0		1,979,627		0
Time	1,247,334		1,244,218		0		1,244,218		0		1,440,223		1,440,365		0		1,440,365		0
Total deposits	5,533,017		5,529,901		0		5,529,901		0		6,081,428		6,081,570		0		6,081,570		0
Short-term borrowings	919,303		919,303		919,303		0		0		763,517		763,517		763,517		0		0
Long-term debt	52,656		54,385		0		54,385		0		119,515		120,865		0		120,865		0



	Carrying		Estimated fair value
(Dollars in thousands)	value		Total		Level 1		Level 2		Level 3
December 31, 2014
Financial assets
Cash and short-term investments	$	132,752	$	132,752	$	132,752	$	0	$	0
Investment securities held-to-maturity	867,996		874,749		0		874,749		0
Other investments	52,626		52,626		0		52,626		0
Loans held for sale	11,005		11,005		0		11,005		0
Loans and leases, net of ALLL	4,724,377		4,763,619		0		0		4,763,619
FDIC indemnification asset	22,666		12,449		0		0		12,449

Financial liabilities
Deposits
Noninterest-bearing	$	1,285,527	$	1,285,527	$	0	$	1,285,527	$	0
Interest-bearing demand	1,225,378		1,225,378		0		1,225,378		0
Savings	1,889,473		1,889,473		0		1,889,473		0
Time	1,255,364		1,254,070		0		1,254,070		0
Total deposits	5,655,742		5,654,448		0		5,654,448		0
Short-term borrowings	661,392		661,392		661,392		0		0
Long-term debt	48,241		49,674		0		49,674		0

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Carrying Estimated fair value
(Dollars in thousands) value Total Level 1 Level 2 Level 3
December 31, 2013
Financial assets

Cash and short-term investments $ 143,450
$ 143,450
$ 143,450
$ 0
$ 0
Investment securities held-to-maturity 837,272
824,985
0
824,985
0
Other investments 47,427
47,427
0
47,427
0
Loans held for sale 8,114
8,114
0
8,114
0
Loans - excluding covered loans 3,461,812
3,455,776
0
0
3,455,776
Covered loans 438,972
451,545
0
0
451,545
FDIC indemnification asset 45,091
34,820
0
0
34,820

Financial liabilities
Deposits

Noninterest-bearing $ 1,147,452
$ 1,147,452
$ 0
$ 1,147,452
$ 0
Interest-bearing demand 1,125,723
1,125,723
0
1,125,723
0
Savings 1,612,005
1,612,005
0
1,612,005
0
Time 952,327
951,220
0
951,220
0
Total deposits 4,837,507
4,836,400
0
4,836,400
0
Short-term borrowings 748,749
748,749
748,749
0
0
Long-term debt 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		Assets/liabilities at fair value		Level 1		Level 2		Level 3		Assets/liabilities at fair value
September 30, 2014
September 30, 2015
Assets
Derivatives	$	0	$	10,126	$	0	$	10,126	$	0	$	18,855	$	0	$	18,855
Investment securities available-for-sale	8,258		921,336		0		929,594		8,595		1,061,072		0		1,069,667
Total	$	8,258	$	931,462	$	0	$	939,720	$	8,595	$	1,079,927	$	0	$	1,088,522

Liabilities
Derivatives	$	0	$	10,578	$	0	$	10,578	$	0	$	18,920	$	0	$	18,920

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Fair value measurements using
(Dollars in thousands) Level 1 Level 2 Level 3
Assets/liabilities
at fair value
December 31, 2013
Assets
Derivatives $ 0
$ 13,477
$ 0
$ 13,477
Investment securities available-for-sale 7,976
905,625
0
913,601
Total $ 7,976
$ 919,102
$ 0
$ 927,078

Liabilities

Derivatives $ 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.



	Fair value measurements using
(Dollars in thousands)	Level 1		Level 2		Level 3		Assets/liabilities at fair value
December 31, 2014
Assets
Derivatives	$	0	$	11,399	$	0	$	11,399
Investment securities available-for-sale	8,406		832,062		0		840,468
Total	$	8,406	$	843,461	$	0	$	851,867

Liabilities
Derivatives	$	0	$	13,662	$	0	$	13,662

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, 2014
September 30, 2015
Assets
Impaired loans ⁽¹⁾	$	0	$	0	$	10,308	$	0	$	0	$	8,456
OREO	0		0		7,316		0		0		9,996
Covered OREO	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, 2013
December 31, 2014
Assets
Impaired loans ⁽¹⁾	$	0	$	0	$	13,699	$	0	$	0	$	14,096
OREO	0		0		5,358		0		0		13,094
Covered OREO	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).

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NOTE ~~16:~~15: BUSINESS COMBINATIONS

First Financial completed ~~three business combinations in~~ the ~~Columbus, Ohio market~~acquisition of Oak Street during the third quarter ~~ended September 30, 2014 as follows:~~

of 2015 and Oak Street became a wholly-owned subsidiary of First ~~Bexley.~~ ~~Founded~~Financial Bank. Oak Street, a nationwide lender based in ~~2006~~Indianapolis, Indiana, was formed in 2003 to provide loans, secured by commissions and ~~conducting operations out of one full service branch location in Bexley, Ohio, First Bexley served commercial~~cash collateral accounts, exclusively to insurance agents and ~~consumer clients throughout Columbus~~brokers to maximize their book-of-business value and ~~central Ohio. Under the merger agreement,~~grow their agency business. First Financial acquired ~~First Bexley~~Oak Street for $110.0 million in a cash and, ~~stock transaction in which First Bexley was merged~~concurrent 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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~~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~~close 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~~transaction, paid off ~~all amounts due under a promissory note to a third party~~$197.8 million of existing long-term debt on behalf of ~~Guernsey.~~Oak Street. The ~~Guernsey Bank, an Ohio state chartered bank and wholly-owned subsidiary~~Company recorded $2.6 million of ~~Guernsey, merged with and into First Financial as part~~noninterest expenses related to the acquisition of Oak Street during the ~~agreement on August 21, 2014.~~third quarter 2015.

The ~~First Bexley, Insight and Guernsey transactions were~~Oak Street transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition ~~dates,~~date, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the ~~acquisitions~~acquisition as additional information relative to closing date fair values become available. The ~~measurement periods end in~~Company continues to finalize the fair values of loans and intangible assets and liabilities. As a result, the fair value adjustments are preliminary and may change as information becomes available, but no later than August ~~2015.~~2016.

The following table provides the purchase price calculation as of the acquisition ~~dates~~date and the identifiable assets purchased and the liabilities assumed at their estimated fair ~~value. These fair value measurements are based on third-party valuations.~~value:


(Dollars in thousands)	First Bexley		Insight		Guernsey		Total		Oak Street
Purchase consideration
Cash consideration	$	10,810	$	9,880	$	13,500	$	34,190	$	110,000
Stock consideration	33,699		26,730		0		60,429
Other consideration	0		0		2,523		2,523
Payoff of long-term borrowings									197,839
Total purchase consideration	$	44,509	$	36,610	$	16,023	$	97,142	$	307,839

Assets acquired
Cash									$	2,248
Loans	$	314,807	$	219,008	$	72,448	$	606,263	238,029
Intangible assets	1,280		1,277		999		3,556		268
Other assets	25,517		30,882		61,375		117,774		2,633
Total assets	$	341,604	$	251,167	$	134,822	$	727,593	$	243,178

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		$	1,615
Total liabilities	$	315,314	$	230,782	$	126,763	$	672,859	$	1,615

Net identifiable assets	$	26,290	$	20,385	$	8,059	$	54,734	$	241,563
Goodwill	$	18,219	$	16,225	$	7,964	$	42,408	$	66,276

~~The amount of goodwill arising from the First Bexley, Insight and Guernsey acquisitions reflects the increased market share and related synergies that are expected to result from the acquisitions.~~ The goodwill arising from the Oak Street acquisition reflects the business’s high growth potential and scalable platform. The acquisition leverages First ~~Bexley~~Financial’s excess capital and ~~Insight transactions~~is expected to provide additional revenue growth and diversification. The goodwill is not deductible for income tax purposes as the ~~mergers were~~merger was accounted for as a tax-free ~~exchanges.~~exchange. The tax-free ~~exchanges~~exchange resulted in a carryover of tax attributes and tax basis to the Company's subsequent income tax filings and was adjusted for 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.~~For further detail, see Note 6 – Goodwill and Other Intangible Assets.

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ITEM ~~2-MANAGEMENT'S~~2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (MD&A)

FIRST FINANCIAL BANCORP. AND SUBSIDIARIES

(Unaudited)

~~Reclassifications~~Effective October 1, 2014, the five-year loss sharing coverage period for non-single family assets expired and the majority of the Company’s covered assets were no longer subject to FDIC loss sharing protection. As a result of this expiration, and the insignificant balance of assets that remain subject to FDIC loss sharing protection through October 1, 2019 relative to the Company’s total assets, all covered loans and the related allowance for loan and lease losses, as well as provision for covered loan and lease losses, have been reclassified in the Consolidated Financial Statements, and all credit quality metrics have been updated to include covered and formerly covered assets. The proportionate share (generally 80%) of credit losses and resolution expenses on covered assets expected to be reimbursed by the FDIC and recorded as FDIC loss sharing income in the Company’s Consolidated Statements of Income during those prior periods are not reflected in these credit quality ratios.

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

SUMMARY

First Financial ~~Bancorp. (First Financial or the Company)~~ is a ~~$7.4~~$7.9 billion bank holding company headquartered in Cincinnati, Ohio. First Financial, through its subsidiaries, 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 106 banking centers and ~~129~~131 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 business lines provide credit-based products, deposit accounts, retail brokerage, corporate cash management support and other services to commercial and consumer clients. The Bank also provides lending products, primarily equipment and leasehold improvement financing, for select concepts and 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 retirement plan services and had approximately ~~$2.4~~$2.3 billion in assets under management as of September 30, ~~2014.~~2015. First Financial has two national specialty lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that provides loans secured by commissions and cash collateral accounts exclusively to insurance agents and brokers.

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~~FDIC-assisted transactions in 2009. In connection with 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~~were 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, on the same pro-rata basis. The Company’s five year loss sharing indemnification ~~from the FDIC~~period 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.~~2014. The loss sharing protection related to all other covered loans of approximately ~~$142.0~~$117.6 million will expire ~~in the third quarter~~October 1, 2019. Covered assets represented approximately ~~4.7%~~1.5% of First Financial’s total assets at September 30, ~~2014~~.2015.

MARKET STRATEGY AND BUSINESS COMBINATIONS

Oak Street.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~~acquisition 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)~~Oak Street during the third quarter ~~2014. Founded~~of 2015 and Oak Street became a wholly-owned subsidiary of First Financial Bank. Oak Street, a nationwide lender based in ~~2006~~Indianapolis, Indiana, was formed in 2003 to provide loans, secured by commissions and ~~conducting operations out of one full service location in Worthington, Ohio,~~cash collateral accounts, exclusively to insurance agents and ~~a mortgage origination office in Newark, Ohio, Insight provided commercial~~brokers to maximize their book-of-business value and ~~consumer banking services to clients throughout Columbus and central Ohio.~~grow their agency business. First Financial acquired ~~Insight~~Oak Street for $110.0 million in a cash and, ~~stock~~concurrent with the close of the transaction, ~~in which Insight merged with and into First Financial Bank.~~paid off $197.8 million of existing long-term borrowings on behalf of Oak Street. The Company recorded $2.6 million of noninterest expenses related to the acquisition of Oak Street during the third quarter 2015.

~~Guernsey. On August 21, 2014,~~Oak Street utilizes deep industry knowledge, a proprietary technology platform and partner relationships to offer commission-based commercial financing for insurance professionals and third-party loan servicing for financial institutions nationwide. Oak Street's well-developed business model provides a strong strategic complement to First ~~Financial finalized its merger with Guernsey Bancorp, Inc. (Guernsey). Headquartered in Worthington, Ohio, Guernsey conducted operations out of three full service branches~~Financial's existing nationwide franchise finance business and ~~served commercial~~an opportunity to expand 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~~diversify 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 conversionsservice offerings.

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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.~~Oak Street acquisition. For further detail on the ~~Columbus acquisitions,~~Oak Street acquisition, see Note 1615 - Business Combinations in the Notes to the Consolidated Financial ~~Statements, Business Combinations.~~Statements.

(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.



(Dollars in thousands)	Oak Street
Purchase consideration
Cash consideration	$	110,000
Payoff of long-term borrowings	197,839
Total purchase consideration	$	307,839

Assets acquired
Cash	$	2,248
Loans	238,029
Intangible assets	268
Other assets	2,633
Total assets	$	243,178

Liabilities assumed
Other liabilities	$	1,615
Total liabilities	$	1,615

Net identifiable assets	$	241,563
Goodwill	$	66,276

OVERVIEW OF OPERATIONS

Third quarter ~~2014~~2015 net income was ~~$15.3~~$18.7 million and earnings per diluted common share were ~~$0.26.~~$0.30. This compares with third quarter ~~2013~~2014 net income of ~~$14.9~~$15.3 million and earnings per diluted common share of $0.26. For the nine months ended September 30, ~~2014,~~2015, net income was $55.2 million, and earnings per diluted common share were $0.89. This compares with net income of $46.4 million and earnings per diluted common share ~~were $0.79. This compares with net income~~ of ~~$44.6 million and earnings per diluted common share of $0.77~~$0.79 for the first nine months of ~~2013.~~2014.

Return on average assets for the third quarter ~~2014~~2015 was ~~0.88%~~0.97% compared to ~~0.96%~~0.88% for the comparable period in ~~2013. Return~~2014 and return on average shareholders’ equity for the third quarter ~~2014~~2015 was ~~8.16%~~9.12% compared to ~~8.53%~~8.16% for the ~~comparable period in 2013.~~third quarter 2014. Return on average assets for the nine months ended September 30, ~~2014~~2015 was ~~0.94%~~1.00% compared to ~~0.95%~~0.94% for the same period in ~~2013.~~2014. Return on average shareholders' equity was ~~8.75%~~9.23% and ~~8.49%~~8.75% for the ~~same periods in~~first nine months of 2015 and 2014, ~~and 2013,~~ respectively.

A discussion of First Financial's results of operations for the three months and nine months ended September 30, ~~2014~~2015 follows.

~~Table of Contents~~

NET INTEREST INCOME

Net interest income, First Financial’s principal source of income, is the excess of interest received from earning assets, including loan-related fees, over interest paid on interest-bearing ~~liabilities, plus fees for financial services provided to clients.~~liabilities. 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 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 as these measures provide useful information to make peer comparisons.

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	Three months ended						Nine months ended						Three months ended						Nine months ended
	September 30,						September 30,						September 30,						September 30,
(Dollars in thousands)	2014			2013			2014			2013			2015			2014			2015			2014
Net interest income	$	58,363		$	55,772		$	167,486		$	172,516		$	63,159		$	58,363		$	180,419		$	167,486
Tax equivalent adjustment	818			516			2,278			1,507			1,000			818			2,971			2,278
Net interest income - tax equivalent	$	59,181		$	56,288		$	169,764		$	174,023		$	64,159		$	59,181		$	183,390		$	169,764

Average earning assets	$	6,326,315		$	5,659,432		$	6,011,310		$	5,778,815		$	6,938,107		$	6,326,315		$	6,711,900		$	6,011,310

Net interest margin ⁽¹⁾	3.66		%	3.91		%	3.73		%	3.99		%	3.61		%	3.66		%	3.59		%	3.73		%
Net interest margin (fully tax equivalent) ⁽¹⁾	3.71		%	3.95		%	3.78		%	4.03		%	3.67		%	3.71		%	3.65		%	3.78		%

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

Net interest income for the third quarter ~~2014~~2015 was ~~$58.4~~$63.2 million, increasing ~~$2.6~~$4.8 million or ~~4.6%~~8.2% from third quarter ~~2013~~2014 net interest income of ~~$55.8~~$58.4 million. Net interest income on a fully tax-equivalent basis for the third quarter ~~2014~~2015 was ~~$59.2~~$64.2 million compared to ~~$56.3~~$59.2 million ~~for the~~ ~~third~~ ~~quarter 2013. Net interest margin was 3.66%~~ for the third quarter ~~2014~~2014. Net interest margin on a fully tax equivalent basis was 3.67% for the third quarter 2015 compared to ~~3.91%~~3.71% for the third quarter ~~2013.~~2014. The increase in net interest income for the third quarter ~~2014~~2015 as compared to the same period in ~~2013~~2014 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 was primarily related to changes in the composition of the Company's earning assets, including the continued decline in the high-yielding covered loan portfolio, as well as lower yields on recent loan originations resulting from the combination of the low interest rate ~~environment.~~environment and the volume of variable rate loan originations which have a lower initial yield than comparable fixed rate loans.

The increase in net interest income for the third quarter ~~2014,~~2015, as compared to the third quarter ~~2013,~~2014, was ~~the result of~~driven by a ~~$3.9~~$5.3 million or ~~6.5%~~8.3% increase in total interest income to $68.7 million in the third quarter of 2015 from $63.4 million in the third quarter ~~of 2014 from $59.5 million in the third quarter 2013.~~2014. Partially offsetting the increase in interest income was a corresponding increase in interest expense of ~~$1.3~~$0.5 million, or ~~33.8%~~9.7%, to $5.5 million in the third quarter 2015 from $5.0 million in the third quarter ~~2014 from $3.8 million in the third quarter 2013.~~2014.

The rise in total interest income resulted from 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~~fee income earned on ~~loans~~the Company's loan portfolio. This was primarily ~~resulted from~~a result of strong organic loan growth in recent periods as well as the ~~Columbus acquisitions during~~impact from the ~~third quarter,~~addition of $238.0 million of high-yielding loans acquired in the Oak Street transaction, partially offset by continued paydowns and resolutions in the Company's high-yielding covered loan portfolio ~~as well as~~and lower new origination loan yields. Average loan balances increased ~~$418.2~~$629.3 million or ~~10.5% from~~14.3% in the third quarter ~~of 2013,~~2015 as compared to the third quarter 2014, however, new loan originations continue to be recorded at yields ~~significantly~~ lower than the yields on loans that ~~pay off~~pay-off or mature during the period, ~~as a result of the low interest rate environment,~~ muting the impact of ~~increased~~higher loan balances on interest income and net interest margin.

~~Table of Contents~~

Interest expense increased as the average balance of interest-bearing deposits increased ~~$386.9~~$574.6 million or ~~10.6% and~~14.2%, from the third quarter 2014 due to the Company's deposit generation efforts in recent quarters. Additionally, the cost of funds related to these deposits increased ~~10 bps~~1 bp to 4142 bps for the third quarter ~~2014~~2015 from 3141 bps for the comparable quarter in ~~2013,~~2014, negatively impacting net interest margin. ~~Interest expense was also impacted by an~~Partially offsetting the increase in ~~short-term~~interest expense on deposits was a decrease in interest expense on long-term borrowings. The decrease in interest expense on long-term borrowings was primarily attributable to a decline in the yield on long-term borrowings of ~~$295.6 million~~144 bps to 1.56% for the third quarter 2015 from 3.00% in the third quarter 2014, due ~~primarily~~ to ~~balance sheet growth, including~~ the ~~Columbus acquisitions,~~accelerated recognition of a valuation adjustment resulting from the prepayment of previously acquired FHLB advances, which was partially offset by ~~an $8.4~~additional interest expense resulting from the issuance of $120.0 million ~~or 13.8% decline in long-term borrowings when compared to~~of subordinated notes during the ~~third quarter 2013.~~period.

For the nine month period ended September 30, ~~2014,~~2015, net interest income was ~~$167.5~~$180.4 million, ~~, a decline~~an increase of ~~$5.0~~$12.9 million from ~~$172.5~~net interest income of $167.5 million for the comparable period in ~~2013.~~2014. Net interest income on a ~~fully tax-equivalent~~fully-tax equivalent basis for the nine month period ended September 30, ~~2014~~2015 was ~~$169.8~~$183.4 million as compared to ~~$174.0~~$169.8 million for the comparable period in ~~2013. These declines were~~2014. Similar to the quarterly year-over-year items discussed above, the increase 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 was primarily related to ~~lower interest income due to~~changes in the composition of the Company's earning assets, including the continued decline in the high-yielding covered loan ~~runoff and~~portfolio, as well as lower yields on recent loan ~~originations,~~originations. Higher interest income was partially offset by ~~higher income due to the~~a $2.5 million, or 18.3% increase in ~~investment portfolio balances and the contribution from the Columbus acquisitions. In addition to lower interest income during the period,~~ interest expense ~~increased $0.8 million, or 6.0%~~ during the nine months ended September 30, ~~2014~~2015 as compared to the nine months ended September 30, ~~2013 to $13.6 million.~~2014. The increase in interest expense for the nine

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month period ended September 30, ~~2014~~2015 was primarily related to an increase in average interest-bearing deposits of ~~$113.8~~$618.0 million, or ~~3.0%~~16.0% when compared to the similar period in ~~2013,~~2014, as well as an increase in the cost of funds related to those deposits of 34 bps from ~~36 bps in 2013 to~~ 39 bps in ~~2014.~~2014 to 43 bps in 2015.

~~Table of Contents~~

CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS


	Quarterly Averages															Year-to-Date Averages										Quarterly Averages										Year-to-Date Averages
	September 30, 2014					June 30, 2014					September 30, 2013					September 30, 2014					September 30, 2013					September 30, 2015					September 30, 2014					September 30, 2015						September 30, 2014
(Dollars in thousands)	Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield		Balance			Yield			Balance			Yield
Earning assets
Investments
Investment securities	$	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	%	$	1,848,083		2.39	%	$	1,865,241		2.37	%	$	1,798,143		2.40	%		$	1,828,207		2.45	%
Interest-bearing deposits with other banks	29,433			0.42	%	10,697			0.45	%	4,010			0.49	%	14,448			0.49	%	6,989			0.38	%	37,468			0.25	%	29,433			0.42	%	26,287			0.26	%		14,448			0.49	%
Gross loans ⁽¹⁾	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	%	5,052,556			4.52	%	4,431,641			4.68	%	4,887,470			4.49	%		4,168,655			4.73	%
Total earning assets	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	%	6,938,107			3.93	%	6,326,315			3.98	%	6,711,900			3.91	%		6,011,310			4.03	%

Nonearning assets
Allowance for loan and lease losses	(55,697		)			(55,149		)			(80,659		)			(57,560		)			(89,347		)			(54,398		)			(55,697		)			(54,239		)				(57,560		)
Cash and due from banks	125,528					118,947					120,154					122,693					117,252					114,279					125,528					113,720						122,693
Accrued interest and other assets	541,137					509,521					494,795					522,451					491,015					613,401					541,137					582,317						522,451
Total assets	$	6,937,283				$	6,454,252				$	6,193,722				$	6,598,894				$	6,297,735				$	7,611,389				$	6,937,283				$	7,353,698					$	6,598,894

Interest-bearing liabilities
Deposits
Interest-bearing demand	$	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	%	$	1,230,621		0.09	%	$	1,135,126		0.11	%	$	1,209,291		0.08	%		$	1,137,540		0.11	%
Savings	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	%	2,015,373			0.19	%	1,782,472			0.26	%	1,960,443			0.22	%		1,706,845			0.23	%
Time	1,123,657			0.97	%	960,424			0.98	%	947,436			0.90	%	1,013,125			0.96	%	1,004,016			1.05	%	1,369,892			1.05	%	1,123,657			0.97	%	1,305,751			1.07	%		1,013,125			0.96	%
Total interest-bearing deposits	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	%	4,615,886			0.42	%	4,041,255			0.41	%	4,475,485			0.43	%		3,857,510			0.39	%
Borrowed funds
Short-term borrowings	835,973			0.17	%	686,148			0.17	%	598,442			0.19	%	768,275			0.17	%	609,425			0.20	%	675,123			0.22	%	835,973			0.17	%	619,540			0.20	%		768,275			0.17	%
Long-term debt	60,355			3.00	%	59,842			3.52	%	69,264			3.53	%	60,188			3.34	%	72,691			3.54	%	71,583			1.56	%	60,355			3.00	%	55,645			2.10	%		60,188			3.34	%
Total borrowed funds	896,328			0.36	%	745,990			0.44	%	667,706			0.54	%	828,463			0.40	%	682,116			0.56	%	746,706			0.35	%	896,328			0.36	%	675,185			0.36	%		828,463			0.40	%
Total interest-bearing liabilities	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	%	5,362,592			0.41	%	4,937,583			0.40	%	5,150,670			0.42	%		4,685,973			0.39	%

Noninterest-bearing liabilities
Noninterest-bearing demand deposits	1,179,207					1,110,697					1,072,259					1,129,107					1,061,850					1,344,049					1,179,207					1,318,746						1,129,107
Other liabilities	74,764					68,661					106,288					74,699					108,164					92,352					74,764					83,693						74,699
Shareholders' equity	745,729					696,609					693,158					709,115					701,884					812,396					745,729					800,589						709,115
Total liabilities and shareholders' equity	$	6,937,283				$	6,454,252				$	6,193,722				$	6,598,894				$	6,297,735				$	7,611,389				$	6,937,283				$	7,353,698					$	6,598,894

Net interest income	$	58,363				$	54,304				$	55,772				$	167,486				$	172,516				$	63,159				$	58,363				$	180,419				��	$	167,486

Net interest spread				3.58	%				3.62	%				3.82	%				3.64	%				3.90	%				3.52	%				3.58	%				3.49	%					3.64	%
Contribution of noninterest-bearing sources of funds				0.08	%				0.08	%				0.09	%				0.09	%				0.09	%				0.09	%				0.08	%				0.10	%					0.09	%
Net interest margin ⁽²⁾				3.66	%				3.70	%				3.91	%				3.73	%				3.99	%				3.61	%				3.66	%				3.59	%					3.73	%


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


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

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RATE/VOLUME ANALYSIS

The impact ofon net interest income from changes in interest rates as well as 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, 2014																	Changes for the three months ended September 30, 2015									Changes for the nine months ended September 30, 2015
	Linked quarter income variance								Comparable quarter income variance									Comparable 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	$	(470	)	$	440	$	(30	)	$	670		$	1,643		$	2,313		$	132		$	(104	)	$	28		$	(685	)	$	(540	)	$	(1,225	)
Interest-bearing deposits with other banks	(1		)	20		19			(1		)	27			26			(12		)	5			(7		)	(25		)	23			(2		)
Gross loans ⁽¹⁾	(237		)	4,912		4,675			(2,792		)	4,313			1,521			(1,803		)	7,066			5,263			(7,499		)	24,147			16,648
Total earning assets	(708		)	5,372		4,664			(2,123		)	5,983			3,860			(1,683		)	6,967			5,284			(8,209		)	23,630			15,421
Interest-bearing liabilities
Total interest-bearing deposits	$	350		$	262	$	612		$	958		$	404		$	1,362		38			605			643			1,187			1,975			3,162
Borrowed funds
Short-term borrowings	(5		)	67		62			(33		)	101			68			109			(89		)	20			178			(223		)	(45		)
Federal Home Loan Bank long-term debt	(78		)	9		(69		)	(94		)	(67		)	(161		)	(219		)	44			(175		)	(557		)	(72		)	(629		)
Total borrowed funds	(83		)	76		(7		)	(127		)	34			(93		)	(110		)	(45		)	(155		)	(379		)	(295		)	(674		)
Total interest-bearing liabilities	267			338		605			831			438			1,269			(72		)	560			488			808			1,680			2,488
Net interest income	$	(975	)	$	5,034	$	4,059		$	(2,954	)	$	5,545		$	2,591		$	(1,611	)	$	6,407		$	4,796		$	(9,017	)	$	21,950		$	12,933

(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, 2014
Year-to-date income variance
(Dollars in thousands) Rate Volume Total
Earning assets
Investment securities $ 4,738
$ 2,162
$ 6,900
Interest-bearing deposits with other banks 6
27
33
Gross loans ⁽¹⁾
(14,980 ) 3,792
(11,188 )
Total earning assets (10,236 ) 5,981
(4,255 )
Interest-bearing liabilities
Total interest-bearing deposits $ 811
$ 329
$ 1,140
Borrowed funds
Short-term borrowings (147 ) 202
55
Federal Home Loan Bank long-term debt (107 ) (313 ) (420 )
Total borrowed funds (254 ) (111 ) (365 )
Total interest-bearing liabilities 557
218
775
Net interest income $ (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 ~~2014~~2015 noninterest income was ~~$16.5~~$20.4 million, representing a ~~$5.8~~$3.8 million or ~~25.9% decline~~23.3% increase from noninterest income of ~~$22.3~~$16.5 million in the third quarter ~~2013.~~2014. The ~~decrease~~increase in noninterest income from the comparable quarter in ~~2013~~2014 was due primarily to a ~~$5.7~~$3.0 million increase in accelerated discount on covered loans, a $1.4 million increase in other noninterest income and a $0.4 million net gain on sale of investment securities, partially offset by a $0.8 million decrease in FDIC loss sharing ~~income and a $0.9 million decline in accelerated discount on covered loans partially offset by a $0.9 million increase in net gains from sales of loans.~~income.

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 covered OREO recoveries during the period.

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Income from the accelerated discount on covered loans ~~decreased $0.9~~increased $3.0 million ~~or 53.9%~~ from ~~$1.7~~$0.8 million during the third quarter ~~2013~~2014 to ~~$0.8~~$3.8 million for the third quarter ~~2014.~~2015. Accelerated discounts on covered loans that prepay result from the accelerated recognition of the remaining covered loan discount that would have been recognized over the expected life of the loan had it not prepaid. ~~Lower~~Higher income from the accelerated discount on covered loans during the third quarter ~~2014~~2015 was related to ~~declines in both~~ the ~~volume and size~~expiration of ~~covered loans prepaying during the period~~loss sharing coverage on non-single-family assets on October 1, 2014 as well as ~~declines in~~elevated levels of prepayment activity during the ~~size~~quarter. Due to the expiration of the ~~remaining discounts~~loss sharing coverage on ~~these loans.~~

non-single family assets, the Company no longer recognizes a proportionate share of accelerated discount as relief to the FDIC indemnification asset for prepayment activity on non-single-family assets. The increase in ~~gains from sales of loans as~~noninterest income related to the increase in accelerated discount was partially offset by a related $1.5 million increase in provision expense during the period.

Other noninterest income was impacted by a $1.0 million increase in swap fee income compared to 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 well as the impact of Columbus origination and sale activity during the period.

Noninterest income for the nine months ended September 30, 2014 was $47.0 million, which represents a $13.6 million or 22.4% decline from noninterest income of $60.6 million for the nine months ended September 30, 2013. The decline in noninterest income from the comparable period in 2013 was due primarily to a $6.7 million decline in FDIC loss sharing income, a $3.2 million decline in accelerated discount on covered loans, a $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~~increases in variable rate lending led to ~~the same period in 2013.~~strong customer demand for interest rate swaps. The ~~decline~~increase in gain on sale of investment securities was primarily related to sales of agency mortgage-backed securities during the third quarter 2015 in an effort to rebalance the mix and ~~collateralized mortgage obligations~~duration of certain investments in the portfolio.

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 $0.8 million or 406.8% from negative loss sharing income of $0.2 million during ~~2013~~the third quarter 2014 to $1.0 million of negative loss sharing income for the third quarter 2015. Negative FDIC loss sharing income during the third quarter 2015 reflects a net payable due to the FDIC.

Noninterest income for the nine months ended September 30, 2015 was $59.4 million, which represents a $12.4 million or 26.3% increase from noninterest income of $47.0 million for the first nine months of 2014. The increase in ~~order~~noninterest income from the comparable period in 2014 was due primarily to ~~enhance liquidity~~a $7.6 million increase in the accelerated discount on covered loans, a $2.4 million increase in net gains from sales of loans, a $4.4 million increase in other noninterest income and ~~reduce~~a $1.5 million increase in gain on sale of investment securities, partially offset by a $2.7 million decline in FDIC loss sharing income.

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Similar to the quarterly year-over-year items previously discussed, the increase in accelerated discount on covered loans was driven by elevated levels of prepayment activity and ~~premium risks.~~the expiration of non-single family loss sharing agreements. Increases in net gains on sales of loans was a product of higher sales volume during 2015 due to strong demand and the impact from the Columbus acquisitions during the third quarter 2014. The increase in other noninterest income was driven by $1.3 million of distributions received from SBICs during the period, as well as a $2.3 million increase in swap fee income as customer swap demand increased with higher levels of variable rate loan originations. FDIC loss sharing income was impacted by the expiration of non-single family loss sharing agreements.

NONINTEREST EXPENSE

Third quarter ~~2014~~2015 noninterest expense was ~~$51.4~~$53.0 million compared with ~~$48.8~~$51.4 million for the third quarter of ~~2013.~~2014. The ~~$2.6~~$1.6 million ~~or 5.4%~~ increase from the comparable quarter in ~~2013~~2014 was primarily attributable to a ~~$4.9~~$2.5 million increase in professional services, a $1.8 million increase in other noninterest expense and a $0.8 million increase in losses on OREO. These increases were partially offset by a $1.8 million decline in data processing expenses, a $0.9 million decline 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 losses on sales of covered OREO, a $1.4 million decline in pension settlement charges and a $0.7$0.4 million decline in loss sharing ~~expenses.~~expense.

The increase in ~~salaries~~professional services was primarily related to the Oak Street acquisition which contributed $2.2 million of additional expenses. The increase in other noninterest expense was driven by a $0.9 million prepayment fee related to the extinguishment of FHLB debt and ~~benefits, as well as data~~$0.7 million of reserve adjustments for litigation related items which were resolved during the third quarter of 2015. The Company recorded losses on OREO of $0.2 million during the third quarter 2015 compared to gains of $0.6 million in the third quarter of 2014.

Data processing expenses ~~were~~declined $1.8 million in the third quarter 2015 compared to the same period in 2014 primarily due to expenses related to the Columbus acquisitions. Acquisition-related expenses totaled $4.2 million 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 miscellaneous expenses.

~~During~~acquisitions in 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~~2014. Salaries and employee benefits decreased from the ~~Company's pension plan. The annual threshold for recognizing lump-sum distributions as pension settlement charges reset on January 1, 2014~~comparable quarter, which was primarily attributable to lower health care costs in the third quarter 2015 and ~~no such expense has been incurred for the nine months ended September 30, 2014. For further discussion of pension settlement charges, see Note 13~~expenses related to the ~~Consolidated Financial Statements, Employee Benefit Plans.~~

~~Loss sharing expense represents costs incurred to resolve problem covered assets, including legal fees, appraisal costs and delinquent taxes. The~~Columbus acquisitions in the third quarter of 2014. Additionally, 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~~2015 was due to lower collection costs resulting from the ~~combination of provision expense on~~decline in 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, 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."asset balances.

Noninterest expense for the nine months ended September 30, ~~2014~~2015 was ~~$146.4~~$149.8 million compared with ~~$155.2~~$146.4 million infor the nine months ended September 30, ~~2013.~~2014. The ~~$8.8~~$3.5 million or ~~5.7% decrease~~2.4% increase from the comparable period in ~~2013~~2014 was primarily attributable to a $5.7 million decline in pension settlement charges as discussed above. Also contributing to the decline was a $2.3 million decline in net occupancy expense and a $2.2 million decline in other noninterest expense resulting from lower fixed asset-related costs associated with branch consolidations throughout 2013 and 2014, a $1.6 million decline in loss sharing

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expense and a $1.1 million decline in state intangible tax due to a change in applicable tax laws. These declines were partially offset by a $1.2 million increase in losses recorded on covered OREO as the Company recorded gains of $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$2.6 million increase in salaries and benefits expense, a $3.0 million increase in professional services and a $2.4 million increase in other noninterest expense. The increase in salaries and benefits was primarily due to the Columbus acquisitions and annual salary adjustments, while the increase in professional services was primarily due to the Oak Street acquisition. A prepayment fee on extinguished FHLB debt and higher marketing research related expenses contributed to the increase in other noninterest expense during the first nine months of 2015. These increases were partially offset by a decrease in loss sharing expense of $2.6 million due to lower collection costs resulting from the decline in covered asset balances and a $2.0 million decrease in data processing expenses as a result of increased expenses in 2014 due to the Columbus acquisitions.

INCOME TAXES

Income tax expense was ~~$7.2~~$9.2 million and ~~$7.6~~$7.2 million for the third ~~quarters~~quarter of ~~2014~~2015 and ~~2013,~~2014, respectively. The effective tax ~~rates~~rate for the third ~~quarters of~~quarter 2015 and 2014 was 33.0% and ~~2013 were~~ 32.0% ~~and 33.9%~~, respectively. Income tax expense for the nine months ended September 30, 2015 and 2014 was $26.9 million and ~~2013 was~~ $22.3 million, ~~and $20.5 million, respectively and the~~respectively. The year-to-date effective tax rate through September 30, ~~2014~~2015 was ~~32.4%~~32.8% compared to ~~31.5%~~32.4% for the comparable period in ~~2013.~~2014.

The ~~decrease~~increase in the effective tax rate for the third quarter ~~2014,~~2015, as compared to the same period in ~~2013,~~2014, was primarily the result of ~~higher tax-exempt income earned in 2014 and lower state tax expense, partially offset by non-deductible~~nondeductible acquisition ~~costs.~~related expenses during the period. The slight increase in the year-to-date effective tax rate ~~for the nine months ended September 30, 2014, as compared to the same period in~~ ~~2013~~, was primarily the result of ~~a favorable tax reversal~~an increase in nondeductible acquisition related ~~to a former Irwin subsidiary and a favorable change in state tax laws in 2013,~~expenses, partially offset by ~~higher~~an increase in tax-exempt income ~~earned~~ in ~~2014.~~ 2015.

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~~2015 is expected to be approximately 32.0% - 34.0%.

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LOANS

First Financial continues to experience strong loan demand in ~~2014~~2015 as a result of the Company's sales efforts, expanded presence in key metropolitan markets and investments in a diversified product suite. Loans, excluding loans held for sale, totaled ~~$4.8~~$5.2 billion as of September 30, ~~2014,~~2015, increasing ~~$818.7~~$438.8 million, or ~~27.6% on an annualized basis,~~9.2%, compared to December 31, ~~2013.~~2014. The increase in loan balances from December 31, ~~2013~~2014 was primarily related to a ~~$269.1~~$322.4 million increase in commercial loans and a ~~$113.0~~$78.7 million increase in construction real estate ~~construction loans, a $455.1 million~~loans. The increase in commercial ~~real estate~~ loans 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, fromwas attributable to the ~~Columbus acquisitions that closed during the quarter~~Oak Street acquisition, as well as strong ~~loan origination activity~~organic growth during the period. ~~Excluding loans acquired~~Construction real estate originations were particularly strong for the first nine months of 2015 as high-quality development needs resulted in $315.8 million of new commitments during the ~~third quarter, loan balances increased $212.5~~period, of which $222.7 million ~~or 7.2% on an annualized basis, compared~~had yet to ~~December 31, 2013.~~fund as of September 30, 2015.

Third quarter ~~2014~~2015 average loans, excluding loans held for sale, increased ~~$418.2~~$629.3 million or ~~10.5%~~14.3% from the third quarter of ~~2013.~~2014. The increase in average loans, excluding loans held for sale, was primarily the result of a ~~$258.1~~$242.9 million increase in commercial loans, a ~~$240.6~~$237.9 million increase in commercial real estate loans, a ~~$54.6~~$105.5 million increase in construction real estate loans, a $25.0 million increase in residential real estate loans ~~a $59.3 million increase in construction real estate~~ and a ~~$28.9~~$17.5 million increase in home equity ~~loans, partially offset by a $222.3 million decline~~loans. Increases in ~~covered loans~~average loan balances were attributable to strong organic loan growth as well as the Oak Street and ~~a $4.1 million decline in installment loans.~~Columbus acquisitions.

Covered loans declined to ~~$332.3~~$117.6 million at September 30, ~~2014~~2015 from ~~$457.9~~$135.7 million as of December 31, ~~2013.~~2014. Declines in covered loan balances were expected as there were no acquisitions of loans subject to loss sharing agreements during the period. The ten year period of loss protection on all remaining covered loans and covered OREO expire October 1, 2019. The covered loan portfolio will continue to decline through payoffs, loan sales, charge-offs and termination or expiration of loss sharing coverage unless First Financial acquires additional loans subject to loss sharing agreements in the future.

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 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.

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)~~TDRs (collectively, nonperforming loans) and ~~OREO, decreased $6.1 million,~~OREO. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or ~~8.5%, to $66.3 million at September 30, 2014 from $72.5 million~~interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as ~~of December 31, 2013,~~nonaccrual due to ~~an $8.5 million, or 42.9%, decline in OREO balances partially offset~~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 ~~$2.3 million, or 4.4% increase in nonperforming loans during the first nine months of 2014.~~loan is classified as nonaccrual.

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~~Loans accounted for under FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, are referred to as purchased impaired loans. Purchased impaired loans were grouped into pools for purposes of periodically re-estimating ~~the~~ expected cash flows and recognizing impairment or improvement in the loan pools. Accordingly, purchased impaired 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~~provision for loan ~~loss provision~~and lease losses or ~~future period~~prospective yield adjustments.

~~First Financial had $4.6 million~~As a result 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 OREOthe Company's strong resolution efforts, nonperforming assets decreased $15.9 million, or ~~58.8%~~18.3%, to $71.1 million at September 30, 2015 from $87.1 million as of December 31, ~~2013~~2014, due to an $8.5 million, or 13.1%, decline in nonperforming loans and a $7.5 million, or 33.0%, decline in OREO balances during the period.

Nonperforming loans declined during the first nine months of 2015, as commercial real estate loans on nonaccrual decreased $10.5 million, or 37.9%, nonaccrual residential real estate loans decreased $2.3 million, or 31.8% and covered/formerly covered loans on nonaccrual decreased $0.7 million, or 17.2%. These decreases were partially offset by a $1.4 million, or 23.6% increase in nonaccrual commercial loans and a $4.3 million, or 27.0% increase in accruing TDRs as of September 30, 2015, which was primarily related to a single commercial real estate relationship restructured during the period.

OREO represents properties acquired by First Financial primarily through loan defaults by borrowers. OREO balances declined during the first nine months of 2015 as resolutions and valuation adjustments of ~~$20.3~~$13.4 million exceeded additions of ~~$4.3~~$6.0 million.

Loans are classified as TDRs when borrowers are experiencing financial difficulties and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement. TDRs totaled $33.8 million ~~during~~at September 30, 2015, which was

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a $5.6 million, or 19.9% increase from $28.2 million at December 31, 2014. This increase is primarily related to the ~~first nine months~~restructuring of ~~2014.~~a $4.4 million commercial real estate relationship that was already classified as nonaccrual in 2015.

Classified ~~covered loan balances,~~assets, which are defined by the Company as nonperforming ~~covered~~ assets plus performing ~~covered~~ loans internally rated substandard or worse, ~~declined $56.5~~totaled $130.1 million ~~or 58.2% to $40.5 million at~~as of September 30, ~~2014 from $97.0~~2015 compared to $154.8 million at December 31, ~~2013.~~2014. Loans 30-to-89 days past due decreased to $8.0 million, or 0.15% of period end loans at September 30, 2015, as compared to $18.2 million, or 0.38%, at December 31, 2014. The ~~decline~~declines in nonperforming, classified ~~covered loan balances~~and delinquent assets during ~~2014 reflects~~2015 reflect the Company's ~~continued progress~~disciplined underwriting approach, ongoing resolution efforts and a stable credit outlook.

The table that follows shows the categories that are included in ~~bringing troubled covered loans to resolution.~~nonperforming and underperforming assets, as well as related credit quality ratios as of September 30, 2015 and the four previous quarters.



	Quarter ended
	2015									2014
(Dollars in thousands)	Sep. 30			June 30,			Mar. 31,			Dec. 31,			Sep. 30
Nonperforming loans, nonperforming assets, and underperforming assets
Nonaccrual loans ⁽¹⁾
Commercial	$	7,191		$	6,683		$	6,926		$	5,817		$	6,486
Real estate - construction	79			223			223			223			223
Real estate - commercial	17,228			21,186			29,925			27,752			25,262
Real estate - residential	4,940			5,257			6,100			7,241			6,696
Installment	321			305			278			443			398
Home equity	2,702			2,735			2,462			3,064			2,581
Lease financing	0			0			0			0			0
Covered/formerly covered loans	3,252			3,284			3,239			3,929			4,604
Nonaccrual loans	35,713			39,673			49,153			48,469			46,250
Accruing troubled debt restructurings (TDRs)	20,226			20,084			15,429			15,928			13,439
Total nonperforming loans	55,939			59,757			64,582			64,397			59,689
Other real estate owned (OREO)	15,187			16,401			20,906			22,674			22,496
Total nonperforming assets	71,126			76,158			85,488			87,071			82,185
Accruing loans past due 90 days or more	58			70			85			216			249
Total underperforming assets	$	71,184		$	76,228		$	85,573		$	87,287		$	82,434
Classified assets, excluding covered/formerly covered	$	97,022		$	106,280		$	109,090		$	109,122		$	105,914
Covered/formerly covered classified assets	33,110			33,651			44,727			45,682			53,012
Total classified assets	$	130,132		$	139,931		$	153,817		$	154,804		$	158,926

Credit quality ratios
Allowance for loan and lease losses to
Nonaccrual loans	149.33		%	133.28		%	107.98		%	109.06		%	116.73		%
Nonperforming loans	95.34		%	88.49		%	82.18		%	82.08		%	90.45		%
Total ending loans	1.02		%	1.09		%	1.11		%	1.11		%	1.13		%
Nonperforming loans to total loans	1.07		%	1.23		%	1.36		%	1.35		%	1.25		%
Nonperforming assets to
Ending loans, plus OREO	1.36		%	1.56		%	1.79		%	1.81		%	1.71		%
Total assets, including covered assets	0.90		%	1.03		%	1.18		%	1.21		%	1.12		%
Nonperforming assets, excluding accruing TDRs to
Ending loans, plus OREO	0.97		%	1.15		%	1.46		%	1.48		%	1.43		%
Total assets, including covered assets	0.65		%	0.76		%	0.97		%	0.99		%	0.93		%
(1) Nonaccrual loans include nonaccrual TDRs of $13.6 million, $14.1 million, $20.3 million, $12.3 million, and $13.2 million as of September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014, and September 30, 2014, respectively.

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INVESTMENTS

First Financial's investment portfolio totaled ~~$1.9~~$1.9 billion or ~~25.6%~~23.8% of total assets at September 30, ~~2014~~,2015 compared with a balance of $1.8 billion or ~~28.0%~~24.4% of total assets at December 31, ~~2013.~~2014. Securities available-for-sale at September 30, ~~2014~~2015 totaled ~~$929.6 million~~,$1.1 billion, compared with a balance of ~~$913.6~~$840.5 million at December 31, ~~2013,~~2014, while held-to-maturity securities totaled ~~$900.5~~$756.0 million at September 30, ~~2014~~2015 compared to ~~$837.3~~$868.0 million at December 31, ~~2013.~~2014.

The investment portfolio increased ~~$81.8~~$118.0 million, or ~~4.5%~~6.7%, during the first nine months of ~~2014~~2015 as ~~$282.7~~$384.9 million of purchases ~~and $30.8 million of securities acquired with the Columbus acquisitions~~ were ~~partially~~ offset by $67.1 million in sales ~~amortizations~~and $200.9 million in principal runoff, amortization and other portfolio reductions. The Company sold $92.5 million of securities during the first quarter 2014, consisting primarily of collateralized loan obligations (CLOs) and, to a lesser extent, hybrid securities, collateralized mortgage obligations and corporate securities, resulting in a gain of $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 decreased to ~~3.7~~3.2 years as of September 30, ~~2014~~2015 from ~~4.3~~3.4 years as of December 31, ~~2013.~~2014, as the Company implemented investment strategies in preparation for a rising interest rate environment.

The Company invests in certain securities whose realization is dependent on future principal and interest repayments and thus carries credit risk. As in past quarters, First Financial has avoided adding to its portfolio any particular securities that would materially increase credit risk or geographic concentration ~~risk. The Company does, however, include~~risk and First Financial continuously monitors and considers these risks in its evaluation of ~~current~~ market opportunities that would enhance the overall performance of the portfolio.

First Financial recorded a $1.8 million unrealized after-tax gain on the investment portfolio at September 30, 2015, as a component of equity in accumulated other comprehensive ~~income, a~~ ~~$6.2 million~~income. The total unrealized ~~after-tax loss~~gain on the investment portfolio at ~~September 30, 2014, which declined $10.1~~increased $4.3 million from ~~$16.3~~a $2.5 million after-tax unrealized loss at December 31, ~~2013 primarily~~2014 due to ~~investment gains~~favorable movements in interest rates during ~~the period as a result of the tightening of mortgage and fixed income spreads.~~2015.

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

DEPOSITS AND FUNDING

Total deposits as of September 30, ~~2014~~2015 were ~~$5.5~~$6.1 billion, representing an increase of ~~$695.5~~$425.7 million or ~~14.4%~~7.5% compared to December 31, ~~2013,~~2014, as total interest-bearing deposits increased ~~$599.6~~$380.3 million or ~~16.2%~~8.7% and total noninterest-bearing deposits increased ~~$95.9~~$45.4 million or ~~8.4%~~3.5%. The increase in total deposits at September 30, 2014 as compared to December 31, 2013 was driven by $568.6 million of deposits, net of estimated fair value adjustments, from the Columbus acquisitions as well as strong growth in interest-bearing demand and time deposits.

Non-time deposit balances totaled ~~$4.3~~$4.6 billion as of September 30, ~~2014,~~2015, increasing ~~$400.5~~$240.8 million, or ~~10.3%~~5.5%, compared to December 31, ~~2013~~2014, while time deposit balances increased ~~$295.0~~$184.9 million, or ~~31.0%~~14.7%.

Year-to-date average deposits increased ~~$181.0~~$739.5 million, or ~~3.8%~~14.2%, to ~~$5.0~~$6.0 billion at September 30, ~~2014~~2015 from September 30, ~~2013 primarily~~2014 due to a ~~$67.3~~$246.2 million increase in average time deposit balances, a $232.9 million increase in average savings deposits and a $164.8 million increase in average noninterest-bearing deposits. The increase in average time deposits ~~and an $84.7~~was impacted by a $211.5 million increase in ~~average savings deposit balances.~~brokered CDs that First Financial originated in conjunction with the Oak Street acquisition during the third quarter of 2015. The year-over-year growth in average deposits was due to the Columbus acquisitions ~~partially offset by declines in deposits earlier in 2014 resulting from~~as well as strong organic deposit generation during the ~~Company's continued focus on growing core deposit relationships and reducing single service and higher-cost time deposits.~~period.

~~As the Company's deposit base continues~~From time to ~~shift away from fixed-rate~~ time, ~~deposits toward market-priced or indexed deposit products,~~ First Financial ~~has executed~~executes interest rate swaps to manage interest rate volatility on market-priced or indexed floating rate ~~deposits. These~~deposit products. First Financial considers these interest rate swaps in conjunction with other strategic balance sheet and interest rate risk objectives, and as a result terminated all active cash flow hedges during the second quarter 2015. First Financial had interest rate swaps with a total notional ~~amount~~value of ~~$250.0 million as of September 30, 2014 and $100.0~~$150.0 million as of December 31, 2013, involve the receipt by First Financial of variable-rate interest payments in exchange for fixed-rate interest payments by First Financial for approximately 5 years. As a result, First Financial has secured fixed rate funding at a weighted average cost of funds of 1.48% for the duration of the interest rate swaps.2014.

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Borrowed funds increased to ~~$972.0~~$883.0 million at September 30, ~~2014~~2015 from ~~$809.5~~$709.6 million at December 31, ~~2013, primarily due to $74.9~~2014. During the third quarter of 2015, First Financial issued $120.0 million of ~~Federal Home Loan Bank (FHLB) short-term borrowings~~subordinated notes. The subordinated notes have a fixed interest rate of 5.125% payable semiannually and ~~$20.0 million~~mature on August 25, 2025. These notes are not redeemable by the Company or callable by the holders of ~~long-term FHLB borrowings assumed~~the notes prior to maturity. The subordinated notes will be treated as Tier 2 capital for regulatory capital purposes and are included in Long-term debt on the Columbus acquisitions. In addition to the impact from acquisitions during the period, short-term borrowings with the FHLB, which are utilized to manage normal liquidity needs, increased as a result of loan growth and investment security purchases in excess of deposit growth during 2014.Consolidated Balance Sheets.

LIQUIDITY

Liquidity management is the process by which First Financial manages the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost. These funding commitments include withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures. Liquidity is derived primarily from deposit growth, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings.

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First Financial’s most stable source of liability-funded liquidity for both long and short-term needs is deposit growth and retention of the core deposit base.

In addition to core deposit funding, First Financial also utilizes ~~its short-term line~~a variety of ~~credit~~other short and long-term funding sources, which include subordinated notes, longer-term advances from the FHLB and its short-term line of credit. As of September 30, 2015, outstanding subordinated debt totaled $118.3 million, which included prepaid debt issuance costs of $1.7 million. Long-term debt also included FHLB long-term advances of $0.5 million and $22.5 million as ~~funding sources.~~of September 30, 2015 and December 31, 2014, respectively. First Financial's total remaining borrowing capacity from the FHLB was ~~$312.3~~$440.0 million at September 30, ~~2014.~~2015. For ease of borrowing execution, First Financial ~~had~~utilizes a blanket collateral agreement with the FHLB. First Financial pledged certain eligible residential and farm real estate loans, home equity lines of credit and government and agency securities totaling ~~$3.4~~$3.2 billion as collateral for borrowings from the FHLB as of September 30, ~~2014. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB.~~2015.

~~During the second quarter of 2014,~~ First Financial ~~entered into~~maintains a short-term credit facility with an unaffiliated bank for $15.0 ~~million.~~million that matures on May 30, 2016. 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,~~2015, there was no outstanding balance. The credit agreement requires First Financial to ~~maintain~~comply with certain covenants including those related to asset quality and capital ~~levels.~~levels, and First Financial was in compliance with all covenants associated with this line of credit as of September 30, ~~2014.~~2015.

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 ~~$929.6 million~~$1.1 billion at September 30, ~~2014.~~2015. Securities classified as held-to-maturity that are maturing within a short period of time are an additional source of liquidity ~~but~~and totaled ~~only $0.3~~$4.5 million at September 30, ~~2014.~~2015. Other types of assets such as cash and due from banks, interest-bearing deposits with other banks ~~as well as~~and loans maturing within one year, are also sources of liquidity.

At September 30, ~~2014,~~2015, in addition to liquidity on hand of ~~$143.7~~$136.5 million, First Financial had unused and available overnight wholesale funding of $1.7 billion, or ~~23.4%~~21.3% of total assets, to fund loan and deposit activities, as well as general corporate requirements.

Certain restrictions exist regarding the ability of First Financial’s ~~subsidiaries~~subsidiary, First Financial Bank, to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances. The approval of the ~~subsidiaries’ respective~~Bank's primary federal ~~regulators~~regulator is required ~~for First Financial’s subsidiaries~~ to pay dividends in excess of regulatory limitations. Dividends paid to First Financial from ~~its subsidiaries~~the Bank totaled ~~$20.5~~$17.3 million for the first nine months of ~~2014.~~2015. As of September 30, ~~2014,~~2015, First ~~Financial’s subsidiaries~~Financial Bank had retained earnings of ~~$454.0~~$426.6 million of which ~~$26.0~~$78.4 million was available for distribution to First Financial without prior regulatory approval. Additionally, First Financial had ~~$58.8~~$113.6 million in cash at the parent company as of September 30, ~~2014,~~2015, which is ~~in excess of~~approximately two times the Company’s ~~current~~ annual regular shareholder dividend and operating expenses.

Under a previously announced share repurchase plan, First Financial repurchased 148,935 shares of the Company's common stock for $2.8 million during the first nine months of 2015 and purchased 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.~~period in 2014.

Capital expenditures, such as banking center expansions and technology investments were ~~$7.6~~$6.4 million and ~~$6.0~~$7.6 million for the first nine months of ~~2014~~2015 and ~~2013,~~2014, 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.

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CAPITAL

Risk-Based Capital. Quantitative measures established and defined by regulation to ensure capital adequacy require First Financial to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and to average assets. Management believes, as of ~~September 30, 2014, that First Financial met all capital adequacy requirements to which it was subject. At~~ ~~September 30, 2014, and~~ ~~December 31, 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.

~~Consolidated regulatory capital ratios at~~ ~~September 30, 2014, included the leverage ratio of~~ ~~9.70%, Tier 1 capital ratio of~~ ~~12.74%~~ ~~and total capital ratio of~~ ~~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~~ ~~$301.7 million, on a consolidated basis. First Financial’s tangible common equity ratio decreased to~~ ~~8.71%~~ at ~~September 30, 2014~~ ~~from~~ ~~9.20%~~ at ~~December 31, 2013~~.

First Financial's Tier I and Total capital ratios were negatively impacted by an increase in risk-weighted assets during 2014 due primarily to an increase in risk-weighted assets resulting from the acquisitions during the year as well as uncovered loan growth. First Financial's Leverage ratio was negatively impacted by an increase in average assets through September 30, 2014 as a result of the 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.

In ~~July~~ 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~~ which became effective January 1, 2015, subject to ~~ease the potential burden, with community banks such as~~a phase-in period for certain provisions. Basel III establishes and defines quantitative measures to ensure capital adequacy which require First Financial ~~subject~~ to maintain minimum amounts and ratios of Common Equity tier 1 capital, total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets (leverage ratio) as set forth in the ~~final rule beginning January 1, 2015. Among other things, Basel III includes new minimum risk-based and leverage capital requirements for all banks.~~ table below.

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 begin on January 1, 2016 at 0.625% and be ~~phased-in~~phased in over a ~~transition~~four-

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year period, ~~ending December 31, 2018.~~increasing by the same amount on each subsequent January 1, until fully phased-in on January 1, 2019. 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.~~

was unchanged. Failure to maintain the required common equity ~~Tier~~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.

Management believes, as of September 30, 2015, that First Financial met all capital adequacy requirements to which it was subject. At September 30, 2015, and December 31, 2014, regulatory notifications categorized First Financial as "well-capitalized" under the regulatory framework for prompt corrective action. There have been no conditions or events since those notifications that management believes has changed the Company's categorization.

Consolidated regulatory capital ratios at September 30, 2015, included the leverage ratio of 8.58%, common equity tier 1 capital ratio of 10.51%, tier 1 capital ratio of 10.52% and total capital ratio of 13.37%. All regulatory capital ratios exceeded the amounts necessary to be classified as “well capitalized,” and total regulatory capital exceeded the “minimum” requirement by $326.1 million on a consolidated basis.

The ~~Basel III~~revised capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans, requiring higher capital allocations.

~~While~~ First ~~Financial continues~~Financial's tier 1 and total capital ratios decreased from 12.69% and 13.71%, respectively, as of December 31, 2014 to ~~evaluate this final rule~~10.52% and ~~its potential impact, management expects that~~13.37% as of September 30, 2015. The decline in the ~~Company will continue~~tier 1 capital ratio was due primarily to ~~exceed all regulatory~~an increase in risk-weighted assets resulting from the Oak Street acquisition, organic loan growth and the previously mentioned changes in the calculation of risk-weighted assets, as well as a reduction in tier 1 capital ~~requirements under Basel III.~~due to the addition of goodwill from the Oak Street acquisition. The total capital ratio was positively impacted by the issuance of subordinated notes during the third quarter, which qualify as tier 2 capital and offset the increase to risk-weighted assets during the period. The leverage ratio declined to 8.58% at September 30, 2015 compared to 9.44% as of December 31, 2014 and the Company’s tangible common equity ratio decreased from 9.02% at December 31, 2014 to 7.84% during the current quarter primarily due to the increase in goodwill associated with the acquisition of Oak Street.

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The following ~~tables illustrate~~table presents the actual and required capital amounts and ratios as of September 30, ~~2014~~ ~~and~~ ~~December 31, 2013~~.2015 under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of September 30, 2015 based on the phase-in provisions of the Basel III Capital Rules as well as the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.


	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions					Actual				Minimum capital required - Basel III current period				Required to be considered well capitalized - current period				Minimum capital required - Basel III fully phased-in
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio			Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio
September 30, 2014
Total capital to risk-weighted assets
September 30, 2015
Common equity tier 1 capital to risk-weighted assets													Common equity tier 1 capital to risk-weighted assets
Consolidated	$	717,823	13.80	%	$	416,170	8.00	%	N/A		N/A			$	638,574	10.51	%	$	273,325	4.50	%	N/A		N/A		$	425,173	7.00	%
First Financial Bank	654,229		12.59	%	415,707		8.00	%	$	519,634	10.00	%		624,993		10.32	%	272,508		4.50	%	$	393,623	6.50	%	423,902		7.00	%

Tier 1 capital to risk-weighted assets													Tier 1 capital to risk-weighted assets
Consolidated	662,608		12.74	%	208,085		4.00	%	N/A		N/A			638,678		10.52	%	364,434		6.00	%	N/A		N/A		516,281		8.50	%
First Financial Bank	592,319		11.40	%	207,854		4.00	%	311,780		6.00	%		625,097		10.32	%	363,344		6.00	%	484,459		8.00	%	514,738		8.50	%

Tier 1 capital to average assets
Total capital to risk-weighted assets													Total capital to risk-weighted assets
Consolidated	662,608		9.70	%	273,264		4.00	%	N/A		N/A			812,029		13.37	%	485,912		8.00	%	N/A		N/A		637,759		10.50	%
First Financial Bank	592,319		8.68	%	272,869		4.00	%	341,086		5.00	%		686,407		11.33	%	484,459		8.00	%	605,574		10.00	%	635,853		10.50	%

Leverage ratio
Consolidated														638,678		8.58	%	297,668		4.00	%	N/A		N/A		297,668		4.00	%
First Financial Bank														625,097		8.41	%	297,270		4.00	%	371,587		5.00	%	297,270		4.00	%

The following table presents the actual and required capital amounts and ratios as of December 31, 2014 under the regulatory capital rules then in effect.


	Actual				For capital adequacy purposes				To be well capitalized under prompt corrective action provisions				Actual				Minimum required for capital adequacy purposes				Required to be considered well capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Capital amount		Ratio		Capital amount		Ratio		Capital amount		Ratio
December 31, 2013
December 31, 2014
Tier 1 capital to risk-weighted assets
Consolidated													$	673,955	12.69	%	$	212,463	4.00	%	N/A		N/A
First Financial Bank													602,133		11.38	%	211,724		4.00	%	$	317,585	6.00	%

Total capital to risk-weighted assets
Consolidated	$	679,074	15.88	%	$	342,092	8.00	%	N/A		N/A		728,284		13.71	%	424,926		8.00	%	N/A		N/A
First Financial Bank	588,643		13.80	%	341,184		8.00	%	$	426,480	10.00	%	662,865		12.52	%	423,447		8.00	%	529,309		10.00	%

Tier 1 capital to risk-weighted assets
Leverage ratio
Consolidated	624,850		14.61	%	171,046		4.00	%	N/A		N/A		673,955		9.44	%	285,514		4.00	%	N/A		N/A
First Financial Bank	527,712		12.37	%	170,592		4.00	%	255,888		6.00	%	602,133		8.44	%	285,311		4.00	%	356,639		5.00	%

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	%

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Shareholder Dividends. First Financial paid a dividend of ~~$0.15~~$0.16 per common share on October 1, ~~2014~~2015 to shareholders of record as of August ~~29, 2014.~~28, 2015. Additionally, First Financial's board of directors authorized a dividend of $0.16 per common share for the next regularly scheduled dividend, payable on January ~~2, 2015~~4, 2016 to shareholders of record as of ~~November 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.December 4, 2015.

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~~During the ~~plan,~~third quarter of 2015, First Financial repurchased 148,935 shares at an average price of $18.68 per share. At September 30, 2015, 3,600,165 common shares remained available for repurchase under the 2012 share repurchase plan. During the first nine months of 2014, the Company ~~expected to repurchase approximately 1,000,000~~repurchased 40,255 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.~~ at an average price of $17.32 per share.

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 and current regulatory capital ~~requirements and proposed capital requirements under Basel III.~~

As discussed in the Liquidity section, the Company repurchased 40,255 shares under the 2012 share repurchase plan during the first nine months of 2014 at an average price of $17.32 per share and 750,145 shares at an average price of $15.70 per share during 2013. First Financial's board of directors suspended further share repurchase activity under this plan during the first quarter 2014 in connection with the Company's Columbus acquisitions and has continued that suspension during the second and third quarters of 2014.requirements.

AtShareholders' Equity. Total shareholders’ equity at September 30, 2015 was $813.0 million compared to total shareholders’ equity at December 31, 2014~~, 3,749,100 common shares remained available for repurchase under the 2012 share repurchase plan.~~ of $784.1 million.

~~Preferred Stock.~~ ~~During~~For further detail, see the ~~second quarter~~Consolidated Statements 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 time.Changes in Shareholders’ Equity.

RISK MANAGEMENT

First Financial manages risk through a structured ~~enterprise risk management (ERM)~~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~~2014 Annual Report. The sections that follow provide additional discussion related to credit risk and market risk.

CREDIT RISK

Credit risk represents the risk of loss due to failure of a customer or counterparty to meet its financial obligations in accordance with contractual terms. First Financial manages credit risk through its underwriting process, periodically reviewing and approving its credit exposures using credit policies and guidelines approved by its board of directors.

Allowance for loan and lease ~~losses - excluding covered loans.~~losses. 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)~~ALLL at a level considered sufficient to absorb probable loan and lease losses inherent in the portfolio.

The ~~allowance~~ALLL was ~~$42.5~~$53.3 million as of September 30, ~~2014 compared to $43.8~~2015 and $52.9 million as of December 31, ~~2013.~~2014. As a percentage of period-end loans, the ~~allowance~~ALLL was ~~0.95%~~1.02% as of September 30, ~~2014~~2015 compared to ~~1.25%~~1.11% as of December 31, ~~2013.~~2014. The ~~decrease in the allowance~~ALLL was relatively unchanged from December 31, ~~2013 was primarily the result of continued improvement in~~2014, consistent with 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.stable overall credit outlook.

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 allowanceALLL as a percentage of nonaccrual loans, including nonaccrual TDRs was ~~101.9%~~149.3% at September 30, ~~2014~~2015 compared with ~~116.6%~~109.1% at December 31, ~~2013.~~2014. The ~~allowance~~ALLL as a percentage of nonperforming loans, which include accruing TDRs, ~~was 77.2% at~~increased to 95.3% as of September 30, ~~2014~~2015 compared with ~~83.2% at~~82.1% as of December 31, ~~2013. The declines~~2014 due to a $8.5 million, or 13.1% decrease in ~~these allowance coverage ratios were driven by the addition of the acquired Columbus loans during the third quarter.~~nonperforming loans.

Third quarter ~~2014~~2015 net charge-offs were ~~$0.7~~$2.2 million or ~~0.07%~~0.17% of average loans and leases on an annualized basis, compared ~~with $2.9~~to net charge-offs of $1.4 million or ~~0.34%~~0.12% of average loans and leases on an annualized basis for the comparable quarter in ~~2013.~~2014. The ~~$2.3~~$0.8 million ~~decrease~~increase in net charge-offs from the comparable period in ~~2013~~2014 was primarily the result of ~~reduced~~higher charge-offs of commercial loans and

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lower recoveries on commercial and commercial real estate loans, partially offset by ~~a decline in~~lower charge-offs on commercial real estate loans and higher recoveries on residential real estate loans ~~previously charged-off.~~ during the period.

Provision expense is a product of the Company's ~~allowance for loan and lease losses~~ALLL model, as well as net charge-off activity during the period. Third quarter ~~2014~~2015 provision expense was ~~$1.1~~$2.6 million compared to ~~$1.4~~$0.9 million during the comparable quarter in ~~2013.~~2014. Provision expense was ~~$2.3~~$7.8 million ~~and $6.9~~compared to a negative $0.5 million for the nine months ended September 30, 2015 and 2014, ~~and 2013,~~ respectively.

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See Note ~~6 to the Consolidated Financial Statements,~~5 - Allowance for Loan and Lease Losses in the Notes to Consolidated Financial Statements, for further discussion of First Financial's ~~allowance for uncovered loans.~~ALLL.

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


	Three months ended															Nine months ended						Three months ended															Nine months ended
	2014									2013						September 30,						2015									2014						September 30,
(Dollars in thousands)	Sep. 30,			June 30,			Mar. 31,			Dec. 31,			Sep. 30,			2014			2013			Sep. 30			June 30,			Mar. 31,			Dec. 31,			Sep. 30			2015			2014
Allowance for loan and lease loss activity	Allowance for loan and lease loss activity																					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		$	52,876		$	53,076		$	52,858		$	53,989		$	54,452		$	52,858		$	62,730
Provision for loan losses	1,093			29			1,159			1,851			1,413			2,281			6,863			2,647			3,070			2,060			2,052			893			7,777			(524		)
Gross charge-offs
Commercial	83			571			656			293			1,482			1,310			3,122			1,808			1,256			1,567			2,992			953			4,631			6,164
Real estate-construction	0			0			0			1			0			0			0			85			0			0			111			8			85			1,237
Real estate-commercial	702			699			543			3,113			2,174			1,944			5,213			1,082			2,716			1,870			983			2,323			5,668			8,495
Real estate-residential	161			283			257			218			249			701			798			288			755			406			249			505			1,449			1,205
Installment	63			14			128			39			99			205			296			155			59			166			92			310			380			513
Home equity	469			383			544			706			411			1,396			1,703			268			249			741			1,054			432			1,258			1,720
All other	338			237			296			398			696			871			1,383			276			237			294			287			338			807			871
Total gross charge-offs	1,816			2,187			2,424			4,768			5,111			6,427			12,515			3,962			5,272			5,044			5,768			4,869			14,278			20,205
Recoveries
Commercial	566			580			39			194			92			1,185			478			374			326			2,183			233			1,703			2,883			4,536
Real estate-construction	0			0			0			46			490			0			626			87			17			45			41			202			149			340
Real estate-commercial	323			334			114			634			1,264			771			1,360			691			1,105			491			2,004			1,065			2,287			5,613
Real estate-residential	34			100			27			96			98			161			107			237			43			64			33			35			344			498
Installment	46			50			77			66			57			173			244			94			68			85			92			76			247			266
Home equity	46			37			103			136			95			186			372			236			372			289			71			297			897			440
All other	135			61			99			60			69			295			202			52			71			45			111			135			168			295
Total recoveries	1,150			1,162			459			1,232			2,165			2,771			3,389			1,771			2,002			3,202			2,585			3,513			6,975			11,988
Total net charge-offs	666			1,025			1,965			3,536			2,946			3,656			9,126			2,191			3,270			1,842			3,183			1,356			7,303			8,217
Ending allowance for loan and lease losses	$	42,454		$	42,027		$	43,023		$	43,829		$	45,514		$	42,454		$	45,514		$	53,332		$	52,876		$	53,076		$	52,858		$	53,989		$	53,332		$	53,989

Net charge-offs to average loans and leases (annualized)	Net charge-offs to average loans and leases (annualized)																					Net charge-offs to average loans and leases (annualized)
Commercial	(0.16		)%	0.00		%	0.24		%	0.04		%	0.59		%	0.01		%	0.39		%	0.39		%	0.28		%	(0.19		)%	0.85		%	(0.24		)%	0.17		%	0.19		%
Real estate-construction	0.00		%	0.00		%	0.00		%	(0.23		)%	(2.09		)%	0.00		%	(0.94		)%	0.00		%	(0.03		)%	(0.08		)%	0.14		%	(0.50		)%	(0.04		)%	1.03		%
Real estate-commercial	0.09		%	0.10		%	0.12		%	0.66		%	0.24		%	0.10		%	0.36		%	0.07		%	0.31		%	0.26		%	(0.19		)%	0.26		%	0.21		%	0.21		%
Real estate-residential	0.13		%	0.20		%	0.26		%	0.14		%	0.17		%	0.19		%	0.28		%	0.04		%	0.57		%	0.28		%	0.17		%	0.39		%	0.30		%	0.21		%
Installment	0.15		%	(0.33		)%	0.45		%	(0.22		)%	0.33		%	0.09		%	0.13		%	0.58		%	(0.08		)%	0.72		%	0.00		%	1.86		%	0.41		%	0.66		%
Home equity	0.42		%	0.37		%	0.48		%	0.60		%	0.34		%	0.42		%	0.48		%	0.03		%	(0.11		)%	0.40		%	0.85		%	0.12		%	0.10		%	0.40		%
All other	0.72		%	0.61		%	0.70		%	1.20		%	2.27		%	0.67		%	1.63		%	0.72		%	0.55		%	0.87		%	0.62		%	0.70		%	0.71		%	0.66		%
Total net charge-offs	0.07		%	0.11		%	0.23		%	0.41		%	0.34		%	0.13		%	0.37		%	0.17		%	0.27		%	0.16		%	0.27		%	0.12		%	0.20		%	0.27		%

~~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

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 the Company's 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 monitors the Company's interest rate risk position using income simulation models and ~~economic value of equity (EVE)~~EVE sensitivity analyses that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting ~~net interest income (NII)~~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. For both NII and EVE modeling, First Financial leverages instantaneous parallel shocks to evaluate interest rate risk exposure across rising and falling rate scenarios Additional scenarios evaluated include implied market forward rate forecasts and various non-parallel yield curve twists.

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

Non-maturity deposit modeling is particularly dependent on the assumption for repricing sensitivity known as a beta. Beta is the amount by which First Financial’s interest bearing non-maturity deposit rates will increase when short-term interest rates rise. The Company applied a weighted average deposit beta of 55%. First Financial ~~continues to refine~~also includes an assumption for the ~~assumptions used in its interest~~migration of non-maturity deposit balances into CDs for all upward rate ~~risk modeling.~~scenarios beginning with the +200 BP scenario, thereby increasing deposit costs and reducing asset sensitivity.

Presented below is the estimated impact on First Financial’s NII and EVE position as of September 30, ~~2014~~,2015, assuming immediate, parallel shifts in interest rates:


	% Change from base case for immediate parallel changes in rates						% Change from base case for immediate parallel changes in rates
	-100 BP ⁽¹⁾		+100 BP		+200 BP		-100 BP ⁽¹⁾		+100 BP		+200 BP
NII-Year 1	(3.70	)%	(1.34	)%	(0.56	)%	(4.53	)%	(0.19	)%	1.04	%
NII-Year 2	(2.86	)%	0.96	%	2.51	%	(6.24	)%	1.72	%	4.08	%
EVE	(5.20	)%	(1.96	)%	(0.85	)%	(5.50	)%	(0.63	)%	1.10	%

(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~~Financial was within all internal policy limits set for interest rate risk monitoring as of September 30, 2015. Projected results for ~~both~~ NII and EVE became ~~modestly~~ more asset sensitive during the third quarter ~~2014. This was primarily the~~2015 as a result of ~~growth in floating~~the issuance of the fixed rate ~~securities in the investment portfolio~~subordinated notes and the ~~continued execution~~acquisition 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.~~Oak Street, which increased floating-rate loan balances. First Financial continues to manage its balance sheet with a bias toward asset sensitivity while simultaneously balancing the potential earnings impact of this strategy.

First Financial continually evaluates the sensitivity of its interest rate risk position to modeling assumptions. The table that follows reflects First Financial’s estimated NII sensitivity profile as of September 30, 2015 assuming both a 25% increase and decrease to the managed rate deposit beta assumption:

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	Beta sensitivity (% change from base)
	+100 BP				+200 BP
	Beta 25% lower		Beta 25% higher		Beta 25% lower		Beta 25% higher
NII-Year 1	1.19	%	(1.58	)%	3.03	%	(0.97	)%
NII-Year 2	3.41	%	0.02	%	6.41	%	1.74	%

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

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~~acquired 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 ~~2013~~2014 Annual Report. There were no material changes to these accounting policies during the nine months ended September 30, ~~2014~~.2015.

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ACCOUNTING AND REGULATORY MATTERS

Note 2 ~~to the Consolidated Financial Statements,~~- Recently Adopted and Issued Accounting Standards in the Notes to Consolidated Financial Statements, discusses new accounting standards adopted by First Financial during ~~2014~~2015 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;

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▪

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 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;


▪	the risk that exploring merger and acquisition opportunities may detract from management's time and ability to successfully manage our 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, ~~2013,~~2014, 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk” of this report is incorporated herein by reference in response to this item.

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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.

On August 14, 2015, First Financial acquired Oak Street Holdings Corporation. The internal control over financial reporting of Oak Street's operations were excluded from the evaluation of effectiveness of First Financial's disclosure controls and procedures as of the period end covered by this report as a result of the timing of the acquisition. As a result of the Oak Street acquisition, First Financial will be evaluating changes to processes, information technology systems and other components of internal control over financial reporting as part of its integration activities. The acquired Oak Street operations represents 3.9% of total consolidated assets as of the period covered by this report.

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.

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, ~~2013.~~2014.


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, ~~2013.~~2014.

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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 ~~2014~~. 2015.

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, 2014
July 1 to July 31, 2015
Share repurchase program	0	$	0.00	0	3,749,100	0	$	0.00	0	3,749,100
Director Fee Stock Plan	2,700	16.85		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
August 1 to August 31, 2014
August 1 to August 31, 2015
Share repurchase program	0	$	0.00	0	3,749,100	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	8,850	16.49		N/A	N/A	9,800	19.49		N/A	N/A
September 1 to September 30 2014
September 1 to September 30, 2015
Share repurchase program	0	$	0.00	0	3,749,100	148,935	$	18.68	148,935	3,600,165
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	2,591	18.77		N/A	N/A
Total
Share repurchase program	0	$	0.00	0		148,935	$	18.68	148,935
Director Fee Stock Plan	2,700	$	16.85	N/A		0	$	0.00	N/A
Stock Plans	8,850	$	16.49	N/A		12,391	$	19.34	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.)~~Plans). The table shows the number of shares purchased pursuant to those plans and the average price paid per share. ~~The purchases~~Purchases for the Director Fee Stock Plan were made in open-market ~~transactions.~~transactions directly for each director's account. 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

1,250,900

None

5,000,000

1,399,835

None

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Item 6. Exhibits



(a)	Exhibits:

Exhibit Number
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, ~~2014,~~2015, 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⁾⁽¹⁾

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

(1) ~~Compensation plan(s)~~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 ~~arrangement(s).~~otherwise subject to liability under those sections.


~~(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.

6155

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

Date	11/6/~~2014~~2015	Date	11/6/~~2014~~2015

6256



	Twelve months ended December 31, 2013
			Real Estate
(Dollars in thousands)	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
Provision for loan and lease losses	5,385		(3,115		)	2,659		593		(132		)	1,937		1,387		8,714
Gross charge-offs	3,415		1			8,326		1,016		335			2,409		1,781		17,283
Recoveries	672		672			1,994		203		310			508		262		4,621
Total net charge-offs	2,743		(671		)	6,332		813		25			1,901		1,519		12,662
Ending allowance for loan and lease losses	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Ending allowance on loans individually evaluated for impairment	$	2,080	$	0		$	2,872	$	348	$	0		$	2	$	0	$	5,302
Ending allowance on loans collectively evaluated for impairment	8,488		824			17,606		3,031		365			5,207		3,006		38,527
Ending allowance for loan and lease losses	$	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	$	10,391	$	0		$	18,023	$	3,493	$	122		$	648	$	0	$	32,677
Ending balance of loans collectively evaluated for impairment	1,025,277		80,741			1,478,964		349,438		47,011			375,806		115,727		3,472,964
Total loans - excluding covered loans	$	1,035,668	$	80,741		$	1,496,987	$	352,931	$	47,133		$	376,454	$	115,727	$	3,505,641



	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	)



	Changes for the nine months ended September 30, 2014
	Year-to-date income variance
(Dollars in thousands)	Rate			Volume			Total
Earning assets
Investment securities	$	4,738		$	2,162		$	6,900
Interest-bearing deposits with other banks	6			27			33
Gross loans ⁽¹⁾	(14,980		)	3,792			(11,188		)
Total earning assets	(10,236		)	5,981			(4,255		)
Interest-bearing liabilities
Total interest-bearing deposits	$	811		$	329		$	1,140
Borrowed funds
Short-term borrowings	(147		)	202			55
Federal Home Loan Bank long-term debt	(107		)	(313		)	(420		)
Total borrowed funds	(254		)	(111		)	(365		)
Total interest-bearing liabilities	557			218			775
Net interest income	$	(10,793	)	$	5,763		$	(5,030	)