LOANS (excluding covered loans) | Loans and Leases First Financial offers clients a variety of commercial and consumer loan and lease products with various interest rates and payment terms. Commercial loan categories include commercial and industrial, commercial real estate, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card. Lending activities are primarily concentrated in states where the Bank operates banking centers (Ohio, Indiana and Kentucky). First Financial also offers two nationwide lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that provides loans primarily to insurance agents and brokers that are secured by commissions and cash collateral accounts. Credit quality. To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate ALLL, 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 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 of the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans. The credit grades described above, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter. First Financial considers repayment performance as the best indicator of credit quality for consumer loans. Consumer loans that have principal and interest payments that are past due by 90 days or more are generally classified as nonperforming. Additionally, consumer loans that have been modified in a TDR are classified as nonperforming. Purchased impaired loans are not classified as nonperforming as the loans are considered to be performing under FASB ASC Topic 310-30. Commercial and consumer credit exposure by risk attribute was as follows: As of December 31, 2017 Real Estate (Dollars in thousands) Commercial and industrial Construction Commercial Lease financing Total Pass $ 1,882,464 $ 467,687 $ 2,446,999 $ 88,078 $ 4,885,228 Special Mention 6,226 0 4,436 0 10,662 Substandard 24,053 43 38,656 1,269 64,021 Doubtful 0 0 0 0 0 Total $ 1,912,743 $ 467,730 $ 2,490,091 $ 89,347 $ 4,959,911 Residential real estate Home Equity Installment Credit card Total Performing $ 463,459 $ 489,148 $ 41,331 $ 46,691 $ 1,040,629 Nonperforming 7,932 4,456 255 0 12,643 Total $ 471,391 $ 493,604 $ 41,586 $ 46,691 $ 1,053,272 As of December 31, 2016 Real Estate (Dollars in thousands) Commercial and industrial Construction Commercial Lease financing Total Pass $ 1,725,451 $ 398,155 $ 2,349,662 $ 92,540 $ 4,565,808 Special Mention 18,256 1,258 15,584 108 35,206 Substandard 38,241 21 62,331 460 101,053 Doubtful 0 0 0 0 0 Total $ 1,781,948 $ 399,434 $ 2,427,577 $ 93,108 $ 4,702,067 Residential real estate Home equity Installment Credit card Total Performing $ 491,380 $ 456,314 $ 50,202 $ 43,408 $ 1,041,304 Nonperforming 9,600 4,074 437 0 14,111 Total $ 500,980 $ 460,388 $ 50,639 $ 43,408 $ 1,055,415 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 due date of the scheduled payment. Loan delinquency, including nonaccrual loans, was as follows: As of December 31, 2017 (Dollars in thousands) 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 and industrial $ 755 $ 1,657 $ 5,078 $ 7,490 $ 1,901,821 $ 1,909,311 $ 3,432 $ 1,912,743 $ 0 Lease financing 485 0 0 485 88,862 89,347 0 89,347 0 Construction real estate 234 0 0 234 467,216 467,450 280 467,730 0 Commercial real estate 1,716 201 8,777 10,694 2,419,969 2,430,663 59,428 2,490,091 0 Residential real estate 526 811 1,992 3,329 430,500 433,829 37,562 471,391 0 Home equity 2,716 394 1,753 4,863 485,127 489,990 3,614 493,604 0 Installment 179 29 205 413 40,529 40,942 644 41,586 0 Credit card 285 87 62 434 46,257 46,691 0 46,691 62 Total $ 6,896 $ 3,179 $ 17,867 $ 27,942 $ 5,880,281 $ 5,908,223 $ 104,960 $ 6,013,183 $ 62 As of December 31, 2016 (Dollars in thousands) 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 and industrial $ 1,257 $ 208 $ 1,339 $ 2,804 $ 1,773,939 $ 1,776,743 $ 5,205 $ 1,781,948 $ 0 Lease financing 137 0 115 252 92,856 93,108 0 93,108 0 Construction real estate 0 0 0 0 398,877 398,877 557 399,434 0 Commercial real estate 777 134 5,589 6,500 2,339,327 2,345,827 81,750 2,427,577 2,729 Residential real estate 821 37 2,381 3,239 450,631 453,870 47,110 500,980 0 Home equity 195 145 1,776 2,116 456,143 458,259 2,129 460,388 0 Installment 24 1 258 283 49,058 49,341 1,298 50,639 0 Credit card 457 177 142 776 42,632 43,408 0 43,408 142 Total $ 3,668 $ 702 $ 11,600 $ 15,970 $ 5,603,463 $ 5,619,433 $ 138,049 $ 5,757,482 $ 2,871 Nonaccrual. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan classified as nonaccrual may return to accrual status if 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 provision for loan and lease losses or prospective yield adjustments. Troubled debt restructurings. A loan modification is considered a TDR when the borrower is experiencing financial difficulty and 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. First Financial had 214 TDRs totaling $23.9 million at December 31, 2017 , including $17.5 million of loans on accrual status and $6.4 million of loans 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, and the ALLL included reserves of $1.3 million related to TDRs as of December 31, 2017 . For the years ended December 31, 2017 , 2016 and 2015 , First Financial charged off $0.3 million , $0.5 million and $2.7 million , respectively, for the portion of TDRs determined to be uncollectible. Additionally, as of December 31, 2017 , approximately $17.2 million of the accruing TDRs have been performing in accordance with the restructured terms for more than one year. First Financial had 247 TDRs totaling $35.4 million at December 31, 2016 , including $30.2 million of loans on accrual status and $5.1 million of loans classified as nonaccrual. First Financial had $0.9 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs. At December 31, 2016 the ALLL included reserves of $1.9 million related to TDRs, and $22.6 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year. First Financial had 271 TDRs totaling $38.2 million at December 31, 2015 , including $28.9 million of loans on accrual status and $9.3 million of loans classified as nonaccrual. First Financial had $1.8 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs. At December 31, 2015 , the ALLL included reserves of $6.3 million related to TDRs, and $10.3 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year. The following table provides information on loan modifications classified as TDRs during the years ended December 31, 2017 , 2016 and 2015 : Years ended December 31, 2017 2016 2015 (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 Commercial and industrial 7 $ 5,724 $ 5,661 18 $ 3,402 $ 3,508 33 $ 9,035 $ 8,203 Construction real estate 0 0 0 0 0 0 0 0 0 Commercial real estate 8 1,816 1,758 16 5,200 4,752 18 20,249 16,474 Residential real estate 6 416 315 5 840 787 10 1,292 1,238 Home equity 1 39 39 5 165 156 25 2,859 2,221 Installment 0 0 0 3 9 9 10 97 97 Total 22 $ 7,995 $ 7,773 47 $ 9,616 $ 9,212 96 $ 33,532 $ 28,233 The following table provides information on how TDRs were modified during the years ended December 31, 2017 , 2016 and 2015 : Years Ended December 31, (Dollars in thousands) 2017 2016 2015 Extended maturities $ 3,261 $ 2,571 $ 12,883 Adjusted interest rates 2,767 0 0 Combination of rate and maturity changes 489 3,046 1,244 Forbearance 1,181 88 260 Other (1) 75 3,507 13,846 Total $ 7,773 $ 9,212 $ 28,233 (1) Other includes covenant modifications and other concessions or combination of concessions that do not consist of interest rate adjustments, forbearance and maturity extensions. First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications. Borrowers that are 90 days or more past due on any principal or interest payments, or who prematurely terminate a restructured loan agreement without paying off the contractual principal balance (for example, in a deed-in-lieu arrangement), are considered to be in payment default of the terms of the TDR agreement. For the twelve months ended December 31, 2017 , 2016 and 2015 , there were one , four and ten TDRs, respectively, with balances of $1.5 million , $0.3 million and $1.6 million , respectively, for which there was a payment default during the period that occurred within twelve months of the loan modification. Impaired loans. Loans classified as nonaccrual and loans modified as TDRs are considered impaired. The following table provides information on impaired loans, excluding purchased impaired loans, as of December 31: (Dollars in thousands) 2017 2016 2015 Impaired loans Nonaccrual loans (1) Commercial and industrial $ 5,229 $ 2,419 $ 8,405 Lease financing 82 195 122 Construction real estate 29 0 0 Commercial real estate 10,616 6,098 9,418 Residential real estate 4,140 5,251 5,027 Home equity 3,743 3,400 4,898 Installment 243 367 127 Total nonaccrual loans 24,082 17,730 27,997 Accruing troubled debt restructurings 17,545 30,240 28,876 Total impaired loans $ 41,627 $ 47,970 $ 56,873 Interest income effect Gross amount of interest that would have been recorded under original terms $ 3,397 $ 2,848 $ 3,595 Interest included in income Nonaccrual loans 535 375 475 Troubled debt restructurings 710 876 682 Total interest included in income 1,245 1,251 1,157 Net impact on interest income $ 2,152 $ 1,597 $ 2,438 Commitments outstanding to borrowers with nonaccrual loans $ 0 $ 0 $ 1 (1) Nonaccrual loans include nonaccrual TDRs of $6.4 million , $5.1 million and $9.3 million as of December 31, 2017 , 2016 and 2015 , respectively. First Financial individually reviews all impaired commercial loan relationships greater than $250,000 , as well as consumer loan TDRs greater than $250,000 , 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 discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans. First Financial's investment in impaired loans, excluding purchased impaired loans, is as follows: December 31, 2017 December 31, 2016 (Dollars in thousands) Current balance Contractual principal balance Related allowance Current balance Contractual Related Loans with no related allowance recorded Commercial and industrial $ 7,162 $ 8,460 $ 0 $ 12,134 $ 12,713 $ 0 Lease financing 82 82 0 195 195 0 Construction real estate 29 60 0 0 0 0 Commercial real estate 18,423 20,837 0 12,232 14,632 0 Residential real estate 6,876 8,145 0 8,412 9,648 0 Home equity 4,356 5,399 0 3,973 5,501 0 Installment 255 422 0 437 603 0 Total 37,183 43,405 0 37,383 43,292 0 Loans with an allowance recorded Commercial and industrial 169 169 169 1,069 1,071 550 Lease financing 0 0 0 0 0 0 Construction real estate 0 0 0 0 0 0 Commercial real estate 3,119 3,120 448 8,228 8,277 593 Residential real estate 1,056 1,063 160 1,189 1,189 179 Home equity 100 100 2 101 101 2 Installment 0 0 0 0 0 0 Total 4,444 4,452 779 10,587 10,638 1,324 Total Commercial and industrial 7,331 8,629 169 13,203 13,784 550 Lease financing 82 82 0 195 195 0 Construction real estate 29 60 0 0 0 0 Commercial real estate 21,542 23,957 448 20,460 22,909 593 Residential real estate 7,932 9,208 160 9,601 10,837 179 Home equity 4,456 5,499 2 4,074 5,602 2 Installment 255 422 0 437 603 0 Total $ 41,627 $ 47,857 $ 779 $ 47,970 $ 53,930 $ 1,324 Years ended December 31, 2017 2016 2015 (Dollars in thousands) Average balance Interest Average balance Interest income recognized Average Interest Loans with no related allowance recorded Commercial and industrial $ 13,167 $ 280 $ 13,619 $ 309 $ 10,468 $ 258 Lease financing 112 4 150 3 24 0 Construction real estate 601 1 0 0 150 0 Commercial real estate 20,935 563 14,252 357 19,363 344 Residential real estate 7,616 196 7,752 199 8,143 184 Home equity 4,032 99 4,830 86 5,648 82 Installment 332 4 366 7 380 7 Total 46,795 1,147 40,969 961 44,176 875 Loans with an allowance recorded Commercial and industrial 1,204 28 1,098 37 1,409 26 Lease financing 0 0 214 8 0 0 Construction real estate 0 0 0 0 0 0 Commercial real estate 2,634 40 7,792 211 12,928 213 Residential real estate 1,112 26 1,374 30 1,696 40 Home equity 101 4 101 4 101 3 Installment 0 0 0 0 0 0 Total 5,051 98 10,579 290 16,134 282 Total Commercial and industrial 14,371 308 14,717 346 11,877 284 Lease financing 112 4 364 11 24 0 Construction real estate 601 1 0 0 150 0 Commercial real estate 23,569 603 22,044 568 32,291 557 Residential real estate 8,728 222 9,126 229 9,839 224 Home equity 4,133 103 4,931 90 5,749 85 Installment 332 4 366 7 380 7 Total $ 51,846 $ 1,245 $ 51,548 $ 1,251 $ 60,310 $ 1,157 OREO. OREO is comprised of properties acquired by the Company primarily through the loan foreclosure or repossession process, or other resolution activities that result in partial or total satisfaction of problem loans. Changes in OREO were as follows: Years ended December 31, (Dollars in thousands) 2017 2016 2015 Balance at beginning of year $ 6,284 $ 13,254 $ 22,674 Additions Commercial 1,732 1,850 5,187 Residential 2,387 1,022 3,211 Total additions 4,119 2,872 8,398 Disposals Commercial (5,409 ) (6,993 ) (12,722 ) Residential (1,574 ) (2,363 ) (3,095 ) Total disposals (6,983 ) (9,356 ) (15,817 ) Valuation adjustments Commercial (439 ) (345 ) (1,617 ) Residential (200 ) (141 ) (384 ) Total valuation adjustments (639 ) (486 ) (2,001 ) Balance at end of year $ 2,781 $ 6,284 $ 13,254 FDIC indemnification asset. The FDIC indemnification asset results from the loss sharing agreements entered into in conjunction with First Financial's FDIC-assisted transactions, and represents expected reimbursements from the FDIC for losses on covered assets. First Financial's FDIC indemnification asset balance was $1.9 million and $12.0 million as of December 31, 2017 and 2016 , respectively. 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. In December 2017, First Financial reached a preliminary agreement with the FDIC to early terminate its loss sharing agreements. As such, First Financial recorded a $5.1 million impairment charge to its indemnification asset as a component of noninterest expense as all future recoveries, gains, losses and expenses related to these previously covered assets will now be recognized entirely by First Financial given the FDIC will no longer share in such gains or losses. |