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 C&I, CRE, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card. Lending activities are primarily concentrated in states where the Bank operates banking centers (Ohio, Indiana, Kentucky and Illinois). First Financial also offers two nationwide lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that 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 previously described are derived from standard regulatory rating definitions and are assigned upon initial approval of credit to borrowers and updated periodically thereafter. First Financial considers repayment performance 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, 2018 Real Estate (Dollars in thousands) Commercial & industrial Construction Commercial Lease financing Total Pass $ 2,432,834 $ 548,323 $ 3,664,434 $ 90,902 $ 6,736,493 Special Mention 24,594 603 38,653 0 63,850 Substandard 57,233 9 51,594 2,513 111,349 Doubtful 0 0 0 0 0 Total $ 2,514,661 $ 548,935 $ 3,754,681 $ 93,415 $ 6,911,692 Residential real estate Home Equity Installment Credit card Total Performing $ 939,936 $ 811,108 $ 93,038 $ 46,382 $ 1,890,464 Nonperforming 15,710 6,174 174 0 22,058 Total $ 955,646 $ 817,282 $ 93,212 $ 46,382 $ 1,912,522 As of December 31, 2017 Real Estate (Dollars in thousands) Commercial & 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 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, 2018 (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 & industrial $ 13,369 $ 41 $ 7,423 $ 20,833 $ 2,488,450 $ 2,509,283 $ 5,378 $ 2,514,661 $ 0 Lease financing 352 0 0 352 93,063 93,415 0 93,415 0 Construction real estate 0 0 0 0 548,687 548,687 248 548,935 0 Commercial real estate 6,279 1,158 12,644 20,081 3,682,455 3,702,536 52,145 3,754,681 0 Residential real estate 11,060 2,976 4,535 18,571 902,404 920,975 34,671 955,646 0 Home equity 5,245 1,228 2,578 9,051 804,835 813,886 3,396 817,282 0 Installment 420 37 145 602 92,128 92,730 482 93,212 0 Credit card 541 96 63 700 45,682 46,382 0 46,382 63 Total $ 37,266 $ 5,536 $ 27,388 $ 70,190 $ 8,657,704 $ 8,727,894 $ 96,320 $ 8,824,214 $ 63 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 & 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 Nonaccrual. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan classified as nonaccrual may return to accrual status if none of the principal and interest is due and unpaid, and the Bank expects repayment of the remaining contractual principal and interest. 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 196 TDRs totaling $38.5 million at December 31, 2018 , including $16.1 million of loans on accrual status and $22.4 million of loans classified as nonaccrual. First Financial had no commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ALLL included reserves of $1.5 million related to TDRs as of December 31, 2018 . For the years ended December 31, 2018 , 2017 and 2016 , First Financial charged off $0.9 million , $0.3 million and $0.5 million , respectively, for the portion of TDRs determined to be uncollectible. Additionally, as of December 31, 2018 , approximately $7.9 million of the accruing TDRs have been performing in accordance with the restructured terms for more than one year. 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. At December 31, 2017 the ALLL included reserves of $1.3 million related to TDRs, and $17.2 million of the accruing TDRs had 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. The following table provides information on loan modifications classified as TDRs during the years ended December 31, 2018 , 2017 and 2016 : Years ended December 31, 2018 2017 2016 (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 & industrial 17 $ 23,943 $ 23,890 7 $ 5,724 $ 5,661 18 $ 3,402 $ 3,508 Construction real estate 0 0 0 0 0 0 0 0 0 Commercial real estate 8 3,385 3,150 8 1,816 1,758 16 5,200 4,752 Residential real estate 13 1,148 1,073 6 416 315 5 840 787 Home equity 5 95 192 1 39 39 5 165 156 Installment 0 0 0 0 0 0 3 9 9 Total 43 $ 28,571 $ 28,305 22 $ 7,995 $ 7,773 47 $ 9,616 $ 9,212 The following table provides information on how TDRs were modified during the years ended December 31, 2018 , 2017 and 2016 : Years Ended December 31, (Dollars in thousands) 2018 2017 2016 Extended maturities $ 4,093 $ 3,261 $ 2,571 Adjusted interest rates 52 2,767 0 Combination of rate and maturity changes 0 489 3,046 Forbearance 23,175 1,181 88 Other (1) 985 75 3,507 Total $ 28,305 $ 7,773 $ 9,212 (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, 2018 , there was one TDR with an insignificant balance for which there was a payment default during the period that occurred within twelve months of the loan modification. For the twelve months ended December 31, 2017 and 2016 , there was one TDR and four TDRs, respectively, with balances of $1.5 million and $0.3 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) 2018 2017 2016 Impaired loans Nonaccrual loans (1) Commercial & industrial $ 30,925 $ 5,229 $ 2,419 Lease financing 22 82 195 Construction real estate 9 29 0 Commercial real estate 20,500 10,616 6,098 Residential real estate 13,495 4,140 5,251 Home equity 5,580 3,743 3,400 Installment 169 243 367 Total nonaccrual loans 70,700 24,082 17,730 Accruing troubled debt restructurings 16,109 17,545 30,240 Total impaired loans $ 86,809 $ 41,627 $ 47,970 Interest income effect Gross amount of interest that would have been recorded under original terms $ 4,656 $ 3,397 $ 2,848 Interest included in income Nonaccrual loans 715 535 375 Troubled debt restructurings 642 710 876 Total interest included in income 1,357 1,245 1,251 Net impact on interest income $ 3,299 $ 2,152 $ 1,597 Commitments outstanding to borrowers with nonaccrual loans $ 200 $ 0 $ 0 (1) Nonaccrual loans include nonaccrual TDRs of $22.4 million , $6.4 million and $5.1 million as of December 31, 2018 , 2017 and 2016 , 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, 2018 December 31, 2017 (Dollars in thousands) Current balance Contractual principal balance Related allowance Current balance Contractual Related Loans with no related allowance recorded Commercial & industrial $ 36,694 $ 42,561 $ 0 $ 7,162 $ 8,460 $ 0 Lease financing 22 22 0 82 82 0 Construction real estate 9 26 0 29 60 0 Commercial real estate 23,513 31,375 0 18,423 20,837 0 Residential real estate 17,297 19,975 0 6,876 8,145 0 Home equity 6,351 7,461 0 4,356 5,399 0 Installment 174 563 0 255 422 0 Total 84,060 101,983 0 37,183 43,405 0 Loans with an allowance recorded Commercial & industrial 939 939 667 169 169 169 Lease financing 0 0 0 0 0 0 Construction real estate 0 0 0 0 0 0 Commercial real estate 1,509 1,509 461 3,119 3,120 448 Residential real estate 301 301 32 1,056 1,063 160 Home equity 0 0 0 100 100 2 Installment 0 0 0 0 0 0 Total 2,749 2,749 1,160 4,444 4,452 779 Total Commercial & industrial 37,633 43,500 667 7,331 8,629 169 Lease financing 22 22 0 82 82 0 Construction real estate 9 26 0 29 60 0 Commercial real estate 25,022 32,884 461 21,542 23,957 448 Residential real estate 17,598 20,276 32 7,932 9,208 160 Home equity 6,351 7,461 0 4,456 5,499 2 Installment 174 563 0 255 422 0 Total $ 86,809 $ 104,732 $ 1,160 $ 41,627 $ 47,857 $ 779 Years ended December 31, 2018 2017 2016 (Dollars in thousands) Average balance Interest Average balance Interest income recognized Average Interest Loans with no related allowance recorded Commercial & industrial $ 14,498 $ 360 $ 13,167 $ 280 $ 13,619 $ 309 Lease financing 21 0 112 4 150 3 Construction real estate 20 2 601 1 0 0 Commercial real estate 24,738 490 20,935 563 14,252 357 Residential real estate 11,359 301 7,616 196 7,752 199 Home equity 5,541 114 4,032 99 4,830 86 Installment 274 2 332 4 366 7 Total 56,451 1,269 46,795 1,147 40,969 961 Loans with an allowance recorded Commercial & industrial 900 44 1,204 28 1,098 37 Lease financing 0 0 0 0 214 8 Construction real estate 0 0 0 0 0 0 Commercial real estate 1,402 18 2,634 40 7,792 211 Residential real estate 895 23 1,112 26 1,374 30 Home equity 80 3 101 4 101 4 Installment 0 0 0 0 0 0 Total 3,277 88 5,051 98 10,579 290 Total Commercial & industrial 15,398 404 14,371 308 14,717 346 Lease financing 21 0 112 4 364 11 Construction real estate 20 2 601 1 0 0 Commercial real estate 26,140 508 23,569 603 22,044 568 Residential real estate 12,254 324 8,728 222 9,126 229 Home equity 5,621 117 4,133 103 4,931 90 Installment 274 2 332 4 366 7 Total $ 59,728 $ 1,357 $ 51,846 $ 1,245 $ 51,548 $ 1,251 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) 2018 2017 2016 Balance at beginning of year $ 2,781 $ 6,284 $ 13,254 Additions Commercial 1,269 1,732 1,850 Residential 1,913 2,387 1,022 Total additions 3,182 4,119 2,872 Disposals Commercial (2,967 ) (5,409 ) (6,993 ) Residential (830 ) (1,574 ) (2,363 ) Total disposals (3,797 ) (6,983 ) (9,356 ) Valuation adjustments Commercial (355 ) (439 ) (345 ) Residential (410 ) (200 ) (141 ) Total valuation adjustments (765 ) (639 ) (486 ) Balance at end of year $ 1,401 $ 2,781 $ 6,284 |