2019
Annual Report
TRANSFORMING
OUR
BUSINESS
Dear Fellow Shareholders,
The past year was transformational for First Financial
Bancorp. With the completion of the MainSource merger in
2018, First Financial emerged as a $10+ billion company,
raising our profile within the industry and assuming new
responsibilities to shareholders, regulators, and the clients and
communities we serve.
Transformation is never simple. It presents challenges to our
people, processes, and the products and services we offer.
I’m pleased to report that we rose to the challenge and
emerged as a stronger bank, better positioned to compete,
innovate, and win.
2019 Highlights
First Financial’s 2019 achievements are evidenced by
important developments internally, in the services we offer,
and in the ways with which we engage our clients:
The roll out of our Corporate Strategic Plan, setting clear
direction for our planning efforts and aligning our people
with the core tenets of our business
Investments in key talent, adding high-quality associates in
strategic roles to drive innovation and growth
The formation of our Digital Solutions Group, the creation
of a three-year digital roadmap, and the rollout of new
technologies that enable improved online business and
retail mortgage lending capabilities
The acquisition of Bannockburn Global Forex, adding
foreign currency hedging, advising, and trading capabilities
to our specialty services offerings
“
we must be in the right
place at the right time
with the right advice
and solutions to help
our clients
in technology, and in the social, economic, and political
conditions that impact our key stakeholders.
We must be in the right place at the right time with the
right advice and solutions to help our clients along their
financial journeys. This means understanding the needs of
our clients on an instinctive level. We will immerse ourselves
into client segments, working to understand the economic,
social, and psychographic nuances of Low and Moderate
Income, Mass Affluent, and High Net Worth individuals and
families. Similarly, we continue to develop specialized skills in
understanding the specific needs of Corporate, Middle Market,
Commercial, and Small Business clients, responding to – and
ultimately anticipating – needs in ways that keep businesses
moving forward on their journeys. We will take the concept
of an advisor to an entirely new level, leveraging data to
better understand needs and trends, removing friction, and
making the First Financial banking experience easier and
more pleasing than any financial relationship our clients have
ever had.
The opening of our 4th & Vine Innovation Center in
Cincinnati, providing a new distribution approach for
banking services, innovation, and financial wellness
Client centric. Ready to engage. Delivering expert advice and
solutions. This is where we’re going in 2020. This is the next
stage in First Financial Bank’s transformation.
The renovation of our Greensburg Operations Center and
our commitment of $500,000 in support of the capital
campaign to expand the Greensburg, IN YMCA with a
Decatur County Memorial Hospital wellness facility
A $1 million donation to the Cincinnati USA Regional
Chamber’s Minority Business Accelerator to help continue
the development of sizable minority businesses in the
Greater Cincinnati area
Financially, 2019 was another successful year for First
Financial. The year was highlighted by record earnings, top-
quartile returns, and shareholder-focused capital actions
despite headwinds from Fed rate cuts, legislatively mandated
reductions in interchange revenue, and increased credit costs.
This success is a direct reflection of the resolve and dedication
of our associates, who continue to deliver unparalleled service
to our clients and return to our shareholders.
What’s Ahead In 2020
With a strong foundation firmly established, we move forward
in 2020 with specific execution plans that continue our
transformation. We will adapt to changes in our markets,
Thank you for your continued support.
Archie M. Brown
President & Chief Executive Officer
117 CONSECUTIVE
QUARTERS OF
PROFITABILITY
156 YEARS OF
STRENGTH &
STABILITY
Net Income
(dollars in millions)
$198.1
$172.6
$96.8
$88.5
$75.1
2015
2016
2017
2018
2019
Total Loans
(dollars in billions)
$9.2
$8.8
Total Deposits
(dollars in billions)
$10.1
$10.2
Total Assets
(dollars in billions)
$14.5
$14.0
$6.0
$5.8
$5.4
$6.5
$6.2
$6.9
$8.1
$8.4
$8.9
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Earnings Per Share
$2.00
Return On Assets
$1.93
1.37%
1.39%
Return On Equity
10.48%
10.78%
9.33%
9.85%
9.11%
$1.56
$1.43
$1.21
1.12%
1.07%
1.00%
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Leadership
Senior Management
Archie M. Brown
President and Chief Executive Officer
John M. Gavigan
Chief Operating Officer
James M. Anderson
Chief Financial Officer
William R. Harrod
Chief Credit Officer
Amanda N. Neeley
Chief Strategy Officer
James R. Shank
Chief Internal Auditor
Karen B. Woods
General Counsel and
Chief Risk Officer
Andrew K. Hauck
Chief Commercial Banking Officer
Catherine M. Myers
Chief Consumer Banking Officer
Scott T. Crawley
Corporate Controller and
Principal Accounting Officer
Richard S. Dennen
President, Oak Street Funding
Board of Directors
Claude E. Davis
Board Chair, First Financial Bancorp
Managing Director
Brixey and Meyer Capital
J. Wickliffe Ach
Lead Independent Director
Board of Directors of First Financial Bancorp
Kathleen L. Bardwell
Senior Vice President, Chief Compliance Officer
STERIS Corporation
William G. Barron
Chairman and President
William G. Barron Enterprises
Vincent A. Berta
President and Managing Director
Covington Capital, LLC
Cynthia O. Booth
President and Chief Executive Officer
COBCO Enterprises, LLC
Archie M. Brown
President and Chief Executive Officer
First Financial Bancorp and First Financial Bank
Corinne R. Finnerty
Principal
McConnell Finnerty PC
Erin P. Hoeflinger
Senior Vice President, Business Strategy and Execution
Aetna
Susan L. Knust
Owner and President
Omega Warehouse Services
William J. Kramer
Vice President of Operations
Valco Companies, Inc.
John T. Neighbours
General Counsel
AmeriQual Group Holdings
Thomas M. O’Brien
Senior Advisor
Boston Consulting Group
Richard E. Olszewski
Owner/Operator
7 Eleven Food Stores
Maribeth S. Rahe
President and Chief Executive Officer
Fort Washington Investment Advisors, Inc.
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
Earnings
Net interest income
Net income
Per Share
Net income per common share-basic
Net income per common share-diluted
Cash dividends declared per common share
Tangible book value per common share (end of year)
Market price (end of year)
Balance Sheet - End of Year
Total assets
Loans
Investment securities
Deposits
Shareholders' equity
Ratios
Return on average assets
Return on average shareholders' equity
Return on average tangible shareholders' equity
Net interest margin
Net interest margin (fully tax equivalent)
2019
2018
% Change
7.8 %
14.8 %
3.1 %
3.6 %
15.4 %
6.0 %
7.3 %
3.8 %
4.3 %
(6.1)%
0.7 %
8.2 %
$
484,254
$
449,235
198,075
172,595
$
2.01
2.00
0.90
12.42
25.44
$
1.95
1.93
0.78
11.72
23.72
$ 14,511,625
$ 13,986,660
9,201,665
3,119,966
10,210,229
2,247,705
8,824,214
3,324,243
10,140,394
2,078,249
1.39%
9.11%
16.32%
3.95%
4.00%
1.37%
9.85%
17.32%
4.05%
4.10%
First Financial Bancorp 2019 Annual Report 1
2019 Financial Highlights
2 First Financial Bancorp 2019 Annual Report
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.
ABL
ACL
the Act
AFS
ALLL
AOCI
ASC
ASU
ATM
Bank
Basel III
BGF or
Bannockburn
Bp/bps
BOLI
CDs
CECL
C&I
CLOs
CMOs
CRE
Asset based lending
Allowance for credit losses
Private Securities Litigation Reform Act
Available-for-sale
Allowance for loan and lease losses
Accumulated other comprehensive income
Accounting standards codification
Accounting standards update
Automated teller machine
First Financial Bank
Basel Committee regulatory capital reforms, Third
Basel Accord
Bannockburn Global Forex, LLC
Basis point(s)
Bank owned life insurance
Certificates of deposit
Current Expected Credit Loss
Commercial & industrial
Collateralized loan obligations
Collateralized mortgage obligations
Commercial real estate
Company
First Financial Bancorp.
ERM
EVE
Enterprise Risk Management
Economic value of equity
FHLMC
Federal Home Loan Mortgage Corporation
First Financial
First Financial Bancorp.
FNMA
Form 10-K
FRB
GAAP
GDP
GNMA
HTM
Federal National Mortgage Association
First Financial Bancorp. Annual Report on Form 10-K
Federal Reserve Bank
U.S. Generally Accepted Accounting Principles
Gross Domestic Product
Government National Mortgage Association
Held-to-maturity
Insignificant
Less than $0.1 million
IRLC
MBSs
MSFG
N/A
NII
N/M
Interest Rate Lock Commitment
Mortgage-backed securities
MainSource Financial Group, Inc.
Not applicable
Net interest income
Not meaningful
Oak Street
Oak Street Holdings Corporation
ODFI
OREO
PCA
ROU
SEC
Ohio Department of Financial Institutions
Other real estate owned
Prompt corrective action
Right-of-use
United States Securities and Exchange Commission
Topic 842
FASB ASC Topic 842, Leasing
Fair Value Topic
FASB ASC Topic 825, Financial Instruments
Special Assets
Special Assets Division
FASB
FDIC
FHLB
Financial Accounting Standards Board
Federal Deposit Insurance Corporation
Federal Home Loan Bank
TDR
USD
Troubled debt restructuring
United States dollars
First Financial Bancorp 2019 Annual Report 3
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 1 • Financial Summary
(Dollars in thousands, except per share data)
Summary of operations
Interest income
Tax equivalent adjustment (1)
Interest income tax – equivalent (1)
Interest expense
Net interest income tax – equivalent (1)
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expenses
Income before income taxes
Income tax expense
Net income
Per share data
Earnings per common share
Basic
Diluted
Cash dividends declared per common share
Average common shares outstanding–basic (in thousands)
Average common shares outstanding–diluted (in thousands)
Selected year-end balances
Total assets
Earning assets
Investment securities
Total loans and leases
Interest-bearing demand deposits
Savings deposits
Time deposits
Noninterest-bearing demand deposits
Total deposits
Short-term borrowings
Long-term debt
Shareholders’ equity
2019
2018
December 31,
2017
2016
2015
$
$
$
$
$
$
$
607,578
6,328
613,906
123,324
490,582
607,578
123,324
484,254
30,598
131,373
342,167
242,862
44,787
198,075
2.01
2.00
0.90
98,306
98,851
$
$
$
$
$
$
$
540,382
5,147
545,529
91,147
454,382
540,382
91,147
449,235
14,586
103,382
323,810
214,221
41,626
172,595
1.95
1.93
0.78
88,582
89,614
$
$
$
$
$
$
$
333,073
5,259
338,332
49,528
288,804
333,073
49,528
283,545
3,582
76,142
239,942
116,163
19,376
96,787
1.57
1.56
0.68
61,529
62,172
$
$
$
$
$
$
$
305,950
4,215
310,165
33,279
276,886
305,950
33,279
272,671
10,140
69,601
201,401
130,731
42,205
88,526
1.45
1.43
0.64
61,206
61,985
$
$
$
$
$
$
$
269,759
4,017
273,776
23,257
250,519
269,759
23,257
246,502
9,641
75,202
201,130
110,933
35,870
75,063
1.23
1.21
0.64
61,063
61,848
$14,511,625
12,392,259
3,119,966
9,201,665
2,364,881
2,960,979
2,240,441
2,643,928
10,210,229
1,316,181
414,376
2,247,705
$13,986,660
12,190,567
3,324,243
8,824,214
2,307,071
3,167,325
2,173,564
2,492,434
10,140,394
1,040,691
570,739
2,078,249
$ 8,896,923
8,117,115
2,056,556
6,013,183
1,453,463
2,462,420
1,317,105
1,662,058
6,895,046
814,565
119,654
930,664
$ 8,437,967
7,719,285
1,854,201
5,757,482
1,513,771
2,142,189
1,321,843
1,547,985
6,525,788
807,912
119,589
865,224
$ 8,147,411
7,431,707
1,970,626
5,388,760
1,414,291
1,945,805
1,406,124
1,413,404
6,179,624
938,425
119,540
809,376
Select Financial Ratios
Average loans to average deposits (2)
Net charge-offs to average loans and leases
Average shareholders’ equity to average total assets
Return on average assets
Return on average equity
Net interest margin
Net interest margin (tax equivalent basis) (1)
Dividend payout
(1) Tax equivalent basis was calculated using a 21.00% tax rate for 2019 and 2018 and a 35.00% tax rate for 2017, 2016 and 2015.
(2) Includes loans held for sale.
88.12%
0.13%
10.42%
1.12%
10.78%
3.59%
3.66%
43.31%
88.59%
0.33%
15.30%
1.39%
9.11%
3.95%
4.00%
44.78%
87.49%
0.15%
13.89%
1.37%
9.85%
4.05%
4.10%
40.00%
89.33%
0.10%
10.24%
1.07%
10.48%
3.62%
3.68%
44.14%
84.00%
0.18%
10.73%
1.00%
9.33%
3.60%
3.66%
52.03%
4 First Financial Bancorp 2019 Annual Report
This annual report contains forward-looking statements. See the Forward-Looking Statements section that follows for further
information on the risks and uncertainties associated with forward-looking statements.
The following discussion and analysis is presented by management to facilitate the understanding of the financial position and
results of operations of First Financial Bancorp. Management's discussion and analysis identifies trends and material changes
that occurred during the reporting periods presented and should be read in conjunction with the Statistical Data, Consolidated
Financial Statements and accompanying Notes.
Certain reclassifications of prior years' amounts have been made to conform to current year presentation. Such reclassifications
had no effect on net earnings, total assets, liabilities and shareholders' equity.
EXECUTIVE SUMMARY
First Financial Bancorp. is a $14.5 billion financial holding company headquartered in Cincinnati, Ohio, which operates
through its subsidiaries primarily in Ohio, Indiana, Kentucky and Illinois. These subsidiaries include First Financial Bank, an
Ohio-chartered commercial bank, which operated 145 full service banking centers as of December 31, 2019. First Financial
provides banking and financial services products to business and retail clients through its six lines of business: Commercial,
Retail Banking, Mortgage Banking, Wealth Management, Investment Commercial Real Estate and Commercial Finance.
Commercial Finance provides equipment and leasehold improvement financing for franchisees in the quick service and casual
dining restaurant sector and commission-based financing, primarily to insurance agents and brokers, throughout the United
States. Wealth Management had $2.9 billion in assets under management as of December 31, 2019 and provides the following
services: financial planning, investment management, trust administration, estate settlement, brokerage services and retirement
planning.
Additional information about the Company, including its products, services and banking locations, is available at
www.bankatfirst.com.
The major components of First Financial’s operating results for the previous five years are summarized in Table 1 – Financial
Summary and are discussed in greater detail in the sections that follow.
MARKET STRATEGY
First Financial aims to develop a competitive advantage by utilizing a local market focus to provide superior service and build
long-term relationships with clients while helping them achieve greater financial success. First Financial serves a combination
of metropolitan and community markets in Ohio, Indiana, Kentucky and Illinois through its full-service banking centers, and
provides financing to franchise owners and clients within the financial services industry throughout the United States. First
Financial’s market selection process includes a number of factors, but markets are primarily chosen for their potential for
growth and long-term profitability. First Financial intends to concentrate plans for future growth and capital investment within
its current metropolitan markets, and will continue to evaluate additional growth opportunities in metropolitan markets located
within, or in close proximity to, the Company's current geographic footprint. Additionally, First Financial may assess strategic
acquisitions that provide product line extensions or additional industry verticals that compliment its existing business and
diversify its product suite and revenue streams. First Financial's investment in community markets remains an important part of
the Bank's core funding base and has historically provided stable, low-cost funding sources.
BUSINESS COMBINATIONS
In August 2019, the Company acquired Bannockburn Global Forex, LLC, an industry-leading capital markets firm. The
Cincinnati-based company provides transactional currency payments, foreign exchange hedging and other advisory products to
closely held enterprises, financial sponsors and financial institutions across the United States. Bannockburn became a division
of the Bank and continues to operate as Bannockburn Global Forex, taking advantage of its existing brand recognition within
the foreign exchange industry. The total purchase consideration was $114.6 million, consisting of $53.7 million in cash and
$60.9 million of First Financial common stock. The transaction resulted in First Financial recording $58.0 million of goodwill
on the Consolidated Balance Sheet, which reflects the business’s high growth potential and the expectation that the acquisition
will provide additional revenue growth and diversification. The goodwill is deductible for income tax purposes as the
transaction is considered a taxable exchange.
In April 2018, First Financial completed its acquisition of MainSource Financial Group, Inc. and its banking subsidiary,
MainSource Bank. The merger positioned the combined company to better serve the complementary geographies of Ohio,
First Financial Bancorp 2019 Annual Report 5
Indiana, Kentucky and Illinois by creating a higher performing bank with greater scale and capabilities. Under the terms of the
merger agreement, shareholders of MSFG received 1.3875 common shares of First Financial common stock for each share of
MSFG common stock. Including outstanding options and warrants on MSFG common stock, total purchase consideration was
$1.1 billion. In the merger, First Financial acquired $4.4 billion of total assets, $2.8 billion of loans and $3.3 billion of deposits,
which resulted in goodwill of $675.6 million.
The BGF and MSFG transactions were accounted for using the acquisition method of accounting. Accordingly, assets acquired,
liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance
with FASB ASC Topic 805, Business Combinations.
See Note 23 – Business Combinations in the Notes to Consolidated Financial Statements, for further discussion of these
transactions.
OVERVIEW OF OPERATIONS
Net income for the year ended December 31, 2019 was $198.1 million, resulting in earnings per diluted common share of
$2.00. This compares to net income of $172.6 million and earnings per diluted common share of $1.93 in 2018. First
Financial’s return on average shareholders’ equity for 2019 was 9.11%, compared to 9.85% for 2018, and First Financial’s
return on average assets was 1.39% and 1.37% for 2019 and 2018, respectively.
Net interest income in 2019 increased $35.0 million, or 7.8%, from 2018, to $484.3 million, primarily driven by higher average
earning asset balances subsequent to the MSFG merger as well as higher yields earned on the investment and loan portfolios.
The net interest margin on a fully tax equivalent basis was 4.00% for 2019 compared to 4.10% in 2018 as rising interest costs
outpaced interest income growth.
Noninterest income increased $28.0 million, or 27.1%, during 2019 to $131.4 million from $103.4 million in 2018. The
increase in 2019 was driven primarily by the full year impact of the MSFG merger, an increase in client derivative fees and the
BGF acquisition in August of 2019.
Noninterest expense increased $18.4 million, or 5.7%, from $323.8 million in 2018 to $342.2 million in 2019. This increase
was impacted by the larger scale created by the MSFG merger as well as the BGF acquisition.
Income tax expense increased $3.2 million, or 7.6%, to $44.8 million in 2019 from $41.6 million in 2018, with the effective tax
rate decreasing to 18.4% in 2019 from 19.4% in 2018. The lower effective tax rate in 2019 was primarily related to the
recognition of a historic tax credit investment during the period.
Total loans increased $377.5 million, or 4.3%, to $9.2 billion at December 31, 2019 from $8.8 billion at December 31, 2018.
Total deposits increased $69.8 million, or 0.7%, to $10.2 billion as of December 31, 2019 from $10.1 billion at December 31,
2018.
The ALLL was $57.7 million, or 0.63% of total loans at December 31, 2019, compared to $56.5 million, or 0.64% of total loans
at December 31, 2018. Provision expense increased $16.0 million, or 109.8%, to $30.6 million in 2019 while classified assets
declined $42.4 million, or 32.2%, during the year. The elevated provision expense was mainly attributed to $13.2 million of
charge-offs related to a single franchise relationship.
First Financial’s operational results may be influenced by certain economic factors and conditions, such as market interest rates,
industry competition, household and business spending levels, consumer confidence and the regulatory environment. For a
more detailed discussion of the Company's operations, please refer to the sections that follow.
NET INCOME
2019 vs. 2018. First Financial’s net income increased $25.5 million, or 14.8%, to $198.1 million in 2019, compared to net
income of $172.6 million in 2018. The increase was primarily related to a $35.0 million, or 7.8%, increase in net interest
income, combined with a $28.0 million, or 27.1%, increase in noninterest income. These increases were partially offset by an
$18.4 million, or 5.7%, increase in noninterest expenses and a $3.2 million, or 7.6%, increase in income tax expense during
2019.
2018 vs. 2017. First Financial’s net income increased $75.8 million, or 78.3%, to $172.6 million in 2018, compared to net
First Financial Bancorp 2019 Annual Report 6
income of $96.8 million in 2017. The increase was primarily related to a $165.7 million, or 58.4%, increase in net interest
income, combined with a $27.2 million, or 35.8%, increase in noninterest income. These increases were partially offset by an
$83.9 million, or 35.0%, increase in noninterest expenses and a $22.3 million, or 114.8%, increase in income tax expense
during 2018.
For more detail, refer to the Net interest income, Noninterest income, Noninterest expenses and Income taxes sections that
follow.
NET INTEREST INCOME
First Financial’s net interest income for the years 2015 through 2019 is shown in Table 1 – Financial Summary. First
Financial’s principal source of income is net interest income, which is the excess of interest received from earning assets,
including loan-related fees and purchase accounting accretion, less interest paid on interest-bearing liabilities. The amount of
net interest income is determined by the volume and mix of earning assets, the rates earned on such assets and the volume, mix
and rates paid for the deposits and borrowed money that support the earning assets. Earning assets consist of interest-bearing
loans to customers as well as marketable investment securities.
For analytical purposes, net interest income is also presented in Table 1 – Financial Summary on a tax equivalent basis
assuming a 21.00% marginal tax rate for 2018 and 2019 and a 35.00% marginal tax rate for years 2015 through 2017. Net
interest income is presented on a tax equivalent basis to consistently reflect income from tax-exempt assets, such as municipal
loans and investments, in order to facilitate a comparison between taxable and tax-exempt amounts. Management believes 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. First Financial's tax equivalent net interest margin
was 4.00%, 4.10% and 3.66% for 2019, 2018 and 2017, respectively.
Table 2 – Volume/Rate Analysis - Tax Equivalent Basis describes the extent to which changes in interest rates as well as
changes in the volume of earning assets and interest-bearing liabilities have affected First Financial’s net interest income on a
tax equivalent basis during the years presented. Nonaccrual loans and loans held for sale were included in the average loan
balances used to determine the yields in Table 2 – Volume/Rate Analysis - Tax Equivalent Basis, which should be read in
conjunction with the Statistical Information table.
Loan fees included in the interest income computation for 2019, 2018 and 2017 were $15.9 million, $16.5 million and $13.9
million, respectively. Interest income also included purchase accounting accretion of $26.8 million, $25.5 million and $0.7
million for 2019, 2018 and 2017, respectively.
2019 vs. 2018. Net interest income increased $35.0 million, or 7.8%, from $449.2 million in 2018 to $484.3 million in 2019,
primarily due to an increase in average earning assets and higher yields earned during 2019. Average earning assets increased
from $11.1 billion in 2018 to $12.3 billion in 2019 primarily due to the full year impact of the MSFG merger and organic loan
growth, while the tax equivalent yield on earning assets increased from 4.93% in 2018 to 5.00% in 2019.
Interest income was $607.6 million in 2019, increasing $67.2 million, or 12.4%, from 2018. The increase was primarily
attributable to interest income from loans, which increased $51.8 million, or 11.6%, from $447.2 million in 2018 to $499.0
million in 2019. The increase in interest income on loans resulted from a merger driven increase in average loan balances,
including loans held for sale, of $797.8 million, or 9.8%, the impact from purchase accounting accretion and higher loan yields.
Additionally, interest income earned on investment securities increased $15.3 million, or 16.5%, during the period. Similar to
interest on loans, higher interest income on investment securities was driven by a $391.7 million, or 13.5%, merger-related
increase in average investment balances as well as higher yields earned during the period.
Interest expense was $123.3 million in 2019, which was a $32.2 million, or 35.3%, increase from 2018. Interest expense
increased as the average balance of interest-bearing deposits increased $478.5 million, or 6.7%, primarily due to the full year
impact of the MSFG merger in 2019 in addition to increased customer demand. Additionally, higher interest rates during the
twelve month period contributed to the cost of funds related to these deposits increasing to 1.04% for 2019 from 0.80% in 2018.
Interest expense was also impacted in 2019 by a $199.3 million, or 21.0%, increase in average Short-term borrowings and an
$83.8 million, or 19.1%, increase in average Long-term borrowings.
2018 vs. 2017. Net interest income increased $165.7 million, or 58.4%, from $283.5 million in 2017 to $449.2 million in 2018,
primarily due to an increase in average earning assets and higher yields earned during 2018. Average earning assets increased
First Financial Bancorp 2019 Annual Report 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
from $7.9 billion in 2017 to $11.1 billion in 2018, while the tax equivalent yield on earning assets increased from 4.29% in
2017 to 4.93% in 2018.
Interest income was $540.4 million in 2018, a $207.3 million, or 62.2%, increase from 2017. This increase was primarily
attributable to interest income from loans, which increased $167.1 million, or 59.6%, from $280.1 million in 2017 to $447.2
million in 2018 as well as a $36.0 million, or 63.8%, increase in interest income earned on investment securities during 2018.
The increase in interest income on loans resulted from a merger driven increase in average loan balances, including loans held
for sale, of $2.3 billion, or 39.4%, and the impact from purchase accounting accretion, in addition to higher loan yields resulting
from rising interest rates. Similar to interest on loans, the increase in interest income on investment securities was driven by a
$895.8 million, or 44.8%, merger related increase in average investment balances as well as higher yields earned during the
period due to rising interest rates.
Interest expense was $91.1 million in 2018, which was a $41.6 million, or 84.0%, increase from 2017. Interest expense
increased as the average balance of interest-bearing deposits increased $2.0 billion, or 39.4%, primarily due to the MSFG
merger. Additionally, rising interest rates during the twelve month period contributed to the cost of these deposits increasing to
80 bps for 2018 from 69 bps in 2017. Interest expense was also impacted in 2018 by an increase in short-term borrowing rates
from 99 bps in 2017 to 1.90% in 2018 as a result of rising interest rates.
Table 2 • Volume/Rate Analysis - Tax Equivalent Basis (1)
(Dollars in thousands)
Interest income
Loans (2)
Indemnification asset
Investment securities (3)
Taxable
Tax-exempt
Total investment securities interest (3)
Interest-bearing deposits with other banks
Total
Interest expense
Interest-bearing demand deposits
Savings deposits
Time deposits
Short-term borrowings
Long-term debt
Total
2019 change from 2018 due to
2018 change from 2017 due to
Volume
Rate
Total
Volume
Rate
Total
$ 44,638
$
7,257
$ 51,895
$ 126,901
$ 39,681
$ 166,582
0
0
0
0
3,871
3,871
7,846
5,831
13,677
84
58,399
859
261
5,750
4,386
3,056
3,246
(555)
2,691
30
9,978
3,443
3,072
8,685
2,816
(151)
11,092
5,276
16,368
114
21,278
9,004
30,282
25
7,230
(1,112)
6,118
319
28,508
7,892
36,400
344
68,377
157,208
49,989
207,197
4,302
3,333
14,435
7,202
2,905
2,641
3,488
11,766
2,228
11,703
31,826
1,563
(1,379)
3,701
7,612
(1,704)
9,793
4,204
2,109
15,467
9,840
9,999
41,619
14,312
17,865
32,177
Net interest income
$ 44,087
$
(7,887) $ 36,200
$ 125,382
$ 40,196
$ 165,578
(1) Tax equivalent basis was calculated using a 21.00% tax rate for 2019 and 2018 and a 35.00% tax rate for 2017.
(2) Includes nonaccrual loans and loans held-for-sale.
(3) Includes HTM securities, AFS securities and other investments.
NONINTEREST INCOME AND NONINTEREST EXPENSES
Noninterest income and noninterest expenses for 2019, 2018 and 2017 are shown in Table 3 – Noninterest Income and
Noninterest Expenses.
NONINTEREST INCOME
2019 vs. 2018. Noninterest income increased $28.0 million, or 27.1%, from $103.4 million in 2018 to $131.4 million in 2019.
The increase was primarily related to an $8.8 million, or 144.6%, increase in Gain on sale of loans, an $8.0 million, or 103.9%,
8 First Financial Bancorp 2019 Annual Report
increase in Client derivative fees and a $7.7 million increase in Foreign exchange income. These increases were partially offset
by a $1.4 million, or 7.1% decrease in bankcard income.
Higher gain on sale of loans and client derivative fees were primarily driven by the full year impact of the MSFG merger and
strong loan origination activity, while foreign exchange income was directly attributable to the BGF acquisition, which closed
in August of 2019. The decline in bankcard income was due to the impact of the Durbin Amendment cap on interchange fees,
which became applicable to First Financial in the third quarter of 2019.
2018 vs. 2017. Noninterest income increased $27.2 million, or 35.8%, from $76.1 million in 2017 to $103.4 million in 2018.
The increase was primarily related to a $15.3 million, or 77.5%, increase in service charges on deposits, a $6.9 million, or
52.2% increase in bankcard income, a $3.6 million, or 22.8%, increase in other noninterest income, a $1.3 million, or 19.7%,
increase in client derivative fees, and a $1.0 million, or 7.2%, increase in trust and wealth management fees. These increases
were partially offset by $1.8 million, or 109.8%, decrease in gains on sale of investment securities.
The increases in service charges on deposits, bankcard income, other noninterest income, derivative fees and wealth
management fees were primarily driven by increased scale created by the MSFG merger.
Table 3 • Noninterest Income and Noninterest Expenses
2019
2018
2017
Total
% Change
Total
% Change
Total
% Change
(Dollars in thousands)
Noninterest income
Service charges on deposit accounts
$
Trust and wealth management fees
Bankcard income
Client derivative fees
Foreign exchange income
Net gains from sales of loans
Other
Subtotal
37,939
15,644
18,804
15,662
7,739
14,851
21,140
131,779
8.1 % $
3.7 %
(7.1)%
103.9 %
N/M
144.6 %
9.2 %
27.3 %
35,108
15,082
20,245
7,682
0
6,071
19,355
103,543
77.5 % $
7.2 %
52.2 %
19.7 %
N/M
17.5 %
22.8 %
39.0 %
19,775
14,073
13,298
6,418
0
5,169
15,760
74,493
Net gain (loss) on sales/transfers of investment
securities
(406)
N/M
(161)
N/M
1,649
Total
$
131,373
27.1 % $
103,382
35.8 % $
76,142
Noninterest expenses
Salaries and employee benefits
$
209,061
10.6 % $
188,990
37.7 % $
137,240
Net occupancy
Furniture and equipment
Data processing
Marketing
Communication
Professional services
State intangible tax
FDIC assessments
Intangible assets amortization
Other
Total
NONINTEREST EXPENSES
24,069
15,903
21,881
6,908
3,267
11,254
5,829
1,973
9,671
32,351
(0.6)%
6.7 %
(22.1)%
(9.1)%
3.2 %
(8.3)%
40.4 %
(50.3)%
31.4 %
11.2 %
24,215
14,908
28,077
7,598
3,167
12,272
4,152
3,969
7,359
29,103
39.2 %
76.6 %
100.2 %
137.4 %
74.1 %
(18.3)%
56.4 %
0.6 %
466.9 %
(16.6)%
17,397
8,443
14,022
3,201
1,819
15,023
2,655
3,944
1,298
34,900
$
342,167
5.7 % $
323,810
35.0 % $
239,942
4.4 %
6.6 %
9.6 %
40.4 %
N/M
(24.0)%
14.8 %
7.4 %
N/M
9.4 %
6.8 %
(5.1)%
(2.5)%
22.9 %
(19.3)%
(3.7)%
138.3 %
30.5 %
(8.1)%
(17.6)%
142.5 %
19.1 %
2019 vs. 2018. Noninterest expenses increased $18.4 million, or 5.7%, in 2019 compared to 2018, primarily due to a $20.1
million, or 10.6%, increase in salaries and employee benefits, a $3.2 million, or 11.2%, increase in other noninterest expenses,
and a $2.3 million, or 31.4%, increase in intangible assets amortization expense. These increases were partially offset by a $6.2
million, or 22.1%, decrease in data processing expenses and a $2.0 million, or 50.3%, decrease in FDIC assessments.
First Financial Bancorp 2019 Annual Report 9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Higher salaries and employee benefits in 2019 were attributed to merger related increases in staffing levels, higher
performance-based compensation and annual compensation adjustments. Intangible assets recorded in conjunction with the
purchase accounting for the MSFG and BFG business combinations resulted in higher intangible asset amortization during
2019, while the increase in other noninterest expense included a $2.9 million historic tax credit investment write-down. Lower
data processing expenses were primarily due to elevated merger-related expenses in 2018, while the reduction of FDIC
assessments was attributed to the recognition of a $3.4 million FDIC small bank assessment credit in the second half of 2019.
2018 vs. 2017. Noninterest expenses increased $83.9 million, or 35.0%, in 2018 compared to 2017, primarily due to a $51.8
million, or 37.7%, increase in salaries and employee benefits, a $14.1 million, or 100.2%, increase in data processing expenses,
a $6.8 million, or 39.2%, increase in net occupancy expenses, a $6.5 million, or 76.6%, increase in furniture and equipment
expenses, a $4.4 million, or 137.4%, increase in marketing expenses, and a $0.5 million, or 1.5%, decrease in other noninterest
expenses. These increases were partially offset by a $2.8 million, or 18.3%, decrease in professional services.
Higher salaries and employee benefits in 2018 were attributed to merger related increases in staffing levels, higher severance
and retention costs, higher performance-based compensation, increased health care costs and annual compensation adjustments.
The increases in data processing, net occupancy, furniture and equipment and marketing expenses were largely attributable to
merger related expenses combined with the larger scale of the Company subsequent to the MSFG merger. Lower professional
services in 2018 were mainly due to elevated costs in 2017. Higher other noninterest expenses during 2017 were primarily
driven by an $11.3 million historic tax credit investment write-down, a $5.1 million impairment charge resulting from the
preliminary agreement to early terminate the Company's FDIC loss sharing agreements and a $3.0 million charitable
contribution to the First Financial Foundation.
INCOME TAXES
2019 vs. 2018. First Financial’s income tax expense in 2019 totaled $44.8 million compared to $41.6 million in 2018, resulting
in effective tax rates of 18.4% and 19.4% for 2019 and 2018, respectively. The lower effective tax rate in 2019 was related to
the recognition of a historic tax credit investment, which reduced income tax expense by $3.2 million and increased 2019 net
income by $0.4 million when netted against the investment write-down included in noninterest expense.
2018 vs. 2017. First Financial’s income tax expense in 2018 totaled $41.6 million compared to $19.4 million in 2017, resulting
in effective tax rates of 19.4% and 16.7% in 2018 and 2017, respectively. The higher effective tax rate in 2018 was related to
the recognition of a significant historic tax credit investment in 2017, which was partially offset by the impact of tax reform.
The historic tax credit investment reduced income tax expense by $12.5 million in 2017, and resulted in a $1.1 million increase
to net income for the year when netted against the investment write-down included in noninterest expense.
For further information on income taxes, see Note 15 – Income Taxes in the Notes to Consolidated Financial Statements.
LENDING PRACTICES
First Financial remains dedicated to meeting the financial needs of individuals and businesses through its client-focused
business model. The loan portfolio is comprised of a broad range of borrowers primarily located in the Ohio, Indiana and
Kentucky markets; however, the commercial finance line of business serves a national client base.
First Financial’s loan portfolio consists of commercial loan types, including C&I, lease financing (equipment leasing),
construction real estate and commercial real estate, as well as consumer loan types, such as residential real estate, home equity,
installment and credit card loans. First Financial's lending portfolios are managed to avoid the creation of inappropriate
industry, geographic, franchise concept or borrower concentration risk.
Commercial and Industrial – C&I loans include revolving lines of credit and term loans to commercial customers for use in
normal business operations to finance working capital needs, equipment purchases, leasehold improvements or other projects.
C&I loans are generally underwritten individually and secured with the assets of the Company and/or the personal guarantee of
the business owners. C&I loans also include ABL, equipment and leasehold improvement financing for franchisees in the
quick service and casual dining restaurant sector and commission-based loans to insurance agents and brokers. ABL
transactions typically involve larger commercial clients and are secured by specific assets, such as inventory, accounts
receivable, machinery and equipment. In the franchise lending space, First Financial focuses on a limited number of restaurant
concepts that have sound economics, low closure rates and strong brand awareness within specified local, regional or national
markets. Within the insurance lending platform, First Financial serves insurance agents and brokers that are looking to
maximize their book-of-business value and grow their agency business.
10 First Financial Bancorp 2019 Annual Report
First Financial maintains vigorous underwriting processes to assess prospective C&I borrowers' credit worthiness prior to
origination, and actively monitors C&I relationships subsequent to funding in order to ensure adequate oversight of the
portfolio.
First Financial remains optimistic that positive macroeconomic trends will result in C&I growth in future periods. While C&I
growth is a strategic organizational priority, the Company will continue to monitor the size and composition of the franchise
portfolio to ensure that it remains comprised of historically profitable concepts and financially responsible borrowers.
Lease Financing – Lease financing consists of lease transactions for the acquisition of both new and used business equipment
for commercial clients. Lease products may include tax leases, finance leases, lease lines of credit and interim funding. The
credit underwriting for lease transactions includes detailed analysis of the lessee's industry and business model, nature of the
equipment, equipment resale values, historical and projected cash flow analysis, secondary sources of repayment and guarantor
in addition to other considerations.
Construction Real Estate – Real estate construction loans are term loans to individuals, companies or developers used for the
construction or development of a commercial or residential property for which repayment will be generated by the sale or
permanent financing of the property. Generally, these loans are for construction projects that have been pre-sold, pre-leased or
have secured permanent financing, as well as loans to real estate companies with significant equity invested in the project. An
independent credit team underwrites construction real estate loans, which are managed by experienced lending officers and
monitored through the construction phase by a centralized funding desk that manages loan disbursements.
First Financial has pursued select real estate construction lending opportunities while actively monitoring industry and
portfolio-specific credit trends and sector concentrations. In general, First Financial will seek to enter into typical construction
lending arrangements only when the prospect of term financing is probable upon completion of the construction period.
Commercial Real Estate – Commercial real estate loans consist of term loans secured by a mortgage lien on real estate
properties such as apartment buildings, office and industrial buildings and retail shopping centers. Additionally, the Company's
franchise lending activities discussed in the "Commercial and Industrial" section often include the financing of real estate in
addition to equipment. The credit underwriting for both owner-occupied and investor income producing real estate loans
includes detailed market analysis, historical and projected cash flow analysis, appropriate equity margins, assessment of lessees
and lessors, environmental risks and the type, age, condition and location of real estate, among other factors.
Credit risk is mitigated by limiting total credit exposure to individual borrowers and by requiring borrowers to have adequate
down payments or cash equity, thereby limiting the loan balance in relation to the market value of the property. First Financial
also regularly reviews borrower financial performance, makes periodic site visits to financed properties and monitors rental
rates, occupancy trends, capitalization rates and other factors that could potentially influence real estate collateral values in the
Company's markets.
The Company believes its current underwriting criteria, coupled with active credit monitoring, provides adequate oversight of
the commercial real estate loan portfolio. In addition, management continually monitors CRE balances in relation to the rest of
the loan portfolio to ensure that real estate concentration risk is properly mitigated.
Residential Real Estate – Residential real estate loans represent loans to consumers for the financing of a residence.
These loans generally have a 15 to 30 year term and a fixed interest rate, but may have a shorter term to maturity with an
adjustable interest rate. In most cases, these loans are extended to borrowers to finance their primary residence. First Financial
sells residential real estate loan originations into the secondary market on both servicing retained and servicing released bases.
Residential real estate loans are generally underwritten to secondary market lending standards, utilizing underwriting processes
that rely on empirical data to assess credit risk as well as analysis of the borrower's ability to repay their obligations, credit
history, the amount of any down payment and the market value or other characteristics of the property. First Financial also
offers a residential mortgage product that features similar borrower credit characteristics but a more streamlined underwriting
process than typically required to sell to government-sponsored enterprises and thus is retained on the Consolidated Balance
Sheets.
While First Financial continues to sell the majority of residential real estate originations into the secondary market, the
Company believes its current underwriting criteria coupled with the monitoring of a number of portfolio metrics, including
credit scores and loan-to-value ratios, provides adequate oversight of this portfolio.
First Financial Bancorp 2019 Annual Report 11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Home Equity – Home equity lending includes both home equity loans and revolving lines of credit secured by a first or second
lien on the borrower’s residence. Home equity lending underwriting considerations include the borrower's credit history as well
as to debt-to-income and loan-to-value policy limits.
First Financial believes its current underwriting criteria coupled with the monitoring of a number of portfolio metrics including
credit scores, loan-to-value ratios, line size and utilization rates provide adequate oversight of the home equity portfolio.
Installment – Installment lending consists of consumer loans not secured by real estate, including loans secured by automobiles
and unsecured personal loans.
Credit Card – Credit card lending consists of secured and unsecured revolving lines of credit to consumer and business
customers. Credit card lines are generally available for an indefinite period of time as long as the borrower's credit
characteristics do not materially or adversely change, but lines are unconditionally cancellable by the Company at any time.
Underwriting for installment and credit card lending focuses on a borrower's debt-to-income ratios and credit history among
other considerations.
Credit Management. Subject to First Financial’s credit policy and guidelines, credit underwriting and approval occur within
the market and/or the centralized line of business originating the loan. First Financial has delegated a lending limit sufficient to
address the majority of client requests in a timely manner to each market president and line of business manager. Loan requests
for amounts greater than those limits require the approval of a designated credit officer or senior credit committee and may
require additional approvals from the chief credit officer, the chief executive officer and the board of directors. This allows
First Financial to manage the initial credit risk exposure through a standardized, strategic and disciplined approval process, but
with an increasingly higher level of authority. Plans to purchase or sell a participation in a loan, or a group of loans, requires
the approval of certain senior lending and administrative officers, and in some cases could include the board of directors.
Credit management practices are dependent on the type and nature of the loan. First Financial monitors all significant
exposures on an ongoing basis. Commercial loans are assigned internal risk ratings reflecting the risk of loss inherent in the
loan. These internal risk ratings are assigned upon initial approval of credit and are updated periodically thereafter. First
Financial reviews and adjusts its risk ratings based on actual experience, which is the basis for determining an appropriate
ALLL. First Financial's commercial risk ratings of pass, special mention, substandard and doubtful are derived from standard
regulatory rating definitions and facilitate the monitoring of credit quality across the commercial loan portfolio. For further
information regarding these risk ratings, see Note 5 – Loans and Leases in the Notes to the Consolidated Financial Statements.
Commercial loans rated as special mention, substandard or doubtful are considered criticized, while loans rated as substandard
or doubtful are considered classified. Commercial loans may be designated as criticized/classified based on individual
borrower performance or industry and environmental factors. Criticized/classified loans are subject to more frequent internal
reviews to assess the borrower’s credit status and develop appropriate action plans.
Classified loans are considered to be the leading indicator of credit losses, and are typically managed by the Special Assets
Department. Special Assets is a commercial credit group whose primary focus is to handle the day-to-day management of
commercial workouts, recoveries and problem loan resolutions. Special Assets ensures that First Financial has appropriate
oversight, improved communication and timely resolution of issues throughout the loan portfolio. Additionally, the Credit Risk
Management group within First Financial's Risk Management function provides independent, objective oversight and
assessment of commercial credit quality and processes.
Consumer lending credit approvals are based on, among other factors, the financial strength and payment history of the
borrower, type of exposure and the transaction structure. Consumer loans are generally smaller dollar amounts than other types
of lending and are made to a large number of customers, providing diversification within the portfolio. Credit risk in the
consumer loan portfolio is managed by loan type, and consumer loan asset quality indicators, including delinquency, are
continuously monitored. The Credit Risk Management group performs product-level performance reviews and assesses credit
quality and compliance with underwriting and loan administration guidelines across the consumer loan portfolio.
LOANS AND LEASES
2019 vs. 2018. First Financial experienced steady loan growth in 2019. Loans, excluding loans held for sale, totaled $9.2
billion at December 31, 2019, increasing $377.5 million, or 4.3%, compared to December 31, 2018. Commercial real estate
loans increased $440.0 million, or 11.7%, and residential real estate increased $100.3 million, or 10.5%, while construction real
12 First Financial Bancorp 2019 Annual Report
estate loans decreased $55.8 million, or 10.2%, C&I loans decreased $48.8 million, or 1.9%, home equity decreased $45.4
million, or 5.6%, and installment loans decreased $10.6 million, or 11.4%, during 2019. Average loan balances, including loans
held for sale, were $8.9 billion at December 31, 2019, an increase of $797.8 million, or 9.8% compared to December 31, 2018.
Table 4 - Loan and Lease Portfolio details loan and lease balances by type as a percentage of the total portfolio as of December
31 for the last five years.
Table 4 • Loan and Lease Portfolio
December 31,
(Dollars in thousands)
Loans
2019
2018
2017
2016
2015
% of
Loans
to Total
Loans
Loans
% of
Loans
to Total
Loans
Loans
% of
Loans
to Total
Loans
Loans
% of
Loans
to Total
Loans
Loans
% of
Loans
to Total
Loans
Commercial and industrial
$ 2,465,877
26.8% $ 2,514,661
28.5% $ 1,912,743
31.8% $ 1,781,948
31.0% $ 1,663,102
30.8%
Lease financing
Real estate – construction
88,364
493,182
1.0%
5.3%
93,415
548,935
1.1%
6.2%
89,347
467,730
1.5%
7.8%
93,108
399,434
1.6%
6.9%
93,986
311,712
1.7%
5.8%
Real estate – commercial
4,194,651
45.6% 3,754,681
42.5% 2,490,091
41.4% 2,427,577
42.2% 2,258,297
41.9%
Real estate – residential
1,055,949
11.5%
955,646
10.8%
471,391
Home equity
Installment
Credit card
771,869
82,589
49,184
8.4%
0.9%
0.5%
817,282
93,212
46,382
9.3%
1.1%
0.5%
493,604
41,586
46,691
7.8%
8.2%
0.7%
0.8%
500,980
460,388
50,639
43,408
8.7%
8.0%
0.9%
0.7%
512,311
466,629
41,506
41,217
9.5%
8.7%
0.8%
0.8%
Total loans and leases
$ 9,201,665
100% $ 8,824,214
100% $ 6,013,183
100% $ 5,757,482
100% $ 5,388,760
100%
Table 5 – Loan Maturity/Rate Sensitivity indicates the contractual maturity of C&I loans and construction real estate loans
outstanding at December 31, 2019 as well as their sensitivity to changes in interest rates.
For discussion of risks associated with the loan portfolio and First Financial's ALLL, see the Credit Risk section included in
Management’s Discussion and Analysis.
Table 5 • Loan Maturity/Rate Sensitivity
(Dollars in thousands)
Commercial and industrial
Construction real estate
Total
(Dollars in thousands)
Fixed rate
Variable rate
Total
December 31, 2019
Maturity
Within
one year
616,407
198,053
814,460
Within
one year
131,396
683,064
814,460
$
$
$
$
After one
but within
five years
1,255,963
166,755
1,422,718
After one
but within
five years
309,651
1,113,067
1,422,718
$
$
$
$
After
five years
593,507
128,374
721,881
After
five years
77,716
644,165
721,881
$
$
$
$
$
$
$
$
Total
2,465,877
493,182
2,959,059
Total
518,763
2,440,296
2,959,059
OFF-BALANCE SHEET ARRANGEMENTS
Off-balance sheet arrangements include commitments to extend credit and financial guarantees. Loan commitments are
agreements to extend credit to a client absent any violation of any condition established in the commitment agreement.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. First
Financial had commitments outstanding to extend credit, totaling $3.3 billion and $3.0 billion at December 31, 2019 and 2018,
respectively. As of December 31, 2019, loan commitments with a fixed interest rate totaled $123.7 million while commitments
First Financial Bancorp 2019 Annual Report 13
with variable interest rates totaled $3.2 billion. The fixed rate loan commitments have interest rates ranging from 0.00% to
21.00% for both December 31, 2019 and 2018. The fixed rate loan commitments have maturities ranging from 1 to 31.6 years
at December 31, 2019 and 1 to 30 years at December 31, 2018.
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 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. First Financial has issued letters of credit aggregating
$33.4 million and $32.7 million at December 31, 2019, and 2018, respectively. Management conducts regular reviews of these
instruments on an individual client basis.
ASSET QUALITY
Nonperforming assets consist of nonaccrual loans, accruing TDRs (collectively, nonperforming loans) and OREO. 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 a borrower's continued
failure to adhere to contractual payment terms, 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.
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.
See Table 6 – Nonperforming Assets for a summary of First Financial’s nonaccrual loans, TDRs and OREO.
2019 vs. 2018. Total nonperforming assets declined $26.6 million, or 30.1%, to $61.6 million at December 31, 2019 from
$88.2 million at December 31, 2018. Nonaccrual loans declined $22.5 million and accruing TDRs declined $4.7 million, which
was partially offset by a $0.6 million increase in OREO.
First Financial's nonperforming assets as a percentage of total loans plus OREO declined to 0.67% at December 31, 2019 from
1.00% at December 31, 2018 as a result of lower nonperforming loan balances during the period. Additionally, classified asset
balances declined $42.4 million, or 32.2%, to $89.3 million at December 31, 2019 from $131.7 million at December 31, 2018.
The significant decreases in nonperforming and classified assets during 2019 were driven by focused resolution efforts during
the period, which included significant paydowns/payoffs and a $12.2 million problem loan sale, in addition to positive risk
rating migration and elevated net charge-offs during the period. Management is optimistic that the Company's credit quality
trends will remain strong in future periods given the diligent underwriting and monitoring processes in place as well as the
sustained improvement in employment rates, the real estate markets, and business and consumer confidence levels.
First Financial Bancorp 2019 Annual Report 14
Table 6 • Nonperforming Assets
(Dollars in thousands)
Nonaccrual loans (1)
Accruing troubled debt restructurings (2)
Other real estate owned (OREO)
Total nonperforming assets
December 31,
2019
2018
2017
2016
2015
$
48,165
$
70,700
$
24,082
$
17,730
$
27,997
11,435
2,033
16,109
1,401
17,545
2,781
30,240
6,284
28,876
13,254
$
61,633
$
88,210
$
44,408
$
54,254
$
70,127
Nonperforming assets as a percent of total loans plus
OREO
0.67%
1.00%
0.74%
0.94%
1.30%
Accruing loans past due 90 days or more
Classified assets
$
$
201
$
63
89,250
$ 131,668
$
$
61
$
142
$
108
87,293
$ 125,155
$ 132,431
(1) Nonaccrual loans include nonaccrual TDRs of $18.5 million, $22.4 million, $6.4 million, $5.1 million and $9.3 million, as of December 31, 2019, 2018,
2017, 2016 and 2015, respectively.
(2) Accruing troubled debt restructurings include TDRs past due 90 days or more and still accruing of $2.7 million as of December 31, 2016. There were no
TDRs 90 days past due and still accruing as of December 31, 2019, 2018, 2017, 2016 and 2015, respectively.
INVESTMENTS
First Financial utilizes its investment portfolio as a source of liquidity and interest income, as well as a tool for managing the
Company's interest rate risk profile. As such, the Company's primary investment strategy is to invest in debt securities with low
credit risk, such as treasury and agency-backed residential MBSs. The investment portfolio is also managed with consideration
to prepayment and extension/maturity risk. First Financial invests primarily in MBSs issued by U.S. government agencies and
corporations, such GNMA, FHLMC and FNMA, as these securities are considered to have a low credit risk and high liquidity
profile due to government agency guarantees. Government and agency backed securities comprised 50.6% and 58.0% of First
Financial's investment securities portfolio as of December 31, 2019 and 2018, respectively.
The Company also invests in certain securities that are not supported by government or agency guarantees and whose
realization is dependent on future principal and interest repayments, thus carrying greater credit risk. First Financial performs a
detailed collateral and structural analysis prior to any purchase of these securities and limits investments to asset classes in
which the Company has expertise and experience, as well as a senior position in the capital structure. First Financial
continuously monitors credit risk and geographic concentration risk in its evaluation of market opportunities that would
enhance the overall performance of the portfolio. Securities not supported by government or agency guarantees represented
49.4% and 42.0% of First Financial's investment securities portfolio as of December 31, 2019 and 2018, respectively.
The other investments category in the Consolidated Balance Sheets consists primarily of First Financial’s investments in FRB
and FHLB stock.
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 as well as payment
performance and the Company’s intent and ability to hold the security when determining whether any impairment is other than
temporary. First Financial had no other than temporary impairment expense for the years ended December 31, 2019 and 2018.
2019 vs. 2018. First Financial’s investment portfolio at December 31, 2019 totaled $3.0 billion, and represented 20.6% of total
assets at December 31, 2019. The $213.6 million, or 6.7%, decline in the investment portfolio during 2019 was primarily
related to Company's strategic redeployment of cash flows to support loan growth and to reduce borrowings.
First Financial classified $2.9 billion, or 95.2%, and $2.8 billion, or 86.6%, of investment securities as AFS at December 31,
2019 and 2018, respectively. First Financial classified $142.9 million, or 4.8%, and $429.3 million, or 13.4%, of investment
securities as HTM at December 31, 2019 and 2018, respectively. In addition, First Financial reclassified $268.7 million and
First Financial Bancorp 2019 Annual Report 15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
$372.1 of HTM securities to AFS upon adoption of ASU 2017-12 and subsequent to the MSFG merger to align with post-
merger investment strategies, respectively.
First Financial recorded a $41.3 million unrealized after-tax gain on the investment portfolio as a component of equity in AOCI
resulting from changes in the fair value of AFS securities at December 31, 2019, which increased $52.9 million from an $11.6
million unrealized after-tax loss at December 31, 2018.
Debt securities issued by the U.S. government and U.S. government agencies and corporations, including the FHLB, FHLMC,
FNMA and the U.S. Export/Import Bank represented 1.0% of the investment portfolio at December 31, 2018 but was not
meaningful as a percentage of the portfolio at December 31, 2019.
Investments in MBS securities, which include CMOs, represented 61.0% and 65.2% of First Financial's portfolio at
December 31, 2019 and 2018, respectively. MBSs are participations in pools of loans secured by mortgages under which
payments of principal and interest are passed through to the security holders. These securities are subject to prepayment risk,
particularly during periods of falling interest rates, and extension risk during periods of rising interest rates. Prepayments of the
underlying residential real estate loans may shorten the lives of the securities, thereby affecting yields to maturity and market
values.
Tax-exempt securities of states, municipalities and other political subdivisions totaled $687.3 million as of December 31, 2019
and $501.9 million as of December 31, 2018, comprising 22.9% and 15.6% of the investment portfolio at December 31, 2019
and 2018, respectively. The securities are diversified to include states as well as issuing authorities within states, thereby
decreasing geographic portfolio risk. First Financial continuously monitors the risk associated with this investment type and
reviews underlying ratings for possible downgrades. First Financial does not own any state or other political subdivision
securities that are currently impaired.
Asset-backed securities were $400.4 million, or 13.4% of the investment portfolio at December 31, 2019 and $509.2 million, or
15.9% of the investment portfolio at December 31, 2018. First Financial considers these investment securities to have lower
credit risk and a high liquidity profile as a result of explicit guarantees on the collateral.
Other securities, consisting primarily of taxable securities of states, municipalities and other political subdivisions and debt
securities issued by corporations, were $81.6 million, or 2.7% of the investment portfolio, at December 31, 2019 and $73.2
million, or 2.3% of the investment portfolio, at December 31, 2018.
The overall duration of the investment portfolio increased to 3.4 years as of December 31, 2019 from 3.3 years as of
December 31, 2018. First Financial has avoided adding to its portfolio any particular securities that would materially increase
credit risk or geographic concentration risk and the Company continuously monitors and considers these risks in its evaluation
of current market opportunities that would enhance the overall performance of the portfolio.
Table 7 • Investment Securities as of December 31
(Dollars in thousands)
U.S. Treasuries
Securities of U.S. government agencies and corporations
Mortgage-backed securities-residential
Mortgage-backed securities-commercial
Collateralized mortgage obligations
Obligations of state and other political subdivisions
Asset-backed securities
Other securities
Total
2019
2018
Amount
100
158
452,373
577,785
795,207
687,267
400,431
81,625
2,994,946
$
$
Percent of
Portfolio
0.0% $
0.0%
15.1%
19.3%
26.6%
Amount
97
31,919
584,164
568,815
939,287
22.9%
13.4%
2.7%
501,868
509,231
73,202
100.0% $ 3,208,583
Percent of
Portfolio
0.0%
1.0%
18.2%
17.7%
29.3%
15.6%
15.9%
2.3%
100.0%
The estimated maturities and weighted-average yields of HTM and AFS investment securities as of December 31, 2019 are
shown in Table 8 – Investment Securities. Tax-equivalent adjustments using a rate of 21.0% were included in calculating yields
on tax-exempt obligations of state and other political subdivisions.
16 First Financial Bancorp 2019 Annual Report
First Financial held cash on deposit with the Federal Reserve of $56.9 million and $37.7 million at December 31, 2019 and
2018, respectively. First Financial continually monitors its liquidity position as part of its ERM framework, specifically
through its asset/liability management process.
First Financial will continue to monitor loan and deposit demand, balance sheet composition, capital sensitivity and the interest
rate environment as it manages investment strategies in future periods. See Note 4 – Investment Securities in the Notes to
Consolidated Financial Statements for additional information on the Company's investment portfolio and Note 22 – Fair Value
Disclosures for additional information on how First Financial determines the fair value of investment securities.
Table 8 • Investment Securities as of December 31, 2019
(Dollars in thousands)
Held-to-Maturity
Securities of other U.S. government
agencies and corporations
$
Mortgage-backed securities-
residential
Mortgage-backed securities-
commercial
Collateralized mortgage obligations
Obligations of state and other
political subdivisions
Total
Available-for-Sale
U.S. treasuries
Securities of other U.S. government
agencies and corporations
Mortgage-backed securities-
residential
Mortgage-backed securities-
commercial
Collateralized mortgage obligations
Obligations of state and other
political subdivisions
Asset-backed securities
Other securities
Total
Within one year
After one but within
five years
After five but within
ten years
After ten years
Amount
Yield(1)
Amount
Yield(1)
Amount
Yield(1)
Amount
Yield(1)
Maturity (2)
0
0
0
0
0
0
0
0
0.00% $
0
0.00% $
0.00%
20,818
2.38%
0
0
83,736
9,763
2.36%
1.71%
17,531
0
0.00% $
0.00%
2.96%
0.00%
0
0.00%
4,756
3.56%
0.00% $
114,317
2.31% $
22,287
3.09% $
0.00%
0.00%
0.00%
0
0
0
0
6,258
6,258
0.00%
0.00%
0.00%
0.00%
2.39%
2.39%
0.00% $
0.00%
100
158
1.97% $
1.77%
0
0
0.00% $
0.00%
0
0
0.00%
0.00%
$
$
592
3.59%
297,995
3.07%
87,430
2.99%
45,538
2.86%
85,143
67,905
34,597
54,040
2,558
3.78%
3.24%
3.12%
3.81%
4.09%
252,558
554,295
291,443
210,250
55,029
3.50%
3.15%
2.64%
3.63%
5.53%
98,199
125,988
278,281
136,141
24,038
2.95%
3.08%
3.19%
3.30%
3.47%
40,618
37,256
71,932
0
0
$
244,835
3.55% $ 1,661,828
3.24% $
750,077
3.14% $
195,344
2.93%
2.93%
3.08%
0.00%
0.00%
2.97%
(1) Tax equivalent basis was calculated using a 21.0% tax rate and yields were based on amortized cost.
(2) Maturity represents estimated life of investment securities.
DERIVATIVES
First Financial is authorized to use certain derivative instruments including interest rate caps, floors, swaps and foreign
exchange contracts to meet the needs of its clients while managing interest rate risk associated with certain transactions. The
Company 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 achieve the Company's desired interest rate risk profile. These interest rate swaps generally involve the receipt by First
Financial of floating rate amounts from swap counterparties in exchange for payments to these counterparties by First Financial
of fixed rate amounts received from borrowers. This results in the Company's loan customers receiving fixed rate funding
while providing First Financial with a floating rate asset.
First Financial Bancorp 2019 Annual Report 17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation
agreements with 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.
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 loans held for sale.
First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their
exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts,
First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge the exposure
from client driven foreign exchange activity.
See Note 12 – Derivatives in the Notes to Consolidated Financial Statements for additional information regarding First
Financial's use of derivative instruments.
DEPOSITS
First Financial solicits deposits by offering commercial and consumer clients a wide variety of transaction and savings
accounts, including checking, savings, money-market and time deposits of various maturities and rates.
2019 vs. 2018. First Financial's total deposits increased $69.8 million, or 0.7%, from $10.1 billion at December 31, 2018 to
$10.2 billion as of December 31, 2019. During the period, noninterest bearing deposits increased $151.5 million, or 6.1%,
interest-bearing checking deposits increased $57.8 million, or 2.5%, and time deposits increased $66.9 million, or 3.1%, while
savings deposits decreased $206.3 million, or 6.5%. Total non-time deposit balances were $8.0 billion as of December 31,
2019 and December 31, 2018.
Total average deposits for 2019 increased $785.2 million, or 8.4%, from 2018 primarily due to an increase in average time
deposits of $284.7 million, or 14.7%, an increase in average noninterest bearing deposits of $306.7 million, or 13.8%, an
increase in average interest-bearing demand deposits of $156.8 million, or 7.2%, and an increase in average savings deposits
$37.0 million, or 1.2%. The year-over-year growth in average deposits was primarily attributable to the full year impact of the
MSFG merger as well as increased customer demand.
Table 9 – Maturities of Time Deposits Greater Than or Equal to $100,000 details the contractual maturity of these deposits.
Time Deposits Greater Than or Equal to $100,000 represent 14.2% of total deposits outstanding at December 31, 2019.
Table 9 • Maturities of Time Deposits Greater than or Equal to $100,000
(Dollars in thousands)
Maturing in
3 months or less
3 months to 6 months
6 months to 12 months
over 12 months
Total
BORROWINGS
December 31, 2019
CDs
IRAs
Brokered CDs
Total
$
$
136,714
120,670
204,918
171,653
633,955
$
$
7,357
8,935
22,234
39,499
78,025
$
$
273,410
316,253
140,497
5,982
736,142
$
$
417,481
445,858
367,649
217,134
1,448,122
First Financial's short-term borrowings are utilized to manage the Company's normal liquidity needs. These borrowings include
repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place, as well as
overnight advances from the FHLB. The Company's long-term borrowings consist of subordinated debt, FHLB long-term
advances, repurchase agreements utilizing investment securities pledged as collateral and a capital loan from a municipality.
18 First Financial Bancorp 2019 Annual Report
2019 vs. 2018. Short-term borrowings increased $275.5 million, or 26.5%, to $1.3 billion at December 31, 2019, from $1.0
billion at December 31, 2018.
First Financial utilizes short-term borrowings and longer-term advances from the FHLB as wholesale funding sources. First
Financial had $1.2 billion of short-term borrowings from the FHLB at December 31, 2019 compared to $857.1 million at
December 31, 2018. In addition to FHLB borrowings, short term borrowings included repurchase agreements of $90.2 million
and $84.6 million at December 31, 2019 and 2018, respectively, and federal funds purchased of $75.0 million and $99.0 million
as of December 31, 2019 and 2018, respectively.
Total long-term debt was $414.4 million and $570.7 million at December 31, 2019 and 2018, respectively. Long-term debt
included FHLB long-term advances of $242.4 million and $400.6 million as of December 31, 2019 and 2018, respectively.
First Financial's total remaining borrowing capacity from the FHLB was $486.4 million at December 31, 2019. For ease of
borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $6.2 billion
of certain eligible residential, commercial and agricultural real estate loans, home equity lines of credit and certain agency
CMOs, municipals and CMBS securities as collateral for borrowings from the FHLB as of December 31, 2019.
Long-term debt also included an interest free $0.8 million capital loan outstanding with a municipality and subordinated debt of
$171.0 million and $170.6 million as of December 31, 2019 and 2018, respectively. The subordinated debt is treated as Tier 2
capital for regulatory capital purposes. The subordinated debt also included unamortized valuation and debt issuance costs of
$7.9 million and $8.5 million as of December 31, 2019 and 2018, respectively.
See Note 11 – Borrowings in the Notes to Consolidated Financial Statements for additional information on First Financial's
borrowings.
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 and access to wholesale funding sources.
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 a variety of short and long-
term funding sources, which include subordinated notes, longer-term advances from the FHLB and its short-term line of credit.
First Financial maintains a short-term credit facility with an unaffiliated bank for $30.0 million that matures in September 2020.
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
December 31, 2019 and December 31, 2018, there was no outstanding balance. The credit agreement requires First Financial to
maintain certain covenants related to asset quality and capital levels, and First Financial was in compliance with all covenants
associated with this line of credit as of December 31, 2019 and December 31, 2018.
Both First Financial and the Bank received investment grade credit ratings from Kroll Bond Rating Agency, Inc., an
independent rating agency. These credit ratings impact the cost and availability of financing to First Financial, and a
downgrade to these credit ratings could affect First Financial's or the Bank’s abilities to access the credit markets and
potentially increase borrowing costs, which would negatively impact financial condition and liquidity. Key factors in
maintaining high credit ratings include consistent and diverse earnings, strong credit quality and capital ratios, diverse funding
sources and disciplined liquidity monitoring procedures. The ratings of First Financial and the Bank at December 31, 2019
were as follows:
Senior Unsecured Debt
Subordinated Debt
Short-Term Debt
Deposit
Short-Term Deposit
First Financial Bancorp
First Financial Bank
BBB+
BBB
K2
N/A
N/A
A-
BBB+
K2
A-
K2
First Financial Bancorp 2019 Annual Report 19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 AFS totaled $2.9 billion and $2.8 billion at December 31,
2019 and 2018, respectively. HTM securities that are maturing within a short period of time can be an additional source of
liquidity. As of December 31, 2019, the Company had no HTM securities maturing within one year. As of December 31, 2018,
the Company had $0.8 million of HTM securities maturing within one year.
Other sources of liquidity include cash and due from banks and interest-bearing deposits with other banks. At December 31,
2019, these balances totaled $257.6 million, and First Financial had unused and available overnight wholesale funding sources
of $3.2 billion, or 21.9% of total assets, to fund loan and deposit activities in addition to general corporate requirements.
Certain restrictions exist regarding the Bank's ability to transfer funds to First Financial in the form of cash dividends, loans,
other assets or advances and the approval of the Bank's primary federal regulator is required to pay dividends in excess of
regulatory limitations. Dividends paid to the parent company from its subsidiaries totaled $196.8 million, $107.3 million and
$54.6 million for 2019, 2018 and 2017, respectively. As of December 31, 2019, First Financial’s subsidiaries had retained
earnings of $660.7 million, of which $155.7 million was available for distribution to First Financial without prior regulatory
approval. Additionally, First Financial had $55.9 million in cash at the parent company as of December 31, 2019.
Capital expenditures, such as banking center expansion, remodeling and technology investments, were $20.9 million for 2019,
$18.2 million for 2018 and $6.5 million for 2017. Material commitments for capital expenditures as of December 31, 2019,
were $27.2 million. Management believes that sufficient liquidity exists to fund its future capital expenditure commitments.
Share repurchases also impact First Financial's liquidity. For further information regarding share repurchases, see the Capital
section that follows.
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.
Table 10 • Contractual Obligations as of December 31, 2019
(Dollars in thousands)
Contractual Obligations
Long-term debt obligations (including interest)
Federal Home Loan Bank borrowings
Subordinated debt
Capital loan with municipality
Operating lease obligations
Pension obligations
Time deposits
Total
CAPITAL
Less than
one year
One to
three years
Three to
five years
More than
five years
Total
$ 109,707
8,175
0
7,200
5,611
1,752,552
$ 1,883,245
$
75,117
18,574
0
13,806
10,383
435,840
$ 553,720
$
$
2,217
17,831
0
13,168
11,195
51,029
95,440
$
72,136
203,585
775
50,504
35,362
1,020
$ 363,382
$ 259,177
248,165
775
84,678
62,551
2,240,441
$ 2,895,787
Risk-Based Capital. First Financial and its subsidiary, First Financial Bank, are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory
guidelines. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet
minimum capital requirements can initiate regulatory action.
The Board of Governors of the Federal Reserve System approved Basel III in order to strengthen the regulatory capital
framework for all banking organizations, subject to a phase-in period for certain provisions. Basel III established and defined
quantitative measures to ensure capital adequacy. These measures require First Financial 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).
20 First Financial Bancorp 2019 Annual Report
Basel III includes a minimum ratio of common equity tier 1 capital to risk-weighted assets of 7.0% at December 31, 2019 and
6.375% at December 31, 2018 and a phased-in capital conservation buffer of 2.5% of risk-weighted assets that began on
January 1, 2016 at 0.625% until it was fully phased-in as of January 1, 2019. Further, the minimum ratio of tier 1 capital to
risk-weighted assets increased to 8.5% at December 31, 2019 and all banks are subject to a 4.0% minimum leverage ratio. The
required total risk-based capital ratio is 10.5%. Failure to maintain the required common equity Tier 1 capital conservation
buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and pay discretionary
compensation to its employees. The 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.
First Financial's tier 1 capital decreased to 11.69% at December 31, 2019 from 12.28% at December 31, 2018, while the total
capital ratio decreased to 13.39% from 14.10% during the same period. The decline in these ratios was primarily attributed to
higher shareholder dividends and share repurchases in 2019, as well as higher risk-weighted assets driven by an increase
commercial real estate loan balances and a decline in lower risk securities. The leverage ratio decreased to 9.58% at
December 31, 2019 compared to 9.71% as of December 31, 2018 while the Company’s tangible common equity ratio increased
to 9.07% at December 31, 2019 from 8.79% at December 31, 2018.
Management believes that, as of December 31, 2019, First Financial met all capital adequacy requirements to which it was
subject. At December 31, 2019 and 2018, regulatory notifications categorized First Financial Bank as well-capitalized under
the regulatory framework for prompt corrective action. There have been no conditions or events that management believes has
changed the Company’s capital categorization.
For further detail on First Financial's capital ratios at December 31, 2019, see Note 19 – Capital in the Notes to Consolidated
Financial Statements.
First Financial Bancorp 2019 Annual Report 21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 11 • Capital Adequacy
(Dollars in thousands)
Consolidated capital calculations
Common stock
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost
Total shareholders' equity
Common equity tier 1 capital adjustments
Goodwill and other intangibles
Total tangible equity
Total assets
Goodwill and other intangibles
Total tangible assets
Common tier 1 capital
Tier 1 capital
Total capital
Total risk-weighted assets
Average assets (1)
Regulatory capital
Common tier 1 ratio
Tier 1 ratio
Total capital ratio
Leverage ratio
Other capital ratios
Total shareholders' equity to ending assets
Total tangible shareholders' equity to ending tangible assets
(1) For purposes of calculating the Leverage ratio, certain intangible assets are excluded from average assets.
December 31,
2019
2018
$ 1,640,771
$ 1,633,256
711,249
13,323
(117,638)
2,247,705
600,014
(44,408)
(110,613)
2,078,249
(1,024,622)
$ 1,223,083
$14,511,625
(1,024,622)
$13,487,003
(931,030)
$ 1,147,219
$13,986,660
(931,030)
$13,055,630
$ 1,245,746
$ 1,215,613
1,288,185
1,475,813
1,257,366
1,444,146
11,023,795
10,241,159
13,440,151
12,948,944
11.30%
11.69%
13.39%
9.58%
11.87%
12.28%
14.10%
9.71%
15.49%
9.07%
14.86%
8.79%
First Financial generally seeks to balance the return of earnings to shareholders through shareholder dividends and share
repurchases with capital retention in order to maintain adequate levels of capital and support the Company's growth plans.
Shareholder Dividends. First Financial’s dividend payout ratio, or total dividends paid divided by net income available to
common shareholders, was 44.8%, 40.0% and 43.3% for the years 2019, 2018 and 2017, respectively. The dividend payout
ratio is continually reviewed by management and the board of directors for consistency with First Financial’s overall capital
planning activities and compliance with applicable regulatory limitations. In January 2020, the board of directors authorized a
dividend of $0.23 per common share, payable on March 16, 2020 to all shareholders of record as of March 2, 2020.
Share Repurchases. In January 2019, First Financial's board of directors approved a stock repurchase plan, replacing the plan
approved in 2012. The 2019 plan authorizes the purchase of up to 5,000,000 shares of the Company's common stock and
expires in January 2021. First Financial repurchased 2,753,272 shares at an average market price of $24.05 under this plan
during 2019. At December 31, 2019, 2,246,728 shares remained available for purchase under the 2019 share repurchase plan.
Shareholders' Equity. Total shareholders’ equity at December 31, 2019 was $2.2 billion, compared to total shareholders’
equity at December 31, 2018 of $2.1 billion. The increase in shareholders' equity is primarily related to the Company's 2019
earnings.
22 First Financial Bancorp 2019 Annual Report
For further detail, see the Consolidated Statements of Changes in Shareholders’ Equity.
PENSION PLAN
First Financial sponsors a non-contributory defined-benefit pension plan covering substantially all employees. The significant
assumptions used in the valuation and accounting for the pension plan include the discount rate, expected return on plan assets
and the rate of employee compensation increase. The discount rate assumption was determined based on highly rated corporate
bonds, weighted to adjust for their relative size, projected plan cash flows using the annuity substitution method as well as
comparisons to external industry surveys. The expected return on plan assets was 7.25% for both 2019 and 2018, and was
based on the composition of plan assets, actual returns, economic forecasts and economic trends. The assumed rate of
compensation increase was 3.50% and was compared to historical increases for plan participants for reasonableness.
Presented below is the estimated impact on First Financial’s projected benefit obligation and pension expense as of
December 31, 2019, assuming shifts in the significant assumptions:
(Dollars in thousands)
Change in Projected Benefit Obligation
Change in Pension Expense
Discount rate
$
-100 BP
6,277
74
+100 BP
$
(4,729)
114
$
Expected return on
plan assets
Rate of compensation
increase
-100 BP
+100 BP
-100 BP
N/A
1,340
N/A $
$
(1,340)
(327) $
(62)
+100 BP
826
218
Based upon the plan’s current funding status and updated actuarial projections for 2019, First Financial recorded expense
related to its pension plan of $1.0 million for 2019 and $0.9 million for 2018, while recording income of $0.6 million for 2017
in the Consolidated Statements of Income. First Financial will make contributions to the plan if plan assets do not meet or
exceed ERISA’s minimum funding standards. Given the plan's over-funded status, First Financial made no cash contributions
to fund the pension plan in 2019, 2018 or 2017 nor does it expect to make a cash contribution in 2020.
See Note 16 – Employee Benefit Plans in the Notes to Consolidated Financial Statements for additional information on First
Financial's pension plan.
ENTERPRISE RISK MANAGEMENT
First Financial considers risk to be any issue that could have an adverse impact on the Company's capital or earnings, or
negatively impact the Company's ability to meet its objectives. First Financial manages risks through a structured 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
into the the Company's culture. ERM allows First Financial to align a variety of risk management activities within the
Company into a cohesive, enterprise-wide approach and focus on process-level risk management activities and strategic
objectives within the risk management culture. Additionally, ERM allows the Company to deliberately develop risk responses
and evaluate the effectiveness of mitigation compared to established thresholds for risk appetite and tolerance, in addition to
facilitating the consideration of significant organizational changes and consolidation of information through a common process
for management and the board of directors.
First Financial has identified nine types of risk that it monitors in its ERM framework. These risks include credit, market,
operational, compliance, strategic, reputation, information technology, cyber and legal.
First Financial uses a robust regulatory risk framework as one of the foundational components of its ERM framework. This
allows for a common categorization across the Company and provides a consistent and complete risk framework that can be
summarized and assessed enterprise-wide. Additionally, the risk framework utilized is consistent with that used by the
Company’s regulators, which results in additional feedback on First Financial’s ability to assess and measure risk across the
organization as well as the ability for management and the board of directors to identify and understand differences in assessed
risk profiles.
ERM helps ensure that First Financial continues to identify and adequately address risks that emerge from a combination of
new customers, products and associates, changing markets, new lines of business and processes and new or evolving systems.
The goals of First Financial’s ERM framework are to:
First Financial Bancorp 2019 Annual Report 23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
•
•
•
•
•
•
•
•
focus on the Company at both the enterprise and line of business levels;
align the Company's risk appetite with its strategic, operational, compliance and reporting objectives;
enhance risk response decisions;
reduce operational deficiencies and possible losses;
identify and manage interrelated risks;
provide integrated responses to multiple risks;
improve the deployment and allocation of capital; and
improve overall business performance.
Specific enterprise-level objectives include:
•
•
•
•
•
•
•
creating a holistic view of risk in which risk is comprehensively considered, consistently communicated and
documented in decision making;
centralizing the oversight of risk management activities;
defining the risks that will be addressed by the enterprise and each functional area or business unit to create an
awareness of risks affecting the Company;
establishing and maintaining systems and mechanisms to identify, assess, monitor and measure risks that may impact
First Financial’s ability to achieve its business objectives;
creating a process which ensures that, for all new lines of business and new product decisions, management evaluates
the expertise needed and assesses the risks involved;
establishing and maintaining systems and mechanisms to monitor risk responses;
developing risk occurrence information systems to provide early warning of events or situations that create risk for the
Company;
• maintaining a compliance culture and framework that ensures adherence to laws, rules and regulations, fair treatment
•
•
and privacy of customers and prevention of money laundering and terrorist financing;
implementing and reviewing risk measurement techniques that management may use to establish the Company’s risk
tolerance, assess risk likelihood and impact and analyze risk monitoring processes; and
establishing appropriate management reporting systems regarding the enterprise-wide risk exposures and allocation of
capital.
Line of business-level objectives focus on why the particular business or business unit risk exists; how the business affects the
Company’s strategy, earnings, reputation and other key success factors; and whether the line of business objectives are aligned
with enterprise objectives.
Board of Directors and Board Risk & Compliance Committees. First Financial’s board of directors is responsible for
understanding the Company’s compliance and risk management objectives and risk tolerance, and as such, board oversight of
the Company’s compliance and risk management activities is a key component to an effective risk management process.
Responsibilities of the board of directors include:
•
establishing and guiding the Company’s strategic direction and tolerance for risk, including the determination of the
aggregate risk appetite and identifying the senior managers who have the responsibility for managing risk;
• monitoring the Company’s performance and overall risk profile, ensuring that the level of risk is maintained at prudent
levels and is supported by adequate capital;
ensuring that the Company implements sound fundamental principles that facilitate the identification, measurement,
monitoring and control of risk;
ensuring that adequate resources are dedicated to compliance and risk management; and
ensuring that awareness of risk management activities is evident throughout the organization.
•
•
•
The board of directors has defined broad risk tolerance levels, or limits, to guide management in the decision-making process,
and is responsible for establishing information and communication requirements to ensure that risk management activities
remain within these tolerance limits. The risk and compliance committee, a standing committee of the board of directors, is
responsible for carrying out the board’s responsibilities in this regard. Other standing committees of the board (audit,
compensation, corporate governance and nominating, and capital markets) oversee particular areas of risk assigned specifically
to them.
Executive and Senior Management. Members of executive and senior management are responsible for managing risk
activities and delegating risk authority and tolerance to the responsible risk owners.
24 First Financial Bancorp 2019 Annual Report
Management must identify which processes and activities are critical to achieving the Company’s business objectives within the
designated tolerance levels. Management must then delegate responsibility, authority and accountability to the appropriate risk
owners who are responsible for ensuring that the respective processes and activities are designed and implemented to manage
the related risks within those delegated tolerance levels.
Chief Risk Officer. The chief risk officer is responsible for the oversight of the Company’s ERM processes. The chief risk
officer may appoint other officers or establish other management committees as required for effective risk management and
governance, including risk identification, risk measurement, risk monitoring, risk control or mitigation and risk reporting. The
chief risk officer is also responsible for the maintenance of procedures, methodologies and guidelines considered necessary to
administer the ERM program.
Chief Compliance Officer. The chief compliance officer is responsible for the oversight of the Company’s compliance
management function, which includes Bank Secrecy Act/Anti-Money Laundering and all other regulatory compliance. The
chief compliance officer is authorized to implement all necessary actions to ensure achievement of the objectives of an effective
compliance program and may appoint other officers or establish other management committees as required for effective
compliance management. The chief compliance officer reviews and evaluates compliance issues and concerns and is
responsible for monitoring and reporting results of the compliance efforts in addition to providing guidance to the board of
directors and senior management team on matters relating to compliance.
Committee Chairs. The ERM program utilizes multiple management committees as its primary assessment and
communication mechanism for identified risks. Committee chairs play key roles in the execution of risk management activities
throughout the enterprise and are responsible for continuous updates and communication among committee members in
conjunction with the risk management department regarding changes to risk profiles, changes to risk assessments and the
emergence of new risks that could impact the Company.
Internal Audit. Internal audit is responsible for planning audit activities to periodically reassess the design and operation of
key risk management processes and to make periodic evaluations of the ongoing accuracy and effectiveness of the
communications from risk owners to senior management and from senior management to the board of directors.
Risk Assessment Process. The periodic assessment of risks is a key component of a sound ERM program. Managers, business
line leaders and executives are responsible for developing the risk assessment for their individual departments, business lines
and subsidiaries. The chief risk officer, management and the board risk and compliance committee are responsible for ensuring
that risk is viewed and analyzed from an enterprise-level global perspective. Furthermore, interrelated risks are considered,
assessing how a single risk or event may create multiple risks.
Risk management programs, in each functional component and in aggregate, accomplish the following:
•
•
•
•
•
•
•
•
•
identify risks and their respective owners;
link identified risks and their mitigation to the Company's strategic objectives;
evaluate the risks and their associated likelihood of occurrence and consequences;
develop strategies to manage risk, such as avoiding the risk; reducing the negative effect of the risk; transferring the
risk to another party; and/or accepting some or all of the consequences of a particular risk;
prioritize the risk issues with regard to the current risk status and trend;
provide reports to management and risk owners that will assist them in implementing appropriate risk management
processes;
assist management in assessing the alternatives for managing risks;
assist management in the development of risk management plans; and
track risk management efforts.
Monitoring and Reporting. The board of directors oversees risk reporting and monitoring through the board risk and
compliance committee, which meets at least quarterly.
Management continually reviews any risk identified as key, as well as the appropriateness of established tolerance limits and
the actions considered as necessary to mitigate key risks. As circumstances warrant, management provides recommendations to
the board risk and compliance committee related to changes or adjustments to key risks or tolerance limits.
First Financial Bancorp 2019 Annual Report 25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
First Financial believes that communication is fundamental to successful risk management and productive reporting and
communication between the risk management department, management and the board of directors is required for collaborative
and effective risk management.
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 practices, periodically reviewing and
approving its credit exposures using credit policies and guidelines approved by the board of directors.
Allowance for loan and lease losses. The ALLL is a reserve accumulated on the Consolidated Balance Sheets through the
recognition of the provision for loan and lease losses. First Financial records the provision in the Consolidated Statements of
Income to maintain the ALLL at a level considered sufficient to absorb probable incurred loan and lease losses inherent in the
portfolio.
The recorded values of the loans and leases actually removed from the Consolidated Balance Sheets due to credit deterioration
are referred to as charge-offs. 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. All loans charged-off are subject to continuous review and concerted efforts are made to maximize any recovery. In
most cases, the borrower’s debt obligation is not canceled even though the balance may have been charged-off. Actual losses
on loans and leases are charged against the ALLL. Any subsequent recovery of a previously charged-off loan is credited back
to the ALLL.
Management determines the adequacy of the ALLL 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 situations that may affect a specific borrower's ability to repay. The
evaluation of these factors is the responsibility of the ALLL committee, which is comprised of senior officers from the risk
management, credit administration, finance and lending areas.
See Table 12 – Summary of the ALLL and Selected Statistics for a summary of activity impacting the ALLL and Table 13 –
Allocation of the ALLL for detail on its composition.
2019 vs. 2018. The ALLL at December 31, 2019 was $57.7 million, or 0.63% of loans, which was a $1.1 million, or 2.0%,
increase from $56.5 million, or 0.64% of loans at December 31, 2018. Provision expense increased $16.0 million, or 109.8%,
to $30.6 million in 2019 from $14.6 million in 2018.
Net charge-offs increased $17.4 million, or 144.4%, to $29.5 million for 2019 compared to $12.1 million for 2018, while the
ratio of net charge-offs as a percentage of average loans outstanding increased to 0.33% in 2019 from 0.15% in 2018. The
increase in net charge-offs in 2019 was the primary driver of the elevated provision expense, and was mainly attributed to $13.2
million of charge-offs related to a single franchise relationship.
The ALLL as a percentage of nonperforming loans, including accruing TDRs was 96.7% at December 31, 2019 compared with
65.1% at December 31, 2018. The improvement in this ratio largely is attributed to the reduction of nonperforming loans as a
result of strong resolution efforts during the period.
26 First Financial Bancorp 2019 Annual Report
For further discussion of First Financial's ALLL, see Note 6 – Allowance for Loan and Lease Losses in the Notes to
Consolidated Financial Statements.
Table 12 • Summary of the ALLL and Selected Statistics
(Dollars in thousands)
2019
2018
2017
2016
2015
Transactions in the allowance for loan and lease losses:
Balance at January 1
$ 56,542
$ 54,021
$ 57,961
$ 53,398
$ 52,858
Provision for loan and lease losses
30,598
14,586
3,582
10,140
9,641
Loans charged-off:
Commercial and industrial
Lease financing
Real estate – construction
Real estate – commercial
Real estate – residential
Home equity
Installment
Credit card
26,676
11,533
10,194
2,630
5,408
162
0
3,689
677
2,591
223
1,547
0
0
4,835
422
1,725
435
1,720
0
1
1,038
435
913
225
857
0
93
4,983
387
1,445
386
1,190
0
85
10,083
1,531
1,891
509
1,049
Total loans charged-off
35,565
20,670
13,663
11,114
20,556
Recoveries of loans previously charged-off:
Commercial and industrial
Lease financing
Real estate – construction
Real estate – commercial
Real estate – residential
Home equity
Installment
Credit card
Total recoveries
Net charge-offs
2,883
0
68
1,113
273
1,335
251
152
6,075
29,490
2,066
1
146
4,106
211
1,309
575
191
8,605
12,065
1,650
1
89
2,719
215
1,027
234
206
6,141
7,522
1,155
1
285
2,502
236
720
335
303
5,537
5,577
3,724
2
253
5,214
558
1,001
463
240
11,455
9,101
Balance at December 31
$ 57,650
$ 56,542
$ 54,021
$ 57,961
$ 53,398
Net charge-offs to average loans and leases
Commercial and industrial
Lease financing
Real estate-construction
Real estate-commercial
Real estate-residential
Home equity
Installment
Credit card
Total net charge-offs
Credit quality ratios:
As a percent of year-end loans, net of unearned income:
Allowance for loan and lease losses
Nonperforming loans (1)
0.95 %
0.17 %
(0.01)%
0.07 %
0.04 %
0.16 %
(0.03)%
2.81 %
0.33 %
0.38 %
0.00 %
(0.03)%
0.02 %
0.03 %
0.06 %
(0.15)%
3.19 %
0.15 %
0.47 %
0.00 %
(0.02)%
(0.07)%
0.05 %
(0.02)%
(0.02)%
1.44 %
0.13 %
0.08 %
0.00 %
(0.05)%
0.11 %
0.03 %
0.16 %
0.11 %
2.10 %
0.10 %
0.12 %
0.00 %
(0.07)%
0.23 %
0.19 %
0.19 %
0.11 %
2.04 %
0.18 %
0.63 %
0.65 %
0.64 %
0.98 %
0.90 %
0.69 %
1.01 %
0.83 %
0.99 %
1.06 %
Allowance for loan and lease losses to nonperforming loans (1)
96.73 %
65.13 %
129.77 %
120.83 %
93.89 %
(1) Includes loans classified as nonaccrual and troubled debt restructurings.
First Financial Bancorp 2019 Annual Report 27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 13 • Allocation of the ALLL
2019
2018
December 31,
2017
2016
2015
(Dollars in thousands)
Allowance
Balance at End of Period Applicable to:
Percent
of Loans
to Total
Loans
Allowance
Percent
of Loans
to Total
Loans
Allowance
Percent
of Loans
to Total
Loans
Allowance
Percent
of Loans
to Total
Loans
Allowance
Percent
of Loans
to Total
Loans
Commercial and industrial
$
18,584
26.8% $
18,746
28.5% $
17,598
31.8% $
19,225
31.0% $
16,995
30.9%
Lease financing
Real estate – construction
Real estate – commercial
Real estate – residential
Installment, home equity & credit card
971
2,381
23,579
5,299
6,836
1.0%
5.4%
45.5%
11.5%
9.8%
1,130
3,413
21,048
4,964
7,241
1.1%
6.2%
42.5%
10.8%
10.9%
675
3,577
1.5%
7.8%
716
3,282
1.6%
6.9%
821
1,810
20,930
41.4%
26,540
42.2%
23,656
4,683
6,558
7.8%
9.7%
3,208
4,990
8.7%
9.6%
4,014
6,102
1.7%
5.8%
41.9%
9.5%
10.2%
Total
$
57,650
100.0% $
56,542
100.0% $
54,021
100.0% $
57,961
100.0% $
53,398
100.0%
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.
Interest rate risk arises in the normal course of business to the extent that there is a divergence between the amount of 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 from
shifts in market interest rates.
First Financial monitors the Company's interest rate risk position using income simulation models and EVE sensitivity analyses
that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting NII under a
variety of interest rate scenarios. EVE is calculated by discounting the cash flows for all balance sheet instruments under
different interest-rate scenarios. First Financial uses EVE sensitivity analysis to understand the impact of changes in interest
rates on long-term cash flows, income and capital. 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 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
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 in addition to 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 utilized a weighted average deposit beta of 37% in its interest rate risk modeling as of December 31, 2019.
First Financial also includes an assumption for the migration of non-maturity deposit balances into CDs for all upward rate
scenarios beginning with the +100 BP scenario, thereby increasing deposit costs and reducing asset sensitivity.
28 First Financial Bancorp 2019 Annual Report
Presented below is the estimated impact on First Financial’s NII and EVE as of December 31, 2019, assuming immediate,
parallel shifts in interest rates:
NII - Year 1
NII - Year 2
EVE
% Change from base case for
immediate parallel changes in rates
-100 BP
(6.62)%
(9.02)%
(5.51)%
+100 BP
3.99%
5.33%
3.83%
+200 BP
7.01%
9.46%
6.34%
“Risk-neutral” refers to the absence of a strong bias toward either asset or liability sensitivity. “Asset sensitivity” is when a
company's interest-earning assets reprice more quickly or in greater quantities than interest-bearing liabilities. Conversely,
“liability sensitivity” is when a company's interest-bearing liabilities reprice more quickly or in greater quantities than 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.
First Financial was within policy limits set for the disclosed interest rate scenarios as of December 31, 2019. The projected
results for NII and EVE reflected an asset sensitive position, which was relatively in line with third quarter results, but has
increased slightly over the back half of 2019 due to increased variable rate loan production. First Financial continues to
manage its balance sheet with a bias toward neutrality or slight 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 following
table reflects First Financial’s estimated NII sensitivity profile as of December 31, 2019 assuming both a 25% increase and
decrease to the beta assumption on managed rate deposit products:
NII-Year 1
NII-Year 2
Beta sensitivity (% change from base)
+100 BP
+200 BP
Beta 25% lower
Beta 25% higher
Beta 25% lower
Beta 25% higher
4.93%
6.27%
3.05%
4.39%
7.92%
10.36%
6.11%
8.55%
See the Net Interest Income section of Management’s Discussion and Analysis for further discussion.
Table 14 – Market Risk Disclosure projects the principal maturities and yields of First Financial’s interest-bearing financial
instruments at December 31, 2019 for the next five years and thereafter, as well as the fair value of the instruments. For loans,
securities and liabilities with contractual maturities, the table presents principal cash flows and related weighted-average
interest rates by contractual maturities. For investment securities, including MBSs and CMOs, principal cash flows are based
on estimated average lives. For loan instruments without contractual maturities, such as credit card loans, principal payments
are allocated based on historical payment activity trends. Maturities for interest-bearing liability accounts with no contractual
maturity dates are estimated according to historical experience of cash flows and current expectations of client behaviors when
calculating fair value, but are included in the maturing in one year or less category as they can be withdrawn on demand.
First Financial Bancorp 2019 Annual Report 29
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 14 • Market Risk Disclosure
(Dollars in thousands)
Rate sensitive assets
Fixed interest rate loans (1)
Principal Amount Maturing In
Fair Value
December 31,
2020
2021
2022
2023
2024
Thereafter
Total
2019
$ 390,678
$ 332,995
$ 264,535
$ 275,995
$ 177,186
$ 725,114
$2,166,503
$ 2,227,168
Average interest rate
4.60%
4.48%
4.58%
4.50%
4.82%
4.29%
4.48%
Variable interest rate loans (1)
1,046,607
742,251
693,245
568,836
796,736
3,143,517
6,991,192
6,920,727
Average interest rate
4.70%
4.64%
4.55%
4.64%
4.94%
4.69%
4.69%
Fixed interest rate securities
191,525
350,046
454,086
449,592
313,114
842,935
2,601,298
2,601,257
Average interest rate
3.39%
3.28%
3.08%
2.90%
3.00%
3.09%
3.10%
Variable interest rate securities
53,310
68,224
54,485
17,710
68,889
131,030
393,648
393,648
Average interest rate
Other earning assets
Average interest rate
4.15%
4.23%
4.12%
4.77%
3.70%
3.20%
3.80%
56,948
0
0
0
0
0
56,948
56,948
1.75%
0.00%
0.00%
0.00%
0.00%
0.00%
1.75%
Rate sensitive liabilities
Noninterest-bearing checking (2)
Savings and interest-bearing
checking (2)
$2,643,928
$
5,325,860
$
0
0
$
0
0
$
0
0
$
0
0
0
0
$2,643,928
$ 2,643,928
5,325,860
5,325,860
Average interest rate
0.50%
0.00%
0.00%
0.00%
0.00%
0.00%
0.50%
Time deposits
1,753,100
294,630
141,268
37,757
13,282
404
2,240,441
2,240,002
Average interest rate
2.01%
1.72%
1.95%
0.74%
1.23%
2.34%
1.94%
Fixed interest rate borrowings
1,330,017
19,007
49,404
0
0
193,948
1,592,376
1,593,427
Average interest rate
1.84%
4.92%
2.67%
0.00%
0.00%
4.29%
2.20%
Variable interest rate borrowings
90,181
0
0
0
0
48,000
138,181
137,691
Average interest rate
0.22%
0.00%
0.00%
0.00%
0.00%
4.51%
1.71%
(1) Includes loans held for sale.
(2) Deposits without a stated maturity are represented as maturing within one year due to the ability of the client to withdraw deposited amounts on demand.
OPERATIONAL RISK
Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls and external
influences such as market conditions, fraudulent activities, natural disasters and security risks. First Financial continuously
strives to strengthen the Company’s system of internal controls and operating processes as well as associates' ability to assess
the impact on earnings and capital from operational risk.
COMPLIANCE RISK
Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from the Company’s
failure to comply with rules and regulations issued by the various banking agencies and standards of good banking practice.
Activities which may expose First Financial to compliance risk include, but are not limited to, those dealing with the prevention
of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from
the Company’s expansion of its banking center network and employment and tax matters.
STRATEGIC AND REPUTATION RISK
Strategic risk represents the risk of loss due to failure to fully develop and execute business plans, failure to assess current and
new business opportunities, markets and products and any other event not identified in the defined risk types previously
mentioned. Strategic risk focuses on analyzing factors that affect the direction of the institution or improper implementation of
decisions.
30 First Financial Bancorp 2019 Annual Report
Reputation risk represents the risk of loss or impairment of earnings and capital from negative publicity. This affects the ability
of First Financial to establish new relationships or services or to continue servicing existing relationships. Reputation risk is
recognized by the effect that public opinion could have on First Financial's franchise value and has evolved in recent years with
the growth in social media.
Mitigation of strategic and reputation risk elements is achieved through initiatives that help First Financial better understand
and report on the various risks it faces each day, including those related to the development of new products and business
initiatives.
INFORMATION TECHNOLOGY RISK
Information technology risk is the risk that the information technologies utilized by FFB are not efficiently and effectively
supporting the current and future needs of the business, operating as intended or compromise the availability, integrity and
reliability of data and information. This risk also considers whether or not the Company’s information technology exposes the
Company's assets to potential loss or misuse, or threatens the Company’s ability to sustain the operation of critical business
processes.
CYBERSECURITY RISK
Cyber risk is differentiated from information technology risk by threat interactions that yield high impact consequences and
ever-increasing probability. First Financial continues to be the target of various evolving and adaptive cyber attacks, including
malware, phishing and distributed denial-of-service, in order to disrupt the operations of financial institutions, potentially test
their cybersecurity capabilities, commit fraud, or obtain confidential, proprietary or other information. While standard security
operations address most day to day incidents, cyber risk includes threats and attacks that often use advanced tools, techniques
and processes to evade detection or inflict maximum damage to an organization's information assets. Cyber threats and attacks
adapt and evolve rapidly, so First Financial works to continuously enhance controls and processes to protect its networks and
applications from attack, damage or unauthorized access. Critical components to the Company’s cyber risk control structure
include corporate governance, threat intelligence, security awareness training and patch management programs. Cybersecurity
risk mitigation includes effectively identifying, protecting against, detecting, responding to, and recovering from cyber threats.
LEGAL RISK
Legal risk encompasses the impact of unenforceable contracts, lawsuits or adverse judgments, which can disrupt or otherwise
negatively affect the Company’s operations or condition. Legal risk also includes the exposure from litigation, fiduciary
relationships and contractual obligations from both traditional and nontraditional financial institution activities. Legal risk is
present in all areas of the Company and its activities.
CRITICAL ACCOUNTING POLICIES
First Financial’s Consolidated Financial Statements are prepared based on the application of accounting policies, the most
significant of which are described in Note 1 – Summary of Significant Accounting Policies in the Notes to Consolidated
Financial Statements. These policies require the reliance on estimates and assumptions which are inherently subjective and
may be susceptible to significant change. 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, some of these estimates and
assumptions have a more significant impact than others on First Financial’s financial reporting. For First Financial, these
estimates and assumptions include accounting for the ALLL, goodwill, pension and income taxes.
ALLL. For each reporting period, management maintains the ALLL at a level that it considers sufficient to absorb probable
incurred loan and lease losses inherent in the portfolio. Management determines the adequacy of the ALLL 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.
Management's determination of the adequacy of the ALLL is based on an assessment of the probable incurred loan and lease
losses inherent in the portfolio given the conditions at the time. The ALLL is generally increased by provision expense and
decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged off when management
believes that the collection of the principal amount owed in full, either through payments from the borrower or from the
liquidation of collateral, is unlikely.
First Financial Bancorp 2019 Annual Report 31
Management’s Discussion and Analysis of Financial Condition and Results of Operations
To the extent actual outcomes differ from management’s estimates, additional provision for credit losses may be required that
would impact First Financial’s operating results. The Credit Risk section of this annual report provides management’s analysis
of the ALLL.
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. The
Company is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. First Financial performs its annual impairment test effective October 1,
absent events or changes in circumstances that indicate the carrying value of goodwill may not be recoverable.
The Company’s goodwill is accounted for in a single reporting unit representing the consolidated entity. Fair value is estimated
using the market capitalization of the Company, as of the annual impairment testing date. First Financial also utilizes additional
information and analysis to corroborate the use of the Company’s market capitalization as a proper indicator of fair value for
purposes of the annual goodwill impairment test. The additional information and analysis uses the discounted cash flows of
First Financial’s assets and liabilities to determine an implied fair value of the Company, which is compared to the Company’s
book value.
Pension. First Financial sponsors a non-contributory defined-benefit pension plan covering substantially all employees.
Accounting for the pension plan involves material estimates regarding future plan obligations and investment returns on plan
assets. Significant assumptions used in the pension plan include the discount rate, expected return on plan assets and the rate of
compensation increase. First Financial determines the discount rate assumption using published corporate bond indices and the
projected cash flows of the pension plan. First Financial also utilizes external surveys for industry comparisons to assess the
discount rate for reasonableness. The expected long-term return on plan assets is determined based on the composition of plan
assets, actual returns, economic forecasts and economic, while the rate of compensation increase is compared to historical
increases for plan participants. Changes in these assumptions can have a material impact on the amount of First Financial’s
future pension obligations, on the funded status of the plan and on the Company's operating results.
Income Taxes. First Financial evaluates and assesses the relative risks and appropriate tax treatment of transactions after
considering statutes, regulations, judicial precedent and other information, and maintains tax accruals consistent with its
evaluation of these relative risks. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates,
interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to statutory, judicial
and regulatory guidance that impact the relative risks of tax positions. These changes, when they occur, can affect deferred
taxes and accrued taxes as well as the current period’s income tax expense and can be material to the Company's operating
results.
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. Reserves for uncertain tax positions, if any,
are included in income tax expense in the Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
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;
32 First Financial Bancorp 2019 Annual Report
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 deteriorate resulting in, among other things, a further deterioration in credit quality or a
reduced demand for credit, including the resultant effect on our loan portfolio, allowance for loan and lease losses and
overall financial performance;
U.S. fiscal debt and budget matters;
the ability of financial institutions to access sources of liquidity at a reasonable cost;
the impact of 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 Dodd-Frank Wall Street Reform and
Consumer Protection Act and the capital rules promulgated by federal banking regulators);
the effect of the current interest rate environment or changes in interest rates on our net interest margin and our loan
originations and securities holdings;
our ability to stay current with technological trends;
failure or breach of our operational or security systems or infrastructure, or those of our third party vendors or other
service providers;
mergers and acquisitions, including costs or difficulties related to the integration of acquired companies;
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 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
FASB and the SEC;
adverse changes in the creditworthiness of our borrowers and lessees, collateral values, the value of investment
securities and asset recovery values;
adverse changes in the securities, debt and/or derivatives markets;
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 and lease losses; and
the costs and effects of litigation and of unexpected or adverse outcomes in such litigation.
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.
These and other risk factors are more fully described in First Financial's Annual Report on Form 10-K for the year ended
December 31, 2019 under the section entitled “Item 1A. Risk Factors” and from time to time, in other filings with the SEC.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this
report. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to
the extent required by applicable law or regulation, First Financial undertakes no obligation to revise or update publicly any
forward-looking statements for any reason.
First Financial Bancorp 2019 Annual Report 33
5.43 %
4.61 %
4.21 %
4.52 %
3.92 %
5.53 %
4.83 %
2.82 %
4.34 %
2.98 %
1.12 %
4.29 %
0.28 %
0.66 %
1.26 %
0.69 %
0.99 %
5.09 %
1.51 %
0.82 %
Statistical Information
(Dollars in thousands)
Earning assets
Loans and leases (1), (4)
Commercial and industrial (2)
Lease financing (2)
Construction-real estate
Commercial-real estate (2)
Residential-real estate
Installment and other consumer
Total loans and leases
Indemnification asset
Investment securities (3)
Taxable
Tax-exempt (2)
Total investment securities (3)
Interest-bearing deposits with other
banks
Average
Balance
2019
Interest
Average
Yield
Average
Balance
2018
Interest
Average
Yield
Average
Balance
2017
Interest
Average
Yield
$ 2,505,615
$153,128
6.11% $ 2,518,333
$150,113
5.96% $1,815,925
$ 98,683
92,902
491,503
3,964
26,637
3,906,992
216,757
1,025,394
926,129
47,635
52,539
8,948,535
500,660
0
0
2,684,973
603,902
90,168
22,273
3,288,875
112,441
4.27%
5.42%
5.55%
4.65%
5.67%
5.59%
N/M
3.36%
3.69%
3.42%
91,476
540,014
3,911
28,761
4.28%
5.33%
86,662
429,868
3,999
18,076
3,310,697
178,235
5.38% 2,448,570
110,586
821,454
868,724
38,543
49,202
4.69%
5.66%
499,397
565,441
19,588
31,251
8,150,698
448,765
5.51% 5,845,863
282,183
370
0
0.00%
9,535
(3,871)
(40.60)%
2,451,352
445,815
2,897,167
79,076
16,997
96,073
3.23% 1,791,729
3.81%
209,658
3.32% 2,001,387
50,568
9,105
59,673
35,814
805
2.25%
32,090
691
2.15%
30,933
347
Total earning assets
12,273,224
613,906
5.00% 11,080,325
545,529
4.93% 7,887,718
338,332
Nonearning assets
Allowance for loan and lease losses
Cash and due from banks
Accrued interest and other assets
Total assets
(58,504)
191,864
1,804,135
$14,210,719
Interest-bearing liabilities
Deposits
(56,115)
188,971
1,398,257
$12,611,438
(56,599)
116,409
663,875
$8,611,403
Interest-bearing demand
$ 2,326,193
$ 12,748
0.55% $ 2,169,396
$
8,446
0.39% $1,491,114
$
4,242
Savings
Time
Total interest-bearing deposits
Borrowed funds
Short-term borrowings
Long-term debt
Total borrowed funds
3,027,725
2,223,429
7,577,347
1,146,719
522,340
1,669,059
21,383
44,901
79,032
25,235
19,057
44,292
Total interest-bearing liabilities
9,246,406
123,324
0.71%
2.02%
1.04%
2.20%
3.65%
2.65%
1.33%
2,990,731
1,938,709
7,098,836
947,427
438,567
1,385,994
8,484,830
18,050
30,466
56,962
18,033
16,152
34,185
91,147
0.60% 2,412,788
1.57% 1,189,963
0.80% 5,093,865
1.90%
3.68%
2.47%
830,365
120,794
951,159
1.07% 6,045,024
15,941
14,999
35,182
8,193
6,153
14,346
49,528
Noninterest-bearing liabilities
Noninterest-bearing demand
deposits
Other liabilities
Shareholders' equity
Total liabilities and shareholders'
equity
Net interest income and interest
rate spread (fully tax equivalent)
Net interest margin (fully tax
equivalent)
Interest income and yield
Interest expense and rate
Net interest income and spread
Net interest margin
2,524,011
265,623
2,174,679
$14,210,719
2,217,349
156,998
1,752,261
$12,611,438
1,540,384
128,564
897,431
$8,611,403
$490,582
3.67%
$454,382
3.86%
$288,804
3.47 %
$607,578
123,324
$484,254
4.00%
4.95%
1.33%
3.62%
3.95%
$540,382
91,147
$449,235
4.10%
4.88%
1.07%
3.81%
4.05%
$333,073
49,528
$283,545
3.66 %
4.22 %
0.82 %
3.40 %
3.59 %
(1) Nonaccrual loans are included in average loan balance and loan fees are included in interest income.
(2) Interest income on tax-exempt investments and on certain tax-exempt loans and leases has been adjusted to a tax equivalent basis using a 21.00% tax rate for 2019 and 2018 and
a 35.00% tax rate for 2017.
(3) Includes HTM securities, AFS securities and other investments.
(4) Includes loans held-for-sale.
N/M = not meaningful
34 First Financial Bancorp 2019 Annual Report
Management’s Report on Internal Control over Financial Reporting
First Financial’s management is responsible for establishing and maintaining adequate internal control over financial reporting.
First Financial’s internal control over financial reporting is a process designed under the supervision of First Financial’s chief
executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Any
system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be
circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes
in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will
provide only reasonable assurance with respect to financial statement preparation. As of December 31, 2019, First Financial’s
management, including the chief executive officer and the chief financial officer, evaluated the effectiveness of First Financial’s
internal controls over financial reporting, using as its framework for that evaluation the Internal Control – Integrated
Framework published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013
framework). Based on the evaluation, we believe that, as of December 31, 2019, our internal control over financial reporting is
effective based on those criteria.
Crowe LLP, the independent registered public accounting firm that audited the consolidated financial statements included in
this Form 10-K, has issued an attestation report on First Financial’s internal control over financial reporting as of December 31,
2019. The report, which expresses an unqualified opinion on First Financial’s internal control over financial reporting as of
December 31, 2019, is included in the information that follows under the heading “Report of Independent Registered Public
Accounting Firm."
/s/ Archie M. Brown, Jr.
President and Chief Executive Officer
/s/ James M. Anderson
Executive Vice President and Chief Financial
Officer
February 21, 2020
February 21, 2020
First Financial Bancorp 2019 Annual Report 35
Crowe LLP
Independent Member Crowe Global
Report of Independent Registered Public Accounting Firm
Shareholders and the Board of Directors of First Financial Bancorp
Cincinnati, Ohio
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of First Financial Bancorp (the "Company") as of December 31,
2019 and 2018, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as
the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31,
2019, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a
public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
36 First Financial Bancorp 2019 Annual Report
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Loan Losses - Adjustments for other factors
As more fully described in Note 1 and Note 6 to the consolidated financial statements, the Company estimates and records an
allowance for loan losses for loans collectively evaluated for impairment by developing a loss rate based on historical losses
and other factors. Other factors are used to adjust historical loss rates considering relevant market 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 situations that may affect a specific borrower's ability to repay. The
application of the adjustments for other factors to the historical loss rate calculation is subjective.
The principal considerations for our determination that auditing the adjustments to the historical loss rates is a critical audit
matter is the high degree of management judgment in the determination of the adjustments, which involves evaluation of
managements established floors, risk factors, and using a rating scale in concluding on the estimate. Our audit procedures
included both control and substantive testing related to the adjustments for other factors. Procedures included, among others:
Control tests included:
Management’s review of the accuracy of data inputs used to adjust historical loss rates.
Management’s review of the appropriateness of the adjustments to the historical loss rates
Management’s review of the changes that occurred in the allowance for loans losses for loans collectively
evaluated for impairment during the period by portfolio segment based on the system calculation analyzing
changes due to rate (changes in the adjustment) and volume (changes in loan balance).
Approval of the conclusions reached over the allowance for loan losses for loans collectively evaluated for
impairment.
•
Substantive tests included:
Objective inputs were agreed to source documentation such as trial balances, unemployment statistics, loan
performance and relevant indices
The adjustments for other factors were evaluated for reasonableness and appropriateness including both
directional consistency and the magnitude of the adjustments for other factors.
Analytical procedures were performed to evaluate changes that occurred in the allowance for loan losses for
loans collectively evaluated for impairment at December 31, 2018 as compared to December 31, 2019.
First Financial Bancorp 2019 Annual Report 37
Crowe LLP
We have served as the Company's auditor since 2015, which is the year the engagement letter was signed for the audit of the
2016 financial statements.
Indianapolis, Indiana
February 21, 2020
38 First Financial Bancorp 2019 Annual Report
Consolidated Balance Sheets
(Dollars in thousands)
Assets
Cash and due from banks
Interest-bearing deposits with other banks
Investment securities available-for-sale, at fair value (amortized cost $2,798,298 at December 31, 2019 and
$2,792,326 at December 31, 2018)
Investment securities held-to-maturity (fair value $142,821 at December 31, 2019 and $424,118 at December
31, 2018)
Other investments
Loans held for sale
Loans and leases
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Credit card
Total loans and leases
Less: Allowance for loan and lease losses
Net loans and leases
Premises and equipment
Goodwill
Other intangibles
Accrued interest and other assets
Total assets
Liabilities
Deposits
Interest-bearing demand
Savings
Time
Total interest-bearing deposits
Noninterest-bearing
Total deposits
Federal funds purchased and securities sold under agreements to repurchase
FHLB short-term borrowings
Total short-term borrowings
Long-term debt
Total borrowed funds
Accrued interest and other liabilities
Total liabilities
Shareholders' equity
Common stock - no par value
Authorized - 160,000,000 shares; Issued - 104,281,794 shares in 2019 and 104,281,794 shares in 2018
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost, 5,790,796 shares in 2019 and 6,387,508 shares in 2018
Total shareholders' equity
Total liabilities and shareholders' equity
See Notes to Consolidated Financial Statements.
December 31,
2019
2018
$
200,691
56,948
$
236,221
37,738
2,852,084
2,779,255
142,862
125,020
13,680
2,465,877
88,364
493,182
4,194,651
1,055,949
771,869
82,589
49,184
9,201,665
57,650
9,144,015
214,506
937,771
76,201
747,847
14,511,625
2,364,881
2,960,979
2,240,441
7,566,301
2,643,928
10,210,229
165,181
1,151,000
1,316,181
414,376
1,730,557
323,134
12,263,920
$
$
429,328
115,660
4,372
2,514,661
93,415
548,935
3,754,681
955,646
817,282
93,212
46,382
8,824,214
56,542
8,767,672
215,652
880,251
40,805
479,706
13,986,660
2,307,071
3,167,325
2,173,564
7,647,960
2,492,434
10,140,394
183,591
857,100
1,040,691
570,739
1,611,430
156,587
11,908,411
1,640,771
711,249
13,323
(117,638)
2,247,705
14,511,625
$
1,633,256
600,014
(44,408)
(110,613)
2,078,249
13,986,660
$
$
$
First Financial Bancorp 2019 Annual Report 39
Consolidated Statements of Income
(Dollars in thousands except per share data)
Interest income
Loans and leases, including fees
Investment securities
Taxable
Tax-exempt
Total interest on investment securities
Other earning assets
Total interest income
Interest expense
Deposits
Short-term borrowings
Long-term borrowings
Total interest expense
Net interest income
Provision for loan and lease losses
Net interest income after provision for loan and lease losses
Noninterest income
Service charges on deposit accounts
Trust and wealth management fees
Bankcard income
Client derivative fees
Foreign exchange income
Net gain from sales of loans
Net gain (loss) on sales/transfers of investment securities
Other
Total noninterest income
Noninterest expenses
Salaries and employee benefits
Net occupancy
Furniture and equipment
Data processing
Marketing
Communication
Professional services
State intangible tax
FDIC assessments
Intangible assets amortization
Other
Total noninterest expenses
Income before income taxes
Income tax expense
Net income
Earnings per common share
Basic
Diluted
Average common shares outstanding - basic
Average common shares outstanding - diluted
See Notes to Consolidated Financial Statements.
40 First Financial Bancorp 2019 Annual Report
Years ended December 31,
2018
2017
2019
$
499,009
$
447,187
$
280,111
90,168
17,596
107,764
805
607,578
79,032
25,235
19,057
123,324
484,254
30,598
453,656
37,939
15,644
18,804
15,662
7,739
14,851
(406)
21,140
131,373
209,061
24,069
15,903
21,881
6,908
3,267
11,254
5,829
1,973
9,671
32,351
342,167
242,862
44,787
198,075
2.01
2.00
98,305,570
98,851,471
$
$
$
79,076
13,428
92,504
691
540,382
56,962
18,033
16,152
91,147
449,235
14,586
434,649
35,108
15,082
20,245
7,682
0
6,071
(161)
19,355
103,382
188,990
24,215
14,908
28,077
7,598
3,167
12,272
4,152
3,969
7,359
29,103
323,810
214,221
41,626
172,595
1.95
1.93
88,582,090
89,614,205
$
$
$
50,568
5,918
56,486
(3,524)
333,073
35,182
8,193
6,153
49,528
283,545
3,582
279,963
19,775
14,073
13,298
6,418
0
5,169
1,649
15,760
76,142
137,240
17,397
8,443
14,022
3,201
1,819
15,023
2,655
3,944
1,298
34,900
239,942
116,163
19,376
96,787
1.57
1.56
61,529,460
62,171,590
$
$
$
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Net income
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on debt securities arising during the period
Change in retirement obligation
Unrealized gain (loss) on derivatives
Other comprehensive income (loss)
Comprehensive income
See Notes to Consolidated Financial Statements.
Years ended December 31,
2019
2018
2017
$
198,075
$
172,595
$
96,787
51,959
4,649
217
56,825
(11,229)
(8,180)
484
(18,925)
4,367
3,172
514
8,053
$
254,900
$
153,670
$
104,840
First Financial Bancorp 2019 Annual Report 41
Consolidated Statements of Changes in Shareholders' Equity
(Dollars in thousands, except share amounts)
Common
Common
stock
shares
stock
amount
Accumulated
other
Retained
comprehensive
Treasury stock
earnings
income (loss)
Shares
Amount
Total
Balance at January 1, 2017
68,730,731
$
570,382
$
437,188
$
(28,443)
(6,751,179) $
(113,903) $
865,224
Net income
Other comprehensive income (loss)
Cash dividends declared:
Common stock at $0.68 per share
Warrant exercises
Exercise of stock options, net of shares
purchased
Restricted stock awards, net of forfeitures
Share-based compensation expense
Balance at December 31, 2017, as
previously reported
Impact of cumulative effect of adoption of
new accounting principles
Net income
Other comprehensive income (loss)
Cash dividends declared:
Common stock at $0.78 per share
Common stock issued in connection with
business combinations
Stock options and warrants acquired and
converted in connection with business
combinations
Warrant exercises
Exercise of stock options, net of shares
purchased
Restricted stock awards, net of forfeitures
Share-based compensation expense
96,787
(42,128)
8,053
96,787
8,053
(42,128)
0
75
(2,793)
5,446
5,843
58,212
25,480
99
987
(1,085)
(99)
(912)
(1,708)
5,446
68,730,731
573,109
491,847
(20,390)
(6,661,644)
(113,902)
930,664
(5,093)
(18,925)
5,093
172,595
(69,521)
0
172,595
(18,925)
(69,521)
1,043,424
16,037
0
284
(2,528)
6,219
65,354
32,941
175,841
1,120
566
1,603
35,551,063
1,043,424
16,037
(1,120)
(282)
(4,131)
6,219
Balance at December 31, 2018
104,281,794
1,633,256
600,014
(44,408)
(6,387,508)
(110,613)
2,078,249
Impact of cumulative effect of adoption of
new accounting principles
Net income
Other comprehensive income (loss)
Cash dividends declared:
Common stock at $0.90 per share
Purchase of common stock
Common stock issued in connection with
business combinations
Warrant exercises
Exercise of stock options, net of shares
purchased
Restricted stock awards, net of forfeitures
Share-based compensation expense
906
56,825
2,636
198,075
(89,476)
3,542
198,075
56,825
(89,476)
(66,218)
60,934
0
90
(2,285)
7,969
(2,753,272)
(66,218)
2,601,823
452,134
20,424
275,603
47,276
7,830
354
3,733
13,658
(7,830)
(264)
(6,018)
7,969
Balance at December 31, 2019
104,281,794
$ 1,640,771
$
711,249
$
13,323
(5,790,796) $
(117,638) $
2,247,705
See Notes to Consolidated Financial Statements.
42 First Financial Bancorp 2019 Annual Report
Consolidated Statements of Cash Flows
(Dollars in thousands)
Operating activities
Year ended December 31,
2019
2018
2017
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
$
198,075
$
172,595
$
96,787
Provision for loan and lease losses
Depreciation and amortization
Stock-based compensation expense
Pension expense (income)
Net amortization (accretion) on investment securities
Net (gains) losses on sales of investments securities
Originations of loans held for sale
Net (gains) losses on sales of loans held for sale
Proceeds from sales of loans held for sale
Deferred income taxes
Amortization of operating leases
Payments for operating leases
Decrease (increase) cash surrender value of life insurance
Decrease (increase) in interest receivable
Decrease in indemnification asset
(Decrease) increase in interest payable
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash provided by (used in) operating activities
Investing activities
Proceeds from sales of investment securities available-for-sale
Proceeds from calls, paydowns and maturities of securities available-for-sale
Purchases of securities available-for-sale
Proceeds from calls, paydowns and maturities of securities held-to-maturity
Purchases of securities held-to-maturity
Purchases of other investment securities
Net decrease (increase) in interest-bearing deposits with other banks
Net decrease (increase) in loans and leases
Proceeds from disposal of other real estate owned
Purchases of premises and equipment
Net cash acquired (paid) from business combinations
Net cash (paid) received for branch divestitures
Net cash provided by (used in) investing activities
Financing activities
Net (decrease) increase in total deposits
Net (decrease) increase in short-term borrowings
Payments on long-term borrowings
Proceeds from FHLB borrowings
Cash dividends paid on common stock
Purchases of common stock
Proceeds from exercise of stock options
Net cash provided by (used in) financing activities
Cash and due from banks
Net (decrease) increase in Cash and due from banks
Cash and due from banks at beginning of year
Cash and due from banks at end of year
30,598
28,138
7,969
1,041
11,430
406
(390,578)
(14,851)
396,121
12,590
7,324
(7,335)
(3,748)
2,117
0
1,545
(166,477)
71,964
186,329
519,136
557,034
(834,743)
18,062
0
(12,120)
(19,210)
(409,557)
1,453
(20,934)
(51,663)
118
(252,424)
69,953
275,490
(159,653)
0
(89,097)
(66,218)
90
30,565
14,586
24,171
6,219
859
10,846
161
(157,771)
(6,071)
167,374
6,267
0
0
(5,454)
(3,808)
1,900
5,207
34,360
(10,043)
261,398
290,745
387,351
(852,131)
36,671
(14,014)
(31,385)
(3,764)
(28,577)
3,797
(18,228)
64,895
(41,197)
(205,837)
(18,690)
30,531
(52,460)
150,000
(79,655)
0
284
30,010
3,582
12,645
5,446
(628)
10,798
(1,649)
(157,796)
(5,169)
163,300
(4,488)
0
0
(3,792)
(5,707)
10,117
55
(21,455)
21,478
123,524
189,962
224,690
(723,131)
121,903
(23,402)
(2,353)
48,476
(266,043)
6,983
(6,537)
0
0
(429,452)
369,258
6,653
(94)
0
(41,178)
0
341
334,980
(35,530)
236,221
200,691
$
85,571
150,650
236,221
$
29,052
121,598
150,650
$
First Financial Bancorp 2019 Annual Report 43
Supplemental disclosures
Interest paid
Income taxes paid
Acquisition of other real estate owned through foreclosure
Issuance of restricted stock awards
Securities transferred from HTM to AFS
Common stock issued in acquisitions
Initial recognition of operating lease right of use asset
Initial recognition of operating lease liabilities
Supplemental schedule for investing activities
Business combinations
Assets acquired, net of purchase consideration
Liabilities assumed
Goodwill
See Notes to Consolidated Financial Statements.
$
$
$
$
$
$
$
$
$
$
121,779
27,497
2,448
10,488
268,703
60,934
60,249
65,799
$
$
$
$
$
$
$
$
84,125
16,004
1,821
8,797
372,128
1,043,424
0
0
(39,140) $
18,380
57,520
$
3,342,781
4,018,948
676,167
$
$
$
$
$
$
$
$
$
$
49,474
38,329
4,119
6,416
0
0
0
0
0
0
0
44 First Financial Bancorp 2019 Annual Report
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of presentation. The Consolidated Financial Statements of First Financial Bancorp., a financial holding company,
principally serving Ohio, Indiana, Kentucky and Illinois, include the accounts and operations of First Financial and its wholly
owned subsidiary, First Financial Bank. All significant intercompany transactions and accounts have been eliminated in
consolidation. Certain reclassifications of prior years' amounts have been made to conform to current year presentation. Such
reclassifications had no effect on net earnings.
Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates,
assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes.
Actual realized amounts could differ materially from those estimates.
Cash and due from banks. Cash and due from banks consist of currency, coin and cash items due from banks. Cash items
due from banks include noninterest-bearing balances that are on deposit at other depository institutions.
Investment securities. First Financial classifies debt securities into three categories: HTM, trading and AFS. Management
classifies investment securities into the appropriate category at the time of purchase and re-evaluates that classification as
deemed appropriate.
Investment securities are classified as HTM when First Financial has the positive intent and ability to hold the securities to
maturity. HTM securities are recorded at amortized cost.
Investment securities classified as trading are held principally for resale in the near-term and are recorded at fair value. Fair
value is determined using quoted market prices. Gains or losses on trading securities, both realized and unrealized, are reported
in noninterest income.
Investment securities not classified as either HTM or trading are classified as AFS. AFS securities are recorded at fair value,
with the unrealized gains and losses, net of tax, reported as a separate component of accumulated other comprehensive income
(loss) in shareholders' equity.
The amortized cost of investment securities classified as either HTM or AFS is adjusted for amortization of premiums and
accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such
amortization and accretion are considered an adjustment to the yield on the security and included in interest income from
investments. Interest and dividends are also included in interest income from investment securities in the Consolidated
Statements of Income.
Realized gains and losses are based on the amortized cost of the security sold using the specific identification method. AFS and
HTM securities are reviewed quarterly for potential impairment. In performing this review, management considers the length
of time and extent to which the fair value of the security has been less than amortized cost, the financial condition and near-
term prospects of the issuer and the ability and intent of First Financial to hold the security for a period sufficient to allow for
any anticipated recovery in fair value. If the fair value of a security is less than the amortized cost and the impairment is
determined to be other-than-temporary, the security is written down, establishing a new and reduced cost basis. The related
charge is recorded in the Consolidated Statements of Income.
Other investments. Other investments include holdings in FRB and FHLB stock, which are both carried at cost, in addition to
equity securities which are carried at fair value. Changes in the fair value of equity securities are recorded in Other noninterest
income in the Consolidated Statements of Income.
Loans held for sale. Loans held for sale consist of residential real estate loans newly originated for the purpose of sale to third
parties, and in certain circumstances, loans previously originated that have been specifically identified by management for sale
based on predetermined criteria. Loans held for sale are carried at fair value. Any subsequent change in the carrying value of
transferred loans, not to exceed original cost, is recorded in the Consolidated Statements of Income. First Financial sells loans
with servicing retained or released depending on pricing and market conditions.
First Financial Bancorp 2019 Annual Report 45
Notes to Consolidated Financial Statements
Loans and leases. Loans and leases for which First Financial has the intent and ability to hold for the foreseeable future, or
until maturity or payoff, are classified in the Consolidated Balance Sheets as loans and leases. Loans and leases are carried at
the principal amount outstanding, net of unamortized deferred loan origination fees and costs, and net of unearned income.
Loan origination and commitment fees received, as well as certain direct loan origination costs paid, are deferred, and the net
amount is amortized as an adjustment to the related loan's yield.
Interest income on loans and leases is recorded on an accrual basis. 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
classified as nonaccrual 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.
Acquired loans. Acquired loans are recorded at their estimated fair value at the time of acquisition. Estimated fair values for
acquired loans are based on a discounted cash flow methodology that considers various factors including the type of loan and
related collateral, classification status, interest rate, term of loan, whether or not the loan was amortizing and a discount rate
reflecting the Company's assessment of risk inherent in the cash flow estimates. Acquired loans are grouped together according
to similar characteristics and treated in the aggregate when applying various valuation techniques.
First Financial evaluates acquired loans for impairment in accordance with the provisions of FASB ASC Topic 310-30, Loans
and Debt Securities Acquired with Deteriorated Credit Quality. Acquired loans with evidence of credit deterioration since
origination are accounted for under FASB ASC Topic 310-30 and are referred to as purchased impaired loans. Accretion of the
difference between the carrying value of the loans and the expected cash flows (accretable difference) is recognized on
purchased impaired loans through interest income.
Acquired loans outside of the scope of FASB ASC Topic 310-30 are accounted for under FASB ASC Topic 310-20,
Receivables-Nonrefundable Fees and Costs. Discounts created when the loans were recorded at their estimated fair values at
acquisition are amortized over the remaining term of the loan as an adjustment to the related loan's yield. The accrual of
interest income is discontinued when the collection of a loan or interest, in whole or in part, is doubtful.
Allowance for loan and lease losses. For each reporting period, management maintains the ALLL at a level that it considers
sufficient to absorb probable incurred loan and lease losses inherent in the portfolio. Management determines the adequacy of
the ALLL 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).
The ALLL is increased by provision expense and decreased by 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 through payments from the borrower or the liquidation of collateral.
Management evaluates Commercial loan and lease relationships greater than $250,000 that are considered impaired, or
designated as a TDR to determine the need for a specific allowance. This evaluation is based on the borrower's overall financial
condition, resources, payment record, guarantor support and the realizable value of any collateral.
The allowance for non-impaired commercial loans and leases, as well as impaired commercial loan and lease relationships less
than $250,000, includes a process of estimating the probable losses incurred in the portfolio by loan type, based on First
Financial's internal system of credit risk ratings and historical loss data. These estimates may also be adjusted based upon
trends in delinquent and nonaccrual loans, prevailing economic conditions and changes in lending strategies, among other
influencing factors.
Consumer loans generally exhibit homogeneous characteristics and are evaluated by loan type. The allowance for consumer
loans, which includes residential real estate, installment, home equity, credit card loans and overdrafts, is established by
estimating probable losses incurred in each particular category of consumer loans. The estimate of losses is primarily based on
historical loss rates for each category and may be adjusted for trends in delinquent and nonaccrual loans, prevailing economic
conditions and other significant influencing factors. Consumer loans greater than $250,000 classified as TDRs are individually
evaluated to determine an appropriate allowance.
An allowance for loan losses will be established for any subsequent credit deterioration or adverse changes in expected cash
flows.
46 First Financial Bancorp 2019 Annual Report
Reserve for unfunded commitments. First Financial maintains a reserve that it considers sufficient to absorb probable losses
incurred in standby letters of credit and outstanding loan commitments. First Financial determines the adequacy of the reserve
based upon an evaluation of the unfunded credit facilities, which includes consideration of historical commitment utilization
experience, credit risk ratings and historical loss rates, consistent with the Company's ALLL methodology. The reserve for
unfunded commitments is included in Accrued interest and other liabilities on the Consolidated Balance Sheets and adjustments
are recorded in Other noninterest expense in the Consolidated Statements of Income.
Premises and equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization.
Depreciation and amortization are principally computed on the straight-line method over the estimated useful lives of the assets.
Useful lives generally range from 10 to 40 years for building and building improvements; 3 to 10 years for furniture, fixtures
and equipment; and 3 to 5 years for software, hardware and data handling equipment. Land improvements are depreciated over
20 years and leasehold improvements are depreciated over the lesser of the term of the respective lease or the useful life of the
asset. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Maintenance and repairs are expensed as incurred.
Bank-owned life insurance. First Financial purchases life insurance policies on the lives of certain employees and is the
owner and beneficiary of the policies. The Bank invests in these policies to provide an efficient form of funding for long-term
retirement and other employee benefits costs. The policies are included within Accrued interest and other assets in the
Consolidated Balance Sheets at each policy’s respective cash surrender value with changes recorded in Other noninterest
income in the Consolidated Statements of Income.
Goodwill. Under accounting for business combinations, the net assets of entities acquired by First Financial are recorded at
their estimated fair value at the date of acquisition. The excess cost of the acquisition over the fair value of net assets acquired
is recorded as goodwill. Goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject
to annual impairment tests. The Company is required to evaluate goodwill for impairment on an annual basis or whenever
events or changes in circumstances indicate that the carrying value may not be recoverable. First Financial performs its annual
impairment test effective October 1, absent events or changes in circumstances that indicate the carrying value of goodwill may
not be recoverable.
The Company’s goodwill is accounted for in a single reporting unit representing the consolidated entity. Fair value is estimated
using the market capitalization of the Company as of the annual impairment testing date. First Financial also utilizes additional
information and analyses to corroborate the use of the Company’s market capitalization as a proper indicator of fair value for
purposes of the annual goodwill impairment test.
Other intangible assets. Other intangible assets consist primarily of core deposit, customer list and other miscellaneous
intangibles.
CDI represent the estimated value of acquired customer deposit relationships. CDI are recorded at fair value at the date of
acquisition and are based on a discounted cash flow methodology that gives appropriate consideration to expected customer
attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits.
Core deposit intangibles are recorded in Other intangibles on the Consolidated Balance Sheets and are amortized on an
accelerated basis over their estimated useful lives.
First Financial recorded a customer list intangible asset in conjunction with the Bannockburn merger to account for the
obligation or advantage on the part of either the Company or the customer to continue the pre-existing relationship subsequent
to the merger. The customer list intangible asset is amortized on a straight-line basis over its estimated useful life.
Other miscellaneous intangibles include purchase commissions, non-compete agreements and trade name intangibles. Other
intangible assets are included in Other intangibles in the Consolidated Balance Sheets.
Other real estate owned. OREO consists 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. OREO properties
are recorded at fair value, less estimated disposal costs (net realizable value). Losses arising at the time of acquisition of such
properties are charged against the ALLL. Management performs periodic valuations to assess the adequacy of recorded OREO
balances and subsequent changes in the carrying value of OREO properties are recorded in the Consolidated Statements of
Income. Improvements to OREO properties may be capitalized if the improvements contribute to the overall value of the
First Financial Bancorp 2019 Annual Report 47
Notes to Consolidated Financial Statements
property, but may not be capitalized in excess of the net realizable value of the property. When management disposes of an
OREO property, any gains or losses realized at the time of disposal are reflected in the Consolidated Statements of Income.
Affordable housing projects. First Financial has investments in certain qualified affordable housing projects. These projects
are indirect federal subsidies that provide tax incentives to encourage investment in the 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
properties to qualified tenants, resulting in unavailability or recapture of the tax credits and other tax benefits. Investments in
affordable housing projects are included in Accrued interest and other assets in the Consolidated Balance Sheets and are
accounted for under the proportional amortization method. Under the proportional amortization method, the initial cost of the
investment is amortized in proportion to the tax credits and other benefits received and recognized as a component of Income
tax expense in the Consolidated Statements of Income.
Investments in historic tax credits. First Financial has noncontrolling financial investments in private investment funds and
partnerships which are not consolidated. These investments may generate a return through the realization of federal and state
income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a
period of time. Investments in historic tax credits are accounted for under the equity method of accounting. The Company’s
recorded investment in these entities is carried in Accrued interest and other assets on the Consolidated Balance Sheets. For
historic tax credits, impairment is recorded in Other noninterest expense. The tax credit and other net tax benefits received are
recognized as a component of income tax expense in the Consolidated Statements of Income.
Income taxes. First Financial and its subsidiaries file a consolidated federal income tax return. Each subsidiary provides for
income taxes on a separate return basis, and remits to First Financial amounts determined to be currently payable. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Interest and penalties on income tax assessments or
income tax refunds are recorded in Other noninterest expense in the Consolidated Statements of Income.
Pension. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. The
measurement of the accrued benefit liability and the annual pension expense involves actuarial and economic assumptions,
which include the discount rate, the expected return on plan assets and the rate of compensation increase.
Derivative instruments. First Financial accounts for its derivative financial instruments in accordance with FASB ASC Topic
815, Derivatives and Hedging. FASB ASC Topic 815 requires all derivative instruments to be carried at fair value on the
balance sheet.
The accounting for changes in the fair value of derivatives is based on the intended use of the derivative and the resulting
designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability or firm commitment
attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the
exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.
Client derivatives - First Financial utilizes matched interest rate swaps as a means to offer commercial borrowers fixed rate
funding while providing the Company with floating rate assets. Upon entering into an interest rate swap with a borrower, the
Bank simultaneously enters into an offsetting swap agreement with an institutional counterparty, with substantially matching
terms. These matched interest rate swap agreements generally involve the receipt by First Financial of floating rate amounts
from the counterparties in exchange for payments to these counterparties by First Financial of fixed rate amounts received from
commercial borrowers over the life of the agreements.
First Financial's matched interest rate swaps qualify as derivatives, but are not designated as hedging instruments. The net
interest receivable or payable on matched interest rate swaps is accrued and recognized as an adjustment to interest
income. The fair values of client derivatives are included within Accrued interest and other assets and Accrued interest and
other liabilities in the Consolidated Balance Sheets.
First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their
exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts,
First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge a substantial
48 First Financial Bancorp 2019 Annual Report
portion of the exposure from client driven foreign exchange activity. These derivatives are classified as free-standing
instruments with the revaluation gain or loss recorded in Foreign exchange income in the Consolidated Statements of Income.
Credit derivatives - In conjunction with participating interests in commercial loans, First Financial periodically enters into risk
participation agreements with 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 fair value of these agreements is recorded in the Consolidated Balance Sheets in Accrued interest and
other liabilities.
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. The fair
value of these agreements is recorded in the Consolidated Balance Sheets in Accrued interest and other assets.
Stock-based compensation. First Financial grants stock-based awards, including restricted stock awards and options to
purchase the Company’s common stock. Stock option grants are for a fixed number of shares to employees and directors with
an exercise price equal to the fair value of the shares at the date of grant. Stock-based compensation expense is recognized in
the Consolidated Statements of Income on a straight-line basis over the vesting period. As compensation expense is
recognized, a deferred tax asset is recorded that represents an estimate of the future tax deduction from exercise. At the time
stock-based awards are exercised, canceled or expire, First Financial may be required to recognize an adjustment to tax
expense.
Earnings per share. Basic earnings per common share is computed by dividing net income available to common shareholders
by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share
is computed by dividing net income available to common shareholders by the weighted average number of common shares
outstanding, unvested shares and dilutive common stock equivalents outstanding during the period. Common stock
equivalents, which consist of common stock issuable under the assumed exercise of stock options granted under First
Financial's stock-based compensation plans and the assumed conversion of common stock warrants, are calculated using the
treasury stock method.
Segments and related information. While the Company monitors the operating results of its six lines of business, operations
are managed and financial performance is evaluated on a consolidated basis. Accordingly, and consistent with prior years, all
of the Company's operations are considered by management to be aggregated in one reportable operating segment.
2. Accounting Standards Recently Adopted or Issued
Standards Adopted in 2019
In February 2016, the FASB issued an update (ASU 2016-02, Leases) which requires lessees to record most leases on their
balance sheet and recognize leasing expenses in the income statement. Operating leases where the Company is the lessee,
except for short-term leases that are subject to an accounting policy election, were recorded on the balance sheet by establishing
a lease liability and corresponding ROU asset. All entities are required to use a modified retrospective approach for leases that
exist or are entered into after the beginning of the earliest comparative period in the financial statements. As the Company
elected the transition option provided in ASU No. 2018-11, the modified retrospective approach was applied on January 1, 2019
(as opposed to January 1, 2017). The Company also elected certain relief options offered in ASU 2016-02 including the
package of practical expedients, the option not to separate lease and non-lease components and instead to account for them as a
single lease component and the option not to recognize ROU assets and lease liabilities that arise from short-term leases. The
Company did not elect the hindsight practical expedient, which allows entities to use hindsight when determining lease term
and impairment of ROU assets. The guidance in this ASU became effective January 1, 2019 at which time the Company
recorded on the Consolidated Balance Sheet an ROU asset of $60.2 million and a lease liability of $65.8 million. For further
detail, see Note 7 – Leases.
In March 2017, the FASB issued an update (ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic
310-20), Premium Amortization on Purchased Callable Debt Securities) which amends the amortization period for certain
purchased callable debt securities held at a premium and shortens the amortization period for the premium to the earliest call
date rather than as an adjustment of yield over the contractual life of the instrument. This update more closely aligns the
First Financial Bancorp 2019 Annual Report 49
Notes to Consolidated Financial Statements
amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities, as
in most cases, market participants price securities to the call date that produces the worst yield when the coupon is above
current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon is below
market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic best interest
in an attempt to more closely align interest income recorded on bonds held at a premium or a discount with the economics of
the underlying instrument. The guidance in this ASU became effective at the beginning of 2019 but did not have a material
impact on the Consolidated Financial Statements.
In August 2017, the FASB issued an update (ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting
for Hedging Activities) to better align financial reporting for hedging activities with the economic objectives of those activities.
This update aligns certain aspects of hedge documentation, effectiveness assessments, accounting and disclosures and expands
permissible hedge strategies as of the date of adoption. The guidance in this ASU became effective January 1, 2019. Upon
adoption, the Company reclassified $268.7 million of HTM securities to AFS, resulting in a $0.2 million loss in the
Consolidated Statement of Income.
Standards Issued But Not Yet Adopted
In June 2016, the FASB issued an update (ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses
on Financial Instruments), which significantly changes how entities are required to measure credit losses for most financial
assets and certain other instruments that are not measured at fair value through net income. This update, commonly known as
CECL, will replace the current incurred loss approach for estimating credit losses with an expected loss model for instruments
measured at amortized cost, including loans and leases. Expected credit losses are required to be based on amortized cost and
reflect losses expected over the remaining contractual life of the asset. Management is expected to consider any available
information relevant to assessing the collectibility of contractual cash flows, such as information about past events, current
conditions, voluntary prepayments and reasonable and supportable economic forecasts, when developing expected credit loss
estimates. This update also expands the disclosure requirements regarding an entity’s assumptions, models and methods for
estimating the ACL, including the disclosure of the amortized cost balance for each class of financial asset by credit quality
indicator, disaggregated by the year of origination.
In addition to the new framework for calculating the ACL, this update requires allowances for AFS debt securities rather than a
reduction of the security's carrying amount under the current other-than-temporary impairment model. This update also
simplifies the accounting model for purchased credit-impaired debt securities and loans.
The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2019.
As of January 1, 2020, First Financial expects to recognize a one-time cumulative effect adjustment to increase the ACL with an
offsetting reduction to the retained earnings component of equity. In December 2018, the federal bank regulatory agencies
approved a final rule that modifies their regulatory capital rules and provides institutions the option to phase in over a three-
year period any day-one regulatory capital effects of this update. First Financial expects to adopt the regulatory phase-in over
the permissible three-year period.
First Financial formed a cross-functional internal management committee and engaged a third party vendor to assist with the
transition to the guidance set forth in this update. The new allowance model implemented by First Financial estimates credit
losses over the expected life of the portfolio and includes a qualitative framework to account for the drivers of losses that are
not captured by the quantitative model. Based upon preliminary modeling results, management estimates that the reserve will
increase to between $115.0 million and $125.0 million upon adoption of this ASU. The expected increase in the ACL is
significantly impacted by the number of previously acquired loans with credit discounts, the credit losses expected over the life
of the portfolio and management's consideration of future economic conditions. The actual impact from adopting this guidance
may be subject to change based upon refinement and finalization of the model and associated assumptions, the implementation
and testing of certain internal controls ensuring model effectiveness and management’s judgment. In addition, the adoption of
this ASU may result in a more volatile provision for credit losses in future periods.
Management expects the ACL for unfunded commitments to increase to $11.0 million to $14.0 million upon adoption. First
Financial does not expect a material allowance for credit losses on HTM securities as a result of guidance set forth in this
update given the size and composition of the portfolio, which primarily includes government agency backed securities. In
addition, the Company does not expect a material loss on AFS debt securities.
In August 2018, the FASB issued an update (ASU No. 2018-13, Disclosure Framework: Changes to the Disclosure
Requirements for Fair Value Measurement) which eliminates, adds and modifies certain disclosure requirements for fair value
50 First Financial Bancorp 2019 Annual Report
measurements. Under the changes, entities will no longer be required to disclose the amount of and reasons for transfers
between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to
develop significant unobservable inputs for Level 3 fair value measurements. The update is effective for interim and annual
reporting periods beginning after December 15, 2019, and early adoption is permitted. This update is not expected to have a
material impact on the Company’s Consolidated Financial Statements.
3. Restrictions on Cash and Dividends
First Financial is required by the FRB to hold cash in reserve against deposit liabilities when total reservable deposit liabilities
exceed the regulatory exemption known as the reserve requirement. The reserve requirement is calculated based on a two-week
average of daily net transaction account deposits as defined by the FRB and may be satisfied with average vault cash during the
following two-week maintenance period. When vault cash is not sufficient to meet the reserve requirement, the remaining
amount must be satisfied with average funds held at the FRB. First Financial's deposit at the FRB is recorded in Interest-
bearing deposits with other banks on the Consolidated Balance Sheets. The average required reserve balances, based upon the
average level of First Financial's transaction deposits were $84.1 million and $85.9 million for 2019 and 2018, respectively.
Additionally, as of December 31, 2019, First Financial had $15.8 million in cash restricted for withdrawal and usage due to the
centrally cleared derivative initial margin requirement.
Dividends paid by First Financial to its shareholders are principally funded through dividends paid to the Company by its
subsidiaries, however, certain restrictions exist regarding the ability of the Bank to transfer funds to First Financial in the form
of cash dividends, loans or advances. The approval of the Federal Reserve Board and the ODFI is required for the Bank to pay
dividends in excess of the regulatory limit, which is equal to the net income of the current year through the dividend date
combined with the Bank's retained net income from the two preceding years. As of December 31, 2019, First Financial's
subsidiaries had retained earnings of $660.7 million, of which $155.7 million was available for distribution to First Financial
without prior regulatory approval.
4. Investment Securities
During the year ended December 31, 2019, proceeds on the sale of $519.1 million of AFS securities resulted in gains of $2.1
million and losses of $2.1 million, with insignificant tax expense. During the year ended December 31, 2018, proceeds on the
sale of $290.7 million of AFS securities resulted in gains of $0.5 million, losses of $0.6 million and insignificant tax expense.
During the year ended December 31, 2017, proceeds on the sale of $190.0 million of AFS securities resulted in gains of $1.8
million and losses of $0.2 million in addition to tax expense of $0.6 million. In addition to the sale of certain securities, First
Financial reclassified $268.7 million of HTM securities, in conjunction with the adoption of ASU 2017-12 in the first quarter of
2019, resulting in a $0.2 million realized loss recorded in the Consolidated Statement of Income. To align with post-merger
investment strategies, during the second quarter 2018 First Financial sold certain securities and reclassified $372.1 million of
HTM securities to AFS.
The carrying value of investment securities pledged as collateral to secure public deposits, repurchase agreements and for other
purposes as required by law totaled $1.1 billion at December 31, 2019 and $1.2 billion at December 31, 2018.
First Financial Bancorp 2019 Annual Report 51
Notes to Consolidated Financial Statements
The following is a summary of HTM and AFS investment securities as of December 31, 2019:
(Dollars in thousands)
Amortized
cost
Unrecognized
gain
Unrecognized
loss
Fair
value
Amortized
cost
Unrealized
gain
Unrealized
loss
Fair
value
Held-to-maturity
Available-for-sale
U.S. Treasuries
$
Securities of U.S. government
agencies and corporations
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Collateralized mortgage
obligations
Obligations of state and other
political subdivisions
Asset-backed securities
Other securities
Total
$
0
0
$
0
0
$
0
0
0
0
$
99
$
156
$
1
2
$
0
0
100
158
20,818
101,267
9,763
11,014
0
0
122
571
0
804
0
0
(174)
20,766
421,945
9,709
(99)
431,555
(1,225)
100,613
474,174
4,988
(2,644)
476,518
(108)
9,655
769,076
16,753
(385)
785,444
(31)
11,787
0
0
0
0
652,986
400,081
79,781
23,729
1,414
1,959
(462)
(1,064)
(115)
676,253
400,431
81,625
$
142,862
$
1,497
$
(1,538) $
142,821
$ 2,798,298
$
58,555
$
(4,769) $ 2,852,084
The following is a summary of HTM and AFS investment securities as of December 31, 2018:
(Dollars in thousands)
Amortized
cost
Unrecognized
gain
Unrecognized
loss
Fair
value
Amortized
cost
Unrealized
gain
Unrealized
loss
Fair
value
Held-to-maturity
Available-for-sale
U.S. Treasuries
$
$
99
$
0
$
(2) $
97
Securities of U.S. government
agencies and corporations
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Collateralized mortgage
obligations
Obligations of state and other
political subdivisions
Asset-backed securities
Other securities
Total
$
0
0
25,565
147,780
12,540
0
0
0
258
0
$
$
0
0
0
0
32,095
(1,045)
24,520
565,071
(4,385)
143,653
423,797
57
691
819
(233)
31,919
(7,163)
558,599
(3,581)
421,035
(633)
11,907
928,586
4,319
(6,158)
926,747
243,443
1,954
(1,359)
244,038
0
0
0
0
0
0
0
0
257,300
511,430
73,948
2,554
611
358
(1,429)
(2,810)
(1,104)
258,425
509,231
73,202
$
429,328
$
2,212
$
(7,422) $
424,118
$ 2,792,326
$
9,409
$
(22,480) $ 2,779,255
52 First Financial Bancorp 2019 Annual Report
The following table provides a summary of investment securities by contractual maturity as of December 31, 2019, except for
residential and commercial mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, which
are shown as single totals, due to the unpredictability of the timing in principal repayments:
(Dollars in thousands)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed securities - residential
Mortgage-backed securities - commercial
Collateralized mortgage obligations
Asset-backed securities
Total
Held-to-maturity
Available-for-sale
Amortized
cost
Fair
value
Amortized
cost
$
$
0
0
4,756
6,258
20,818
101,267
9,763
0
142,862
$
$
0
0
5,417
6,370
20,766
100,613
9,655
0
142,821
$
$
7,382
52,075
144,626
528,939
421,945
474,174
769,076
400,081
2,798,298
$
$
Fair
value
7,408
53,189
149,961
547,578
431,555
476,518
785,444
400,431
2,852,084
Unrealized gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of
the 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, in addition to 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 December 31, 2019,
2018 or 2017.
As of December 31, 2019, the Company's investment securities portfolio consisted of 1,273 securities, of which 140 securities
were in an unrealized loss position. As of December 31, 2018, the Company's investment securities portfolio consisted of 1,417
securities, of which 504 were in an unrealized loss position.
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:
(Dollars in thousands)
U.S. Treasuries
Securities of U.S. government
agencies and corporations
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Collateralized mortgage obligations
Obligations of state and other
political subdivisions
Asset-backed securities
Other securities
Total
December 31, 2019
Less than 12 months
12 months or more
Total
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
Fair
value
Unrealized
loss
$
$
0
0
$
0
0
$
0
0
$
0
0
$
0
0
0
0
40,190
(209)
11,063
(64)
51,253
(273)
111,658
85,248
118,623
125,889
0
$
481,608
$
(298)
(297)
104,069
30,628
(3,571)
(196)
(457)
(553)
0
(1,814) $
7,950
54,963
5,649
214,322
$
(36)
(511)
(115)
(4,493) $
215,727
115,876
126,573
180,852
5,649
695,930
$
(3,869)
(493)
(493)
(1,064)
(115)
(6,307)
First Financial Bancorp 2019 Annual Report 53
Notes to Consolidated Financial Statements
(Dollars in thousands)
U.S. Treasuries
Securities of U.S. Government
agencies and corporations
Mortgage-backed securities -
residential
Mortgage-backed securities -
commercial
Collateralized mortgage obligations
Obligations of state and other
political subdivisions
Asset-backed securities
Other securities
Total
Less than 12 months
Fair
value
Unrealized
loss
$
$
0
0
0
0
December 31, 2018
12 months or more
Fair
value
Unrealized
loss
Total
Fair
value
Unrealized
loss
$
97
$
(2) $
97
$
(2)
16,777
(233)
16,777
(233)
186,029
(935)
264,795
(7,273)
450,824
(8,208)
147,754
194,795
62,805
336,437
33,752
$
961,572
$
(369)
(1,546)
232,363
240,514
(7,597)
(5,245)
(299)
(2,312)
(884)
(6,345) $
86,644
37,105
4,570
882,865
$
(2,489)
(498)
(220)
38,322
(23,557) $ 1,844,437
380,117
435,309
149,449
373,542
(7,966)
(6,791)
(2,788)
(2,810)
(1,104)
(29,902)
$
For further detail on the fair value of investment securities, see Note 22 – Fair Value Disclosures.
5. 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.
54 First Financial Bancorp 2019 Annual Report
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:
(Dollars in thousands)
Pass
Special Mention
Substandard
Doubtful
Total
Performing
Nonperforming
Total
As of December 31, 2019
Real Estate
Commercial &
industrial
Construction
Commercial
Lease
financing
Total
$
2,324,021
$
493,182
$
4,108,752
$
85,262
$
7,011,217
100,954
40,902
0
2,465,877
Residential
real estate
1,040,787
15,162
1,055,949
$
$
$
$
$
$
0
0
0
493,182
Home equity
766,169
5,700
771,869
59,383
26,516
0
4,194,651
Installment
82,385
204
82,589
$
$
$
$
$
$
488
2,614
0
88,364
Credit card
48,983
201
49,184
160,825
70,032
0
7,242,074
Total
1,938,324
21,267
1,959,591
$
$
$
(Dollars in thousands)
Commercial &
industrial
Construction
Commercial
Lease
financing
Total
As of December 31, 2018
Real Estate
Pass
Special Mention
Substandard
Doubtful
Total
Performing
Nonperforming
Total
$
2,432,834
$
548,323
$
3,664,434
$
90,902
$
6,736,493
24,594
57,233
0
603
9
0
38,653
51,594
0
0
2,513
0
63,850
111,349
0
$
2,514,661
$
548,935
$
3,754,681
$
93,415
$
6,911,692
Residential
real estate
Home equity
Installment
Credit card
$
$
939,936
15,710
955,646
$
$
811,108
6,174
817,282
$
$
93,038
174
93,212
$
$
46,382
0
46,382
$
$
Total
1,890,464
22,058
1,912,522
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.
First Financial Bancorp 2019 Annual Report 55
Notes to Consolidated Financial Statements
Loan delinquency, including nonaccrual loans, was as follows:
As of December 31, 2019
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
$
1,266
$
3,332
$
14,518
$
19,116
$ 2,443,680
$ 2,462,796
$
3,081
$ 2,465,877
$
0
0
776
8,032
2,530
111
208
0
0
857
1,928
1,083
50
75
0
0
5,613
5,031
2,795
148
201
0
0
88,364
88,364
493,167
493,167
0
15
88,364
493,182
7,246
4,151,513
4,158,759
35,892
4,194,651
14,991
1,014,138
1,029,129
26,820
1,055,949
6,408
762,863
769,271
2,598
771,869
309
484
82,022
48,700
82,331
49,184
258
0
82,589
49,184
$
12,923
$
7,325
$
28,306
$
48,554
$ 9,084,447
$ 9,133,001
$
68,664
$ 9,201,665
$
0
0
0
0
0
0
0
201
201
As of December 31, 2018
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
$
13,369
$
41
$
7,423
$
20,833
$ 2,488,450
$ 2,509,283
$
5,378
$ 2,514,661
$
352
0
6,279
11,060
5,245
420
541
0
0
1,158
2,976
1,228
37
96
0
0
12,644
4,535
2,578
145
63
352
0
20,081
18,571
9,051
602
700
93,063
548,687
93,415
548,687
3,682,455
3,702,536
902,404
804,835
92,128
45,682
920,975
813,886
92,730
46,382
0
248
52,145
34,671
3,396
482
0
93,415
548,935
3,754,681
955,646
817,282
93,212
46,382
$
37,266
$
5,536
$
27,388
$
70,190
$ 8,657,704
$ 8,727,894
$
96,320
$ 8,824,214
$
0
0
0
0
0
0
0
63
63
(Dollars in thousands)
Loans
Commercial &
industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Credit card
Total
(Dollars in thousands)
Loans
Commercial &
industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Credit card
Total
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.
56 First Financial Bancorp 2019 Annual Report
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 157 TDRs totaling $30.0 million at December 31, 2019, including $11.4 million of loans on accrual status
and $18.5 million of loans classified as nonaccrual. First Financial had $2.5 million commitments outstanding to lend
additional funds to borrowers whose loan terms had been modified through TDRs, and the ALLL included reserves of $2.5
million related to TDRs as of December 31, 2019. For the years ended December 31, 2019, 2018 and 2017, First Financial
charged off $2.6 million, $0.9 million and $0.3 million, respectively, for the portion of TDRs determined to be uncollectible.
Additionally, as of December 31, 2019, approximately $4.7 million of the accruing TDRs have been performing in accordance
with the restructured terms for more than one year.
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 had been modified through TDRs. At December 31, 2018 the ALLL included reserves of $1.5
million related to TDRs, and $7.9 million of the accruing TDRs had 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 had 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.
The following table provides information on loan modifications classified as TDRs during the years ended December 31, 2019,
2018 and 2017:
Years ended December 31,
2019
Pre-
modification
loan balance
Number
of loans
Period end
balance
Number
of loans
2018
Pre-
modification
loan balance
Period end
balance
Number
of loans
$
25,009
$
25,071
17
$
23,943
$
23,890
0
0
3,024
2,932
3,415
395
41
3,062
366
39
0
8
13
5
0
0
0
3,385
3,150
1,148
95
0
1,073
192
0
7
0
8
6
1
0
8
0
9
30
14
2
63
2017
Pre-
modification
loan balance
Period end
balance
$
5,724
$
5,661
0
0
1,816
1,758
416
39
0
315
39
0
$
31,884
$
31,470
43
$
28,571
$
28,305
22
$
7,995
$
7,773
(Dollars in
thousands)
Commercial &
industrial
Construction
real estate
Commercial
real estate
Residential
real estate
Home equity
Installment
Total
The following table provides information on how TDRs were modified during the years ended December 31, 2019, 2018 and
2017:
(Dollars in thousands)
Extended maturities
Adjusted interest rates
Combination of rate and maturity changes
Forbearance
Other (1)
Total
Years Ended December 31,
2019
2018
2017
$
2,877
$
4,093
$
5,284
516
20,320
2,473
52
0
23,175
985
3,261
2,767
489
1,181
75
7,773
(1) Other includes covenant modifications and other concessions or combination of concessions that do not consist of interest rate adjustments, forbearance and
maturity extensions.
31,470
28,305
$
$
$
First Financial Bancorp 2019 Annual Report 57
Notes to Consolidated Financial Statements
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, are considered to be in payment default of the terms of the
TDR agreement.
For the twelve months ended December 31, 2019, there were three TDRs with a balance of $7.0 million 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, 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, there was one
TDR with a balance $1.5 million 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)
Impaired loans
Nonaccrual loans (1)
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Total nonaccrual loans
Accruing troubled debt restructurings
Total impaired loans
Interest income effect
Gross amount of interest that would have been recorded under
original terms
Interest included in income
Nonaccrual loans
Troubled debt restructurings
Total interest included in income
Net impact on interest income
$
$
$
$
2019
2018
2017
$
24,346
223
$
30,925
22
0
7,295
10,892
5,242
167
48,165
11,435
9
20,500
13,495
5,580
169
70,700
16,109
59,600
$
86,809
$
5,229
82
29
10,616
4,140
3,743
243
24,082
17,545
41,627
5,813
$
4,656
$
3,397
1,042
801
1,843
715
642
1,357
3,970
$
3,299
$
535
710
1,245
2,152
0
Commitments outstanding to borrowers with nonaccrual loans
(1) Nonaccrual loans include nonaccrual TDRs of $18.5 million, $22.4 million and $6.4 million as of December 31, 2019, 2018 and 2017, respectively.
200
$
$
$
3
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.
58 First Financial Bancorp 2019 Annual Report
First Financial's investment in impaired loans, excluding purchased impaired loans, is as follows:
(Dollars in thousands)
Loans with no related allowance recorded
Current
balance
December 31, 2019
December 31, 2018
Contractual
principal
balance
Related
allowance
Current
balance
Contractual
principal
balance
Related
allowance
Commercial & industrial
$
16,726
$
19,709
$
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Total
Loans with an allowance recorded
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Total
Total
223
0
10,160
14,868
5,700
204
47,881
223
0
17,897
17,368
6,462
341
62,000
10,754
0
21,513
0
0
671
294
0
0
0
675
294
0
0
0
0
0
0
0
0
0
0
2,044
0
0
113
18
0
0
$
36,694
$
42,561
$
22
9
23,513
17,297
6,351
174
84,060
939
0
0
1,509
301
0
0
22
26
31,375
19,975
7,461
563
101,983
939
0
0
1,509
301
0
0
0
0
0
0
0
0
0
0
667
0
0
461
32
0
0
11,719
22,482
2,175
2,749
2,749
1,160
Commercial & industrial
27,480
41,222
2,044
37,633
43,500
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Total
223
0
10,831
15,162
5,700
204
59,600
$
223
0
18,572
17,662
6,462
341
84,482
$
0
0
113
18
0
0
2,175
$
$
22
9
25,022
17,598
6,351
174
86,809
22
26
32,884
20,276
7,461
563
104,732
$
$
0
1,160
667
0
0
461
32
0
First Financial Bancorp 2019 Annual Report 59
Years ended December 31,
2019
2018
2017
Average
balance
Interest
income
recognized
Average
balance
Interest
income
recognized
Average
balance
Interest
income
recognized
$
31,846
$
926
$
14,498
$
360
$
13,167
$
280
168
6
18,757
15,915
5,893
170
72,755
4,721
57
0
1,339
446
0
0
0
0
357
307
121
2
1,713
87
0
0
31
12
0
0
21
20
24,738
11,359
5,541
274
56,451
900
0
0
1,402
895
80
0
6,563
130
3,277
0
2
490
301
114
2
112
601
20,935
7,616
4,032
332
4
1
563
196
99
4
1,269
46,795
1,147
44
0
0
18
23
3
0
88
1,204
0
0
2,634
1,112
101
0
5,051
36,567
1,013
15,398
404
14,371
225
6
20,096
16,361
5,893
170
0
0
388
319
121
2
21
20
26,140
12,254
5,621
274
0
2
508
324
117
2
112
601
23,569
8,728
4,133
332
$
79,318
$
1,843
$
59,728
$
1,357
$
51,846
$
1,245
28
0
0
40
26
4
0
98
308
4
1
603
222
103
4
Notes to Consolidated Financial Statements
(Dollars in thousands)
Loans with no related allowance recorded
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Total
Loans with an allowance recorded
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Total
Total
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Total
60 First Financial Bancorp 2019 Annual Report
OREO. OREO is comprised of properties acquired by the Company primarily through the loan foreclosure or repossession
process, that result in partial or total satisfaction of problem loans.
Changes in OREO were as follows:
(Dollars in thousands)
Balance at beginning of year
Additions
Commercial
Residential
Total additions
Disposals
Commercial
Residential
Total disposals
Valuation adjustments
Commercial
Residential
Total valuation adjustments
Balance at end of year
6. Allowance for Loan and Lease Losses
Years ended December 31,
2019
2018
2017
$
1,401
$
2,781
$
6,284
415
2,033
2,448
(541)
(912)
(1,453)
1,269
1,913
3,182
(2,967)
(830)
(3,797)
(112)
(251)
(363)
2,033
$
(355)
(410)
(765)
1,401
$
$
1,732
2,387
4,119
(5,409)
(1,574)
(6,983)
(439)
(200)
(639)
2,781
Management maintains the ALLL at a level that it considers sufficient to absorb probable incurred loan and lease losses
inherent in the portfolio. Management determines the adequacy of the ALLL 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. For further discussion of First
Financial's allowance methodology, see Note 1 – Summary of Significant Accounting Policies.
The ALLL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-
off. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect
the principal amount owed in full, either through payments from the borrower, or from the liquidation of collateral.
Changes in the ALLL by loan category as of December 31 were as follows:
2019
(Dollars in thousands)
Allowance for loan and lease losses
Commercial
& industrial
Lease
financing
Construction
real estate
Commercial
real estate
Residential
real estate
Home
equity
Installment
Credit
card
Total
Balance at beginning of year
$
18,746
$
1,130
$
3,413
$
21,048
$
4,964
$
5,348
$
362
$
1,531
$
23,631
(26,676)
2,883
(23,793)
3
(162)
0
(162)
(1,100)
0
68
68
5,107
(3,689)
1,113
(2,576)
739
(677)
273
(404)
695
(2,591)
1,335
(1,256)
56,542
30,598
2
1,521
(223)
(1,547)
(35,565)
251
28
152
6,075
(1,395)
(29,490)
Provision for loan and lease losses
Gross charge-offs
Recoveries
Total net charge-offs
Ending allowance for loan and
lease losses
$
18,584
$
971
$
2,381
$
23,579
$
5,299
$
4,787
$
392
$
1,657
$
57,650
First Financial Bancorp 2019 Annual Report 61
Notes to Consolidated Financial Statements
(Dollars in thousands)
Allowance for loan and lease losses
Commercial
& industrial
Lease
financing
Construction
real estate
Commercial
real estate
Residential
real estate
Home
equity
Installment
Credit
card
Total
2018
Balance at beginning of year
$
17,598
$
$
3,577
$
20,930
$
4,683
$
4,935
$
307
$
1,316
$
Provision for loan and lease losses
Gross charge-offs
Recoveries
Total net charge-offs
Ending allowance for loan and
lease losses
(Dollars in thousands)
Allowance for loan and lease losses
10,615
(11,533)
2,066
(9,467)
675
454
0
1
1
(310)
0
146
146
847
(4,835)
4,106
(729)
492
(422)
211
(211)
829
(1,725)
1,309
(416)
(85)
(435)
575
140
1,744
(1,720)
191
(1,529)
(12,065)
54,021
14,586
(20,670)
8,605
$
18,746
$
1,130
$
3,413
$
21,048
$
4,964
$
5,348
$
362
$
1,531
$
56,542
Commercial
& industrial
Lease
financing
Construction
real estate
Commercial
real estate
Residential
real estate
Home
equity
Installment
Credit
card
Total
2017
Balance at beginning of year
$
19,225
$
716
$
3,282
$
26,540
$
3,208
$
3,043
$
388
$
1,559
$
57,961
Provision for loan and lease losses
Gross charge-offs
Recoveries
Total net charge-offs
Ending allowance for loan and
lease losses
6,917
(10,194)
1,650
(8,544)
(42)
0
1
1
207
(1)
89
88
(7,291)
(1,038)
2,719
1,681
1,695
(435)
215
(220)
1,778
(913)
1,027
114
(90)
(225)
234
9
408
(857)
206
(651)
3,582
(13,663)
6,141
(7,522)
$
17,598
$
675
$
3,577
$
20,930
$
4,683
$
4,935
$
307
$
1,316
$
54,021
The ALLL balance and the recorded investment in loans by portfolio segment and based on impairment method as of
December 31 were as follows:
(Dollars in thousands)
Ending allowance on loans individually
evaluated for impairment
Ending allowance on loans collectively
evaluated for impairment
Ending allowance for loan and
lease losses
Loans and Leases
Ending balance of loans individually
evaluated for impairment
Ending balance of loans collectively
evaluated for impairment
December 31, 2019
Commercial
& industrial
Lease
financing
Construction
real estate
Commercial
real estate
Residential
real estate
Home
equity
Installment
Credit
card
Total
$
2,044
$
0
$
0
$
113
$
18
$
0
$
0
$
0
$
2,175
16,540
971
2,381
23,466
5,281
4,787
392
1,657
55,475
$
18,584
$
971
$
2,381
$
23,579
$
5,299
$
4,787
$
392
$
1,657
$
57,650
$
27,480
$
223
$
0
$
10,831
$
15,162
$
5,700
$
204
$
0
$
59,600
2,438,397
88,141
493,182
4,183,820
1,040,787
766,169
82,385
49,184
9,142,065
Total loans
$ 2,465,877
$
88,364
$
493,182
$ 4,194,651
$ 1,055,949
$ 771,869
$
82,589
$ 49,184
$ 9,201,665
62 First Financial Bancorp 2019 Annual Report
(Dollars in thousands)
Ending allowance on loans individually
evaluated for impairment
Ending allowance on loans collectively
evaluated for impairment
Ending allowance for loan and
lease losses
Loans and Leases
Ending balance of loans individually
evaluated for impairment
Ending balance of loans collectively
evaluated for impairment
December 31, 2018
Commercial
& industrial
Lease
financing
Construction
real estate
Commercial
real estate
Residential
real estate
Home
equity
Installment
Credit
card
Total
$
667
$
0
$
0
$
461
$
32
$
0
$
0
$
0
$
1,160
18,079
1,130
3,413
20,587
4,932
5,348
362
1,531
55,382
$
18,746
$
1,130
$
3,413
$
21,048
$
4,964
$
5,348
$
362
$
1,531
$
56,542
$
37,633
$
22
$
9
$
25,022
$
17,598
$
6,351
$
174
$
0
$
86,809
2,477,028
93,393
548,926
3,729,659
938,048
810,931
93,038
46,382
8,737,405
Total loans
$ 2,514,661
$
93,415
$
548,935
$ 3,754,681
$ 955,646
$ 817,282
$
93,212
$ 46,382
$ 8,824,214
7. Premises and Equipment
Premises and equipment at December 31 were as follows:
(Dollars in thousands)
Land and land improvements
Buildings
Furniture and fixtures
Leasehold improvements
Construction in progress
Less: Accumulated depreciation and amortization
Total
2019
2018
$
$
54,958
163,277
74,881
31,728
4,096
328,940
57,701
161,817
66,567
29,086
5,731
320,902
114,434
214,506
$
$
105,250
215,652
Rental expense recorded under operating leases in 2019, 2018 and 2017 was $11.2 million, $9.1 million and $7.1 million,
respectively.
8. Leases
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or
equipment for a period of time in exchange for consideration. First Financial is primarily the lessee in its leasing agreements,
and substantially all of those agreements are for real estate property for branches, ATM locations and office space.
On January 1, 2019, the Company adopted Topic 842 and all subsequent modifications. For First Financial, this adoption
primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Substantially
all of the Company's leases are classified as operating leases, and therefore, were previously not recognized on the Company’s
Consolidated Balance Sheets.
With the adoption of Topic 842, operating lease agreements were required to be recognized on the Consolidated Balance Sheets
as an ROU asset and a corresponding lease liability. The Company's right to use an asset over the life of a lease is recorded as a
"right of use" asset in Accrued interest and other assets on the Consolidated Balance Sheet and was $58.6 million at
December 31, 2019. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or
incentives received. First Financial recorded a $64.3 million lease liability in Accrued interest and other liabilities on the
Consolidated Balance Sheet at December 31, 2019.
The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate
used to calculate the present value of minimum lease payments. Regarding the discount rate, Topic 842 requires the use of the
First Financial Bancorp 2019 Annual Report 63
rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its
incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior
to January 1, 2019, the rate was based upon the remaining lease term as of that date.
Leases with an initial term of 12 months or less are not recorded on the balance sheet and First Financial recognizes lease
expense for these leases on a straight-line basis over the term of the lease. Most leases include one or more options to renew,
with renewal terms that can extend the lease term from one to 20 years or more. The exercise of renewal options on operating
leases is at the Company's sole discretion, and certain leases may include options to purchase the leased property. If at lease
inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the
extended term in the calculation of the ROU asset and lease liability. First Financial does not enter into lease agreements which
contain material residual value guarantees or material restrictive covenants.
Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements and leases
generally also include real estate taxes and common area maintenance charges in the annual rental payments.
The components of lease expense were as follows:
(dollars in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Total operating lease cost
Year ended
December 31, 2019
$
$
7,324
55
2,553
9,932
Future minimum commitments due under these lease agreements as of December 31, 2019 are as follows:
(dollars in thousands)
Operating leases
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less imputed interest
Total
The lease term and discount rate at December 31, 2019 were as follows:
Operating leases
Weighted-average remaining lease term
Weighted-average discount rate
Supplemental cash information at December 31, 2019 related to leases was as follows:
(dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
ROU assets obtained in exchange for lease obligations
Operating leases
$
$
7,200
7,166
6,640
6,711
6,457
50,504
84,678
20,401
64,277
15.6 years
3.43%
Year ended
December 31, 2019
$
7,335
64,902
First Financial Bancorp 2019 Annual Report 64
9. 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.
Changes in the carrying amount of goodwill for the years ended December 31, 2019, 2018 and 2017 are shown below.
(Dollars in thousands)
Balance at beginning of year
Goodwill resulting from business combinations
Balance at end of year
2019
2018
2017
$ 880,251
$ 204,084
$ 204,084
57,520
676,167
0
$ 937,771
$ 880,251
$ 204,084
During 2019, First Financial recorded $58.0 million of additions to goodwill resulting from the Bannockburn acquisition.
During 2018, First Financial recorded additions to goodwill of $676.2 million resulting from the merger with MSFG, and First
Financial recorded its final adjustments to goodwill related to the MSFG merger in the first quarter of 2019. For further detail
on the merger with MSFG or the acquisition of Bannockburn, see Note 23 - Business Combinations.
Goodwill is evaluated 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
annual impairment test of goodwill as of October 1, 2019 and no impairment was indicated. As of December 31, 2019, no
events or changes in circumstances indicated that the fair value of a reporting unit was below its carrying value.
Other intangible assets. Other intangible assets consist primarily of core deposit, customer list and other miscellaneous
intangibles.
Core deposit intangibles represent the estimated fair value of acquired customer deposit relationships on the date of acquisition
and are amortized on an accelerated basis over their estimated useful lives. First Financial's core deposit intangibles have an
estimated weighted average remaining life of 8.0 years.
First Financial recorded a $39.4 million customer list intangible asset in conjunction with the Bannockburn merger to account
for the obligation or advantage on the part of either the Company or the customer to continue the pre-existing relationship
subsequent to the merger. The customer list intangible asset is amortized on a straight-line basis over its estimated useful life of
11 years.
Other miscellaneous intangibles include purchase commissions, non-compete agreements and trade name intangibles. Other
intangible assets are included in Other intangibles in the Consolidated Balance Sheets.
The gross carrying amount and accumulated amortization of other intangible assets at December 31, 2019 and December 31,
2018 were as follows:
(Dollars in thousands)
Amortized intangible assets
Core deposit intangibles
Customer list
Other
Total
December 31, 2019
December 31, 2018
$
$
51,031
$
39,420
10,093
100,544
$
(21,149)
(1,195)
(1,999)
(24,343)
$
$
54,357
$
0
3,763
58,120
$
(16,500)
0
(815)
(17,315)
Amortization expense recognized on intangible assets for 2019, 2018 and 2017 was $9.7 million, $7.4 million and $1.3 million,
respectively. The estimated amortization expense of intangible assets for the next five years is as follows:
First Financial Bancorp 2019 Annual Report 65
Notes to Consolidated Financial Statements
(Dollars in thousands)
2020
2021
2022
2023
2024
10. Deposits
Intangible
amortization
$
11,670
10,263
7,718
6,739
6,670
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2019 and 2018 were $285.0 million
and $284.9 million, respectively.
Scheduled maturities of all time deposits for the next five years were as follows:
(Dollars in thousands)
2020
2021
2022
2023
2024
Thereafter
Total
11. Borrowings
Time
deposits
$ 1,752,552
294,579
141,261
37,757
13,272
1,020
$ 2,240,441
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 FHLB and a short-term line of
credit. All repurchase agreements are subject to terms and conditions agreed to by the Bank and the client. To secure its
liability to the client, the Bank is authorized to sell or repurchase U.S. Treasury, government agency and mortgage-backed
securities.
The following shows the remaining contractual maturity of repurchase agreements by collateral pledged:
(Dollars in thousands)
Repurchase agreements
Mortgage-backed securities
Collateralized mortgage obligations
Total
Overnight and
Continuous
$
$
9,755
80,426
90,181
Securities sold under agreements to repurchase are secured by securities with a carrying amount of $90.2 million and $85.5
million, as of December 31, 2019 and 2018, respectively.
First Financial has a $30.0 million short-term credit facility with an unaffiliated bank that matures in September, 2020. 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 common stock and the payment of dividends to shareholders. As
of December 31, 2019 and December 31, 2018, there was no outstanding balance. The credit agreement requires First Financial
to comply with certain covenants including those related to asset quality and capital levels, and First Financial was in
compliance with all covenants associated with this facility as of December 31, 2019 and December 31, 2018.
66 First Financial Bancorp 2019 Annual Report
The following is a summary of short-term borrowings for the last three years:
(Dollars in thousands)
At December 31,
Federal funds purchased and securities sold
under agreements to repurchase
FHLB borrowings
Total
Average for the year
2019
2018
2017
Amount
Rate
Amount
Rate
Amount
Rate
$ 165,181
1,151,000
$1,316,181
0.85% $ 183,591
1.73%
857,100
1.62% $1,040,691
72,265
1.65% $
2.48%
742,300
2.33% $ 814,565
Federal funds purchased and securities sold
under agreements to repurchase
FHLB borrowings
Other short-term borrowings
Total
$ 155,859
990,860
0
$1,146,719
87,221
1.15% $
857,028
2.37%
0.00%
3,178
1.90% $ 947,427
69,766
0.58% $
760,558
2.03%
4.36%
41
1.90% $ 830,365
Maximum month-end balances
Federal funds purchased and securities sold
under agreements to repurchase
FHLB borrowings
Other short-term borrowings
$ 260,621
1,171,400
0
$ 183,591
1,170,800
10,000
$ 130,633
957,700
0
0.19%
1.43%
1.32%
0.19%
1.05%
4.07%
0.98%
In 2015, First Financial issued $120.0 million of subordinated notes, which have a fixed interest rate of 5.13% payable
semiannually and mature in August 2025. These notes are not redeemable by the Company or callable by the holders of the
notes prior to maturity. In addition, First Financial acquired $49.5 million of variable rate subordinated notes in the MSFG
merger that were issued to previously formed trusts in exchange for the trust proceeds. Interest on the acquired subordinated
notes is payable quarterly, in arrears, and the Company has the option to defer interest payments for a period not to exceed 20
consecutive quarters. The acquired subordinated notes mature 30 years after the date of original issuance and may be called at
par following the 5 year anniversary of issuance. First Financial also acquired $8.4 million of 7.40% fixed rate private
placement subordinated debt in conjunction with the MSFG merger that was issued in 2015 and matures in 2025. These notes
are redeemable by the Company at par following the 5 year anniversary of issuance. The subordinated notes are treated as Tier
2 capital for regulatory capital purposes and are included in Long-term debt on the Consolidated Balance Sheets.
In addition to subordinated notes, long-term debt included $242.4 million and $400.6 million of fixed rate FHLB long-term
advances as of December 31, 2019 and December 31, 2018, respectively. As of December 31, 2019, long-term FHLB advances
had a weighted average interest rate of 1.94%. These instruments are primarily utilized to reduce overnight liquidity risk and to
mitigate interest rate sensitivity on the Consolidated Balance Sheets.
FHLB advances, both short-term and long-term, must be collateralized with qualifying assets, typically certain commercial and
residential real estate loans, as well as certain government and agency securities. For ease of borrowing execution, First
Financial utilizes a blanket collateral agreement with the FHLB, and at December 31, 2019, had collateral pledged with a book
value of $6.2 billion.
First Financial Bancorp 2019 Annual Report 67
Notes to Consolidated Financial Statements
The following is a summary of First Financial's long-term debt:
2019
2018
(Dollars in thousands)
FHLB borrowings
Subordinated debt
Unamortized debt issuance costs
Capital lease liability
Capital loan with municipality
Total long-term debt
Amount
Average Rate
Amount
$
$
242,428
170,967
(1,007)
1,213
775
414,376
1.94% $
4.97%
n/a
4.48%
0.00%
3.20% $
400,599
170,550
(1,185)
0
775
570,739
As of December 31, 2019, First Financial's long-term debt matures as follows:
(Dollars in thousands)
2020
2021
2022
2023
2024
Thereafter
Total
12. Derivatives
Average Rate
2.08%
5.28%
n/a
0.00%
0.00%
3.04%
Long-term
debt
104,059
19,052
49,451
49
51
241,714
414,376
$
$
First Financial uses certain derivative instruments, including rate caps, floors, swaps and foreign exchange contracts, to meet
the operating needs of its clients while managing the interest and currency rate risk associated with certain transactions. First
Financial may also utilize interest rate swaps to manage the interest rate risk profile of the Company. Interest rate payments are
exchanged with counterparties, based on the notional amount as established in the interest rate agreement. 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 does
not use derivatives for speculative purposes.
First Financial manages this market value credit risk through counterparty credit policies including a review of total derivative
notional position to total assets, total credit exposure to total capital and counterparty credit exposure risk.
For discussion of First Financial's accounting for derivative instruments, see Note 1 – Summary of Significant Accounting
Policies.
Client derivatives. First Financial utilizes interest rate swaps as a means to offer commercial borrowers fixed rate funding
while providing the Company with floating rate assets.
At December 31, 2019, for interest rate derivatives, the Company had a total counterparty notional amount outstanding of $1.9
billion, spread among eighteen counterparties, with an outstanding liability from these contracts of $67.5 million. At
December 31, 2018, the Company had interest rate derivatives with a total counterparty notional amount outstanding of $1.4
billion, spread among thirteen counterparties, with an outstanding liability from these contracts of $4.9 million.
First Financial monitors its derivative credit exposure to borrowers by monitoring the creditworthiness of the related loan
customers through the Company's normal credit review processes. Additionally, the Company's ALLL Committee monitors
derivative credit risk exposure associated with problem loans through the Company's ALLL 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.
68 First Financial Bancorp 2019 Annual Report
In connection with its use of derivative instruments, First Financial and its counterparties may be required to post cash
collateral to offset the market position of the derivative instruments. First Financial maintains the right to offset these
derivative positions with the collateral posted against them by or with the relevant counterparties.
Foreign Exchange Contracts. First Financial may enter into foreign exchange derivative contracts for the benefit of
commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from
interest rate derivative contracts, First Financial also enters into foreign exchange contracts with major financial institutions to
economically hedge a substantial portion of the exposure from client driven foreign exchange activity. These derivatives are
classified as free-standing instruments with the revaluation gain or loss recorded in Foreign exchange income in the
Consolidated Statements of Income. The Company has risk limits and internal controls in place to help ensure that it is not
taking excessive risk when providing this service to customers. These controls include an independent determination of
currency volatility and credit equivalent exposure on these contracts, counterparty credit approvals and country limits
performed by independent risk management. At December 31, 2019, the Company had total counterparty notional amount
outstanding of $1.9 billion spread among six counterparties, with an estimated fair value of $18.3 million at December 31, 2019
related to foreign exchange contracts, which is included in Accrued interest and other liabilities in the Consolidated Balance
Sheets.
In connection with its use of foreign exchange contracts, First Financial and its counterparties may be required to post cash
collateral to offset the market position of the derivative instruments. First Financial maintains the right to offset these
derivative positions with the collateral posted against them by or with the relevant counterparties.
The following table details the location and amounts recognized in the Consolidated Balance Sheets for client derivatives:
(Dollars in thousands)
Balance
Sheet Classification
Notional
amount
Gain
Loss
Notional
amount
Gain
Loss
Client derivatives-instruments associated with loans
December 31, 2019
December 31, 2018
Estimated fair value
Estimated fair value
Matched interest rate swaps with
borrower
Matched interest rate swaps with
counterparty
Foreign exchange contracts
Matched foreign exchange
contracts with customers
Match foreign exchange contracts
with counterparty
Total
Accrued interest and other assets
and other liabilities
$ 1,923,375
$ 70,799
$ (2,636) $ 1,359,990
$ 17,402
$ (11,787)
Accrued interest and other liabilities
1,923,375
2,636
(70,808)
1,359,990
11,787
(17,401)
Accrued interest and other assets
1,869,934
28,739
(10,433)
Accrued interest and other liabilities
1,869,934
10,433
(28,739)
0
0
0
0
0
0
$ 7,586,618
$112,607
$(112,616) $ 2,719,980
$ 29,189
$ (29,188)
First Financial Bancorp 2019 Annual Report 69
Notes to Consolidated Financial Statements
The following table discloses the gross and net amounts of client derivative liabilities recognized in the Consolidated Balance
Sheets:
December 31, 2019
December 31, 2018
Gross
amounts of
recognized
liabilities
Gross amounts
offset in the
Consolidated
Balance
Sheets
Net amounts
of (assets)/
liabilities
presented in
the
Consolidated
Balance Sheets
Gross amounts
of recognized
liabilities
Gross amounts
offset in the
Consolidated
Balance
Sheets
Net amounts
of (assets)/
liabilities
presented in
the
Consolidated
Balance Sheets
$
$
73,444
$
(147,193) $
(73,749) $
29,189
$
(14,577) $
14,612
39,172
(41,202)
(2,030)
0
0
0
112,616
$
(188,395) $
(75,779) $
29,189
$
(14,577) $
14,612
(Dollars in thousands)
Client derivatives
Matched interest rate swaps
Foreign exchange contracts with counterparty
Total
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 December 31, 2019:
(Dollars in thousands)
Client derivatives-interest rate contracts
Receive fixed, matched interest rate swaps with borrower
Pay fixed, matched interest rate swaps with counterparty
Client derivatives-foreign exchange contracts
Foreign exchange contracts - pay USD
Foreign exchange contracts - receive USD
Total client derivatives
Notional
amount
Average
maturity
(years)
Fair
value
$ 1,923,375
1,923,375
1,869,934
1,869,934
$ 7,586,618
6.0
6.0
0.6
0.6
3.3
$
68,163
(68,172)
18,306
(18,306)
$
(9)
Credit derivatives. In conjunction with participating interests in commercial loans, First Financial periodically enters into risk
participation agreements with 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 $216.2 million as of December 31, 2019 and $138.4
million as of December 31, 2018. The fair value of these agreements were recorded in Accrued interest and other liabilities on
the Consolidated Balance Sheets was $0.2 million at December 31, 2019 and $0.1 million at December 31, 2018.
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 loans
are 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
December 31, 2019, the notional amount of the IRLCs was $33.4 million and the notional amount of forward commitments was
$37.8 million. As of December 31, 2018, the notional amount of IRLCs was $20.8 million and the notional amount of forward
commitments was $12.3 million. The fair value of these agreements was $0.9 million at December 31, 2019 and was
insignificant at December 31, 2018 and was recorded in Accrued interest and other assets on the Consolidated Balance Sheets.
70 First Financial Bancorp 2019 Annual Report
13. Commitments and Contingencies
First Financial offers a variety of financial instruments including letters of credit and outstanding commitments to extend credit
to assist clients in meeting their requirement for liquidity and credit enhancement. 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 counterparty is represented by the contractual amounts of those instruments. First Financial utilizes the
ALLL methodology to maintain a reserve that it considers sufficient to absorb probable losses incurred in letters of credit and
outstanding loan commitments and records the reserve within Accrued interest and other liabilities on the Consolidated Balance
Sheets. First Financial had $0.6 million and $0.7 million of reserves for unfunded commitments recorded in Accrued interest
and other liabilities on the Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.
Loan commitments. Loan commitments are agreements to extend credit to a client absent any violation of any condition
established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and
may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed
necessary by First Financial upon extension of credit, is based on management’s credit evaluation of the client. The collateral
held varies, but may include securities, real estate, inventory, plant or equipment. First Financial had commitments outstanding
to extend credit, totaling $3.3 billion and $3.0 billion at December 31, 2019 and 2018, respectively. As of December 31, 2019,
loan commitments with a fixed interest rate totaled $123.7 million while commitments with variable interest rates totaled $3.2
billion. At December 31, 2018, loan commitments with a fixed interest rate totaled $174.0 million while commitments with
variable interest rates totaled $2.9 billion. The fixed rate loan commitments have interest rates ranging from 0.00% to 21.00%
for both December 31, 2019 and 2018 and have maturities ranging from less than 1 year to 31.6 years for December 31, 2019
and between 1 and 30 years for December 31, 2018.
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 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 has issued letters of credit aggregating $33.4 million and $32.7 million at December 31, 2019, and
2018, respectively. Management conducts regular reviews of these instruments on an individual client basis.
Investments in affordable housing projects. First Financial has made investments in certain qualified affordable housing tax
credits. These credits are an indirect federal subsidy that provide tax incentives to encourage investment in the 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 the unavailability or recapture of the tax credits and other tax benefits.
Investments in affordable housing projects are accounted for under the proportional amortization method and are included in
Accrued interest and other assets in the Consolidated Balance Sheets.
First Financial's affordable housing commitments totaled $38.5 million and $39.4 million as of December 31, 2019 and 2018,
respectively. The Company recognized tax credits of $6.2 million, $4.9 million and $3.2 million related to its investments in
affordable housing projects for the years ended December 31, 2019, 2018 and 2017, respectively. The Company recognized
amortization expense which was included in income tax expense of $6.9 million, $5.7 million and $4.2 million for the years
ended December 31, 2019, 2018 and 2017, respectively. First Financial had no affordable housing contingent commitments as
of December 31, 2019 or December 31, 2018.
Investments in historic tax credits. First Financial has noncontrolling financial investments in private investment funds and
partnerships which are not consolidated. These investments may generate a return through the realization of federal and state
income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a
period of time. Investments in historic tax credits are accounted for under the equity method of accounting and are included in
Accrued interest and other assets on the Consolidated Balance Sheets. The Company’s recorded investment in these entities
was approximately $3.1 million at December 31, 2019, and $3.9 million at December 31, 2018. The maximum exposure to loss
related to these investments was $5.1 million at December 31, 2019 and $3.9 million at December 31, 2018, representing the
First Financial Bancorp 2019 Annual Report 71
Notes to Consolidated Financial Statements
Company’s investment balance and its unfunded commitments to invest additional amounts. Investments in historic tax credits
resulted in $3.5 million, $0.5 million and $13.7 million of tax credits for the years ended December 31, 2019, 2018 and 2017,
respectively.
Contingencies/Litigation. First Financial and its subsidiaries are engaged in various matters of litigation from time to time,
and have a number of unresolved claims pending. Additionally, as part of the ordinary course of business, First Financial and
its subsidiaries are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of
delinquent accounts, challenges to security interests in collateral and foreclosure interests, that is incidental to our regular
business activities. While the ultimate liability with respect to these 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 December 31, 2019. 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 no
reserves related to litigation matters as of December 31, 2019 or December 31, 2018.
14. Related Party Transactions
Outstanding balance of loans to directors, executive officers, principal holders of First Financial’s common stock and certain
related persons were as follows:
(Dollars in thousands)
Beginning balance
Additions
Deductions
Ending balance
Loans 90 days or more past due
2019
2,732
4,348
(1,791)
5,289
0
$
$
$
Related parties of First Financial, as defined for inclusion in the table above, were clients of, and had transactions with,
subsidiaries of First Financial during the periods noted. Similar transactions with related parties may be expected in future
periods.
15. Income Taxes
Income tax expense consisted of the following components:
(Dollars in thousands)
Current expense
Federal
State
Total current expense
Deferred expense (benefit)
Federal
State
Total deferred expense (benefit)
Income tax expense
72 First Financial Bancorp 2019 Annual Report
2019
2018
2017
$
$
31,343
854
32,197
10,946
1,644
12,590
44,787
$
$
34,330
1,029
35,359
4,675
1,592
6,267
41,626
$
$
22,599
1,265
23,864
(4,657)
169
(4,488)
19,376
The difference between the federal income tax rates applied to income before income taxes and the effective rates were due to
the following:
(Dollars in thousands)
2019
2018
2017
Income taxes computed at federal statutory rate on income before income
taxes (21% in 2019 and 2018; 35% in 2017)
Benefit from tax-exempt income
Tax credits
Tax rate reduction impact
Basis reduction on tax credit
Tax benefit of equity compensation
State income taxes, net of federal tax benefit
Affordable housing investments
Other
Income tax expense
$
$
51,001
(5,964)
(10,075)
0
738
(140)
1,973
5,825
1,429
44,787
$
$
44,986
(4,499)
(5,439)
0
0
(565)
2,070
4,725
348
41,626
$
$
40,657
(3,427)
(16,806)
(8,191)
4,599
(1,449)
932
2,798
263
19,376
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. As a result, First Financial revalued its deferred tax
assets and liabilities as well as its investments in affordable housing projects utilizing a 21% federal rate compared to a 35%
rate in prior periods, which resulted in an $8.2 million reduction in tax expense in 2017.
First Financial Bancorp 2019 Annual Report 73
Notes to Consolidated Financial Statements
The major components of the temporary differences that gave rise to deferred tax assets and liabilities at December 31, 2019,
and 2018, were as follows:
(Dollars in thousands)
Deferred tax assets
Allowance for loan and lease losses
Fair value adjustments on business combinations
Deferred compensation
Postretirement benefits other than pension liability
Accrued stock-based compensation
OREO write-downs
Interest on nonaccrual loans
Accrued expenses
Net unrealized losses on investment securities and derivatives
State net operating loss
Leasing liability
Federal tax credit carryforwards
Other
Total deferred tax assets
Deferred tax liabilities
Tax depreciation in excess of book depreciation
FHLB and FRB stock
Mortgage-servicing rights
Leasing activities
Retirement obligation
Intangible assets
Deferred loan fees and costs
Prepaid expenses
Limited partnership investments
Net unrealized gains on investment securities
Foreign exchange deferred income
Right of use assets
Other
Total deferred tax liabilities
Total net deferred tax liability
2019
2018
$
13,011
6,470
228
666
1,296
162
548
4,708
0
2,792
14,806
0
816
45,503
(10,970)
(4,043)
(2,435)
(7,349)
(8,511)
(11,647)
(1,100)
(623)
(2,249)
(11,359)
(2,845)
(13,354)
(2,048)
(78,533)
(33,030) $
12,782
11,199
392
676
1,145
118
1,160
5,808
3,221
3,119
0
873
425
40,918
(9,530)
(4,044)
(2,285)
(3,881)
(6,614)
(12,310)
(131)
(582)
(2,367)
0
0
0
(1,867)
(43,611)
(2,693)
$
$
In conjunction with the MSFG merger, First Financial acquired a state net operating loss. At December 31, 2019 and 2018, the
state net operating loss carryforward was $3.6 million and $3.9 million, and begin to expire in 2024 and 2022, respectively.
The Company expects to fully utilize this net operating loss and, therefore, a valuation allowance is not required at December
31, 2019 and 2018. The acquired MSFG state net operating loss is subject to IRC Section 382 and is limited annually.
The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in
future periods and the reversal of deferred tax liabilities during the same period. The Company has evaluated the available
evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be
realized and thus no valuation allowance was recorded at December 31, 2019 and 2018.
The Bank’s retained earnings at December 31, 2019 and December 31, 2018 included base-year bad debt reserves of $16.1
million as a result of the merger with MSFG. Base-year reserves are subject to recapture in the event the Bank redeems its
stock, makes distributions in excess of current and accumulated earnings and profits (as calculated for federal income tax
purposes), loses its “bank” status or liquidates. The Bank has no intention of meeting any of the criteria for recapture.
Accordingly, a deferred income tax liability of $3.4 million has not been recorded.
74 First Financial Bancorp 2019 Annual Report
At both December 31, 2019 and 2018, First Financial had $2.4 million and $2.9 million of unrecognized tax benefits, as
determined in FASB ASC Topic 740-10, Income Taxes, that, if recognized, would favorably affect the effective income tax rate
in future periods. A progression of gross unrecognized tax benefits as of December 31, 2019 and 2018 is as follows:
(Dollars in thousands)
Balance at beginning of year
Settlements
Balance at end of year
2019
2018
$
$
3,735
(729)
3,006
$
$
3,735
0
3,735
The unrecognized tax benefits relate to state income tax exposures where First Financial believes it is likely that, upon
examination, a state may take a position contrary to the position taken by the Company. The Company believes that resolution
regarding our uncertain tax positions is reasonably possible within the next twelve months and could result in full, partial or no
recognition of the benefit.
First Financial recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. At
December 31, 2019 and 2018, the Company had no interest or penalties recorded.
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 2016 have been closed and are no longer subject to U.S. federal income tax examinations. Tax
years 2016 through 2019 remain open to examination by the federal taxing authority.
First Financial is no longer subject to state and local income tax examinations for years prior to 2011. Tax years 2011 through
2019 remain open to state and local examination by various other jurisdictions.
16. Employee Benefit Plans
Pension plan. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees
and uses a December 31 measurement date for the plan. Plan assets were primarily invested in fixed income and equity mutual
funds. The pension plan does not directly own any shares of First Financial common stock or any other First Financial security
or product.
The investment objective of the Plan is to structure the assets to mirror the liabilities of the Plan, with the fixed income
component matching the identified near and long-term plan distributions and the equity component generating growth of capital
to meet other future Plan liabilities. The determination of the overall expected long-term return on plan assets was based on the
composition of plan assets and a consensus of estimates from similarly managed portfolios of expected future returns.
First Financial recorded expense related to its pension plan of $1.0 million for 2019 and $0.9 million for 2018. During 2017,
First Financial recorded income of $0.6 million. The components of net periodic benefit cost other than the service cost
component are included in Other noninterest expense while service costs are recorded as a component Salaries and employee
benefits in the Consolidated Statements of Income.
First Financial made no cash contributions to the pension plan in 2019, 2018 or 2017 and does not expect to make any
contributions in 2020.
First Financial Bancorp 2019 Annual Report 75
Notes to Consolidated Financial Statements
The following tables set forth information concerning amounts recognized in First Financial's Consolidated Balance Sheets and
Consolidated Statements of Income related to the Company's pension plan:
(Dollars in thousands)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid, excluding settlement
Benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Benefits paid, excluding settlement
Fair value of plan assets at end of year
Amounts recognized in the Consolidated Balance Sheets
Assets
Liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive income (loss)
Net actuarial loss
Net prior service cost
Deferred tax assets
Net amount recognized
Change in accumulated other comprehensive income (loss)
Accumulated benefit obligation
December 31,
2019
2018
$
68,286
6,591
2,778
6,848
(9,459)
75,044
71,154
6,501
2,394
(4,032)
(7,731)
68,286
130,078
21,197
(9,459)
141,816
144,349
(6,540)
(7,731)
130,078
66,772
0
66,772
37,278
(1,095)
(8,242)
27,941
$
$
$
61,792
0
61,792
43,711
(1,508)
(9,613)
32,590
(4,649) $
12,959
74,424
$
66,320
$
$
$
$
$
$
76 First Financial Bancorp 2019 Annual Report
The components of net periodic benefit cost are shown in the table that follows:
(Dollars in thousands)
Service cost
Interest cost
Expected return on assets
Amortization of prior service cost
Recognized net actuarial loss
Net periodic benefit (income) cost
Other changes recognized in accumulated other comprehensive income (loss)
Net actuarial (gain) loss
Prior service cost
Amortization of prior service cost
Amortization of gain
Total recognized in accumulated other comprehensive income (loss)
Total recognized in net periodic benefit cost and accumulated other
comprehensive income (loss)
December 31,
2018
2019
2017
$
6,591
2,778
(9,718)
(413)
1,803
1,041
(4,630)
0
413
(1,803)
(6,020)
$
$
6,501
2,394
(9,811)
(413)
2,188
859
12,319
0
413
(2,188)
10,544
4,894
2,325
(9,358)
(413)
1,924
(628)
(2,775)
0
413
(1,924)
(4,286)
$
(4,979) $
11,403
$
(4,914)
Amount expected to be recognized in net periodic pension expense in the coming year
Amortization of (gain) loss
Amortization of prior service credit
$
$
2,079
(413)
$
1,867
(413)
2,090
(413)
The pension plan assumptions are shown in the table that follows:
Benefit obligations
Discount rate
Rate of compensation increase
Net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
December 31,
2018
2019
2017
3.33%
3.50%
4.31%
3.50%
3.43%
3.50%
4.31%
7.25%
3.50%
3.43%
7.25%
3.50%
3.88%
7.25%
3.50%
The fair value of the plan assets as of December 31, 2019 by asset category is shown in the table that follows:
(Dollars in thousands)
Asset Category
Cash
U. S. Government agencies
Fixed income mutual funds
Equity mutual funds
Total
Fair Value Measurements
Quoted Prices in
Active Markets
for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
195
$
195
$
5,357
75,720
60,544
0
75,720
60,544
0
$
5,357
0
0
141,816
$
136,459
$
5,357
$
0
0
0
0
0
First Financial Bancorp 2019 Annual Report 77
Notes to Consolidated Financial Statements
The fair value of the plan assets as of December 31, 2018 by asset category is shown in the table that follows:
(Dollars in thousands)
Asset Category
Cash
U. S. Government agencies
Fixed income mutual funds
Equity mutual funds
Total
Fair Value Measurements
Quoted Prices in
Active Markets
for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
$
216
$
216
$
8,053
74,453
47,356
0
74,453
47,356
0
$
8,053
0
0
130,078
$
122,025
$
8,053
$
0
0
0
0
0
The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.
See Note 22 – Fair Value Disclosures for further information related to the framework for measuring fair value and the fair
value hierarchy.
The following benefit payments, which reflect expected future service, are expected to be paid:
(Dollars in thousands)
2020
2021
2022
2023
2024
Thereafter
$
Expected
benefit
payments
5,611
5,210
5,173
5,125
6,070
35,362
401(k) plan. First Financial sponsors a defined contribution 401(k) plan which covers substantially all employees. Employees
may contribute up to 50.0% of their earnings into the plan, not to exceed applicable limitations prescribed by the Internal
Revenue Service. First Financial's contributions to the 401(k) plan are discretionary. The Company made no contributions to
the 401(k) plan during the years ended December 31, 2019 and 2018. First Financial recorded $1.9 million of expense related
to the Company's contributions to the 401(k) plan during 2017.
17. Revenue Recognition
On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers using the modified
retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after
January 1, 2018 are presented under the guidance set forth in this update while prior period amounts continue to be reported in
accordance with legacy GAAP. Adoption of this update did not result in a change to the accounting for any of the in-scope
revenue streams. As such, no cumulative effect adjustment to retained earnings was recorded.
The majority of the Company's revenues come from interest income and other sources, including loans, leases, securities,
derivatives and foreign exchange, that are outside the scope of ASU No. 2014-09, Revenue from Contracts with Customers.
The Company's services that fall within the scope of ASU 2019-09 are presented within Noninterest income and are recognized
as revenue when the Company satisfies its obligation to the customer. Services within the scope of this guidance include
service charges on deposits, trust and wealth management fees, bankcard income, gain/loss on the sale of OREO and
investment brokerage fees.
Service charges on deposit accounts. The Company earns fees from its deposit customers for transaction-based, account
maintenance and overdraft. Transaction-based fees, which include services such as ATM use fees, stop payment charges,
statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the
78 First Financial Bancorp 2019 Annual Report
Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned
over the course of a month, representing the period over which the Company satisfies the performance obligation. Similarly,
overdraft fees are recognized at the point in time that the overdraft occurs as this corresponds with the Company's performance
obligation. Service charges on deposit accounts are withdrawn from the customer's account balance.
Trust and wealth management fees. Trust and wealth management fees are primarily asset-based, but can also include flat
fees based upon a specific service rendered, such as tax preparation services. The Company’s performance obligation is
generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the
assets under management and the applicable fees. The Company does not earn performance-based incentives. Optional
services such as real estate sales and tax return preparation services are also available to existing trust and wealth management
customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related
revenue recognized, as incurred.
Bankcard income. The Company earns interchange fees from cardholder transactions conducted through the Visa payment
network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are
recognized concurrent with the transaction processing services provided to the cardholder. Interchange income is presented on
the Consolidated Statements of Income net of expenses. Gross interchange income for 2019 was $30.4 million, and was
partially offset by $11.9 million of expenses within Noninterest income. Gross interchange income for 2018 was $31.3 million,
and was partially offset by $11.0 million of expenses within Noninterest income.
Other. Other noninterest income consists of other recurring revenue streams such as transaction fees, safe deposit rental
income, insurance commissions, merchant referral income, gain (loss) on sale of OREO and brokerage revenue. Transaction
fees primarily include check printing sales commissions, collection fees and wire transfer fees which arise from in-branch
transactions. Safe deposit rental income arises from fees charged to the customer on an annual basis and recognized upon
receipt of payment. Insurance commissions are agent commissions earned by the Company and earned upon the effective date
of the bound coverage. Merchant referral income is associated with a program whereby the Company receives a share of
processing revenue that is generated from clients that were referred by First Financial to the service provider. Revenue is
recognized at the point in time when the transaction occurs.
The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally
occurs at the time of the executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses
whether the buyer is committed to perform their obligations under the contract and whether collectibility of the transaction
price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the
transfer of control of the property to the buyer.
Brokerage revenue represents fees from investment brokerage services provided to customers by a third party provider. The
Company receives commissions from the third-party service provider on a monthly basis based upon customer activity for the
month. The fees are recognized monthly and a receivable is recorded until commissions are paid the following month.
Because the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service
provider and (ii) does not control the services rendered to the customers, investment brokerage fees are presented net of related
costs.
First Financial Bancorp 2019 Annual Report 79
Notes to Consolidated Financial Statements
18. 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
accumulated other comprehensive income (loss) are as follows:
Total other comprehensive income (loss)
Total accumulated
other comprehensive income (loss)
December 31, 2019
Prior to
reclass
Reclass
from
Pre-tax
Tax effect
Net of tax
Beginning
balance
Net
activity
Cumulative
effect of
new
standard
Ending
balance
$
65,858
$
(370) $
66,228
$ (14,269) $
51,959
$ (11,601) $
51,959
$
906
$
41,264
281
4,630
0
(1,390)
281
6,020
(64)
217
(217)
(1,371)
4,649
(32,590)
217
4,649
0
0
0
(27,941)
(Dollars in thousands)
Unrealized gain (loss) on debt
securities
Unrealized gain (loss) on
derivatives
Retirement obligation
Total
$
70,769
$
(1,760) $
72,529
$ (15,704) $
56,825
$ (44,408) $
56,825
$
906
$
13,323
Total other comprehensive income (loss)
Total accumulated other
comprehensive income (loss)
December 31, 2018
Prior to
reclass
Reclass
from
Pre-tax
Tax-effect
Net of tax
Beginning
Balance
Net
Activity
Cumulative
effect of
new
standard
Ending
Balance
$ (14,461) $
(161) $ (14,300) $
3,071
$ (11,229) $
(182) $ (11,229) $
(190) $ (11,601)
628
0
628
(144)
484
(577)
484
(124)
(217)
(Dollars in thousands)
Unrealized gain (loss) on debt
securities
Unrealized gain (loss) on
derivatives
Retirement obligation
(12,319)
(1,775)
(10,544)
2,364
(8,180)
(19,631)
(8,180)
(4,779)
(32,590)
Total
$ (26,152) $
(1,936) $ (24,216) $
5,291
$ (18,925) $ (20,390) $ (18,925) $
(5,093) $ (44,408)
Total other comprehensive income (loss)
Total accumulated other
comprehensive income (loss)
December 31, 2017
Prior to
reclass
Reclass
from
Pre-tax
Tax-effect
Net of tax
Beginning
Balance
Net
Activity
Ending
Balance
8,447
$
1,649
$
6,798
$
(2,431) $
4,367
$
(4,549) $
4,367
$
(182)
810
2,775
0
(1,511)
810
4,286
(296)
(1,114)
514
3,172
(1,091)
(22,803)
514
3,172
(577)
(19,631)
12,032
$
138
$ 11,894
$
(3,841) $
8,053
$
(28,443) $
8,053
$
(20,390)
(Dollars in thousands)
Unrealized gain (loss) on debt
securities
Unrealized gain (loss) on
derivatives
Retirement obligation
Total
$
$
80 First Financial Bancorp 2019 Annual Report
The following table details the activity reclassified from accumulated other comprehensive income into income during the
period:
Amount Reclassified from Accumulated Other
Comprehensive Income (1)
December 31,
(Dollars in thousands)
2019
2018
2017
Realized gains and losses on securities available-for-sale
$
(370)
$
(161)
$
1,649
Affected Line Item in the Consolidated
Statements of Income
Net gain (loss) on sales of investment
securities
Defined benefit pension plan
Amortization of prior service cost (2)
Recognized net actuarial loss (2)
413
(1,803)
413
(2,188)
413
Other noninterest expense
(1,924) Other noninterest expense
Amortization and settlement charges of defined
benefit pension items
(1,390)
(1,775)
(1,511)
Total reclassifications for the period, before tax
$
(1,760)
$
(1,936)
$
138
(1) Negative amounts are debits to profit/loss.
(2) Included in the computation of net periodic pension cost (see Note 16 - Employee Benefit Plans for additional details).
19. Capital
Risk-based capital. First Financial and its subsidiary, First Financial Bank, are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action
regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to
meet minimum capital requirements can initiate regulatory action.
The Board of Governors of the Federal Reserve System approved Basel III in order to strengthen the regulatory capital
framework for all banking organizations, subject to a phase-in period for certain provisions. Basel III established and defined
quantitative measures to ensure capital adequacy. These measures require First Financial 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).
Basel III includes a minimum ratio of Common equity tier 1 capital to risk-weighted assets of 7.00% at December 31, 2019 and
6.38% at December 31, 2018 and a phased-in capital conservation buffer of 2.5% of risk-weighted assets that began on January
1, 2016 at 0.625% until it was fully phased in as of January 1, 2019. Further, the minimum ratio of tier 1 capital to risk-
weighted assets increased to 8.5% at December 31, 2019 and all banks are subject to a 4.0% minimum leverage ratio. The
required Total risk-based capital ratio is 10.50%. Failure to maintain the required Common equity Tier 1 capital conservation
buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and pay discretionary
compensation to its employees. The 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.
As of December 31, 2019, management believes that First Financial met all capital adequacy requirements to which it was
subject. 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 that follows. The Company's most recent 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 have changed the Company's
categorization. Total regulatory capital exceeded the “minimum” requirement by $318.3 million on a consolidated basis at
December 31, 2019.
First Financial Bancorp 2019 Annual Report 81
Notes to Consolidated Financial Statements
The following tables present the actual and required capital amounts and ratios as of December 31, 2019 and 2018 under the
Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels based
on the phase-in provisions of the Basel III Capital Rules as of the year presented. The 2018 table includes the minimum
required capital levels as of January 1, 2019 when the Basel III Capital Rules had 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.
(Dollars in thousands)
December 31, 2019
Common equity tier 1 capital to risk-weighted assets
Actual
Minimum capital
required - Basel III
PCA requirement to be
considered well
capitalized
Capital
amount
Ratio
Capital
amount
Ratio
Capital
amount
Ratio
Consolidated
First Financial Bank
$1,245,746
1,333,978
11.30% $ 771,666
770,997
12.11%
7.00%
N/A
7.00% $ 715,926
N/A
6.50%
Tier 1 capital to risk-weighted assets
Consolidated
First Financial Bank
Total capital to risk-weighted assets
Consolidated
First Financial Bank
Leverage
Consolidated
First Financial Bank
1,288,185
1,334,082
11.69%
12.11%
937,023
936,211
8.50%
N/A
8.50% $ 881,140
N/A
8.00%
1,475,813
1,399,817
13.39% 1,157,498
12.71% 1,156,496
10.50%
N/A
10.50% 1,101,425
N/A
10.00%
1,288,185
1,334,082
9.58%
9.93%
537,606
537,299
4.00%
4.00%
N/A
671,623
N/A
5.00%
Actual
Minimum capital
required - Basel III
PCA requirement to be
considered well
capitalized
Minimum capital
required - Basel III
fully phased-in
Capital
amount
Ratio
Capital
amount
Ratio
Capital
amount
Ratio
Capital
amount
Ratio
(Dollars in thousands)
December 31, 2018
Common equity tier 1 capital to risk-weighted assets
Consolidated
$1,215,613
11.87% $ 652,874
6.38%
N/A
N/A $ 716,881
First Financial Bank
1,279,492
12.50%
652,590
6.38% $ 665,386
6.50%
716,570
7.00%
7.00%
Tier 1 capital to risk-weighted assets
Consolidated
First Financial Bank
1,257,366
1,279,596
12.28%
12.50%
806,491
806,141
7.88%
7.88%
N/A
818,937
N/A
8.00%
870,499
870,120
8.50%
8.50%
Total capital to risk-weighted assets
Consolidated
First Financial Bank
1,444,146
1,344,388
14.10% 1,011,314
9.88%
N/A
N/A
1,075,322
13.13% 1,010,875
9.88% 1,023,671
10.00% 1,074,855
10.50%
10.50%
Leverage
Consolidated
First Financial Bank
1,257,366
1,279,596
9.71%
9.89%
517,958
517,710
4.00%
4.00%
N/A
647,138
N/A
5.00%
517,958
517,710
4.00%
4.00%
Share repurchases. In January 2019, First Financial's board of directors approved a stock repurchase plan, replacing the plan
approved in 2012. The 2019 plan authorizes the purchase of up to 5,000,000 shares of the Company's common stock. First
Financial repurchased 2,753,272 shares at an average market price of $24.05 under this plan during 2019. At December 31,
82 First Financial Bancorp 2019 Annual Report
2019, 2,246,728 common shares remained available for repurchase under the 2019 plan. There were no share repurchases in
2018 or 2017.
ATM Offering. In March 2017, First Financial initiated an "at-the-market" equity offering program to provide flexibility with
respect to capital planning and to support future growth. First Financial was not active through the ATM program during the
period.
20. Stock Options and Awards
First Financial follows the provisions of FASB ASC Topic 718, Compensation-Stock Compensation, which requires
measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation
expense over the service period for all awards expected to vest. First Financial recorded share-based compensation expense
(within salaries and employee benefits on the Consolidated Statements of Income) of $8.0 million, $6.2 million and $5.4
million for the years ended December 31, 2019, 2018 and 2017, respectively, related to stock options and restricted stock
awards. Total unrecognized compensation cost related to non-vested share-based compensation was $8.5 million at
December 31, 2019 and is expected to be recognized over a weighted average period of 1.93 years.
As of December 31, 2019, First Financial had a single active stock-based compensation plan, the Amended and Restated 2012
Stock Plan, under which additional awards may be granted. At December 31, 2019, there were 1,513,826 shares available for
issuance under the Amended and Restated 2012 Stock Plan.
In April 2018, in conjunction with the MSFG merger, First Financial assumed existing MSFG stock options, which were
converted into 83,551 options to purchase First Financial common stock. The converted MSFG options remain subject to all of
the terms and conditions of the plan and grant agreements under which the MSFG Stock Options were originally issued. The
assumed options were exercisable at the time of the merger and remain outstanding for 10 years after the initial grant date with
all options expiring at the end of the exercise period. At December 31, 2019, 37,856 options were outstanding under the Plan,
all of which expire on or before February 3, 2024.
First Financial utilizes the Black-Scholes valuation model to determine the fair value of stock options granted. In addition to
the stock option strike price, the Black-Scholes valuation model incorporates the following assumptions: the expected dividend
yield based on historical dividend payouts; the expected stock price volatility based on the historical volatility of Company
stock for a period approximating the expected life of the options; the risk-free rate based on the U.S. Treasury yield curve in
effect at the time of grant for periods corresponding with the expected life of the option; and the expected option life
represented by the period of time the options are expected to be outstanding, and is based on historical trends. No new options
were granted in 2019, 2018 or 2017.
Stock option activity for the year ended December 31, 2019, is summarized as follows:
(Dollars in thousands, except share and per share data)
Outstanding at beginning of year
Granted
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
Number
of shares
Weighted
average
exercise price
Weighted average
remaining
contractual life
Aggregate
intrinsic value
62,410
$
0
(24,554)
0
37,856
37,856
$
$
9.08
0.00
8.37
0.00
9.54
9.54
3.12
3.12
$
$
602
602
The intrinsic value of stock options is defined as the difference between the current market value and the exercise price. First
Financial uses treasury shares purchased under the Company's share repurchase program to satisfy share-based exercises.
Total intrinsic value of options exercised
Cash received from exercises
Tax benefit from exercises
2019
2018
2017
$
$
$
462
90
1,844
$
$
$
734
284
1,439
$
$
$
1,533
341
1,991
First Financial Bancorp 2019 Annual Report 83
Notes to Consolidated Financial Statements
Restricted stock awards are recorded at fair value as of the grant date as a component of shareholders' equity and amortized on a
straight-line basis to salaries and benefits expense over the specified vesting periods, which is currently three years for
employees and one year for non-employee directors. The vesting of these awards for employees and non-employee directors
may require a service period to be met, and certain awards may also require performance measures to be met.
Activity in restricted stock for the previous three years ended December 31 is summarized as follows:
2019
2018
2017
Number
of shares
Weighted
average
grant date
fair value
Nonvested at beginning of year
462,446
$
Granted
Vested
Forfeited
395,023
(295,633)
(31,267)
Nonvested at end of year
530,569
$
26.39
26.55
24.94
28.63
27.19
Number
of shares
468,372
$
303,930
(267,031)
(42,825)
462,446
$
Weighted
average
grant date
fair value
21.63
28.94
20.94
26.38
26.39
Number
of shares
648,817
$
234,529
(307,825)
(107,149)
468,372
$
Weighted
average
grant date
fair value
17.82
27.36
18.12
21.18
21.63
The fair value of restricted stock is determined based on the number of shares granted and the quoted price of First Financial's
common stock. The fair value of restricted stock vested during 2019, 2018 and 2017 was $7.4 million, $5.6 million and $5.6
million, respectively.
21. Earnings per Common Share
The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in thousands, except share and per share data)
Numerator
Net income
Denominator
2019
2018
2017
$
198,075
$
172,595
$
96,787
Basic earnings per common share - weighted average shares
98,305,570
88,582,090
61,529,460
Effect of dilutive securities
Employee stock awards
Warrants
545,901
0
514,680
517,435
581,329
60,801
Diluted earnings per common share - adjusted weighted average shares
98,851,471
89,614,205
62,171,590
Earnings per share available to common shareholders
Basic
Diluted
$
$
2.01
2.00
$
$
1.95
1.93
$
$
1.57
1.56
First Financial had no warrants outstanding to purchase the Company's common stock as of December 31, 2019. Warrants
acquired in the MSFG merger were outstanding as of December 31, 2018 and represented the right to purchase 804,858 shares
of First Financial's common stock at an exercise price of $10.62 per share. These warrants were exercised in January 2019. At
December 31, 2017, First Financial had warrants outstanding representing the right to purchase 104,200 shares of common
stock at an exercise price of $12.12. These warrants expired in December 2018.
Stock options and warrants with exercise prices 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. Using the period end price, there
were no antidilutive options at December 31, 2019, 2018, or 2017.
84 First Financial Bancorp 2019 Annual Report
As of December 31, 2019, 2018, and 2017, First Financial was authorized to issue 10,000,000 preferred shares, however no
preferred shares were issued or outstanding.
22. Fair Value Disclosures
The fair value framework as disclosed in the 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 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:
(Dollars in thousands)
December 31, 2019
Financial assets
Carrying
value
Estimated fair value
Total
Level 1
Level 2
Level 3
Cash and short-term investments
$
257,639
$
257,639
$
257,639
$
0
$
Investment securities held-to-maturity
Other investments
Loans held for sale
Loans and leases
Accrued interest receivable
142,862
125,020
13,680
142,821
N/A
13,680
9,144,015
9,134,215
39,591
39,591
Financial liabilities
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
10,210,229
10,209,790
1,316,181
1,316,181
1,316,181
414,376
13,671
414,937
13,671
0
1,899
0
N/A
0
0
0
0
142,821
N/A
13,680
0
0
N/A
0
0
9,134,215
12,743
26,848
10,209,790
0
414,937
11,772
0
0
0
0
First Financial Bancorp 2019 Annual Report 85
Notes to Consolidated Financial Statements
(Dollars in thousands)
December 31, 2018
Financial assets
Carrying
Value
Estimated Fair Value
Total
Level 1
Level 2
Level 3
Cash and short-term investments
$
273,959
$
273,959
$
273,959
$
0
$
Investment securities held-to-maturity
Other investments
Loans held for sale
Loans and leases
Accrued interest receivable
429,328
115,660
4,372
424,118
N/A
4,372
8,767,672
8,662,868
41,816
41,816
Financial liabilities
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
10,140,394
10,113,475
1,040,691
1,040,691
1,040,691
570,739
12,126
557,933
12,126
0
2,035
0
N/A
0
0
0
0
424,118
N/A
4,372
0
0
N/A
0
0
8,662,868
13,819
27,997
10,113,475
0
557,933
10,091
0
0
0
0
In accordance with our adoption of ASU 2016-01 in 2018, the methods utilized to measure the fair value of financial
instruments at December 31, 2019 and December 31, 2018 represent an approximation of exit price, however, an actual exit
price may differ.
The following methods, assumptions and valuation techniques were used by First Financial to measure different financial assets
and liabilities at fair value on a recurring or nonrecurring basis.
Investment securities. Investment securities classified as 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 previously described are considered Level 3.
First Financial utilizes values provided by third-party pricing vendors to price the investment securities portfolio in accordance
with the fair value hierarchy of the Fair Value Topic and reviews the pricing methodologies utilized by the pricing vendors to
ensure that the fair value determination is consistent with the applicable accounting guidance. First Financial’s pricing process
includes a series of quality assurance activities where prices are compared to recent market conditions, historical prices and
other independent pricing services. Further, the Company periodically validates the fair value of a sample of securities in the
portfolio by comparing the fair values to prices from other independent sources for the same or similar securities. First
Financial analyzes unusual or significant variances, conducts additional research with the pricing vendor, and if necessary,
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.
Derivatives. The fair values of derivative instruments are based primarily on a net present value calculation of the cash flows
related to the interest rate swaps and foreign exchange contracts at the reporting date, using primarily observable market inputs
such as interest rate yield curves and currency exchange rates, which represents the cost to terminate the swap if First Financial
should choose to do so. Additionally, First Financial utilizes an internally-developed model to value the credit risk component
of derivative assets and liabilities, which 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.
Impaired loans. The fair value of impaired loans are specifically reviewed for purposes of determining the appropriate amount
of impairment to be allocated to the ALLL. 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 value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal
86 First Financial Bancorp 2019 Annual Report
conducted by an independent, licensed third-party appraiser (Level 3). The value of business equipment is based on an outside
appraisal, if deemed significant, or the net book value on the applicable borrower financial statements. 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 are measured at fair value on a nonrecurring basis. Any fair value
adjustments are recorded in the period incurred as provision for loan and lease losses on the Consolidated Statements of
Income.
OREO. Assets acquired through loan foreclosure are recorded at fair value less costs to sell, with any difference between the
fair value of the property and the carrying value of the loan recorded as a charge-off. If the fair value is higher than the
carrying amount of the loan, the excess is recognized first as a recovery and then as noninterest income. Subsequent declines in
value are reported as adjustments to the carrying amount and are recorded in noninterest expense. The carrying value of OREO
is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value differs
from the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least
annually. The Company classifies OREO in level 3 of the fair value hierarchy.
The financial assets and liabilities measured at fair value on a recurring basis in the consolidated financial statements were as
follows:
(Dollars in thousands)
December 31, 2019
Assets
Investment securities available-for-sale
Interest rate derivative contracts
Foreign exchange derivative contracts
Total
Liabilities
Interest rate derivative contracts
Foreign exchange derivative contracts
Total
(Dollars in thousands)
December 31, 2018
Assets
Investment securities available-for-sale
Derivatives
Total
Liabilities
Derivatives
Fair Value Measurements Using
Assets/
Liabilities
Level 1
Level 2
Level 3
at Fair Value
100
$
2,842,794
$
9,190
$
2,852,084
0
0
73,558
39,172
0
0
73,558
39,172
100
$
2,955,524
$
9,190
$
2,964,814
0
0
0
$
$
73,750
39,172
112,922
$
$
0
0
0
$
$
73,750
39,172
112,922
Fair Value Measurements Using
Assets/
Liabilities
Level 1
Level 2
Level 3
at Fair Value
97
0
97
$
$
2,764,443
29,543
2,793,986
$
$
14,715
0
14,715
$
$
2,779,255
29,543
2,808,798
0
$
29,336
$
0
$
29,336
$
$
$
$
$
$
$
The following table presents a reconciliation for certain AFS securities measured at fair value on a recurring basis using
significant unobservable inputs (Level 3) for the year ended December 31, 2019.
First Financial Bancorp 2019 Annual Report 87
Notes to Consolidated Financial Statements
(dollars in thousands)
Beginning balance
Accretion (amortization)
Increase (decrease) in fair value
Settlements
Ending balance
Year ended
December 31, 2019
$
$
14,715
(552)
30
(5,003)
9,190
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 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:
(Dollars in thousands)
December 31, 2019
Assets
Impaired loans
OREO
(Dollars in thousands)
December 31, 2018
Assets
Impaired loans
OREO
23. Business Combination
Fair Value Measurements Using
Level 1
Level 2
Level 3
$
0
0
$
0
0
9,268
1,088
Fair Value Measurements Using
Level 1
Level 2
Level 3
$
0
0
$
0
0
1,320
1,089
$
$
In August, 2019, the Company completed its acquisition of Bannockburn Global Forex, LLC. Pursuant to the acquisition
agreement, First Financial agreed to acquire all of the issued and outstanding membership interests of BGF for aggregate
consideration of approximately $114.6 million consisting of $53.7 million in cash and $60.9 million of First Financial common
stock. BGF was a privately held capital markets trading firm specializing in foreign currency advisory, hedge analytics and
transaction processing for closely held enterprises. Upon completion of the transaction, Bannockburn became a division of the
Bank, but continues to operate as Bannockburn Global Forex, taking advantage of its existing brand recognition within the
foreign exchange industry.
The Bannockburn 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 date in accordance
with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed
were $74.9 million and $18.4 million, respectively, and are subject to refinement for up to one year after the closing date of the
acquisition as additional information relative to closing date fair values became available. The measurement period ends in
August 2020. Goodwill arising from the BGF acquisition was $58.0 million and reflects the business’s high growth potential
and the expectation that the acquisition will provide additional revenue growth and diversification. The goodwill is deductible
for income tax purposes as the transaction is considered a taxable exchange. For further detail, see Note 9 – Goodwill and
Other Intangible Assets.
In April 2018, First Financial completed its acquisition of MainSource Financial Group, Inc. and its banking subsidiary,
MainSource Bank. Under the terms of the merger agreement, shareholders of MSFG received 1.3875 common shares of First
Financial common stock for each share of MSFG common stock, with cash paid in lieu of fractional shares. Including
outstanding options and warrants to purchase MSFG common stock, the total purchase consideration was $1.1 billion and
resulted in goodwill of $675.6 million. The goodwill arising from the acquisition largely reflected synergies and cost savings
88 First Financial Bancorp 2019 Annual Report
resulting from combining the operations of the companies. First Financial incurred merger related expenses related to the
MSFG acquisition of $3.2 million and $37.8 million during the years ended December 31, 2019 and 2018, respectively.
The MSFG acquisition provided additional revenue growth and diversification. The goodwill is not deductible for income tax
purposes as the transaction was accounted for as a tax-free exchange. For further detail, see Note 9 – Goodwill and Other
Intangible Assets.
The MainSource 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 date, in accordance
with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed
were subject to refinement for up to one year after the closing date of the acquisition as additional information relative to
closing date fair values became available. The fair values of assets acquired and liabilities assumed were considered final as of
March 31, 2019.
First Financial Bancorp 2019 Annual Report 89
The following table provides the purchase price calculation as of the acquisition date, identifiable assets purchased and
liabilities assumed at their estimated fair value for the MSFG merger. As a condition of the merger, certain acquired assets and
liabilities held for sale were divested subsequent to the closing of the merger. There was no gain or loss recorded in the
Consolidated Statement of Income in conjunction with this divestiture.
(Dollars in thousands)
Purchase consideration
Cash consideration
Stock consideration
Warrant consideration
Options consideration
Total purchase consideration
Assets acquired
Cash
Investment securities available-for-sale
Investment securities held-to-maturity
Other investments
Loans
Premises and equipment
Intangible assets
Other assets
Assets held for sale
Total assets acquired
Liabilities assumed
Deposits
Subordinated notes
FHLB advances
Other borrowings
Other liabilities
Liabilities held for sale
Total liabilities assumed
Net identifiable assets
Goodwill
MainSource
$
43
1,043,424
14,460
1,577
1,059,504
71,806
900,935
171,423
28,763
2,792,572
98,814
42,887
167,829
127,775
4,402,804
3,263,920
49,027
291,887
205,620
32,649
175,840
4,018,943
383,861
675,643
$
The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered impaired as of the
acquisition date as the Company believes that all contractual cash flows will be collected. The fair value adjustments were
determined using discounted cash flows. In conjunction with the MSFG merger, First Financial acquired non-impaired loans
with a fair value and gross contractual amounts receivable of $2.8 billion and $2.9 billion, respectively.
First Financial Bancorp 2019 Annual Report 90
The following table presents supplemental pro forma information as if the MSFG acquisition had occurred at the beginning of
2017. The pro forma information includes adjustments for interest income on acquired loans, amortization of intangible assets
arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, merger-related
expenses incurred and the related income tax effects. The pro forma financial information is not necessarily indicative of the
results of operations that would have occurred had the transactions been effected on the assumed date. The disclosures
regarding the results of operations for MSFG subsequent to its acquisition date are omitted as this information is not practical to
obtain.
(Dollars in thousands, except per share data) (Unaudited)
Pro Forma Condensed Combined Income Statement Information
Net interest income
Net income
Basic earnings per share
Diluted earnings per share
24. First Financial Bancorp. (Parent Company Only) Financial Information
Twelve months ended
December 31,
2018
2017
$
$
$
$
484,915
221,122
2.27
2.25
$
$
$
$
454,579
130,402
1.34
1.33
Balance Sheets
(Dollars in thousands)
Assets
Cash
Investment securities
Subordinated notes from subsidiaries
Investment in subsidiaries
Commercial bank
Non-banks
Total investment in subsidiaries
Premises and equipment
Other assets
Total assets
Liabilities
Subordinated notes
Dividends payable
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2019
2018
$
55,869
$
86,878
1,116
7,500
694
7,500
2,272,991
2,078,655
8,260
7,194
2,281,251
2,085,849
1,344
77,572
1,361
71,817
$ 2,424,652
$ 2,254,099
$
171,983
$
171,416
849
4,115
465
3,969
176,947
175,850
2,247,705
2,078,249
$ 2,424,652
$ 2,254,099
First Financial Bancorp 2019 Annual Report 91
Years Ended December 31,
2019
2018
2017
$
23
0
107,340
107,363
6
86
54,600
54,692
$
30
$
191
196,800
197,021
9,552
8,169
1,040
6,599
8,798
6,413
5,130
5,648
6,152
5,519
970
4,819
17,460
37,232
(7,080)
52,475
96,787
104,840
Notes to Consolidated Financial Statements
Statements of Income and Comprehensive Income
(Dollars in thousands)
Income
Interest income
Noninterest income
Dividends from subsidiaries
Total income
Expenses
Interest expense
Salaries and employee benefits
Professional services
Other
Total expenses
Income before income taxes and equity in undistributed net earnings
of subsidiaries
Income tax expense (benefit)
Equity in undistributed earnings (loss) of subsidiaries
Net income
Comprehensive income
25,360
25,989
171,661
(5,975)
20,439
198,075
254,900
$
$
81,374
(6,687)
84,534
172,595
153,670
$
$
$
$
92 First Financial Bancorp 2019 Annual Report
Statements of Cash Flows
(Dollars in thousands)
Operating activities
Years Ended December 31,
2018
2017
2019
Net income
$
Adjustments to reconcile net income to net cash provided by operating activities
198,075
$
172,595
$
96,787
Equity in undistributed (earnings) loss of subsidiaries
Depreciation and amortization
Stock-based compensation expense
Deferred income taxes
(Decrease) increase in dividends payable
Increase (decrease) in other liabilities
Decrease (increase) in other assets
Net cash provided by (used in) operating activities
Investing activities
Capital contributions to subsidiaries
Net cash acquired (paid) in business combinations
Proceeds from sales and maturities of investment securities
Purchases of investment securities
Net cash (used in) provided by investing activities
Financing activities
(Decrease) increase in short-term borrowings
Cash dividends paid on common stock
Purchases of common stock
Proceeds from exercise of stock options, net of shares purchased
Other
Net cash (used in) provided by financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
(20,439)
584
7,969
1,255
384
(244)
(7,187)
180,397
0
(53,660)
264
(500)
(53,896)
0
(89,097)
(66,218)
90
(2,285)
(157,510)
(31,009)
86,878
55,869
$
$
(84,534)
194
6,219
739
(10,500)
9,979
16,346
111,038
(3,000)
11,353
0
0
8,353
(8,333)
(79,655)
0
284
(2,528)
(90,232)
29,159
57,719
86,878
(52,475)
193
5,446
(360)
579
(889)
(6,951)
42,330
0
0
0
0
0
0
(41,178)
0
341
(3,059)
(43,896)
(1,566)
59,285
57,719
$
First Financial Bancorp 2019 Annual Report 93
Quarterly Financial And Common Stock Data (Unaudited)
(Dollars in thousands, except per share data)
2019
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expenses
Income before income taxes
Income tax expense
Net income
Earnings per common share:
Basic
Diluted
Cash dividends paid per common share
Market price
High
Low
2018
Interest income
Interest expense
Net interest income
Provision for loan and lease losses
Noninterest income
Noninterest expenses
Income before income taxes
Income tax expense
Net income
Earnings per common share:
Basic
Diluted
Cash dividends paid per common share
Market price
High
Low
December 31
September 30
June 30
March 31
Three months ended
$
$
$
$
$
$
$
$
$
$
$
$
$
$
147,651
28,749
118,902
4,629
36,768
93,064
57,977
9,300
48,677
0.49
0.49
0.23
26.04
23.24
153,429
27,470
125,959
5,310
29,504
83,352
66,801
11,787
55,014
0.56
0.56
0.20
29.58
22.40
$
$
$
$
$
$
$
$
$
$
$
$
$
$
153,645
32,110
121,535
5,228
33,140
86,226
63,221
12,365
50,856
0.52
0.51
0.23
25.49
22.37
149,220
25,735
123,485
3,238
28,684
85,415
63,516
12,859
50,657
0.52
0.51
0.20
32.35
29.40
$
$
$
$
$
$
$
$
$
$
$
$
$
$
154,523
32,221
122,302
6,658
34,638
84,378
65,904
13,201
52,703
0.54
0.53
0.22
25.80
22.16
147,379
23,400
123,979
3,735
28,256
102,755
45,745
9,327
36,418
0.37
0.37
0.19
33.55
28.10
$
$
$
$
$
$
$
$
$
$
$
$
$
$
151,759
30,244
121,515
14,083
26,827
78,499
55,760
9,921
45,839
0.47
0.47
0.22
28.56
23.02
90,354
14,542
75,812
2,303
16,938
52,288
38,159
7,653
30,506
0.49
0.49
0.36
29.35
26.40
First Financial Bancorp common stock trades on the Nasdaq Stock Market under the symbol FFBC.
94 First Financial Bancorp 2019 Annual Report
Total Return to Shareholders
The following graph compares the five-year cumulative total return to shareholders of First Financial Bancorp common stock
with that of companies that comprise the Nasdaq Composite Index and the KBW Regional Bank Index. The KBW Regional
Bank Index is comprised of 50 banks headquartered throughout the country and is used frequently by investors when
comparing First Financial Bancorp's stock performance to that of other similarly sized institutions. First Financial Bancorp is
included in the KBW Regional Bank Index.
The following table assumes $100 invested on December 31, 2014 in First Financial Bancorp, the Nasdaq Composite Index and
the KBW Regional Bank Index, and assumes that dividends are reinvested.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST FINANCIAL BANCORP, NASDAQ COMPOSITE INDEX
AND KBW REGIONAL BANK INDEX
First Financial Bancorp
Nasdaq Composite Index
KBW Regional Bank Index
2014
2015
2016
2017
2018
2019
100.00
100.00
100.00
100.68
106.00
107.11
163.47
147.46
116.71
155.39
150.13
151.40
143.64
123.87
147.15
159.86
153.44
201.21
First Financial Bancorp 2019 Annual Report 95
Shareholder Information
Annual Meeting of Shareholders
The annual meeting of shareholders will be held on
Tuesday, May 26, 2020, at 10:00 AM (EDT) via a
virtual shareholder meeting.
Common Stock Listing
First Financial Bancorp’s common stock trades
on the Nasdaq Stock Market (NASDAQ) under
the symbol FFBC.
Registrar and Transfer Agent
Computershare Shareholder Services serves as the
registrar and transfer agent for First Financial Bancorp
common stock for registered shareholders. Shareholder
account inquiries, including changes of address or
ownership, transferring stock and replacing lost
certificates or dividend checks should be directed to
Computershare Shareholder Services at:
Transfer Agent
Computershare Shareholder Services
P.O. Box 505000
Louisville, KY 40233
(800) 368-5948
Shareholders of record can also access their shareholder
account records and request information related to their
shareholder account via the internet. To register for online
account access, go to: www.computershare.com/investor.
Dividend Reinvestment and Stock Purchase Plan
Shareholders of record holding 25 shares or more are
eligible to participate in our Dividend Reinvestment Plan.
Shareholders of record may elect to have cash dividends
automatically reinvested in additional common shares
and can also purchase additional common shares by
making optional cash payments. To obtain a prospectus,
enroll in the plan, or to contact Investor Relations, please
visit the Investor Relations section of our website at
www.bankatfirst.com/investor.
Investor Relations
Corporate and investor information, including news
releases, webcasts, investor presentations, annual reports,
proxy statements and SEC filings, as well as information
on the Company’s corporate governance practices are
available within the Investor Relations section of our
website at www.bankatfirst.com/investor.
Shareholders, analysts and other investment professionals
who would like corporate and financial information on
First Financial Bancorp should contact:
Jamie Anderson
Chief Financial Officer
First Financial Bancorp
255 East Fifth Street, 29th Floor
Cincinnati, OH 45202
(513) 887-5400
Email: InvestorRelations@bankatfirst.com
Securities and Exchange Commission Filings
All reports filed electronically by First Financial Bancorp
with the United States Securities and Exchange
Commission (SEC), including the Annual Report on
Form 10-K, quarterly reports on Form 10-Q, and
current reports on Form 8-K, as well as any amendments
to those reports, are accessible at no cost within
the Investor Relations section of our website at
www.bankatfirst.com/investor, or by contacting Investor
Relations. These filings are also accessible on the
SEC’s website at www.sec.gov.
First Financial Bank
First Financial Center
255 East Fifth Street
Cincinnati, OH 45202-4248
bankatfirst.com