2020 Annual Report Strengthening communities in a year like no other First First Financial Bancorp
2016 2017 2018 $88.5 $96.8 $172.6 2020 $155.8 2019 $198.1Net Income (dollars in millions) 2016 2017 2018 $5.8 $6.0 $8.8 2019 $9.2 2020 $9.9Total Loans (dollars in billions) 2016 2017 2018 $6.5 $6.9 $10.1 2019 $10.2 2020 $12.2 Total Deposits (dollars in billions) 2016 2017 2018 $8.4 $8.9 $14.0 2019 $14.5 2020 $16.0 Total Assets (dollars in billions) 2016 2017 2018 $1.43 $1.56 2020 $1.59 $1.93 2019 $2.00 Diluted Earnings Per Share 7.02% 20202016 2017 2018 10.48% 10.78% 9.85% 2019 9.11% Return On Equity 121 CONSECUTIVE QUARTERS OF PROFITABILITY 1.00% 20202016 2017 2018 1.07% 1.12% 1.37%
2019 1.39% Return On Assets 157 YEARS OF STRENGTH & STABILITY
Dear Fellow Shareholders, As I look back on 2020, I recall how routinely the year began, as we prepared the previous year’s annual report to shareholders. We were coming off a strong 2019 performance and had developed solid strategic and execution plans that would set the direction for the coming 12 months. Or so we thought. At that same time, a novel coronavirus was migrating from country to country. Over the course of weeks, a health crisis became a pandemic, and economic disruption evolved into a global recession. By March, we launched our crisis management procedures, unaware that those conditions would remain the
standard for the balance of the year. Everything that we once took for granted seemed to vanish overnight – daily commutes, the workplace, personal interactions, even handshakes and casual conversations. Everything seemed to change, except First Financial Bank’s commitment to our clients, communities, and each other. The pandemic forced us to limit access to our banking centers, so we adapted to serve our clients in creative ways, with a combination of in-person, remote, and digital solutions. We made tens of thousands of calls to check on the personal and financial wellbeing of our clients, and created relief programs to help those
impacted by sudden financial challenges. These efforts complemented the swift action taken by the Federal Reserve and our national, state, and local governments. Although the impact of this health crisis was felt throughout the economy, our financial systems were strong and moved quickly to lessen the immediate impact of the pandemic. Much needed stimulus came in the form of a reduction in interest rates, the passing of the CARES Act, and the establishment of the Small Business Administration’s Payroll Protection Program, to name a few. Implementing these programs was challenging, complicated by the fact that we shifted 90
percent of our associates to remote work arrangements. This tested the mettle of our technology teams, our networks, and the ability of our associates to reimagine and redesign everyday tasks and processes on the fly. Not surprisingly, our teams demonstrated their innovation and implemented new programs without sacrificing the quality of their work and our commitment to customer service. Throughout 2020, First Financial produced solid earnings as a result of record revenue, disciplined credit and expense management, historic production from key lines of business like our Mortgage and Bannockburn Global Forex divisions, record
Commercial and Industrial loan production, and assets under management in our Wealth Management division. Despite pandemic-related headwinds, our careful management of resources positions us well as we rebound from this historic event. Looking to 2021, we will focus on leveraging the goodwill we established over the past year, growing core client relationships, building greater confidence and trust with our clients, and becoming a more integral part of their day-to-day financial activities. We want our associates to thrive in all aspects of their lives, promoting positive outcomes for themselves and our company. To accomplish
this, we are creating a more engaged workplace, one that celebrates our diversity and addresses the complete wellbeing of our associates. As always, we will continue to advocate for our clients, make a difference in our communities, break traditional industry norms, improve functionality, be good corporate stewards, and diligently manage credit. Great challenges reveal true character. Many of the individual acts of adaptation, commitment, and selflessness on the part of our First Financial associates will never be known. However, the willingness to work long hours at night, on weekends, under incredible deadlines and during
unparalleled times is, to me, the epitome of leadership. Our associates gave their all for those in need. This is what makes me so proud of the First Financial team, and so honored to present you with the results of this incomparable year. Archie M. Brown President & Chief Executive Officer “ Despite pandemic-related headwinds, our careful management of resources positions us well as we rebound from this historic event.
First Financial Bancorp 2020 Annual Report 1
OUR YEAR IN REVIEW Remote Workforce Transition Ensuring our employees remained healthy and safe, we quickly transitioned 90 percent of our workforce to remote working conditions by providing immediate access to equipment and remote network access. Associates successfully modified their work processes and procedures through integrated virtual technologies to help maintain the quality of work and customer service for which we’ve become known. Many associates moved into entirely new roles to help alleviate the demanding workloads experienced in other departments of the bank. Innovating Under Pressure
Throughout this challenging year, our teams continued to drive innovation, launching new technologies in response to business demands. Some initiatives were planned but many were designed and executed in real time, under tight deadlines and always with an eye on meeting the evolving needs of our clients. These innovations included: • Our online Client Hardship Relief application • SBA PPP online application, loan processing, and SBA platform integration • Robotic processing automation • Enhanced mobile deposit capabilities • Online banking upgrades • Online account opening • Online and remote loan origination capabilities •
Live chat • DocuSign e-signature • Mortgage Coach • Disaster recovery site • Next-generation website development Retail Banking Centers During the early stages of the COVID-19 pandemic, First Financial Bank implemented strategic measures throughout our operations to prioritize the health and safety of our clients. We flexed staffing within our banking centers, installed Personal Protective Equipment, developed new processes for loan originations and closings, and assisted clients with online banking and mobile app adoption to continue delivering essential banking services while safely minimizing the risk of exposure. Despite
incredible challenges, we continued to deliver innovative solutions like robotic processing automation, enhanced mobile deposit capabilities, online and remote loan origination capabilities, and other new banking features to ensure the seamless continuation of financial transactions during the pandemic.
2 First Financial Bancorp 2020 Annual Report
Keeping Our Clients First 2020 was a challenging year for many of our clients, and we are proud to have helped many businesses and individuals manage through the difficulties of the pandemic. We conducted thousands of outreach calls to proactively check on the financial wellbeing of our consumer and business clients. Relief programs were developed to assist consumers, small businesses, and commercial clients. We offered deferred payments on auto loans, mortgages, home equity loans, and credit cards to help those customers who may have been affected more significantly than others. We also worked tirelessly to help successfully
roll out the SBA’s Paycheck Protection Program and provide relief for thousands of businesses. Diversity, Equity & Inclusion As part of our progression as a company, we want to be a positive change-agent, both internally and externally. To that end, we launched our Diversity, Equity & Inclusion (DEI) program to eliminate bias, build a more inclusive workplace environment, and provide all of our associates with equitable access to resources and development opportunities. In 2020, we established an associate-led Diversity Council to oversee and manage our ongoing DEI initiatives and to identify opportunities to expand the reach and
effectiveness of the program. To ensure oversight at every level of our organization, we also established a Diversity Committee within our Board of Directors. 2020 total production Mortgage Production $1.3 billion increase in referrals89% SBA Paycheck Protection Program PPP loans processed7,000 in PPP loans closed $900 million approximately over
First Financial Bancorp 2020 Annual Report 3
LEADERSHIP Board of Directors Claude E. Davis Board Chair, First Financial Bancorp Managing Director Brixey and Meyer Capital J. Wickliffe Ach Retired President & CEO, Hixson, Inc. William G. Barron Chairman and President William G. Barron Enterprises Vincent A. Berta Lead Independent Director Board of Directors of First Financial Bancorp 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 Susan L. Knust Owner and President Omega Warehouse Services K.P. Properties 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 Maribeth S. Rahe President and Chief Executive Officer Fort
Washington Investment Advisors, Inc. Senior Management Archie M. Brown President and Chief Executive Officer James M. Anderson Chief Financial Officer Richard S. Dennen President, Oak Street Funding John M. Gavigan Chief Operating Officer Gregory A. Harris Executive Vice President, Wealth Management & Affluent Banking William R. Harrod Chief Credit Officer Andrew K. Hauck
Chief Commercial Banking Officer Catherine M. Myers Chief Consumer Banking Officer Amanda N. Neeley Chief Strategy Officer James R. Shank Chief Internal Auditor Karen B. Woods General Counsel and Chief Risk Officer
4 First Financial Bancorp 2020 Annual Report
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
2020
2019
% Change
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)
(5.7) %
(21.3) %
(20.4) %
(20.5) %
2.2 %
4.1 %
(31.1) %
10.1 %
7.6 %
18.3 %
19.8 %
1.5 %
$ 456,511
$ 484,254
155,810
198,075
$
1.60
1.59
0.92
12.93
17.53
$
2.01
2.00
0.90
12.42
25.44
$ 15,973,134
$ 14,511,625
9,900,970
3,689,465
12,232,003
2,282,070
9,201,665
3,119,966
10,210,229
2,247,705
1.00 %
7.02 %
12.97 %
3.46 %
3.51 %
1.39 %
9.11 %
16.32 %
3.95 %
4.00 %
First Financial Bancorp 2020 Annual Report 5
2020 Financial Highlights
6 First Financial Bancorp 2020 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
AFS
ALLL
Asset backed loans
Allowance for credit losses
Available-for-sale
Allowance for loan and lease losses
Allowance
Collectively or individually, Allowance for credit
losses and Allowance for loan and lease losses
AOCI
ASC
ASU
ATM
Bank
Basel III
BGF or
Bannockburn
Bp/bps
BOLI
CDs
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
First Financial
First Financial Bancorp.
FNMA
Form 10-K
FRB
GAAP
GNMA
HTM
Federal National Mortgage Association
First Financial Bancorp. Annual Report on Form 10-K
Federal Reserve Bank
U.S. Generally Accepted Accounting Principles
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
CARES Act
Coronavirus Aid, Relief, and Economic Security Act
CECL
C&I
CMOs
CRE
Company
DDA
Current Expected Credit Loss
Commercial & industrial
Collateralized mortgage obligations
Commercial real estate
First Financial Bancorp.
Demand deposit account
Dodd-Frank
Dodd-Frank Wall Street Reform and Consumer
Protection Act
EAD
ERISA
ERM
EVE
Exposure at Default
Employee Retirement Income Security Act
Enterprise Risk Management
Economic value of equity
ODFI
OREO
PCA
PCD
PCI
PD
PPP
PPPLF
R&S
ROU
SEC
SOFR
Ohio Department of Financial Institutions
Other real estate owned
Prompt corrective action
Purchase credit deteriorated
Prompt corrective action
Probability of default
Paycheck Protection Program
Paycheck Protection Program Liquidity Facility
Reasonable and supportable
Right-of-use
United States Securities and Exchange Commission
Secured Overnight Financing Rate
Fair Value Topic
FASB ASC Topic 825, Financial Instruments
Topic 842
FASB ASC Topic 842, Leasing
FASB
FDIC
FHLB
FHLMC
Financial Accounting Standards Board
Special Assets
Special Assets Division
Federal Deposit Insurance Corporation
Federal Home Loan Bank
Federal Home Loan Mortgage Corporation
TDR
TTC
USD
Troubled debt restructuring
Through the cycle
United States dollars
First Financial Bancorp 2020 Annual Report 7
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 credit 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
2020
2019
December 31,
2018
2017
2016
$
$
$
$
$
$
$
524,963
6,529
531,492
68,452
463,040
524,963
68,452
456,511
70,559
189,123
390,664
184,411
28,601
155,810
1.60
1.59
0.92
97,364
98,093
$
$
$
$
$
$
$
607,578
6,328
613,906
123,324
490,582
607,578
123,324
484,254
30,433
131,373
342,332
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
14,859
103,382
323,537
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
3,341
76,142
240,183
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
10,398
69,601
201,143
130,731
42,205
88,526
1.45
1.43
0.64
61,206
61,985
$ 15,973,134
13,651,843
3,689,465
9,900,970
2,914,787
3,680,774
1,872,733
3,763,709
12,232,003
166,594
776,202
2,282,070
$ 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
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 2020, 2019 and 2018 and a 35.00% tax rate for 2017 and 2016.
(2) Includes loans held for sale.
87.49 %
0.15 %
13.89 %
1.37 %
9.85 %
4.05 %
4.10 %
40.00 %
87.13 %
0.14 %
14.30 %
1.00 %
7.02 %
3.46 %
3.51 %
57.50 %
88.59 %
0.33 %
15.30 %
1.39 %
9.11 %
3.95 %
4.00 %
44.78 %
88.12 %
0.13 %
10.42 %
1.12 %
10.78 %
3.59 %
3.66 %
43.31 %
89.33 %
0.10 %
10.24 %
1.07 %
10.48 %
3.62 %
3.68 %
44.14 %
8 First Financial Bancorp 2020 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 $16.0 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 143 full service banking centers as of December 31, 2020. 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 $3.0 billion in assets under management as of December 31, 2020 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 on our website
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 long-
term profitability and growth. 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 is 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 2020 Annual Report 9
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.
COVID-19 CONSIDERATIONS
The Company's operations and financial results for the majority of 2020 were substantially influenced by the COVID-19
pandemic. The Company updated operating protocols to continuously provide virtually all banking services while prioritizing
the health and safety of both its clients and associates. Banking centers offered drive through services without interruption,
while lobbies were fully open or accessible to clients via appointment, conditional to virus trends at any point in time during the
year. Sales associates, support teams and management largely continued working remotely; however, associates located in the
Company's corporate offices and operations centers began to gradually return to those locations at reduced capacity levels in the
third quarter. In addition, the Company has maintained its focus on enhancing remote, mobile and online processes to better
support a bank anytime anywhere environment.
To assist clients during the pandemic, the Company implemented distinct COVID-19 relief programs to provide
payment deferrals, fee waivers, and suspension of vehicle repossessions and residential property foreclosures, among others.
The Company also actively monitored the actions of federal and state governments to proactively assist clients and ensure
awareness of each financial assistance program available.
The Bank underwent a significant level of cross training and redeployment of associate resources to rapidly meet the influx of
client requests in response to the passage of the CARES Act, the establishment of the Paycheck Protection Program and the
approval of the Consolidated Appropriations Act. The Company's response to the PPP resulted in early successes in providing
customer relief, and First Financial ultimately secured SBA funding for $936.4 million in PPP loans for its borrowers in 2020.
As of December 31, 2020, the Company had approximately 4,900 active PPP loans with $594.6 million in balances, net of
unearned fees of $13.7 million.
Further, as of December 31, 2020, the Company had $320.2 million in loans, or 3.2% of the total portfolio, that were deferred
to provide relief to borrowers adversely impacted by the pandemic. These deferrals consisted of $291.5 million of loans under
which borrowers were temporarily making interest-only payments and $28.7 million of loans under which borrowers were
provided temporary relief from full P&I payments. Franchise loans and hotel loans comprised $230.5 million, or 72%, of total
loans deferred. As stated in the CARES Act and subsequently amended by the Consolidated Appropriations Act, loan
modifications in response to COVID-19 executed on a loan that was not more than 30 days past due as of December 31, 2019
and executed between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or
January 1, 2022 are not required to be reported as TDR.
Additionally, First Financial contributed $1.0 million in the first quarter of 2020 to help fund agencies providing COVID-19
relief efforts in the communities throughout its geographic footprint.
OVERVIEW OF OPERATIONS
Net income for the year ended December 31, 2020 was $155.8 million, resulting in earnings per diluted common share of
$1.59. This compares to net income of $198.1 million and earnings per diluted common share of $2.00 in 2019. First
Financial’s return on average shareholders’ equity for 2020 was 7.02%, compared to 9.11% for 2019, and First Financial’s
return on average assets was 1.00% and 1.39% for 2020 and 2019, respectively.
Net interest income in 2020 decreased $27.7 million, or 5.7%, from 2019, to $456.5 million, primarily driven by lower yields
earned on the loan and investment portfolios resulting from a lower interest rate environment. The net interest margin on a
fully tax equivalent basis was 3.51% for 2020 compared to 4.00% in 2019.
First Financial Bancorp 2020 Annual Report 10
Noninterest income increased $57.8 million, or 44.0%, to $189.1 million during 2020 from $131.4 million in 2019. The
increase in 2020 was driven by record gains on sales of mortgage loans, the full year impact of the BGF acquisition and gains
on class B Visa shares.
Noninterest expense increased $48.3 million, or 14.1%, from $342.3 million in 2019 to $390.7 million in 2020. This increase
was impacted by higher salaries and benefits directly related to the growth in noninterest income, higher data processing costs,
and debt extinguishment costs.
Income tax expense decreased $16.2 million, or 36.1%, to $28.6 million in 2020 from $44.8 million in 2019, with the effective
tax rate decreasing to 15.5% in 2020 from 18.4% in 2019. The lower effective tax rate in 2020 was primarily related to lower
pre-tax income and recognition of tax credit investments during the period.
Total loans increased $699.3 million, or 7.6%, to $9.9 billion at December 31, 2020 from $9.2 billion at December 31, 2019,
driven by PPP volume. Total deposits increased $2.0 billion, or 19.8%, to $12.2 billion as of December 31, 2020 from $10.2
billion at December 31, 2019 as clients benefited from government stimulus actions and account generation increased.
The ACL was $175.7 million, or 1.77% of total loans at December 31, 2020, compared to $57.7 million, or 0.63% of total loans
at December 31, 2019. The adoption of ASC 326 effective January 1, 2020 accounted for $61.5 million of the increase in the
ACL balance, with the remaining increase attributed to the expected impact from the COVID-19 pandemic. Provision expense
increased $40.2 million, or 131.4%, to $70.8 million in 2020 largely in response to higher anticipated losses over the life of the
loan portfolio arising from the economic uncertainty resulting from the pandemic, while classified assets increased $52.8
million, or 59.1%, during the year as a result of the economic impact of COVID-19.
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
2020 vs. 2019. First Financial’s net income decreased $42.3 million, or 21.3%, to $155.8 million in 2020, compared to net
income of $198.1 million in 2019. The decrease was primarily related to a $27.7 million, or 5.7%, decrease in net interest
income as well as a $40.1 million, or 131.9%, increase in provision expense and a $48.3 million, or 14.1%, increase in
noninterest expenses, which was partially offset by a $57.8 million, or 44.0%, increase in noninterest income and a $16.2
million, or 36.1%, decrease in income tax expense during 2020.
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.
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 2016 through 2020 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% marginal tax rate for 2018 through 2020 and a 35% marginal tax rate for years 2016 and 2017. Net interest
income on a taxable equivalent basis adjusts for the tax-favored status of income from certain loans and securities held by First
Financial that are not taxable for federal income tax purposes in order to facilitate a comparison between taxable and tax-
First Financial Bancorp 2020 Annual Report 11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 3.51%, 4.00% and 4.10% for 2020, 2019 and 2018, 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 2020, 2019 and 2018 were $32.8 million, $15.9 million and $16.5
million, respectively. Interest income also included purchase accounting accretion of $20.0 million, $26.8 million and $25.5
million for 2020, 2019 and 2018, respectively.
2020 vs. 2019. Net interest income decreased $27.7 million, or 5.7%, from $484.3 million in 2019 to $456.5 million in 2020,
as interest rates declined and purchase accounting accretion moderated during 2020. Average earning assets increased from
$12.3 billion in 2019 to $13.2 billion in 2020 primarily due to PPP activity, while the tax equivalent yield on earning assets
decreased from 5.00% in 2019 to 4.03% in 2020.
Net interest margin on a fully tax equivalent basis decreased 49 bps to 3.51% for 2020 compared to 4.00% in 2019 as a decline
in interest rates drove a 97 bp decline in asset yields, which combined with higher earning asset balances to more than offset a
61 bp decline in funding costs.
Interest income decreased $82.6 million, or 13.6%, in 2020 when compared to the prior year as the yield on earning assets
declined to 4.03% from 5.00%, which more than offset the impact of higher earning asset balances. The declining yield on
earning assets resulted from an approximate 150 bp reduction in the fed funds target rate from December 31, 2019. Average
earning assets increased to $13.2 billion as of December 31, 2020 from $12.3 billion in 2019 as loan balances grew largely due
to PPP activity.
Interest expense decreased due to lower rates paid on deposits, the Company's aggressive and deliberate management of
funding costs and lower borrowing balances. Lower interest rates led to a 52 bp decline in the cost of interest-bearing deposits,
which was 0.52% in 2020 compared to 1.04% for the same period in the prior year. The cost of borrowed funds decreased to
1.82% in 2020 from 2.65% during 2019, reflecting the decline in interest rates and a shift to FRB long-term borrowings, which
were used to fund PPP activity and carry a relatively modest interest rate of 0.35%.
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 2019. 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 when compared to 2018.
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.
12 First Financial Bancorp 2020 Annual Report
Table 2 • Volume/Rate Analysis - Tax Equivalent Basis (1)
(Dollars in thousands)
Interest income
Loans (2)
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
2020 change from 2019 due to
2019 change from 2018 due to
Volume
Rate
Total
Volume
Rate
Total
$ 41,726
$ (109,315) $ (67,589) $ 44,638
$
7,257
$ 51,895
(6,725)
(9,654)
(16,379)
4,780
(2,696)
2,084
7,846
5,831
(1,945)
(12,350)
(14,295)
13,677
150
(680)
(530)
84
3,246
(555)
2,691
30
11,092
5,276
16,368
114
39,931
(122,345)
(82,414)
58,399
9,978
68,377
518
517
(8,732)
(8,214)
(14,668)
(14,151)
(777)
(13,968)
(14,745)
(6,059)
(12,734)
(18,793)
(6,966)
1,031
7,997
2,196
859
261
5,750
4,386
3,056
3,443
3,072
8,685
2,816
(151)
4,302
3,333
14,435
7,202
2,905
(57,068)
(54,872)
14,312
17,865
32,177
Net interest income
$ 37,735
$ (65,277) $ (27,542) $ 44,087
$
(7,887) $ 36,200
(1) Tax equivalent basis was calculated using a 21.00% tax rate.
(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 2020, 2019 and 2018 are shown in Table 3 – Noninterest Income and
Noninterest Expenses.
NONINTEREST INCOME
2020 vs. 2019. Noninterest income increased $57.8 million, or 44.0%, from $131.4 million in 2019 to $189.1 million in 2020.
The increase was primarily related to a $36.3 million, or 244.6%, increase in Gain on sale of loans, a $31.6 million, or 408.8%,
increase in Foreign exchange income, a $5.0 million increase on Sales of investment securities and an $8.5 million increase in
Unrealized gain (loss) on equity securities. These increases were partially offset by an $8.5 million, or 22.4%, decrease in
Service charges on deposit accounts, a $7.1 million, or 37.6%, decrease in Bankcard income and a $5.3 million, or 34.2%,
decrease in Client derivative fees.
Higher gain on sale of loans was a result of record mortgage banking origination activity driven by historically low interest
rates, while foreign exchange income was attributable to the full-year impact of the BGF acquisition, which closed in August of
2019 and generated record income in the back half 2020. The Company recorded net realized gain on sale of Visa Class B
shares of $4.5 million during the year, driving the increase in gain on sale of investment securities, while the Company recorded
unrealized gains on its remaining investment in Visa Class B shares of $8.8 million in noninterest income when recording those
shares on the Consolidated Balance Sheet at their estimated fair value, resulting in the increase in unrealized gain on equity
securities.
Service charges on deposit accounts declined during 2020 due to pandemic related fee waivers and lower transaction activity,
while the decline in bankcard income was due to the full-year impact of the Durbin Amendment cap on interchange fees, which
became applicable to First Financial in the third quarter of 2019, along with lower transaction volumes due to the pandemic.
Demand for back to back swaps slowed as loan growth moderated, resulting in lower client derivative fees during the year.
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%,
increase in Client derivative fees and a $7.7 million increase in Foreign exchange income. These increases were partially offset
First Financial Bancorp 2020 Annual Report 13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
Table 3 • Noninterest Income and Noninterest Expenses
(Dollars in thousands)
Noninterest income
2020
2019
2018
Total
% Change
Total
% Change
Total
% Change
Service charges on deposit accounts
$
29,446
(22.4) % $
37,939
8.1 % $
35,108
Trust and wealth management fees
Bankcard income
Client derivative fees
Foreign exchange income
Net gains from sales of loans
Unrealized gain (loss) on equity securities
Other
Subtotal
16,531
11,726
10,313
39,377
51,176
9,045
16,946
5.7 %
(37.6) %
(34.2) %
408.8 %
15,644
18,804
15,662
7,739
3.7 %
(7.1) %
103.9 %
N/M
15,082
20,245
7,682
0
244.6 %
14,851
144.6 %
6,071
N/M
575
376.4 %
(208)
(17.6) %
20,565
5.1 %
19,563
184,560
40.1 %
131,779
27.3 %
103,543
Net gain (loss) on sales/transfers of investment
securities
4,563
N/M
(406)
N/M
(161)
Total
$ 189,123
44.0 % $ 131,373
27.1 % $ 103,382
Noninterest expenses
Salaries and employee benefits
$ 236,779
13.3 % $ 209,061
10.6 % $ 188,990
Net occupancy
Furniture and equipment
Data processing
Marketing
Communication
Professional services
Debt extinguishment
State intangible tax
FDIC assessments
Intangible assets amortization
Other
Total
NONINTEREST EXPENSES
23,266
14,968
27,514
6,414
3,492
9,961
7,257
6,058
5,110
11,126
38,719
(3.3) %
(5.9) %
25.7 %
(7.2) %
6.9 %
24,069
15,903
21,881
6,908
3,267
(0.6) %
6.7 %
(22.1) %
(9.1) %
3.2 %
24,215
14,908
28,077
7,598
3,167
(11.5) %
11,254
(8.3) %
12,272
N/M
3.9 %
159.0 %
15.0 %
0
5,829
1,973
9,671
N/M
40.4 %
(50.3) %
31.4 %
0
4,152
3,969
7,359
19.1 %
32,516
12.8 %
28,830
$ 390,664
14.1 % $ 342,332
5.8 % $ 323,537
77.5 %
7.2 %
52.2 %
19.7 %
N/M
17.5 %
N/M
24.1 %
39.0 %
N/M
35.8 %
37.7 %
39.2 %
76.6 %
100.2 %
137.4 %
74.1 %
(18.3) %
N/M
56.4 %
0.6 %
466.9 %
(18.0) %
34.7 %
2020 vs. 2019. Noninterest expenses increased $48.3 million, or 14.1%, in 2020 compared to 2019, primarily due to a $27.7
million, or 13.3%, increase in Salaries and employee benefits, $7.3 million of Debt extinguishment expenses, a $6.2 million, or
19.1%, increase in Other noninterest expenses, a $5.6 million, or 25.7%, increase in Data processing expenses and a $3.1
million, or 159.0% increase in FDIC assessments.
Higher salaries and employee benefits in 2020 were driven by performance related incentives and commissions, as well as
higher healthcare costs and annual compensation adjustments. Noninterest expenses also increased as the Company incurred
$7.3 million of debt extinguishment costs related to the prepayment of $120.0 million of higher cost long-term FHLB debt as
the Company strategically repositioned its funding mix to take advantage of its liquidity position. The increase in other
noninterest expenses was primarily due to a $5.3 million increase in contributions made to the First Financial Foundation
during 2020 as well higher write downs of tax credit investments, while data processing expenses increased as the Company
14 First Financial Bancorp 2020 Annual Report
continued to make strategic investments to enhance its digital capabilities and establish required PPP lending processes. FDIC
assessments increased in 2020 due to the recognition of a $3.4 million small bank assessment credit from the FDIC in 2019.
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.
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.
INCOME TAXES
2020 vs. 2019. First Financial’s income tax expense in 2020 totaled $28.6 million compared to $44.8 million in 2019, resulting
in effective tax rates of 15.5% and 18.4% for 2020 and 2019, respectively. The lower effective tax rate in 2020 was primarily
related to lower pre-tax income, coupled with stable non-taxable revenue sources, as well as an increase in tax credit activity
during the year.
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.
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.
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 ACL.
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
First Financial Bancorp 2020 Annual Report 15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
2020 vs. 2019. Loans, excluding loans held for sale, totaled $9.9 billion at December 31, 2020, increasing $699.3 million, or
7.6%, compared to December 31, 2019. C&I loans increased $541.6 million, or 22.0%, largely due to loans originated under
the PPP program in response to COVID-19. Construction real estate loans increased $142.9 million, or 29.0%, while
Commercial real estate loans increased $113.2 million, or 2.7%. These increases were partially offset by slight declines in
Residential real estate loans, which decreased $52.9 million, or 5.0%, Home equity loans, which decreased $28.8 million, or
3.7%, and Installment loans, which decreased $0.7 million, or 0.9%, during 2020. Average loan balances, including loans held
for sale, were $9.9 billion at December 31, 2020, an increase of $1.0 billion, or 10.7% compared to December 31, 2019.
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,
2020
2019
2018
2017
2016
(Dollars in thousands)
Loans
% 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 & industrial
$ 3,007,509
30.4 % $ 2,465,877
26.8 % $ 2,514,661
28.5 % $ 1,912,743
31.8 % $ 1,781,948
31.0 %
Lease financing
72,987
0.8 %
88,364
1.0 %
93,415
1.1 %
89,347
1.5 %
93,108
Construction real estate
636,096
6.4 %
493,182
5.3 %
548,935
6.2 %
467,730
7.8 %
399,434
1.6 %
6.9 %
Commercial real estate
4,307,858
43.5 % 4,194,651
45.6 % 3,754,681
42.5 % 2,490,091
41.4 % 2,427,577
42.2 %
Residential real estate
1,003,086
10.1 % 1,055,949
11.5 %
955,646
10.8 %
471,391
7.8 %
500,980
Home equity
Installment
Credit card
743,099
7.5 %
771,869
8.4 %
817,282
9.3 %
493,604
8.2 %
460,388
81,850
0.8 %
82,589
0.9 %
93,212
1.1 %
41,586
0.7 %
50,639
48,485
0.5 %
49,184
0.5 %
46,382
0.5 %
46,691
0.8 %
43,408
Total loans and leases
$ 9,900,970
100 % $ 9,201,665
100 % $ 8,824,214
100 % $ 6,013,183
100 % $ 5,757,482
8.7 %
8.0 %
0.9 %
0.7 %
100 %
Table 5 – Loan Maturity/Rate Sensitivity indicates the contractual maturity of C&I loans and Construction real estate loans
outstanding at December 31, 2020 as well as their sensitivity to changes in interest rates.
For discussion of risks associated with the loan portfolio and First Financial's ACL, see the Credit Risk section included in
Management’s Discussion and Analysis.
16 First Financial Bancorp 2020 Annual Report
Table 5 • Loan Maturity/Rate Sensitivity
(Dollars in thousands)
Commercial & industrial
Construction real estate
Total
(Dollars in thousands)
Fixed rate
Variable rate
Total
December 31, 2020
Maturity
After one
but within
five years
After
five years
Within
one year
$
$
1,019,913 $
195,117
1,215,030 $
1,583,253 $
329,649
1,912,902 $
404,343 $
111,330
515,673 $
Within
one year
After one
but within
five years
After
five years
$
$
537,381 $
677,649
1,215,030 $
461,921 $
1,450,981
1,912,902 $
134,784 $
380,889
515,673 $
Total
3,007,509
636,096
3,643,605
Total
1,134,086
2,509,519
3,643,605
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 $3.4 billion and $3.3 billion at December 31, 2020 and 2019,
respectively. As of December 31, 2020, loan commitments with a fixed interest rate totaled $123.6 million while commitments
with variable interest rates totaled $3.3 billion. The fixed rate loan commitments have interest rates ranging from 0% to 21%
for both December 31, 2020 and 2019 and have maturities ranging from less than 1 year to 30.8 years at December 31, 2020
and less than 1 year to 31.6 years at December 31, 2019.
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
$36.1 million and $33.4 million at December 31, 2020, and 2019, respectively. Management conducts regular reviews of these
instruments on an individual client basis.
First Financial is a party in risk participation transactions of interest rate swaps, which had total notional amount of $242.4
million and $216.2 million at December 31, 2020 and 2019, respectively
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.
2020 vs. 2019. Total nonperforming assets increased $27.5 million, or 44.6%, to $89.1 million at December 31, 2020 from
$61.6 million at December 31, 2019. The increase in nonperforming assets was driven by a $32.6 million increase in nonacrual
loans, which was partially offset by a $4.3 million decline in accruing TDR and a $0.7 million decline in OREO balances.
First Financial Bancorp 2020 Annual Report 17
Management’s Discussion and Analysis of Financial Condition and Results of Operations
First Financial's nonperforming assets as a percentage of total loans plus OREO increased to 0.90% at December 31, 2020 from
0.67% at December 31, 2019 as a result of higher nonperforming loan balances during the period. Additionally, classified asset
balances increased $52.8 million, or 59.1%, to $142.0 million at December 31, 2020 from $89.3 million at December 31, 2019.
The increases in nonperforming and classified assets during 2020 were heavily influenced by economic impact of the
COVID-19 pandemic, with three large borrowers, of which one is a sit-down franchise relationship and two are specialty
finance relationships, accounting for $37.2 million of the increase in classified asset balances.
Table 6 • Nonperforming Assets
(Dollars in thousands)
Nonaccrual loans (1)
Accruing troubled debt restructurings (2)
Other real estate owned (OREO)
December 31,
2020
2019
2018
2017
2016
$ 80,752
$ 48,165
$ 70,700
$ 24,082
$ 17,730
7,099
1,287
11,435
16,109
17,545
30,240
2,033
1,401
2,781
6,284
Total nonperforming assets
$ 89,138
$ 61,633
$ 88,210
$ 44,408
$ 54,254
Nonperforming assets as a percent of total loans plus
OREO
0.90 %
0.67 %
1.00 %
0.74 %
0.94 %
Accruing loans past due 90 days or more
$
169
$
201
$
63
$
61
$
142
Classified assets
$ 142,021
$ 89,250
$ 131,668
$ 87,293
$ 125,155
(1) Nonaccrual loans include nonaccrual TDRs of $14.7 million, $18.5 million, $22.4 million, $6.4 million and $5.1 million, as of December 31, 2020, 2019,
2018, 2017 and 2016, 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, 2020, 2019, 2018, or 2017, 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 52.9% and 50.6% of First
Financial's investment securities portfolio as of December 31, 2020 and 2019, 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. Prior to purchase, First Financial performs a detailed
collateral and structural analysis on these securities and strategically invests in asset classes in which First Financial 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 47.1% and 49.4% of First Financial's
investment securities portfolio as of December 31, 2020 and 2019, respectively.
The other investments category in the Consolidated Balance Sheets consists primarily of First Financial’s investments in FRB
stock, FHLB stock and class B Visa shares.
2020 vs. 2019. First Financial’s investment portfolio at December 31, 2020 totaled $3.6 billion, compared to $3.0 billion at
December 31, 2019, and represented 22.3% of total assets at December 31, 2020. The $561.3 million, or 18.7%, increase in the
investment portfolio during 2020 was primarily related to Company's strategic redeployment of balance sheet liquidity resulting
from an increase in deposits at year end.
18 First Financial Bancorp 2020 Annual Report
First Financial classified $3.4 billion, or 96.3%, and $2.9 billion, or 95.2%, of investment securities as AFS at December 31,
2020 and 2019, respectively. First Financial classified $131.7 million, or 3.7%, and $142.9 million, or 4.8%, of investment
securities as HTM at December 31, 2020 and 2019, respectively.
First Financial recorded a $73.6 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, 2020,. This unrealized after-tax gain increased $32.3
million in 2020 from a $41.3 million unrealized after-tax gain at December 31, 2019.
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 was not meaningful as a percentage of the portfolio at either December 31, 2020 or
December 31, 2019.
Investments in MBS securities, which include CMOs, represented 57.9% and 60.9% of First Financial's total investment
portfolio at December 31, 2020 and 2019, respectively. MBS 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 $912.4 million as of December 31, 2020
and $687.3 million as of December 31, 2019, comprising 25.7% and 22.9% of the investment portfolio at December 31, 2020
and 2019, 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 $481.9 million, or 13.5% of the investment portfolio at December 31, 2020 and $400.4 million, or
13.4% of the investment portfolio at December 31, 2019. 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, in addition
to debt securities issued by corporations, were $104.0 million, or 2.9% of the investment portfolio, at December 31, 2020 and
$81.6 million, or 2.7% of the investment portfolio, at December 31, 2019.
The overall duration of the investment portfolio decreased to 3.2 years as of December 31, 2020 from 3.4 years as of
December 31, 2019 as the Company positioned the investment portfolio to optimize a flattened yield curve. 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
2020
2019
Amount
Percent of
Portfolio
Amount
Percent of
Portfolio
$
103
0.0 % $
100
60
734,173
662,673
660,920
912,429
481,871
104,038
$ 3,556,267
0.0 %
20.7 %
158
452,373
18.6 %
577,785
18.6 %
795,207
25.7 %
13.5 %
2.9 %
687,267
400,431
81,625
100.0 % $ 2,994,946
0.0 %
0.0 %
15.1 %
19.3 %
26.6 %
22.9 %
13.4 %
2.7 %
100.0 %
First Financial Bancorp 2020 Annual Report 19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The estimated maturities and weighted-average yields of HTM and AFS investment securities as of December 31, 2020 are
shown in Table 8 – Investment Securities. Tax-equivalent adjustments using a rate of 21% were included in calculating yields
on tax-exempt obligations of state and other political subdivisions.
First Financial held cash on deposit with the Federal Reserve of $20.3 million and $56.9 million at December 31, 2020 and
2019, 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, 2020
(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
Other securities
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
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
0.00 % $
0
0.00 % $
0.00 %
13,990
2.01 %
0.00 %
71,737
2.76 %
1,568
1.29 %
4,231
1.75 %
0
0
0
0
0.00 % $
0.00 %
0.00 %
0.00 %
0
0
0
0
0.00 %
0.00 %
0.00 %
0.00 %
0
0
0.00 %
0
0.00 %
0.00 %
10,250
4.52 %
5,834
5,000
3.52 %
4,077
2.23 %
4.26 %
15,000
5.09 %
$
1,568
1.29 % $ 100,208
2.80 % $
10,834
3.86 % $
19,077
4.48 %
$
0
0.00 % $
103
1.97 % $
60
4.08 %
0
0.00 %
0
0
0.00 % $
0.00 %
0
0
0.00 %
0.00 %
10,332
1.24 %
600,939
2.04 %
80,395
0.08 %
28,517
2.59 %
87,125
3.05 %
359,934
3.56 %
121,580
1.99 %
22,297
2.04 %
156,296
3.14 %
405,235
2.83 %
63,516
2.97 %
30,074
2.22 %
30,170
3.19 %
310,397
2.41 %
372,814
2.87 %
189,137
2.32 %
Asset-backed securities
109,046
3.06 %
303,307
2.34 %
69,518
2.47 %
0
0.00 %
Other securities
Total
10,127
5.62 %
56,113
5.48 %
2,542
4.00 %
5,006
4.88 %
$ 403,156
3.12 % $ 2,036,028
2.66 % $ 710,365
2.35 % $ 275,031
2.36 %
(1) Tax equivalent basis was calculated using a 21% 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, which 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
20 First Financial Bancorp 2020 Annual Report
received from borrowers. This results in the Company's loan customers receiving fixed rate funding while providing First
Financial with a floating rate asset.
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.
2020 vs. 2019. First Financial's total deposits increased $2.0 billion, or 19.8%, from $10.2 billion at December 31, 2019 to
$12.2 billion as of December 31, 2020. During the period, noninterest bearing deposits increased $1.1 billion, or 42.4%,
savings deposits increased $719.8 million, or 24.3%, interest-bearing checking deposits increased $549.9 million, or 23.3%,
while time deposits decreased $367.7 million, or 16.4%. Total non-time deposit balances were $10.4 billion as of
December 31, 2020 and $8.0 billion as of December 31, 2019.
Total average deposits for 2020 increased $1.3 billion, or 12.5%, from 2019 primarily due to an increase in average noninterest
bearing deposits of $786.5 million, or 31.2%, an increase in average interest-bearing demand deposits of $300.1 million, or
12.9%, and an increase in average savings deposits $233.2 million, or 7.7%, partially offset by a decrease in average time
deposits of $55.9 million, or 2.5%. The year-over-year growth in average deposits was largely attributable to customers
retaining CARES Act stimulus payments and PPP loan proceeds as well as strong origination efforts during the year.
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 10.0% of total deposits outstanding at December 31, 2020.
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
December 31, 2020
CDs
IRAs
Brokered CDs
Total
$
$
146,111 $
84,765
131,539
117,364
479,779 $
13,621 $
9,459
18,995
29,199
71,274 $
368,187 $
152,000
156,628
0
527,919
246,224
307,162
146,563
676,815 $ 1,227,868
First Financial Bancorp 2020 Annual Report 21
Management’s Discussion and Analysis of Financial Condition and Results of Operations
BORROWINGS
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, FRB borrowings,
FHLB long-term advances, repurchase agreements utilizing investment securities pledged as collateral and a capital loan from a
municipality.
2020 vs. 2019. Short-term borrowings decreased $1.1 billion, or 87.3%, to $166.6 million at December 31, 2020, from $1.3
billion at December 31, 2019.
First Financial utilizes short-term borrowings and long-term advances from the FHLB as wholesale funding sources. First
Financial had no short-term borrowings from the FHLB at December 31, 2020 compared to $1.2 billion at December 31, 2019.
Short term borrowings also included repurchase agreements of $126.6 million and $90.2 million at December 31, 2020 and
2019, respectively, and federal funds purchased of $40.0 million and $75.0 million as of December 31, 2020 and 2019,
respectively.
Total long-term debt was $776.2 million and $414.4 million at December 31, 2020 and 2019, respectively. The Company had
$435.0 million of FRB advances from the PPPLF included in long-term borrowings as of December 31, 2020. The PPPLF was
established by the Federal Reserve to supply a source of liquidity and term financing to financial institutions participating in the
PPP. These borrowings carry an interest rate of 0.35% and are secured by the Company's PPP loans. FHLB long-term
advances declined $222.5 million to $20.0 million at December 31, 2020 from $242.4 million as of December 31, 2019 as the
Company shifted its funding to the PPPLF, and otherwise implemented funding strategies to manage liquidity and interest rate
risk, which included prepaying $120.0 million of FHLB long-term advances in the fourth quarter of 2020. First Financial's total
remaining borrowing capacity from the FHLB was $1.7 billion at December 31, 2020. For ease of borrowing execution, First
Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $6.3 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, 2020.
Outstanding subordinated debt totaled $321.4 million and $171.0 million as of December 31, 2020 and 2019, respectively. This
increase was driven by the issuance of $150.0 million of fixed to floating rate subordinated notes in the second quarter of
2020. The subordinated debt is treated as Tier 2 capital for regulatory capital purposes and also included unamortized valuation
and debt issuance costs of $9.3 million and $7.9 million as of December 31, 2020 and 2019, 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.
For further information regarding the company's liability-funded liquidity, see Note 10 - Deposits and Note 11 - Borrowings.
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, negatively impacting 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, 2020 were as follows:
22 First Financial Bancorp 2020 Annual Report
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
For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged
$6.3 billion of certain eligible residential, commercial and farm real estate loans, home equity lines of credit and government,
agency and CMBS investments as collateral for borrowings from the FHLB as of December 31, 2020.
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 $3.4 billion and $2.9 billion at December 31,
2020 and 2019, respectively. HTM securities that are maturing within a short period of time can be an additional source of
liquidity. As of December 31, 2020 and 2019, the Company had no 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,
2020, these balances totaled $251.4 million, and First Financial had unused and available overnight wholesale funding sources
of $4.3 billion, or 26.7% 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 $80.0 million, $196.8 million and
$107.3 million for 2020, 2019 and 2018, respectively. As of December 31, 2020, the bank had retained earnings of $695.2
million, of which $198.0 million was available for distribution to First Financial without prior regulatory approval. As an
additional source of liquidity, First Financial had $172.9 million in cash at the parent company as of December 31, 2020.
Share repurchases also impact First Financial's liquidity. For further information regarding share repurchases, see the Capital
section that follows.
Capital expenditures, such as banking center expansion, remodeling and technology investments, were $16.5 million for 2020,
$20.9 million for 2019 and $18.2 million for 2018. Material commitments for capital expenditures as of December 31, 2020,
were $18.7 million. Management believes that sufficient liquidity exists to fund its future capital expenditure commitments.
Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material
effect on First Financial’s liquidity.
Table 10 • Contractual Obligations as of December 31, 2020
Less than
one year
(Dollars in thousands)
Contractual Obligations
Long-term debt obligations (including interest)
One to
three years
Three to
five years
More than
five years
Total
Federal Home Loan Bank borrowings
Subordinated debt
Capital loan with municipality
Operating lease obligations
Pension obligations
Time deposits
Total
$
0 $
0 $
0 $
20,046
20,046 $
452,485
14,657
775
0
91,107
6,864
67,951
5,780
1,544,131
1,872,733
$ 1,591,478 $ 331,163 $ 242,084 $ 340,372 $ 2,505,097
243,874
775
56,951
38,095
677
33,303
0
14,217
10,906
272,737
160,651
0
13,075
13,170
55,188
First Financial Bancorp 2020 Annual Report 23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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
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).
Basel III includes a minimum ratio of Common equity Tier 1 capital to risk-weighted assets of 7.0% and a fully phased-in
capital conservation buffer of 2.5% of risk-weighted assets. Further, the minimum ratio of Tier 1 capital to risk-weighted assets
is 8.5% 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 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 increased to 12.20% at December 31, 2020 from 11.69% at December 31, 2019, while the total
capital ratio increased to 15.55% from 13.39% during the same period. The increase in these ratios was primarily due to the
issuance of subordinated debt in the second quarter of 2020 as well as quarterly earnings. The leverage ratio was 9.55% at
December 31, 2020, which was relatively unchanged from 9.58% at December 31, 2019. The Company’s tangible common
equity ratio decreased to 8.47% at December 31, 2020 from 9.07% at December 31, 2019 primarily due to the adoption of
CECL during the period and the impact of PPP activity.
As of December 31, 2020, management believes that First Financial met all capital adequacy requirements to which it was
subject. At December 31, 2020 and 2019, 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, 2020, see Note 19 – Capital in the Notes to Consolidated
Financial Statements.
24 First Financial Bancorp 2020 Annual Report
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,
2020
2019
$ 1,638,947
$ 1,640,771
720,429
48,664
711,249
13,323
(125,970)
(117,638)
2,282,070
2,247,705
(1,015,132)
(1,024,622)
$ 1,266,938
$ 1,223,083
$ 15,973,134
$ 14,511,625
(1,015,132)
(1,024,622)
$ 14,958,002
$ 13,487,003
$ 1,325,922
$ 1,245,746
1,368,818
1,288,185
1,744,802
1,475,813
11,219,114
11,023,795
14,338,156
13,440,151
11.82 %
12.20 %
15.55 %
9.55 %
11.30 %
11.69 %
13.39 %
9.58 %
14.29 %
8.47 %
15.49 %
9.07 %
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 57.5%, 44.8% and 40.0% for the years 2020, 2019 and 2018, 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 2021, the board of directors authorized a
dividend of $0.23 per common share, payable on March 15, 2021 to all shareholders of record as of March 1, 2021.
Share Repurchases. In December 2020, First Financial's board of directors approved a stock repurchase plan, replacing the
plan approved in 2019. The 2020 plan authorizes the purchase of up to 5,000,000 shares of the Company's common stock and
expires in January 2023. First Financial repurchased 880,000 shares at an average market price of $18.96 during 2020 and
2,753,272 at an average market price of $24.05 in 2019 under the 2019 plan. At December 31, 2020, all 5,000,000 shares were
available for purchase under the 2020 share repurchase plan.
Shareholders' Equity. Total shareholders’ equity at December 31, 2020 was $2.3 billion, compared to total shareholders’
equity at December 31, 2019 of $2.2 billion. The increase in shareholders' equity is primarily related to the Company's 2020
earnings.
First Financial Bancorp 2020 Annual Report 25
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 2020 and 2019, 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, 2020, assuming shifts in the significant assumptions:
(Dollars in thousands)
-100 BP
+100 BP
-100 BP
+100 BP
-100 BP
+100 BP
Change in Projected Benefit Obligation
Change in Pension Expense
$
7,609 $
247
(5,488)
N/A
N/A $
58 $
1,355 $
(1,355)
(824) $
(201)
1,360
460
Discount rate
Expected return on
plan assets
Rate of compensation
increase
Based upon the plan’s current funding status and updated actuarial projections for 2020, First Financial recorded expense
related to its pension plan of $2.5 million for 2020, $1.0 million for 2019 and $0.9 million for 2018 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 2020, 2019 or 2018 nor does it expect to make a cash contribution in 2021.
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 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
(composed of interest rate, liquidity, capital, foreign exchange and financial risk), 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.
26 First Financial Bancorp 2020 Annual Report
The goals of First Financial’s ERM framework are to:
•
•
•
•
•
•
•
•
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.
First Financial Bancorp 2020 Annual Report 27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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.
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. Management analyzes and monitors risk management performance
with key risk indicator (KRI) and key performance indicator (KPI) dashboards.
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 residual 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/mitigation 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.
28 First Financial Bancorp 2020 Annual Report
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 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 credit losses. The ACL is a reserve accumulated on the Consolidated Balance Sheets through the recognition of
the provision for loan and lease losses. First Financial records provision expense in the Consolidated Statements of Income to
maintain the ACL at a level considered sufficient to absorb expected credit losses for financial assets in the portfolio over their
expected remaining lives with consideration given to current and forward-looking information.
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 ACL. Any subsequent recovery of a previously charged-off loan is credited back to
the ACL.
Management's determination of the adequacy of the ACL is based on an assessment of the expected credit losses on loan and
leases over the expected life of the loan. Management estimates the allowance using relevant available information from both
internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical
credit loss experience paired with economic forecasts provide the basis for the quantitatively modeled estimation of expected
credit losses. First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the
quantitative model. These adjustments are commonly known as the Qualitative Framework. The evaluation of these factors is
the responsibility of the ACL committee, which is comprised of senior officers from the risk management, credit
administration, finance and lending areas.
See Table 12 – Summary of the ACL and Selected Statistics for a summary of activity impacting the ACL and Table 13 –
Allocation of the ACL for detail on its composition.
2020 vs. 2019. The ACL at December 31, 2020 was $175.7 million, or 1.77% of loans, which was a $118.0 million, or
204.7%, increase from $57.7 million, or 0.63% of loans at December 31, 2019. Provision expense increased $40.2 million, or
131.4%, to $70.8 million in 2020 from $30.6 million in 2019. As detailed in Note 2 - Accounting Standards Recently Adopted
or Issued, the initial adoption of CECL increased the ACL $61.5 million, while the remainder of the year over year increase in
ACL, and elevated provision expense is attributed to the anticipated losses due to the economic impact of COVID-19.
The Company utilized the revised Moody's December baseline forecast as its R&S forecast in the quantitative model as of
December 31, 2020, which included consideration of the impact from both the COVID-19 pandemic and the related
government stimulus response. For reasonableness, the Company also considered the impact to the model from alternative,
more adverse economic forecasts, slower prepayment speeds and increased default rates. These alternative analyses were
utilized to inform the Company's qualitative adjustments. Additionally, First Financial considered its credit exposure to certain
industries believed to be at risk for future credit stress related to the COVID-19 pandemic, such as franchise, hotel and investor
commercial real estate lending when making qualitative adjustments to the ACL model.
Net charge-offs decreased $15.2 million, or 51.6%, to $14.3 million for 2020 compared to $29.5 million for 2019, while the
ratio of net charge-offs as a percentage of average loans outstanding decreased to 0.14% in 2020 from 0.33% in 2019.
The ACL as a percentage of nonaccrual loans was 217.55% at December 31, 2020 and 119.69% at December 31, 2019. The
ACL as a percentage of nonperforming loans, including accruing TDRs was 199.97% at December 31, 2020 compared with
First Financial Bancorp 2020 Annual Report 29
Management’s Discussion and Analysis of Financial Condition and Results of Operations
96.73% at December 31, 2019. The increase in this ratio was attributed to the increase in the ACL during the period, which
more than offset the increase in nonperforming loans.
Provision expense is a product of the Company's ACL model combined with net charge-off activity during the period.
Provision expense increased $40.2 million, or 131.4%, to $70.8 million in 2020 from $30.6 million in 2019. With moderate net
charge-offs during the period, the majority of 2020 provision expense was related to the expected economic impact from
COVID-19.
The ACL on unfunded commitments was $12.5 million as of December 31, 2020 and $0.6 million as of December 31, 2019.
Additionally, First Financial recorded $0.2 million of provision recapture on unfunded commitments for the years ended
December 31, 2020 and 2019. Similar to the increase in ACL on loans and leases, the increase in ACL on unfunded
commitments was related to the adoption of CECL and consideration of the impact from the COVID-19 pandemic on future
credit losses; however, provision expense declined during the year due to elevated levels of prepayment activity, which
shortened the estimated weighted average remaining life of the portfolio for modeling purposes.
See Note 6 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements for further discussion of First
Financial's ACL.
30 First Financial Bancorp 2020 Annual Report
For further discussion of First Financial's ACL, see Note 6 – Allowance for Credit Losses in the Notes to Consolidated
Financial Statements.
Table 12 • Summary of the ACL and Selected Statistics
(Dollars in thousands)
Transactions in the allowance for credit losses:
Balance at January 1
Day one adoption impact of ASC 326
Provision for credit losses
Loans charged-off:
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Real estate-residential
Home equity
Installment
Credit card
2020
2019
2018
2017
2016
$ 57,650
$ 56,542
$ 54,021
$ 57,961
$ 53,398
61,505
70,796
0
0
0
0
30,598
14,586
3,582
10,140
5,345
26,676
11,533
10,194
2,630
852
0
12,100
488
1,541
148
885
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
Total loans charged-off
21,359
35,565
20,670
13,663
11,114
Recoveries of loans previously charged-off:
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Real estate-residential
Home equity
Installment
Credit card
Total recoveries
Net charge-offs
2,907
2,883
0
17
2,262
381
1,132
158
230
7,087
14,272
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
Balance at December 31
$ 175,679
$ 57,650
$ 56,542
$ 54,021
$ 57,961
Net charge-offs to average loans and leases
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
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 credit losses
Nonperforming loans (1)
0.08 %
1.07 %
0.00 %
0.23 %
0.01 %
0.05 %
0.95 %
0.17 %
0.38 %
0.00 %
(0.01) %
(0.03) %
0.07 %
0.04 %
0.16 %
0.02 %
0.03 %
0.06 %
(0.01) %
(0.03) %
(0.15) %
1.39 %
0.14 %
2.81 %
0.33 %
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 %
1.77 %
0.89 %
0.63 %
0.65 %
0.64 %
0.98 %
0.90 %
0.69 %
1.01 %
0.83 %
Allowance for credit losses to nonperforming loans (1)
199.97 %
96.73 %
65.13 %
129.77 %
120.83 %
First Financial Bancorp 2020 Annual Report 31
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(1) Includes loans classified as nonaccrual and troubled debt restructurings.
Table 13 • Allocation of the ACL
2020
2019
December 31,
2018
2017
2016
(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
$ 51,454
30.4 % $ 18,584
32.6 % $ 18,746
28.5 % $ 17,598
31.8 % $ 19,225
31.0 %
995
0.8 %
971
6.4 %
2,381
0.8 %
5.0 %
1,130
3,413
1.1 %
675
1.5 %
716
6.2 %
3,577
7.8 %
3,282
1.6 %
6.9 %
43.5 %
23,579
42.6 %
21,048
42.5 %
20,930
41.4 %
26,540
42.2 %
21,736
76,795
Lease financing
Real estate – construction
Real estate – commercial
Real estate – residential
Installment, home equity & credit card
16,139
8.8 %
8,560
10.1 %
5,299
6,836
10.3 %
8.7 %
4,964
7,241
10.8 %
10.9 %
4,683
6,558
7.8 %
9.7 %
3,208
4,990
8.7 %
9.6 %
Total
$ 175,679
100.0 % $ 57,650
100.0 % $ 56,542
100.0 % $ 54,021
100.0 % $ 57,961
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 sources of market risk for First Financial are interest rate risk and
liquidity 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 its 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 36% in its interest rate risk modeling as of December 31, 2020.
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.
32 First Financial Bancorp 2020 Annual Report
Presented below is the estimated impact on First Financial’s NII and EVE as of December 31, 2020, 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
(2.44)%
(2.99)%
(9.94)%
+100 BP
8.81%
12.11%
8.36%
+200 BP
16.23%
22.64%
15.59%
“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, 2020. The projected
results for NII and EVE reflected an asset sensitive position, and were relatively in line with third quarter results, but has
increased throughout 2020 due to large increases in low cost transactional deposits and fewer wholesale borrowings. First
Financial continues to manage its balance sheet with a bias toward modest 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, 2020 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
10.15 %
13.50 %
7.47 %
10.71 %
17.53 %
23.99 %
14.93 %
21.30 %
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, 2020 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 MBS and CMO, 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 2020 Annual Report 33
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,
2021
2022
2023
2024
2025
Thereafter
Total
2020
$ 937,014
$ 318,440
$ 265,190
$ 188,026
$ 176,294
$ 886,924
$ 2,771,888
$ 2,861,312
Average interest rate
2.34 %
3.86 %
4.41 %
4.45 %
4.09 %
3.84 %
3.44 %
Variable interest rate loans (1)
1,181,666
1,011,252
815,529
774,148
688,193
2,523,718
6,994,506
6,923,288
Average interest rate
3.51 %
3.23 %
3.55 %
3.26 %
3.79 %
3.40 %
3.43 %
Fixed interest rate securities
311,910
365,222
603,481
375,637
339,138
951,432
2,946,820
2,951,820
Average interest rate
3.28 %
2.67 %
2.61 %
2.40 %
2.43 %
2.42 %
2.60 %
Variable interest rate securities
92,814
183,968
161,514
50,733
56,542
63,876
609,447
609,458
Average interest rate
Other earning assets
Average interest rate
2.67 %
3.38 %
3.17 %
2.39 %
3.56 %
2.81 %
3.06 %
20,305
0
0
0
0
0
20,305
20,305
0.10 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.10 %
Rate sensitive liabilities
Noninterest-bearing checking (2)
Savings and interest-bearing
checking (2)
$ 3,763,709
$
6,595,561
$
0
0
$
0
0
$
0
0
$
0
0
0
0
$ 3,763,709
$ 3,763,709
6,595,561
6,595,561
Average interest rate
0.11 %
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
0.11 %
Time deposits
1,544,921
215,761
56,883
32,978
22,046
144
1,872,733
1,878,788
Average interest rate
0.56 %
1.37 %
0.81 %
0.86 %
0.51 %
1.81 %
0.67 %
Fixed interest rate borrowings
494,953
0
0
0
130,400
142,849
768,202
767,220
Average interest rate
0.37 %
0.00 %
0.00 %
0.00 %
5.19 %
5.83 %
2.20 %
Variable interest rate borrowings
126,594
0
0
0
0
48,000
174,594
174,048
Average interest rate
0.05 %
0.00 %
0.00 %
0.00 %
0.00 %
2.83 %
0.81 %
(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.
Liquidity risk is the potential that an entity will be unable to meet its obligations as they come due because of an inability to
liquidate assets or obtain funding or that it cannot easily unwind or offset exposures without significantly lowering market
prices because of inadequate market depth or market disruptions. Management focuses on maintaining and enhancing liquidity
by maximizing collateral based liquidity availability. First Financial manages liquidity in relation to the trend and stability of
deposits; degree and reliance on short-term, volatile sources of funds, including any undue reliance on borrowings or brokered
deposits to fund longer-term assets. Management identifies, measures, monitors and controls liquidity while seeking to
maintain diversification of funding sources, both on- and off-balance-sheet.
In 2020, the bank continued to update liquidity risk management processes, such as refining the contingency funding plan,
proactively meeting more frequently during the pandemic, securing additional contingent borrowing capacity, and developing
additional ad-hoc liquidity reporting to monitor funding inflows and outflows related to the PPP funding and forgiveness.
Management is closely monitoring the usage of excess business deposits, the balance of personal deposits and the broader
macroeconomic environment during this period of heightened uncertainty and profound fiscal and monetary stimulus. For
further discussion of the Company's liquidity, please see the Liquidity section within Management's Discussion and Analysis.
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.
34 First Financial Bancorp 2020 Annual Report
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 ongoing management 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.
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 and client feedback response and mitigation routines that analyze and share feedback data with business lines for
client experience and process improvements.
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.
First Financial Bancorp 2020 Annual Report 35
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 ACL - loans and leases, goodwill, pension and income taxes.
Allowance for credit losses - loans and leases. The allowance for credit losses is a valuation account that is deducted from the
loans’ amortized cost basis to present the net amount expected to be collected on the loans. Management's determination of the
adequacy of the ACL is based on an assessment of the expected credit losses on loan and leases over the expected life of the
loan. The ACL is 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 a guarantor or from the liquidation of collateral, is unlikely. Expected recoveries do not
exceed the aggregate of amounts previously charged-off and expected to be charged-off. Any interest that is accrued but not
collected is reversed against interest income when a loan is placed on nonaccrual status, which typically occurs prior to
charging off all, or a portion, of a loan. The Company made the policy election to exclude accrued interest receivable on loans
and leases from the estimate of credit losses.
Management estimates the allowance using relevant available information from both internal and external sources,
relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired
with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial
adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These
adjustments are commonly known as the Qualitative Framework.
First Financial quantitatively models expected credit loss using PD, LGD and EAD over the R&S forecast period, reversion and
post-reversion periods.
Utilizing third-party software, the Bank forecasts PD by using a parameterized transition matrix approach. Average transition
matrices are calculated over the TTC period, which was defined as the period from December 2007 to December 2016. TTC
transition matrices are adjusted under forward-looking macroeconomic expectations to obtain R&S forecasts.
First Financial is not required to develop forecasts over full the contractual term of the financial asset or group of financial
assets. Rather, for periods beyond which the entity is able to make or obtain R&S forecasts of expected credit losses, the
Company reverts in a straight line manner over a one year period to an average TTC loss level that is reflective of the
prepayment adjusted contractual term of the financial asset or group of financial assets. The R&S period, elected by the bank to
be two years, is forecasted using econometric data sourced from Moody's, an industry-leading independent third party.
FFB utilizes a non-parametric loss curve approach embedded within a third-party software for estimating LGD. The PD
multiplied by LGD produces an expected loss rate that, when calculating the ACL, is applied to contractual loan cash flows,
adjusted for expected future rates of principal prepayments.
The Company adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects
current conditions and R&S forecasts to differ from the conditions that existed for the period over which historical information
was evaluated. The Qualitative Framework reflects changes related to relevant data, such as changes in asset quality trends,
portfolio growth and composition, national and local economic factors, credit policy and administration and other factors not
considered in the base quantitative model.
Loans that do not share risk characteristics are evaluated on an individual basis. First Financial will typically evaluate on an
individual basis any loans that are on nonaccrual, designated as a TDR, or reasonably expected to be designated as a TDR.
When management determines that foreclosure is probable or when repayment is expected to be provided substantially through
the operation or sale of underlying collateral, expected credit losses are based on the fair value of the collateral at the reporting
date, adjusted for selling costs. For loans evaluated on an individual basis that are not determined to be collateral dependent, a
discounted cash flow analysis is performed to determine expected credit losses.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when
36 First Financial Bancorp 2020 Annual Report
appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following
applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with
an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date
and are not unconditionally cancellable by the Company. Credit card receivables do not have stated maturities. In determining
the estimated life of a credit card receivable, management first estimates the future cash flows expected to be received and then
applies those expected future cash flows to the credit card balance.
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. First Financial
engaged a third party to perform a quantitative analysis of its goodwill to determine whether any impairment existed as of
October 1, 2020 for its annual impairment test. This quantitative analysis was performed due to the on-going economic market
disruption, the movement of the Company’s stock price in relation to other bank indexes and the length of time that the market
value of the reporting unit has been below its book value. This analysis indicated that no impairment existed as of the issue
date. Our quantitative impairment analysis utilized the discounted cash flow model for the income approach and the market
multiple methodology and comparable transaction methodology as the market approach. These valuation methodologies utilize
key assumptions that include forecasts of revenues and expenses derived from internal management projections for a period of
five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach,
externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of
which are highly subjective and require significant management judgment. Changes in these key assumptions could materially
affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential
impairment.
Additionally, in response to the COVID-19 pandemic and the related deterioration in general economic conditions, First
Financial performed an interim qualitative impairment test as of the end of each quarter in 2020, including the quarter ended
December 31, 2020. Likewise, the results of these interim qualitative tests did not indicate that the company's goodwill was
impaired. First Financial will continue to monitor the status of its goodwill and intangible assets for signs of further
deterioration and potential impairment.
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.
First Financial Bancorp 2020 Annual Report 37
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 of 1995. Words such as ‘‘believes,’’ ‘‘anticipates,’’
“likely,” “expected,” “estimated,” ‘‘intends’’ and other similar expressions are intended to identify forward-looking statements
but are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not
limited to, statements we make about (i) our future operating or financial performance, including revenues, income or loss and
earnings or loss per share, (ii) future common stock dividends, (iii) our capital structure, including future capital levels, (iv) our
plans, objectives and strategies, and (v) the assumptions that underlie our forward-looking statements.
As with any forecast or projection, forward-looking statements are subject to inherent uncertainties, risks and changes in
circumstances that may cause actual results to differ materially from those set forth in the forward-looking statements.
Forward-looking statements are not historical facts but instead express only management’s beliefs regarding future results or
events, many of which, by their nature, are inherently uncertain and outside of management’s control. It is possible that actual
results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-
looking statements. Important factors that could cause actual results to differ materially from those in our forward-looking
statements include the following, without limitation:
•
•
•
economic, market, liquidity, credit, interest rate, operational and technological risks associated with the Company’s
business;
future credit quality and performance, including our expectations regarding future loan losses and our allowance for
credit losses;
the effect of and changes in policies and laws or regulatory agencies, including the Dodd-Frank Wall Street Reform
and Consumer Protection Act and other legislation and regulation relating to the banking industry; (iv) management’s
ability to effectively execute its business plans;
• mergers and acquisitions, including costs or difficulties related to the integration of acquired companies;
•
•
•
•
•
•
•
•
•
the possibility that any of the anticipated benefits of the Company’s acquisitions will not be realized or will not be
realized within the expected time period;
the effect of changes in accounting policies and practices;
changes in consumer spending, borrowing and saving and changes in unemployment;
changes in customers’ performance and creditworthiness;
the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
current and future economic and market conditions, including the effects of declines in housing prices, high
unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global
economic growth;
the adverse impact on the U.S. economy, including the markets in which we operate, of the novel coronavirus, which
causes the Coronavirus disease 2019 (“COVID-19”), global pandemic, and the impact of a slowing U.S. economy and
increased unemployment on the performance of our loan and lease portfolio, the market value of our investment
securities, the availability of sources of funding and the demand for our products;
our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital
standards) and our ability to generate capital internally or raise capital on favorable terms;
financial services reform and other current, pending or future legislation or regulation that could have a negative effect
on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank
products and services;
38 First Financial Bancorp 2020 Annual Report
•
•
•
•
•
the effect of the current interest rate environment or changes in interest rates or in the level or composition of our
assets or liabilities on our net interest income, net interest margin and our mortgage originations, mortgage servicing
rights and mortgage loans held for sale;
the effect of a fall in stock market prices on our brokerage, asset and wealth management businesses;
a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or
other service providers, including as a result of cyber attacks;
the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin;
and
our ability to develop and execute effective business plans and strategies.
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, 2020 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 2020 Annual Report 39
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
Average
Balance
2020
Interest
Average
Yield
Average
Balance
2019
Interest
Average
Yield
Average
Balance
2018
Interest
Average
Yield
$ 2,999,223 $ 143,720
4.79 % $ 2,505,615 $ 153,128
6.11 % $ 2,518,333 $ 150,113
79,882
3,769
4.72 %
92,902
3,964
4.27 %
91,476
3,911
535,740
20,497
3.83 %
491,503
26,637
5.42 % 540,014
28,761
4,317,396
177,038
4.10 % 3,906,992
216,757
5.55 % 3,310,697
178,235
1,077,430
48,001
4.46 % 1,025,394
47,635
4.65 % 821,454
38,543
Installment and other consumer
892,985
40,046
4.48 %
926,129
52,539
5.67 % 868,724
49,202
Total loans and leases
9,902,656
433,071
4.37 % 8,948,535
500,660
5.59 % 8,150,698
448,765
Indemnification asset
Investment securities (3)
Taxable
Tax-exempt (2)
Total investment securities (3)
Interest-bearing deposits with other
banks
0
0
N/M
0
0
N/M
370
0
2,460,707
73,789
3.00 % 2,684,973
90,168
3.36 % 2,451,352
79,076
751,344
24,357
3.24 %
603,902
22,273
3.69 % 445,815
16,997
3,212,051
98,146
3.06 % 3,288,875
112,441
3.42 % 2,897,167
96,073
78,943
275
0.35 %
35,814
805
2.25 %
32,090
691
Total earning assets
13,193,650
531,492
4.03 % 12,273,224
613,906
5.00 % 11,080,325
545,529
Nonearning assets
Allowance for credit losses
Cash and due from banks
Accrued interest and other assets
Total assets
Interest-bearing liabilities
Deposits
(153,596)
245,436
2,243,654
$ 15,529,144
(58,504)
191,864
1,804,135
$ 14,210,719
(56,115)
188,971
1,398,257
$ 12,611,438
Interest-bearing demand
$ 2,626,252 $ 4,534
0.17 % $ 2,326,193 $ 12,748
0.55 % $ 2,169,396 $ 8,446
Savings
Time
3,260,882
7,232
0.22 % 3,027,725
21,383
0.71 % 2,990,731
18,050
2,167,553
30,156
1.39 % 2,223,429
44,901
2.02 % 1,938,709
30,466
Total interest-bearing deposits
8,054,687
41,922
0.52 % 7,577,347
79,032
1.04 % 7,098,836
56,962
Borrowed funds
Short-term borrowings
Long-term debt
590,903
6,442
1.09 % 1,146,719
25,235
2.20 % 947,427
18,033
867,798
20,088
2.31 %
522,340
19,057
3.65 % 438,567
16,152
Total borrowed funds
1,458,701
26,530
1.82 % 1,669,059
44,292
2.65 % 1,385,994
34,185
Total interest-bearing liabilities
9,513,388
68,452
0.72 % 9,246,406
123,324
1.33 % 8,484,830
91,147
5.96 %
4.28 %
5.33 %
5.38 %
4.69 %
5.66 %
5.51 %
0.00 %
3.23 %
3.81 %
3.32 %
2.15 %
4.93 %
0.39 %
0.60 %
1.57 %
0.80 %
1.90 %
3.68 %
2.47 %
1.07 %
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
3,310,483
484,628
2,220,645
$ 15,529,144
2,524,011
265,623
2,174,679
$ 14,210,719
2,217,349
156,998
1,752,261
$ 12,611,438
$ 463,040
3.31 %
$ 490,582
3.67 %
$ 454,382
3.86 %
$ 524,963
68,452
$ 456,511
3.51 %
3.98 %
0.72 %
3.26 %
3.46 %
$ 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 %
(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% tax rate for 2020, 2019 and 2018.
(3) Includes HTM securities, AFS securities and other investments.
(4) Includes loans held-for-sale.
N/M = not meaningful
40 First Financial Bancorp 2020 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, 2020, 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, 2020, 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,
2020. The report, which expresses an unqualified opinion on First Financial’s internal control over financial reporting as of
December 31, 2020, is included in the information that follows under the heading “Report of Independent Registered Public
Accounting Firm."
/s/ Archie M. Brown
President and Chief Executive Officer
February 19, 2021
/s/ James M. Anderson
Executive Vice President and Chief Financial
Officer
February 19, 2021
First Financial Bancorp 2020 Annual Report 41
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, 2020 and 2019, 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, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2020 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, 2020, based on criteria established in Internal Control - Integrated Framework: (2013) issued by
COSO.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for credit losses
effective January 1, 2020 due to the adoption of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments. The Company adopted the new credit loss standard using the
modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with
previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its
subsequent application is also communicated as a critical audit matter below.
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
42 First Financial Bancorp 2020 Annual Report
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.
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 Credit Losses - Refer to Notes 2 and 6 to the financial statements
In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, the Company adopted Accounting Standards Codification (“ASC”)
326 as of January 1, 2020 as described in Notes 2 and 6 of the consolidated financial statements. See also the explanatory
paragraph above. The allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the
estimated life of financial assets carried at amortized cost and off-balance-sheet credit exposures. The ASU requires a financial
asset (or a group of financial assets), including the Company's loan portfolio, measured at amortized cost, to be presented at
the net amount expected to be collected. Estimates of expected credit losses for loans are based on historical experience,
current conditions and reasonable and supportable forecasts over the estimated life of the loans. In order to estimate the
expected credit losses, the Company implemented a new loss estimation model. The Company disclosed the impact of
adoption of this standard on January 1, 2020 with a $61.5 million increase to the allowance for credit losses, a $12.2 million
increase for unfunded loan commitments and a $56.9 million decrease to retained earnings for the cumulative effect
adjustment recorded upon adoption. Provision for credit losses for loans and leases for the year ending December 31, 2020
was $70.8 million and the Allowance for Credit Losses at December 31, 2020 was $175.7 million.
Management quantitatively models expected credit loss using Probability of Default (“PD”), Loss Given Default (“LGD”),
and Exposure at Default (“EAD”) over the Reasonable and Supportable (“R&S”) forecast, reversion and post-reversion
periods. Utilizing third-party software, the Company forecasts PD by using transition matrices to evaluate when events are
more or less likely to occur based on previous events. The transition matrices are adjusted under forward-looking
macroeconomic expectations to obtain R&S forecasts. Management utilizes third-party software for estimating LGD. The PD
multiplied by LGD produces an expected loss rate that, when calculating the ACL, is applied to contractual loan cash flows,
adjusted for expected future rates of principal prepayments. The Company adjusts its quantitative model for certain qualitative
factors to reflect the extent to which management expects current conditions and R&S forecasts to differ from the conditions
that existed for the period over which historical information was evaluated. The qualitative framework reflects changes related
to relevant data, such as changes in asset quality trends, portfolio growth and composition, national and local economic
factors, credit policy and administration and other factors not considered in the base model. The ACL is measured on a
First Financial Bancorp 2020 Annual Report 43
collective (pool) basis when similar risk characteristics exist. The ACL is influenced by loan volumes, risk rating migration,
delinquency status and other conditions influencing loss expectations, such as reasonable and supportable forecasts of
economic conditions.
The Allowance for Credit Losses was identified by us as a critical audit matter because of the extent of auditor judgment
applied and significant audit effort to evaluate the significant subjective and complex judgments made by management
throughout the initial adoption and subsequent application processes, including the need to involve our valuation services
specialists. The principal considerations resulting in our determination included the following:
•
•
•
•
Significant auditor judgment and audit effort to evaluate selection of the loss estimation model and adjustments to the
transition matrices to estimate PD during the R&S forecast period, appropriateness of loan segmentation, and the
reasonableness of PD and LGD assumptions.
Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecast of
economic variables.
Significant auditor judgement and effort were used in evaluating the qualitative factors used in the calculation.
Significant audit effort related to the completeness and accuracy of the high volume of data used to develop
assumptions and in the model computation
The primary procedures performed to address the critical audit matter included:
•
•
•
•
•
•
Evaluating the appropriateness of the Company's policies, methodologies, and elections involved in the adoption of
ASC 326.
Evaluating the completeness and accuracy of the financial statement disclosures related to the adoption of ASC 326.
Testing the effectiveness of management’s review controls over the Company’s key assumptions and judgments such
as the qualitative framework, approval of loan segmentation, credit loss implementation model, and accuracy of data
input.
Evaluated the appropriateness of the loan segmentation, the conceptual soundness of the methodology as applied in
the credit loss estimation model and the adequacy of and control over independent model validation.
Evaluated the appropriateness and conceptual soundness of the qualitative methodology deployed in the credit loss
estimation models. Testing the effectiveness of controls over the completeness and accuracy of historical inputs.
Testing appropriateness of the probability of default estimation, loss given default estimation and their respective
inputs.
• With the assistance of our valuation specialists, evaluating the reasonableness of assumptions and judgments related
to the PD including reasonable and supportable forecasts, the conceptual design of the credit loss estimation models,
and the adequacy of the independent model validation.
Substantively testing management’s process for developing and applying qualitative factors and assessing relevance
of data used to develop factors, including evaluating their judgments and assumptions for reasonableness.
Substantively testing the mathematical accuracy of the EAD including the completeness and accuracy of loan data
used in the model to estimate ACL.
•
•
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 19, 2021
44 First Financial Bancorp 2020 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 $3,330,029 at December 31, 2020 and
$2,798,298 at December 31, 2019)
Investment securities held-to-maturity (fair value $136,698 at December 31, 2020 and $142,821 at December
31, 2019)
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 credit 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 2020 and in 2019
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost, 6,259,865 shares in 2020 and 5,790,796 shares in 2019
Total shareholders' equity
Total liabilities and shareholders' equity
See Notes to Consolidated Financial Statements.
December 31,
2020
2019
$
231,054 $
20,305
200,691
56,948
3,424,580
2,852,084
131,687
133,198
41,103
3,007,509
72,987
636,096
4,307,858
1,003,086
743,099
81,850
48,485
9,900,970
175,679
9,725,291
207,211
937,771
64,552
1,056,382
15,973,134 $
2,914,787 $
3,680,774
1,872,733
8,468,294
3,763,709
12,232,003
166,594
0
166,594
776,202
942,796
516,265
13,691,064
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
1,638,947
720,429
48,664
(125,970)
2,282,070
15,973,134 $
1,640,771
711,249
13,323
(117,638)
2,247,705
14,511,625
$
$
$
First Financial Bancorp 2020 Annual Report 45
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 credit losses- loan and lease losses
Provision for credit losses- unfunded commitments
Net interest income after provision for credit 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
Unrealized gain (loss) on equity securities
Other
Total noninterest income
Noninterest expenses
Salaries and employee benefits
Net occupancy
Furniture and equipment
Data processing
Marketing
Communication
Professional services
Debt extinguishment
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.
46 First Financial Bancorp 2020 Annual Report
Years ended December 31,
2019
2020
2018
$
431,657 $
499,009 $
447,187
73,789
19,242
93,031
275
524,963
41,922
6,442
20,088
68,452
456,511
70,796
(237)
385,952
29,446
16,531
11,726
10,313
39,377
51,176
4,563
9,045
16,946
189,123
236,779
23,266
14,968
27,514
6,414
3,492
9,961
7,257
6,058
5,110
11,126
38,719
390,664
184,411
28,601
155,810 $
90,168
17,596
107,764
805
607,578
79,032
25,235
19,057
123,324
484,254
30,598
(165)
453,821
37,939
15,644
18,804
15,662
7,739
14,851
(406)
575
20,565
131,373
209,061
24,069
15,903
21,881
6,908
3,267
11,254
0
5,829
1,973
9,671
32,516
342,332
242,862
44,787
198,075 $
79,076
13,428
92,504
691
540,382
56,962
18,033
16,152
91,147
449,235
14,586
273
434,376
35,108
15,082
20,245
7,682
0
6,071
(161)
(208)
19,563
103,382
188,990
24,215
14,908
28,077
7,598
3,167
12,272
0
4,152
3,969
7,359
28,830
323,537
214,221
41,626
172,595
1.60 $
1.59 $
2.01 $
2.00 $
97,363,952
98,093,098
98,305,570
98,851,471
1.95
1.93
88,582,090
89,614,205
$
$
$
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,
2020
2019
2018
$
155,810 $
198,075 $
172,595
32,312
3,029
0
35,341
51,959
4,649
217
56,825
(11,229)
(8,180)
484
(18,925)
$
191,151 $
254,900 $
153,670
First Financial Bancorp 2020 Annual Report 47
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, 2018
68,730,731 $
573,109 $
491,847 $
(20,390)
(6,661,644) $
(113,902) $
930,664
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
35,551,063
1,043,424
16,037
(1,120)
(282)
(4,131)
6,219
(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
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
Impact of cumulative effect of adoption of
new accounting principles
Net income
Other comprehensive income (loss)
Cash dividends declared:
Common stock at $0.92 per share
Purchase of common stock
Exercise of stock options, net of shares
purchased
Restricted stock awards, net of forfeitures
Share-based compensation expense
(56,882)
155,810
(89,748)
35,341
(140)
(9,362)
7,678
(880,000)
(16,686)
10,405
400,526
212
8,142
(56,882)
155,810
35,341
(89,748)
(16,686)
72
(1,220)
7,678
Balance at December 31, 2020
104,281,794 $ 1,638,947 $
720,429 $
48,664
(6,259,865) $
(125,970) $ 2,282,070
See Notes to Consolidated Financial Statements.
48 First Financial Bancorp 2020 Annual Report
Consolidated Statements of Cash Flows
(Dollars in thousands)
Operating activities
Year ended December 31,
2019
2018
2020
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
$
155,810 $
198,075 $
172,595
Provision for credit losses
Depreciation and amortization
Stock-based compensation expense
Pension expense (income)
Net amortization (accretion) on investment securities
Net (gain) loss on sales/transfers of investments securities
Unrealized (gain) loss on equity 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) 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
Proceeds from calls, paydowns and maturities of other securities
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 long-term 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
70,559
33,337
7,678
2,484
21,053
(4,563)
(9,045)
(942,207)
(51,176)
965,960
(8,380)
7,897
(8,196)
(1,506)
(9,697)
(7,431)
(288,857)
176,168
109,888
122,248
904,821
(1,551,952)
41,736
(30,250)
29,526
(28,659)
36,643
(714,594)
2,076
(16,466)
0
0
(1,204,871)
2,021,774
(1,149,587)
(681,511)
1,040,975
(89,691)
(16,686)
72
1,125,346
30,598
28,138
7,969
1,041
11,430
406
(575)
(390,578)
(14,851)
396,121
12,590
7,324
(7,335)
(3,748)
2,117
1,545
(165,902)
71,964
186,329
519,136
557,034
(834,743)
18,062
0
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
208
(157,771)
(6,071)
167,374
6,267
0
0
(5,454)
(3,808)
5,207
35,000
(10,043)
260,346
290,745
387,351
(852,131)
36,671
(14,014)
1,052
(31,385)
(3,764)
(28,577)
3,797
(18,228)
64,895
(41,197)
(204,785)
(18,690)
30,531
(52,460)
150,000
(79,655)
0
284
30,010
30,363
200,691
231,054 $
(35,530)
236,221
200,691 $
85,571
150,650
236,221
$
First Financial Bancorp 2020 Annual Report 49
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.
$
$
$
$
$
$
$
$
$
$
75,884 $
32,579 $
1,017 $
9,370 $
0 $
0 $
0 $
0 $
84,125
121,779 $
16,004
27,497 $
3,182
2,448 $
8,797
10,488 $
268,703 $
372,128
60,934 $ 1,043,424
0
60,249 $
0
65,799 $
0 $
0
0 $
(39,140)
18,380
57,520 $
3,342,781
4,018,948
676,167
50 First Financial Bancorp 2020 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.
These estimates, assumptions and judgments are inherently subjective and my Actual realized amounts could differ materially
from those estimates.
COVID-19. In the majority of 2020, First Financial's operations and financial results were significantly impacted by the
COVID-19 pandemic. The spread of COVID-19 has caused significant economic disruption throughout the United States as
state and local governments issued stay at home orders and temporarily closed non-essential businesses. The full financial
impact from the pandemic is unknown at this time, however prolonged disruption may adversely impact several industries
within the Company's geographic footprint and impair the ability of First Financial's customers to fulfill their contractual
obligations to the Company. This could cause First Financial to experience a material adverse effect on business operations,
asset valuations, financial condition and results of operations. Material adverse impacts may include all or a combination of
valuation impairments on First Financial's intangible assets, investments, loans, mortgage servicing rights or counter-party risk
derivatives.
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.
Other investments. Other investments include holdings in FRB and FHLB stock, which are both carried at cost as well as
equity securities, including class B Visa shares which are carried at fair value. Changes in the fair value of equity securities are
recorded in Unrealized gain (loss) on securities 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
First Financial Bancorp 2020 Annual Report 51
Notes to Consolidated Financial Statements
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.
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.
Allowance for credit losses - held-to-maturity securities. Management measures expected credit losses on held-to-maturity
debt securities on a collective basis by security type. The estimate of expected credit losses considers historical credit loss
information that is adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-
maturity portfolio into the following major security types: Mortgage-backed, CMOs and Obligations of state and other political
subdivisions.
Nearly all of the HTM securities held by the Company are issued by U.S. government entities and agencies. These securities
are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long
history of no credit losses. The remainder of the Company's HTM securities are non-agency collateralized mortgage
obligations and obligations of state and other political subdivisions which currently carry ratings no lower than A+. Accrued
interest receivable on held-to maturity debt securities, which totaled $0.3 million as of December 31, 2020, is excluded by
policy election from the estimate of credit losses.
Allowance for credit losses - available-for-sale securities. For available-for-sale debt securities in an unrealized loss
position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the
security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the
security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not
meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or
other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any
changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other
factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the
security are compared to the amortized cost basis of the security.
If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an
allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any
impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as provision for credit loss expense. Losses are charged against the
allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the
criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities, which
totaled $12.9 million as of December 31, 2020, is excluded from the estimate of credit losses.
Allowance for credit losses - loans and leases. The allowance for credit losses is a valuation account that is deducted from the
loans’ amortized cost basis to present the net amount expected to be collected on the loans. Management's determination of the
adequacy of the ACL is based on an assessment of the expected credit losses on loan and leases over the expected life of the
loan. The ACL is 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 a guarantor or from the liquidation of collateral, is unlikely. Expected recoveries do not
exceed the aggregate of amounts previously charged-off and expected to be charged-off. Any interest that is accrued but not
collected is reversed against interest income when a loan is placed on nonaccrual status, which typically occurs prior to
charging off all, or a portion, of a loan. The Company made the policy election to exclude accrued interest receivable on loans
and leases from the estimate of credit losses.
Management estimates the allowance balance using relevant available information from both internal and external sources,
relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired
52 First Financial Bancorp 2020 Annual Report
with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial
adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These
adjustments are commonly known as the Qualitative Framework.
First Financial quantitatively models expected credit loss using PD, LGD and EAD over the R&S forecast period, reversion and
post-reversion periods.
Utilizing third-party software, the Bank forecasts PD by using a parameterized transition matrix approach. Average transition
matrices are calculated over the TTC period, which was defined as the period from December 2007 to December 2016. TTC
transition matrices are adjusted under forward-looking macroeconomic expectations to obtain R&S forecasts.
First Financial is not required to develop forecasts over full the contractual term of the financial asset or group of financial
assets. Rather, for periods beyond which the entity is able to make or obtain R&S forecasts of expected credit losses, the
Company reverts in a straight line manner over a one year period to an average TTC loss level that is reflective of the
prepayment adjusted contractual term of the financial asset or group of financial assets. The R&S period, elected by the bank to
be two years, is forecasted using econometric data sourced from Moody's, an industry-leading independent third party.
FFB utilizes a non-parametric loss curve approach embedded within a third-party software for estimating LGD. The PD
multiplied by LGD produces an expected loss rate that, when calculating the ACL, is applied to contractual loan cash flows,
adjusted for expected future rates of principal prepayments.
The Company adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects
current conditions and R&S forecasts to differ from the conditions that existed for the period over which historical information
was evaluated. The Qualitative Framework reflects changes related to relevant data, such as changes in asset quality trends,
portfolio growth and composition, national and local economic factors, credit policy and administration and other factors not
considered in the base quantitative model.
Loans that do not share risk characteristics are evaluated on an individual basis. First Financial will typically evaluate on an
individual basis any loans that are on nonaccrual, designated as a TDR, or reasonably expected to be designated as a TDR.
When management determines that foreclosure is probable or when repayment is expected to be provided substantially through
the operation or sale of underlying collateral, expected credit losses are based on the fair value of the collateral at the reporting
date, adjusted for selling costs. For loans evaluated on an individual basis that are not determined to be collateral dependent, a
discounted cash flow analysis is performed to determine expected credit losses.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when
appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following
applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with
an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date
and are not unconditionally cancellable by the Company. Credit card receivables do not have stated maturities. In determining
the estimated life of a credit card receivable, management first estimates the future cash flows expected to be received and then
applies those expected future cash flows to the credit card balance.
Allowance for credit losses - unfunded commitments. Effective January 1, 2020, First Financial adopted ASC 326, at which
time First Financial estimated expected credit losses over the contractual period in which the Company is exposed to credit risk
via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The
estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on
commitments expected to be funded over its estimated life consistent with the Company's ACL methodology for loans and
leases. Adjustments to the reserve for unfunded commitments are recorded in Provision for credit losses - unfunded
commitments in the Consolidated Statements of Income. The reserve for unfunded commitments is included in Accrued
interest and other liabilities on the Consolidated Balance Sheets.
Prior to the adoption of ASC 326, First Financial maintained its reserve to absorb probable losses incurred in standby letters of
credit and outstanding loan commitments. First Financial determined the adequacy of this reserve based upon an evaluation of
the unfunded credit facilities, which included consideration of historical commitment utilization experience, credit risk ratings
and historical loss rates, consistent with the Company's ALLL methodology at the time.
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
First Financial Bancorp 2020 Annual Report 53
Notes to Consolidated Financial Statements
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. Our quantitative
impairment analysis utilized the discounted cash flow model for the income approach and the market multiple methodology and
comparable transaction methodology as the market approach. These valuation methodologies utilize key assumptions that
include forecasts of revenues and expenses derived from internal management projections for a period of five years, changes in
working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer
group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective
and require significant management judgment. Changes in these key assumptions could materially affect our estimate of the
reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.
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 ACL. 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
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
54 First Financial Bancorp 2020 Annual Report
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. These tax credits and other net tax benefits received
are recognized as a component of income tax expense in the Consolidated Statements of Income.
Investments in renewable energy credits. First Financial has investments in renewable energy projects where it has
noncontrolling interest which is not consolidated. This investment 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 renewable energy 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. These tax credits 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
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.
First Financial Bancorp 2020 Annual Report 55
Notes to Consolidated Financial Statements
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 2020
On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that
is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the
CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-
maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments,
standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a
lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt
securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-
for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.
The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and
off-balance-sheet (OBS) credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under
ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company
recorded a net decrease to retained earnings of $56.9 million as of January 1, 2020 for the cumulative effect of adopting ASC
326. As detailed in the following table, the transition adjustment included a $61.5 million increase to the ACL, a $12.2 million
increase in the ACL for unfunded commitments and a $16.8 million decrease in Deferred tax liability.
The Company adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration
that were previously classified as purchased credit impaired and accounted for under ASC 310-30. In accordance with the
standard, First Financial did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption.
56 First Financial Bancorp 2020 Annual Report
The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on
regulatory capital that may result from the adoption of the new accounting standard. In March 2020, the OCC, the Board of
Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the estimated impact on
regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition
option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory
capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. First
Financial is adopting the capital transition relief over the five year permissible period.
The impact of adopting ASC 326 was as follows:
(dollars in thousands)
Assets
Loans
Commercial and industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Credit card
January 1, 2020
As Reported
under ASC 326
Pre-ASC 326
Impact of ASC
326 Adoption
$
28,485 $
18,584 $
1,089
13,960
47,697
10,789
13,217
1,193
2,725
971
2,381
23,579
5,299
4,787
392
1,657
9,901
118
11,579
24,118
5,490
8,430
801
1,068
Allowance for credit losses on loans
Liabilities
Deferred tax liability
Allowance for credit losses on OBS credit exposures
$
$
119,155 $
57,650 $
61,505
16,252 $
33,030 $
12,740
585
(16,778)
12,155
For more information on the calculation of the ACL, please refer to Note 1 - Summary of Significant Accounting Policies and
Note 5 - Allowance for Credit Losses.
During the first quarter of 2020, the Company adopted 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
measurements. Under the changes, entities are no longer required to disclose the amount of and reasons for transfers between
Level 1 and Level 2 of the fair value hierarchy, but must disclose the range and weighted average used to develop significant
unobservable inputs for Level 3 fair value measurements. This update did not have a material impact on the Company’s
Consolidated Financial Statements.
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
First Financial Bancorp 2020 Annual Report 57
Notes to Consolidated Financial Statements
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
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 Adopted
In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740
and adding new requirements with the intention of simplifying and clarifying existing guidance. The guidance is effective for
fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect
the adoption of this standard to have a material impact on the Consolidated Financial Statements.
3. Restrictions on Cash and Dividends
In 2019, First Financial was 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 was 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 was not sufficient to meet the reserve requirement,
the remaining amount was satisfied with average funds held at the FRB. First Financial's deposit at the FRB was 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 was $84.1 million for 2019. Effective March 2020, the FRB
eliminated reserve requirements for all depository institutions. Therefore, for 2020, First Financial had no required reserves.
Additionally, as of December 31, 2020 and 2019, First Financial had $38.0 million and $15.8 million, respectively, 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, 2020, First Financial's
subsidiaries had retained earnings of $700.0 million, of which $198.0 million was available for distribution to First Financial
without prior regulatory approval.
4. Investment Securities
During the year ended December 31, 2020, proceeds on the sale of $117.8 million of AFS securities resulted in gains of $0.9
million and losses of $0.8 million. 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. During the year ended December 31, 2018, proceeds on
58 First Financial Bancorp 2020 Annual Report
the sale of $290.7 million of AFS securities resulted in gains of $0.5 million and losses of $0.6 million. The impact to income
tax expense from these sales was insignificant in all three years.
In 2020, there were no reclassifications of HTM securities. However, in the first quarter of 2019, in addition to the sale of
certain securities, First Financial reclassified $268.7 million of HTM securities to AFS in conjunction with the adoption of ASU
2017-12, resulting in a $0.2 million realized loss recorded in the Consolidated Statement of Income. During the second quarter
of 2018, First Financial sold certain securities and reclassified $372.1 million of HTM securities to AFS to align with post-
merger investment strategies.
The carrying value of investment securities pledged as collateral to secure public deposits, repurchase agreements and for other
purposes as required by law totaled $1.5 billion at December 31, 2020 and $1.1 billion at December 31, 2019.
The following is a summary of HTM and AFS investment securities as of December 31, 2020:
(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
$
0 $
0 $
0 $
0 $
99 $
4 $
0 $
103
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
13,990
0
197
71,737
3,485
5,799
9,911
0
30,250
79
1,239
0
11
0
0
0
0
0
0
0
0
60
0
0
60
14,187
704,482
15,938
(237)
720,183
75,222
584,125
10,395
(3,584)
590,936
5,878
634,418
21,148
(445)
655,121
11,150
0
30,261
856,054
478,539
72,252
46,755
4,158
1,544
(291)
(826)
(8)
902,518
481,871
73,788
$ 131,687 $
5,011 $
0 $ 136,698 $ 3,330,029 $
99,942 $
(5,391) $ 3,424,580
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
$
0 $
0 $
0 $
0 $
99 $
1 $
0 $
100
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
20,818
101,267
9,763
11,014
0
0
0
122
571
0
804
0
0
0
0
156
2
0
158
(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
First Financial Bancorp 2020 Annual Report 59
Notes to Consolidated Financial Statements
The following table provides a summary of investment securities by contractual maturity as of December 31, 2020, 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:
Held-to-maturity
Available-for-sale
(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
Amortized
cost
Fair
value
Amortized
cost
$
0 $
0
36,084
4,077
13,990
71,737
5,799
0
0 $
0
37,205
4,206
14,187
75,222
5,878
0
Fair
value
5,802
64,886
169,692
736,089
720,183
590,936
655,121
481,871
3,424,580
5,745 $
62,930
161,307
698,483
704,482
584,125
634,418
478,539
3,330,029 $
Total
$
131,687 $
136,698 $
Unrealized 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 exists, requiring a write-down to fair value through income. For securities in an unrealized loss position, the
Company first assesses whether it intends to sell or it is more likely than not that it will be required to sell the security before
recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s
amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the
aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.
In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the
rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are
compared to the amortized cost basis of the security.
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. The Company recorded no reserves on
investment securities for the twelve months ended December 31, 2020. Prior to the adoption of ASC 326, First Financial had
no other than temporary impairment related to its investment securities portfolio for the twelve months ended December 31,
2019.
As of December 31, 2020, the Company's investment securities portfolio consisted of 1,351 securities, of which 94 were in an
unrealized loss position. As of December 31, 2019, the Company's investment securities portfolio consisted of 1,273 securities,
of which 140 were in an unrealized loss position. Prior to the adoption of ASC 326, there was no OTTI recorded during the
twelve months ended December 31, 2019.
Primarily all of First Financial’s HTM debt securities are issued by U.S. government-sponsored enterprises. These securities
carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long
history of zero credit loss. The remainder of the Company's HTM securities are non-agency collateralized mortgage obligations
and obligations of state and other political subdivisions which currently carry ratings no lower than A+. There were no HTM
securities on nonaccrual status, past due or in a loss position as of December 31, 2020. The Company did not record an
allowance for credit losses for these securities as of December 31, 2020.
60 First Financial Bancorp 2020 Annual Report
The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position
for which an allowance for credit losses was not recorded, 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
(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
December 31, 2020
12 months or more
Fair
value
Unrealized
loss
Total
Fair
value
Unrealized
loss
$
0 $
0 $
0 $
0 $
0 $
0
0
57,872
(237)
0
0
0
0
0
0
0
57,872
(237)
169,825
49,161
60,008
84,749
4,992
(986)
(445)
(291)
(435)
(8)
48,158
(2,598)
217,983
1
0
68,967
0
0
0
49,162
60,008
(391)
153,716
0
4,992
(3,584)
(445)
(291)
(826)
(8)
$ 426,607 $
(2,402) $ 117,126 $
(2,989) $ 543,733 $
(5,391)
Less than 12 months
Fair
value
Unrealized
loss
December 31, 2019
12 months or more
Fair
value
Unrealized
loss
Total
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
(298)
104,069
(3,571)
215,727
(297)
30,628
(196)
115,876
(457)
(553)
0
7,950
54,963
5,649
(36)
(511)
(115)
126,573
180,852
5,649
$ 481,608 $
(1,814) $ 214,322 $
(4,493) $ 695,930 $
(3,869)
(493)
(493)
(1,064)
(115)
(6,307)
For further detail on the fair value of investment securities, see Note 22 – Fair Value Disclosures.
First Financial Bancorp 2020 Annual Report 61
Notes to Consolidated Financial Statements
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 that are secured
by commissions and cash collateral accounts to insurance agents and brokers.
In accordance with the CARES Act, First Financial participated in offering PPP loans to its customers. These loans provide a
direct incentive for small businesses to keep their workers on the payroll and to maintain their operations. PPP loans are
eligible to be forgiven by the government provided certain conditions as outlined in the CARES Act are met. As of
December 31, 2020, First Financial had $594.6 million in PPP loans, net of unearned fees of $13.7 million.
Credit quality. To facilitate the monitoring of credit quality for commercial loans, First Financial utilizes the following
categories of credit grades:
Pass - Higher quality loans that do not fit any of the other categories described below.
Special Mention - First Financial assigns a special mention rating to loans and leases with potential weaknesses that deserve
management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or lease or in First Financial's credit position at some future date.
Substandard - First Financial assigns a substandard rating to loans or leases that are inadequately protected by the current sound
financial worth and paying capacity of the borrower or the collateral pledged, if any. Substandard loans and leases have well-
defined weaknesses that jeopardize repayment of the debt. Substandard loans and leases are characterized by the distinct
possibility that the Company will sustain some loss if the deficiencies are not addressed.
Doubtful - First Financial assigns a doubtful rating to loans and leases with all of the attributes of a substandard rating with the
added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis
of currently existing facts, conditions and values. The possibility of loss is extremely high, but because of certain important and
reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan or lease,
its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include
proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and
refinancing plans.
The credit grades previously described are derived from standard regulatory rating definitions and are assigned upon initial
approval of credit to borrowers and updated periodically thereafter.
First Financial considers repayment performance to be 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.
62 First Financial Bancorp 2020 Annual Report
The following table sets forth the Company's loan portfolio at December 31, 2020 by risk attribute and origination date:
(Dollars in thousands)
2020
2019
2018
2017
2016
Prior
Term Total
Revolving
Total
Commercial & industrial
Pass
Special mention
Substandard
Doubtful
Total
Lease financing
Pass
Special mention
Substandard
Doubtful
Total
Construction real estate
Pass
Special mention
Substandard
Doubtful
Total
$ 1,141,163 $ 460,210 $ 296,221 $ 208,077 $ 122,686 $ 138,307 $ 2,366,664 $ 502,286 $ 2,868,950
24,668
6,709
0
10,281
2,370
0
18,118
8,022
0
6,893
26,565
0
6,668
5,124
0
6,090
1,192
0
72,718
49,982
0
10,470
5,389
0
83,188
55,371
0
$ 1,172,540 $ 472,861 $ 322,361 $ 241,535 $ 134,478 $ 145,589 $ 2,489,364 $ 518,145 $ 3,007,509
$ 22,916 $ 22,397 $ 12,942 $
6,967 $
4,802 $
2,368 $ 72,392 $
0 $ 72,392
290
5
0
0
0
0
0
0
0
0
180
0
0
120
0
0
0
0
290
305
0
0
0
0
290
305
0
$ 23,211 $ 22,397 $ 12,942 $
7,147 $
4,922 $
2,368 $ 72,987 $
0 $ 72,987
$ 96,410 $ 259,524 $ 182,625 $ 23,185 $ 24,786 $
426 $ 586,956 $
19,671 $ 606,627
0
0
0
621
18,203
9,984
0
0
0
0
0
0
661
0
0
0
0
0
29,469
0
0
0
0
0
29,469
0
0
$ 96,410 $ 260,145 $ 200,828 $ 33,169 $ 25,447 $
426 $ 616,425 $
19,671 $ 636,096
Commercial real estate - investor
Pass
Special mention
Substandard
Doubtful
Total
$ 515,950 $ 1,011,898 $ 427,077 $ 378,536 $ 286,587 $ 361,403 $ 2,981,451 $
56,398 $ 3,037,849
0
6,198
0
17,463
2,043
0
15,534
22,497
0
44,426
7,067
0
32,408
43,704
153,535
559
154,094
68
0
14,724
52,597
0
0
0
0
52,597
0
$ 522,148 $ 1,031,404 $ 465,108 $ 430,029 $ 319,063 $ 419,831 $ 3,187,583 $
56,957 $ 3,244,540
Commercial real estate - owner
Pass
Special mention
Substandard
Doubtful
Total
Residential real estate
Performing
Nonperforming
Total
Home equity
Performing
$ 185,692 $ 162,480 $ 147,236 $ 125,275 $ 128,755 $ 211,519 $ 960,957 $
36,721 $ 997,678
4,292
11,380
668
0
504
0
2,891
7,054
0
8,230
5,496
0
3,017
306
0
19,384
2,321
0
49,194
16,349
0
59
38
0
49,253
16,387
0
$ 190,652 $ 174,364 $ 157,181 $ 139,001 $ 132,078 $ 233,224 $ 1,026,500 $
36,818 $ 1,063,318
$ 290,277 $ 241,601 $ 115,747 $ 64,220 $ 60,094 $ 224,281 $ 996,220 $
0 $ 996,220
321
429
673
643
87
4,713
6,866
0
6,866
$ 290,598 $ 242,030 $ 116,420 $ 64,863 $ 60,181 $ 228,994 $ 1,003,086 $
0 $ 1,003,086
$ 60,967 $ 20,200 $ 17,445 $ 11,308 $
9,744 $ 41,571 $ 161,235 $ 577,609 $ 738,844
Nonperforming
0
0
0
39
28
138
205
4,050
4,255
Total
Installment
Performing
$ 60,967 $ 20,200 $ 17,445 $ 11,347 $
9,772 $ 41,709 $ 161,440 $ 581,659 $ 743,099
$ 21,584 $ 15,614 $ 11,041 $
8,812 $
1,954 $
3,185 $ 62,190 $
19,479 $ 81,669
Nonperforming
15
53
23
35
17
36
179
2
181
Total
Credit cards
Performing
Nonperforming
Total
$ 21,599 $ 15,667 $ 11,064 $
8,847 $
1,971 $
3,221 $ 62,369 $
19,481 $ 81,850
$
$
0 $
0
0 $
0 $
0
0 $
0 $
0
0 $
0 $
0
0 $
0 $
0
0 $
0 $
0
0 $
0 $
47,845 $ 47,845
0
640
640
0 $
48,485 $ 48,485
Grand Total
$ 2,378,125 $ 2,239,068 $ 1,303,349 $ 935,938 $ 687,912 $ 1,075,362 $ 8,619,754 $ 1,281,216 $ 9,900,970
First Financial Bancorp 2020 Annual Report 63
Notes to Consolidated Financial Statements
Commercial and consumer credit exposure by risk attribute as of December 31, 2019 was as follows:
As of December 31, 2019
Real Estate
(Dollars in thousands)
Commercial &
industrial
Construction
Commercial
Lease
financing
Total
Pass
Special Mention
Substandard
Doubtful
Total
Performing
Nonperforming
Total
$
2,324,021 $
493,182 $
4,108,752 $
85,262 $
7,011,217
100,954
40,902
0
0
0
0
59,383
26,516
0
488
2,614
0
160,825
70,032
0
$
2,465,877 $
493,182 $
4,194,651 $
88,364 $
7,242,074
Residential
real estate
Home equity
Installment
Credit card
$
$
1,040,787 $
15,162
1,055,949 $
766,169 $
5,700
771,869 $
82,385 $
204
82,589 $
48,983 $
201
49,184 $
Total
1,938,324
21,267
1,959,591
Delinquency. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the
terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment.
Loan delinquency, including nonaccrual loans, was as follows:
(Dollars in thousands)
Loans
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate-investor
Commercial real estate-owner
Residential real estate
Home equity
Installment
Credit card
Total
As of December 31, 2020
30 – 59
days
past due
60 – 89
days
past due
> 90 days
past due
Total
past
due
Current
Total
> 90 days
past due
and still
accruing
$
6,532 $
0 $
1,861 $
8,393 $ 2,999,116 $ 3,007,509 $
0
0
136
6,480
2,809
1,483
94
303
0
0
0
174
370
835
35
163
0
0
0
0
72,987
72,987
636,096
636,096
24,422
24,558
3,219,982
3,244,540
400
3,687
1,937
51
174
7,054
1,056,264
1,063,318
6,866
4,255
180
640
996,220
1,003,086
738,844
743,099
81,670
47,845
81,850
48,485
$
17,837 $
1,577 $
32,532 $
51,946 $ 9,849,024 $ 9,900,970 $
As of December 31, 2019
0
0
0
0
0
0
0
0
169
169
> 90 days
past due
and still
accruing
(Dollars in thousands)
Loans
30 - 59
days
past due
60 - 89
days
past due
> 90 days
past due
Total
past
due
Current
Subtotal
Purchased
impaired
Total
Commercial & industrial
$
1,266 $
3,332 $
14,518 $
19,116 $ 2,443,680 $ 2,462,796 $
3,081 $ 2,465,877 $
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
Credit card
Total
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
64 First Financial Bancorp 2020 Annual Report
For PCD assets, the delinquency status was determined individually for each loan in accordance with the individual loan's
contractual repayment terms. Prior to the adoption of CECL in the first quarter of 2020, PCI loans were classified as
performing, even though they may have been contractually past due, as any nonpayment of contractual principal or interest was
considered in the periodic re-estimation of expected cash flows and was included in the resulting recognition of current period
provision for credit losses or prospective yield adjustments.
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.
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. In accordance with the
CARES Act, performing loans that demonstrated limited signs of credit deterioration, but were modified to provide borrowers
relief during the COVID-19 pandemic were not considered to be TDR as of December 31 2020.
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 155 TDRs totaling $21.8 million at December 31, 2020, including $7.1 million of loans on accrual status
and $14.7 million of loans classified as nonaccrual. First Financial had $0.3 million commitments outstanding to lend
additional funds to borrowers whose loan terms had been modified through TDRs, and the ACL included reserves of $8.8
million related to TDRs as of December 31, 2020. For the year ended December 31, 2020, First Financial charged off $1.7
million for the portion of TDRs determined to be uncollectible. Additionally, as of December 31, 2020, approximately $5.0
million of the accruing TDRs have been performing in accordance with the restructured terms for more than one year.
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. At December 31, 2019 the ALLL included
reserves of $2.5 million related to TDRs, and $4.7 million of the accruing TDRs had been performing in accordance with the
restructured terms for more than one year. Additionally, First Financial charged off $2.6 million for the portion of TDRs
determined to be uncollectible for the year ended December 31, 2019.
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. Additionally, First Financial charged off $0.9 million for the portion of TDRs determined to be
uncollectible for the year ended December 31, 2018.
First Financial Bancorp 2020 Annual Report 65
Notes to Consolidated Financial Statements
The following table provides information on loan modifications classified as TDRs during the years ended December 31, 2020,
2019 and 2018:
Years ended December 31,
2020
Number
of loans
Pre-
modification
loan balance
Period end
balance
Number
of loans
2019
Pre-
modification
loan balance
Period end
balance
Number
of loans
2018
Pre-
modification
loan balance
Period end
balance
8 $
14,984 $
14,984
0
0
24
11
2
0
0
0
0
1,953
1,847
351
35
349
22
8
0
9
30
14
2
$
25,009 $
25,071
17
$
23,943 $
23,890
0
0
3,024
2,932
3,415
3,062
395
41
366
39
0
8
13
5
0
0
0
3,385
3,150
1,148
1,073
95
0
192
0
45 $
17,323 $
17,202
63 $
31,884 $
31,470
43 $
28,571 $
28,305
(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, 2020, 2019 and
2018:
(Dollars in thousands)
Extended maturities
Adjusted interest rates
Combination of rate and maturity changes
Forbearance
Other (1)
Total
Years Ended December 31,
2020
2019
2018
$
0 $
2,877 $
4,093
0
0
5,284
516
52
0
4,759
20,320
23,175
12,443
2,473
985
$ 17,202 $ 31,470 $ 28,305
(1) Other includes covenant modifications and other concessions or combination of concessions that do not consist of interest rate adjustments, forbearance and
maturity extensions.
First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications.
Borrowers that are 90 days or more past due on any principal or interest payments, or who prematurely terminate a restructured
loan agreement without paying off the contractual principal balance, are considered to be in payment default of the terms of the
TDR agreement.
For the twelve months ended December 31, 2020, 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, 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.
As stated in the CARES Act and subsequently modified by the Consolidated Appropriations Act, loan modifications in
response to COVID-19 executed on loans that were not more than 30 days past due as of December 31, 2019 and executed
between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or January 1, 2022
are not required to be reported as a TDR. As of December 31, 2020, the Company's loan portfolio included $320.2 million of
active modifications of which $18.5 million were from the first round of deferrals, $54.9 million were from the second round
and $246.8 million were deferred a third time. Active full principal and interest modifications were $28.7 million at December
31, 2020, while $291.5 million of active modifications were making interest only payments at year end. Active modifications
consist primarily of hotel and franchise loans, which were $186.2 million and $44.3 million respectively as of December 31,
2020, or 58% and 14% of the total active modifications at December 31, 2020.
66 First Financial Bancorp 2020 Annual Report
As of December 31, 2020, the Company's loan portfolio included 90 commercial loans with balances of $312.5 million and 53
consumer loans with balances of $7.7 million that were modified in response to COVID-19 that are not considered TDRs.
Nonperforming loans. Loans classified as nonaccrual and loans modified as TDRs are considered nonperforming for 2020
and impaired as of December 31, 2019. The following table provides information on nonperforming loans as of December 31:
(Dollars in thousands)
Nonaccrual loans (1)
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate
Residential real estate
Home equity
Installment
2020
2019
2018
Nonaccrual
loans with a
related ACL
Nonaccrual
loans with no
related ACL
Total
nonaccrual
Total
nonaccrual
Total
nonaccrual
$
18,711 $
10,519 $
29,230 $
24,346 $
30,925
0
0
6,957
251
0
0
0
0
27,725
11,350
5,076
163
0
0
34,682
11,601
5,076
163
223
0
7,295
10,892
5,242
167
22
9
20,500
13,495
5,580
169
Total nonaccrual loans
$
25,919 $
54,833 $
80,752 $
48,165 $
70,700
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
$
5,892 $
5,813 $
4,656
1,636
426
2,062
1,042
801
1,843
$
3,830 $
3,970 $
715
642
1,357
3,299
Commitments outstanding to borrowers
with nonaccrual loans
(1) Nonaccrual loans include nonaccrual TDRs of $14.7 million, $18.5 million and $22.4 million as of December 31, 2020, 2019 and 2018, respectively.
3 $
0 $
$
200
First Financial individually reviews all nonperforming loan relationships greater than $250,000 to determine if an individually
evaluated 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. Individually evaluated allowances are based on discounted cash
flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.
First Financial Bancorp 2020 Annual Report 67
Notes to Consolidated Financial Statements
First Financial's investment in impaired loans was as follows:
(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
December 31, 2019
Current
balance
Contractual
principal
balance
Related
allowance
$
16,726 $
19,709 $
223
0
10,160
14,868
5,700
204
47,881
223
0
17,897
17,368
6,462
341
62,000
0
0
0
0
0
0
0
0
10,754
21,513
2,044
0
0
671
294
0
0
0
0
675
294
0
0
0
0
113
18
0
0
11,719
22,482
2,175
27,480
41,222
2,044
223
0
10,831
15,162
5,700
223
0
18,572
17,662
6,462
0
0
113
18
0
204
59,600 $
341
84,482 $
$
0
2,175
68 First Financial Bancorp 2020 Annual Report
(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
168
6
18,757
15,915
5,893
170
72,755
4,721
57
0
1,339
446
0
0
Years ended December 31,
2019
2018
Average
balance
Interest
income
recognized
Average
balance
Interest
income
recognized
$ 31,846 $
926 $ 14,498 $
360
0
0
357
307
121
2
21
20
24,738
11,359
5,541
274
0
2
490
301
114
2
1,713
56,451
1,269
87
0
0
31
12
0
0
900
0
0
1,402
895
80
0
6,563
130
3,277
36,567
1,013
15,398
225
6
20,096
16,361
5,893
170
0
0
388
319
121
2
21
20
26,140
12,254
5,621
274
$ 79,318 $
1,843 $ 59,728 $
44
0
0
18
23
3
0
88
404
0
2
508
324
117
2
1,357
First Financial Bancorp 2020 Annual Report 69
Notes to Consolidated Financial Statements
A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and the repayment is
expected to be provided substantially through the operation or sale of collateral. The following table presents the amortized
cost basis of collateral dependent loans by class of loan.
December 31, 2020
Type of Collateral
(Dollar in thousands)
Class of loan
Commercial & industrial
Commercial real estate-
investor
Commercial real estate-
owner
Residential real estate
Home equity
Installment
Total
Business
assets
Commercial
real estate
Equipment
Land
Residential
real estate
Other
Total
$
30,961 $
6,130 $
2,608 $
865 $
0 $
4,892 $
45,456
0
20,212
661
5,537
872
0
27,282
5,842
0
0
0
36,803 $
3,495
0
0
0
29,837 $
0
0
0
0
3,269 $
42
0
0
0
6,444 $
344
11,601
5,076
0
17,893 $
0
0
0
163
5,055 $
9,723
11,601
5,076
163
99,301
$
Lease financing. The Company prospectively applied FASB ASC Topic 842 in the first quarter of 2019. First Financial
originates both sales-type and direct financing leases, and the Company manages and reviews lease residuals in accordance with
its credit policies. Sales-type lease contracts contain the ability to purchase the underlying equipment at lease maturity and
profit or loss is recognized at lease commencement. Direct financing leases are generally three to five years in length and may
be extended at maturity, however, early cancellation may result in a fee to the borrower. For direct financing leases, the net
unearned income is deferred and amortized over the life of the lease. Income recognized in 2020 and 2019 related to the
implementation of FASB ASC Topic 842 was insignificant.
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 Credit Losses
Years ended December 31,
2020
2019
2018
$
2,033 $
1,401
$
2,781
510
507
1,017
(217)
(1,859)
(2,076)
448
(135)
313
415
2,033
2,448
(541)
(912)
(1,453)
(112)
(251)
(363)
$
1,287 $
2,033
$
1,269
1,913
3,182
(2,967)
(830)
(3,797)
(355)
(410)
(765)
1,401
Allowance for credit losses - loans and leases. The allowance for credit losses is a valuation account that is deducted from the
loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL is increased by provision
70 First Financial Bancorp 2020 Annual Report
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 a guarantor or from the liquidation of collateral. Expected recoveries do not
exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable on loans
and leases, which totaled $37.7 million as of December 31, 2020, is excluded from the estimate of credit losses.
Management estimates the allowance balance using relevant available information from both internal and external sources,
relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired
with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial
adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These
adjustments are commonly known as the Qualitative Framework.
The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company
has identified the following portfolio segments and measures the ACL using the following methods:
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.
Current period default rates are utilized in the modeling of the ACL for C&I loans, and are adjusted for forecasted changes in
the treasury term spread and market volatility index. Changes in current period defaults or forecasted expectations for these
economic variables could result in volatility in the Company's ACL in future periods.
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.
The ACL model for leases sources expected default rates from the C&I portfolio model. Therefore, changes in forecasted
expectations for the treasury term spread and market volatility index could result in volatility in the Company's ACL in future
periods.
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.
The ACL model for construction is adjusted for forecasted changes in rental vacancy rates in the Bank's geographic footprint
and the housing price index. Changes in forecasted expectations for these economic variables could result in volatility in the
Company's ACL in future periods.
Commercial real estate - owner & investor – 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.
First Financial Bancorp 2020 Annual Report 71
Notes to Consolidated Financial Statements
First Financial models owner-occupied and investor CRE separately when determining the ACL. For owner occupied CRE,
current period default rates are utilized in the modeling, and are adjusted for forecasted changes in the BAA bond spread,
national rental vacancy rates and the consumer confidence index. Current period default rates are also utilized in the modeling
of investor CRE loans, and are adjusted for forecasted changes in the BAA bond spread, multifamily building permits within
the Bank’s geographic footprint, and national rental vacancy rates. Changes in current period defaults and forecasted
expectations for these economic variables could result in volatility in the Company's ACL in future periods.
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.
The retail real estate ACL model is adjusted for forecasted changes in the housing price index, housing starts within the Bank’s
geographic footprint and national single-family existing home sales. Changes in forecasted expectations for these economic
variables could result in volatility in the Company's ACL in future periods.
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.
The home equity ACL model is adjusted for forecasted changes in the consumer credit growth rate within the Bank’s
geographic footprint and the working-age labor participation rate. Changes in forecasted expectations for these economic
variables could result in volatility in the Company's ACL in future periods.
Installment – Installment lending consists of consumer loans not secured by real estate, including loans secured by automobiles
and unsecured personal loans.
The ACL model for installment loans sources expected default rates from the residential real estate and home equity portfolio
models and is paired with installment specific LGD rates. Changes in forecasted expectations for the consumer credit growth
rate within the Bank’s geographic footprint, the working-age labor participation rate, the housing price index, housing starts
within the Bank’s geographic footprint and national existing single-family existing home sales could result in volatility in the
Company's ACL in future periods.
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.
The ACL model for credit card loans sources expected default rates from the residential real estate and home equity portfolio
models and is paired with credit card specific LGD rates. Changes in forecasted expectations for the consumer credit growth
rate within the Bank’s geographic footprint, the working-age labor participation rate, the housing price index, housing starts
within the Bank’s geographic footprint and national existing single-family existing home sales could result in volatility in the
Company's ACL in future periods.
The Company utilized the Moody's December baseline forecast as its R&S forecast in the quantitative model, which included
consideration of the impact from both the COVID-19 pandemic and the related government stimulus response at the time. For
reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts,
slower prepayment speeds and increased default rates. These alternative analyses were utilized to inform the Company's
qualitative adjustments. Additionally, First Financial considered its credit exposure to certain industries believed to be at risk
for future credit stress related to the COVID-19 pandemic, such as franchise, hotel and investor commercial real estate lending
when making qualitative adjustments to the ACL model.
First Financial's ACL is influenced by loan volumes, risk rating migration or delinquency status, and other conditions
influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. For the twelve months
72 First Financial Bancorp 2020 Annual Report
ended December 31, 2020 the ACL increased due to First Financial's adoption of ASC 326 and management's expectation of
higher credit losses resulting from the COVID-19 pandemic.
Changes in the allowance by loan category as of December 31 were as follows:
2020
(Dollars in thousands)
Allowance for credit losses
Beginning balance, prior to adoption of
ASC 326
Impact of adopting ASC 326
Provision for credit losses
Gross charge-offs
Recoveries
Total net charge-offs
Commercial
& industrial
Lease
financing
Construction
real estate
Commercial
real estate
Residential
real estate
Home
equity
Installment
Credit
card
Total
$
18,584
$
971
$
2,381
$
23,579
$
5,299
$
4,787
$
392
$ 1,657
$
57,650
9,901
25,407
(5,345)
2,907
(2,438)
118
758
(852)
0
(852)
11,579
7,759
0
17
17
24,118
38,936
(12,100)
2,262
(9,838)
5,490
(2,122)
(488)
381
(107)
8,430
(939)
(1,541)
1,132
(409)
801
12
(148)
158
10
1,068
985
(885)
230
(655)
61,505
70,796
(21,359)
7,087
(14,272)
Ending allowance for credit losses
$
51,454
$
995
$
21,736
$
76,795
$
8,560
$ 11,869
$
1,215
$ 3,055
$
175,679
2019
(Dollars in thousands)
Allowance for credit 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
$
56,542
Provision for credit losses
Gross charge-offs
Recoveries
23,631
(26,676)
2,883
3
(162)
0
Total net charge-offs
(23,793)
(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)
2
1,521
30,598
(223)
(1,547)
(35,565)
251
28
152
6,075
(1,395)
(29,490)
Ending allowance for credit losses
$
18,584
$
971
$
2,381
$
23,579
$
5,299
$
4,787
$
392
$ 1,657
$
57,650
(Dollars in thousands)
Allowance for credit 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
$
675
$
3,577
$
20,930
$
4,683
$
4,935
$
307
$ 1,316
$
54,021
Provision for credit losses
Gross charge-offs
Recoveries
Total net charge-offs
10,615
(11,533)
2,066
(9,467)
454
0
1
1
(310)
0
146
146
847
(4,835)
4,106
(729)
492
(422)
211
(211)
829
(1,725)
1,309
(416)
Ending allowance for credit losses
$
18,746
$
1,130
$
3,413
$
21,048
$
4,964
$
5,348
$
(85)
1,744
14,586
(435)
(1,720)
(20,670)
575
140
362
191
8,605
(1,529)
(12,065)
$ 1,531
$
56,542
(Dollars in thousands)
Commercial
& industrial
Lease
financing
Construction
real estate
Commercial
real estate
Residential
real estate
Home
equity
Installment
Credit
card
Total
Ending allowance balance attributable to loans
Individually evaluated for impairment
$
2,044
$
0
$
0
$
113
$
18
$
0
$
0
$
0
$
2,175
Collectively evaluated for impairment
16,540
971
2,381
23,466
5,281
4,787
392
1,657
55,475
Ending allowance for credit losses
$
18,584
$
971
$
2,381
$
23,579
$
5,299
$
4,787
$
392
$
1,657
$
57,650
As of December 31, 2019
Loans
Individually evaluated for impairment
$
27,480
$
223
$
0
$
10,831
$
15,162
$
5,700
$
204
$
0
$
59,600
Collectively evaluated for impairment
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
Allowance for credit losses - unfunded commitments. First Financial estimates expected credit losses over the contractual
period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is
First Financial Bancorp 2020 Annual Report 73
Notes to Consolidated Financial Statements
unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and
an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the
Company's ACL methodology for loans and leases.
Prior to the adoption of ASC 326, First Financial maintained its reserve to absorb probable losses incurred in standby letters of
credit and outstanding loan commitments. First Financial determined the adequacy of this reserve based upon an evaluation of
the unfunded credit facilities, which included consideration of historical commitment utilization experience, credit risk ratings
and historical loss rates, consistent with the Company's ALLL methodology at the time.
The ACL on unfunded commitments was $12.5 million as of December 31, 2020 and $0.6 million as of December 31, 2019.
Due to the adoption of ASC 326, First Financial recorded $12.2 million in the ACL on unfunded commitments. Additionally,
First Financial recorded $0.2 million of provision recapture related to the ACL on unfunded commitments for the twelve
months ended December 31, 2020 and December 31, 2019.
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
$
2020
2019
52,373 $
161,371
70,177
29,525
8,434
321,880
54,958
163,277
74,881
31,728
4,096
328,940
114,669
114,434
$ 207,211 $ 214,506
Rental expense recorded under operating leases in 2020, 2019 and 2018 was $9.1 million, $11.2 million and $9.1 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 $63.9 million and $58.6
million at December 31, 2020 and 2019, respectively. Certain adjustments to the ROU asset may be required for items such as
initial direct costs paid or incentives received. First Financial recorded a $71.7 million and $64.3 million lease liability in
Accrued interest and other liabilities on the Consolidated Balance Sheet at December 31, 2020 and 2019, respectively.
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
rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its
74 First Financial Bancorp 2020 Annual Report
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 for the years ended December 31, 2020 and 2019 were as follows:
(dollars in thousands)
Operating lease cost
Short-term lease cost
Variable lease cost
Total operating lease cost
December 31, 2020
December 31, 2019
$
$
7,897 $
142
2,532
10,571 $
7,324
55
2,553
9,932
Future minimum commitments due under these lease agreements as of December 31, 2020 are as follows:
(dollars in thousands)
Operating leases
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less imputed interest
Total
$
$
6,864
7,074
7,143
6,858
6,217
56,951
91,107
19,395
71,712
The weighted average lease term and discount rate for the Company's operating leases were as follows:
Operating leases
Weighted-average remaining lease term
Weighted-average discount rate
December 31, 2020
December 31, 2019
15.1 years
3.07 %
15.6 years
3.43 %
Supplemental cash information at year end related to leases was as follows:
(dollars in thousands)
December 31, 2020
December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
8,196 $
7,335
ROU assets obtained in exchange for lease obligations
Operating leases
9,725
64,902
First Financial Bancorp 2020 Annual Report 75
Notes to Consolidated Financial Statements
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 of the purchase price 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, 2020, 2019 and 2018 are shown below.
(Dollars in thousands)
Balance at beginning of year
Goodwill resulting from business combinations
Balance at end of year
2020
2019
2018
$ 937,771
$ 880,251
$ 204,084
0
57,520
676,167
$ 937,771
$ 937,771
$ 880,251
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 engaged a third
party to perform a quantitative analysis of its goodwill to determine whether any impairment existed as of October 1, 2020 for
its annual impairment test. This quantitative analysis was performed due to the on-going economic market disruption, the
movement of the Company’s stock price in relation to other bank indexes and the length of time that the market value of the
reporting unit had been below its book value. This analysis indicated that no impairment existed as of the issue date. Our
quantitative impairment analysis utilized the discounted cash flow model for the income approach and the market multiple
methodology and comparable transaction methodology as the market approach. These valuation methodologies utilize key
assumptions that include forecasts of revenues and expenses derived from internal management projections for a period of five
years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally
sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are
highly subjective and require significant management judgment. Changes in these key assumptions could materially affect our
estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.
Additionally, in response to the COVID-19 pandemic and the related deterioration in general economic conditions, First
Financial performed an interim qualitative impairment test as of the end of each quarter in 2020, including the quarter ended
December 31, 2020. Likewise, the results of this interim qualitative tests performed did not indicate that the Company's
goodwill was impaired. First Financial will continue to monitor the status of its goodwill and intangible assets for signs of
further deterioration and potential impairment.
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 7.1 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 being 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.
76 First Financial Bancorp 2020 Annual Report
The gross carrying amount and accumulated amortization of other intangible assets at December 31, 2020 and December 31,
2019 were as follows:
(Dollars in thousands)
Amortized intangible assets
Core deposit intangibles
Customer list
Other
Total
December 31, 2020
December 31, 2019
$
51,031
$
(27,524) $
51,031
$
(21,149)
39,420
10,113
(4,778)
(3,710)
39,420
10,093
(1,195)
(1,999)
$
100,564
$
(36,012) $
100,544
$
(24,343)
Amortization expense recognized on intangible assets for 2020, 2019 and 2018 was $11.1 million, $9.7 million and $7.4
million, respectively. The estimated amortization expense of intangible assets for the next five years is as follows:
(Dollars in thousands)
2021
2022
2023
2024
2025
10. Deposits
Intangible
amortization
$
10,249
7,708
6,729
6,660
6,611
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2020 and 2019 were $220.5 million
and $285.0 million, respectively.
Scheduled maturities of all time deposits for the next five years were as follows:
(Dollars in thousands)
2021
2022
2023
2024
2025
Thereafter
Total
11. Borrowings
Time
deposits
$ 1,544,131
215,855
56,882
32,978
22,210
677
$ 1,872,733
Short-term borrowings on the Consolidated Balance Sheets include repurchase agreements utilized for corporate sweep
accounts with cash management account agreements in place, federal funds purchased and overnight advances from the FHLB.
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.
First Financial Bancorp 2020 Annual Report 77
Notes to Consolidated Financial Statements
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
$
$
79,235
47,359
126,594
Securities sold under agreements to repurchase are secured by securities with a carrying amount of $126.7 million and $90.2
million, as of December 31, 2020 and 2019, respectively.
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
Federal funds purchased and securities sold
under agreements to repurchase
FHLB borrowings
Other short-term borrowings
Total
Maximum month-end balances
Federal funds purchased and securities sold
under agreements to repurchase
FHLB borrowings
Other short-term borrowings
2020
2019
2018
Amount
Rate
Amount
Rate
Amount
Rate
$ 166,594
0
$ 166,594
0.05 % $ 165,181
0.00 % 1,151,000
0.05 % $ 1,316,181
0.85 % $ 183,591
1.73 % 857,100
1.62 % $ 1,040,691
1.65 %
2.48 %
2.33 %
$ 149,036
441,867
0
$ 590,903
0.26 % $ 155,859
1.37 % 990,860
0
0.00 %
1.09 % $ 1,146,719
1.15 % $ 87,221
2.37 % 857,028
3,178
0.00 %
1.90 % $ 947,427
0.58 %
2.03 %
4.36 %
1.90 %
$ 260,621
1,171,400
0
$ 260,621
1,171,400
0
$ 183,591
1,170,800
10,000
During 2020 First Financial participated in the PPPLF, which is a program created by the FRB to extend credit to eligible
financial institutions that originate PPP loans. The bank had outstanding PPPLF advances of $435.0 million as of
December 31, 2020, with an average interest rate of 35 basis points. These borrowings are secured by pledged PPP loans and
prepay in conjunction with reductions in the principal balances of those loans.
In April 2020, First Financial issued $150.0 million of fixed to floating rate subordinated notes. The subordinated notes have
an initial fixed interest rate of 5.25% to, but excluding, May 15, 2025, payable semi-annually in arrears. From, and including,
May 15, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark
rate, which is expected to be the then-current three-month term SOFR, plus 509 basis points, payable quarterly in arrears. The
subordinated notes mature on May 15, 2030. These notes are redeemable by the Company in whole or in part beginning with
the interest payment date of May 15, 2025.
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 6.00% fixed rate private
placement subordinated debt in conjunction with the MSFG merger that was issued in 2015 and matures in 2025. These notes
78 First Financial Bancorp 2020 Annual Report
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 $20.0 million and $242.4 million of fixed rate FHLB long-term
advances as of December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020 and December 31, 2019,
long-term FHLB advances had a weighted average interest rate of 1.43% and 1.94%, respectively. In the fourth quarter of
2020, First Financial redeemed $120.0 million of FHLB long-term advances with maturities of two to seven years. 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, 2020, had collateral pledged with a book
value of $6.3 billion.
The following is a summary of First Financial's long-term debt:
2020
2019
(Dollars in thousands)
FRB borrowings
FHLB borrowings
Subordinated debt
Unamortized debt issuance costs
Capital lease liability
Capital loan with municipality
Total long-term debt
Amount
Average Rate
Amount
$
$
434,982
19,971
321,384
(2,770)
1,860
775
776,202
0.35 % $
1.43 %
4.86 %
n/a
3.81 %
0.00 %
2.25 % $
0
242,428
170,967
(1,007)
1,213
775
414,376
As of December 31, 2020, First Financial's long-term debt matures as follows:
(Dollars in thousands)
2021
2022
2023
2024
2025
Thereafter
Total
12. Derivatives
Average Rate
n/a
1.94 %
4.97 %
n/a
4.48 %
0.00 %
3.20 %
Long-term
debt
$
$
20,050
435,065
87
91
96
320,813
776,202
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.
First Financial Bancorp 2020 Annual Report 79
Notes to Consolidated Financial Statements
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, 2020, for interest rate derivatives, the Company had a total counterparty notional amount outstanding of $2.3
billion, spread among twenty counterparties, with an outstanding liability from these contracts of $182.3 million. At
December 31, 2019, the Company had interest rate derivatives with 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.
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 ACL Committee monitors
derivative credit risk exposure associated with problem loans through the Company's ACL 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.
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 excessive risk is
not being taken in 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, 2020, the Company had total counterparty notional amount outstanding of
$3.6 billion spread among six counterparties, with an estimated fair value of $33.1 million at December 31, 2020 related to
foreign exchange contracts, which is included in Accrued interest and other liabilities in the Consolidated Balance Sheets. At
December 31, 2019, the Company had total counterparty notional amounts outstanding of $1.9 billion spread among six
counterparties, with an estimated fair value of $18.3 million.
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 of client derivatives and foreign exchange contracts recognized in the
Consolidated Balance Sheets:
(Dollars in thousands)
Balance
Sheet Classification
Notional
amount
Gain
Loss
Notional
amount
Gain
Loss
Client derivatives-instruments associated with loans
December 31, 2020
December 31, 2019
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
$ 2,300,336 $ 184,777
$
(107) $ 1,923,375 $ 70,799 $ (2,636)
Accrued interest and other liabilities
2,300,336
107
(184,884)
1,923,375
2,636
(70,808)
Accrued interest and other assets
3,637,509
60,366
(27,249)
1,869,934
28,739
(10,433)
Accrued interest and other liabilities
3,637,509
27,249
(60,366)
1,869,934
10,433
(28,739)
$ 11,875,690 $ 272,499
$ (272,606) $ 7,586,618 $ 112,607 $ (112,616)
80 First Financial Bancorp 2020 Annual Report
The following table discloses the gross and net amounts of client derivatives and foreign exchange contracts recognized in the
Consolidated Balance Sheets:
December 31, 2020
December 31, 2019
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
(Dollars in thousands)
Client derivatives
Matched interest rate swaps
$
184,991 $
(385,088) $
(200,097) $
73,444 $
(147,193) $
(73,749)
Foreign exchange contracts with counterparty
87,615
(17,392)
70,223
39,172
(41,202)
(2,030)
Total
$
272,606 $
(402,480) $
(129,874) $
112,616 $
(188,395) $
(75,779)
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, 2020:
(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
$ 2,300,336
2,300,336
3,637,509
3,637,509
$ 11,875,690
4.9
4.9
0.6
0.6
2.3
$
184,670
(184,777)
33,117
(33,117)
$
(107)
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 $242.4 million as of December 31, 2020 and $216.2
million as of December 31, 2019. The fair value of these agreements were recorded in Accrued interest and other liabilities on
the Consolidated Balance Sheets was $0.3 million at December 31, 2020 and $0.2 million at December 31, 2019.
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, 2020, the notional amount of the IRLCs was $114.2 million and the notional amount of forward commitments
was $112.6 million. As of December 31, 2019, the notional amount of IRLCs was $33.4 million and the notional amount of
forward commitments was $37.8 million. The fair value of these agreements was $2.7 million at December 31, 2020 and was
$0.9 million at December 31, 2019 and was recorded in Accrued interest and other assets on the Consolidated Balance Sheets.
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 was represented by the contractual amounts of those instruments. Effective January 1,
2020, First Financial adopted ASC 326, at which time First Financial estimated credit losses over the contractual period in
First Financial Bancorp 2020 Annual Report 81
Notes to Consolidated Financial Statements
which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is
unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and
an estimate of expected credit losses on commitments expected to be funded over its estimated useful life consistent with the
Company's ACL methodology for loans and leases. Adjustments to the reserve for unfunded commitments are recorded in
Provision for credit losses - unfunded commitments in the Consolidated Statements of Income. First Financial had $12.5
million of ACL for unfunded commitments recorded in Accrued interest and other liabilities on the Consolidated Balance
Sheets as of December 31, 2020.
Prior to the adoption of ASC 326, First Financial maintained its reserve to absorb probable losses incurred in standby letters of
credit and outstanding loan commitments. First Financial determined the adequacy of this reserve based upon an evaluation of
the unfunded credit facilities, which included consideration of historical commitment utilization experience, credit risk ratings
and historical loss rates, consistent with the Company's ALLL methodology at the time. First Financial had $0.6 million of
reserves for unfunded commitments recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets as of
December 31, 2019.
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 $3.4 billion and $3.3 billion at December 31, 2020 and 2019, respectively. As of December 31, 2020,
loan commitments with a fixed interest rate totaled $123.6 million while commitments with variable interest rates totaled $3.3
billion. At December 31, 2019, loan commitments with a fixed interest rate totaled $123.7 million while commitments 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, 2020 and 2019 and have maturities ranging from less than 1 year to 30.8 years for December 31, 2020
and less than 1 year to 31.6 years for December 31, 2019.
The following table presents First Financial's loan balances and contractual obligations to extend credit as of December 31,
2020.
(dollars in thousands)
Commercial & industrial
Lease financing
Construction real estate
Commercial real estate-investor
Commercial real estate-owner
Residential real estate
Home equity
Installment
Credit card
Total
Unfunded commitment
Loan balance
$
1,270,765 $
3,007,509
0
374,008
139,754
51,637
28,895
762,406
18,229
207,365
72,987
636,096
3,244,540
1,063,318
1,003,086
743,099
81,850
48,485
$
2,853,059 $
9,900,970
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 $36.1 million and $33.4 million at December 31, 2020, and
2019, 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 that are accounted for under ASU 2014-01, Accounting for Investments in Affordable Housing Projects. 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
82 First Financial Bancorp 2020 Annual Report
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 $47.5 million and $38.5 million as of December 31, 2020 and 2019,
respectively. The Company recognized tax credits of $7.6 million, $6.2 million and $4.9 million related to its investments in
affordable housing projects for the years ended December 31, 2020, 2019 and 2018, respectively. The Company recognized
amortization expense which was included in income tax expense of $8.1 million, $6.9 million and $5.7 million for the years
ended December 31, 2020, 2019 and 2018, respectively. First Financial had no affordable housing contingent commitments as
of December 31, 2020 or December 31, 2019.
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 $3.6 million at December 31, 2020, and $3.1 million at December 31, 2019. The maximum exposure to loss
related to these investments was $4.0 million at December 31, 2020 and $5.1 million at December 31, 2019, representing the
Company’s investment balance and its unfunded commitments to invest additional amounts. Investments in historic tax credits
resulted in $0.6 million, $3.5 million and $0.5 million of tax credits for the years ended December 31, 2020, 2019 and 2018,
respectively.
Investments in renewable energy tax credits. During 2020, First Financial invested in a renewable energy project where it
has noncontrolling interest which is not consolidated. This investment 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 renewable energy 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
this project was approximately $5.2 million at December 31, 2020. The maximum exposure to loss related to this investment
was $7.7 million, representing the Company’s investment balance and its unfunded commitments to invest additional amounts.
The investment in renewable energy tax credits resulted in $4.8 million of tax credits for the year ended December 31, 2020.
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, 2020. 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, 2020 or December 31, 2019.
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
2020
5,289
1,811
(2,003)
5,097
0
$
$
$
First Financial Bancorp 2020 Annual Report 83
Notes to Consolidated Financial Statements
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
2020
2019
2018
$
$
34,632 $
2,349
36,981
31,343 $
854
32,197
(8,624)
244
(8,380)
28,601 $
10,946
1,644
12,590
44,787 $
34,330
1,029
35,359
4,675
1,592
6,267
41,626
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)
Income taxes computed at federal statutory rate (21%) on income before
income taxes
Benefit from tax-exempt income
Tax credits
Basis reduction on tax credit
Tax expense (benefit) of equity compensation
State income taxes, net of federal tax benefit
Affordable housing investments
Other
Income tax expense
2020
2019
2018
$
$
38,726 $
(5,901)
(13,064)
657
340
2,049
6,635
(841)
28,601 $
51,001 $
(5,964)
(10,075)
738
(140)
1,973
5,825
1,429
44,787 $
44,986
(4,499)
(5,439)
0
(565)
2,070
4,725
348
41,626
84 First Financial Bancorp 2020 Annual Report
The major components of the temporary differences that gave rise to deferred tax assets and liabilities at December 31, 2020,
and 2019, were as follows:
(Dollars in thousands)
Deferred tax assets
Allowance for credit 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
State net operating loss
Leasing liability
Reserve for unfunded commitments
Deferred loan fees and costs
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
ASU 2016-01 unrealized gain/loss-equity securities
Right of use assets
Other
Total deferred tax liabilities
Total net deferred tax liability
2020
2019
$
$
39,671 $
3,870
235
684
1,654
8
1,712
5,647
1,959
16,947
2,854
1,691
577
77,509
(11,923)
(4,043)
(2,925)
(6,661)
(10,984)
(13,942)
0
(619)
(2,471)
(20,253)
(2,080)
(2,179)
(15,053)
(2,035)
(95,168)
(17,659) $
13,011
6,470
228
666
1,296
162
548
4,708
2,792
14,806
133
0
683
45,503
(10,970)
(4,043)
(2,435)
(7,349)
(8,511)
(11,647)
(1,100)
(623)
(2,249)
(11,359)
(2,845)
(128)
(13,354)
(1,920)
(78,533)
(33,030)
In conjunction with the MSFG merger, First Financial acquired a state net operating loss. At December 31, 2020 and 2019, the
state net operating loss carryforward was $2.5 million and $3.6 million. This carryforward begins to expire in 2025. The
Company expects to fully utilize this net operating loss and, therefore, a valuation allowance was not required at December 31,
2020 and 2019. 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, 2020 and 2019.
The Bank’s retained earnings at December 31, 2020 and 2019 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
First Financial Bancorp 2020 Annual Report 85
Notes to Consolidated Financial Statements
“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.
At December 31, 2020 and 2019, First Financial had $1.9 million and $2.4 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, 2020 and 2019 is as follows:
(Dollars in thousands)
Balance at beginning of year
Settlements
Balance at end of year
2020
2019
$
$
3,006 $
(620)
2,386 $
3,735
(729)
3,006
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, 2020 and 2019, 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 2017 have been closed and are no longer subject to U.S. federal income tax examinations. Tax
years 2017 through 2020 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 2012. Tax years 2012 through
2020 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 $2.5 million for 2020, $1.0 million for 2019 and $0.9 million for
2018. 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 2020, 2019 or 2018 and does not expect to make any
contributions in 2020.
86 First Financial Bancorp 2020 Annual Report
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,
2020
2019
75,044 $
7,932
2,455
9,171
(7,108)
87,494
68,286
6,591
2,778
6,848
(9,459)
75,044
141,816
20,996
(7,108)
155,704
130,078
21,197
(9,459)
141,816
68,210
0
68,210 $
66,772
0
66,772
32,943 $
(682)
(7,349)
24,912 $
37,278
(1,095)
(8,242)
27,941
(3,029) $
(4,649)
86,327 $
74,424
$
$
$
$
$
$
The changes in the defined benefit obligations for the period were primarily caused by a few factors. The actual return on the
fair value of plan assets since the prior measurement date was greater than assumed, which improved the funded position.
However, the discount rate declined 78 bp compared to the prior year, causing the funded position to deteriorate. Additionally,
the interest crediting rate was updated to reflect the known return during 2020, which resulted in further deterioration of the
funded position.
First Financial Bancorp 2020 Annual Report 87
Notes to Consolidated Financial Statements
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
December 31,
2019
2018
2020
$
7,932 $
2,455
(9,824)
(413)
2,334
2,484
6,591 $
2,778
(9,718)
(413)
1,803
1,041
6,501
2,394
(9,811)
(413)
2,188
859
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)
(2,001)
0
413
(2,334)
(3,922)
(4,630)
0
413
(1,803)
(6,020)
12,319
0
413
(2,188)
10,544
$
(1,438) $
(4,979) $
11,403
The pension plan assumptions are shown in the table that follows:
Benefit obligations
Discount rate
Rate of compensation increase
Weighted average interest crediting rate
Net periodic benefit cost
Discount rate
Expected return on plan assets
Rate of compensation increase
Weighted average interest crediting rate
December 31,
2019
2018
2020
2.55 %
3.50 %
2.14 %
3.33 %
7.25 %
3.50 %
2.82 %
3.33 %
3.50 %
2.82 %
4.31 %
7.25 %
3.50 %
3.61 %
4.31 %
3.50 %
3.61 %
3.43 %
7.25 %
3.50 %
2.63 %
The fair value of the plan assets as of December 31, 2020 by asset category is shown in the table that follows:
Fair Value Measurements
Quoted Prices in
Active Markets
for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
$
129 $
129 $
0 $
4,193
65,443
85,939
0
65,443
85,939
4,193
0
0
$
155,704 $
151,511 $
4,193 $
0
0
0
0
0
(Dollars in thousands)
Asset Category
Cash
U. S. Government agencies
Fixed income mutual funds
Equity mutual funds
Total
88 First Financial Bancorp 2020 Annual Report
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 $
0 $
5,357
75,720
60,544
0
75,720
60,544
5,357
0
0
$
141,816 $
136,459 $
5,357 $
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)
2021
2022
2023
2024
2025
Thereafter
$
Expected
benefit
payments
5,780
5,432
5,474
6,605
6,565
38,095
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, 2020, 2019 or 2018.
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 sources that are outside of the scope of ASU 2014-09, Revenue from
Contracts with Customers. Income sources that are outside of this standard include income earned on loans, leases, securities,
derivatives and foreign exchange. 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
Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned
First Financial Bancorp 2020 Annual Report 89
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 2020 was $23.9 million, and was
partially offset by $12.2 million of expenses within Noninterest income. Gross interchange income for 2019 was $30.4 million,
and was partially offset by $11.9 million of expenses within Noninterest income, while 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 2020 Annual Report 90
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, 2020
(Dollars in thousands)
Unrealized gain (loss) on debt
securities
Unrealized gain (loss) on
derivatives
Prior to
reclass
Reclass
from
Pre-tax
Tax effect
Net of tax
Beginning
balance
Net activity
Ending
balance
$
36,643 $
(4,563) $
41,206 $
(8,894) $
32,312 $
41,264 $
32,312 $
73,576
0
0
0
0
0
0
0
0
Retirement obligation
2,001
(1,921)
3,922
(893)
3,029
(27,941)
3,029
(24,912)
Total
$
38,644 $
(6,484) $
45,128 $
(9,787) $
35,341 $
13,323 $
35,341 $
48,664
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
(Dollars in thousands)
Unrealized gain (loss) on debt
securities
Unrealized gain (loss) on
derivatives
Retirement obligation
4,630
(1,390)
6,020
(1,371)
4,649
(32,590)
4,649
281
0
281
(64)
217
(217)
217
0
0
0
(27,941)
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)
First Financial Bancorp 2020 Annual Report 91
Notes to Consolidated Financial Statements
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)
2020
2019
2018
Realized gains and losses on securities available-for-sale
$
(4,563) $
(370) $
(161)
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
413
413 Other noninterest expense
(2,334)
(1,803)
(2,188) Other noninterest expense
Amortization and settlement charges of defined
benefit pension items
(1,921)
(1,390)
(1,775)
Total reclassifications for the period, before tax
$
(6,484) $
(1,760) $
(1,936)
(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% and a fully phased-in
capital conservation buffer of 2.5% of risk-weighted assets. Further, the minimum ratio of Tier 1 capital to risk-weighted assets
increased to 8.5% 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, 2020, 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 $566.8 million on a consolidated basis at
December 31, 2020.
92 First Financial Bancorp 2020 Annual Report
The following tables present the actual and required capital amounts and ratios as of December 31, 2020 and 2019 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. 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, 2020
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
$ 1,325,922
1,452,403
11.82 % $ 785,338
784,807
12.95 %
7.00 %
N/A
7.00 % $ 728,749
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
(Dollars in thousands)
December 31, 2019
Common equity tier 1 capital to risk-weighted assets
1,368,818
1,452,507
12.20 %
12.96 %
953,625
952,980
8.50 %
8.50 %
N/A
896,922
N/A
8.00 %
1,744,802
1,560,457
15.55 % 1,178,007
13.92 % 1,177,211
10.50 %
N/A
10.50 % 1,121,153
N/A
10.00 %
1,368,818
1,452,507
9.55 %
10.14 %
573,526
573,094
4.00 %
4.00 %
N/A
716,367
N/A
5.00 %
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
11.30 % $ 771,666
7.00 %
N/A
N/A
1,333,978
12.11 %
770,997
7.00 % $ 715,926
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
11.69 %
937,023
8.50 %
N/A
N/A
1,334,082
12.11 %
936,211
8.50 %
881,140
8.00 %
1,475,813
13.39 % 1,157,498
10.50 %
N/A
N/A
1,399,817
12.71 % 1,156,496
10.50 % 1,101,425
10.00 %
1,288,185
9.58 %
537,606
4.00 %
N/A
N/A
1,334,082
9.93 %
537,299
4.00 %
671,623
5.00 %
Share repurchases. In December 2020, First Financial's board of directors approved a stock repurchase plan, replacing the
plan approved in 2019 which expired on December 31, 2020. The plan approved in 2020 will continue for two years and like
the 2019 plan, authorizes the purchase of up to 5,000,000 shares of the Company's common stock. Under the 2019 plan, First
Financial repurchased 880,000 shares at an average market price of $18.96 during 2020 and repurchased 2,753,272 shares at an
First Financial Bancorp 2020 Annual Report 93
Notes to Consolidated Financial Statements
average market price of $24.05 during 2019. Prior to the 2019 plan's expiration on December 31, 2020, it had 1,366,728
common shares available for repurchase. There were no share repurchases in 2018.
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
periods presented.
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 $7.7 million, $8.0 million and $6.2 million
for the years ended December 31, 2020, 2019 and 2018, respectively, related to stock options and restricted stock awards. Total
unrecognized compensation cost related to non-vested share-based compensation was $9.1 million at December 31, 2020 and is
expected to be recognized over a weighted average period of 1.92 years.
As of December 31, 2020, First Financial had two active stock-based compensation plans, the Amended and Restated 2012
Stock Plan and the 2020 Stock Plan. New awards may only be granted from the 2020 Stock Plan. At December 31, 2020, there
were 4,311,365 shares available for issuance under the 2020 Stock Plan.
In April 2018, in conjunction with the MSFG merger, First Financial assumed existing MSFG stock options, which were
converted into options to purchase 83,551 shares of 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, 2020, 27,451 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 2020, 2019 or 2018.
Stock option activity for the year ended December 31, 2020, 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
37,856 $
0
(10,405)
0
27,451 $
27,451 $
9.54
0.00
6.92
0.00
10.53
10.53
2.53 years $
2.53 years $
192
192
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
94 First Financial Bancorp 2020 Annual Report
2020
2019
2018
$
$
$
86 $
72 $
462 $
90 $
734
284
1,776 $
1,844 $
1,439
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:
2020
2019
2018
Number
of shares
Weighted
average
grant date
fair value
Nonvested at beginning of year
530,569 $
Granted
Vested
Forfeited
Nonvested at end of year
503,311
(233,828)
(36,769)
763,283 $
27.19
18.62
26.07
23.79
22.04
Number
of shares
462,446 $
395,023
(295,633)
(31,267)
530,569 $
Weighted
average
grant date
fair value
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
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 2020, 2019 and 2018 was $6.1 million, $7.4 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)
2020
2019
2018
Numerator
Net income
Denominator
$ 155,810 $ 198,075 $ 172,595
Basic earnings per common share - weighted average shares
97,363,952
98,305,570
88,582,090
Effect of dilutive securities
Employee stock awards
Warrants
729,146
0
545,901
0
514,680
517,435
Diluted earnings per common share - adjusted weighted average shares
98,093,098
98,851,471
89,614,205
Earnings per share available to common shareholders
Basic
Diluted
$
$
1.60 $
1.59 $
2.01 $
2.00 $
1.95
1.93
First Financial had no warrants outstanding to purchase the Company's common stock as of December 31, 2020 or 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.
If applicable, stock options and warrants with exercise prices greater than the average market price of the common shares are
excluded from the computation of net income per diluted share, as they would be antidilutive. Using the end of period price of
the Company's common shares, there were no antidilutive options at December 31, 2020, 2019, or 2018.
As of December 31, 2020, 2019, and 2018, First Financial was authorized to issue 10,000,000 preferred shares; however, no
preferred shares were issued or outstanding.
First Financial Bancorp 2020 Annual Report 95
Notes to Consolidated Financial Statements
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, 2020
Financial assets
Carrying
value
Estimated fair value
Total
Level 1
Level 2
Level 3
Cash and short-term investments
$
251,359 $
251,359 $
251,359 $
0 $
Investment securities held-to-maturity
Other investments
Loans and leases
Accrued interest receivable
131,687
133,198
136,698
133,198
9,725,291
9,743,497
50,903
50,903
0
837
0
0
136,698
122,953
0
0
9,408
0
9,743,497
13,221
37,682
Financial liabilities
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
(Dollars in thousands)
December 31, 2019
Financial assets
12,232,003
12,238,058
0
12,238,058
166,594
776,202
6,240
166,594
774,674
6,240
166,594
0
14
0
774,674
6,226
0
0
0
0
Carrying
Value
Total
Estimated Fair Value
Level 2
Level 1
Level 3
Cash and short-term investments
$
257,639 $
257,639 $
257,639 $
0 $
Investment securities held-to-maturity
Other investments
Loans and leases
Accrued interest receivable
142,862
125,020
142,821
125,020
9,144,015
9,134,215
39,591
39,591
0
699
0
0
0
0
500
142,821
123,821
0
9,134,215
12,743
26,848
Financial liabilities
Deposits
Short-term borrowings
Long-term debt
Accrued interest payable
10,210,229
10,209,790
0
10,209,790
1,316,181
1,316,181
1,316,181
414,376
13,671
414,937
13,671
0
1,899
0
414,937
11,772
0
0
0
0
96 First Financial Bancorp 2020 Annual Report
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.
Loans held for sale. The fair value of the Company’s residential mortgage loans held for sale is determined on a recurring
basis based on quoted prices for similar loans in active markets, and therefore, is classified as a Level 2 measurement.
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.
Collateral dependent loans. Collateral dependent loans carried at fair value have been partially charged-off or receive specific
allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate
appraisals, a calculation of enterprise value or a valuation of business assets including equipment, inventory and accounts
receivable. These loans had a principal amount of $45.3 million, with a valuation allowance of $13.5 million at December 31,
2020.
The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal
conducted by an independent, licensed third-party appraiser (Level 3). These appraisals may utilize a single valuation approach
or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely
made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income
data available. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market
conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business,
resulting in a Level 3 fair value classification. Collateral dependent loans are evaluated on a quarterly basis for additional
write-downs and are adjusted accordingly.
Enterprise value is defined as imputed value for the entire underlying business. To determine an appropriate range of enterprise
value, FFB relies on a standardized set of valuation methodologies that take into account future projected cash flows, market
based multiples as well as asset values. Valuations involve both quantitative and qualitative considerations and professional
judgments concerning differences in financial and operating characteristics in addition to other factors that may impact values
over time (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).
The fair value of collateral dependent loans is measured at fair value on a nonrecurring basis. Any fair value adjustments are
recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.
First Financial Bancorp 2020 Annual Report 97
Notes to Consolidated Financial Statements
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, including those for which we elected the fair
value option, were as follows:
Fair Value Measurements Using
Assets/
Liabilities
Level 1
Level 2
Level 3
at Fair Value
103 $
3,383,902 $
40,575 $
3,424,580
0
0
0
41,103
185,032
87,615
0
0
0
41,103
185,032
87,615
103 $
3,697,652 $
40,575 $
3,738,330
0 $
186,124 $
0
87,615
0 $
273,739 $
0 $
186,124
0
87,615
0 $
273,739
Fair Value Measurements Using
Assets/
Liabilities
Level 1
Level 2
Level 3
at Fair Value
100 $
0
2,842,794 $
13,680
9,190 $
0
2,852,084
13,680
0
0
73,558
39,172
0
0
73,558
39,172
100 $
2,969,204 $
9,190 $
2,978,494
0 $
0
73,750 $
39,172
0 $
0
73,750
39,172
0 $
112,922 $
0 $
112,922
$
$
$
$
$
$
$
$
(Dollars in thousands)
December 31, 2020
Assets
Investment securities available-for-sale
Loans held 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, 2019
Assets
Investment securities available-for-sale
Loans held for sale
Interest rate derivative contracts
Foreign exchange derivative contracts
Total
Liabilities
Interest rate derivative contracts
Foreign exchange derivative contracts
Total
98 First Financial Bancorp 2020 Annual Report
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, 2020.
(dollars in thousands)
Beginning balance
Accretion (amortization)
Increase (decrease) in fair value
Purchases (settlements)
Ending balance
December 31, 2020
December 31, 2019
$
$
9,190 $
1
(17)
31,401
40,575 $
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, 2020
Assets
Collateral dependent loans
Commercial
Commercial real estate
OREO
(Dollars in thousands)
December 31, 2019
Assets
Collateral dependent loans
Commercial
Commercial real estate
OREO
Fair Value Measurements Using
Level 1
Level 2
Level 3
$
0 $
0 $
0
0
0
0
25,367
6,432
54
Fair Value Measurements Using
Level 1
Level 2
Level 3
$
0 $
0 $
0
0
0
0
8,710
558
1,088
Fair value option. First Financial may elect to report most financial instruments and certain other items at fair value on an
instrument-by instrument basis with changes in fair value reported in net income. After the initial adoption, the election is
made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified
reconsideration events occur. The fair value election may not be revoked once an election is made.
The Company elected the fair value option for residential mortgage loans held for sale. This election allows for a more
effective offset of the changes in fair values of the loans held for sale and the derivative financial instruments used to financially
hedge them without having to apply complex hedge accounting requirements. As noted above, the fair value of the Company’s
residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets.
The aggregate fair value of the Company’s residential mortgage loans held for sale as of December 31, 2020 and 2019 was
$41.1 million and $13.7 million, respectively. The aggregate unpaid principal balance of the Company’s residential mortgage
loans held for sale as of December 31, 2020 and 2019 was $35.5 million and $12.7 million, respectively. The resulting
difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value
option has been elected was $5.6 million and $0.9 million as of December 31, 2020 and 2019, respectively.
Changes in the estimated fair value of residential mortgage loans held for sale are reported as a component of Net gain from
sales of loans in the Company’s consolidated statements of income. For the year ended December 31, 2020, the net gain from
the change in fair value of the Company’s residential mortgage loans held for sale was $4.6 million. For the year ended
December 31, 2019, the net gain from the change in fair value of the Company’s residential mortgage loans held for sale was
insignificant.
First Financial Bancorp 2020 Annual Report 99
23. Business Combination
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 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 value of assets acquired
and liabilities assumed were considered final as of 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
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 2020 Annual Report 100
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 2020 Annual Report 101
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,
2020
2019
$
172,902 $
55,869
1,388
7,500
1,116
7,500
2,346,009
2,272,991
9,559
8,260
2,355,568
2,281,251
1,328
1,344
68,812
77,572
$ 2,607,498 $ 2,424,652
$
320,615 $
171,983
674
4,139
849
4,115
325,428
176,947
2,282,070
2,247,705
$ 2,607,498 $ 2,424,652
First Financial Bancorp 2020 Annual Report 102
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
Years Ended December 31,
2020
2019
2018
$
27 $
30 $
272
81,725
82,024
14,172
8,004
1,160
5,163
191
196,800
197,021
9,552
8,169
1,040
6,599
23
0
107,340
107,363
8,798
6,413
5,130
5,648
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
28,499
25,360
25,989
53,525
171,661
(6,145)
(5,975)
96,140
20,439
81,374
(6,687)
84,534
$
155,810 $
198,075 $
172,595
Comprehensive income
$
191,151 $
254,900 $
153,670
First Financial Bancorp 2020 Annual Report 103
Years Ended December 31,
2019
2018
2020
155,810 $
198,075 $
172,595
(96,140)
712
7,678
(158)
(175)
(22)
8,635
76,340
0
0
0
0
0
0
150,000
(89,691)
(16,686)
72
(3,002)
40,693
117,033
55,869
172,902 $
$
(20,439)
584
7,969
1,255
384
(244)
(7,187)
180,397
0
(53,660)
264
(500)
(53,896)
0
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)
0
(79,655)
0
284
(2,528)
(90,232)
29,159
57,719
86,878
Notes to Consolidated Financial Statements
Statements of Cash Flows
(Dollars in thousands)
Operating activities
Net income
$
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed (earnings) loss of subsidiaries
Depreciation and amortization
Stock-based compensation expense
Deferred income taxes
(Decrease) increase in dividends payable
(Decrease) increase 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
Proceeds from long-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 provided by (used in) financing activities
Net increase (decrease) in cash
Cash at beginning of year
Cash at end of year
104 First Financial Bancorp 2020 Annual Report
Quarterly Financial And Common Stock Data (Unaudited)
(Dollars in thousands, except per share data)
2020
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
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
December 31
September 30
June 30
March 31
Three months ended
$
$
$
$
$
$
$
$
$
$
$
$
$
$
130,029 $
11,556
118,473
11,508
61,515
114,798
53,682
5,370
48,312 $
126,070 $
13,890
112,180
13,374
49,499
97,511
50,794
9,317
41,477 $
129,360 $
17,784
111,576
20,229
42,725
88,689
45,383
7,990
37,393 $
0.50 $
0.49 $
0.23 $
0.43 $
0.42 $
0.23 $
0.38 $
0.38 $
0.23 $
17.77 $
12.07 $
15.15 $
11.40 $
16.38 $
11.52 $
147,651 $
28,749
118,902
4,629
36,768
93,064
57,977
9,300
48,677 $
153,645 $
32,110
121,535
5,228
33,140
86,226
63,221
12,365
50,856 $
154,523 $
32,221
122,302
6,658
34,638
84,378
65,904
13,201
52,703 $
0.49 $
0.49 $
0.23 $
0.52 $
0.51 $
0.23 $
0.54 $
0.53 $
0.22 $
26.04 $
23.24 $
25.49 $
22.37 $
25.80 $
22.16 $
139,504
25,222
114,282
25,448
35,384
89,666
34,552
5,924
28,628
0.29
0.29
0.23
25.52
12.67
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
First Financial Bancorp common stock trades on the Nasdaq Stock Market under the symbol FFBC.
First Financial Bancorp 2020 Annual Report 105
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, 2015 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
2015
2016
2017
2018
2019
2020
100.00
100.00
100.00
162.37
108.97
139.12
154.34
141.36
141.63
142.67
137.38
116.86
158.78
187.86
144.76
116.08
272.49
132.18
106 First Financial Bancorp 2020 Annual Report
First Financial BancorpNasdaq Composite IndexKBW Regional Bank Index151617181920050100150200250300
SHAREHOLDER INFORMATION Annual Meeting of Shareholders The annual meeting of shareholders will be held on Tuesday, May 25, 2021, 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 https://ir.bankatfirst.com/corporate-profile/default.aspx. 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 https://ir.bankatfirst.com/ corporate-profile/default.aspx. Shareholders, analysts and other investment professionals who would like corporate and financial information on First Financial Bancorp should contact: James M. 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 https://ir.bankatfirst.com/ corporate-profile/default.aspx, or by contacting Investor Relations. These filings are also accessible on the SEC’s website at www.sec.gov.
First Financial Bancorp 2020 Annual Report 107
First Financial Bancorp First Financial Bank First Financial Center 255 East Fifth Street Suite 800 Cincinnati, OH 45202-4248 www.bankatfirst.com