NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The Consolidated Financial Statements of First Financial Bancorp., a bank holding company, principally serving Ohio, Indiana and Kentucky, include the accounts and operations of First Financial and its wholly-owned subsidiary, First Financial Bank, N.A. All significant intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications of prior periods' amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.
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 may be susceptible to significant change. Actual realized amounts could differ materially from these estimates.
These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X, and serve to update the Form 10-K for the year ended
December 31, 2015
. These interim financial statements may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and it is suggested that these interim statements be read in conjunction with the Form 10-K. Management believes these unaudited consolidated financial statements reflect all adjustments of a normal recurring nature which are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year or any other interim period. The Consolidated Balance Sheet as of
December 31, 2015
has been derived from the audited financial statements in the Company’s
2015
Form 10-K.
NOTE 2: RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS
In April 2015, the FASB issued an update (ASU 2015-03, Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs) that requires debt issuance costs to be presented as a deduction from the corresponding debt liability. Upon adoption, an entity must apply the new guidance retrospectively to all prior periods presented in the financial statements. The provisions of this update became effective January 1, 2016. First Financial early adopted this accounting standard during the third quarter of 2015. Management concluded that the debt issuance costs capitalized in prior periods was immaterial as a component of other assets, total assets, total long-term debt and total liabilities, and as such, the Company's prior periods have not been restated.
In September 2015, the FASB issued an update (ASU 2015-16, Business Combinations: Simplifying the Accounting for Measurement-Period Adjustments) which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. This update requires acquiring companies to recognize measurement-period adjustments during the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The guidance in this ASU became effective January 1, 2016
and did not have a material impact on the Company's Consolidated Financial Statements.
In January 2016, the FASB issued an update (ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities) which will require entities to measure many equity investments at fair value and recognize changes in fair value in net income. This update does not apply to equity investments that result in consolidation, those accounted for under the equity method and certain others, and will eliminate use of the available for sale classification for equity securities while providing a new measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted.
First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.
In February 2016, the FASB issued an update (ASU 2016-02, Leases) which will require lessees to record most leases on their balance sheet and recognize leasing expenses in the income statement. Operating leases, except for short-term leases that are subject to an accounting policy election, will be recorded on the balance sheet for lessees by establishing a lease liability and corresponding right-of-use asset. The guidance in this ASU will become effective for interim and annual reporting periods
beginning after December 15, 2018, with early adoption permitted. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.
In March 2016, the FASB issued an update (ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships) which clarifies that the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require de-designation of that hedge accounting relationship. In the event of a novation, hedge accounting relationships could continue if all other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted.
First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.
In March 2016, the FASB issued an update (ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments) which clarifies that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in ASC 815-15-25-42. Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the period of adoption. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted.
First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.
In March 2016, the FASB issued an update (ASU 2016-07, Investments-Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting) which will eliminate the requirement to retrospectively apply the equity method when an investment that had been accounted for utilizing another method qualifies for use of the equity method. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted.
First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.
In March 2016, the FASB issued an update (ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting) which will require recognition of the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e., Additional Paid-in-Capital pools will be eliminated). The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted.
First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.
NOTE 3: INVESTMENTS
For the first quarter 2016, proceeds on the sale of
$42.7 million
of available-for-sale securities resulted in gains of
$0.3 million
and losses of
$0.3 million
. For the comparable quarter in 2015, proceeds on the sale of
$25 thousand
of available-for-sale securities resulted in
no
gains or losses. No held-to-maturity securities were sold.
The following is a summary of held-to-maturity and available-for-sale investment securities as of
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
Available-for-sale
|
(Dollars in thousands)
|
|
Amortized
cost
|
|
Unrecognized gain
|
|
Unrecognized loss
|
|
Fair
value
|
|
Amortized
cost
|
|
Unrealized
gain
|
|
Unrealized
loss
|
|
Fair
value
|
U.S. Treasuries
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
98
|
|
|
$
|
3
|
|
|
$
|
0
|
|
|
$
|
101
|
|
Securities of U.S. government agencies and corporations
|
|
14,935
|
|
|
373
|
|
|
0
|
|
|
15,308
|
|
|
8,183
|
|
|
223
|
|
|
0
|
|
|
8,406
|
|
Mortgage-backed securities
|
|
655,387
|
|
|
15,615
|
|
|
(410
|
)
|
|
670,592
|
|
|
720,407
|
|
|
6,868
|
|
|
(4,493
|
)
|
|
722,782
|
|
Obligations of state and other political subdivisions
|
|
27,180
|
|
|
480
|
|
|
(2
|
)
|
|
27,658
|
|
|
103,215
|
|
|
3,437
|
|
|
(443
|
)
|
|
106,209
|
|
Asset-backed securities
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
258,731
|
|
|
31
|
|
|
(5,266
|
)
|
|
253,496
|
|
Other securities
|
|
4,813
|
|
|
0
|
|
|
(94
|
)
|
|
4,719
|
|
|
74,459
|
|
|
632
|
|
|
(1,766
|
)
|
|
73,325
|
|
Total
|
|
$
|
702,315
|
|
|
$
|
16,468
|
|
|
$
|
(506
|
)
|
|
$
|
718,277
|
|
|
$
|
1,165,093
|
|
|
$
|
11,194
|
|
|
$
|
(11,968
|
)
|
|
$
|
1,164,319
|
|
The following is a summary of held-to-maturity and available-for-sale investment securities as of
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
Available-for-sale
|
(Dollars in thousands)
|
|
Amortized
cost
|
|
Unrecognized gain
|
|
Unrecognized
loss
|
|
Fair
value
|
|
Amortized
cost
|
|
Unrealized
gain
|
|
Unrealized
loss
|
|
Fair
value
|
U.S. Treasuries
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
98
|
|
|
$
|
0
|
|
|
$
|
(1
|
)
|
|
$
|
97
|
|
Securities of U.S. government agencies and corporations
|
|
15,486
|
|
|
121
|
|
|
0
|
|
|
15,607
|
|
|
8,183
|
|
|
157
|
|
|
0
|
|
|
8,340
|
|
Mortgage-backed securities
|
|
678,318
|
|
|
7,452
|
|
|
(1,999
|
)
|
|
683,771
|
|
|
775,285
|
|
|
2,708
|
|
|
(12,926
|
)
|
|
765,067
|
|
Obligations of state and other political subdivisions
|
|
27,646
|
|
|
338
|
|
|
(99
|
)
|
|
27,885
|
|
|
105,212
|
|
|
2,655
|
|
|
(730
|
)
|
|
107,137
|
|
Asset-backed securities
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
236,411
|
|
|
35
|
|
|
(3,445
|
)
|
|
233,001
|
|
Other securities
|
|
4,809
|
|
|
0
|
|
|
(121
|
)
|
|
4,688
|
|
|
77,876
|
|
|
523
|
|
|
(1,399
|
)
|
|
77,000
|
|
Total
|
|
$
|
726,259
|
|
|
$
|
7,911
|
|
|
$
|
(2,219
|
)
|
|
$
|
731,951
|
|
|
$
|
1,203,065
|
|
|
$
|
6,078
|
|
|
$
|
(18,501
|
)
|
|
$
|
1,190,642
|
|
The following table provides a summary of investment securities by contractual maturity or estimated weighted average life as of
March 31, 2016
. Estimated lives on amortizing investment securities may differ from contractual maturities as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
Available-for-sale
|
(Dollars in thousands)
|
Amortized
cost
|
|
Fair
value
|
|
Amortized
cost
|
|
Fair
value
|
Due in one year or less
|
$
|
5,105
|
|
|
$
|
5,207
|
|
|
$
|
58,659
|
|
|
$
|
58,493
|
|
Due after one year through five years
|
563,324
|
|
|
574,597
|
|
|
775,602
|
|
|
774,467
|
|
Due after five years through ten years
|
133,886
|
|
|
138,473
|
|
|
303,552
|
|
|
304,623
|
|
Due after ten years
|
0
|
|
|
0
|
|
|
27,280
|
|
|
26,736
|
|
Total
|
$
|
702,315
|
|
|
$
|
718,277
|
|
|
$
|
1,165,093
|
|
|
$
|
1,164,319
|
|
The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position, aggregated by investment category and the length of time the individual securities have been in a continuous loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
(Dollars in thousands)
|
|
Fair
value
|
|
Unrealized
loss
|
|
Fair
value
|
|
Unrealized
loss
|
|
Fair
value
|
|
Unrealized
loss
|
Mortgage-backed securities
|
|
$
|
167,950
|
|
|
$
|
(1,299
|
)
|
|
$
|
235,099
|
|
|
$
|
(3,604
|
)
|
|
$
|
403,049
|
|
|
$
|
(4,903
|
)
|
Obligations of state and other political subdivisions
|
|
6,684
|
|
|
(53
|
)
|
|
20,758
|
|
|
(392
|
)
|
|
27,442
|
|
|
(445
|
)
|
Asset-backed securities
|
|
215,166
|
|
|
(4,217
|
)
|
|
24,018
|
|
|
(1,049
|
)
|
|
239,184
|
|
|
(5,266
|
)
|
Other securities
|
|
34,001
|
|
|
(1,123
|
)
|
|
16,766
|
|
|
(737
|
)
|
|
50,767
|
|
|
(1,860
|
)
|
Total
|
|
$
|
423,801
|
|
|
$
|
(6,692
|
)
|
|
$
|
296,641
|
|
|
$
|
(5,782
|
)
|
|
$
|
720,442
|
|
|
$
|
(12,474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
(Dollars in thousands)
|
|
value
|
|
loss
|
|
value
|
|
loss
|
|
value
|
|
loss
|
Securities of U.S. government agencies and corporations
|
|
$
|
97
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
97
|
|
|
$
|
0
|
|
Mortgage-backed securities
|
|
500,768
|
|
|
(5,363
|
)
|
|
246,523
|
|
|
(9,563
|
)
|
|
747,291
|
|
|
(14,926
|
)
|
Obligations of state and other political subdivisions
|
|
5,800
|
|
|
(65
|
)
|
|
29,287
|
|
|
(764
|
)
|
|
35,087
|
|
|
(829
|
)
|
Asset-backed securities
|
|
189,066
|
|
|
(3,042
|
)
|
|
17,144
|
|
|
(403
|
)
|
|
206,210
|
|
|
(3,445
|
)
|
Other securities
|
|
30,828
|
|
|
(592
|
)
|
|
24,716
|
|
|
(928
|
)
|
|
55,544
|
|
|
(1,520
|
)
|
Total
|
|
$
|
726,559
|
|
|
$
|
(9,062
|
)
|
|
$
|
317,670
|
|
|
$
|
(11,658
|
)
|
|
$
|
1,044,229
|
|
|
$
|
(20,720
|
)
|
Gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost. All securities with unrealized losses are reviewed quarterly to determine if any impairment is considered other than temporary, requiring a write-down to fair value. First Financial considers the percentage loss on a security, duration of the loss, average life or duration of the security, credit rating of the security and payment performance as well as the Company's intent and ability to hold the security to maturity when determining whether any impairment is other than temporary. At this time First Financial does not intend to sell, and it is not more likely than not that the Company will be required to sell debt securities temporarily impaired prior to maturity or recovery of the recorded value. First Financial had no other than temporary impairment related to its investment securities portfolio as of
March 31, 2016
or
December 31, 2015
.
For further detail on the fair value of investment securities, see Note 14 – Fair Value Disclosures.
NOTE 4: LOANS AND LEASES
First Financial offers clients a variety of commercial and consumer loan and lease products with various interest rates and payment terms. Lending activities are primarily concentrated in states where the Bank currently operates banking centers (Ohio, Indiana and Kentucky). Additionally, First Financial has two national lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that provides loans secured by commissions and cash collateral accounts primarily to insurance agents and brokers. Commercial loan categories include commercial and industrial, commercial real estate, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card.
Purchased impaired loans.
Loans accounted for under FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, are referred to as purchased impaired loans. First Financial accounts for the majority of loans acquired in FDIC transactions as purchased impaired loans, except for loans with revolving privileges, which are outside the scope of FASB ASC Topic 310-30, and loans for which cash flows could not be estimated, which are accounted for under the cost recovery method. Purchased impaired loans include loans previously covered under loss sharing agreements as well as loans that remain subject to FDIC loss sharing coverage.
Purchased impaired loans are not classified as nonperforming assets as the loans are considered to be performing under FASB ASC Topic 310-30. Therefore, interest income, through accretion of the difference between the carrying value of the loans and the expected cash flows (accretable difference) is recognized on all purchased impaired loans. First Financial had purchased impaired loans totaling
$177.0 million
and
$191.6 million
, at
March 31, 2016
and
December 31, 2015
, respectively. The outstanding balance of all purchased impaired loans, including all contractual principal, interest, fees and penalties, was
$196.2 million
and
$213.3 million
as of
March 31, 2016
and
December 31, 2015
, respectively. These balances exclude contractual interest not yet accrued.
Changes in the carrying amount of accretable difference for purchased impaired loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2016
|
|
2015
|
Balance at beginning of period
|
|
$
|
64,857
|
|
|
$
|
106,622
|
|
Reclassification from/(to) nonaccretable difference
|
|
318
|
|
|
(1,576
|
)
|
Accretion
|
|
(4,210
|
)
|
|
(6,357
|
)
|
Other net activity
(1)
|
|
(2,241
|
)
|
|
(6,701
|
)
|
Balance at end of period
|
|
$
|
58,724
|
|
|
$
|
91,988
|
|
(1) Includes the impact of loan repayments and charge-offs.
First Financial regularly reviews its forecast of expected cash flows for purchased impaired loans. The Company recognized reclassifications from nonaccretable to accretable difference of
$0.3 million
for the
first
quarter of
2016
, however, during the
three months ended March 31, 2015
, the Company recognized reclassifications from accretable to nonaccretable difference of
$1.6 million
due to changes in the cash flow expectations related to certain loan pools. These reclassifications can result in impairment and provision expense in the current period or yield adjustments on the related loan pools on a prospective basis.
Covered loans.
Loans acquired in FDIC-assisted transactions covered under loss sharing agreements whereby the FDIC will reimburse First Financial for the majority of any losses incurred are referred to as covered loans. Pursuant to the terms of the
loss sharing agreements, covered loans are subject to a stated loss threshold whereby the FDIC will reimburse First Financial for
80%
of losses up to a stated loss threshold and
95%
of losses in excess of the threshold. These loss sharing agreements provide for partial loss protection on single-family, residential loans for a period of ten years and First Financial is required to share any recoveries of previously charged-off amounts for the same time period, on the same pro-rata basis with the FDIC. All other loans subject to loss sharing agreements were provided loss protection for a period of five years and recoveries of previously charged-off amounts must be shared with the FDIC for an additional three year period, on the same pro-rata basis.
The Company's loss sharing agreements with the FDIC related to non-single family loans expired effective October 1, 2014, and the ten year period of loss protection on all other covered loans and covered OREO expires October 1, 2019. Covered loans totaled
$109.2 million
as of
March 31, 2016
and
$113.3 million
as of
December 31, 2015
.
Credit Quality.
To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate ALLL, First Financial utilizes the following categories of credit grades:
Pass
- Higher quality loans that do not fit any of the other categories described below.
Special Mention
- First Financial assigns a special mention rating to loans and leases with potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in First Financial's credit position at some future date.
Substandard
- First Financial assigns a substandard rating to loans or leases that are inadequately protected by the current sound financial worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard loans and leases have well-defined weaknesses that jeopardize repayment of the debt. Substandard loans and leases are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not addressed.
Doubtful
- First Financial assigns a doubtful rating to loans and leases with all the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.
The credit grades described above, which are derived from standard regulatory rating definitions, are assigned upon initial approval of credit to borrowers and updated periodically thereafter.
First Financial considers repayment performance 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.
Commercial and consumer credit exposure by risk attribute was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
|
|
|
|
Real Estate
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Construction
|
|
Commercial
|
|
Leasing
|
|
Total
|
Pass
|
|
$
|
1,680,764
|
|
|
$
|
337,472
|
|
|
$
|
2,182,683
|
|
|
$
|
99,583
|
|
|
$
|
4,300,502
|
|
Special Mention
|
|
22,155
|
|
|
3,417
|
|
|
19,754
|
|
|
0
|
|
|
45,326
|
|
Substandard
|
|
41,813
|
|
|
564
|
|
|
59,420
|
|
|
1,552
|
|
|
103,349
|
|
Doubtful
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total
|
|
$
|
1,744,732
|
|
|
$
|
341,453
|
|
|
$
|
2,261,857
|
|
|
$
|
101,135
|
|
|
$
|
4,449,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Real Estate
Residential
|
|
Home Equity
|
|
Installment
|
|
Other
|
|
Total
|
Performing
|
|
$
|
499,849
|
|
|
$
|
460,341
|
|
|
$
|
41,408
|
|
|
$
|
39,283
|
|
|
$
|
1,040,881
|
|
Nonperforming
|
|
8,663
|
|
|
5,669
|
|
|
219
|
|
|
0
|
|
|
14,551
|
|
Total
|
|
$
|
508,512
|
|
|
$
|
466,010
|
|
|
$
|
41,627
|
|
|
$
|
39,283
|
|
|
$
|
1,055,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
Real Estate
|
|
|
|
|
(Dollars in thousands)
|
|
Commercial
|
|
Construction
|
|
Commercial
|
|
Leasing
|
|
Total
|
Pass
|
|
$
|
1,596,415
|
|
|
$
|
310,806
|
|
|
$
|
2,179,701
|
|
|
$
|
93,236
|
|
|
$
|
4,180,158
|
|
Special Mention
|
|
27,498
|
|
|
128
|
|
|
19,903
|
|
|
0
|
|
|
47,529
|
|
Substandard
|
|
39,189
|
|
|
778
|
|
|
58,693
|
|
|
750
|
|
|
99,410
|
|
Doubtful
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total
|
|
$
|
1,663,102
|
|
|
$
|
311,712
|
|
|
$
|
2,258,297
|
|
|
$
|
93,986
|
|
|
$
|
4,327,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Real Estate
Residential
|
|
Home Equity
|
|
Installment
|
|
Other
|
|
Total
|
Performing
|
|
$
|
503,317
|
|
|
$
|
461,188
|
|
|
$
|
41,253
|
|
|
$
|
41,217
|
|
|
$
|
1,046,975
|
|
Nonperforming
|
|
8,994
|
|
|
5,441
|
|
|
253
|
|
|
0
|
|
|
14,688
|
|
Total
|
|
$
|
512,311
|
|
|
$
|
466,629
|
|
|
$
|
41,506
|
|
|
$
|
41,217
|
|
|
$
|
1,061,663
|
|
Delinquency.
Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the date of the scheduled payment.
Loan delinquency, including loans classified as nonaccrual, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
(Dollars in thousands)
|
|
30 – 59
days
past due
|
|
60 – 89
days
past due
|
|
> 90 days
past due
|
|
Total
past
due
|
|
Current
|
|
Subtotal
|
|
Purchased impaired
|
|
Total
|
|
> 90 days
past due
and still
accruing
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
4,354
|
|
|
$
|
310
|
|
|
$
|
3,034
|
|
|
$
|
7,698
|
|
|
$
|
1,729,886
|
|
|
$
|
1,737,584
|
|
|
$
|
7,148
|
|
|
$
|
1,744,732
|
|
|
$
|
0
|
|
Real estate - construction
|
|
5,002
|
|
|
0
|
|
|
0
|
|
|
5,002
|
|
|
335,689
|
|
|
340,691
|
|
|
762
|
|
|
341,453
|
|
|
0
|
|
Real estate - commercial
|
|
2,718
|
|
|
0
|
|
|
6,631
|
|
|
9,349
|
|
|
2,141,626
|
|
|
2,150,975
|
|
|
110,882
|
|
|
2,261,857
|
|
|
0
|
|
Real estate - residential
|
|
858
|
|
|
0
|
|
|
2,020
|
|
|
2,878
|
|
|
450,582
|
|
|
453,460
|
|
|
55,052
|
|
|
508,512
|
|
|
0
|
|
Home equity
|
|
505
|
|
|
81
|
|
|
3,025
|
|
|
3,611
|
|
|
460,929
|
|
|
464,540
|
|
|
1,470
|
|
|
466,010
|
|
|
0
|
|
Installment
|
|
133
|
|
|
13
|
|
|
67
|
|
|
213
|
|
|
39,713
|
|
|
39,926
|
|
|
1,701
|
|
|
41,627
|
|
|
0
|
|
Other
|
|
435
|
|
|
328
|
|
|
59
|
|
|
822
|
|
|
139,596
|
|
|
140,418
|
|
|
0
|
|
|
140,418
|
|
|
59
|
|
Total
|
|
$
|
14,005
|
|
|
$
|
732
|
|
|
$
|
14,836
|
|
|
$
|
29,573
|
|
|
$
|
5,298,021
|
|
|
$
|
5,327,594
|
|
|
$
|
177,015
|
|
|
$
|
5,504,609
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
(Dollars in thousands)
|
|
30 – 59
days
past due
|
|
60 – 89
days
past due
|
|
> 90 days
past due
|
|
Total
past
due
|
|
Current
|
|
Subtotal
|
|
Purchased impaired
|
|
Total
|
|
> 90 days
past due
and still
accruing
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,255
|
|
|
$
|
2,232
|
|
|
$
|
1,937
|
|
|
$
|
6,424
|
|
|
$
|
1,648,902
|
|
|
$
|
1,655,326
|
|
|
$
|
7,776
|
|
|
$
|
1,663,102
|
|
|
$
|
0
|
|
Real estate - construction
|
|
0
|
|
|
17
|
|
|
0
|
|
|
17
|
|
|
310,872
|
|
|
310,889
|
|
|
823
|
|
|
311,712
|
|
|
0
|
|
Real estate - commercial
|
|
2,501
|
|
|
913
|
|
|
7,421
|
|
|
10,835
|
|
|
2,124,290
|
|
|
2,135,125
|
|
|
123,172
|
|
|
2,258,297
|
|
|
0
|
|
Real estate - residential
|
|
1,220
|
|
|
239
|
|
|
2,242
|
|
|
3,701
|
|
|
451,907
|
|
|
455,608
|
|
|
56,703
|
|
|
512,311
|
|
|
0
|
|
Home equity
|
|
696
|
|
|
248
|
|
|
2,830
|
|
|
3,774
|
|
|
461,647
|
|
|
465,421
|
|
|
1,208
|
|
|
466,629
|
|
|
0
|
|
Installment
|
|
197
|
|
|
111
|
|
|
48
|
|
|
356
|
|
|
39,206
|
|
|
39,562
|
|
|
1,944
|
|
|
41,506
|
|
|
0
|
|
Other
|
|
920
|
|
|
302
|
|
|
230
|
|
|
1,452
|
|
|
133,751
|
|
|
135,203
|
|
|
0
|
|
|
135,203
|
|
|
108
|
|
Total
|
|
$
|
7,789
|
|
|
$
|
4,062
|
|
|
$
|
14,708
|
|
|
$
|
26,559
|
|
|
$
|
5,170,575
|
|
|
$
|
5,197,134
|
|
|
$
|
191,626
|
|
|
$
|
5,388,760
|
|
|
$
|
108
|
|
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 such as
insufficient collateral value. The accrual of interest income is discontinued and previously accrued but unpaid interest is reversed when a loan is classified as nonaccrual. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan may return to accrual status if collection of future principal and interest payments is no longer doubtful.
Purchased impaired loans are classified as performing, even though they may be contractually past due, as any nonpayment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period provision for loan and lease losses or prospective yield adjustments.
Troubled Debt Restructurings.
A loan modification is considered a TDR when the borrower is experiencing financial difficulty and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. The most common types of modifications include interest rate reductions, maturity extensions and modifications to principal amortization, including interest-only structures. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is managed by the Company’s credit administration group for resolution, which may result in foreclosure in the case of real estate.
TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement.
First Financial had
271
TDRs totaling
$37.7 million
at
March 31, 2016
, including
$30.1 million
on accrual status and
$7.5 million
classified as nonaccrual. First Financial had
$0.4 million
of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs at
March 31, 2016
. At
March 31, 2016
, the ALLL included reserves of
$2.4 million
related to TDRs. For the three months ended
March 31, 2016
and 2015, First Financial charged off
$0.2 million
and
$6 thousand
respectively, for the portion of TDRs determined to be uncollectible. Additionally, as of
March 31, 2016
, approximately
$10.2 million
of accruing TDRs have been performing in accordance with the restructured terms for more than one year.
First Financial had
271
TDRs totaling
$38.2 million
at
December 31, 2015
, including
$28.9 million
of loans on accrual status and
$9.3 million
classified as nonaccrual. First Financial had
$1.8 million
of commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At
December 31, 2015
, the ALLL included reserves of
$6.3 million
related to TDRs. For the year ended
December 31, 2015
, First Financial charged off
$2.7 million
for the portion of TDRs determined to be uncollectible. As of
December 31, 2015
, approximately
$10.3 million
of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.
The following tables provide information on loan modifications classified as TDRs during the
three
months ended
March 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31, 2016
|
|
March 31, 2015
|
(Dollars in thousands)
|
Number of loans
|
|
Pre-modification loan balance
|
|
Period end balance
|
|
Number of loans
|
|
Pre-modification loan balance
|
|
Period end balance
|
Commercial
|
8
|
|
|
$
|
2,083
|
|
|
$
|
2,095
|
|
|
8
|
|
|
$
|
360
|
|
|
$
|
359
|
|
Real estate - construction
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Real estate - commercial
|
1
|
|
|
42
|
|
|
42
|
|
|
6
|
|
|
12,914
|
|
|
9,343
|
|
Real estate - residential
|
2
|
|
|
281
|
|
|
247
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Home equity
|
4
|
|
|
149
|
|
|
140
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Installment
|
2
|
|
|
7
|
|
|
7
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total
|
17
|
|
|
$
|
2,562
|
|
|
$
|
2,531
|
|
|
14
|
|
|
$
|
13,274
|
|
|
$
|
9,702
|
|
The following table provides information on how TDRs were modified during the
three
months ended
March 31, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31,
|
(Dollars in thousands)
|
2016
|
|
2015
|
Extended maturities
|
$
|
486
|
|
|
$
|
9,481
|
|
Adjusted interest rates
|
0
|
|
0
|
Combination of rate and maturity changes
|
162
|
|
62
|
Forbearance
|
0
|
|
0
|
Other
(1)
|
1,883
|
|
159
|
Total
|
$
|
2,531
|
|
|
$
|
9,702
|
|
(1) Includes covenant modifications and other concessions, or combination of concessions, that do not consist of interest rate adjustments, forbearance and maturity extensions
First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications. Borrowers that are
90
days or more past due on any principal or interest payments, or who prematurely terminate a restructured loan agreement without paying off the contractual principal balance (for example, in a deed-in-lieu arrangement), are considered to be in payment default of the terms of the TDR agreement.
The following table provides information on TDRs for which there was a payment default during the period that occurred within twelve months of the loan modification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31, 2016
|
|
March 31, 2015
|
(Dollars in thousands)
|
|
Number
of loans
|
|
Period end
balance
|
|
Number of loans
|
|
Period end
balance
|
Commercial
|
|
1
|
|
$
|
55
|
|
|
0
|
|
$
|
0
|
|
Real estate - construction
|
|
0
|
|
0
|
|
0
|
|
0
|
Real estate - commercial
|
|
0
|
|
0
|
|
3
|
|
967
|
Real estate - residential
|
|
1
|
|
214
|
|
1
|
|
73
|
Home equity
|
|
1
|
|
28
|
|
0
|
|
0
|
Installment
|
|
1
|
|
4
|
|
0
|
|
0
|
Total
|
|
4
|
|
$
|
301
|
|
|
4
|
|
$
|
1,040
|
|
Impaired Loans.
Loans classified as nonaccrual and loans modified as TDRs are considered impaired. The following table provides information on impaired loans, excluding purchased impaired loans.
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
March 31, 2016
|
|
December 31, 2015
|
Impaired loans
|
|
|
|
|
Nonaccrual loans
(1)
|
|
|
|
|
Commercial
|
|
$
|
3,917
|
|
|
$
|
8,405
|
|
Real estate-construction
|
|
0
|
|
|
0
|
|
Real estate-commercial
|
|
8,577
|
|
|
9,418
|
|
Real estate-residential
|
|
4,243
|
|
|
5,027
|
|
Home equity
|
|
5,036
|
|
|
4,898
|
|
Installment
|
|
113
|
|
|
127
|
|
Other
|
|
121
|
|
|
122
|
|
Nonaccrual loans
(1)
|
|
22,007
|
|
|
27,997
|
|
Accruing troubled debt restructurings
|
|
30,127
|
|
|
28,876
|
|
Total impaired loans
|
|
$
|
52,134
|
|
|
$
|
56,873
|
|
(1) Nonaccrual loans include nonaccrual TDRs of
$7.5 million
and
$9.3 million
as of
March 31, 2016
and
December 31, 2015
, respectively.
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 31,
|
(Dollars in thousands)
|
2016
|
|
2015
|
Interest income effect on impaired loans
|
|
|
|
Gross amount of interest that would have been recorded under original terms
|
$
|
754
|
|
|
$
|
967
|
|
Interest included in income
|
|
|
|
Nonaccrual loans
|
76
|
|
|
171
|
|
Troubled debt restructurings
|
232
|
|
|
132
|
|
Total interest included in income
|
308
|
|
|
303
|
|
Net impact on interest income
|
$
|
446
|
|
|
$
|
664
|
|
First Financial individually reviews all impaired commercial loan relationships greater than
$250,000
, as well as consumer loan TDRs greater than
$100,000
, to determine if a specific allowance is necessary based on the borrower’s overall financial condition, resources and payment record, support from guarantors and the realizable value of any collateral. Specific allowances are based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.
First Financial's investment in impaired loans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2016
|
(Dollars in thousands)
|
|
Current balance
|
|
Contractual
principal
balance
|
|
Related
allowance
|
|
Average
current
balance
|
|
YTD interest
income
recognized
|
Loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
13,512
|
|
|
$
|
14,442
|
|
|
$
|
0
|
|
|
$
|
14,965
|
|
|
$
|
74
|
|
Real estate - construction
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Real estate - commercial
|
|
14,003
|
|
|
18,707
|
|
|
0
|
|
|
15,152
|
|
|
70
|
|
Real estate - residential
|
|
7,126
|
|
|
8,383
|
|
|
0
|
|
|
7,287
|
|
|
46
|
|
Home equity
|
|
5,569
|
|
|
7,673
|
|
|
0
|
|
|
5,455
|
|
|
21
|
|
Installment
|
|
219
|
|
|
236
|
|
|
0
|
|
|
236
|
|
|
1
|
|
Other
|
|
121
|
|
|
121
|
|
|
0
|
|
|
122
|
|
|
0
|
|
Total
|
|
40,550
|
|
|
49,562
|
|
|
0
|
|
|
43,217
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with an allowance recorded
|
|
|
|
|
|
|
|
|
Commercial
|
|
973
|
|
|
1,163
|
|
|
400
|
|
|
983
|
|
|
9
|
|
Real estate - construction
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Real estate - commercial
|
|
8,974
|
|
|
8,974
|
|
|
763
|
|
|
8,663
|
|
|
77
|
|
Real estate - residential
|
|
1,537
|
|
|
1,551
|
|
|
236
|
|
|
1,542
|
|
|
9
|
|
Home equity
|
|
100
|
|
|
100
|
|
|
2
|
|
|
101
|
|
|
1
|
|
Installment
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Other
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total
|
|
11,584
|
|
|
11,788
|
|
|
1,401
|
|
|
11,289
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
14,485
|
|
|
15,605
|
|
|
400
|
|
|
15,948
|
|
|
83
|
|
Real estate - construction
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Real estate - commercial
|
|
22,977
|
|
|
27,681
|
|
|
763
|
|
|
23,815
|
|
|
147
|
|
Real estate - residential
|
|
8,663
|
|
|
9,934
|
|
|
236
|
|
|
8,829
|
|
|
55
|
|
Home equity
|
|
5,669
|
|
|
7,773
|
|
|
2
|
|
|
5,556
|
|
|
22
|
|
Installment
|
|
219
|
|
|
236
|
|
|
0
|
|
|
236
|
|
|
1
|
|
Other
|
|
121
|
|
|
121
|
|
|
0
|
|
|
122
|
|
|
0
|
|
Total
|
|
$
|
52,134
|
|
|
$
|
61,350
|
|
|
$
|
1,401
|
|
|
$
|
54,506
|
|
|
$
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year December 31, 2015
|
(Dollars in thousands)
|
|
Current
balance
|
|
Contractual
principal
balance
|
|
Related
allowance
|
|
Average
current
balance
|
|
Interest
income
recognized
|
Loans with no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
16,418
|
|
|
$
|
17,398
|
|
|
$
|
0
|
|
|
$
|
10,468
|
|
|
$
|
258
|
|
Real estate - construction
|
|
0
|
|
|
0
|
|
|
0
|
|
|
150
|
|
|
0
|
|
Real estate - commercial
|
|
16,301
|
|
|
20,479
|
|
|
0
|
|
|
19,363
|
|
|
344
|
|
Real estate - residential
|
|
7,447
|
|
|
8,807
|
|
|
0
|
|
|
8,143
|
|
|
184
|
|
Home equity
|
|
5,340
|
|
|
7,439
|
|
|
0
|
|
|
5,648
|
|
|
82
|
|
Installment
|
|
253
|
|
|
276
|
|
|
0
|
|
|
380
|
|
|
7
|
|
Other
|
|
122
|
|
|
122
|
|
|
0
|
|
|
24
|
|
|
0
|
|
Total
|
|
45,881
|
|
|
54,521
|
|
|
0
|
|
|
44,176
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
993
|
|
|
1,178
|
|
|
357
|
|
|
1,409
|
|
|
26
|
|
Real estate - construction
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Real estate - commercial
|
|
8,351
|
|
|
8,706
|
|
|
979
|
|
|
12,928
|
|
|
213
|
|
Real estate - residential
|
|
1,547
|
|
|
1,560
|
|
|
235
|
|
|
1,696
|
|
|
40
|
|
Home equity
|
|
101
|
|
|
101
|
|
|
2
|
|
|
101
|
|
|
3
|
|
Installment
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Other
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Total
|
|
10,992
|
|
|
11,545
|
|
|
1,573
|
|
|
16,134
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
17,411
|
|
|
18,576
|
|
|
357
|
|
|
11,877
|
|
|
284
|
|
Real estate - construction
|
|
0
|
|
|
0
|
|
|
0
|
|
|
150
|
|
|
0
|
|
Real estate - commercial
|
|
24,652
|
|
|
29,185
|
|
|
979
|
|
|
32,291
|
|
|
557
|
|
Real estate - residential
|
|
8,994
|
|
|
10,367
|
|
|
235
|
|
|
9,839
|
|
|
224
|
|
Home equity
|
|
5,441
|
|
|
7,540
|
|
|
2
|
|
|
5,749
|
|
|
85
|
|
Installment
|
|
253
|
|
|
276
|
|
|
0
|
|
|
380
|
|
|
7
|
|
Other
|
|
122
|
|
|
122
|
|
|
0
|
|
|
24
|
|
|
0
|
|
Total
|
|
$
|
56,873
|
|
|
$
|
66,066
|
|
|
$
|
1,573
|
|
|
$
|
60,310
|
|
|
$
|
1,157
|
|
OREO.
OREO is comprised of properties acquired by the Company primarily through the loan foreclosure or repossession process, or other resolution activity that results in partial or total satisfaction of problem loans.
Changes in OREO were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2016
(1)
|
|
2015
(1)
|
Balance at beginning of period
|
|
$
|
13,254
|
|
|
$
|
22,674
|
|
Additions
|
|
|
|
|
Commercial
|
|
786
|
|
|
2,173
|
|
Residential
|
|
122
|
|
|
1,058
|
|
Total additions
|
|
908
|
|
|
3,231
|
|
Disposals
|
|
|
|
|
|
Commercial
|
|
(200
|
)
|
|
(4,145
|
)
|
Residential
|
|
(1,835
|
)
|
|
(412
|
)
|
Total disposals
|
|
(2,035
|
)
|
|
(4,557
|
)
|
Valuation adjustment
|
|
|
|
|
|
Commercial
|
|
(117
|
)
|
|
(418
|
)
|
Residential
|
|
(71
|
)
|
|
(24
|
)
|
Total valuation adjustment
|
|
(188
|
)
|
|
(442
|
)
|
Balance at end of period
|
|
$
|
11,939
|
|
|
$
|
20,906
|
|
The preceding table includes OREO subject to loss sharing agreements of
$38 thousand
and
$0.3 million
at
March 31, 2016
and
2015
, respectively.
FDIC indemnification asset.
Changes in the balance of the FDIC indemnification asset and the related impact to the Consolidated Statements of Income are presented in the table that follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
(Dollars in thousands)
|
2016
|
|
2015
|
|
Affected Line Item in the Consolidated Statements of Income
|
Balance at beginning of period
|
$
|
17,630
|
|
|
$
|
22,666
|
|
|
|
Adjustments not reflected in income
|
|
|
|
|
|
Net FDIC claims (received) / paid
|
362
|
|
|
204
|
|
|
|
Adjustments reflected in income
|
|
|
|
|
|
Amortization
|
(1,171
|
)
|
|
(1,195
|
)
|
|
Interest income, other earning assets
|
FDIC loss sharing income
|
(565
|
)
|
|
(1,046
|
)
|
|
Noninterest income, FDIC loss sharing income
|
Offset to accelerated discount
|
0
|
|
|
(232
|
)
|
|
Noninterest income, accelerated discount on covered loans
|
Balance at end of period
|
$
|
16,256
|
|
|
$
|
20,397
|
|
|
|
The accounting for FDIC indemnification assets is closely related to the accounting for the underlying, indemnified assets as well as on-going assessment of the collectibility of the indemnification assets. The primary activities impacting the FDIC indemnification asset are FDIC claims, amortization, FDIC loss sharing income and accelerated discount. For a detailed discussion on the indemnification asset, please refer to the Loans and Leases note in the Company's 2015 Annual Report on Form 10-K.
NOTE 5: ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans and leases.
For each reporting period, management maintains the ALLL at a level that it considers sufficient to absorb probable incurred loan and lease losses inherent in the portfolio. Management determines the adequacy of the allowance based
on historical loss experience as well as other significant factors such as composition of the portfolio, economic conditions, geographic footprint, the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans and any other adverse situations that may affect a specific borrower's ability to repay, including the timing of future payments. This evaluation is inherently subjective as it requires utilizing material estimates that may be susceptible to significant change.
The allowance is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect the principal amount owed in full either through payments from the borrower or from the liquidation of collateral.
In the third quarter of 2015, First Financial closed its merger with Oak Street. Loans acquired in this transaction were recorded at estimated fair value at the acquisition date with no carryover of the related ALLL. See Note 15 - Business Combinations for further detail.
Covered/formerly covered loans.
The majority of covered/formerly covered loans are purchased impaired loans, whereby First Financial is required to periodically re-estimate the expected cash flows on the loans. First Financial updated the valuations related to covered/formerly covered loans during the
first
quarter of
2016
. First Financial recognized negative provision expense, or impairment recapture, of
$0.1 million
and net charge-offs of
$0.8 million
during the
first
quarter of
2016
, resulting in an ending allowance of
$9.4 million
at
March 31, 2016
. For the
first
quarter of
2015
, First Financial recognized negative provision expense on covered loans of
$0.3 million
and net recoveries of
$0.5 million
, resulting in an ending allowance of
$10.3 million
at March 31, 2015.
Changes in the allowance for loan and lease losses were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2016
|
|
2015
|
Changes in the allowance for loan and lease losses on total loans
|
|
|
|
Balance at beginning of period
|
|
$
|
53,398
|
|
|
$
|
52,858
|
|
Provision for loan and lease losses
|
|
1,655
|
|
|
2,060
|
|
Loans charged-off
|
|
(2,442
|
)
|
|
(5,044
|
)
|
Recoveries
|
|
1,121
|
|
|
3,202
|
|
Balance at end of period
|
|
$
|
53,732
|
|
|
$
|
53,076
|
|
Year-to-date changes in the allowance for loan and lease losses by loan category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Comm
|
|
Constr
|
|
Comm
|
|
Resid
|
|
Home Equity
|
|
Install
|
|
Other
|
|
Total
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
16,995
|
|
|
$
|
1,810
|
|
|
$
|
23,656
|
|
|
$
|
4,014
|
|
|
$
|
3,943
|
|
|
$
|
386
|
|
|
$
|
2,594
|
|
|
$
|
53,398
|
|
Provision for loan and lease losses
|
|
1,432
|
|
|
439
|
|
|
(420
|
)
|
|
8
|
|
|
185
|
|
|
(58
|
)
|
|
69
|
|
|
1,655
|
|
Gross charge-offs
|
|
479
|
|
|
3
|
|
|
1,262
|
|
|
45
|
|
|
340
|
|
|
73
|
|
|
240
|
|
|
2,442
|
|
Recoveries
|
|
222
|
|
|
26
|
|
|
442
|
|
|
63
|
|
|
188
|
|
|
99
|
|
|
81
|
|
|
1,121
|
|
Total net charge-offs
|
|
257
|
|
|
(23
|
)
|
|
820
|
|
|
(18
|
)
|
|
152
|
|
|
(26
|
)
|
|
159
|
|
|
1,321
|
|
Ending allowance for loan and lease losses
|
|
$
|
18,170
|
|
|
$
|
2,272
|
|
|
$
|
22,416
|
|
|
$
|
4,040
|
|
|
$
|
3,976
|
|
|
$
|
354
|
|
|
$
|
2,504
|
|
|
$
|
53,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending allowance balance attributable to loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
400
|
|
|
$
|
0
|
|
|
$
|
763
|
|
|
$
|
236
|
|
|
$
|
2
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,401
|
|
Collectively evaluated for impairment
|
|
17,770
|
|
|
2,272
|
|
|
21,653
|
|
|
3,804
|
|
|
3,974
|
|
|
354
|
|
|
2,504
|
|
|
52,331
|
|
Ending allowance for loan and lease losses
|
|
$
|
18,170
|
|
|
$
|
2,272
|
|
|
$
|
22,416
|
|
|
$
|
4,040
|
|
|
$
|
3,976
|
|
|
$
|
354
|
|
|
$
|
2,504
|
|
|
$
|
53,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
14,485
|
|
|
$
|
0
|
|
|
$
|
22,977
|
|
|
$
|
8,663
|
|
|
$
|
5,669
|
|
|
$
|
219
|
|
|
$
|
121
|
|
|
$
|
52,134
|
|
Loans collectively evaluated for impairment
|
|
1,730,247
|
|
|
341,453
|
|
|
2,238,880
|
|
|
499,849
|
|
|
460,341
|
|
|
41,408
|
|
|
140,297
|
|
|
5,452,475
|
|
Total loans
|
|
$
|
1,744,732
|
|
|
$
|
341,453
|
|
|
$
|
2,261,857
|
|
|
$
|
508,512
|
|
|
$
|
466,010
|
|
|
$
|
41,627
|
|
|
$
|
140,418
|
|
|
$
|
5,504,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Comm
|
|
Constr
|
|
Comm
|
|
Resid
|
|
Home Equity
|
|
Install
|
|
Other
|
|
Total
|
Allowance for loan and lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
13,870
|
|
|
$
|
1,045
|
|
|
$
|
27,086
|
|
|
$
|
3,753
|
|
|
$
|
4,260
|
|
|
$
|
407
|
|
|
$
|
2,437
|
|
|
$
|
52,858
|
|
Provision for loan and lease losses
|
|
1,059
|
|
|
147
|
|
|
112
|
|
|
70
|
|
|
472
|
|
|
61
|
|
|
139
|
|
|
2,060
|
|
Gross charge-offs
|
|
1,568
|
|
|
0
|
|
|
1,870
|
|
|
404
|
|
|
741
|
|
|
167
|
|
|
294
|
|
|
5,044
|
|
Recoveries
|
|
2,183
|
|
|
45
|
|
|
491
|
|
|
64
|
|
|
288
|
|
|
86
|
|
|
45
|
|
|
3,202
|
|
Total net charge-offs
|
|
(615
|
)
|
|
(45
|
)
|
|
1,379
|
|
|
340
|
|
|
453
|
|
|
81
|
|
|
249
|
|
|
1,842
|
|
Ending allowance for loan and lease losses
|
|
$
|
15,544
|
|
|
$
|
1,237
|
|
|
$
|
25,819
|
|
|
$
|
3,483
|
|
|
$
|
4,279
|
|
|
$
|
387
|
|
|
$
|
2,327
|
|
|
$
|
53,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Comm
|
|
Constr
|
|
Comm
|
|
Resid
|
|
Home Equity
|
|
Install
|
|
Other
|
|
Total
|
Ending allowance balance attributable to loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
357
|
|
|
$
|
0
|
|
|
$
|
979
|
|
|
$
|
235
|
|
|
$
|
2
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,573
|
|
Collectively evaluated for impairment
|
|
16,638
|
|
|
1,810
|
|
|
22,677
|
|
|
3,779
|
|
|
3,941
|
|
|
386
|
|
|
2,594
|
|
|
51,825
|
|
Ending allowance for loan and lease losses
|
|
$
|
16,995
|
|
|
$
|
1,810
|
|
|
$
|
23,656
|
|
|
$
|
4,014
|
|
|
$
|
3,943
|
|
|
$
|
386
|
|
|
$
|
2,594
|
|
|
$
|
53,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans individually evaluated for impairment
|
|
$
|
17,411
|
|
|
$
|
0
|
|
|
$
|
24,652
|
|
|
$
|
8,994
|
|
|
$
|
5,441
|
|
|
$
|
253
|
|
|
$
|
122
|
|
|
$
|
56,873
|
|
Loans collectively evaluated for impairment
|
|
1,645,691
|
|
|
311,712
|
|
|
2,233,645
|
|
|
503,317
|
|
|
461,188
|
|
|
41,253
|
|
|
135,081
|
|
|
5,331,887
|
|
Total loans
|
|
$
|
1,663,102
|
|
|
$
|
311,712
|
|
|
$
|
2,258,297
|
|
|
$
|
512,311
|
|
|
$
|
466,629
|
|
|
$
|
41,506
|
|
|
$
|
135,203
|
|
|
$
|
5,388,760
|
|
NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill.
Assets and liabilities acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. First Financial recorded no additions to goodwill in the first quarter of 2016. Additions to goodwill in 2015 resulted from the acquisition of Oak Street in the third quarter. For further detail on the Oak Street acquisition, see Note 15 – Business Combinations.
Changes in the carrying amount of goodwill for the quarter ended
March 31, 2016
and the year ended
December 31, 2015
are shown below.
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
March 31,
2016
|
|
December 31,
2015
|
Balance at beginning of year
|
$
|
204,084
|
|
|
$
|
137,739
|
|
Goodwill resulting from business combinations
|
0
|
|
|
66,345
|
|
Balance at end of period
|
$
|
204,084
|
|
|
$
|
204,084
|
|
Goodwill is not amortized, but is measured for impairment on an annual basis as of October 1 of each year, or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. First Financial performed its most recent annual impairment test as of October 1, 2015 and no impairment was indicated. As of
March 31, 2016
, no events or changes in circumstances indicated that the fair value of a reporting unit was below its carrying value.
Other intangible assets.
As of
March 31, 2016
and
December 31, 2015
, First Financial has
$7.5 million
and
$7.8 million
, respectively, of other intangibles which are included in Goodwill and other intangibles in the Consolidated Balance Sheets and primarily consist of core deposit intangibles. Core deposit intangibles represent the estimated fair value of acquired customer deposit relationships. Core deposit intangibles are recorded at their estimated fair value at the date of acquisition and are then amortized on an
accelerated basis
over their estimated useful lives. Core deposit intangibles were
$5.6 million
and
$5.9 million
as of
March 31, 2016
and
December 31, 2015
, respectively. First Financial's core deposit intangibles have an estimated weighted average remaining life of
5.4 years
. Amortization expense was
$0.4 million
for the three months ended
March 31, 2016
and
2015
, respectively.
NOTE 7: BORROWINGS
Short-term borrowings on the Consolidated Balance Sheets include repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place, overnight advances from the FHLB and a short-term line of credit. All repurchase agreements are subject to terms and conditions of repurchase security agreements between First Financial Bank and the client. To secure the Bank's liability to the client, First Financial Bank is authorized to sell or repurchase U.S. Treasury, government agency and mortgage-backed securities.
First Financial had
$894.4 million
in short-term borrowings with the FHLB at
March 31, 2016
and
$849.1 million
as of
December 31, 2015
. These short-term borrowings are used to manage the Company's normal liquidity needs and support the Company's asset and liability management strategies.
First Financial has a
$15.0 million
short-term credit facility with an unaffiliated bank that matures on May 30, 2016. This facility can have a variable or fixed interest rate and provides First Financial additional liquidity, if needed, for various corporate activities, including the repurchase of First Financial shares and the payment of dividends to shareholders. As of
March 31, 2016
and
December 31, 2015
, there was
no
outstanding balance. The credit agreement requires First Financial to comply with certain covenants including those related to asset quality and capital levels, and First Financial was in compliance with all covenants associated with this facility as of
March 31, 2016
and
December 31, 2015
.
During the third quarter of 2015, First Financial issued
$120.0 million
of subordinated notes. The subordinated notes have a fixed interest rate of
5.125%
payable semiannually and mature on August 25, 2025. These notes are not redeemable by the Company or callable by the holders of the notes prior to maturity. The subordinated notes are treated as Tier 2 capital for regulatory capital purposes and are included in Long-term debt on the Consolidated Balance Sheets.
Long-term debt also includes
$0.4 million
and
$0.5 million
of FHLB long-term advances as of
March 31, 2016
and
December 31, 2015
, respectively. These instruments are primarily utilized to reduce overnight liquidity risk and to mitigate interest rate sensitivity on the Consolidated Balance Sheets.
The following is a summary of First Financial's long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(Dollars in thousands)
|
|
Amount
|
|
Average rate
|
|
Amount
|
|
Average rate
|
Subordinated debt
|
|
$
|
118,332
|
|
|
5.20
|
%
|
|
$
|
118,312
|
|
|
5.20
|
%
|
FHLB advances
|
|
449
|
|
|
2.39
|
%
|
|
453
|
|
|
2.37
|
%
|
Capital loan with municipality
|
|
775
|
|
|
0.00
|
%
|
|
775
|
|
|
0.00
|
%
|
Total long-term debt
|
|
$
|
119,556
|
|
|
5.15
|
%
|
|
$
|
119,540
|
|
|
5.15
|
%
|
NOTE 8: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss). The related tax effects allocated to other comprehensive income and reclassifications out of accumulated other comprehensive income (loss) are as follows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2016
|
|
Total other comprehensive income
|
|
Total accumulated
other comprehensive income (loss)
|
(Dollars in thousands)
|
Prior to
Reclassification
|
|
Reclassification
from
|
|
Pre-tax
|
|
Tax-effect
|
|
Net of tax
|
|
Beginning Balance
|
|
Net Activity
|
|
Ending Balance
|
Unrealized gain (loss) on investment securities
|
$
|
10,975
|
|
|
$
|
24
|
|
|
$
|
10,951
|
|
|
$
|
(3,908
|
)
|
|
$
|
7,043
|
|
|
$
|
(4,933
|
)
|
|
$
|
7,043
|
|
|
$
|
2,110
|
|
Unrealized gain (loss) on derivatives
|
202
|
|
|
0
|
|
|
202
|
|
|
(74
|
)
|
|
128
|
|
|
(1,599
|
)
|
|
128
|
|
|
(1,471
|
)
|
Retirement obligation
|
0
|
|
|
(317
|
)
|
|
317
|
|
|
(117
|
)
|
|
200
|
|
|
(24,048
|
)
|
|
200
|
|
|
(23,848
|
)
|
Total
|
$
|
11,177
|
|
|
$
|
(293
|
)
|
|
$
|
11,470
|
|
|
$
|
(4,099
|
)
|
|
$
|
7,371
|
|
|
$
|
(30,580
|
)
|
|
$
|
7,371
|
|
|
$
|
(23,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2015
|
|
Total other comprehensive income
|
|
Total accumulated
other comprehensive income (loss)
|
(Dollars in thousands)
|
Prior to
Reclassification
|
|
Reclassification
from
|
|
Pre-tax
|
|
Tax-effect
|
|
Net of tax
|
|
Beginning Balance
|
|
Net Activity
|
|
Ending Balance
|
Unrealized gain (loss) on investment securities
|
$
|
7,808
|
|
|
$
|
0
|
|
|
$
|
7,808
|
|
|
$
|
(2,800
|
)
|
|
$
|
5,008
|
|
|
$
|
(2,506
|
)
|
|
$
|
5,008
|
|
|
$
|
2,502
|
|
Unrealized gain (loss) on derivatives
|
(1,293
|
)
|
|
0
|
|
|
(1,293
|
)
|
|
477
|
|
|
(816
|
)
|
|
(949
|
)
|
|
(816
|
)
|
|
(1,765
|
)
|
Retirement obligation
|
0
|
|
|
(350
|
)
|
|
350
|
|
|
(167
|
)
|
|
183
|
|
|
(17,904
|
)
|
|
183
|
|
|
(17,721
|
)
|
Foreign currency translation
|
(20
|
)
|
|
0
|
|
|
(20
|
)
|
|
0
|
|
|
(20
|
)
|
|
(50
|
)
|
|
(20
|
)
|
|
(70
|
)
|
Total
|
$
|
6,495
|
|
|
$
|
(350
|
)
|
|
$
|
6,845
|
|
|
$
|
(2,490
|
)
|
|
$
|
4,355
|
|
|
$
|
(21,409
|
)
|
|
$
|
4,355
|
|
|
$
|
(17,054
|
)
|
The following table presents the activity reclassified from accumulated other comprehensive income into income during the three month period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount reclassified from
accumulated other comprehensive income
(1)
|
|
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
|
(Dollars in thousands)
|
|
2016
|
|
2015
|
|
Affected Line Item in the Consolidated Statements of Income
|
Gains and losses on cash flow hedges
|
|
|
|
|
|
|
Interest rate contracts
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Interest expense - deposits
|
Realized gains and losses on securities available-for-sale
|
|
24
|
|
|
0
|
|
|
Gains on sales of investments securities
|
Defined benefit pension plan
|
|
|
|
|
|
Amortization of prior service cost
(2)
|
|
103
|
|
|
100
|
|
|
Salaries and employee benefits
|
Recognized net actuarial loss
(2)
|
|
(420
|
)
|
|
(450
|
)
|
|
Salaries and employee benefits
|
Amortization and settlement charges of defined benefit pension items
|
|
(317
|
)
|
|
(350
|
)
|
|
Salaries and employee benefits
|
Total reclassifications for the period, before tax
|
|
$
|
(293
|
)
|
|
$
|
(350
|
)
|
|
|
(1) Negative amounts are reductions to net income.
(2) Included in the computation of net periodic pension cost (see Note 12 - Employee Benefit Plans for additional details).
NOTE 9: DERIVATIVES
First Financial uses certain derivative instruments, including interest rate caps, floors and swaps, to meet the needs of its clients while managing the interest rate risk associated with certain transactions. First Financial does not use derivatives for speculative purposes.
First Financial primarily utilizes interest rate swaps as a means to offer borrowers credit-based products that meet their needs and may from time to time utilize interest rate swaps to manage the interest rate risk profile of the Company.
Interest rate swap agreements establish the basis on which interest rate payments are exchanged with counterparties, referred to as the notional amount. As only interest rate payments are exchanged, the cash requirements and credit risk associated with interest rate swaps are significantly less than the notional amount and the Company’s credit risk exposure is limited to the market value of the instruments. First Financial manages this market value credit risk through counterparty credit policies. These policies require the Company to maintain a total derivative notional position of less than
35%
of assets, total credit exposure of less than
3%
of capital and no single counterparty credit risk exposure greater than
$20.0 million
. The Company is currently below all single counterparty and portfolio limits.
At
March 31, 2016
, the Company had a total counterparty notional amount outstanding of approximately
$594.4 million
, spread among
ten
counterparties, with an outstanding liability from these contracts of
$24.3 million
. At
December 31, 2015
, the Company had a total counterparty notional amount outstanding of approximately
$551.7 million
, spread among
nine
counterparties, with an outstanding liability from these contracts of
$13.4 million
.
First Financial’s exposure to credit loss, in the event of nonperformance by a borrower, is limited to the market value of the derivative instrument associated with that borrower. First Financial monitors its derivative credit exposure to borrowers by monitoring the creditworthiness of the related loan customers through the normal credit review processes the Company performs on all borrowers. Additionally, the Company monitors derivative credit risk exposure related to problem loans through the Company's ALLL committee. First Financial considers the market value of a derivative instrument to be part of the carrying value of the related loan for these purposes as the borrower is contractually obligated to pay First Financial this amount in the event the derivative contract is terminated.
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. The following table details the location and amounts recognized in the Consolidated Balance Sheets for client derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
|
|
|
|
|
|
Estimated fair value
|
|
|
|
Estimated fair value
|
(Dollars in thousands)
|
|
Balance sheet location
|
|
Notional
amount
|
|
Gain
|
|
Loss
|
|
Notional
amount
|
|
Gain
|
|
Loss
|
Client derivatives - instruments associated with loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed interest rate swaps with counterparty
|
|
Accrued interest and other liabilities
|
|
$
|
3,733
|
|
|
$
|
0
|
|
|
$
|
(83
|
)
|
|
$
|
5,216
|
|
|
$
|
0
|
|
|
$
|
(120
|
)
|
Matched interest rate swaps with borrower
|
|
Accrued interest and other assets
|
|
590,640
|
|
|
24,740
|
|
|
0
|
|
|
546,458
|
|
|
13,981
|
|
|
(44
|
)
|
Matched interest rate swaps with counterparty
|
|
Accrued interest and other liabilities
|
|
590,640
|
|
|
0
|
|
|
(24,770
|
)
|
|
546,458
|
|
|
44
|
|
|
(14,015
|
)
|
Total
|
|
|
|
$
|
1,185,013
|
|
|
$
|
24,740
|
|
|
$
|
(24,853
|
)
|
|
$
|
1,098,132
|
|
|
$
|
14,025
|
|
|
$
|
(14,179
|
)
|
In connection with its use of derivative instruments, First Financial and its counterparties are required to post cash collateral to offset the market position of the derivative instruments under certain conditions. First Financial maintains the right to offset these derivative positions with the collateral posted against them by or with the relevant counterparties. First Financial classifies the derivative cash collateral outstanding with its counterparties as an adjustment to the fair value of the derivative contracts within Accrued interest and other assets or Accrued interest and other liabilities in the Consolidated Balance Sheets.
The following table discloses the gross and net amounts of liabilities recognized in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
December 31, 2015
|
(Dollars in thousands)
|
Gross amounts of recognized liabilities
|
|
Gross amounts offset in the Consolidated Balance Sheets
|
|
Net amounts of liabilities presented in the Consolidated Balance Sheets
|
|
Gross amounts of recognized liabilities
|
|
Gross amounts offset in the Consolidated Balance Sheets
|
|
Net amounts of assets presented in the Consolidated Balance Sheets
|
Client derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Pay fixed interest rate swaps with counterparty
|
$
|
83
|
|
|
$
|
0
|
|
|
$
|
83
|
|
|
$
|
120
|
|
|
$
|
0
|
|
|
$
|
120
|
|
Matched interest rate swaps with counterparty
|
24,770
|
|
|
(24,140
|
)
|
|
630
|
|
|
14,015
|
|
|
(16,710
|
)
|
|
(2,695
|
)
|
Total
|
$
|
24,853
|
|
|
$
|
(24,140
|
)
|
|
$
|
713
|
|
|
$
|
14,135
|
|
|
$
|
(16,710
|
)
|
|
$
|
(2,575
|
)
|
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
March 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average rate
|
(Dollars in thousands)
|
|
Notional
amount
|
|
Average
maturity
(years)
|
|
Fair
value
|
|
Receive
|
|
Pay
|
Client derivatives
|
|
|
|
|
|
|
|
|
|
|
Pay fixed interest rate swaps with counterparty
|
|
$
|
3,733
|
|
|
1.6
|
|
$
|
(83
|
)
|
|
2.55
|
%
|
|
7.19
|
%
|
Receive fixed, matched interest rate swaps with borrower
|
|
590,640
|
|
|
5.3
|
|
24,415
|
|
|
4.30
|
%
|
|
2.63
|
%
|
Pay fixed, matched interest rate swaps with counterparty
|
|
590,640
|
|
|
5.3
|
|
(24,445
|
)
|
|
2.63
|
%
|
|
4.30
|
%
|
Total client derivatives
|
|
$
|
1,185,013
|
|
|
5.2
|
|
$
|
(113
|
)
|
|
3.46
|
%
|
|
3.50
|
%
|
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
$36.8 million
as of
March 31, 2016
and
$33.6 million
as of
December 31, 2015
. The fair value of these agreements was recorded on the Consolidated Balance Sheets in Accrued interest and other liabilities and was
$0.1 million
as of
March 31, 2016
and
December 31, 2015
, respectively.
Mortgage Derivatives.
First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure an IRLC with First Financial and the loan is intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party
investors in order to hedge against the effect of changes in interest rates impacting IRLCs and and Loans held for sale. At
March 31, 2016
, the notional amount of the IRLCs was
$30.8 million
and the notional amount of forward commitments was
$33.1 million
. As of
December 31, 2015
, the notional amount of IRLCs was
$18.5 million
and the notional amount of forward commitments was
$25.1 million
. The fair value of these agreements was recorded on the Consolidated Balance Sheets in Accrued interest and other assets and was
$0.3 million
at
March 31, 2016
and
$0.1 million
at
December 31, 2015
.
NOTE 10: COMMITMENTS AND CONTINGENCIES
First Financial offers a variety of financial instruments with off-balance-sheet risk to assist clients in meeting their requirement for liquidity and credit enhancement. These financial instruments include standby letters of credit and outstanding commitments to extend credit. GAAP does not require these financial instruments to be recorded in the Consolidated Financial Statements.
First Financial utilizes the same credit policies in issuing commitments and conditional obligations as it does for credit instruments recorded on the Consolidated Balance Sheets. First Financial’s exposure to credit loss, in the event of nonperformance by the counterparty to the financial instrument for standby letters of credit and outstanding commitments to extend credit, is represented by the contractual amounts of those instruments. First Financial utilizes the ALLL methodology to maintain a reserve that it considers sufficient to absorb probable incurred losses inherent in standby letters of credit and outstanding loan commitments and records the reserve within Accrued interest and other liabilities on the Consolidated Balance Sheets.
Loan commitments.
Loan commitments are agreements to extend credit to a client, absent any violation of conditions established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by First Financial upon extension of credit, is based on management’s credit evaluation of the client. The collateral held varies, but may include securities, real estate, inventory, plant or equipment. First Financial had commitments outstanding to extend credit totaling
$2.1 billion
at both
March 31, 2016
and
$2.0 billion
at
December 31, 2015
.
Letters of credit.
Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party. First Financial’s portfolio of standby letters of credit consists primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services. The risk to First Financial arises from its obligation to make payment in the event of the client's contractual default to produce the contracted good or service to a third party. First Financial issued letters of credit (including standby letters of credit) aggregating
$16.0 million
and
$16.3 million
at
March 31, 2016
and
December 31, 2015
, 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 projects. These projects are an indirect federal subsidy that provide tax incentives to encourage investment in the development, acquisition and rehabilitation of affordable rental housing, and allow investors to claim tax credits and other tax benefits (such as deductions from taxable income for operating losses) on their federal income tax returns. The principal risk associated with qualified affordable housing investments is the potential for noncompliance with the tax code requirements, such as, failure to rent property to qualified tenants, resulting in unavailability or recapture of the tax credits and other tax benefits. First Financial's affordable housing commitments totaled
$30.3 million
and
$31.5 million
as of
March 31, 2016
and
December 31, 2015
, respectively. The affordable housing investments resulted in
$0.7 million
and
$0.4 million
of tax credits for the three months ended
March 31, 2016
and
2015
, respectively. First Financial had
no
affordable housing contingent commitments as of
March 31, 2016
or
December 31, 2015
.
Contingencies/Litigation.
First Financial and its subsidiaries are engaged in various matters of litigation, other assertions of improper or fraudulent loan practices or lending violations and other matters from time to time, and have a number of unresolved claims pending. Additionally, as part of the ordinary course of business, First Financial and its subsidiaries are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral and foreclosure interests that are incidental to our regular business activities. While the ultimate liability with respect to these other litigation matters and claims cannot be determined at this time, First Financial believes that damages, if any, and other amounts relating to pending matters are not probable or cannot be reasonably estimated as of
March 31, 2016
. 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
$0.8 million
and
$1.3 million
of reserves related to litigation matters as of
March 31, 2016
and
December 31, 2015
, respectively.
NOTE 11: INCOME TAXES
For the
first
quarter
2016
, income tax expense was
$9.9 million
, resulting in an effective tax rate of
33.3%
, compared with income tax expense of
$8.5 million
and an effective tax rate of
32.4%
for the comparable period in
2015
.
At
March 31, 2016
, and
December 31, 2015
, First Financial had no FASB ASC Topic 740-10 unrecognized tax benefits recorded. First Financial does not expect the total amount of unrecognized tax benefits to significantly increase within the next twelve months.
First Financial regularly reviews its tax positions and establishes reserves for income tax-related uncertainties based on estimates of whether it is more likely than not that the tax uncertainty would be sustained upon challenge by the appropriate tax authorities, which would then result in additional taxes, penalties and interest due. These evaluations are inherently subjective as they require material estimates and may be susceptible to significant change. Management determined that no reserve for income tax-related uncertainties was necessary as of
March 31, 2016
and
December 31, 2015
.
First Financial and its subsidiaries are subject to U.S. federal income tax as well as state and local income tax in several jurisdictions. The U.S. federal income tax examination for the tax year 2012 was completed in the third quarter of 2015. There was no impact to the Company's financial position and results of operations as a result of this examination. Tax years prior to 2013 have been closed and are no longer subject to U.S. federal income tax examinations. Tax years 2013 through 2015 remain open to examination by the federal taxing authority.
First Financial is no longer subject to state and local income tax examinations for years prior to 2011. Tax years 2011 through 2015 remain open to state and local examination in various jurisdictions.
NOTE 12: EMPLOYEE BENEFIT PLANS
First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees and uses a December 31 measurement date for the plan. Plan assets were primarily invested in publicly traded equity mutual funds and fixed income mutual funds. The pension plan does not directly own any shares of First Financial common stock or any other First Financial security or product.
First Financial made
no
cash contributions to fund the pension plan during the
three
months ended
March 31, 2016
, or the year ended December 31, 2015, and does not expect to make cash contributions to the plan through the remainder of the year. As a result of the plan’s actuarial projections, First Financial recorded income of
$0.2 million
and
$0.3 million
for each quarter ended
March 31, 2016
and
2015
, respectively.
The following table sets forth information concerning amounts recognized in First Financial’s Consolidated Statements of Income related to the Company's pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
(Dollars in thousands)
|
|
2016
|
|
2015
|
Service cost
|
|
$
|
1,308
|
|
|
$
|
1,175
|
|
Interest cost
|
|
581
|
|
|
550
|
|
Expected return on assets
|
|
(2,431
|
)
|
|
(2,375
|
)
|
Amortization of prior service cost
|
|
(103
|
)
|
|
(100
|
)
|
Net actuarial loss
|
|
420
|
|
|
450
|
|
Net periodic benefit (income) cost
|
|
$
|
(225
|
)
|
|
$
|
(300
|
)
|
NOTE 13: EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
(Dollars in thousands, except per share data)
|
|
2016
|
|
2015
|
Numerator
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
19,814
|
|
|
$
|
17,621
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
Basic earnings per common share - weighted average shares
|
|
61,036,797
|
|
|
61,013,489
|
|
Effect of dilutive securities
|
|
|
|
|
Employee stock awards
|
|
705,779
|
|
|
567,806
|
|
Warrants
|
|
97,671
|
|
|
150,549
|
|
Diluted earnings per common share - adjusted weighted average shares
|
|
61,840,247
|
|
|
61,731,844
|
|
|
|
|
|
|
Earnings per share available to common shareholders
|
|
|
|
|
Basic
|
|
$
|
0.32
|
|
|
$
|
0.29
|
|
Diluted
|
|
$
|
0.32
|
|
|
$
|
0.29
|
|
Warrants to purchase
322,312
and
465,117
shares of the Company's common stock were outstanding as of
March 31, 2016
and
2015
, respectively. These warrants, each representing the right to purchase one share of common stock, no par value per share, have an exercise price of
$12.12
and expire on December 23, 2018.
Stock options and warrants, where the exercise price was greater than the average market price of the common shares, were not included in the computation of net income per diluted share as they would have been antidilutive. Using the period-end price, there were
no
out-of-the-money options at
March 31, 2016
and
20,626
out-of-the-money options at
March 31, 2015
.
NOTE 14: FAIR VALUE DISCLOSURES
Fair Value Measurement
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 following methods, assumptions and valuation techniques were used by First Financial to measure different financial assets and liabilities at fair value and in estimating its fair value disclosures for financial instruments.
Cash and short-term investments.
The carrying amounts reported in the Consolidated Balance Sheets for cash and short-term investments, such as federal funds sold, approximated the fair value of those instruments. The Company classifies cash and short-term investments in Level 1 of the fair value hierarchy.
Investment securities.
Investment securities classified as trading and available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar investment
securities. First Financial compiles prices from various sources who may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for the specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment securities not valued based upon the methods 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 month-end 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 values 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.
Other investments.
Other investments include holdings in FRB and FHLB stock which are carried at cost.
Loans held for sale.
Loans held for sale are carried at fair value. These loans currently consist of one-to-four family residential real estate loans originated for sale to qualified third parties. Fair value is based on the market price or contractual price to be received from these third parties, which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, First Financial records any fair value adjustments on a nonrecurring basis. Gains and losses on the sale of loans are recorded as net gains from sales of loans within noninterest income in the Consolidated Statements of Income.
Loans and leases.
The fair value of commercial and industrial, commercial real estate, residential real estate and consumer loans were estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or repricing frequency. The Company classifies the estimated fair value of loans as Level 3 in the fair value hierarchy.
Impaired loans are specifically reviewed for purposes of determining the appropriate amount of impairment to be allocated to the ALLL. Fair value is generally measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed third-party appraiser (Level 3). The value of business equipment is based upon an outside appraisal, if deemed significant, or the net book value on the applicable borrower financial statements. Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3). Impaired loans allocated to the ALLL are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan and lease losses on the Consolidated Statements of Income.
Fair values for purchased impaired loans were estimated using a discounted cash flow methodology that considers factors that include the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, whether or not the loan was amortizing and a discount rate reflecting the Company's assessment of risk inherent in the cash flow estimates. These loans are grouped together according to similar characteristics and are treated in the aggregate when applying various valuation techniques. First Financial estimates the cash flows expected to be collected on these loans based upon the expected remaining life of the underlying loans, which includes the effects of estimated prepayments. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.
Fair values for acquired loans accounted for outside of FASB ASC Topic 310-30 are estimated by discounting the future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or repricing frequency.
The Company classifies the estimated fair value of covered loans as Level 3 in the fair value hierarchy.
FDIC indemnification asset.
Fair value of the FDIC indemnification asset was estimated using projected cash flows related to the loss sharing agreements based on expected reimbursements for losses and the applicable loss sharing percentages. The expected cash flows are discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. The five year period of loss protection expired for the majority of First Financial's covered
commercial loans and covered OREO effective October 1, 2014. The Company classifies the estimated fair value of the indemnification asset as Level 3 in the fair value hierarchy.
Accrued interest receivable and payable.
The carrying amount of accrued interest receivable and accrued interest payable approximate their fair values and is aligned with the underlying assets or liabilities (Level 1, Level 2 or Level 3).
Deposits.
The fair value of demand deposits, savings accounts and certain money-market deposits represents the amount payable on demand at the reporting date. The carrying amounts for variable-rate CDs approximated their fair values at the reporting date. The fair value of fixed-rate CDs was estimated using a discounted cash flow calculation which applies the interest rates currently offered for deposits of similar remaining maturities. The Company classifies the estimated fair value of deposit liabilities as Level 2 in the fair value hierarchy.
Borrowings.
The carrying amounts of federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings approximate their fair values. The Company classifies the estimated fair value of short-term borrowings as Level 1 in the fair value hierarchy.
The fair value of long-term debt is estimated using a discounted cash flow calculation which utilizes the interest rates currently offered for borrowings of similar remaining maturities. The Company classifies the estimated fair value of long-term debt as Level 2 in the fair value hierarchy.
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 at the reporting date, using primarily observable market inputs such as interest rate yield curves 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. The credit valuation adjustment is recorded as an adjustment to the fair value of the derivative asset or liability on the reporting date. Derivative instruments are classified as Level 2 in the fair value hierarchy.
The estimated fair values of First Financial’s financial instruments not measured at fair value on a recurring or nonrecurring basis in the consolidated financial statements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
Estimated fair value
|
(Dollars in thousands)
|
value
|
Total
|
Level 1
|
Level 2
|
Level 3
|
March 31, 2016
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
Cash and short-term investments
|
$
|
118,257
|
|
$
|
118,257
|
|
$
|
118,257
|
|
$
|
0
|
|
$
|
0
|
|
Investment securities held-to-maturity
|
702,315
|
|
718,277
|
|
0
|
|
718,277
|
|
0
|
|
Other investments
|
53,255
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
Loans held for sale
|
15,369
|
|
15,369
|
|
0
|
|
15,369
|
|
0
|
|
Loans and leases, net of ALLL
|
5,450,877
|
|
5,488,942
|
|
0
|
|
0
|
|
5,488,942
|
|
FDIC indemnification asset
|
16,256
|
|
9,077
|
|
0
|
|
0
|
|
9,077
|
|
Accrued interest receivable
|
18,959
|
|
18,959
|
|
0
|
|
6,001
|
|
12,958
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
Noninterest-bearing
|
$
|
1,408,609
|
|
$
|
1,408,609
|
|
$
|
0
|
|
$
|
1,408,609
|
|
$
|
0
|
|
Interest-bearing demand
|
1,430,963
|
|
1,430,963
|
|
0
|
|
1,430,963
|
|
0
|
|
Savings
|
1,922,892
|
|
1,922,892
|
|
0
|
|
1,922,892
|
|
0
|
|
Time
|
1,414,313
|
|
1,418,613
|
|
0
|
|
1,418,613
|
|
0
|
|
Total deposits
|
6,176,777
|
|
6,181,077
|
|
0
|
|
6,181,077
|
|
0
|
|
Short-term borrowings
|
969,899
|
|
969,899
|
|
969,899
|
|
0
|
|
0
|
|
Long-term debt
|
119,556
|
|
123,034
|
|
0
|
|
123,034
|
|
0
|
|
Accrued interest payable
|
3,650
|
|
3,650
|
|
503
|
|
3,147
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
Estimated fair value
|
(Dollars in thousands)
|
value
|
Total
|
Level 1
|
Level 2
|
Level 3
|
December 31, 2015
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
Cash and short-term investments
|
$
|
148,575
|
|
$
|
148,575
|
|
$
|
148,575
|
|
$
|
0
|
|
$
|
0
|
|
Investment securities held-to-maturity
|
726,259
|
|
731,951
|
|
0
|
|
731,951
|
|
0
|
|
Other investments
|
53,725
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
Loans held for sale
|
20,957
|
|
20,957
|
|
0
|
|
20,957
|
|
0
|
|
Loans and leases, net of ALLL
|
5,335,362
|
|
5,381,065
|
|
0
|
|
0
|
|
5,381,065
|
|
FDIC indemnification asset
|
17,630
|
|
9,756
|
|
0
|
|
0
|
|
9,756
|
|
Accrued interest receivable
|
16,995
|
|
16,995
|
|
0
|
|
5,791
|
|
11,204
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
Noninterest-bearing
|
$
|
1,413,404
|
|
$
|
1,413,404
|
|
$
|
0
|
|
$
|
1,413,404
|
|
$
|
0
|
|
Interest-bearing demand
|
1,414,291
|
|
1,414,291
|
|
0
|
|
1,414,291
|
|
0
|
|
Savings
|
1,945,805
|
|
1,945,805
|
|
0
|
|
1,945,805
|
|
0
|
|
Time
|
1,406,124
|
|
1,406,489
|
|
0
|
|
1,406,489
|
|
0
|
|
Total deposits
|
6,179,624
|
|
6,179,989
|
|
0
|
|
6,179,989
|
|
0
|
|
Short-term borrowings
|
938,425
|
|
938,425
|
|
938,425
|
|
0
|
|
0
|
|
Long-term debt
|
119,540
|
|
118,691
|
|
0
|
|
118,691
|
|
0
|
|
Accrued interest payable
|
5,003
|
|
5,003
|
|
113
|
|
4,890
|
|
0
|
|
The financial assets and liabilities measured at fair value on a recurring basis in the consolidated financial statements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using
|
|
|
(Dollars in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets/liabilities
at fair value
|
March 31, 2016
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
0
|
|
|
$
|
25,028
|
|
|
$
|
0
|
|
|
$
|
25,028
|
|
Investment securities available-for-sale
|
|
8,789
|
|
|
1,155,530
|
|
|
0
|
|
|
1,164,319
|
|
Total
|
|
$
|
8,789
|
|
|
$
|
1,180,558
|
|
|
$
|
0
|
|
|
$
|
1,189,347
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
0
|
|
|
$
|
24,952
|
|
|
$
|
0
|
|
|
$
|
24,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using
|
|
|
(Dollars in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets/liabilities
at fair value
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
0
|
|
|
$
|
14,111
|
|
|
$
|
0
|
|
|
$
|
14,111
|
|
Investment securities available-for-sale
|
|
8,583
|
|
|
1,182,059
|
|
|
0
|
|
|
1,190,642
|
|
Total
|
|
$
|
8,583
|
|
|
$
|
1,196,170
|
|
|
$
|
0
|
|
|
$
|
1,204,753
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
0
|
|
|
$
|
14,243
|
|
|
$
|
0
|
|
|
$
|
14,243
|
|
Certain financial assets and liabilities are measured at fair value on a nonrecurring basis. Adjustments to the fair market value of these assets usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. The following table summarizes financial assets and liabilities measured at fair value on a nonrecurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using
|
(Dollars in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
March 31, 2016
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
0
|
|
|
$
|
15,369
|
|
|
$
|
0
|
|
Impaired loans
|
|
0
|
|
|
0
|
|
|
8,784
|
|
OREO
|
|
0
|
|
|
0
|
|
|
7,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements using
|
(Dollars in thousands)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
December 31, 2015
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Loans held for sale
|
|
$
|
0
|
|
|
$
|
20,957
|
|
|
$
|
0
|
|
Impaired loans
|
|
0
|
|
|
0
|
|
|
8,008
|
|
OREO
|
|
0
|
|
|
0
|
|
|
7,598
|
|
NOTE 15: BUSINESS COMBINATIONS
Oak Street is a nationwide lender based in Indianapolis, Indiana that provides loans, secured by commissions and cash collateral accounts, primarily to insurance agents and brokers to grow their agency business and maximize their book-of-business value. Oak Street's lending activities are driven by agency acquisitions, agency ownership transitions, the purchase by agencies of books of business, as well as financing general working capital needs. The underwriting of these loans involves analyses of collateral (through use of Oak Street's proprietary software system) that consists of insurance commissions revenue, which collateral is then monitored by Oak Street Funding throughout the life of the loans. First Financial acquired Oak Street for cash consideration and concurrent with the close of the transaction, First Financial paid off all of Oak Street's existing long-term debt, replacing higher-cost funding with the Company's lower-cost funding sources.
The Oak Street transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values become available. As a result, the fair value adjustments for Oak Street may change as information becomes available, but no later than August 2016.
The following table provides the purchase price calculation as of the acquisition date and the identifiable assets purchased and the liabilities assumed at their estimated fair value:
|
|
|
|
|
(Dollars in thousands)
|
Oak Street
|
Purchase consideration
|
|
Cash consideration
|
$
|
110,000
|
|
Payoff of long-term borrowings
|
197,839
|
|
Total purchase consideration
|
$
|
307,839
|
|
|
|
Assets acquired
|
|
Cash
|
$
|
2,248
|
|
Loans
|
237,377
|
|
Intangible assets
|
813
|
|
Other assets
|
2,633
|
|
Total assets
|
$
|
243,071
|
|
|
|
Liabilities assumed
|
|
Other liabilities
|
$
|
1,577
|
|
Total liabilities
|
$
|
1,577
|
|
|
|
Net identifiable assets
|
$
|
241,494
|
|
Goodwill
|
$
|
66,345
|
|
The goodwill arising from the Oak Street acquisition reflects the business's high growth potential and scalable platform. The acquisition leverages First Financial’s excess capital and is expected to provide additional revenue growth and diversification. The goodwill is not deductible for income tax purposes as the merger was accounted for as a tax-free exchange. The tax-free exchange resulted in a carryover of tax attributes and tax basis to the Company's subsequent income tax filings and was adjusted for any fair value adjustments required in accounting for the acquisitions. For further detail, see Note 6 – Goodwill and Other Intangible Assets.