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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( Mark One)
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015

OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
Commission File Number 001-34762
FIRST FINANCIAL BANCORP.
(Exact name of registrant as specified in its charter)
Ohio
 
31-1042001
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
255 East Fifth Street, Suite 700
 
45202
Cincinnati, Ohio
 
(Zip Code)
(Address of principal executive offices)
 
 
Registrant's telephone number, including area code:  (877) 322-9530
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, no par value
Warrants, each to purchase one Common Share, no par value
Name of exchange on which registered:
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
x Yes      o  No
Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
  o Yes      x   No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes      o   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes      o   No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (subpart 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes     x   No
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the sales price of the last trade of such stock as of June 30, 2015 , was $1,068,586,000 .  (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)
As of February 22, 2016 , there were issued and outstanding 61,640,943 common shares of the registrant.
Documents Incorporated by Reference:
Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2015 are incorporated by reference into Parts I, II and IV.
Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 24, 2016 are incorporated by reference into Part III.

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FORM 10-K CROSS REFERENCE INDEX

 
 
 
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FORWARD-LOOKING STATEMENTS


Certain statements contained in this Annual Report on Form 10-K which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, the statements specifically identified as forward-looking statements within this document. In addition, certain statements in future filings by us with the SEC, in press releases, and in oral and written statements made by or with our approval which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of forward-looking statements include: (i) projections of income or expense, earnings per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of our plans and objectives or our management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying those statements.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the forward-looking statements. We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors and events identified (i) in "Item 1A. Risk Factors" of the Annual Report on Form 10-K and (ii) in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of First Financial's 2015 Annual Report (included within Exhibit 13 to this Annual Report on Form 10-K and incorporated by reference into Item 7 of this Annual Report on Form 10-K).

Forward-looking statements speak only as of the date on which they are made, and, except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect unanticipated events. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified in their entirety by the foregoing cautionary statements.


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PART I

Item 1.  Business.

First Financial Bancorp.

First Financial Bancorp., an Ohio corporation (First Financial or the Company), was formed in 1982.  First Financial is a mid-sized, regional bank holding company headquartered in Cincinnati, Ohio. References in this Form 10-K to “we,” “us” or “our” refer, as the context requires, to First Financial and its subsidiaries, collectively or to First Financial as the holding company.

First Financial engages in the business of commercial banking and other banking and banking-related activities through its wholly owned subsidiary, First Financial Bank, National Association (the Bank), which was founded in 1863.

The range of banking services provided by First Financial to individuals and businesses includes commercial lending, real estate lending, and consumer financing.  Real estate loans are loans secured by a mortgage lien on the real property of the borrower, which may either be residential property (one to four family residential housing units) or commercial property (owner-occupied and/or investor income producing real estate, such as apartments, shopping centers, or office buildings).  In addition, First Financial offers deposit products that include interest-bearing and noninterest-bearing accounts, time deposits, and cash management services for commercial customers. A full range of trust and wealth management services is also provided through First Financial’s Wealth Management division.

Commercial and industrial loans are made to all types of businesses for a variety of purposes including, but not limited to, inventory, receivables, and equipment.  First Financial works with businesses to meet their shorter term working capital needs while also providing long-term financing for their business plans.  First Financial also offers lease and equipment financing through a wholly-owned subsidiary of the Bank, First Financial Equipment Finance LLC (First Equipment Finance), primarily in its principal markets.  Credit risk for lending activities is managed through standardized loan policies, established and authorized credit limits, centralized portfolio management and the diversification of market area and industries.  The overall strength of the borrower is evaluated through the credit underwriting process and includes a variety of analytical activities, including the review of historical and projected cash flows, historical financial performance, financial strength of the principals and guarantors, and collateral values, where applicable.

Commercial and industrial lending activities also include equipment and leasehold improvement financing for franchisees throughout the U.S., principally in the quick service and casual dining sector.  The underwriting of these loans incorporates basic credit proficiencies combined with knowledge of select franchise concepts to measure the creditworthiness of proposed multi-unit borrowers.  The focus is on a limited number of concepts that have sound economics, lower closure rates, and brand awareness within specified local, regional or national markets.  Loan terms for equipment are generally up to 84 months fully amortizing and up to 180 months on real estate related requests.

First Financial also offers financing to the insurance industry through a wholly-owned subsidiary of the Bank, Oak Street Funding LLC (Oak Street Funding), in 47 states.  Insurance industry 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 Funding’s proprietary system) that consists of insurance commissions revenue, which is then monitored by Oak Street Funding throughout the life of the loans.

Commercial real estate loans are secured by a mortgage lien on the real property.  The credit underwriting for both owner-occupied and investor income producing real estate loans includes detailed market analysis, historical and projected cash flow analysis, appropriate equity margins, assessment of lessees and lessors, type of real estate and other analyses.  Risk of loss is managed by adherence to standard loan policies that establish certain levels of performance prior to the extension of a loan to the borrower.  Market diversification within First Financial’s service area, as well as a diversification by industry, are other means by which the risk of loss is managed by First Financial.  First Financial does not have a significant exposure to residential builders and developers.

The majority of residential real estate loans originated by the Bank conform to secondary market underwriting standards and are sold within a short timeframe to unaffiliated third parties. The Bank sells the loans both servicing-retained and servicing-released, depending on pricing and other market conditions.  The credit underwriting standards adhere to a required level of documentation, verifications, valuation, and overall credit performance of the borrower.  The underwriting of these loans includes an evaluation of these and other pertinent factors prior to the extension of credit. These underwriting standards increase the marketability and address the credit risk associated with the loans.

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Consumer loans are primarily loans made to individuals.  These types of loans include new and used vehicle loans, second mortgages on residential real estate, and unsecured loans.  Risk elements in the consumer loan portfolio are primarily focused on the borrower’s cash flow and credit history, which are key indicators of the ability to repay.  A level of security is provided through liens on automobile titles and second mortgage liens, where applicable.  Consumer loans are generally smaller dollar amounts than other types of lending and are made to a large number of customers, increasing diversification within the portfolio.  Economic conditions that affect consumers in First Financial’s markets have a direct impact on the credit quality of these loans.  Higher levels of unemployment, lower levels of income growth and weaker economic growth are factors that may adversely impact consumer loan credit quality.

Home equity lines of credit consist mainly of revolving lines of credit secured by residential real estate.  Home equity lines of credit are generally governed by the same lending policies and subject to the same credit risk as described previously for residential real estate loans.

First Financial has minimal foreign currency transactions and, in general, does not have a significant exposure to foreign currencies. Foreign currency activities are generally related to services provided to commercial customers.  Information regarding statistical disclosure required by the Securities and Exchange Commission’s Industry Guide 3 is included on the "Statistical Information" page in First Financial's Annual Report to Shareholders for the year ended December 31, 2015 , and is incorporated herein by reference.

First Financial's executive office is located at 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, and the telephone number is (877) 322-9530.  First Financial makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after filing with the Securities and Exchange Commission (SEC), through its website, www.bankatfirst.com under the “Investor Relations” link, under “Financial Reporting.”  Copies of such reports also can be found on the SEC’s website at www.sec.gov .

Employees

At December 31, 2015 , First Financial and its subsidiaries had 1,471 full-time and part-time employees.

Subsidiaries

A listing of each of First Financial’s subsidiaries can be found in Exhibit 21 to this Form 10-K.

Business Combinations

During the third quarter of 2009, through Federal Deposit Insurance Corporation (FDIC)-assisted transactions, First Financial acquired the banking operations of Peoples Community Bank (Peoples), Irwin Union Bank and Trust Company (Irwin Union Bank) and Irwin Union Bank, F.S.B. (Irwin FSB) (Irwin Union Bank and Irwin FSB, collectively, Irwin). Prior to the FDIC-assisted transactions, the Company also acquired three Indiana banking centers, including related deposits and loans, from Irwin in a separate and unrelated transaction. The acquisitions of the Peoples and Irwin franchises significantly expanded the First Financial footprint, opened new markets and strengthened the Company through the generation of additional capital.

In connection with the Peoples and Irwin FDIC-assisted transactions, First Financial entered into loss sharing agreements with the FDIC. Under the terms of these agreements, the FDIC will reimburse First Financial for losses with respect to certain loans (covered loans) and other real estate owned (covered OREO) (collectively, covered assets), beginning with the first dollar of loss.  Covered assets represent approximately 1.4% of First Financial’s assets at December 31, 2015 . These agreements provide for 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 were provided loss protection for a period of five years, which expired on October 1, 2014, and recoveries of previously charged-off loans must be shared with the FDIC for a period of eight years, again on the same pro-rata basis.

First Financial must follow specific servicing and resolution procedures, as outlined in the loss sharing agreements, in order to receive reimbursement from the FDIC for losses on covered assets.  First Financial services all covered assets with the same resolution practices and diligence as it does for the assets that are not subject to a loss sharing agreement.

In August 2014, First Financial acquired three banks, The First Bexley Bank (First Bexley) located in Bexley, Ohio and Insight Bank (Insight) and Guernsey Bancorp, Inc. (Guernsey) both of which were located in Worthington, Ohio. First Bexley and Insight were each acquired in a stock and cash transaction, while Guernsey was an all cash deal. The First Bexley, Insight and

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Guernsey acquisitions provided First Financial an entrance into the Columbus, Ohio market and introduced the Company’s diverse product set to commercial and consumer clients of those institutions. These acquisitions position the Bank as one of the largest community bank serving Franklin County and the metropolitan Columbus market.

On August 14, 2015, First Financial acquired Oak Street Funding. Founded in 2003 and headquartered in Carmel, Indiana, Oak Street Funding finances insurance agencies for the purposes of agency acquisitions, agency ownership transitions, the purchase by agencies of books of business, as well as financing general working capital needs. First Financial acquired Oak Street Holdings Corporation, the parent of Oak Street Funding, in an all-cash transaction which resulted in Oak Street Holdings Corporation becoming a subsidiary of the Bank. The Company also paid off certain indebtedness due under financing facilities at the time of the merger.

Market and Competitive Information

First Financial, through the regionalization efforts and business model of the Bank, delivers a community banking philosophy to its clients.  First Financial currently serves a combination of metropolitan and non-metropolitan markets through its full-service banking centers primarily in Indiana, Ohio, and Kentucky.  Market selection is based upon a number of factors, but markets are primarily chosen for their potential for growth, long-term profitability, and customer reach.  First Financial’s goal is to develop a competitive advantage through a local market focus, building long-term relationships with clients and helping them reach greater levels of financial success.

We also compete on a nationwide basis with respect to franchisee lending through our franchise finance subsidiary, First Franchise Capital and with respect to insurance agency lending through Oak Street Funding.

The Company’s markets support many different types of business activities, such as manufacturing, agriculture, education, healthcare, and professional services.  Within these markets, growth is projected to continue in key demographic groups and populations.  First Financial’s market evaluation includes demographic measures such as income levels, median household income, and population growth within key segments.  The Midwest markets that First Financial serves have historically not experienced the level of economic highs and lows seen in other areas of the country.  Its markets are generally marked by less volatility in business activity, although material fluctuations may occur.  

First Financial believes that it is well positioned to compete in its markets.  Smaller than super-regional and multi-national bank holding companies, First Financial believes that it can meet the needs of its markets through a decision-making network of local management.  First Financial believes that it is better positioned to compete for business than smaller banks that may have size or geographic limitations.  First Financial’s targeted customers include individuals and small to medium sized businesses within the geographic region of the Bank’s banking center network. Through the delivery systems of banking centers, ATMs, internet banking, and telephone-based transactions, First Financial meets the needs of its customers in an ever-changing marketplace.

First Financial faces strong competition from financial institutions and other non-financial organizations.  Its competitors include local and regional financial institutions, savings and loans, and bank holding companies, as well as some of the largest banking organizations in the United States.  In addition, other types of financial institutions, such as credit unions, offer a wide range of loan and deposit services that are competitive with those offered by First Financial. The consumer is also served by brokerage firms and mutual funds that provide checking services, credit cards, margin loans, and other services similar to those offered by First Financial.  Online lenders also create additional competition, particularly in the mortgage and consumer lending areas. Major stores compete for loans by offering credit cards and retail installment contracts.  It is anticipated that competition from other financial and non-financial services entities will continue and, for certain products and services, intensify.

Supervision and Regulation

First Financial Bank and its subsidiaries, are subject to an extensive system of laws and regulations that are intended primarily for the protection of customers and depositors and not for the protection of shareholders.  These laws and regulations govern such areas as capital, permissible activities, allowance for loan and lease losses, loans and investments, and rates of interest that can be charged on loans.  Described below are elements of selected laws and regulations.  The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described.


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Bank Holding Company Regulation

We are subject to the provisions of the Bank Holding Company Act of 1956, as amended (the BHCA) and subject to supervision and examination by the Federal Reserve Board.  The BHCA requires prior approval by the Federal Reserve Board of the acquisition of 5% or more of the voting stock or substantially all the assets of any bank within the United States.  In addition, subject to regulatory approval, First Financial can acquire thrift institutions.  Acquisitions are subject to certain anti-competitive limitations.

The BHCA and the regulations of the Federal Reserve Board prohibit a bank holding company and its subsidiaries from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services.  A tie-in arrangement is when a bank uses its ability to offer banking products in a coercive manner to gain a competitive advantage for non-banking products or services. The BHCA also imposes certain restrictions upon dealings by affiliated banks with the holding company and among themselves, including restrictions on inter-bank borrowing and upon dealings in the securities or obligations of the holding company or other affiliates.

In addition, bank holding companies that satisfy certain requirements may elect to become financial holding companies.  Financial holding companies are permitted to engage in certain activities that are “financial in nature” (e.g. insurance underwriting, securities brokerage, merchant banking) and that are not permitted for bank holding companies.  First Financial’s current strategic plans do not include utilizing these expanded activities and, as a result, it has not elected to become a financial holding company.

The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, issue cease and desist or removal orders, and require that a bank holding company divest subsidiaries (including a subsidiary bank). In general, the Federal Reserve Board may initiate enforcement actions for violations of laws and regulations and unsafe or unsound practices. Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support such subsidiary bank. Under this policy, the Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to its shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice.

Depository Institution Regulation

The Bank, as a national banking association, is subject to supervision and regular examination by the Office of the Comptroller of the Currency (OCC). All depository institutions and their deposits are insured up to the legal limits by the Deposit Insurance Fund (DIF) which is administered by the FDIC and is subject to the provisions of the Federal Deposit Insurance Act (FDIA).

Insurance of Accounts

The FDIC currently maintains the DIF, which was created in 2006 in the merger of the Bank Insurance Fund and the Savings Association Insurance Fund.  The deposit accounts of the Bank are insured by the DIF to the maximum amount provided by law.  The general insurance limit is $250,000 per customer.  This insurance is backed by the full faith and credit of the United States Government.
 
As insurer, the FDIC is authorized to conduct examinations of and to require reporting by DIF-insured institutions.  It also may prohibit any DIF-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF.  The FDIC also has the authority to take enforcement actions against insured institutions.
 
The FDIC assesses deposit insurance premiums on each insured institution quarterly based on annualized rates for one of four risk categories. Each institution is assigned a risk category based on its capital, supervisory ratings and other factors.  Well capitalized institutions that are financially sound with only a few minor weaknesses are assigned to Risk Category I.  Risk Categories II, III and IV present progressively greater risks to the DIF.  The Bank currently is in Risk Category I.
 
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the FDIC adopted rules, under which insurance premium assessments are based on an institution's quarterly average total assets minus its quarterly average tangible equity (defined as Tier 1 capital) instead of its deposits.  Under these rules, an institution with total assets of less than $10 billion is assigned to a Risk Category as described above, and a range of initial base assessment rates applies to each category, subject to adjustment downward based on unsecured debt issued by the institution and, except for an institution in Risk Category I, adjustment upward if the institution's brokered deposits exceed 10% of its domestic deposits, to produce total base assessment rates.  All base assessment rates are subject to further adjustment upward if the institution holds more

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than a de minimis amount of unsecured debt issued by another FDIC-insured institution. The FDIC may increase or decrease its rates by 0.02% without further rule-making.  The FDIC may also impose a special assessment in an emergency situation.

The FDIC has proposed changing the deposit insurance premium assessment method for banks with less than $10 billion in assets that have been insured by the FDIC for at least five years. The proposed changes would revise the financial ratios method so that it would be based on a statistical model estimating the probability of failure of a bank over three years; update the financial measures used in the financial ratios method consistent with the statistical model; and eliminate risk categories for established small banks and use the financial ratios method to determine assessment rates for all such banks (subject to minimum or maximum initial assessment rates based upon a bank’s composite examination rating).

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize a predecessor to the DIF.  These assessments will continue until the Financing Corporation bonds mature in 2019.
 
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC. The management of the Bank does not know of any practice, condition or violation that might lead to termination of deposit insurance.
 
Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (DRR), that is, the ratio of the DIF to insured deposits of the total industry. The FDIC has adopted a plan under which it will meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act.  The Dodd-Frank Act requires the FDIC to offset the effect on institutions with assets of less than $10 billion of the increase in the statutory minimum DRR to 1.35% from the former statutory minimum of 1.15%.  The FDIC proposed rules in October 2015 regarding the offset. Under the proposal, banks with less than $10 billion in assets would receive an assessment credit for the portion of their assessments that contribute to the increase from 1.15% to 1.35%. These rules have not yet been finalized.
 
Community Reinvestment Act

Under the Community Reinvestment Act (CRA), every FDIC-insured institution is obligated, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low and moderate income neighborhoods.  The CRA requires the appropriate federal banking regulator, in connection with the examination of an insured institution, to assess the institution's record of meeting the credit needs of its community and to consider this record in its evaluation of certain applications to banking regulators, such as an application for approval of a merger or the establishment of a branch.  An unsatisfactory rating may be used as the basis for the denial of an application and will prevent a bank holding company of the institution from making an election to become a financial holding company. As of its last examination, the Bank received a CRA rating of “satisfactory.”
 
Privacy Rules

Federal banking regulators, as required under the Gramm-Leach-Bliley Act, have adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to non-affiliated third parties.  The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to non-affiliated third parties.  The privacy provisions of the Gramm-Leach-Bliley Act affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.

Fiscal and Monetary Policies

The earnings of banks, and, therefore, the earnings of First Financial (and its subsidiaries), are affected by the fiscal and monetary policies of the United States government and its agencies, including the Federal Reserve Board.  An important function of the Federal Reserve Board is to regulate the national supply of bank credit in an effort to prevent recession and to restrain inflation.  Among the procedures used to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements on member bank deposits. These policies are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits.


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Limits on Dividends and Other Payments

There are various legal limitations on the extent to which a subsidiary bank may finance or otherwise supply funds to its parent holding company. Under applicable federal and state laws, a subsidiary bank may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, its bank holding company. A subsidiary bank is also subject to collateral security requirements for any loan or extension of credit permitted by such exceptions. The Bank may not pay dividends out of its surplus if, after paying these dividends, it would fail to meet the required minimum levels under the risk-based capital guidelines and minimum leverage ratio requirements established by the OCC. In addition, the Bank must have the approval of the OCC if a dividend in any year would cause the total dividends for that year to exceed the sum of the Bank’s current year’s net income and the retained net income for the preceding two years, less required transfers to surplus. Payment of dividends by the Bank may be restricted at any time at the discretion of its regulatory authorities, if such regulatory authorities deem such dividends to constitute unsafe and/or unsound banking practices or if necessary to maintain adequate capital.

The ability of First Financial to obtain funds for the payment of dividends and for other cash requirements is largely dependent on the amount of dividends which may be declared by the Bank. However, because the Federal Reserve Board expects us to serve as a source of strength to the Bank, as discussed above, payment of dividends by the Bank may be restricted at any time at the discretion of the OCC if the OCC deems such dividends to constitute an unsafe and/or unsound banking practice. These provisions could have the effect of limiting our ability to pay dividends on our shares.

The Federal Reserve Board has issued a policy statement with regard to the payment of cash dividends by bank holding companies. The policy statement provides that, as a matter of prudent banking, a bank holding company should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the bank holding company’s capital needs, asset quality, and overall financial condition. Accordingly, a bank holding company should not pay cash dividends that exceed its net income or can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing.

The Dodd-Frank Act

The Dodd-Frank Act requires various federal agencies to adopt a broad range of regulations. Although many of the regulations have been adopted, some still have not, and the full effect they will have on us and our subsidiaries cannot currently be known. Among the provisions already implemented that have or may have an effect on us are the following:
  
•
formation of the Consumer Financial Protection Bureau, which has broad powers to adopt and enforce consumer protection regulations;
  
•
a federal law prohibiting the payment of interest on commercial demand deposit accounts was eliminated effective July 21, 2011;
  
•
the standard maximum amount of deposit insurance per customer was permanently increased to $250,000;
 
•
the assessment base for determining deposit insurance premiums was expanded; and

•
new capital regulations for bank holding companies, which impose stricter requirements as discussed below.

Regulatory Capital

Financial institutions and their holding companies are required to maintain capital as a way of absorbing losses that can, as well as losses that cannot, be predicted. The Federal Reserve Board has adopted risk-based capital guidelines for financial holding companies as well as state banks that are members of the Federal Reserve Bank. The OCC and the FDIC have adopted risk-based capital guidelines for national banks and state non-member banks, respectively. The guidelines provide a systematic analytical framework that makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and minimizes disincentives to holding liquid, low-risk assets. Capital levels as measured by these standards are also used to categorize financial institutions for purposes of prompt corrective action regulatory provisions.         

Prior to January 1, 2015, the risk-based capital guidelines included a minimum for the ratio of total capital to risk-weighted assets of 8.0%, with at least half of the ratio composed of common shareholders’ equity, minority interests in certain equity accounts of consolidated subsidiaries and a limited amount of qualifying preferred stock and qualified trust preferred securities,

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less goodwill and certain other intangible assets (known as “Tier 1” risk-based capital). The guidelines also provided for a minimum ratio of Tier 1 capital to average assets, or “leverage ratio,” of 3.0% for financial holding companies and bank holding companies that meet certain criteria, including having the highest regulatory rating, and 4.0% for all other financial holding companies and bank holding companies.

The risk-based capital guidelines adopted by the federal banking agencies are based on the “International Convergence of Capital Measurement and Capital Standard” (Basel I), published by the Basel Committee on Banking Supervision (the Basel Committee) in 1988. In 2004, the Basel Committee published a new capital adequacy framework (Basel II) for large, internationally active banking organizations, and in December 2010 and January 2011, the Basel Committee issued an update to Basel II (Basel III). The Basel Committee frameworks did not become applicable to banks supervised in the United States until adopted into United States law or regulations. Although the United States banking regulators imposed some of the Basel II and Basel III rules on banks with $250 billion or more in assets or $10 billion of on-balance sheet foreign exposure, it was not until July 2013 that the United States banking regulators issued final (or, in the case of the FDIC, interim final) new capital rules applicable to smaller banking organizations such as First Financial. These new capital rules implement certain of the provisions of the Dodd-Frank Act (the Basel III Capital Rules). Community banking organizations, including First Financial and the Bank, began transitioning to the new rules on January 1, 2015. The new minimum capital requirements became effective on January 1, 2015, whereas a new capital conservation buffer (i.e. common equity) and additional new deductions from common equity capital phase in from January 1, 2016, through January 1, 2019, and most deductions from common equity tier 1 capital will phase in from January 1, 2015, through January 1, 2019.

The new capital rules include (a) a new common equity tier 1 capital ratio of at least 4.5%, (b) a Tier 1 capital ratio of at least 6.0%, rather than the former 4.0%, (c) a minimum total capital ratio that remains at 8.0%, and (d) a minimum leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus and trust preferred securities that have been grandfathered (but which are not permitted going forward), and limited amounts of minority interests in the form of additional Tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to new eligibility criteria, less applicable deductions.

The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels). The deductions phase in from 2015 through 2019.

Under the guidelines, capital is compared to the relative risk related to the balance sheet. To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Some of the risk weightings have been changed effective January 1, 2015.

The new rules also place restrictions on the payment of capital distributions, including dividends, and certain discretionary bonus payments to executive officers if the Company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital compared to its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter. The capital conservation buffer phases in starting on January 1, 2016, at 0.625%. The implementation of Basel III is not expected to have a material impact on the Company’s or the Bank’s capital ratios.

Effective January 1, 2015, in order to be “well-capitalized,” a bank must have a common equity tier 1 capital ratio of at least 6.5%, a total risk-based capital ratio of at least 10.0%, a Tier 1 risk-based capital ratio of at least 8.0% and a leverage ratio of at least 5.0%, and the bank must not be subject to any written agreement, order, capital directive or prompt corrective action directive to meet and maintain a specific capital level or any capital measure. The Company’s management believes that the Bank meets the ratio requirements to be deemed “well-capitalized” according to the guidelines described above.


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Executive and Incentive Compensation

In June 2010, the Federal Reserve Board, the OCC and the FDIC issued joint interagency guidance on incentive compensation policies (the Joint Guidance) intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. This principles-based guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should: (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks; (ii) be compatible with effective internal controls and risk management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

Pursuant to the Joint Guidance, the Federal Reserve Board will review as part of a regular, risk-focused examination process, the incentive compensation arrangements of financial institutions such as us. These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination and deficiencies will be incorporated into the institution’s supervisory ratings, which can affect the institution’s ability to make acquisitions and take other actions. Enforcement actions may be taken against an institution if its incentive compensation arrangements, or related risk-management control or governance processes, are considered a risk to the organization’s safety and soundness and prompt and effective measures are not being taken to correct the deficiencies.

On February 7, 2011, federal banking regulatory agencies jointly issued proposed rules on incentive-based compensation arrangements under applicable provisions of the Dodd-Frank Act (the Proposed Joint Rules). The Proposed Joint Rules generally apply to financial institutions with $1 billion or more in assets that maintain incentive-based compensation arrangements for certain covered employees. The Proposed Joint Rules: (i) prohibit covered financial institutions from maintaining incentive-based compensation arrangements that encourage covered persons to expose the institution to inappropriate risk by providing the covered person with “excessive” compensation; (ii) prohibit covered financial institutions from establishing or maintaining incentive-based compensation arrangements for covered persons that encourage inappropriate risks that could lead to a material financial loss; (iii) require covered financial institutions to maintain policies and procedures appropriate to their size, complexity and use of incentive-based compensation to help ensure compliance with the Proposed
Joint Rules; and (iv) require covered financial institutions to provide enhanced disclosure to regulators regarding their incentive-based compensation arrangements for covered persons within 90 days following the end of each fiscal year.

Pursuant to rules adopted by the stock exchanges and approved by the SEC in January 2013 under the Dodd-Frank Act, public company compensation committee members must meet heightened independence requirements and consider the independence of compensation consultants, legal counsel and other advisors to the compensation committee. A compensation committee must have the authority to hire advisors and to have the public company fund reasonable compensation of such advisors.

Public companies will be required, once stock exchanges impose additional listing requirements under the Dodd-Frank Act, to implement “clawback” procedures for incentive compensation payments and to disclose the details of the procedures which allow recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating a restatement due to material noncompliance with financial reporting requirements. This clawback policy is intended to apply to compensation paid within a three-year look-back window of the restatement and would cover all executives who received incentive awards.

Volcker Rule

In December 2013, five federal agencies adopted a final regulation implementing the so-called Volcker Rule provision of the Dodd-Frank Act (the Volcker Rule). The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated with a depository institution, subject to certain exceptions. The trading activity includes a purchase or sale as principal of a security or a derivative, commodity future or option on a security in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempts specified U.S. Government, agency and/or municipal obligations, and it excepts trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers, to satisfy a debt previously contracted, repurchase and securities lending agreements and risk-mitigating hedging activities. The Volcker Rule also prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, with a number of exceptions. The Bank from time to time may engage in trading activities or own the types of funds regulated by the Volcker Rule.


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Transactions with Affiliates, Directors, Executive Officers and Shareholders

Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Board Regulation W generally:
  
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limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate;
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limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with all affiliates; and
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require that all such transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate.

An affiliate of a bank is any company or entity which controls, is controlled by or is under common control with the bank. The term “covered transaction” includes the making of loans to the affiliate, the purchase of assets from the affiliate, the issuance of a guarantee on behalf of the affiliate, the purchase of securities issued by the affiliate and other similar types of transactions.
 
A bank’s authority to extend credit to executive officers, directors and greater than 10% shareholders, as well as entities under such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board. Among other things, these loans must be made on terms (including interest rates charged and collateral required) substantially the same as those offered to unaffiliated individuals or be made as part of a benefit or compensation program and on terms widely available to employees and must not involve a greater than normal risk of repayment. In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.

Patriot Act

In response to the terrorist events of September 11, 2001, the Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the Patriot Act) was signed into law in October 2001. The Patriot Act gives the United States government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. Title III of the Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies. Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions. Among other requirements, Title III and related regulations require regulated financial institutions to establish a program specifying procedures for obtaining identifying information from customers seeking to open new accounts and establish enhanced due diligence policies, procedures and controls designed to detect and report suspicious activity. The Bank has established policies and procedures that are believed to be compliant with the requirements of the Patriot Act.

Internet Website
We maintain a website with the address www.bankatfirst.com.  The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K.  Other than an investor's own Internet access charges, we make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the SEC.
 
Item 1A.  Risk Factors.

The risks listed here are not the only risks we face. Additional risks that are not presently known, or that we presently deem to be immaterial, also could have a material adverse effect on our financial condition, results of operations, business, and prospects. (See also “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” for certain forward looking statements.)

Recent Market, Legislative, and Regulatory Events

Difficult market conditions adversely affect our industry.

Dramatic declines in the housing market in 2008 and 2009 negatively impacted the credit performance of real estate related loans and resulted in significant write-downs of asset values by financial institutions. Market turmoil can lead to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets could adversely impact our business, financial condition, and results of operations. These types of market developments also may affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact charge-offs and provision for credit and fraud losses.

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Market volatility could have an adverse effect on our business.

The capital and credit markets may experience volatility and disruption, which could produce downward pressure on stock prices and credit availability without regard to the underlying financial strength of the affected companies. During times of market disruption and volatility, there can be no assurance that we will not experience an adverse effect, which may be material, on our ability to access capital and on our business, financial condition, and results of operations. Numerous facts and circumstances are considered when evaluating the carrying value of our goodwill. One of those considerations is our market capitalization, evaluated over a reasonable period of time, in relation to the aggregate estimated fair value of the reporting units. While this comparison provides some relative market information regarding the estimated fair value of our reporting units, it is not determinative and needs to be evaluated in the context of the current economic and political environment. However, significant and/or sustained declines in First Financial’s market capitalization, especially in relation to First Financial’s book value, could be an indication of potential impairment of goodwill.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, have led in the past to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions in the future. A default, or threatened default, of a large institution could negatively impact the entire financial system, and could expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our financial condition or results of operations.
The Dodd-Frank Act and potential further financial regulatory reforms could have a significant impact on our business, financial condition and results of operations.
The Dodd-Frank Act has had and will continue to have a broad impact on the financial services industry, including significant regulatory and compliance changes. The Dodd-Frank Act has required changes to business practices and has imposed more stringent capital, liquidity and leverage requirements. In particular, the potential impact of the Dodd-Frank Act on our operations and activities, both currently and prospectively, include, among others:
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a reduction in the ability to generate or originate revenue-producing assets as a result of compliance with heightened capital standards;
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increased cost of operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, and higher deposit insurance premiums;

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a reduction in fee income due to limits on interchange fees applicable to larger institutions which could effectively reduce the fees we can charge; and

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the limitation on the ability to expand consumer product and service offerings due to stricter consumer protection laws and regulations.

We cannot predict whether there will be additional proposed laws or reforms that would affect the U.S. financial system or financial institutions, whether or when such changes may be adopted, how such changes may be interpreted and enforced or how such changes may affect operations and results thereof. However, the costs of complying with any additional laws or regulations could have a material adverse effect on our financial condition and results of operations.
The fiscal and monetary policies of the U.S. federal government and its agencies could have a material adverse effect on our earnings.
The Federal Reserve Board regulates the supply of money and credit in the United States. Its policies determine in large part the cost of funds for lending and investing and the returns earned on those loans and investments, both of which affect the net interest margin. The resultant changes in interest rates can also materially decrease the value of certain financial assets we hold, such as debt securities. The policies of the Federal Reserve Board can also adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in Federal Reserve Board policies are beyond our control and difficult to predict; consequently, the impact of these changes on our activities and results of operations is difficult to predict.

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Risks Relating to Our Business

When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk, or the risk of losses if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their contracts.
As lending is one of our primary business activities, the credit quality of our portfolio can have a significant impact on our earnings. We estimate and establish reserves for credit risks and credit losses inherent in our total loan portfolio. This process, which is critical to our financial results and condition, requires difficult, subjective and complex judgments, including forecasts of economic conditions and how these economic predictions might impair the ability of our borrowers to repay their loans. As is the case with any such assessments, there is always the chance that we will fail to identify the proper factors or that we will fail to accurately estimate the impacts of factors that we identify. In addition, large loans, letters of credit and contracts with individual counterparties in our portfolio magnify the credit risk that we face, as the impact of large borrowers and counterparties not repaying their loans or performing according to the terms of their contracts has a disproportionately significant impact on our credit losses and reserves.
Weakness in the economy and in the real estate market, including specific weakness within our geographic footprint may adversely affect us, including requiring us to take additional loan loss provisions or to write down loans.
First Financial’s success depends, in part, on economic and political conditions, local and national, as well as governmental fiscal and monetary policies. Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy and other factors beyond First Financial’s control may adversely affect its deposit levels and composition, demand for loans, the ability of borrowers to repay their loans and the value of the collateral securing the loans it makes. Economic turmoil in Europe and Asia and changes in oil production in the Middle East affect the economy and stock prices in the United States, which can affect First Financial’s earnings and capital and the ability of its customers to repay loans. Due to First Financial's volume of real estate loans, decreases in real estate values could adversely affect the value of property used as collateral and First Financial’s ability to sell the collateral upon foreclosure.
If the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations decline, this could result in, among other things, a deterioration of credit quality or a reduced demand for credit, including a resultant effect on our loan portfolio and allowance for loan and lease losses. These factors could result in higher delinquencies and greater charge-offs in future periods, which would materially and adversely affect our financial condition and results of operations.
There is no assurance that our non-impaired loans will not become impaired or that our impaired loans will not suffer further deterioration in value. The fluctuations in national, regional and local economic conditions, including those related to local residential, commercial real estate and construction markets, may increase the level of charge-offs that we make to our loan portfolio, and, consequently, reduce our net income. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on our operations and financial condition even if other favorable events occur.
Weakness in the real estate market, including the secondary residential mortgage loan markets, could adversely affect us.
Disruptions in the secondary market for residential mortgage loans limit the market for and liquidity of many mortgage loans. The effects of mortgage market challenges, combined with reductions in residential real estate market prices and reduced levels of home sales, could adversely affect the value of collateral securing mortgage loans that we hold, mortgage loan originations, and profits on sales of mortgage loans. Such conditions could result in higher losses, write downs, and impairment charges in our mortgage and other lines of business. Declines in real estate values, home sale volumes, financial stress on borrowers as a result of job losses, interest rate resets on adjustable rate mortgage loans or other factors could have further adverse effects on borrowers that could result in higher delinquencies and greater charge-offs in future periods, which would adversely affect our financial condition or results of operations. Additionally, decreases in real estate values might adversely affect the creditworthiness of state and local governments, resulting in decreased profitability or credit losses from loans made to such governments. A decline in home values or overall economic weakness could also have an adverse impact upon the value of real estate or other assets which we own upon foreclosing a loan and our ability to realize value on such assets.
The information that we use in managing our credit risk may be inaccurate or incomplete, which may result in an increased risk of default and otherwise have an adverse effect on our business, results of operations and financial condition.
In deciding whether to extend credit or enter into other transactions with clients and counterparties, we may rely on information furnished by or on behalf of clients and counterparties, including financial statements and other financial information. We also

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may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. Although we regularly review our credit exposure to specific clients and counterparties and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect, such as fraud. Moreover, such circumstances, including fraud, may become more likely to occur or be detected in periods of general economic uncertainty. We may also fail to receive full information with respect to the risks of a counterparty. In addition, in cases where we have extended credit against collateral, we may find that we are under-secured, for example, as a result of sudden declines in market values that reduce the value of collateral or due to fraud with respect to such collateral. If such events or circumstances were to occur, it could result in a potential loss of revenue and have an adverse effect on our business, results of operations and financial condition.
Declining values of real estate, increases in unemployment, insurance market disruptions, and the related effects on local economies may increase our credit losses, which would negatively affect our financial results.
We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans. Many of our loans are secured by real estate (both residential and commercial) in our market area. A major change in the real estate market, such as deterioration in the value of this collateral, or in the local or national economy, could adversely affect our customers' ability to pay these loans, which in turn could adversely impact our results of operations and financial condition. Additionally, increases in unemployment also may adversely affect the ability of certain clients to pay loans and the financial results of commercial clients in localities with higher unemployment, which may result in loan defaults and foreclosures and which may impair the value of our collateral. Loan defaults and foreclosures are unavoidable in the banking industry, and we try to limit our exposure to this risk by monitoring carefully our extensions of credit. Also, a concentration of natural disasters or a significant disruption in the insurance market could adversely impact the risk relating to our insurance lending business. We cannot fully eliminate credit risk, and as a result credit losses may increase in the future.
Our allowance for loan and lease losses may prove to be insufficient to absorb losses in our loan portfolio.
Like all financial institutions, we maintain an allowance for loan and lease losses to provide for loans in our portfolio that may not be repaid in their entirety. We believe that our allowance for loan and lease losses is maintained at a level adequate to absorb probable losses inherent in our loan portfolio as of the corresponding balance sheet date. However, our allowance for loan and lease losses may not be sufficient to cover actual loan losses, and future provisions for loan losses could materially and adversely affect our operating results. The accounting measurements related to impairment and the allowance for loan and lease losses require significant estimates which are subject to uncertainty and change related to new information and changing circumstances. Our estimates of the risk of loss and amount of loss on any loan are complicated by the significant uncertainties surrounding our borrowers’ abilities to successfully execute their business models through changing economic environments, competitive challenges and other factors. Because of the degree of uncertainty and susceptibility of these factors to change, our actual losses may vary from our current estimates.
Our regulators, as an integral part of their examination process, periodically review our allowance for loan and lease losses and may require us to increase our allowance for loan and lease losses by recognizing additional provisions for losses charged to expense, or to decrease our allowance for loan and lease losses by recognizing loan charge-offs, net of recoveries. Any such additional provisions for loan losses or charge-offs, as required by these regulatory agencies, could have a material adverse effect on our financial condition and results of operations.
Projections for new business initiatives and strategies may prove inaccurate .
The introduction, implementation, withdrawal, success and timing of business initiatives and strategies, including, but not limited to, the opening of new banking centers or entering into new product lines, may be less successful or may be different than anticipated, which could adversely affect our business.
The Bank makes certain projections and develops plans and strategies for its banking and financial products. If we do not accurately determine demand for our banking and financial products, it could result in us incurring significant expenses without the anticipated increases in revenue, which could result in a material adverse effect on the Bank’s business.
Changes in market interest rates or capital markets could adversely affect our revenue and expense, the value of assets and obligations, and the availability and cost of capital or liquidity.
Given our business mix, and the fact that most of the assets and liabilities are financial in nature, we tend to be sensitive to market interest rate movements and the performance of the financial markets. Our primary source of income is net interest income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of

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loans and, to a lesser extent, securities) and the interest expense generated by our interest-bearing liabilities (consisting primarily of deposits and wholesale borrowings).  Prevailing economic conditions, fiscal and monetary policies and the policies of various regulatory agencies all affect market rates of interest and the availability and cost of credit, which, in turn, significantly affect financial institutions’ net interest income.  If the interest we pay on deposits and other borrowings increases at a faster rate than increases in the interest we receive on loans and investments, net interest income, and, therefore, our earnings, could be adversely affected.  Earnings could also be adversely affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on deposits and other borrowings.

In addition to the impact of the general economy, changes in interest rates or in valuations in the debt or equity markets could directly impact us in one or more of the following ways:
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the yield on earning assets and rates paid on interest bearing liabilities may change in disproportionate ways;
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the value of certain balance sheet and off-balance sheet financial instruments or the value of equity investments that we hold could decline;
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the value of assets for which we provide processing services could decline;
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the demand for loans and refinancings may decline, which could negatively impact income related to loan originations; or
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to the extent we access capital markets to raise funds to support our business, such changes could affect the cost of such funds or the ability to raise such funds.

Although we have implemented procedures we believe will reduce the potential effects of changes in interest rates on our results of operations, these procedures may not always be successful. In addition, any substantial or prolonged change in market interest rates could adversely affect our financial condition, results of operation and liquidity.
We may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could harm our liquidity, results of operations, and financial condition.
When we sell mortgage loans, whether as whole loans or pursuant to a securitization, we are required to make customary representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated. Our whole loan sale agreements require us to repurchase or substitute mortgage loans in the event we breach any of these representations or warranties. In addition, we may be required to repurchase mortgage loans as a result of borrower fraud. While we have taken steps to enhance our underwriting policies and procedures, there can be no assurance that these steps will be effective or reduce risk associated with loans sold in the past. If the level of repurchase and indemnity activity becomes material, our liquidity, results of operations and financial condition may be adversely affected.
Clients could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding.
Checking and savings account balances and other forms of client deposits could decrease if clients perceive alternative investments as providing superior expected returns. When clients move money out of bank deposits in favor of alternative investments, we can lose a relatively inexpensive source of funds, increasing our funding costs.
Consumers may decide not to use banks to complete their financial transactions, which could affect net income.
Technology and other changes now allow parties to complete financial transactions without banks. For example, consumers can pay bills and transfer funds directly without banks. This process could result in the loss of fee income, as well as the loss of client deposits and the income generated from those deposits, as well as increasing our funding costs.
Our wealth management business subjects us to a variety of investment and market risks.
At December 31, 2015, we had $2.3 billion in assets under management. A sharp decline in the stock market could negatively impact the amount of assets under management and thus subject our earnings to a broader variety of risks and uncertainties.
Negative public opinion could damage our reputation and adversely impact business operations and revenues .
As a financial institution, our earnings and capital are subject to risks associated with negative public opinion. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, the failure of any product or service sold by us to meet our clients’ expectations or applicable regulatory requirements, corporate governance and acquisitions, or from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to attract and/or retain clients and can expose us to litigation and

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regulatory action. Actual or alleged misconduct by one of our businesses can result in negative public opinion about our other businesses. Negative public opinion could also affect our ability to borrow funds in the unsecured wholesale debt markets.
We rely on other companies to provide key components of our business infrastructure .
Third parties provide key components of our business infrastructure such as banking services, processing, and Internet connections and network access. Any disruption in such services provided by these third parties or any failure of these third parties to handle current or higher volumes of use could adversely affect our ability to deliver products and services to clients and otherwise to conduct business. Technological or financial difficulties of a third party service provider could adversely affect our business to the extent those difficulties result in the interruption or discontinuation of services provided by that party. These vendors provide services that support our operations, including the storage and processing of sensitive consumer and business customer data, as well as our sales efforts. A cyber security breach of a vendor's system may result in theft of our data or disruption of business processes. A material breach of customer data security at a service provider's site may negatively impact our business reputation and cause a loss of customers, result in increased expense to contain the event and/or require that we provide credit monitoring services for affected customers, result in regulatory fines and sanctions, and may result in litigation. In most cases, we will remain primarily liable to our customers for losses arising from a breach of a vendor's data security system. We rely on our outsourced service providers to implement and maintain prudent cyber security controls. Furthermore, we may not be insured against all types of losses as a result of third party failures and our insurance coverage may be inadequate to cover all losses resulting from system failures or other disruptions. Failures in our business infrastructure could interrupt the operations or increase the costs of doing business.
We rely on our systems, employees, and certain counterparties, and certain failures, such as a security breach, could adversely affect our operations .
We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and record-keeping errors, and computer/telecommunications systems malfunctions. Our businesses are dependent on our ability to process a large number of increasingly complex transactions. If any of our financial, accounting, or other data processing systems fail or have other significant shortcomings, we could be adversely affected. A cyber security breach may result in theft of such data or disruption of our transaction processing systems. We depend on internal systems and outsourced technology to support these data storage and processing operations. Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations.
A material breach of customer data security may negatively impact our business reputation and cause a loss of customers, result in increased expense to contain the event and/or require that we provide credit monitoring services for affected customers, result in regulatory fines and sanctions, and may result in class action litigation. Cyber security risk management programs are expensive to maintain and will not protect us from all risks associated with maintaining the security of customer data and our proprietary data from external and internal intrusions, disaster recovery and failures in the controls used by our vendors. In addition, Congress and the legislatures of states in which we operate regularly consider legislation that would impose more stringent data privacy requirements.
We are similarly dependent on our employees. We could be adversely affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems.
Any of these occurrences could result in our diminished ability to operate one or more of our businesses, potential liability to clients, reputational damage and regulatory intervention, which could adversely affect us. We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, which may include, for example, computer viruses or electrical or telecommunications outages or natural disasters, or events arising from local or regional politics, including terrorist acts. Such disruptions may give rise to losses in service to clients and loss or liability to us. In addition there is the risk that our controls and procedures as well as business continuity and data security systems prove to be inadequate. Any such failure could affect our operations and could adversely affect our results of operations by requiring us to expend significant resources to correct the defect, as well as by exposing us to litigation or losses not covered by insurance.
Competition in the financial services industry is intense and could result in losing business or reducing margins.
We operate in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological changes, and continued consolidation. We face aggressive competition from other domestic and foreign lending institutions and from numerous other providers of financial services. The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition. Because non-banking financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with

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greater flexibility and lower cost structures. Securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. This may significantly change the competitive environment in which we conduct business. Some of our competitors have greater financial resources and/or face fewer regulatory constraints. As a result of these various sources of competition, we could lose business to competitors or be forced to price products and services on less advantageous terms to retain or attract clients, either of which would adversely affect our profitability.
Maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services.
Our success depends, in part, on our ability to adapt products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices. This can reduce net interest income and noninterest income from fee-based products and services. In addition, the widespread adoption of new technologies could require us to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services. We may not be successful in introducing new products and services in response to industry trends or developments in technology or those new products may not achieve market acceptance. As a result, we could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, or be subject to cost increases.
We may not pay dividends on our common shares.
Holders of our common shares are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common shares, we are not required to do so and may reduce or eliminate our common share dividend in the future. Additionally, our funds to pay dividends or common shares are dependent upon dividends paid to us by the Bank, which are subject to regulatory restrictions in certain circumstances. A reduction in our dividend rate could adversely affect the market price of our common shares.
Our liquidity is dependent upon our ability to receive dividends from our subsidiaries, which accounts for most of our revenue and could affect our ability to pay dividends, and we may be unable to enhance liquidity from other sources.
We are a separate and distinct legal entity from our subsidiaries, notably First Financial Bank. We receive substantially all of our revenue from dividends from our subsidiaries. These dividends are the principal source of funds to pay dividends on our common shares and interest and principal on outstanding debt. Various federal and/or state laws and regulations limit or restrict the amount of dividends that the Bank and certain of our non-bank subsidiaries may pay us. Additionally, if our subsidiaries’ earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, we may not be able to make dividend payments to our common shareholders. As of the close of business on December 31, 2015 , the Bank had $100.8 million available to pay dividends to First Financial without prior regulatory approval.
To enhance liquidity, we may from time to time borrow under credit facilities or other indebtedness. Turbulence in the capital and credit markets may cause many lenders and institutional investors to reduce or cease to provide funding to borrowers and, as a result, we may not be able to further increase liquidity through additional borrowings.
Limitations on our ability to receive dividends from our subsidiaries or an inability to increase liquidity through additional borrowings, or inability to maintain, renew or replace existing credit facilities, could have a material adverse effect on our liquidity and on our ability to pay dividends on our common shares and interest and principal on our debt. As of December 31, 2015, we had indebtedness of $1.1 billion .
If our regulators deem it appropriate, they can take regulatory actions that could impact our ability to compete for new business, constrain our ability to fund our liquidity needs, and increase the cost of our services.
First Financial and its subsidiaries are subject to the supervision and regulation of various State and Federal regulators, including the OCC, the Federal Reserve Board, the FDIC, SEC, the Financial Industry Regulatory Authority (FINRA), and various state regulatory agencies. As such, we are subject to a wide variety of laws and regulations. As part of their supervisory process, which includes periodic examinations and continuous monitoring, the regulators have the authority to impose restrictions or conditions on our activities and the manner in which we manage the organization. These actions could impact the organization in a variety of ways, including subjecting us to monetary fines, restricting our ability to pay dividends, precluding mergers or acquisitions, limiting our ability to offer certain products or services, or imposing additional capital, operating, or oversight requirements.
Disruptions in our ability to access capital markets may negatively affect our capital resources and liquidity.
In managing our consolidated balance sheet, we depend on wholesale capital markets to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, and to accommodate the transaction and cash management needs of our clients. Other sources of funding available to us, and upon which we rely as regular components of

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our liquidity risk management strategy, include inter-bank borrowings, repurchase agreements, and borrowings from the Federal Home Loan Bank system. Any occurrence that may limit our access to these sources, such as a decline in the confidence of debt purchasers, a downgrade in our credit rating, or our depositors or counterparties participating in the capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity.

A reduction in our credit rating could adversely affect us or the holders of our securities.

The credit rating agencies rating our indebtedness regularly evaluate the Company, and credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry and the economy and changes in rating methodologies. There can be no assurance that we will maintain our current credit rating. A downgrade of the credit rating of the Company could adversely affect our access to liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to us or purchase our securities. This could affect our growth, profitability and financial condition, including liquidity.

Our ability to retain key officers and employees may change.

Our future operating results depend substantially upon the continued service of our executive officers and key personnel. Our future operating results also depend in significant part upon our ability to attract and retain qualified management, lending, financial, technical, marketing, sales, and support personnel. Competition for qualified personnel is intense and we cannot ensure success in attracting or retaining qualified personnel. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for us to hire personnel over time.

Our ability to retain key officers and employees may be further impacted by legislation and regulation affecting the financial services industry. For example, legislation and bank regulatory action that places restrictions on executive compensation at, and the pay practices of, financial institutions may further impact our ability to compete for talent with other industries that are not subject to the same limitations as financial institutions.

Our business, financial condition, or results of operations could be materially adversely affected by the loss of any of our key employees, or our inability to attract and retain skilled employees.

Potential acquisitions may disrupt our business and dilute shareholder value and we may not be able to successfully consummate or integrate such acquisitions.
Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:
•
potential exposure to unknown or contingent liabilities of the target company;
•
exposure to potential asset quality issues of the target company;
•
difficulty and expense of integrating the operations and personnel of the target company;
•
difficulty or added costs in the wind-down of non-strategic operations;
•
potential disruption to our business;
•
potential diversion of our management’s time and attention;
•
the possible loss of key employees and customers of the target company;
•
difficulty in estimating the value (including goodwill) of the target company;
•
difficulty in receiving appropriate regulatory approval for any proposed transaction;
•
difficulty in estimating the fair value of acquired assets, liabilities and derivatives of the target company; and
•
potential changes in banking, or tax laws or regulations or accounting rules that may affect the target company.

We regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, merger or acquisition discussions and, in some cases negotiations, may take place and future mergers or acquisitions involving cash, debt or equity securities may occur at any time. Acquisitions could involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. Furthermore, any difficulty integrating businesses acquired as a result of a merger or acquisition and the failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have an adverse impact on our liquidity, results of operations, and financial condition and any such integration could divert management’s time and attention from managing our company in an effective manner.

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Any merger or acquisition opportunity that we decide to pursue will ultimately be subject to regulatory approval or other closing conditions. We may expend substantial time and resources pursuing potential acquisitions which may not be consummated because regulatory approval or other closing requirements are not satisfied. Additionally, the banking regulators and applicable laws and regulations may restrict our ability to engage in acquisitions under certain circumstances.
Our accounting policies and processes are critical to how we report our financial condition and results of operations. They require management to make estimates about matters that are uncertain.
Accounting policies and processes are fundamental to how we record and report our financial condition and results of operations. Management must exercise judgment in selecting and applying many of these accounting policies and processes so they comply with Generally Accepted Accounting Principles in the United States (GAAP).
Management has identified certain accounting policies as being critical because they require management’s judgment to ascertain the valuations of assets, liabilities, commitments, and contingencies. A variety of factors could affect the ultimate valuation that is made either when recording income, recognizing an expense, recovering an asset, valuing an asset or liability, or reducing a liability. We have established detailed policies and control procedures that are intended to ensure these critical accounting estimates and judgments are well controlled and applied consistently. In addition, our policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the uncertainty surrounding our judgments and the estimates pertaining to these matters, we cannot guarantee that we will not be required to adjust accounting policies or restate prior period financial statements.
See the “Critical Accounting Policies” in the MD&A and Note 1, “Summary Of Significant Accounting Policies,” to the Consolidated Financial Statements, in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information.
Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.
From time to time, the Financial Accounting Standards Board (FASB) and SEC change the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior period financial statements.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Securities and Exchange Act of 1934 (Exchange Act) is accurately accumulated and communicated to management, and recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, that alternative reasoned judgments can be drawn, or that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
Our financial instruments carried at fair value expose us to certain market risks.
We maintain an available for sale investment securities portfolio which includes assets with various types of instruments and maturities. At times, we also maintain certain assets that are classified and accounted for as trading assets. The changes in fair value of the available for sale securities are recognized in shareholders' equity as a component of other comprehensive income. The changes in fair value of financial instruments classified as trading assets are carried at fair value and recognized in earnings. The fair value of financial instruments carried at fair value is exposed to market risks related to changes in interest rates and market liquidity. We manage the market risks associated with these instruments through broad asset/liability management strategies. Changes in the market values of these financial instruments could have a material adverse impact on our financial condition or results of operations. We may classify additional financial assets or financial liabilities at fair value in the future.
Our revenues derived from our investment securities may be volatile and subject to a variety of risks .

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We generally maintain investment securities and trading positions in the fixed income markets. Unrealized gains and losses associated with our investment portfolio and mark to market gains and losses associated with our trading portfolio are affected by many factors, including our credit position, interest rate volatility, volatility in capital markets, and other economic factors. Our return on such investments could experience volatility and such volatility may materially adversely affect our financial condition and results of operations. Additionally, accounting regulations may require us to record a charge prior to the actual realization of a loss when market valuations of such securities are impaired and such impairment is considered to be other than temporary.
We are subject to ongoing tax examinations in various jurisdictions. The Internal Revenue Service and other taxing jurisdictions may propose various adjustments to our previously filed tax returns. It is possible that the ultimate resolution of such proposed adjustments, if unfavorable, may be material to the results of operations in the period it occurs.
In the ordinary course of business, we operate in various taxing jurisdictions and are subject to income and non-income taxes. The effective tax rate is based in part on our interpretation of the relevant current tax laws. We believe the aggregate liabilities related to taxes are appropriately reflected in our consolidated financial statements. We review the appropriate tax treatment of all transactions taking into consideration statutory, judicial, and regulatory guidance in the context of our tax positions. In addition, we rely on various tax opinions, recent tax audits, and historical experience.
From time to time, we engage in business transactions that may have an effect on our tax liabilities. Where appropriate, we have obtained opinions of outside experts and have assessed the relative merits and risks of the appropriate tax treatment of business transactions taking into account statutory, judicial, and regulatory guidance in the context of the tax position. However, changes to our estimates of accrued taxes can occur due to changes in tax rates, implementation of new business strategies, resolution of issues with taxing authorities regarding previously taken tax positions prior to acquisition and newly enacted statutory, judicial, and regulatory guidance. Such changes could affect the amount of our accrued taxes and could be material to our financial position and/or results of operations. In addition, the tax treatment of FDIC-assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition dates.
In the event the Internal Revenue Service, State of Ohio, or other state tax officials propose adjustments to our previously filed tax returns (or those of our subsidiaries), it is possible that the ultimate resolution of the proposed adjustments, if unfavorable, may be material to the results of operations in the period it occurs.
Changes in tax laws could adversely affect our performance.
We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, franchise, withholding and ad valorem taxes. Changes to our taxes could have a material adverse effect on our results of operations. In addition, our customers are subject to a wide variety of federal, state and local taxes. Changes in taxes paid by our customers may adversely affect their ability to purchase homes or consumer products, which could adversely affect their demand for our loans and deposit products. In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.
The benefits of our FDIC loss-sharing agreements may be reduced or eliminated.
In connection with the Bank’s assumption of the banking operations of Peoples, Irwin Union Bank and Irwin FSB, the Bank and the FDIC entered into Whole Bank Purchase and Assumption Agreements with Loss-Share. Our decisions regarding the fair value of assets acquired, including the FDIC indemnification asset, could be inaccurate which could materially and adversely affect our business, financial condition, results of operations, and future prospects. Management makes various assumptions and judgments about the collectibility of the acquired loans, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of secured loans. In FDIC-assisted acquisitions that include loss-sharing agreements, we record an indemnification asset that reflects our estimate of the timing and amount of reimbursements for losses on covered assets. In determining the size of the indemnification asset, we analyze the loan portfolio based on historical loss experience, volume and classification of loans, volume and trends in delinquencies and nonaccruals, local economic conditions, and other pertinent information.
If our assumptions relating to the timing or amount of expected losses are incorrect, there could be a negative impact on our operating results. Increases in the amount of future losses in response to different economic conditions or adverse developments in the acquired loan portfolio may result in increased credit loss provisions. Changes in our estimate of the timing of those losses, specifically if those losses are to occur beyond the applicable loss-sharing periods, may result in impairments of the FDIC indemnification asset.

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Under the Purchase and Assumption Agreements, loss-sharing coverage for loans that are not single family residential loans expired in 2014. Loss-sharing coverage for single family residential loans will expire ten years from each respective acquisition date.
Item 1B.  Unresolved Staff Comments.
None.

Item 2.  Properties.
At December 31, 2015, the Company operated 106 banking centers.  Our core banking operating markets are located within the three state region of Ohio, Indiana, and Kentucky. First Financial's executive office is in Cincinnati, Ohio and we operate 62 banking centers in Ohio, 40 banking centers in Indiana and four banking centers in Kentucky. In addition, we operate our franchise lending business and our insurance lending business from non-banking center locations in New Jersey and Indiana, respectively.

Item 3.  Legal Proceedings.
We are from time to time engaged in various litigation matters including the defense of claims of improper or fraudulent loan practices or lending violations, and other matters, and we have a number of unresolved claims pending. In addition, as part of the ordinary course of business, we 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, we believe that damages, if any, and other amounts relating to pending matters are not likely to be material to our consolidated financial position or results of operations, except as described above. 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.

On at least a quarterly basis, First Financial assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. For those matters where it is probable that First Financial will incur a loss and the amount of the loss can be reasonably estimated, First Financial records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. For other matters, where a loss is not probable or the amount of the loss is not estimable, First Financial has not accrued legal reserves. While the outcome of legal proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance coverage, First Financial’s management believes that its established legal reserves are currently adequate. However, in the event of unexpected future developments, it is possible that the ultimate resolution of these matters, if unfavorable, may be material to First Financial’s consolidated financial position, consolidated results of operations or consolidated cash flows.
 
Item 4. Mine Safety Disclosures.
Not applicable.

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Supplemental Item. Executive Officers of the Registrant.

The following table sets forth information concerning the executive officers of First Financial as of February 10, 2015. The executive officers are either officers of First Financial or officers of a subsidiary of First Financial, as indicated in the below table, who perform policy-making functions for First Financial. The officers are elected annually at the organizational meetings of the boards of directors of their respective affiliates and serve until the next organizational meeting, or until their successors are elected and duly qualified.
 
 
Position with
First Financial Bancorp
 
Position with
First Financial Bank or a Subsidiary
 
Age
Claude E. Davis
 
Chief Executive Officer
 
Chief Executive Officer
 
55
 
 
 
 
 
 
 
Anthony M. Stollings
 
President, Chief Operating Officer
 
Chief Operating Officer
 
61
 
 
 
 
 
 
 
John M. Gavigan
 
Chief Financial Officer and Principal Accounting Officer
 
Chief Financial Officer
 
37
 
 
 
 
 
 
 
Matthew B. Burgess
 
Chief Internal Auditor
 
Chief Internal Auditor
 
56
 
 
 
 
 
 
 
Holly M. Foster
 
Chief Compliance Officer
 
Chief Compliance Officer
 
39
 
 
 
 
 
 
 
Shannon M. Kuhl
 
Chief Legal Officer and Corporate Secretary
 
Chief Legal Officer and Corporate Secretary
 
45
 
 
 
 
 
 
 
Alisa E. Poe
 
Chief Talent Officer
 
Chief Talent Officer
 
54
 
 
 
 
 
 
 
William J. Sorg
 
Chief Risk Officer
 
Chief Risk Officer
 
42
 
 
 
 
 
 
 
Richard Barbercheck
 
 
 
Chief Credit Officer
 
57
 
 
 
 
 
 
 
Richard S. Dennen
 
 
 
President, Oak Street Funding, LLC
 
49
 
 
 
 
 
 
 
Gregory A. Harris
 
 
 
Senior Vice President, Wealth Management
 
47
 
 
 
 
 
 
 
C. Douglas Lefferson
 
 
 
President, Community Banking
 
51
 
 
 
 
 
 
 
Bradley J. Ringwald
 
 
 
President, Corporate and Specialty Banking
 
42
 
 
 
 
 
 
 
Jill A. Stanton
 
 
 
President, Mortgage Banking
 
53

The following is a brief description of the business experience over the past five years of the individuals named above.

Claude E. Davis — Claude Davis is the Chief Executive Officer of both First Financial Bancorp and First Financial Bank, positions he has held since October 1, 2004.  He has served on the board of directors of each of First Financial Bancorp and First Financial Bank since October 1, 2004 and also has been Chairman of the Board of Directors of First Financial Bank since October 1, 2004.  From October 1, 2004 until December 1, 2014, Mr. Davis held the title of President First Financial Bancorp.  From October 1, 2004 until August 20, 2013, Mr. Davis held the title of President of First Financial Bank.  Mr. Davis has over 28 years of experience in the financial services industry.

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Anthony M. Stollings — Anthony Stollings presently holds the title of President and Chief Operating Officer of First Financial Bancorp and Chief Operating Officer of First Financial Bank following his appointment to these positions in December 2014.  He served as the Chief Financial Officer of each of First Financial Bancorp and First Financial Bank from January 2013 through November 2014.  Mr. Stollings also served as the Chief Risk Officer of each of First Financial Bancorp and First Financial Bank from September 2011 through January 2013.  Mr. Stollings served as the Chief Accounting Officer of each of First Financial Bancorp and First Financial Bank from his hire in December 2006 until September 2011. He has more than 35 years of experience in the financial services industry.

John M. Gavigan — John Gavigan is the Chief Financial Officer of both First Financial Bancorp and First Financial Bank where he is responsible for the Company’s Finance, Accounting, Treasury and Investor Relations areas.  He was appointed to these roles in December 2014.  He previously served as Corporate Controller from 2011 through 2014 and as Assistant Controller from 2008 through 2011.  Mr. Gavigan is a certified public accountant (inactive).

Matthew B. Burgess — Matt Burgess is the Chief Internal Auditor of each of First Financial Bancorp and First Financial Bank, a role he has held since joining First Financial in October 2011.  Before joining First Financial, he held audit department leadership and general audit positions in several financial institutions and external auditor consultants.  Mr. Burgess is a certified public accountant, certified internal auditor (CIA), and certified information systems auditor (CISA).

Holly M. Foster — Holly Foster is the Chief Compliance Officer of each of First Financial Bancorp and First Financial Bank, positions she has held since December 2014.  Before her current role, she served as the Chief Risk Officer for each of First Financial Bancorp and First Financial Bank from February 2013 until December 2014.  Ms. Foster served as Operational Risk Director from 2010 until 2013 and as Compliance Officer and Regulatory Risk Manager from 2006 until 2010.  She has been employed with the company since 1999.

Shannon M. Kuhl — Shannon Kuhl is the Chief Legal Officer of First Financial Bancorp and First Financial Bank, positions she has held since November 2013. She served as Chief Bank Counsel from August 2013 until November 2013. Ms. Kuhl served as Associate General Counsel from her hire in 2006 until August 2013.

Alisa E. Poe — Alisa Poe presently holds the position of Chief Talent Officer of First Financial Bancorp and First Financial Bank, to which she was appointed in April 2010.  Ms. Poe also held the position of Chief of Staff of First Financial Bancorp and First Financial Bank from January 2014 to September 2015.  Ms. Poe joined the company in September 2009 as Chief Human Resources Officer.  Ms. Poe has over 26 years of experience in the human resources profession.

William J. Sorg — William “Skip” Sorg is the Chief Risk Officer of First Financial Bancorp and First Financial Bank, positions he has held since December 2014.  He previously served as the First Vice President of Financial Planning and Balance Sheet Management from April 2013 through November 2014.  Mr. Sorg joined First Financial in October 2009 as the Vice President of Asset Liability Management, a position he held through March 2013.

Richard Barbercheck — R ichard Barbercheck is the Chief Credit Officer of First Financial Bank, a position he has held since July 2006.  He first joined First Financial in 2005 as the Chief Risk Officer.  Mr. Barbercheck has over 34 years of banking experience with a predominance of experience in the commercial lending and credit administration areas.

Richard S. Dennen - Rick Dennen is the President of Oak Street Funding, LLC. Mr. Dennen founded Oak Street Funding in 2003 and served as its President and Chief Executive Officer through the purchase of the company by the Bank in August 2015. Mr. Dennen is a certified public accountant.

Gregory A. Harris - Greg Harris is the Senior Vice President of First Financial Bank’s Wealth Management group. He joined the Bank in 2009 as First Vice President of the Wealth Management group. Mr. Harris has more than 25 years of experience in the financial services industry.

C. Douglas Lefferson — Doug Lefferson presently holds the position of President, Community Banking of First Financial Bank. He was appointed to this position effective December 2014. Mr. Lefferson previously served as President, Eastern Markets effective January 2014 until December 2014 and as President, Commercial Banking and Wealth Management from September 2013 until January 2014. He served as the Chief Banking Officer of First Financial Bank from November 2010 until September 2013. Mr. Lefferson also previously served as the Chief Operating Officer of First Financial Bancorp and First Financial Bank from April 2005 until November 2010 and as the Chief Financial Officer of First Financial Bancorp and First Financial Bank from January 2002 until April 2005. Mr. Lefferson joined First Financial in 1986 and has spent his entire banking career in various positions within the company.

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Bradley J. Ringwald — Mr. Ringwald is the President of Corporate and Specialty Banking of First Financial Bank, a position he has held since February 2016.  In this role, he is responsible for managing the Bank’s corporate banking products and specialty banking, including Business Capital, Equipment Finance, and Franchise Finance.  Prior to his current role, he was President of Specialty Banking from July 2014 until February 2016, the President of Corporate Banking from September 2013 until July 2014, the Commercial and Industrial Lending Product Manager from July 2011 to September 2013, and the Senior Vice President of Commercial and Industrial Lending from February 2010 to July 2011.  Mr. Ringwald first joined First Financial in 2006.  Mr. Ringwald has over 20 years of commercial banking experience and is a certified public accountant (inactive).

Jill A. Stanton — Jill Stanton presently serves as the President, Mortgage Banking, a position she has held since September 2013. She previously served as the Co-Chief Retail Banking Officer from June 2010 until September 2013. Ms. Stanton joined First Financial as the Senior Vice President of Retail and Small Business Lending in 2008. Prior to joining First Financial, she served as Senior Vice President at Irwin Union Bank and Trust Company, Columbus, Indiana. Ms. Stanton has over 25 years of experience within the financial services industry.



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PART II

Item 5 . Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a)            Market information, holders, dividends
First Financial's common shares are listed on The NASDAQ Global Select Stock Market® under the symbol "FFBC." The information contained in the “Quarterly Financial And Common Stock Data” in First Financial’s Annual Report to Shareholders for the year ended December 31, 2015 with respect to our stock price and dividends, is incorporated herein by reference in response to this item.

As of February 22, 2016 , our common shares were held by approximately 2,543 shareholders of record, a number that does not include beneficial owners who hold shares in “street name”, or shareholders from previously acquired companies that have not exchanged their stock. At December 31, 2015 , a total of 239,898 stock options and 643,641 shares of restricted stock were outstanding. Additional information about stock options, restricted stock and restricted stock units is included in Note 17 - Stock Options and Awards in the Notes to Consolidated Financial Statements in First Financial’s 2015 Annual Report and in Item 12 below.
The payment of future cash dividends is at the discretion of our Board and subject to a number of factors, including results of operations, general business conditions, growth, financial condition, regulatory limitation and other factors deemed relevant by the Board of Directors. Further, our ability to pay future cash dividends is subject to certain regulatory requirements and restrictions discussed in the Supervision and Regulation section in Item 1 above. For further information see Note 3 - Restrictions on Cash and Dividends in the Notes to Consolidated Financial Statements of First Financial's 2015 Annual Report (included as Exhibit 13 of this report), which is incorporated by reference in response to this item.

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2015 with respect to compensation plans under which of our common shares may be issued:

Securities authorized for issuance under equity compensation plans

 
 
Number of securities to be issued
upon exercise of
 outstanding options,
warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities
 remaining available for
 future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
Plan category
 
(a)
 
(b)
 
(c) (1)
Equity compensation plans approved by security holders
 
239,898

 
$
13.60

 
882,560

Equity compensation plans not approved by security holders
 
N/A

 
N/A

 
N/A


(1)
The securities included in this column are available for issuance under the First Financial Bancorp. 2012 Stock Plan (2012 Plan).  The 2012 plan includes provisions regarding adjustments to the number of securities available for future issuance under the respective plans in the event of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of First Financial affecting First Financial’s common shares.  In any of the foregoing events, the 2012 Plan permits the Board of Directors or the Compensation Committee of the board to make such substitution or adjustments in the aggregate number and kind of shares available for issuance under the respective plans as the Board of Directors or the Compensation Committee, as the case may be, determine to be appropriate in its sole discretion.  All of the securities reported in column (c) are available under the 2012 Plan.

N/A - Not applicable.


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Stock Performance Graph

The stock performance graph contained in “Total Return to Shareholders” of First Financial's 2015 Annual Report (included as Exhibit 13 of this report), is incorporated herein by reference in response to this item.

(b)
Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
 
(c)
The following table shows the total number of shares repurchased in the fourth quarter of 2015 .

Issuer Purchases of Equity Securities
 
 
(a)
 
(b)
 
(c)
 
(d)
Period
 
Total Number 
of Shares 
Purchased  (1)
 
Average 
Price Paid 
Per Share
 
Total Number of 
Shares Purchased as 
Part of Publicly 
Announced Plans  (2)
 
Maximum Number of
Shares that may yet 
be purchased Under 
the Plans
October 1 to October 31, 2015
 
 
 
 
 
 
 
 
Share repurchase program
 
91,032

 
$
18.85

 
91,032

 
3,509,133

Stock Plans
 
23,200

 
19.01

 
N/A

 
N/A

November 1 to November 30, 2015
 
 

 
 

 
 

 
 

Share repurchase program
 
0

 
$
0.00

 
0

 
3,509,133

Stock Plans
 
16,880

 
20.09

 
N/A

 
N/A

December 1 to December 31, 2015
 
 

 
 

 
 

 
 

Share repurchase program
 
0

 
$
0.00

 
0

 
3,509,133

Stock Plans
 
0

 
0.00

 
N/A

 
N/A

Total
 
 

 
 

 
 

 
 

Share repurchase program
 
91,032

 
$
18.85

 
91,032

 
 

Stock Plans
 
40,080

 
$
19.47

 
N/A

 
 


(1)
Except with respect to the share repurchase program, the number of shares purchased in column (a) and the average price paid per share in column (b) include the purchase of shares other than through publicly announced plans.  The shares purchased other than through publicly announced plans were purchased pursuant to First Financial’s 1999 Stock Option Plan for Non-Employee Directors, 1999 Stock Incentive Plan for Officers and Employees, 2009 Employee Stock Plan, Amended and Restated 2009 Non-Employee Director Stock Plan and 2012 Stock Plan (collectively referred to hereafter as the Stock Plans).  The table shows the number of shares purchased pursuant to those plans and the average price paid per share.  Under the Stock Plans, shares were purchased from plan participants at the then current market value in satisfaction of stock option exercise prices.
(2)
First Financial has one remaining previously announced stock repurchase plan under which it is currently authorized to purchase shares of its common stock.   The plan has no expiration date.  The table that follows provides additional information regarding this plan.  

Announcement
Date
 
Total Shares
 Approved for
 Repurchase
 
Total Shares
Repurchased
Under
The Plan
 
Expiration
 Date
10/25/2012
 
5,000,000

 
1,490,867

 
None

 
Item 6.  Selected Financial Data.
The information contained in Table 1 of the Management’s Discussion and Analysis section of First Financial's 2015 Annual Report (included as Exhibit 13 of this report), is incorporated herein by reference in response to this item.

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results Of Operations.
The information contained in the Management’s Discussion and Analysis section (including certain forward looking statements) of First Financial’s 2015 Annual Report (included as Exhibit 13 of this report) is incorporated herein by reference in response to this item.

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk.
The information contained in the Market Risk section and in Table 15-Market Risk Disclosure of the Management’s Discussion and Analysis section in First Financial's 2015 Annual Report (included as Exhibit 13 of this report), is incorporated herein by reference in response to this item.

Item 8.  Financial Statements and Supplementary Data.
The consolidated financial statements and the reports of our independent registered public accounting firm included in the Consolidated Financial Statements and the Notes to Consolidated Financial Statements in First Financial’s 2015 Annual Report (included as Exhibit 13 of this report), are incorporated herein by reference.

The Quarterly Financial and Common Stock Data at the end of the Notes to Consolidated Financial Statements in First Financial’s 2015 Annual Report (included as Exhibit 13 of this report), is incorporated herein by reference.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

Item 9A.        Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") that are designed to cause the material information required to be disclosed by First Financial in the reports it files or submits under the Exchange Act to be recorded, processed, summarized, and reported to the extent applicable within the time periods required by the Securities and Exchange Commission’s rules and forms (the disclosure controls and procedures).  In designing and evaluating the disclosure controls and procedures, management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

First Financial’s chief executive officer and chief financial officer, together with other members of senior management, have evaluated the disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, First Financial’s chief executive officer and chief financial officer have concluded that the disclosure controls and procedures are effective (i) to ensure that material information relating to First Financial, including its consolidated subsidiaries, is communicated to them on a timely basis, and (ii) to accomplish the purposes for which they were designed.

On August 14, 2015, First Financial acquired Oak Street Holdings Corporation. The internal control over financial reporting of Oak Street's operations were excluded from the evaluation of effectiveness of First Financial's disclosure controls and procedures as of the period end covered by this report as a result of the timing of the acquisition. As a result of the Oak Street acquisition, First Financial will be evaluating changes to processes, information technology systems and other components of internal control over financial reporting as part of its integration activities. The acquired Oak Street operations represents 3.2% of total consolidated assets as of the period covered by this report.

Internal Control Over Financial Reporting
Management's Report On Internal Control Over Financial Reporting and the Report Of Independent Registered Public Accounting Firm included in First Financial’s 2015 Annual Report (included as Exhibit 13 of this report), are incorporated herein by reference.

Changes in Internal Controls
First Financial maintains a system of internal accounting controls, which includes internal control over financial reporting, that is designed to provide reasonable assurance that First Financial’s financial records can be relied upon for preparation of its financial statements and that its assets are safeguarded against loss from unauthorized use or disposition.  There were no changes in First Financial’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, First Financial’s internal control over financial reporting during the year ended December 31, 2015 .


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Item 9B.  Other Information.
None.


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PART III

Item 10.  Directors, Executive Officers and Corporate Governance.
Certain information concerning executive officers of First Financial has been supplied in the “Supplemental Item. Executive Officers of the Registrant” of this Form 10-K. Information appearing under “Election of Directors,” “Corporate Governance - Board Committees,” “Compliance with Section 16(a) of the Exchange Act,” and “Shareholder Nominations for Election to the Board” of First Financial's Definitive Proxy Statement with respect to the Annual Meeting of Shareholders to be held on
May 24, 2016 , and which is expected to be filed with the SEC, pursuant to Regulation 14A of the Exchange Act (First Financial’s Proxy Statement) within 120 days of the close of our fiscal year, is incorporated herein by reference in response to this item.

First Financial has adopted a code of ethics, the First Financial Bancorp. Code of Conduct, which applies to First Financial’s directors, officers and employees.  In addition, the Company maintains a Code of Ethics for the CEO and Senior Financial Officers. Both documents are available through First Financial’s website, www.bankatfirst.com under the “Investor Relations” link, at the bottom of the main page.

Item 11.  Executive Compensation.
The information appearing under the headings “Meetings of the Board of Directors and Committees of the Board,” “Compensation Discussion and Analysis,” “Executive Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” in First Financial’s Proxy Statement is incorporated herein by reference in response to this item.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information appearing under the headings “Securities Authorized for Issuance Under Equity Compensation Plans” set forth in Part II, Item 5 and “Shareholdings of Directors, Executive Officers, and Nominees for Director” of First Financial’s Proxy Statement is incorporated herein by reference in response to this item.

Item 13.  Certain Relationships and Related Transactions.
The information appearing in Note 12 - Loans to Related Parties in the Notes to Consolidated Financial Statements included in First Financial’s 2015 Annual Report (included as Exhibit 13 of this report) is incorporated herein by reference in response to this item.  Reference is also made to information appearing under the heading “Corporate Governance - Transactions with Related Parties” in First Financial’s Proxy Statement in response to this item.

Item 14.  Principal Accounting Fees and Services.
Information appearing under the heading “Independent Registered Public Accounting Firm Fees” in First Financial’s Proxy Statement is incorporated herein by reference in response to this item.



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PART IV

Item 15.  Exhibits, Financial Statement Schedules.

(a)
(1)
The consolidated financial statements (and report thereon) listed below are incorporated herein by reference from First Financial’s 2015 Annual Report (included as Exhibit 13 of this report) as noted:
 
 
 
 
 
Reports of Independent Registered Public Accounting Firm - Incorporated by reference from First Financial’s 2015 Annual Report
 
 
 
 
 
Consolidated Balance Sheets as of December 31, 2015 and 2014 - Incorporated by reference from First Financial’s 2015 Annual Report
 
 
 
 
 
Consolidated Statements of Income for years ended December 31, 2015, 2014, and 2013 - Incorporated by reference from First Financial’s 2015 Annual Report
 
 
 
 
 
Consolidated Statements of Comprehensive Income for years ended December 31, 2015, 2014, and 2013 - Incorporated by reference from First Financial’s 2015 Annual Report
 
 
 
 
 
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2015, 2014, and 2013 - Incorporated by reference from First Financial’s 2015 Annual Report
 
 
 
 
 
Consolidated Statements of Cash Flows for years ended December 31, 2015, 2014, and 2013 - Incorporated by reference from First Financial’s 2015 Annual Report
 
 
 
 
 
Notes to Consolidated Financial Statements - Incorporated by reference from First Financial’s 2015 Annual Report
 
 
 
 
(2)
Financial Statement Schedules: Schedules to the consolidated financial statements required by Regulation S-X are not required under the related instructions, or are inapplicable, and therefore have been omitted
 





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(a)(3) Exhibits:

The documents listed below are filed/furnished with this Annual Report on Form 10-K as exhibits or incorporated into this Annual Report on Form 10-K by reference as noted:

Exhibit
Number
2.1
Purchase and Assumption Agreement Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of Peoples Community Bank, West Chester, Ohio, the Federal Deposit Insurance Corporation and First Financial Bank, National Association, dated as of July 31, 2009 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 31, 2009 and incorporated herein by reference) (Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K)(File No. 000-12379).

2.2
Purchase and Assumption Agreement Modified Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of Irwin Union Bank and Trust Company, Columbus, Indiana, the Federal Deposit Insurance Corporation and First Financial, dated as of September 18, 2009 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on September 23, 2009 and incorporated herein by reference) (Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (File No. 000-12379).

2.3
Purchase and Assumption Agreement Modified Whole Bank All Deposits, among the Federal Deposit Insurance Corporation, receiver of Irwin Union Bank, F.S.B., Louisville, Kentucky, the Federal Deposit Insurance Corporation and First Financial, dated as of September 18, 2009 (filed as Exhibit 2.2 to the Registrant’s Current Report on Form 8-K filed on September 23, 2009 and incorporated herein by reference) (Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (File No. 000-12379).

2.4
Agreement and Plan of Merger between First Financial, First Financial Bank, National Association and The First Bexley Bank dated as of December 17, 2013 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on December 23, 2013 and incorporated herein by reference)(certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (File No. 001-34762).
2.5
Agreement and Plan of Merger between First Financial Bancorp., First Financial Bank, National Association, and Insight Bank, dated as of December 19, 2013 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on December 23, 2013 and incorporated herein by reference)(certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (File No. 001-34762).
2.6
Agreement of Merger among First Financial Bancorp, Guernsey Bancorp, Inc., and Robert D. Patrella, dated as of April 29, 2014 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on May 5, 2014 and incorporated herein by reference)(certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (File No. 001-34762).
2.7
Agreement and Plan of Merger by and among First Financial Bank, National Association, AG-OSF Holdings, LLC, and Oak Street Holdings Corporation dated July 23, 2015 (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on July 24, 2015 and incorporated herein by reference)(certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K) (File No. 001-34762).
3.1
Amended Articles of Incorporation of First Financial Bancorp (reflecting all amendments filed with the Ohio Secretary of State) [for purposes of SEC reporting compliance only - not filed with the Ohio Secretary of State] (filed as exhibit 3.1 to the Form S-3 on July 31, 2014 and incorporated hereby by reference)(File No. 333-197771).
3.2
Amended and Restated Regulations of First Financial Bancorp, amended as of July 28, 2015 (filed as Exhibit 3.1 to the Form 8-K filed on July 29, 2015 and incorporated herein by reference) (File No. 000-34762).
4.1
Letter Agreement, dated as of December 23, 2008, between First Financial Bancorp. and the United States Department of the Treasury, which includes the Securities Purchase Agreement - Standard Terms (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 30, 2008, and incorporated herein by reference) (File No. 000-12379).
4.2
Warrant to Purchase up to 930,233 shares of Common Stock dated as of December 23, 2008 (filed as Exhibit 4.1 to the Form 8-K filed on December 30, 2008 and incorporated herein by reference) (File No. 000-12379).
4.3
Indenture, dated as of August 25, 2015, by and between First Financial Bancorp. and Wells Fargo Bank, National Association, as Trustee. (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on August 26, 2015, and incorporated herein by reference) (File No. 000-34762)
4.4
Supplemental Indenture, dated as of August 25, 2015, by and between First Financial Bancorp. and Wells Fargo Bank, National Association, as Trustee. (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on August 26, 2015, and incorporated herein by reference) (File No. 000-34762).
4.5
Form of 5.125% Subordinated Note due 2025 (included as part of Exhibit 4.4 to this Annual Report).
10.1
First Financial Bancorp. Dividend Reinvestment and Share Purchase Plan, dated April 24, 1997 (incorporated herein by reference to a Registration Statement on Form S-3)(File No. 333-25745).
10.2
First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees, dated April 27, 1999 (incorporated herein by reference to a Registration Statement on Form S-3) (File No. 333-86781).*

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10.3
Form of Stock Option Agreement for Incentive Stock Options (2005 - 2008) under the First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees (filed as Exhibit 10.1 to the Form 8-K filed on April 22, 2005 and incorporated herein by reference) (File No. 000-12379).*
10.4
Form of Stock Option Agreement for Non-Qualified Stock Options (2005-2008) under the First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees (filed as Exhibit 10.2 to the Form 8-K filed on April 22, 2005 and incorporated herein by reference) (File No. 000-12379).*
10.5
Form of Agreement for Restricted Stock Awards for 2009 Awards under the First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees (filed as Exhibit 10.30 for the Form 10-Q filed on November 16, 2009 and incorporated herein by reference) (File No. 000-12379).*
10.6
First Financial Bancorp. 1999 Non-Employee Director Stock Plan, as dated April 27, 1999 and amended and restated as of April 26, 2006 (filed as Exhibit 10.11 to the Form 10-Q for the quarter ended March 31, 2006 and incorporated herein by reference) (File No. 000-12379).*
10.7
First Financial Bancorp. Director Fee Stock Plan amended and restated effective April 20, 2004 (filed as Exhibit 10.12 to the Form10-Q for the quarter ended June 30, 2004 and incorporated herein by reference).*
10.8
First Financial Bancorp. 2009 Employee Stock Plan (filed as Appendix A to the Definitive Proxy Statement filed on April 23, 2009 and incorporated herein by reference) (File No. 000-12379).*
10.9
Form of Agreement for Restricted Stock Award under the First Financial Bancorp. 2009 Employee Stock Plan (2011-12 grants) (filed as Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2011 and incorporated herein by reference) (File No. 001-34762).*
10.10
First Financial Bancorp. Amended and Restated 2009 Non-Employee Director Stock Plan (filed as Appendix B to the Definitive Proxy Statement filed on April 13, 2012 and incorporated herein by reference) (File No. 001-34762).*
10.11
Form of Agreement for Restricted Stock Awards under the First Financial Bancorp. 2009 Non-Employee Directors Stock Plan (filed as Exhibit 10.34 to the Form10-Q for the quarter ended June 30, 2010 and incorporated herein by reference) (File No. 001-34762).*
10.12
Form of Executive Supplemental Retirement Agreement (filed as Exhibit 10.7 to the Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference) (File No. 000-12379).*
10.13
Form of Endorsement Method Split Dollar Agreement (filed as Exhibit 10.8 to the Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference) (File No. 000-12379).*
10.14
First Financial Bancorp. Amended and Restated Deferred Compensation Plan (filed as Exhibit 10.9 to the Form 10-Q for the quarter ended March 31, 2010 and incorporated herein by reference) (File No. 000-12379).*
10.15
Employment and Non-Competition Agreement between C. Douglas Lefferson and First Financial Bancorp. dated December 31, 2010 (filed as Exhibit 10.2 to First Financial Bancorp’s Form 8-K filed on January 3, 2011 and incorporated herein by reference) (File No. 001-34762).*
10.16
Employment and Non-Competition Agreement between Claude E. Davis and First Financial Bancorp. dated December 30, 2011 (filed as Exhibit 10.1 to First Financial Bancorp’s Form 8-K filed on January 5, 2012 and incorporated herein by reference) (File No. 001-34762).*
10.17
First Financial Bancorp. Short-Term Incentive Plan (filed as Appendix C to the Definitive Proxy Statement filed on April 19, 2011 and incorporated herein by reference) (File No. 001-34762).*
10.18
Terms of First Financial Bancorp. Short Term Incentive Plan (incorporated by reference to the Form 8-K filed on March 16, 2015) (File No. 001-34762).*
10.19
First Financial Bancorp. Key Executive Short Term Incentive Plan Amended and Restated March 10, 2015 (originally established in 2011)(filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2015 and incorporated herein by reference) (File No. 001-34762).*
10.20
Agreement for Stock Award pursuant to the 2011 Key Executive Incentive Plan between First Financial Bancorp. and Claude E. Davis (filed as exhibit 10.1 to the Form 10-K for the year ended December 31, 2014 and incorporated herein by reference) (File No. 000-34762).*
10.21
Form of Agreement for Stock Award pursuant to the Key Executive Incentive Plan between First Financial Bancorp. (3-year holding period).*
10.22
First Financial Bancorp. 2012 Stock Plan (filed as Appendix A to the Definitive Proxy Statement filed on April 13, 2012 and incorporated herein by reference) (File No. 001-34762).*
10.23
Form of Agreement for Restricted Stock Awards under the First Financial Bancorp. 2012 Stock Plan (3-year vesting/accrual of dividends)(filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)(File No. 001-34762).*
10.24
Agreement for Performance-Based Restricted Stock Awards under the First Financial Bancorp. 2012 Stock Plan between First Financial Bancorp. and Claude E. Davis (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)(File No. 001-34762).*

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10.25
Form of Agreement for 2014 Performance Stock Awards under the First Financial Bancorp. 2012 Stock Plan (3-year vesting/accrual of dividends).*
10.26
Form of Agreement for 2015 Performance Stock Awards under the First Financial Bancorp. 2012 Stock Plan (3-year vesting/accrual of dividends).*
10.27
Form of Agreement for Restricted Stock Awards under the First Financial Bancorp. 2012 Stock Plan (employees of First Financial Bank, 3-year vesting/accrual of dividends).*
10.28
Form of Agreement for Restricted Stock Awards under the First Financial Bancorp. 2012 Stock Plan (employees of Oak Street Funding, 3-year vesting/accrual of dividends).*
10.29
Form of Agreement for Performance Stock Awards under the First Financial Bancorp. 2012 Stock Plan (3-year vesting/accrual of dividends).*
10.30
Form of Agreement for Performance Stock Awards under the First Financial Bancorp. 2012 Stock Plan (employees of Oak Street Funding, 3-year vesting/accrual of dividends).*
10.31
Form of Agreement for Restricted Stock Awards under the First Financial Bancorp. 2012 Stock Plan (Directors, 1-year vest/accrual of dividends).*
10.32
First Financial Bancorp. Amended and Restated Key Management Severance Plan effective January 1, 2013 (as approved November 28, 2012) (filed as exhibit 10.2 to the Form 10-K for the year ended December 31, 2014 and incorporated herein by reference) (File No. 000-34762).*
10.33
Employment and Non-Competition Agreement between First Financial Bancorp and Anthony M. Stollings, EVP - Chief Financial Officer and Chief Administrative Officer dated November 1, 2013 (filed as Exhibit 10.1 to the Form 8-K filed on November 5, 2013 and incorporated herein by reference) (File No. 001-34762).*
10.34
Severance and Change in Control Agreement between First Financial Bancorp. and Kevin T. Langford, President - Consumer Banking dated November 1, 2013 (filed as Exhibit 10.2 to the Form 8-K filed on November 5, 2013 and incorporated herein by reference) (File No. 001-34762).*
10.35
Executive Supplemental Savings Agreement between First Financial Bancorp. and Claude E. Davis, President and Chief Executive Officer dated December 31, 2013 (filed as Exhibit 10.1 to the Form 8-K filed on January 7, 2014 and incorporated herein by reference) (File No. 001-34762).*
10.36
Severance and Change in Control Agreement between First Financial Bancorp. and John M. Gavigan, Chief Financial Officer dated March 13, 2015 (filed as Exhibit 10.1 to the Form 8-K filed on March 16, 2015 and incorporated herein by reference) (File No. 001-34762).*
10.37
Employment and Non-Competition Agreement between First Financial Bank and Richard S. Dennen, President of Oak Street Funding, LLC dated July 23, 2015.*
13
Registrant’s annual report to shareholders for the year ended December 31, 2015.
14.1
First Financial Bancorp. Code of Conduct, as approved October 27,2015.
14.2
Code of Ethics for the CEO and Senior Financial Officers (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 29, 2012 and incorporated herein by reference) (File No. 001-34762)
21
First Financial Bancorp. Subsidiaries.
23
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
32.1
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith.
32.2
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished herewith.
101.1
Financial statements from the Annual Report on Form 10-K of the Company for the year ended December 31, 2015, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Shareholders’ Equity, and (v) Notes to Consolidated Financial Statements, as blocks of text and in detail.**



 
First Financial will furnish, without charge, to a security holder upon request a copy of the documents, portions of which are incorporated by reference (Annual Report to Shareholders and Proxy Statement), and will furnish any other Exhibit upon the payment of reproduction costs.

* Compensation plan(s) or arrangement(s).
** As provided in Rule 406T of Regulation S-T, this information shall not be deemed "filed" for purposes of Section 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934 or otherwise subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST FINANCIAL BANCORP.
 
By: 
/s/ Claude E. Davis
Claude E. Davis, Director
Chief Executive Officer

Date 
2/23/2016

Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Claude E. Davis
 
/s/ John M. Gavigan
Claude E. Davis, Director
 
John M. Gavigan, Senior Vice President and Chief Financial Officer
Chief Executive Officer
 
(Principal Accounting Officer)
 
 
 
 
Date
2/23/2016
 
Date
2/23/2016
 
 
 
 
/s/ Murph Knapke
 
 
Murph Knapke, Director
 
 
Chairman of the Board
 
 
 
 
 
 
 
Date
2/23/2016
 
 
 
 
 
 
 
/s/ J. Wickliffe Ach
 
/s/ David S. Barker
J. Wickliffe Ach, Director
 
David S. Barker, Director
 
 
 
 
Date
2/23/2016
 
Date
2/23/2016
 
 
 
 
/s/ Cynthia O. Booth
 
/s/ Mark A. Collar
Cynthia O. Booth, Director
 
Mark A. Collar, Director
 
 
 
 
Date
2/23/2016
 
Date
2/23/2016
 
 
 
 
/s/ Corinne R. Finnerty
 
/s/ Peter E. Geier
Corinne R. Finnerty, Director
 
Peter E. Geier, Director
 
 
 
 
Date
2/23/2016
 
Date
2/23/2016


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/s/ Susan L. Knust
 
/s/ William J. Kramer
Susan L. Knust, Director
 
William J. Kramer, Director
 
 
 
 
Date
2/23/2016
 
Date
2/23/2016
 
 
 
 
/s/ Jeffrey D. Meyer
 
/s/ John T. Neighbours
Jeffrey D. Meyer, Director
 
John T. Neighbours, Director
 
 
 
Date
2/23/2016
 
Date
2/23/2016
 
 
 
 
 
/s/ Richard E. Olszewski
 
/s/ Maribeth S. Rahe
Richard E. Olszewski, Director
 
Maribeth S. Rahe, Director
 
 
 
 
 
Date
2/23/2016
 
Date
2/23/2016


33


EXHIBIT 10.21

AGREEMENT FOR STOCK AWARD

This Agreement for Stock Award (the "Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation (the "Corporation"), and [insert] (the "Grantee") who, as of [insert] which is the date of this Agreement, is an employee of the Corporation or a Subsidiary (as defined below).
WHEREAS, the Corporation established the Key Executive Short Term Incentive Plan and the 2012 Stock Plan (collectively, the "Plan") and a Committee of the Board of Directors of the Corporation designated in the Plan (the "Committee") approved the execution of this Agreement containing the Stock Award to the Grantee upon the terms and conditions hereinafter set forth:

NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:
1.
Award of Stock . The Corporation hereby awards to Grantee as of the date of this Agreement <insert # of shares> shares of Common Stock of the Corporation ("Common Stock"), without par value, in consideration of services rendered. Such shares shall be immediately vested as of the date of this Agreement and shall be subject to the terms herein.
2.
Restrictions on Sale or Transfer . The shares of vested Common Stock so received by the Grantee and any additional shares attributable thereto received by the Grantee as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Holding Period defined below, except as permitted hereby.
3.
Holding Period. Grantee shall hold all vested shares of Common Stock (net of any shares withheld to pay taxes due with respect to the grant described herein) for a period of three years (the “Holding Period”). The Holding Period shall apply regardless of whether or not Grantee remains employed by the Corporation or its Subsidiaries. Notwithstanding anything herein, the Holding Period shall terminate on Grantee’s death or disability. The Holding Period may be enforced pursuant to a restrictive legend or any other means deemed appropriate by the Corporation.
4.
Clawback Provision . Any award or issuance of shares under the 2012 Stock Plan is subject to any Corporation clawback policy as may be amended from time to time.
5.
Prohibited Sales . By accepting shares of Common Stock, the Grantee agrees not to sell shares at a time when applicable laws or the Corporation’s rules prohibit a sale. This restriction shall apply as long as the Grantee is an employee, consultant or director of the Corporation or a Subsidiary. The Grantee agrees, if requested by the Corporation, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by the Corporation, the Grantee must deliver to the Corporation a written statement satisfactory to the Corporation to that effect.
6.
Shareholder's Rights . Subject to the terms of this Agreement, during the Holding Period:
(a)
The Grantee will have, with respect to the vested Common Stock, the right to vote all shares of the Common Stock received under or as a result of this Agreement, including shares which are subject to the restrictions on sale or transfer in Section 2, the Holding Period in Section 3 and to the clawback provisions in Section 4 of this Agreement.
(b)
The Grantee shall be paid dividends with respect to the Common Stock.
7.
Regulatory Compliance . The issue of shares of vested Common Stock and Common Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Common Stock may be traded, as set forth in the Plan. Furthermore, the Corporation shall have the right to refuse to issue or transfer any shares under this Agreement if the

1


Corporation, acting in its absolute discretion determines that the issuance or transfer of such Common Stock might violate any applicable law or regulation.
8.
Withholding Tax . The Grantee agrees that, in the event that the award and receipt of the Common Stock or the expiration of restrictions thereon results in the Grantee's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for the Corporation, subject to withholding of tax at source by the Grantee's employer, the Grantee will pay to such Grantee's employer an amount equal to such withholding tax or make arrangements satisfactory to the Corporation regarding the payment of such tax (or such employer on behalf of the Corporation may withhold such amount from Grantee's salary or from dividends paid by the Corporation on shares of the Common Stock or any other compensation payable to the Grantee).
9.
Investment Representation . The Grantee represents and agrees that if he or she is awarded and receives the vested Common Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to the Corporation an investment letter in form and substance satisfactory to the Corporation, (iii) prior to selling or offering for sale any such shares, he or she will furnish the Corporation with an opinion of counsel satisfactory to the Corporation to the effect that such sale may lawfully be made and will furnish the Corporation with such certificates as to factual matters as the Corporation may reasonably request, and (iv) that certificates representing such shares may be marked with an that is contrary to this paragraph.
10.
Notices . Each notice relating to this Agreement must be in writing and delivered in person or by registered mail to the Corporation at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as the Corporation has designated by notice. All notices to the Grantee or other person or persons succeeding to his or her interest will be delivered to the Grantee or such other person or persons at the Grantee's address as specified in a notice filed with the Corporation.
11.
Determinations of the Corporation Final. Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Agreement will be determined by the Board of Directors of the Corporation or by a committee appointed by the Board of Directors of the Corporation (or any successor corporation). The Grantee hereby agrees to accept any such determination as final, binding and conclusive for all purposes.
12.
Successors. All rights under this Agreement are personal to the Grantee and are not transferable except that in the event of the Grantee's death, such rights are transferable to the Grantee's legal representatives, heirs or legatees. This Agreement will inure to the benefit of and be binding upon the Corporation and its successors and assigns.
13.
Obligations of the Corporation. The liability of the Corporation under the Plan and this Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Agreement will be construed to impose any liability on the Corporation in favor of the Grantee with respect to any loss, cost or expense which the Grantee may incur in connection with or arising out of any transaction in connection therewith.
14.
No Employment Rights. Nothing in the Plan or this Agreement or any related material shall give the Grantee the right to continue in the employment of the Corporation or any subsidiary of the Corporation or adversely affect the right of the Corporation or any subsidiary of the Corporation to terminate the Grantee’s employment with or without cause at any time.
15.
Governing Law . This Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.
16.
Plan. The Plan will control if there is any conflict between the Plan and this Agreement and on any matters that are not contained in this Agreement. A copy of the Plan has been provided to the

2


Grantee and is incorporated by reference and made a part of this Agreement. Capitalized terms used but not specifically defined in this Agreement will have the definitions given to them in the Plan.
17.
Entire Agreement . This Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by the Corporation and/or any of its subsidiaries and the Grantee relating to the shares of Common Stock that are granted under this Agreement. This Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan.
18.
Captions; Counterparts . The captions in this Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Agreement. This Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.

IN WITNESS WHEREOF, this Agreement for Stock Award has been executed and dated by the parties hereto as of the day and year first above written.

FIRST FINANCIAL BANCORP.


By:     _______________________________________
    
Title:     



GRANTEE:

By:     _______________________________________
Title:     



Stock Award – STIP (Key Exec STIP/2012 Stock Plan)


3



EXHIBIT 10.25

AGREEMENT FOR RESTRICTED STOCK AWARD
PERFORMANCE BASED VESTING

This Agreement for Restricted Stock Award (the "Stock Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation ("First Financial"), and <insert name> (the "Participant") who, as of March 3, 2014 which is the date of this Stock Agreement (the “Grant Date”), is an employee of First Financial or a Subsidiary.
WHEREAS, First Financial established the 2012 Stock Plan (the "Plan") and a Committee of the Board of Directors of First Financial designated in the Plan (the "Committee") approved the execution of this Stock Agreement containing the Restricted Stock Award to the Participant upon the terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:
1.
Award of Restricted Stock . First Financial hereby issues to Participant as of the Grant Date an Award equal to <insert # of shares> shares of restricted Stock of First Financial (“Stock”), without par value, in consideration of services to be rendered and subject to achievement of certain performance goals as set forth herein.
2.
Restrictions on Transfer . The shares of restricted Stock so received by the Participant pursuant to this Award and any additional shares attributable thereto received by the Participant as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Performance Period, except as permitted hereby.
3.
Performance Period . The Performance Period as used in this Stock Agreement shall mean the three year period that begins on January 1, 2014 and ends on December 31, 2016.
4.
Vesting Date . Unless otherwise provided in this Stock Agreement, the Vesting Date shall be March 3, 2017, provided certain metrics, as set forth in Schedule 4 are met. Notwithstanding the foregoing or anything in this Stock Agreement to the contrary, if the Committee determines that during the Performance Period and prior to the Vesting Date, (i) there has been a Change in Control (as determined by the Committee in accordance with the terms of the Plan), and (ii) within 12 months following the Change in Control the Grantee experiences either a material reduction in base compensation of at least 10%, or loss of employment other than for cause, the following vesting procedures shall apply to the Award:
a.
The Performance Period shall end with respect to such unvested shares of restricted Stock, effective as of the date of such material reduction in base compensation or loss of employment and the Committee shall determine the extent to which (if any) Performance Level has been achieved for the Performance Period based upon audited or unaudited financial information available;
b.
If the Committee is unable to determine which (if any) Performance Level has been achieved, the Target Performance Level will be assumed to have been achieved. In no event shall the Participant become entitled to a Vesting Percentage greater than the Vesting Percentage applicable to the Target Performance Level where the Committee has not determined the actual Performance Level achieved; and




c.
Pro-rate the portion of the Award that becomes vested based on each completed day of the Performance Period prior to the reduction in base compensation or loss of employment based upon the Committee’s determination of the degree of attainment of a Performance Level. The forfeiture provisions otherwise applicable to the Award shall lapse with respect to the pro-rated Award as of the date determined by the Committee, but in no event later than the Vesting Date.
Schedule 4
Performance Goal . The number of shares of restricted Stock earned during a Performance Period will be dependent upon the relative cumulative total shareholder return (“TSR”) and average annual return on assets (“ROA”) achieved by First Financial during the Performance Period compared to KBW Regional Bank Index peers (“Peer Group”). For purposes of this Stock Agreement:
“TSR” means the Bloomberg-calculated change in market value of stock, plus reinvested dividends, during the Performance Period.
“ROA” means the average of the SNL-calculated annual net income divided by total assets.
Performance Level . Restricted Stock will vest only if the Threshold Performance Level is achieved during the Performance Period: (i) TSR and ROA greater than or equal to the 25th percentile of the Peer Group and (ii) earnings per share are above $0. Both TSR and ROA contribute individually and equally to the payout such that performance below the 25th percentile on one measure individually does not prevent the second measure from generating payment for performance achieved at or above the 25th percentile. Earnings per share must be greater than $0 in order for any portion of the award to vest.
Vesting Percentage . The approach to applying the performance multiplier will be as follows:
The amount of the Award earned will be determined by multiplying the Award by the appropriate Vesting Percentage (below) that corresponds to the applicable Performance Level achieved during the Performance Period. The Vesting Percentage for a Performance Level between the points listed below will be determined using linear interpolation.
Performance Level
Relative TSR and ROA (Equally weighted)
Vesting
Percentage
 
< 25 th  Percentile
0%
Threshold
25 th  Percentile
50%
 
30 th  Percentile
57.14%
 
40 th  Percentile
71.43%
 
50 th  Percentile
85.71%
Target
' = 60 th  Percentile
100%
Maximum
>  75 th  Percentile
120%






2






Certification of Award and Vesting . The Committee shall certify in writing its determination and approval that the applicable performance goal or goals have been satisfied and the applicable Performance Level achieved. Those shares of Stock that vest upon achievement of the applicable performance goals as determined by the Committee will cliff vest on the Vesting Date. The value of the earned restricted Stock will be paid 100% in Stock. The portion of the Award that does not otherwise vest in accordance with this Schedule 4 will be forfeited and all related rights with respect to all unvested shares of Stock that are subject to the Award shall be forfeited by the Participant as of the Vesting Date.
Holding Period – Named Executive Officers . In the event Participant is a “named executive officer” as defined in Item 402 of Regulation S-K at the time of issuance or vesting of this award, Participant will be required to hold fifty percent (50%) of any vested shares of Common Stock (net of any shares withheld to pay taxes) for a period of two years after the Vesting Date, whether or not Participant remains employed by the First Financial or its Subsidiaries. Notwithstanding anything herein, the restrictions shall terminate on Participant’s death, disability or retirement. Such restrictions are acknowledged by Participant (if a named officer) by signing this Agreement and may be enforced further pursuant to a restrictive legend or any other means deemed appropriate by the First Financial.
5.
Forfeiture and Clawback Provision . Notwithstanding any other provision of this Stock Agreement, Participant hereby agrees that if his or her employment with First Financial or a Subsidiary is terminated for any reason, voluntarily or involuntarily (other than due to retirement, death, or disability), whether by resignation or dismissal for cause or otherwise, during the Performance Period, the Award shall be forfeited and all related rights with respect to all shares of Stock that are subject to the Award shall be forfeited automatically as of the date of such termination of employment, and First Financial automatically will become the sole owner of such Stock as of such date.
Notwithstanding the foregoing, in the event the Participant’s employment terminates as a result of a retirement, death, or disability (as such terms are defined in the Company’s ERISA plans) (“Early Termination”), the Committee shall:
a.
At the end of the Performance Period, certify in writing the extent to which the performance goals for the Performance Period have been met and the applicable Vesting Percentage of the Award based on actual achievement of such performance goals; and
b.
Pro-rate the Award based on each completed month of service by the Participant during the portion of the Performance Period prior to the Early Termination. The forfeitures provisions in Section 4 with respect to the pro-rated Award shall lapse on the Vesting Date.
A transfer of the Participant's employment between Subsidiaries or between any Subsidiary and First Financial will not be considered a termination of employment for purposes of this Stock Agreement. Notwithstanding the foregoing, a Participant's employment will be considered terminated for purposes of this Stock Agreement as of the date that the Participant's employing

3



Subsidiary ceases to be a Subsidiary for any reason, unless prior to or as of such date the Participant's employment is transferred to First Financial or to a remaining Subsidiary.
Notwithstanding the forgoing, if Participant incurs an involuntary termination of employment (or is deemed to incur a termination of employment under the preceding paragraph) during the Performance Period solely as a result of a Change in Control of First Financial, the Participant shall continue to be treated as employed by First Financial for purposes of determining the amount of the Award which vests under Section 4 (above) in connection with a Change in Control.
6.
Issuance of Stock Awards .
(a)
Upon award of the restricted Stock to the Participant, shares of restricted Stock shall be evidenced by a book entry registration by First Financial for the benefit of the Participant. Each such registration will be held by First Financial or its agent. Any restricted Stock of First Financial resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by First Financial or its agent. All such Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.
(b)
Subject to Section 6(c) and (d) below, with regard to any shares of restricted Stock which cease to be subject to restrictions pursuant to Section 2, First Financial will, within sixty (60) days of the date such shares cease to be subject to restrictions, transfer Stock for such shares free of all restrictions set forth in the Plan and this Stock Agreement to the Participant or the Participant's designee, or in the event of such Participant's death subsequent to expiration of the Performance Period, to the Participant's legal representative, heir or legatee.
(c)
By accepting shares of restricted Stock, the Participant agrees not to sell shares at a time when applicable laws or First Financial’s rules prohibit a sale. This restriction shall apply as long as the Participant is an employee, consultant or director of First Financial or a Subsidiary. Upon receipt of nonforfeitable shares subject to this Stock Agreement, the Participant agrees, if requested by First Financial, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by First Financial, the Participant must deliver to First Financial a written statement satisfactory to First Financial to that effect. The Committee may refuse to deliver (via certificate or such other method as the Committee determines) any shares to Participant for which Participant refused to provide an appropriate statement.
(d)
The Stock subject to this Award (including Stock that becomes vested in accordance with the terms of the Award) shall be subject to any First Financial Affiliated Company clawback policy and any applicable stock retention policies for the Chief Executive Officer and/or Named Executive Officers as those policies may be amended from time to time.
7.
Shareholder's Rights . Subject to the terms of this Stock Agreement, during the Performance Period:
(a)
The Participant will have, with respect to the restricted Stock, the right to vote all shares of the restricted Stock received under or as a result of this Stock Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 4 of this Stock Agreement.
(b)
The Participant shall not be paid any dividends with respect to the restricted Stock until the Performance Period ends. After the Performance Period ends, the Participant shall receive a cash payment (without interest) based on the dividends that would have been payable to the

4



Participant, but for the restrictions set forth in this Agreement, after the Grant Date on the restricted Stock subject to the Award multiplied by the actual Vesting Percentage achieved with respect to the Award under Section 4. By way of example, when the Performance Period ends if the Committee determines that the Performance Level results in a Vesting Percentage of 110% of the Award, Participant will be entitled to three years of accumulated dividends from the date of grant to the 3 rd anniversary date on 110% of the original restricted Stock awarded. No dividends shall be paid to the Participant with respect to any shares of restricted Stock that are forfeited by the Participant or not earned.
(c)
Dividends payable in Stock with respect to the restricted Stock from the Grant Date through the Vesting Date will be held subject to the vesting of the underlying restricted Stock and then automatically paid in the form of Stock to the Participant after the Performance Period ends. The amount of such stock dividends shall be calculated in accordance with Section 7(b).
(d)
Any dividends that become payable in accordance with this Section 7 with respect to an Award shall be paid on or after the Vesting Date, but in no event later than March 15th of the year following the year in which the Vesting Date occurs.
8.
Regulatory Compliance . The issue of shares of restricted Stock and Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Stock may be traded, as set forth in the Plan. Furthermore, First Financial shall have the right to refuse to issue or transfer any shares under this Stock Agreement if First Financial, acting in its absolute discretion determines that the issuance or transfer of such Stock might violate any applicable law or regulation.
9.
Withholding Tax . The Participant agrees that, in the event that the award and receipt of the restricted Stock or the expiration of restrictions thereon results in the Participant's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for First Financial, subject to withholding of tax at source by the Participant's employer, the Participant will pay to such Participant's employer an amount equal to such withholding tax or make arrangements satisfactory to First Financial regarding the payment of such tax (or such employer on behalf of First Financial may withhold such amount from Participant's salary or from dividends paid by First Financial on shares of the restricted Stock or any other compensation payable to the Participant). Alternatively, if the Participant makes a proper Code Section 83(b) election, the Participant must notify First Financial in accordance with the requirements of Code Section 83(b) and promptly pay First Financial the applicable federal, state and local withholding taxes due with respect to the shares of restricted Stock subject to the election.
10.
Investment Representation . The Participant represents and agrees that if he or she is awarded and receives the restricted Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to First Financial an investment letter in form and substance satisfactory to First Financial, (iii) prior to selling or offering for sale any such shares, he or she will furnish First Financial with an opinion of counsel satisfactory to First Financial to the effect that such sale may lawfully be made and will furnish First Financial with such certificates as to factual matters as First Financial may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.

5



11.
Federal Income Tax Election . The Participant hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Stock in accordance with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Performance Period and the tax will be measured by the fair market value of the restricted Stock on the date of the taxable event.
12.
Adjustments . Except as otherwise provided in this Stock Agreement, if, after the date of this Stock Agreement, the Stock of First Financial is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of First Financial, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of First Financial or of another First Financial, then:
(a)
there automatically will be substituted for each share of restricted Stock for which the Performance Period has not ended granted under the Stock Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and
(b)
First Financial will make such other adjustments to the securities subject to provisions of the Plan and this Stock Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Stock will always be a whole number.
13.
Non‑solicitation and Non-disclosure of Confidential Information . This Section 13 shall apply to all Participants not subject to an employment agreement with First Financial or any Affiliated Companies.
(a)
Non‑solicitation of Clients . During the Participant’s employment with First Financial or any Affiliated Companies (as defined below) and for a period of one year after Participant is no longer employed by any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for First Financial or any Affiliated Companies):
(1)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;
(1)
Solicit or attempt in any manner to persuade any client or customer of any Affiliated Companies to cease to do business, to refrain from doing business or to reduce the amount of business which any client or customer has customarily done or contemplates doing with any of the Affiliated Companies; or
(2)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any client or customer.

6



(b)
Non‑solicitation of Employees; No Hire . During the Participant’s employment with First Financial or any Affiliated Companies and for a period of one year after Participant is no longer employed by First Financial or any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for any Affiliated Company):
(1)
Solicit any employee, officer, director, agent or independent contractor of any Affiliated Company to terminate his or her relationship with, or otherwise refrain from rendering services to, any Affiliated Company, or otherwise interfere or attempt to interfere in any way with any Affiliated Company’s relationship with any of its employees, officers, directors, agents or independent contractors; or
(2)
Employ or engage any person who, at any time within the two‑year period immediately preceding such employment or engagement, was an employee, officer or director of any Affiliated Company.
(c)
Non-disclosure of Confidential Information.

(1)
During Participant’s employment with First Financial or any Affiliated Company and after the termination of such employment for any reason, Participant shall not, without the prior written consent of the General Corporate Counsel of First Financial (or such person’s designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than First Financial or an Affiliated Company, their employees, and those designated by First Financial or an Affiliated Company, or use any Confidential Information except for the benefit of First Financial or an Affiliated Company. Upon service to Participant of any subpoena, court order or other legal process requiring Participant to disclose Confidential Information, Participant shall immediately provide written notice to First Financial of such service and the content of any Confidential Information to be disclosed.

(2)
Immediately upon the termination of Participant’s employment with First Financial or an Affiliated Company for any reason, Participant shall return to First Financial or the applicable Affiliated Company all Confidential Information in Participant’s possession, including but not limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.

(d)
Defined Terms. Unless otherwise defined in this Stock Agreement, capitalized terms shall have the same meaning as that in the Plan. For purposes of this Stock Agreement, the following terms shall have the meaning set forth below:
(1)
“Affiliated Companies” shall mean First Financial, all of its direct or indirect subsidiaries, and any other entities controlled by, controlling, or under common control with First Financial, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of §§ 13(a) and 13(b), Affiliated Companies shall be limited to First Financial and its subsidiaries as of immediately prior to the consummation of such Change in Control.

7



(2)
“ Confidential Information ” shall mean all trade secrets, proprietary data, and other confidential information of or relating to any Affiliated Company, including without limitation financial information, information relating to business operations, services, promotional practices, and relationships with customers, suppliers, employees, independent contractors, or other parties, and any information which any Affiliated Company is obligated to treat as confidential pursuant to any course of dealing or any agreement to which it is a party or otherwise bound, provided that Confidential Information shall not include information that is or becomes available to the general public and did not become so available through any breach of this Stock Agreement by Participant or Participant’s breach of a duty owed to First Financial.
(3) “ Restricted Services ” shall mean any commercial banking, savings banking, mortgage lending, or any similar lending or banking services.

(4) “ Restricted Territory ” shall mean anywhere in the geographic area consisting of the states of the United States in which any of the Affiliated Companies operate banking offices at any time during the Participant’s employment with First Financial or any Affiliated Companies.

(5) “ Solicit ” shall mean any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, persuading, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action; provided , however , that the term “Solicit” shall not include general advertisements by an entity with which Participant is associated or other communications in any media not targeted specifically at any specific individual described in § 13(a) or 13(b).

(e)
Enforcement; Remedies; Blue Pencil . Participant acknowledges that: (1) the various covenants, restrictions, and obligations set forth in this § 13 are separate and independent obligations, and may be enforced separately or in any combination; (2) the provisions of this § 13 are fundamental and essential for the protection of First Financial’s and the Affiliated Companies’ legitimate business and proprietary interests, and the Affiliated Companies (other than First Financial) are intended third-party beneficiaries of such provisions; (3) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Participant; and (4) in the event of any violation by Participant of any of such provisions, First Financial and, if applicable, the Affiliated Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this § 13 by Participant, First Financial and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to them, including, without limitation, money damages and the cessation of the. If any of the covenants set forth in this § 13 is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability, and the remaining such covenants shall not be affected thereby.

8



14.
Employment Claims . In return for the benefits that Participant may receive under this Stock Agreement and for continued employment, Participant agrees not to commence any action or suit related to Participant’s employment by Bancorp or an Affiliated Company:

(a)
More than six months after the termination of Participant’s employment, if the action or suit is related to the termination of Participant’s employment; or
(b)
More than six months after the event or occurrence on which Participant’s claim is based, if the action or suit is based on an event or occurrence other than the termination of Participant’s employment.

Participant agrees to waive any statute of limitations that is contrary to this paragraph.
15.
Notices . Each notice relating to this Stock Agreement must be in writing and delivered in person or by registered mail to First Financial at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as First Financial has designated by notice. All notices to the Participant or other person or persons succeeding to his or her interest will be delivered to the Participant or such other person or persons at the Participant's address below specified or such other address as specified in a notice filed with First Financial.
16.
Determinations of First Financial Final . Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Stock Agreement or the Plan will be determined by the Board of Directors of First Financial (or any successor corporation) or by the Committee, as determined by the Board of Directors of First Financial. The Participant hereby agrees to be bound by the terms of the Plan and accept any determination by the Board of Directors (or the Committee, as applicable) in administering the Plan and this Agreement as final, binding and conclusive for all purposes.
17.
Successors . All rights under this Stock Agreement are personal to the Participant and are not transferable except that in the event of the Participant's death, such rights are transferable to the Participant's legal representatives, heirs or legatees. This Stock Agreement will inure to the benefit of and be binding upon First Financial and its successors and assigns.
18.
Obligations of First Financial . The liability of First Financial under the Plan and this Stock Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Stock Agreement will be construed to impose any liability on First Financial in favor of the Participant with respect to any loss, cost or expense which the Participant may incur in connection with or arising out of any transaction in connection therewith.
19.
No Employment Rights . Nothing in the Plan or this Stock Agreement or any related material shall give the Participant the right to continue in the employment of First Financial or any subsidiary of First Financial or adversely affect the right of First Financial or any subsidiary of First Financial to terminate the Participant’s employment with or without cause at any time.
20.
Governing Law . This Stock Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.
21.
Plan . The Plan will control if there is any conflict between the Plan and this Stock Agreement and on any matters that are not contained in this Stock Agreement. A copy of the Plan has been provided to the Participant and is incorporated by reference and made a part of this Stock Agreement. Capitalized terms used but not specifically defined in this Stock Agreement will have the definitions given to them in the Plan.

9



22.
Entire Agreement . This Stock Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by First Financial and/or any of its subsidiaries and the Participant relating to the shares of restricted Stock that are granted under this Stock Agreement. This Stock Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan.
23.
Captions; Counterparts . The captions in this Stock Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Stock Agreement. This Stock Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.

10




IN WITNESS WHEREOF, this Agreement for Restricted Stock Award has been executed and dated by the parties hereto as of the day and year first above written.

FIRST FINANCIAL BANCORP.


By:     _______________________________________
    
Title:     


_______________________________________
Signature of Participant

I hereby direct that all cash dividends to which I am entitled on my shares of restricted Stock under the foregoing Stock Agreement as well as all notices and other written communications in connection with such shares be mailed to me at the following address:

____________________________________________
Name of Participant

____________________________________________
Street Address

____________________________________________
City, State, and Zip Code

____________________________________________
Signature of Participant

PerformanceRSA2012-ESP (2014 Awards - Performance Shares)


11


EXHIBIT 10.26

AGREEMENT FOR PERFORMANCE STOCK AWARD


This Agreement for Performance Stock Award (the "Stock Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation ("First Financial"), and <Participant Name> (the "Participant") who, as of <Enter Grant Date> which is the date of this Stock Agreement (the “Grant Date”), is an employee of First Financial or a Subsidiary.
WHEREAS, First Financial established the 2012 Stock Plan (the "Plan") and a Committee of the Board of Directors of First Financial designated in the Plan (the "Committee") approved the execution of this Stock Agreement containing the Performance Stock Award to the Participant upon the terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:
1.
Award of Performance Stock . First Financial hereby issues to Participant as of the Grant Date an Award equal to <Enter Number of Shares Granted> shares of restricted Stock of First Financial (“Stock”), without par value, in consideration of services to be rendered and subject to achievement of certain performance goals as set forth herein.

2.
Restrictions on Transfer . The shares of restricted Stock so received by the Participant pursuant to this Award and any additional shares attributable thereto received by the Participant as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Performance Period, except as permitted hereby.

3.
Performance Period . The Performance Period as used in this Stock Agreement shall mean the three year period that begins on January 1, 2015 and ends on December 31, 2017.

4.
Vesting Date . Unless otherwise provided in this Stock Agreement, the Vesting Date shall be <Enter Vest Date> , provided certain metrics, as set forth in Schedule 4 are met. Notwithstanding the foregoing or anything in this Stock Agreement to the contrary, if the Committee determines that during the Performance Period and prior to the Vesting Date, (i) there has been a Change in Control (as determined by the Committee in accordance with the terms of the Plan), and (ii) within 12 months following the Change in Control the Grantee experiences either a material reduction in base compensation of at least 10%, or loss of employment other than for cause, the following vesting procedures shall apply to the Award:

a.
The Performance Period shall end with respect to such unvested shares of restricted Stock, effective as of the date of such material reduction in base compensation or loss of employment and the Committee shall determine the extent to which (if any) Performance Level has been achieved for the Performance Period based upon audited or unaudited financial information available;
 
b.
If the Committee is unable to determine which (if any) Performance Level has been achieved, the Target Performance Level will be assumed to have been achieved. In no

1


event shall the Participant become entitled to a Vesting Percentage greater than the Vesting Percentage applicable to the Target Performance Level where the Committee has not determined the actual Performance Level achieved; and

c.
Pro-rate the portion of the Award that becomes vested based on each completed day of the Performance Period prior to the reduction in base compensation or loss of employment based upon the Committee’s determination of the degree of attainment of a Performance Level. The forfeiture provisions otherwise applicable to the Award shall lapse with respect to the pro-rated Award as of the date determined by the Committee, but in no event later than the Vesting Date.

Schedule 4
Performance Goal . The number of shares of restricted Stock earned during a Performance Period will be dependent upon the relative cumulative total shareholder return (“TSR”) and average annual return on assets (“ROA”) achieved by First Financial during the Performance Period compared to KBW Regional Bank Index peers (“Peer Group”). For purposes of this Stock Agreement:
“TSR” means the Bloomberg-calculated change in market value of stock, plus reinvested dividends, during the Performance Period.
“ROA” means the average of the SNL-calculated annual net income divided by total assets.
Performance Level . Performance Stock will vest only if the Threshold Performance Level is achieved during the Performance Period: (i) TSR and ROA greater than or equal to the 25th percentile of the Peer Group and (ii) earnings per share are above $0. Both TSR and ROA contribute individually and equally to the payout such that performance below the 25th percentile on one measure individually does not prevent the second measure from generating payment for performance achieved at or above the 25th percentile. Earnings per share must be greater than $0 in order for any portion of the award to vest.
Vesting Percentage . The approach to applying the performance multiplier will be as follows:
The amount of the Award earned will be determined by multiplying the Award by the appropriate Vesting Percentage (below) that corresponds to the applicable Performance Level achieved during the Performance Period. The Vesting Percentage for a Performance Level between the points listed below will be determined using linear interpolation.

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Performance Level
Relative TSR and ROA (Equally weighted)
Vesting
Percentage
 
< 25 th  Percentile
0%
Threshold
25 th  Percentile
50%
 
30 th  Percentile
57.14%
 
40 th  Percentile
71.43%
 
50 th  Percentile
85.71%
Target
' = 60 th  Percentile
100%
Maximum
>  75 th  Percentile
120%


Certification of Award and Vesting . The Committee shall certify in writing its determination and approval that the applicable performance goal or goals have been satisfied and the applicable Performance Level achieved. Those shares of Stock that vest upon achievement of the applicable performance goals as determined by the Committee will cliff vest on the Vesting Date. The value of the earned restricted Stock will be paid 100% in Stock. The portion of the Award that does not otherwise vest in accordance with this Schedule 4 will be forfeited and all related rights with respect to all unvested shares of Stock that are subject to the Award shall be forfeited by the Participant as of the Vesting Date.
5.
Forfeiture and Clawback Provision . Notwithstanding any other provision of this Stock Agreement, Participant hereby agrees that if his or her employment with First Financial or a Subsidiary is terminated for any reason, voluntarily or involuntarily (other than due to retirement, death, or disability), whether by resignation or dismissal for cause or otherwise, during the Performance Period, the Award shall be forfeited and all related rights with respect to all shares of Stock that are subject to the Award shall be forfeited automatically as of the date of such termination of employment, and First Financial automatically will become the sole owner of such Stock as of such date.

Notwithstanding the foregoing, in the event the Participant’s employment terminates as a result of a retirement, death, or disability (as such terms are defined in the Company’s ERISA plans) (“Early Termination”), the Committee shall:

a.
At the end of the Performance Period, certify in writing the extent to which the performance goals for the Performance Period have been met and the applicable Vesting Percentage of the Award based on actual achievement of such performance goals; and

b.
Pro-rate the Award based on each completed month of service by the Participant during the portion of the Performance Period prior to the Early Termination. The forfeitures provisions in Section 4 with respect to the pro-rated Award shall lapse on the Vesting Date.
A transfer of the Participant's employment between Subsidiaries or between any Subsidiary and First Financial will not be considered a termination of employment for purposes of this Stock Agreement. Notwithstanding the foregoing, a Participant's employment will be considered terminated for purposes of this Stock Agreement as of the date that the Participant's employing

3


Subsidiary ceases to be a Subsidiary for any reason, unless prior to or as of such date the Participant's employment is transferred to First Financial or to a remaining Subsidiary.
Notwithstanding the forgoing, if Participant incurs an involuntary termination of employment (or is deemed to incur a termination of employment under the preceding paragraph) during the Performance Period solely as a result of a Change in Control of First Financial, the Participant shall continue to be treated as employed by First Financial for purposes of determining the amount of the Award which vests under Section 4 (above) in connection with a Change in Control.
6.
Issuance of Stock Awards .

a.
Upon award of the restricted Stock to the Participant, shares of restricted Stock shall be evidenced by a book entry registration by First Financial for the benefit of the Participant. Each such registration will be held by First Financial or its agent. Any restricted Stock of First Financial resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by First Financial or its agent. All such Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.

b.
Subject to Section 6(c) and (d) below, with regard to any shares of restricted Stock which cease to be subject to restrictions pursuant to Section 2, First Financial will, within sixty (60) days of the date such shares cease to be subject to restrictions, transfer Stock for such shares free of all restrictions set forth in the Plan and this Stock Agreement to the Participant or the Participant's designee, or in the event of such Participant's death subsequent to expiration of the Performance Period, to the Participant's legal representative, heir or legatee.

c.
By accepting shares of restricted Stock, the Participant agrees not to sell shares at a time when applicable laws or First Financial’s rules prohibit a sale. This restriction shall apply as long as the Participant is an employee, consultant or director of First Financial or a Subsidiary. The Participant agrees, if requested by First Financial, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by First Financial, the Participant must deliver to First Financial a written statement satisfactory to First Financial to that effect.

d.
The Stock subject to this Award (including Stock that becomes vested in accordance with the terms of the Award) shall be subject to any First Financial Affiliated Company clawback policy and any applicable stock retention policies for the Chief Executive Officer and/or Named Executive Officers as those policies may be amended from time to time.

7.
Shareholder's Rights . Subject to the terms of this Stock Agreement, during the Performance Period:

a.
The Participant will have, with respect to the restricted Stock, the right to vote all shares of the restricted Stock received under or as a result of this Stock Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 4 of this Stock Agreement.


4


b.
The Participant shall not be paid any dividends with respect to the restricted Stock until after the end of the Performance Period and the expiration of the Vest Date. After the Vest Date, the Participant shall receive a cash payment (without interest) based on the dividends that would have been payable to the Participant, but for the restrictions set forth in this Agreement, after the Grant Date on the restricted Stock subject to the Award multiplied by the actual Vesting Percentage achieved with respect to the Award under Section 4. By way of example, when the Performance Period ends if the Committee determines that the Performance Level results in a Vesting Percentage of 110% of the Award, Participant will be entitled to three years of accumulated dividends from the date of grant to the 3 rd anniversary date on 110% of the original restricted Stock awarded. No dividends shall be paid to the Participant with respect to any shares of restricted Stock that are forfeited by the Participant or not earned.

Regulatory Compliance . The issue of shares of restricted Stock and Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Stock may be traded, as set forth in the Plan. Furthermore, First Financial shall have the right to refuse to issue or transfer any shares under this Stock Agreement if First Financial, acting in its absolute discretion determines that the issuance or transfer of such Stock might violate any applicable law or regulation.

8.
Withholding Tax . The Participant agrees that, in the event that the award and receipt of the restricted Stock or the expiration of restrictions thereon results in the Participant's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for First Financial, subject to withholding of tax at source by the Participant's employer, the Participant will pay to such Participant's employer an amount equal to such withholding tax or make arrangements satisfactory to First Financial regarding the payment of such tax (or such employer on behalf of First Financial may withhold such amount from Participant's salary or from dividends paid by First Financial on shares of the restricted Stock or any other compensation payable to the Participant). Alternatively, if the Participant makes a proper Code Section 83(b) election, the Participant must notify First Financial in accordance with the requirements of Code Section 83(b) and promptly pay First Financial the applicable federal, state and local withholding taxes due with respect to the shares of restricted Stock subject to the election.

9.
Investment Representation . The Participant represents and agrees that if he or she is awarded and receives the restricted Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to First Financial an investment letter in form and substance satisfactory to First Financial, (iii) prior to selling or offering for sale any such shares, he or she will furnish First Financial with an opinion of counsel satisfactory to First Financial to the effect that such sale may lawfully be made and will furnish First Financial with such certificates as to factual matters as First Financial may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.

10.
Federal Income Tax Election . The Participant hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Stock in accordance

5


with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Performance Period and the tax will be measured by the fair market value of the restricted Stock on the date of the taxable event.

11.
Adjustments . Except as otherwise provided in this Stock Agreement, if, after the date of this Stock Agreement, the Stock of First Financial is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of First Financial, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of First Financial or of another First Financial, then:

a.
there automatically will be substituted for each share of restricted Stock for which the Performance Period has not ended granted under the Stock Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and

b.
First Financial will make such other adjustments to the securities subject to provisions of the Plan and this Stock Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Stock will always be a whole number.

12.
Non‑solicitation and Non-disclosure of Confidential Information . This Section 13 shall apply to all Participants not subject to an employment agreement with First Financial or any Affiliated Companies.
a.
Non‑solicitation of Clients . During the Participant’s employment with First Financial or any Affiliated Companies (as defined below) and for a period of one year after Participant is no longer employed by any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for First Financial or any Affiliated Companies):
(1)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;
(2)
Solicit or attempt in any manner to persuade any client or customer of any Affiliated Companies to cease to do business, to refrain from doing business or to reduce the amount of business which any client or customer has customarily done or contemplates doing with any of the Affiliated Companies; or
(3)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any client or customer.
b.
Non‑solicitation of Employees; No Hire . During the Participant’s employment with First Financial or any Affiliated Companies and for a period of one year after Participant is no longer employed by First Financial or any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for any Affiliated Company):

6


(1)
Solicit any employee, officer, director, agent or independent contractor of any Affiliated Company to terminate his or her relationship with, or otherwise refrain from rendering services to, any Affiliated Company, or otherwise interfere or attempt to interfere in any way with any Affiliated Company’s relationship with any of its employees, officers, directors, agents or independent contractors; or
(2)
Employ or engage any person who, at any time within the two‑year period immediately preceding such employment or engagement, was an employee, officer or director of any Affiliated Company.
c.
Non-disclosure of Confidential Information.
(1)
During Participant’s employment with First Financial or any Affiliated Company and after the termination of such employment for any reason, Participant shall not, without the prior written consent of the General Corporate Counsel of First Financial (or such person’s designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than First Financial or an Affiliated Company, their employees, and those designated by First Financial or an Affiliated Company, or use any Confidential Information except for the benefit of First Financial or an Affiliated Company. Upon service to Participant of any subpoena, court order or other legal process requiring Participant to disclose Confidential Information, Participant shall immediately provide written notice to First Financial of such service and the content of any Confidential Information to be disclosed.
(2)
Immediately upon the termination of Participant’s employment with First Financial or an Affiliated Company for any reason, Participant shall return to First Financial or the applicable Affiliated Company all Confidential Information in Participant’s possession, including but not limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.
d.
Defined Terms. Unless otherwise defined in this Stock Agreement, capitalized terms shall have the same meaning as that in the Plan. For purposes of this Stock Agreement, the following terms shall have the meaning set forth below:
(1)
“Affiliated Companies” shall mean First Financial, all of its direct or indirect subsidiaries, and any other entities controlled by, controlling, or under common control with First Financial, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of §§ 13(a) and 13(b), Affiliated Companies shall be limited to First Financial and its subsidiaries as of immediately prior to the consummation of such Change in Control.
(2)
“ Confidential Information ” shall mean all trade secrets, proprietary data, and other confidential information of or relating to any Affiliated Company, including without limitation financial information, information relating to business operations, services, promotional practices, and relationships with customers, suppliers, employees, independent contractors, or other parties, and any information which any Affiliated Company is obligated to treat as confidential pursuant to any course of dealing or any agreement to which it is

7


a party or otherwise bound, provided that Confidential Information shall not include information that is or becomes available to the general public and did not become so available through any breach of this Stock Agreement by Participant or Participant’s breach of a duty owed to First Financial.
(3)
“ Restricted Services ” shall mean any commercial banking, savings banking, mortgage lending, or any similar lending or banking services.
(4)
“ Restricted Territory ” shall mean anywhere in the geographic area consisting of the states of the United States in which any of the Affiliated Companies operate banking offices at any time during the Participant’s employment with First Financial or any Affiliated Companies.
(5)
“ Solicit ” shall mean any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, persuading, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action; provided , however , that the term “Solicit” shall not include general advertisements by an entity with which Participant is associated or other communications in any media not targeted specifically at any specific individual described in § 13(a) or 13(b).
e.
Enforcement; Remedies; Blue Pencil . Participant acknowledges that: (1) the various covenants, restrictions, and obligations set forth in this § 13 are separate and independent obligations, and may be enforced separately or in any combination; (2) the provisions of this § 13 are fundamental and essential for the protection of First Financial’s and the Affiliated Companies’ legitimate business and proprietary interests, and the Affiliated Companies (other than First Financial) are intended third-party beneficiaries of such provisions; (3) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Participant; and (4) in the event of any violation by Participant of any of such provisions, First Financial and, if applicable, the Affiliated Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this § 13 by Participant, First Financial and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to them, including, without limitation, money damages and the cessation of the payment or provision of the issuance of stock awards as contemplated under § 6. If any of the covenants set forth in this § 13 is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability, and the remaining such covenants shall not be affected thereby.
(1)
Employment Claims . In return for the benefits that Participant may receive under this Stock Agreement and for continued employment, Participant agrees not to commence any action or suit related to Participant’s employment by Bancorp or an Affiliated Company:
f.
More than six months after the termination of Participant’s employment, if the action or suit is related to the termination of Participant’s employment; or
g.
More than six months after the event or occurrence on which Participant’s claim is based, if the action or suit is based on an event or occurrence other than the termination of Participant’s employment.

8


Participant agrees to waive any statute of limitations that is contrary to this paragraph.
13.
Notices . Each notice relating to this Stock Agreement must be in writing and delivered in person or by registered mail to First Financial at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as First Financial has designated by notice. All notices to the Participant or other person or persons succeeding to his or her interest will be delivered to the Participant or such other person or persons at the Participant's address as specified in a notice filed with First Financial.

14.
Determinations of First Financial Final . Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Stock Agreement or the Plan will be determined by the Board of Directors of First Financial (or any successor corporation) or by the Committee, as determined by the Board of Directors of First Financial. The Participant hereby agrees to be bound by the terms of the Plan and accept any determination by the Board of Directors (or the Committee, as applicable) in administering the Plan and this Agreement as final, binding and conclusive for all purposes.

15.
Successors . All rights under this Stock Agreement are personal to the Participant and are not transferable except that in the event of the Participant's death, such rights are transferable to the Participant's legal representatives, heirs or legatees. This Stock Agreement will inure to the benefit of and be binding upon First Financial and its successors and assigns.

16.
Obligations of First Financial . The liability of First Financial under the Plan and this Stock Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Stock Agreement will be construed to impose any liability on First Financial in favor of the Participant with respect to any loss, cost or expense which the Participant may incur in connection with or arising out of any transaction in connection therewith.

17.
No Employment Rights . Nothing in the Plan or this Stock Agreement or any related material shall give the Participant the right to continue in the employment of First Financial or any subsidiary of First Financial or adversely affect the right of First Financial or any subsidiary of First Financial to terminate the Participant’s employment with or without cause at any time.

18.
Governing Law . This Stock Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.

19.
Plan . The Plan will control if there is any conflict between the Plan and this Stock Agreement and on any matters that are not contained in this Stock Agreement. A copy of the Plan has been provided to the Participant and is incorporated by reference and made a part of this Stock Agreement. Capitalized terms used but not specifically defined in this Stock Agreement will have the definitions given to them in the Plan.

20.
Entire Agreement . This Stock Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by First Financial and/or any of its subsidiaries and the Participant relating to the shares of restricted Stock that are granted under this Stock Agreement. This Stock Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan.


9


21.
Captions; Counterparts . The captions in this Stock Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Stock Agreement. This Stock Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.


IN WITNESS WHEREOF, this Agreement for Performance Stock Award has been executed and dated by the parties hereto as of the day and year first above written.

FIRST FINANCIAL BANCORP.


By:     _______________________________________

Title:     



<Enter Employee Name>
By clicking on the “I ACCEPT” button where this Agreement appears in Merrill Lynch Benefits Online, or “BOL,” you are electronically signing this Agreement, and thus, agreeing to all of the terms and conditions of this Agreement,



2015 Performance Stock Award Agreement

10



EXHIBIT 10.27

AGREEMENT FOR RESTRICTED STOCK AWARD
This Agreement for Restricted Stock Award (the "Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation (the "Corporation"), and <Participant Name> (the "Grantee") who, as of <Enter Grant Date> which is the date of this Agreement, is an employee of the Corporation or a Subsidiary (as defined below).
WHEREAS, the Corporation established the 2012 Stock Plan (the "Plan") and a Committee of the Board of Directors of the Corporation designated in the Plan (the "Committee") approved the execution of this Agreement containing the Restricted Stock Award to the Grantee upon the terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:
1.
Award of Restricted Stock . The Corporation hereby awards to Grantee as of the date of this Agreement <Enter Number of Shares Granted> shares of restricted Common Stock of the Corporation ("Common Stock"), without par value, in consideration of services to be rendered.
2.
Restrictions on Transfer . The shares of restricted Common Stock so received by the Grantee and any additional shares attributable thereto received by the Grantee as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restriction Period, except as permitted hereby.
3.
Restriction Period . The Restriction Period as used in this Agreement shall mean the period that begins as of the date of this Agreement and ends with respect to the restricted Common Stock granted under this Agreement as of the applicable anniversary date(s) of the date of this Agreement (the "Anniversary Dates") as set forth below in the Vesting Schedule. The ending of the Restriction Period also may be referred to in this Agreement as the vesting of the restricted Common Stock or as when the Common Stock vests.
Notwithstanding the foregoing or anything in this Agreement to the contrary, if the Committee determines that (i) there has been a Change in Control (as such term is defined in the Plan), and (ii) within 12 months following the Change in Control the Grantee experiences either a material reduction in base compensation of at least 10%, or loss of employment other than for cause, the Restriction Period ends with respect to such shares of restricted Common Stock as of the date such reduction in base compensation or loss of employment becomes effective. At such time, all Common Stock shall become fully vested and transferable.
The Committee may, at the time of the granting to the Grantee of the restricted Common Stock or at any time thereafter, reduce or terminate the Restriction Period otherwise applicable to all or any portion of the restricted Common Stock.
Vesting Schedule
Shares of Common Stock
Anniversary Date        First Eligible to Vest on
Group          of this Agreement          Indicated Anniversary Date
A        1st anniversary date             33.33%
B        2nd anniversary     date             33.33%
C        3rd anniversary date             33.34%


1


4.
Forfeiture and Clawback Provision . Notwithstanding any other provision of this Agreement, Grantee hereby agrees that if his or her employment with the Corporation or a Subsidiary is terminated for any reason, voluntarily or involuntarily, whether by retirement, resignation or dismissal for cause or otherwise, and such termination is prior to the ending of the Restriction Period applicable to any shares of the restricted Common Stock, the Grantee's ownership and all related rights with respect to all shares of Common Stock for which the Restriction Period has not ended as of the date that the termination of employment occurs will be forfeited automatically as of the date that such termination of employment occurs, and the Corporation automatically will become the sole owner of such shares as of such date.
Notwithstanding the foregoing, upon the termination of Grantee’s employment with the Corporation as a result of Grantee’s death or disability, as determined by the Corporation, the Restriction Period shall lapse as to all shares of restricted Common Stock, and all Common Stock shall become fully vested and transferable.
A transfer of the Grantee's employment between Subsidiaries or between any Subsidiary and the Corporation will not be considered a termination of employment for purposes of this Agreement. Notwithstanding the foregoing, a Grantee's employment will be considered terminated for purposes of this Agreement as of the date that the Grantee's employing Subsidiary ceases to be a Subsidiary for any reason, unless prior to or as of such date the Grantee's employment is transferred to the Corporation or to a remaining Subsidiary.
Any award or issuance of shares under the 2012 Stock Plan is subject to any Corporation clawback policy as may be amended from time to time.
5.
Issuance of Stock Awards .
(a)
Upon award of the restricted Common Stock to the Grantee shares of restricted Common Stock shall be evidenced by a book entry registration by the Corporation for the benefit of the Grantee. Each such registration will be held by the Corporation or its agent. Any restricted Common Stock of the Corporation resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by the Corporation or its agent. All such Common Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.
(b)
With regard to any shares of restricted Common Stock which cease to be subject to restrictions pursuant to Section 3, the Corporation will, within sixty (60) days of the date such shares cease to be subject to restrictions, transfer Common Stock for such shares free of all restrictions set forth in the Plan and this Agreement to the Grantee or the Grantee's designee, or in the event of such Grantee's death subsequent to expiration of the Restriction Period, to the Grantee's legal representative, heir or legatee.
(c)
By accepting shares of restricted Common Stock, the Grantee agrees not to sell shares at a time when applicable laws or the Corporation’s rules prohibit a sale. This restriction shall apply as long as the Grantee is an employee, consultant or director of the Corporation or a Subsidiary. The Grantee agrees, if requested by the Corporation, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by the Corporation, the Grantee must deliver to the Corporation a written statement satisfactory to the Corporation to that effect.
6.
Shareholder's Rights . Subject to the terms of this Agreement, during the Restriction Period:
(a)
The Grantee will have, with respect to the restricted Common Stock, the right to vote all shares of the restricted Common Stock received under or as a result of this Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 4 and (if applicable) the holding requirements in Section 5 of this Agreement.
(b)
The Grantee shall not be paid any dividends with respect to the restricted Common Stock until each Restricted Period ends. At the time of vesting, the Grantee shall receive a cash payment equal to the aggregate dividends (without interest) that the Grantee would have received if the Grantee had owned all the shares in which the Grantee had vested for the period beginning on the date of grant of those shares, and ending on the date of vesting. By way of example, when the Restricted Period ends for Group B awards, Grantee will be entitled to two years of

2


accumulated dividends from the date of grant to the 2 nd anniversary date. No dividends shall be paid to the Grantee with respect to any shares of restricted Common Stock that are forfeited by the Grantee.
7.
Regulatory Compliance . The issue of shares of restricted Common Stock and Common Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Common Stock may be traded, as set forth in the Plan. Furthermore, the Corporation shall have the right to refuse to issue or transfer any shares under this Agreement if the Corporation, acting in its absolute discretion determines that the issuance or transfer of such Common Stock might violate any applicable law or regulation.
8.
Withholding Tax . The Grantee agrees that, in the event that the award and receipt of the restricted Common Stock or the expiration of restrictions thereon results in the Grantee's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for the Corporation, subject to withholding of tax at source by the Grantee's employer, the Grantee will pay to such Grantee's employer an amount equal to such withholding tax or make arrangements satisfactory to the Corporation regarding the payment of such tax (or such employer on behalf of the Corporation may withhold such amount from Grantee's salary or from dividends paid by the Corporation on shares of the restricted Common Stock or any other compensation payable to the Grantee). Alternatively, if the Grantee makes a proper Code Section 83(b) election, the Grantee must notify the Corporation in accordance with the requirements of Code Section 83(b) and promptly pay the Corporation the applicable federal, state and local withholding taxes due with respect to the shares of restricted Common Stock subject to the election.
9.
Investment Representation . The Grantee represents and agrees that if he or she is awarded and receives the restricted Common Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to the Corporation an investment letter in form and substance satisfactory to the Corporation, (iii) prior to selling or offering for sale any such shares, he or she will furnish the Corporation with an opinion of counsel satisfactory to the Corporation to the effect that such sale may lawfully be made and will furnish the Corporation with such certificates as to factual matters as the Corporation may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.
10.
Federal Income Tax Election . The Grantee hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Common Stock in accordance with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Restriction Period and the tax will be measured by the fair market value of the restricted Common Stock on the date of the taxable event.
11.
Adjustments . If, after the date of this Agreement, the Common Stock of the Corporation is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of the Corporation, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, then:

3


(a)
there automatically will be substituted for each share of restricted Common Stock for which the Restriction Period has not ended granted under the Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and
(b)
the Corporation will make such other adjustments to the securities subject to provisions of the Plan and this Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Common Stock will always be a whole number.
12.
Non‑solicitation and Non-disclosure of Confidential Information .
(a)
Non‑solicitation of Clients . During the Grantee’s employment with the Corporation or any Affiliated Companies (as defined below) and for a period of one year after Grantee is no longer employed by any Affiliated Companies, Grantee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for the Corporation or any Affiliated Companies):
(1)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;
(1)
Solicit or attempt in any manner to persuade any client or customer of any Affiliated Companies to cease to do business, to refrain from doing business or to reduce the amount of business which any client or customer has customarily done or contemplates doing with any of the Affiliated Companies; or
(2)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any client or customer.
(b)
Non‑solicitation of Employees; No Hire . During the Grantee’s employment with the Corporation or any Affiliated Companies and for a period of one year after Grantee is no longer employed by the Corporation or any Affiliated Companies, Grantee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for any Affiliated Company):
(1)
Solicit any employee, officer, director, agent or independent contractor of any Affiliated Company to terminate his or her relationship with, or otherwise refrain from rendering services to, any Affiliated Company, or otherwise interfere or attempt to interfere in any way with any Affiliated Company’s relationship with any of its employees, officers, directors, agents or independent contractors; or
(2)
Employ or engage any person who, at any time within the two‑year period immediately preceding such employment or engagement, was an employee, officer or director of any Affiliated Company.
(c)
Non-disclosure of Confidential Information .
(1)
During Grantee’s employment with Corporation or any Affiliated Company and after the termination of such employment for any reason, Grantee shall not, without the prior written consent of the General Corporate Counsel of Corporation (or such person’s designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than Corporation or an Affiliated Company, their employees, and those designated by Corporation or an Affiliated Company, or use any Confidential Information except for the benefit of Corporation or an Affiliated Company. Upon service to Grantee of any subpoena, court order or other legal process requiring Grantee to disclose Confidential Information, Grantee shall immediately provide written notice to Corporation of such service and the content of any Confidential Information to be disclosed.
(2)
Immediately upon the termination of Grantee’s employment with Corporation or an Affiliated Company for any reason, Grantee shall return to Corporation or the applicable Affiliated Company all Confidential Information in Grantee’s possession, including but not

4


limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.
(d)
Defined Terms. Unless otherwise defined in this Agreement, capitalized terms shall have the same meaning as that in the Plan. For purposes of this Agreement, the following terms shall have the meaning set forth below:
(1)
“Affiliated Companies” shall mean the Corporation, all of its subsidiaries, and any other entities controlled by, controlling, or under common control with the Corporation, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of Sections 12(a) and 12(b), Affiliated Companies shall be limited to the Corporation and it subsidiaries as of immediately prior to the consummation of such Change in Control.
(2)
“ Change in Control ” has the meaning given such term in the Corporation’s 2012 Stock Plan, as in effect on the Effective Date.
(3)
“ Confidential Information ” shall mean all trade secrets, proprietary data, and other confidential information of or relating to any Affiliated Company, including without limitation financial information, information relating to business operations, services, promotional practices, and relationships with customers, suppliers, employees, independent contractors, or other parties, and any information which any Affiliated Company is obligated to treat as confidential pursuant to any course of dealing or any agreement to which it is a party or otherwise bound, provided that Confidential Information shall not include information that is or becomes available to the general public and did not become so available through any breach of this Agreement by Grantee or Grantee’s breach of a duty owed to the Corporation.
(4) “ Restricted Services ” shall mean any commercial banking, savings banking, mortgage lending, or any similar lending or banking services.
(5) “ Restricted Territory ” shall mean anywhere in the geographic area consisting of the states of the United States in which any of the Affiliated Companies operate banking offices at any time during the Grantee’s employment with the Corporation or any Affiliated Companies.
(6) “ Solicit ” shall mean any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, persuading, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action; provided , however , that the term “Solicit” shall not include general advertisements by an entity with which Grantee is associated or other communications in any media not targeted specifically at any specific individual described in Section 12(a) or 12(b).
(e)
Enforcement; Remedies; Blue Pencil . Grantee acknowledges that: (1) the various covenants, restrictions, and obligations set forth in this Section 12 are separate and independent obligations, and may be enforced separately or in any combination; (2) the provisions of this Section 12 are fundamental and essential for the protection of the Corporation’s and the Affiliated Companies’ legitimate business and proprietary interests, and the Affiliated Companies (other than the Corporation) are intended third-party beneficiaries of such provisions; (3) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Grantee; and (4) in the event of any violation by Grantee of any of such provisions, the Corporation and, if applicable, the Affiliated Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this Section 12 by Grantee, the Corporation and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to them, including, without limitation, money damages and the cessation of the payment or provision of the issuance of stock awards as contemplated under Section 5. If any of the covenants set forth in this Section 12 is finally held to be invalid, illegal or unenforceable (whether in whole or in

5


part), such covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability, and the remaining such covenants shall not be affected thereby.
13.
Employment Claims. In return for the benefits that Grantee may receive under this Agreement and for continued employment, Grantee agrees not to commence any action or suit related to Grantee’s employment by Bancorp or an Affiliated Company:
(a)
More than six months after the termination of Grantee’s employment, if the action or suit is related to the termination of Grantee’s employment; or
(b)
More than six months after the event or occurrence on which Grantee’s claim is based, if the action or suit is based on an event or occurrence other than the termination of Grantee’s employment.
Grantee agrees to waive any statute of limitations that is contrary to this paragraph.
14.
Notices . Each notice relating to this Agreement must be in writing and delivered in person or by registered mail to the Corporation at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as the Corporation has designated by notice. All notices to the Grantee or other person or persons succeeding to his or her interest will be delivered to the Grantee or such other person or persons at the Grantee's address as specified in a notice filed with the Corporation.
15.
Determinations of the Corporation Final. Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Agreement will be determined by the Board of Directors of the Corporation or by a committee appointed by the Board of Directors of the Corporation (or any successor corporation). The Grantee hereby agrees to accept any such determination as final, binding and conclusive for all purposes.
16.
Successors . All rights under this Agreement are personal to the Grantee and are not transferable except that in the event of the Grantee's death, such rights are transferable to the Grantee's legal representatives, heirs or legatees. This Agreement will inure to the benefit of and be binding upon the Corporation and its successors and assigns.
17.
Obligations of the Corporation . The liability of the Corporation under the Plan and this Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Agreement will be construed to impose any liability on the Corporation in favor of the Grantee with respect to any loss, cost or expense which the Grantee may incur in connection with or arising out of any transaction in connection therewith.
18.
No Employment Rights . Nothing in the Plan or this Agreement or any related material shall give the Grantee the right to continue in the employment of the Corporation or any subsidiary of the Corporation or adversely affect the right of the Corporation or any subsidiary of the Corporation to terminate the Grantee’s employment with or without cause at any time.
19.
Governing Law . This Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.
20.
Plan . The Plan will control if there is any conflict between the Plan and this Agreement and on any matters that are not contained in this Agreement. A copy of the Plan has been provided to the Grantee and is incorporated by reference and made a part of this Agreement. Capitalized terms used but not specifically defined in this Agreement will have the definitions given to them in the Plan.
21.
Entire Agreement . This Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by the Corporation and/or any of its subsidiaries and the Grantee relating to the shares of restricted Common Stock that are granted under this Agreement. This Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan. The terms of this Agreement do not replace or supersede the terms of any agreement or incentive compensation arrangement the Grantee is subject to that includes provisions concerning confidentiality, non-competition or non-solicitation by the Grantee (a “non-solicitation agreement”).

6


Any non-solicitation agreement that Grantee is subject to shall remain in full force and effect as written without impact from this Agreement.
22.
Captions; Counterparts . The captions in this Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Agreement. This Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement for Restricted Stock Award has been executed and dated by the parties hereto as of the day and year first above written.

FIRST FINANCIAL BANCORP.


By:     _______________________________________
    
Title:     









<Enter Employee Name>
By clicking on the “I ACCEPT” button where this Agreement appears in Merrill Lynch Benefits Online, or “BOL,” you are electronically signing this Agreement, and thus, agreeing to all of the terms and conditions of this Agreement,



Restricted Stock Award (2012 Stock Plan)


7



EXHIBIT 10.28

AGREEMENT FOR RESTRICTED STOCK AWARD
This Agreement for Restricted Stock Award (the "Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation (the "Corporation"), and <Participant Name> (the "Grantee") who, as of <Enter Grant Date> which is the date of this Agreement, is an employee of the Corporation or a Subsidiary (as defined below).
WHEREAS, the Corporation established the 2012 Stock Plan (the "Plan") and a Committee of the Board of Directors of the Corporation designated in the Plan (the "Committee") approved the execution of this Agreement containing the Restricted Stock Award to the Grantee upon the terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:
1.
Award of Restricted Stock . The Corporation hereby awards to Grantee as of the date of this Agreement <Enter Number of Shares Granted> shares of restricted Common Stock of the Corporation ("Common Stock"), without par value, in consideration of services to be rendered.
2.
Restrictions on Transfer . The shares of restricted Common Stock so received by the Grantee and any additional shares attributable thereto received by the Grantee as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restriction Period, except as permitted hereby.
3.
Restriction Period . The Restriction Period as used in this Agreement shall mean the period that begins as of the date of this Agreement and ends with respect to the restricted Common Stock granted under this Agreement as of the applicable anniversary date(s) of the date of this Agreement (the "Anniversary Dates") as set forth below in the Vesting Schedule. The ending of the Restriction Period also may be referred to in this Agreement as the vesting of the restricted Common Stock or as when the Common Stock vests.
Notwithstanding the foregoing or anything in this Agreement to the contrary, if the Committee determines that (i) there has been a Change in Control (as such term is defined in the Plan), and (ii) within 12 months following the Change in Control the Grantee experiences either a material reduction in base compensation of at least 10%, or loss of employment other than for cause, the Restriction Period ends with respect to such shares of restricted Common Stock as of the date such reduction in base compensation or loss of employment becomes effective. At such time, all Common Stock shall become fully vested and transferable.
The Committee may, at the time of the granting to the Grantee of the restricted Common Stock or at any time thereafter, reduce or terminate the Restriction Period otherwise applicable to all or any portion of the restricted Common Stock.
Vesting Schedule
Shares of Common Stock
Anniversary Date        First Eligible to Vest on
Group          of this Agreement          Indicated Anniversary Date
A        1st anniversary date             33.33%
B        2nd anniversary     date             33.33%
C        3rd anniversary date             33.34%


1


4.
Forfeiture and Clawback Provision . Notwithstanding any other provision of this Agreement, Grantee hereby agrees that if his or her employment with the Corporation or a Subsidiary is terminated for any reason, voluntarily or involuntarily, whether by retirement, resignation or dismissal for cause or otherwise, and such termination is prior to the ending of the Restriction Period applicable to any shares of the restricted Common Stock, the Grantee's ownership and all related rights with respect to all shares of Common Stock for which the Restriction Period has not ended as of the date that the termination of employment occurs will be forfeited automatically as of the date that such termination of employment occurs, and the Corporation automatically will become the sole owner of such shares as of such date.
Notwithstanding the foregoing, upon the termination of Grantee’s employment with the Corporation as a result of Grantee’s death or disability, as determined by the Corporation, the Restriction Period shall lapse as to all shares of restricted Common Stock, and all Common Stock shall become fully vested and transferable.
A transfer of the Grantee's employment between Subsidiaries or between any Subsidiary and the Corporation will not be considered a termination of employment for purposes of this Agreement. Notwithstanding the foregoing, a Grantee's employment will be considered terminated for purposes of this Agreement as of the date that the Grantee's employing Subsidiary ceases to be a Subsidiary for any reason, unless prior to or as of such date the Grantee's employment is transferred to the Corporation or to a remaining Subsidiary.
Any award or issuance of shares under the Plan is subject to any Corporation clawback policy as may be amended from time to time.
5.
Issuance of Stock Awards .
(a)
Upon award of the restricted Common Stock to the Grantee shares of restricted Common Stock shall be evidenced by a book entry registration by the Corporation for the benefit of the Grantee. Each such registration will be held by the Corporation or its agent. Any restricted Common Stock of the Corporation resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by the Corporation or its agent. All such Common Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.
(b)
With regard to any shares of restricted Common Stock which cease to be subject to restrictions pursuant to Section 3, the Corporation will, within sixty (60) days of the date such shares cease to be subject to restrictions, transfer Common Stock for such shares free of all restrictions set forth in the Plan and this Agreement to the Grantee or the Grantee's designee, or in the event of such Grantee's death subsequent to expiration of the Restriction Period, to the Grantee's legal representative, heir or legatee.
(c)
By accepting shares of restricted Common Stock, the Grantee agrees not to sell shares at a time when applicable laws or the Corporation’s rules prohibit a sale. This restriction shall apply as long as the Grantee is an employee, consultant or director of the Corporation or a Subsidiary. The Grantee agrees, if requested by the Corporation, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by the Corporation, the Grantee must deliver to the Corporation a written statement satisfactory to the Corporation to that effect.
6.
Shareholder's Rights . Subject to the terms of this Agreement, during the Restriction Period:
(a)
The Grantee will have, with respect to the restricted Common Stock, the right to vote all shares of the restricted Common Stock received under or as a result of this Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 4 and (if applicable) the holding requirements in Section 5 of this Agreement.
(b)
The Grantee shall not be paid any dividends with respect to the restricted Common Stock until each Restricted Period ends. At the time of vesting, the Grantee shall receive a cash payment equal to the aggregate dividends (without interest) that the Grantee would have received if the Grantee had owned all the shares in which the Grantee had vested for the period beginning on the date of grant of those shares, and ending on the date of vesting. By way of example, when the Restricted Period ends for Group B awards, Grantee will be entitled to two years of

2


accumulated dividends from the date of grant to the 2 nd anniversary date. No dividends shall be paid to the Grantee with respect to any shares of restricted Common Stock that are forfeited by the Grantee.
7.
Regulatory Compliance . The issue of shares of restricted Common Stock and Common Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Common Stock may be traded, as set forth in the Plan. Furthermore, the Corporation shall have the right to refuse to issue or transfer any shares under this Agreement if the Corporation, acting in its absolute discretion determines that the issuance or transfer of such Common Stock might violate any applicable law or regulation.
8.
Withholding Tax . The Grantee agrees that, in the event that the award and receipt of the restricted Common Stock or the expiration of restrictions thereon results in the Grantee's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for the Corporation, subject to withholding of tax at source by the Grantee's employer, the Grantee will pay to such Grantee's employer an amount equal to such withholding tax or make arrangements satisfactory to the Corporation regarding the payment of such tax (or such employer on behalf of the Corporation may withhold such amount from Grantee's salary or from dividends paid by the Corporation on shares of the restricted Common Stock or any other compensation payable to the Grantee). Alternatively, if the Grantee makes a proper Code Section 83(b) election, the Grantee must notify the Corporation in accordance with the requirements of Code Section 83(b) and promptly pay the Corporation the applicable federal, state and local withholding taxes due with respect to the shares of restricted Common Stock subject to the election.
9.
Investment Representation . The Grantee represents and agrees that if he or she is awarded and receives the restricted Common Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to the Corporation an investment letter in form and substance satisfactory to the Corporation, (iii) prior to selling or offering for sale any such shares, he or she will furnish the Corporation with an opinion of counsel satisfactory to the Corporation to the effect that such sale may lawfully be made and will furnish the Corporation with such certificates as to factual matters as the Corporation may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.
10.
Federal Income Tax Election . The Grantee hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Common Stock in accordance with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Restriction Period and the tax will be measured by the fair market value of the restricted Common Stock on the date of the taxable event.
11.
Adjustments . If, after the date of this Agreement, the Common Stock of the Corporation is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of the Corporation, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, then:

3


(a)
there automatically will be substituted for each share of restricted Common Stock for which the Restriction Period has not ended granted under the Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and
(b)
the Corporation will make such other adjustments to the securities subject to provisions of the Plan and this Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Common Stock will always be a whole number.
12.
Non‑solicitation, Non-Competition and Non-disclosure of Confidential Information .
(a)
Non‑solicitation of Clients . During the Grantee’s employment with the Corporation or any Affiliated Companies (as defined below) and for a period of two years after Grantee is no longer employed by any Affiliated Companies, Grantee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for the Corporation or any Affiliated Companies):
(1)
contact or attempt to contact any Applicant, Borrower, or Referral Source of the Corporation or an Affiliated Company that the Grantee has had contact with or solicited in the last two (2) years of the Grantee’s employment for the purpose of disparaging the Corporation or an Affiliated Company, inducing or attempting to induce the Applicant, Borrower, or Referral Partner to terminate his/her business relationship with the Corporation or an Affiliated Company, or soliciting the Applicant, Borrower, or Referral Partner to obtain financing other than with the Corporation or an Affiliated Company.
(2)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;
(3)
Solicit or attempt in any manner to persuade any client or customer of any Affiliated Companies to cease to do business, to refrain from doing business or to reduce the amount of business which any client or customer has customarily done or contemplates doing with any of the Affiliated Companies; or
(4)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any client or customer.
(b)
Non‑solicitation of Employees; No Hire . During the Grantee’s employment with the Corporation or any Affiliated Companies and for a period of one year after Grantee is no longer employed by the Corporation or any Affiliated Companies, Grantee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for any Affiliated Company):
(1)
Solicit any employee, officer, director, agent or independent contractor of any Affiliated Company to terminate his or her relationship with, or otherwise refrain from rendering services to, any Affiliated Company, or otherwise interfere or attempt to interfere in any way with any Affiliated Company’s relationship with any of its employees, officers, directors, agents or independent contractors; or
(2)
Employ or engage any person who, at any time within the two‑year period immediately preceding such employment or engagement, was an employee, officer or director of any Affiliated Company.
(c)
Non-Competition . During the Grantee’s employment with the Corporation or any Affiliated Companies and for a period of one year after Grantee is no longer employed by the Corporation or any Affiliated Companies, be employed by a Competitive Entity in the same capacity as the capacity the Grantee was employed with by the Company or provide the same services to a Competitive Entity as those the Grantee provided in the previous year of employment with the Company in the Restricted Territory.
(d)
Non-disclosure of Confidential Information .

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(1)
During Grantee’s employment with Corporation or any Affiliated Company and after the termination of such employment for any reason, Grantee shall not, without the prior written consent of the General Corporate Counsel of Corporation (or such person’s designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than Corporation or an Affiliated Company, their employees, and those designated by Corporation or an Affiliated Company, or use any Confidential Information except for the benefit of Corporation or an Affiliated Company. Upon service to Grantee of any subpoena, court order or other legal process requiring Grantee to disclose Confidential Information, Grantee shall immediately provide written notice to Corporation of such service and the content of any Confidential Information to be disclosed.
(2)
Immediately upon the termination of Grantee’s employment with Corporation or an Affiliated Company for any reason, Grantee shall return to Corporation or the applicable Affiliated Company all Confidential Information in Grantee’s possession, including but not limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.
(e)
Defined Terms. Unless otherwise defined in this Agreement, capitalized terms shall have the same meaning as that in the Plan. For purposes of this Agreement, the following terms shall have the meaning set forth below:
(1)
“Affiliated Companies” shall mean the Corporation, all of its subsidiaries, and any other entities controlled by, controlling, or under common control with the Corporation, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of Sections 12(a) and 12(b), Affiliated Companies shall be limited to the Corporation and it subsidiaries as of immediately prior to the consummation of such Change in Control.
(2)
“Applicant” shall include any potential borrower who has executed a term sheet with the Company during the period of two (2) years prior to the termination of Employmen t.
(3)
“Borrower” shall include any borrower who has entered into a loan with the Company during the period of two (2) years prior to the termination of Employment.
(4)
“ Change in Control ” has the meaning given such term in the Plan, as in effect on the Effective Date.
(5)
“Competitive Entity” shall mean a corporation, partnership, proprietorship, firm, association or other business entity which competes with, or otherwise lends to, (i) insurance professionals or provides capital including, but not limited to, purchasing of insurance commissions, to insurance professionals through leveraging insurance and annuity commission streams, (ii) registered investment advisers, (iii) automobile finance companies or automobile dealers, or (iv) licensed professional practices, including, but not limited to certified professional accounts, doctors, dentists or attorneys (each a “Lending Line”, collectively, the “Lending Lines”); provided, however, that if the Corporation or an Affiliated Company is no longer actively lending to a Lending Line, then this prohibition shall not apply to such Lending Line.
(6) “ Confidential Information ” shall mean all trade secrets, proprietary data, and other confidential information of or relating to any Affiliated Company, including without limitation financial information, information relating to business operations, services, promotional practices, and relationships with customers, suppliers, employees, independent contractors, or other parties, and any information which any Affiliated Company is obligated to treat as confidential pursuant to any course of dealing or any agreement to which it is a party or otherwise bound, provided that Confidential Information shall not include information that is or becomes available to the general public and did not become so available through any breach of this Agreement by Grantee or Grantee’s breach of a duty owed to the Corporation.

5


(7)
“Referral Partner” as used in this Agreement shall include any party with whom the Company has an active agreement as a referral source or who has referred a loan, which has funded, to the Company during the period of two (2) years prior to the termination of Employment.
(8)
“Restricted Territory” means, because of the nature of the business which is not dependent upon the physical location or presence of the Company or the Grantee, the broadest geographic region enforceable by law (excluding any location where this type of restriction is prohibited by law) is as follows: (1) the State of Indiana and any state in which the Company has originated any loans, sold any products, or provided any services by the Grantee during the one (1) year immediately preceding the Grantee’s termination of employment, whether voluntary or involuntary; and (2) each state, commonwealth, territory, province or other political subdivision located in North America in which the Company originated loans or provided banking services and to which Grantee provided services during the one (1) year immediately preceding the Grantee’s termination of employment, whether voluntary or involuntary.
(9)
“ Solicit ” shall mean any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, persuading, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action; provided , however , that the term “Solicit” shall not include general advertisements by an entity with which Grantee is associated or other communications in any media not targeted specifically at any specific individual described in Section 12(a) or 12(b).
(f)
Enforcement; Remedies; Blue Pencil . Grantee acknowledges that: (1) the various covenants, restrictions, and obligations set forth in this Section 12 are separate and independent obligations, and may be enforced separately or in any combination; (2) the provisions of this Section 12 are fundamental and essential for the protection of the Corporation’s and the Affiliated Companies’ legitimate business and proprietary interests, and the Affiliated Companies (other than the Corporation) are intended third-party beneficiaries of such provisions; (3) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Grantee; and (4) in the event of any violation by Grantee of any of such provisions, the Corporation and, if applicable, the Affiliated Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this Section 12 by Grantee, the Corporation and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to them, including, without limitation, money damages and the cessation of the payment or provision of the issuance of stock awards as contemplated under Section 5. If any of the covenants set forth in this Section 12 is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability, and the remaining such covenants shall not be affected thereby.
13.
Employment Claims. In return for the benefits that Grantee may receive under this Agreement and for continued employment, Grantee agrees not to commence any action or suit related to Grantee’s employment by Bancorp or an Affiliated Company:
(a)
More than six months after the termination of Grantee’s employment, if the action or suit is related to the termination of Grantee’s employment; or
(b)
More than six months after the event or occurrence on which Grantee’s claim is based, if the action or suit is based on an event or occurrence other than the termination of Grantee’s employment.
Grantee agrees to waive any statute of limitations that is contrary to this paragraph.
14.
Notices . Each notice relating to this Agreement must be in writing and delivered in person or by registered mail to the Corporation at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as the Corporation has designated by notice. All notices to the Grantee or other person or persons succeeding to his or her interest will be

6


delivered to the Grantee or such other person or persons at the Grantee's address as specified in a notice filed with the Corporation.
15.
Determinations of the Corporation Final . Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Agreement will be determined by the Board of Directors of the Corporation or by a committee appointed by the Board of Directors of the Corporation (or any successor corporation). The Grantee hereby agrees to accept any such determination as final, binding and conclusive for all purposes.
16.
Successors . All rights under this Agreement are personal to the Grantee and are not transferable except that in the event of the Grantee's death, such rights are transferable to the Grantee's legal representatives, heirs or legatees. This Agreement will inure to the benefit of and be binding upon the Corporation and its successors and assigns.
17.
Obligations of the Corporation . The liability of the Corporation under the Plan and this Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Agreement will be construed to impose any liability on the Corporation in favor of the Grantee with respect to any loss, cost or expense which the Grantee may incur in connection with or arising out of any transaction in connection therewith.
18.
No Employment Rights . Nothing in the Plan or this Agreement or any related material shall give the Grantee the right to continue in the employment of the Corporation or any subsidiary of the Corporation or adversely affect the right of the Corporation or any subsidiary of the Corporation to terminate the Grantee’s employment with or without cause at any time.
19.
Governing Law . This Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.
20.
Plan . The Plan will control if there is any conflict between the Plan and this Agreement and on any matters that are not contained in this Agreement. A copy of the Plan has been provided to the Grantee and is incorporated by reference and made a part of this Agreement. Capitalized terms used but not specifically defined in this Agreement will have the definitions given to them in the Plan.
21.
Entire Agreement . This Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by the Corporation and/or any of its subsidiaries and the Grantee relating to the shares of restricted Common Stock that are granted under this Agreement. This Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan. The terms of this Agreement do not replace or supersede the terms of any agreement or incentive compensation arrangement the Grantee is subject to that includes provisions concerning confidentiality, non-competition or non-solicitation by the Grantee (a “non-solicitation agreement”). Any non-solicitation agreement that Grantee is subject to shall remain in full force and effect as written without impact from this Agreement.
22.
Captions; Counterparts . The captions in this Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Agreement. This Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.


IN WITNESS WHEREOF, this Agreement for Restricted Stock Award has been executed and dated by the parties hereto as of the day and year first above written.

FIRST FINANCIAL BANCORP.



7


By:     _______________________________________
    
Title:     


    




<Enter Employee Name>
By clicking on the “I ACCEPT” button where this Agreement appears in Merrill Lynch Benefits Online, or “BOL,” you are electronically signing this Agreement, and thus, agreeing to all of the terms and conditions of this Agreement.


Restricted Stock Award (OSF) (2012 Stock Plan)


8


EXHIBIT 10.29

AGREEMENT FOR PERFORMANCE STOCK AWARD

This Agreement for Performance Stock Award (the "Stock Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation ("First Financial"), and <Participant Name> (the "Participant") who, as of <Enter Grant Date> which is the date of this Stock Agreement (the “Grant Date”), is an employee of First Financial or a Subsidiary.
WHEREAS, First Financial established the 2012 Stock Plan (the "Plan") and a Committee of the Board of Directors of First Financial designated in the Plan (the "Committee") approved the execution of this Stock Agreement containing the Performance Stock Award to the Participant upon the terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:
1.
Award of Performance Stock . First Financial hereby issues to Participant as of the Grant Date an Award equal to <Enter Number of Shares Granted> shares of restricted Stock of First Financial (“Stock”), without par value, in consideration of services to be rendered and subject to achievement of certain performance goals as set forth herein.

2.
Restrictions on Transfer . The shares of restricted Stock so received by the Participant pursuant to this Award and any additional shares attributable thereto received by the Participant as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Performance Period, except as permitted hereby.

3.
Performance Period . The Performance Period as used in this Stock Agreement shall mean the three year period that begins on [insert] and ends on [insert].

4.
Vesting Date . Unless otherwise provided in this Stock Agreement, the Vesting Date shall be <Enter Vest Date> , provided certain metrics, as set forth in Schedule 4 are met. Notwithstanding the foregoing or anything in this Stock Agreement to the contrary, if the Committee determines that during the Performance Period and prior to the Vesting Date, (i) there has been a Change in Control (as determined by the Committee in accordance with the terms of the Plan), and (ii) within 12 months following the Change in Control the Grantee experiences either a material reduction in base compensation of at least 10%, or loss of employment other than for cause, the following vesting procedures shall apply to the Award:

a.
The Performance Period shall end with respect to such unvested shares of restricted Stock, effective as of the date of such material reduction in base compensation or loss of employment and the Committee shall determine the extent to which (if any) Performance Level has been achieved for the Performance Period based upon audited or unaudited financial information available;
 
b.
If the Committee is unable to determine which (if any) Performance Level has been achieved, the Target Performance Level will be assumed to have been achieved. In no event shall the Participant become entitled to a Vesting Percentage greater than the Vesting Percentage applicable to the Target Performance Level where the Committee has not determined the actual Performance Level achieved; and



c.
Pro-rate the portion of the Award that becomes vested based on each completed day of the Performance Period prior to the reduction in base compensation or loss of employment based upon the Committee’s determination of the degree of attainment of a Performance Level. The forfeiture provisions otherwise applicable to the Award shall lapse with respect to the pro-rated Award as of the date determined by the Committee, but in no event later than the Vesting Date.



Schedule 4
Performance Goal . The number of shares of restricted Stock earned during a Performance Period will be dependent upon the relative cumulative total shareholder return (“TSR”) and average annual return on assets (“ROA”) achieved by First Financial during the Performance Period compared to KBW Regional Bank Index peers (“Peer Group”). For purposes of this Stock Agreement:
“TSR” means the Bloomberg-calculated change in market value of stock, plus reinvested dividends, during the Performance Period.
“ROA” means the average of the SNL-calculated annual net income divided by total assets.
Performance Level . Performance Stock will vest only if the Threshold Performance Level is achieved during the Performance Period: (i) TSR and ROA greater than or equal to the 25th percentile of the Peer Group and (ii) earnings per share are above $0. Both TSR and ROA contribute individually and equally to the payout such that performance below the 25th percentile on one measure individually does not prevent the second measure from generating payment for performance achieved at or above the 25th percentile. Earnings per share must be greater than $0 in order for any portion of the award to vest.
Vesting Percentage . The approach to applying the performance multiplier will be as follows:
The amount of the Award earned will be determined by multiplying the Award by the appropriate Vesting Percentage (below) that corresponds to the applicable Performance Level achieved during the Performance Period. The Vesting Percentage for a Performance Level between the points listed below will be determined using linear interpolation.
Performance Level
Relative TSR and ROA (Equally weighted)
Vesting
Percentage
 
 
 









Certification of Award and Vesting . The Committee shall certify in writing its determination and approval that the applicable performance goal or goals have been satisfied and the applicable Performance Level achieved. Those shares of Stock that vest upon achievement of the applicable performance goals as determined by the Committee will cliff vest on the Vesting Date. The value of the earned restricted Stock will be paid 100% in Stock. The portion of the Award that does not otherwise vest in accordance with this Schedule 4 will be forfeited and all related rights with respect to all unvested shares of Stock that are subject to the Award shall be forfeited by the Participant as of the Vesting Date.


5.
Forfeiture and Clawback Provision . Notwithstanding any other provision of this Stock Agreement, Participant hereby agrees that if his or her employment with First Financial or a Subsidiary is terminated for any reason, voluntarily or involuntarily (other than due to retirement, death, or disability), whether by resignation or dismissal for cause or otherwise, during the Performance Period, the Award shall be forfeited and all related rights with respect to all shares of Stock that are subject to the Award shall be forfeited automatically as of the date of such termination of employment, and First Financial automatically will become the sole owner of such Stock as of such date.

Notwithstanding the foregoing, in the event the Participant’s employment terminates as a result of a retirement, death, or disability (as such terms are defined in the Company’s ERISA plans) (“Early Termination”), the Committee shall:

a.
At the end of the Performance Period, certify in writing the extent to which the performance goals for the Performance Period have been met and the applicable Vesting Percentage of the Award based on actual achievement of such performance goals; and

b.
Pro-rate the Award based on each completed month of service by the Participant during the portion of the Performance Period prior to the Early Termination. The forfeitures provisions in Section 4 with respect to the pro-rated Award shall lapse on the Vesting Date.

A transfer of the Participant's employment between Subsidiaries or between any Subsidiary and First Financial will not be considered a termination of employment for purposes of this Stock Agreement. Notwithstanding the foregoing, a Participant's employment will be considered terminated for purposes of this Stock Agreement as of the date that the Participant's employing Subsidiary ceases to be a Subsidiary for any reason, unless prior to or as of such date the Participant's employment is transferred to First Financial or to a remaining Subsidiary.

Notwithstanding the forgoing, if Participant incurs an involuntary termination of employment (or is deemed to incur a termination of employment under the preceding paragraph) during the Performance Period solely as a result of a Change in Control of First Financial, the Participant shall continue to be treated as employed by First Financial for purposes of determining the amount of the Award which vests under Section 4 (above) in connection with a Change in Control.

6.
Issuance of Stock Awards .

a.
Upon award of the restricted Stock to the Participant, shares of restricted Stock shall be evidenced by a book entry registration by First Financial for the benefit of the Participant. Each such registration will be held by First Financial or its agent. Any restricted Stock of First Financial resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by First Financial or its agent. All such Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.

b.
Subject to Section 6(c) and (d) below, with regard to any shares of restricted Stock which cease to be subject to restrictions pursuant to Section 2, First Financial will, within sixty (60) days of the date such shares cease to be subject to restrictions, transfer Stock for such shares free of all restrictions set forth in the Plan and this Stock Agreement to the Participant or the Participant's designee, or in the event of such Participant's death subsequent to expiration of the Performance Period, to the Participant's legal representative, heir or legatee.



c.
By accepting shares of restricted Stock, the Participant agrees not to sell shares at a time when applicable laws or First Financial’s rules prohibit a sale. This restriction shall apply as long as the Participant is an employee, consultant or director of First Financial or a Subsidiary. The Participant agrees, if requested by First Financial, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by First Financial, the Participant must deliver to First Financial a written statement satisfactory to First Financial to that effect.

d.
The Stock subject to this Award (including Stock that becomes vested in accordance with the terms of the Award) shall be subject to any First Financial Affiliated Company clawback policy and any applicable stock retention policies for the Chief Executive Officer and/or Named Executive Officers as those policies may be amended from time to time.

7.
Shareholder's Rights . Subject to the terms of this Stock Agreement, during the Performance Period:

a.
The Participant will have, with respect to the restricted Stock, the right to vote all shares of the restricted Stock received under or as a result of this Stock Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 5 of this Stock Agreement.

b.
The Participant shall not be paid any dividends with respect to the restricted Stock until after the end of each respective Performance Period and the expiration of each respective Vest Date. After the Vest Date, the Participant shall receive a cash payment (without interest) based on the dividends that would have been payable to the Participant, but for the restrictions set forth in this Agreement, after the Grant Date on the restricted Stock subject to the Award multiplied by the actual Vesting Percentage achieved with respect to the Award under Section 4. By way of example, when the Performance Period ends if the Committee determines that the Performance Level results in a Vesting Percentage of 110% of the Award, Participant will be entitled to three years of accumulated dividends from the date of grant to the 3 rd anniversary date on 110% of the original restricted Stock awarded. No dividends shall be paid to the Participant with respect to any shares of restricted Stock that are forfeited by the Participant or not earned.

c.
Any dividends that become payable in accordance with this Section 7 with respect to an Award shall be paid on or after the Vesting Date, but in no event later than March 15th of the year following the year in which the Vesting Date occurs.

8.
Regulatory Compliance . The issue of shares of restricted Stock and Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Stock may be traded, as set forth in the Plan. Furthermore, First Financial shall have the right to refuse to issue or transfer any shares under this Stock Agreement if First Financial, acting in its absolute discretion determines that the issuance or transfer of such Stock might violate any applicable law or regulation.

9.
Withholding Tax . The Participant agrees that, in the event that the award and receipt of the restricted Stock or the expiration of restrictions thereon results in the Participant's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for First Financial, subject to withholding of tax at source by the Participant's employer, the Participant will pay to such Participant's employer an amount equal to such withholding tax or make arrangements satisfactory to First Financial regarding the payment of such tax (or such employer on behalf of First


Financial may withhold such amount from Participant's salary or from dividends paid by First Financial on shares of the restricted Stock or any other compensation payable to the Participant). Alternatively, if the Participant makes a proper Code Section 83(b) election, the Participant must notify First Financial in accordance with the requirements of Code Section 83(b) and promptly pay First Financial the applicable federal, state and local withholding taxes due with respect to the shares of restricted Stock subject to the election.

10.
Investment Representation . The Participant represents and agrees that if he or she is awarded and receives the restricted Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to First Financial an investment letter in form and substance satisfactory to First Financial, (iii) prior to selling or offering for sale any such shares, he or she will furnish First Financial with an opinion of counsel satisfactory to First Financial to the effect that such sale may lawfully be made and will furnish First Financial with such certificates as to factual matters as First Financial may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.

11.
Federal Income Tax Election . The Participant hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Stock in accordance with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Performance Period and the tax will be measured by the fair market value of the restricted Stock on the date of the taxable event.

12.
Adjustments . Except as otherwise provided in this Stock Agreement, if, after the date of this Stock Agreement, the Stock of First Financial is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of First Financial, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of First Financial or of another First Financial, then:

a.
there automatically will be substituted for each share of restricted Stock for which the Performance Period has not ended granted under the Stock Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and

b.
First Financial will make such other adjustments to the securities subject to provisions of the Plan and this Stock Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Stock will always be a whole number.

13.
Non‑solicitation and Non-disclosure of Confidential Information .

a.
Non‑solicitation of Clients . During the Participant’s employment with First Financial or any Affiliated Companies (as defined below) and for a period of one year after Participant is no longer employed by any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee,


independent contractor, creditor or agent of any person (other than for First Financial or any Affiliated Companies):

(1)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;

(2)
Solicit or attempt in any manner to persuade any client or customer of any Affiliated Companies to cease to do business, to refrain from doing business or to reduce the amount of business which any client or customer has customarily done or contemplates doing with any of the Affiliated Companies; or

(3)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any client or customer.

b.
Non‑solicitation of Employees; No Hire . During the Participant’s employment with First Financial or any Affiliated Companies and for a period of one year after Participant is no longer employed by First Financial or any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for any Affiliated Company):

(1)
Solicit any employee, officer, director, agent or independent contractor of any Affiliated Company to terminate his or her relationship with, or otherwise refrain from rendering services to, any Affiliated Company, or otherwise interfere or attempt to interfere in any way with any Affiliated Company’s relationship with any of its employees, officers, directors, agents or independent contractors; or

(2)
Employ or engage any person who, at any time within the two‑year period immediately preceding such employment or engagement, was an employee, officer or director of any Affiliated Company.

c.
Non-disclosure of Confidential Information.

(1)
During Participant’s employment with First Financial or any Affiliated Company and after the termination of such employment for any reason, Participant shall not, without the prior written consent of the General Corporate Counsel of First Financial (or such person’s designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than First Financial or an Affiliated Company, their employees, and those designated by First Financial or an Affiliated Company, or use any Confidential Information except for the benefit of First Financial or an Affiliated Company. Upon service to Participant of any subpoena, court order or other legal process requiring Participant to disclose Confidential Information, Participant shall immediately provide written notice to First Financial of such service and the content of any Confidential Information to be disclosed.

(2)
Immediately upon the termination of Participant’s employment with First Financial or an Affiliated Company for any reason, Participant shall return to First Financial or the applicable Affiliated Company all Confidential Information in Participant’s possession,


including but not limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.

d.
Defined Terms. Unless otherwise defined in this Stock Agreement, capitalized terms shall have the same meaning as that in the Plan. For purposes of this Stock Agreement, the following terms shall have the meaning set forth below:

(1)
“Affiliated Companies” shall mean First Financial, all of its direct or indirect subsidiaries, and any other entities controlled by, controlling, or under common control with First Financial, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of Section 13(a) and 13(b), Affiliated Companies shall be limited to First Financial and its subsidiaries as of immediately prior to the consummation of such Change in Control.

(2)
“ Confidential Information ” shall mean all trade secrets, proprietary data, and other confidential information of or relating to any Affiliated Company, including without limitation financial information, information relating to business operations, services, promotional practices, and relationships with customers, suppliers, employees, independent contractors, or other parties, and any information which any Affiliated Company is obligated to treat as confidential pursuant to any course of dealing or any agreement to which it is a party or otherwise bound, provided that Confidential Information shall not include information that is or becomes available to the general public and did not become so available through any breach of this Stock Agreement by Participant or Participant’s breach of a duty owed to First Financial.

(3)
“ Restricted Services ” shall mean any commercial banking, savings banking, mortgage lending, or any similar lending or banking services.

(4)
“ Restricted Territory ” shall mean anywhere in the geographic area consisting of the states of the United States in which any of the Affiliated Companies operate banking offices at any time during the Participant’s employment with First Financial or any Affiliated Companies.

(5)
“ Solicit ” shall mean any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, persuading, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action; provided , however , that the term “Solicit” shall not include general advertisements by an entity with which Participant is associated or other communications in any media not targeted specifically at any specific individual described in Section 13(a) or 13(b).

e.
Enforcement; Remedies; Blue Pencil . Participant acknowledges that: (1) the various covenants, restrictions, and obligations set forth in this Section 13 are separate and independent obligations, and may be enforced separately or in any combination; (2) the provisions of this Section 13 are fundamental and essential for the protection of First Financial’s and the Affiliated Companies’ legitimate business and proprietary interests, and the Affiliated Companies (other than First Financial) are intended third-party beneficiaries of such provisions; (3) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Participant; and (4) in the event of any violation by Participant of any of such provisions, First Financial and, if applicable, the Affiliated


Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this Section 13 by Participant, First Financial and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to them, including, without limitation, money damages and the cessation of the payment or provision of the issuance of stock awards as contemplated under Section 6. If any of the covenants set forth in this Section 13 is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability, and the remaining such covenants shall not be affected thereby.

(1)
Employment Claims . In return for the benefits that Participant may receive under this Stock Agreement and for continued employment, Participant agrees not to commence any action or suit related to Participant’s employment by Bancorp or an Affiliated Company:

f.
More than six months after the termination of Participant’s employment, if the action or suit is related to the termination of Participant’s employment; or

g.
More than six months after the event or occurrence on which Participant’s claim is based, if the action or suit is based on an event or occurrence other than the termination of Participant’s employment.

Participant agrees to waive any statute of limitations that is contrary to this paragraph.

14.
Notices . Each notice relating to this Stock Agreement must be in writing and delivered in person or by registered mail to First Financial at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as First Financial has designated by notice. All notices to the Participant or other person or persons succeeding to his or her interest will be delivered to the Participant or such other person or persons at the Participant's address as specified in a notice filed with First Financial.

15.
Determinations of First Financial Final . Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Stock Agreement or the Plan will be determined by the Board of Directors of First Financial (or any successor corporation) or by the Committee, as determined by the Board of Directors of First Financial. The Participant hereby agrees to be bound by the terms of the Plan and accept any determination by the Board of Directors (or the Committee, as applicable) in administering the Plan and this Agreement as final, binding and conclusive for all purposes.

16.
Successors . All rights under this Stock Agreement are personal to the Participant and are not transferable except that in the event of the Participant's death, such rights are transferable to the Participant's legal representatives, heirs or legatees. This Stock Agreement will inure to the benefit of and be binding upon First Financial and its successors and assigns.

17.
Obligations of First Financial . The liability of First Financial under the Plan and this Stock Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Stock Agreement will be construed to impose any liability on First Financial in favor of the Participant with


respect to any loss, cost or expense which the Participant may incur in connection with or arising out of any transaction in connection therewith.

18.
No Employment Rights . Nothing in the Plan or this Stock Agreement or any related material shall give the Participant the right to continue in the employment of First Financial or any subsidiary of First Financial or adversely affect the right of First Financial or any subsidiary of First Financial to terminate the Participant’s employment with or without cause at any time.

19.
Governing Law . This Stock Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.

20.
Plan . The Plan will control if there is any conflict between the Plan and this Stock Agreement and on any matters that are not contained in this Stock Agreement. A copy of the Plan has been provided to the Participant and is incorporated by reference and made a part of this Stock Agreement. Capitalized terms used but not specifically defined in this Stock Agreement will have the definitions given to them in the Plan.

21.
Entire Agreement . This Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by the Corporation and/or any of its subsidiaries and the Grantee relating to the shares of restricted Common Stock that are granted under this Agreement. This Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan. The terms of this Agreement do not replace or supersede the terms of any agreement or incentive compensation arrangement the Grantee is subject to that includes provisions concerning confidentiality, non-competition or non-solicitation by the Grantee (a “non-solicitation agreement”). Any non-solicitation agreement that Grantee is subject to shall remain in full force and effect as written without impact from this Agreement.

22.
Captions; Counterparts . The captions in this Stock Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Stock Agreement. This Stock Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.

IN WITNESS WHEREOF, this Agreement for Performance Stock Award has been executed and dated by the parties hereto as of the day and year first above written.

FIRST FINANCIAL BANCORP.
    

By:     ______________________________________

Title:     



<Enter Employee Name>


By clicking on the “I ACCEPT” button where this Agreement appears in Merrill Lynch Benefits Online, or “BOL,” you are electronically signing this Agreement, and thus, agreeing to all of the terms and conditions of this Agreement.

Performance Stock Award (2012 Plan)


EXHIBIT 10.30

AGREEMENT FOR PERFORMANCE STOCK AWARD

This Agreement for Performance Stock Award (the "Stock Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation ("First Financial"), and <Participant Name> (the "Participant") who, as of <Enter Grant Date> which is the date of this Stock Agreement (the “Grant Date”), is an employee of First Financial or a Subsidiary.
WHEREAS, First Financial established the 2012 Stock Plan (the "Plan") and a Committee of the Board of Directors of First Financial designated in the Plan (the "Committee") approved the execution of this Stock Agreement containing the Performance Stock Award to the Participant upon the terms and conditions hereinafter set forth:
NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:
1.
Award of Performance Stock . First Financial hereby issues to Participant as of the Grant Date an Award equal to <Enter Number of Shares Granted> shares of restricted Stock of First Financial (“Stock”), without par value, in consideration of services to be rendered and subject to achievement of certain performance goals as set forth herein.

2.
Restrictions on Transfer . The shares of restricted Stock so received by the Participant pursuant to this Award and any additional shares attributable thereto received by the Participant as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Performance Period, except as permitted hereby.

3.
Performance Period . The Performance Period as used in this Stock Agreement shall mean the three year period that begins on [insert] and ends on [insert].

4.
Vesting Date . Unless otherwise provided in this Stock Agreement, the Vesting Date shall be <Enter Vest Date> , provided certain metrics, as set forth in Schedule 4 are met. Notwithstanding the foregoing or anything in this Stock Agreement to the contrary, if the Committee determines that during the Performance Period and prior to the Vesting Date, (i) there has been a Change in Control (as determined by the Committee in accordance with the terms of the Plan), and (ii) within 12 months following the Change in Control the Grantee experiences either a material reduction in base compensation of at least 10%, or loss of employment other than for cause, the following vesting procedures shall apply to the Award:

a.
The Performance Period shall end with respect to such unvested shares of restricted Stock, effective as of the date of such material reduction in base compensation or loss of employment and the Committee shall determine the extent to which (if any) Performance Level has been achieved for the Performance Period based upon audited or unaudited financial information available;
 
b.
If the Committee is unable to determine which (if any) Performance Level has been achieved, the Target Performance Level will be assumed to have been achieved. In no event shall the Participant become entitled to a Vesting Percentage greater than the Vesting Percentage applicable to the Target Performance Level where the Committee has not determined the actual Performance Level achieved; and



c.
Pro-rate the portion of the Award that becomes vested based on each completed day of the Performance Period prior to the reduction in base compensation or loss of employment based upon the Committee’s determination of the degree of attainment of a Performance Level. The forfeiture provisions otherwise applicable to the Award shall lapse with respect to the pro-rated Award as of the date determined by the Committee, but in no event later than the Vesting Date.




Schedule 4
Performance Goal . The number of shares of restricted Stock earned during a Performance Period will be dependent upon the relative cumulative total shareholder return (“TSR”) and average annual return on assets (“ROA”) achieved by First Financial during the Performance Period compared to KBW Regional Bank Index peers (“Peer Group”). For purposes of this Stock Agreement:
“TSR” means the Bloomberg-calculated change in market value of stock, plus reinvested dividends, during the Performance Period.
“ROA” means the average of the SNL-calculated annual net income divided by total assets.
Performance Level . Performance Stock will vest only if the Threshold Performance Level is achieved during the Performance Period: (i) TSR and ROA greater than or equal to the 25th percentile of the Peer Group and (ii) earnings per share are above $0. Both TSR and ROA contribute individually and equally to the payout such that performance below the 25th percentile on one measure individually does not prevent the second measure from generating payment for performance achieved at or above the 25th percentile. Earnings per share must be greater than $0 in order for any portion of the award to vest.
Vesting Percentage . The approach to applying the performance multiplier will be as follows:
The amount of the Award earned will be determined by multiplying the Award by the appropriate Vesting Percentage (below) that corresponds to the applicable Performance Level achieved during the Performance Period. The Vesting Percentage for a Performance Level between the points listed below will be determined using linear interpolation.
Performance Level
Relative TSR and ROA (Equally weighted)
Vesting
Percentage
 
 
 









Certification of Award and Vesting . The Committee shall certify in writing its determination and approval that the applicable performance goal or goals have been satisfied and the applicable Performance Level achieved. Those shares of Stock that vest upon achievement of the applicable performance goals as determined by the Committee will cliff vest on the Vesting Date. The value of the earned restricted Stock will be paid 100% in Stock. The portion of the Award that does not otherwise vest in accordance with this Schedule 4 will be forfeited and all related rights with respect to all unvested shares of Stock that are subject to the Award shall be forfeited by the Participant as of the Vesting Date.


5.
Forfeiture and Clawback Provision . Notwithstanding any other provision of this Stock Agreement, Participant hereby agrees that if his or her employment with First Financial or a Subsidiary is terminated for any reason, voluntarily or involuntarily (other than due to retirement, death, or disability), whether by resignation or dismissal for cause or otherwise, during the Performance Period, the Award shall be forfeited and all related rights with respect to all shares of Stock that are subject to the Award shall be forfeited automatically as of the date of such termination of employment, and First Financial automatically will become the sole owner of such Stock as of such date.

Notwithstanding the foregoing, in the event the Participant’s employment terminates as a result of a retirement, death, or disability (as such terms are defined in the Company’s ERISA plans) (“Early Termination”), the Committee shall:

a.
At the end of the Performance Period, certify in writing the extent to which the performance goals for the Performance Period have been met and the applicable Vesting Percentage of the Award based on actual achievement of such performance goals; and

b.
Pro-rate the Award based on each completed month of service by the Participant during the portion of the Performance Period prior to the Early Termination. The forfeitures provisions in Section 4 with respect to the pro-rated Award shall lapse on the Vesting Date.

A transfer of the Participant's employment between Subsidiaries or between any Subsidiary and First Financial will not be considered a termination of employment for purposes of this Stock Agreement. Notwithstanding the foregoing, a Participant's employment will be considered terminated for purposes of this Stock Agreement as of the date that the Participant's employing Subsidiary ceases to be a Subsidiary for any reason, unless prior to or as of such date the Participant's employment is transferred to First Financial or to a remaining Subsidiary.

Notwithstanding the forgoing, if Participant incurs an involuntary termination of employment (or is deemed to incur a termination of employment under the preceding paragraph) during the Performance Period solely as a result of a Change in Control of First Financial, the Participant shall continue to be treated as employed by First Financial for purposes of determining the amount of the Award which vests under Section 4 (above) in connection with a Change in Control.

6.
Issuance of Stock Awards .

a.
Upon award of the restricted Stock to the Participant, shares of restricted Stock shall be evidenced by a book entry registration by First Financial for the benefit of the Participant. Each such registration will be held by First Financial or its agent. Any restricted Stock of First Financial resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by First Financial or its agent. All such Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.

b.
Subject to Section 6(c) and (d) below, with regard to any shares of restricted Stock which cease to be subject to restrictions pursuant to Section 2, First Financial will, within sixty (60) days of the date such shares cease to be subject to restrictions, transfer Stock for such shares free of all restrictions set forth in the Plan and this Stock Agreement to the Participant or the Participant's designee, or in the event of such Participant's death subsequent to expiration of the Performance Period, to the Participant's legal representative, heir or legatee.



c.
By accepting shares of restricted Stock, the Participant agrees not to sell shares at a time when applicable laws or First Financial’s rules prohibit a sale. This restriction shall apply as long as the Participant is an employee, consultant or director of First Financial or a Subsidiary. The Participant agrees, if requested by First Financial, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by First Financial, the Participant must deliver to First Financial a written statement satisfactory to First Financial to that effect.

d.
The Stock subject to this Award (including Stock that becomes vested in accordance with the terms of the Award) shall be subject to any First Financial Affiliated Company clawback policy and any applicable stock retention policies for the Chief Executive Officer and/or Named Executive Officers as those policies may be amended from time to time.

7.
Shareholder's Rights . Subject to the terms of this Stock Agreement, during the Performance Period:

a.
The Participant will have, with respect to the restricted Stock, the right to vote all shares of the restricted Stock received under or as a result of this Stock Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 5 of this Stock Agreement.

b.
The Participant shall not be paid any dividends with respect to the restricted Stock until after the end of each respective Performance Period and the expiration of each respective Vest Date. After the Vest Date, the Participant shall receive a cash payment (without interest) based on the dividends that would have been payable to the Participant, but for the restrictions set forth in this Agreement, after the Grant Date on the restricted Stock subject to the Award multiplied by the actual Vesting Percentage achieved with respect to the Award under Section 4. By way of example, when the Performance Period ends if the Committee determines that the Performance Level results in a Vesting Percentage of 110% of the Award, Participant will be entitled to three years of accumulated dividends from the date of grant to the 3 rd anniversary date on 110% of the original restricted Stock awarded. No dividends shall be paid to the Participant with respect to any shares of restricted Stock that are forfeited by the Participant or not earned.

c.
Any dividends that become payable in accordance with this Section 7 with respect to an Award shall be paid on or after the Vesting Date, but in no event later than March 15th of the year following the year in which the Vesting Date occurs.

8.
Regulatory Compliance . The issue of shares of restricted Stock and Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Stock may be traded, as set forth in the Plan. Furthermore, First Financial shall have the right to refuse to issue or transfer any shares under this Stock Agreement if First Financial, acting in its absolute discretion determines that the issuance or transfer of such Stock might violate any applicable law or regulation.

9.
Withholding Tax . The Participant agrees that, in the event that the award and receipt of the restricted Stock or the expiration of restrictions thereon results in the Participant's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for First Financial, subject to withholding of tax at source by the Participant's employer, the Participant will pay to such Participant's employer an amount equal to such withholding tax or make arrangements satisfactory to First Financial regarding the payment of such tax (or such employer on behalf of First


Financial may withhold such amount from Participant's salary or from dividends paid by First Financial on shares of the restricted Stock or any other compensation payable to the Participant). Alternatively, if the Participant makes a proper Code Section 83(b) election, the Participant must notify First Financial in accordance with the requirements of Code Section 83(b) and promptly pay First Financial the applicable federal, state and local withholding taxes due with respect to the shares of restricted Stock subject to the election.

10.
Investment Representation . The Participant represents and agrees that if he or she is awarded and receives the restricted Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to First Financial an investment letter in form and substance satisfactory to First Financial, (iii) prior to selling or offering for sale any such shares, he or she will furnish First Financial with an opinion of counsel satisfactory to First Financial to the effect that such sale may lawfully be made and will furnish First Financial with such certificates as to factual matters as First Financial may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.

11.
Federal Income Tax Election . The Participant hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Stock in accordance with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Performance Period and the tax will be measured by the fair market value of the restricted Stock on the date of the taxable event.

12.
Adjustments . Except as otherwise provided in this Stock Agreement, if, after the date of this Stock Agreement, the Stock of First Financial is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of First Financial, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of First Financial or of another First Financial, then:

a.
there automatically will be substituted for each share of restricted Stock for which the Performance Period has not ended granted under the Stock Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and

b.
First Financial will make such other adjustments to the securities subject to provisions of the Plan and this Stock Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Stock will always be a whole number.

13.
Non‑solicitation and Non-disclosure of Confidential Information .

a.
Non‑solicitation of Clients . During the Participant’s employment with First Financial or any Affiliated Companies (as defined below) and for a period of one year after Participant is no longer employed by any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee,


independent contractor, creditor or agent of any person (other than for First Financial or any Affiliated Companies):

(1)
contact or attempt to contact any Applicant, Borrower, or Referral Source of the Corporation or an Affiliated Company that the Grantee has had contact with or solicited in the last two (2) years of the Grantee’s employment for the purpose of disparaging the Corporation or an Affiliated Company, inducing or attempting to induce the Applicant, Borrower, or Referral Partner to terminate his/her business relationship with the Corporation or an Affiliated Company, or soliciting the Applicant, Borrower, or Referral Partner to obtain financing other than with the Corporation or an Affiliated Company.

(2)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;

(3)
Solicit or attempt in any manner to persuade any client or customer of any Affiliated Companies to cease to do business, to refrain from doing business or to reduce the amount of business which any client or customer has customarily done or contemplates doing with any of the Affiliated Companies; or

(4)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any client or customer.

b.
Non‑solicitation of Employees; No Hire . During the Participant’s employment with First Financial or any Affiliated Companies and for a period of one year after Participant is no longer employed by First Financial or any Affiliated Companies, Participant shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for any Affiliated Company):

(1)
Solicit any employee, officer, director, agent or independent contractor of any Affiliated Company to terminate his or her relationship with, or otherwise refrain from rendering services to, any Affiliated Company, or otherwise interfere or attempt to interfere in any way with any Affiliated Company’s relationship with any of its employees, officers, directors, agents or independent contractors; or

(2)
Employ or engage any person who, at any time within the two‑year period immediately preceding such employment or engagement, was an employee, officer or director of any Affiliated Company.

c.
Non-Competition . During the Grantee’s employment with the Corporation or any Affiliated Companies and for a period of one year after Grantee is no longer employed by the Corporation or any Affiliated Companies, be employed by a Competitive Entity in the same capacity as the capacity the Grantee was employed with by the Company or provide the same services to a Competitive Entity as those the Grantee provided in the previous year of employment with the Company in the Restricted Territory.

d.
Non-disclosure of Confidential Information .



(1)
During Grantee’s employment with Corporation or any Affiliated Company and after the termination of such employment for any reason, Grantee shall not, without the prior written consent of the General Corporate Counsel of Corporation (or such person’s designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than Corporation or an Affiliated Company, their employees, and those designated by Corporation or an Affiliated Company, or use any Confidential Information except for the benefit of Corporation or an Affiliated Company. Upon service to Grantee of any subpoena, court order or other legal process requiring Grantee to disclose Confidential Information, Grantee shall immediately provide written notice to Corporation of such service and the content of any Confidential Information to be disclosed.

(2)
Immediately upon the termination of Grantee’s employment with Corporation or an Affiliated Company for any reason, Grantee shall return to Corporation or the applicable Affiliated Company all Confidential Information in Grantee’s possession, including but not limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.

e.
Defined Terms. Unless otherwise defined in this Agreement, capitalized terms shall have the same meaning as that in the Plan. For purposes of this Agreement, the following terms shall have the meaning set forth below:

(1)
“Affiliated Companies” shall mean the Corporation, all of its subsidiaries, and any other entities controlled by, controlling, or under common control with the Corporation, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of Sections 13(a) and 13(b), Affiliated Companies shall be limited to the Corporation and it subsidiaries as of immediately prior to the consummation of such Change in Control.

(2)
“Applicant” shall include any potential borrower who has executed a term sheet with the Company during the period of two (2) years prior to the termination of Employmen t.

(3)
“Borrower” shall include any borrower who has entered into a loan with the Company during the period of two (2) years prior to the termination of Employment.

(4)
“ Change in Control ” has the meaning given such term in the Plan, as in effect on the Effective Date.

(5)
“Competitive Entity” shall mean a corporation, partnership, proprietorship, firm, association or other business entity which competes with, or otherwise lends to, (i) insurance professionals or provides capital including, but not limited to, purchasing of insurance commissions, to insurance professionals through leveraging insurance and annuity commission streams, (ii) registered investment advisers, (iii) automobile finance companies or automobile dealers, or (iv) licensed professional practices, including, but not limited to certified professional accounts, doctors, dentists or attorneys (each a “Lending Line”, collectively, the “Lending Lines”); provided, however, that if the Corporation or an Affiliated Company is no longer actively lending to a Lending Line, then this prohibition shall not apply to such Lending Line.



(6)
“ Confidential Information ” shall mean all trade secrets, proprietary data, and other confidential information of or relating to any Affiliated Company, including without limitation financial information, information relating to business operations, services, promotional practices, and relationships with customers, suppliers, employees, independent contractors, or other parties, and any information which any Affiliated Company is obligated to treat as confidential pursuant to any course of dealing or any agreement to which it is a party or otherwise bound, provided that Confidential Information shall not include information that is or becomes available to the general public and did not become so available through any breach of this Agreement by Grantee or Grantee’s breach of a duty owed to the Corporation.

(7)
“Referral Partner” as used in this Agreement shall include any party with whom the Company has an active agreement as a referral source or who has referred a loan, which has funded, to the Company during the period of two (2) years prior to the termination of Employment.

(8)
“Restricted Territory” means, because of the nature of the business which is not dependent upon the physical location or presence of the Company or the Grantee, the broadest geographic region enforceable by law (excluding any location where this type of restriction is prohibited by law) is as follows: (1) the State of Indiana and any state in which the Company has originated any loans, sold any products, or provided any services by the Grantee during the one (1) year immediately preceding the Grantee’s termination of employment, whether voluntary or involuntary; and (2) each state, commonwealth, territory, province or other political subdivision located in North America in which the Company originated loans or provided banking services and to which Grantee provided services during the one (1) year immediately preceding the Grantee’s termination of employment, whether voluntary or involuntary.

(9)
“ Solicit ” shall mean any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, persuading, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action; provided , however , that the term “Solicit” shall not include general advertisements by an entity with which Grantee is associated or other communications in any media not targeted specifically at any specific individual described in Section 13(a) or 13(b).

a.
Enforcement; Remedies; Blue Pencil . Participant acknowledges that: (1) the various covenants, restrictions, and obligations set forth in this Section 13 are separate and independent obligations, and may be enforced separately or in any combination; (2) the provisions of this Section 13 are fundamental and essential for the protection of First Financial’s and the Affiliated Companies’ legitimate business and proprietary interests, and the Affiliated Companies (other than First Financial) are intended third-party beneficiaries of such provisions; (3) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Participant; and (4) in the event of any violation by Participant of any of such provisions, First Financial and, if applicable, the Affiliated Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this Section 13 by Participant, First Financial and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to


them, including, without limitation, money damages and the cessation of the payment or provision of the issuance of stock awards as contemplated under Section 6. If any of the covenants set forth in this Section 13 is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability, and the remaining such covenants shall not be affected thereby.

14.
Employment Claims. In return for the benefits that Participant may receive under this Stock Agreement and for continued employment, Participant agrees not to commence any action or suit related to Participant’s employment by Bancorp or an Affiliated Company:

a.
More than six months after the termination of Participant’s employment, if the action or suit is related to the termination of Participant’s employment; or

b.
More than six months after the event or occurrence on which Participant’s claim is based, if the action or suit is based on an event or occurrence other than the termination of Participant’s employment.

Participant agrees to waive any statute of limitations that is contrary to this paragraph.

15.
Notices. Each notice relating to this Stock Agreement must be in writing and delivered in person or by registered mail to First Financial at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as First Financial has designated by notice. All notices to the Participant or other person or persons succeeding to his or her interest will be delivered to the Participant or such other person or persons at the Participant's address as specified in a notice filed with First Financial.

16.
Determinations of First Financial Final. Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Stock Agreement or the Plan will be determined by the Board of Directors of First Financial (or any successor corporation) or by the Committee, as determined by the Board of Directors of First Financial. The Participant hereby agrees to be bound by the terms of the Plan and accept any determination by the Board of Directors (or the Committee, as applicable) in administering the Plan and this Agreement as final, binding and conclusive for all purposes.

17.
Successors. All rights under this Stock Agreement are personal to the Participant and are not transferable except that in the event of the Participant's death, such rights are transferable to the Participant's legal representatives, heirs or legatees. This Stock Agreement will inure to the benefit of and be binding upon First Financial and its successors and assigns.

18.
Obligations of First Financial. The liability of First Financial under the Plan and this Stock Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Stock Agreement will be construed to impose any liability on First Financial in favor of the Participant with respect to any loss, cost or expense which the Participant may incur in connection with or arising out of any transaction in connection therewith.

19.
No Employment Rights. Nothing in the Plan or this Stock Agreement or any related material shall give the Participant the right to continue in the employment of First Financial or any subsidiary of First


Financial or adversely affect the right of First Financial or any subsidiary of First Financial to terminate the Participant’s employment with or without cause at any time.

20.
Governing Law. This Stock Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.

21.
Plan. The Plan will control if there is any conflict between the Plan and this Stock Agreement and on any matters that are not contained in this Stock Agreement. A copy of the Plan has been provided to the Participant and is incorporated by reference and made a part of this Stock Agreement. Capitalized terms used but not specifically defined in this Stock Agreement will have the definitions given to them in the Plan.

22.
Entire Agreement. This Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by the Corporation and/or any of its subsidiaries and the Grantee relating to the shares of restricted Common Stock that are granted under this Agreement. This Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan. The terms of this Agreement do not replace or supersede the terms of any agreement or incentive compensation arrangement the Grantee is subject to that includes provisions concerning confidentiality, non-competition or non-solicitation by the Grantee (a “non-solicitation agreement”). Any non-solicitation agreement that Grantee is subject to shall remain in full force and effect as written without impact from this Agreement.

23.
Captions; Counterparts. The captions in this Stock Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Stock Agreement. This Stock Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.

IN WITNESS WHEREOF, this Agreement for Performance Stock Award has been executed and dated by the parties hereto as of the day and year first above written.

FIRST FINANCIAL BANCORP.


By:     _____________________________________

Title:     



<Enter Employee Name>
By clicking on the “I ACCEPT” button where this Agreement appears in Merrill Lynch Benefits Online, or “BOL,” you are electronically signing this Agreement, and thus, agreeing to all of the terms and conditions of this Agreement.

Performance Stock Award (OSF)(2012 Plan)



EXHIBIT 10.31

AGREEMENT FOR RESTRICTED STOCK AWARD
FOR NON-EMPLOYEE DIRECTORS

This Agreement for Restricted Stock Award (the "Agreement") is between FIRST FINANCIAL BANCORP., an Ohio corporation (the "Corporation"), and DIRECTOR NAME who, as of <Enter Grant Date> , which is the date of this Agreement, is a non-employee director of First Financial Bancorp. (the "Director"):

WHEREAS, the Corporation established the 2012Stock Plan (the "Plan") and a Committee of the Board of Directors of the Corporation designated in the Plan (the "Committee") approved the execution of this Agreement containing the Restricted Stock Award herein set forth to the Director upon the terms and conditions hereinafter set forth:

NOW THEREFORE, in consideration of the mutual obligations contained herein, it is hereby agreed:

1.
Award of Restricted Stock . The Corporation hereby awards to Director as of the date of this Agreement <Enter Number of Shares Granted> shares of restricted Common Stock of the Corporation ("Common Stock"), without par value, in consideration of services to be rendered (the “Award”).

2.
Restrictions on Transfer . The shares of restricted Common Stock so received by the Director and any additional shares attributable thereto received by the Director as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restriction Period, except as permitted hereby.

3.
Restriction Period . The Restriction Period begins as of the date of this Agreement and, except as otherwise provided in this Agreement or the Plan, all restrictions on restricted Common Stock granted pursuant to the Award shall end (and the restricted Common Stock shall thereupon become vested) on the applicable anniversary date(s) of the date of this Agreement (the "Anniversary Dates") as set forth below:
                
Anniversary Date        First Eligible to Vest on
of this Agreement          Indicated Anniversary Date
1st anniversary date            100.00%

Notwithstanding the foregoing, if there has been a Change in Control (as such term is defined in the Plan), the Restriction Period ends with respect to such shares of restricted Common Stock in accordance with the Plan.

4.
Terms and Conditions . Awards are subject to terms and conditions of the Plan.

5.
Issuance of Stock Awards .

(a)
Upon award of the restricted Common Stock to the Director, shares of restricted Common Stock shall be evidenced by a book-entry registration by the Corporation for the benefit of the Director. Each such registration will be held by the Corporation or its agent. Any restricted Common Stock of the Corporation resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by the Corporation or its agent. All such Common Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.
(b)
With regard to any shares of restricted Common Stock which cease to be subject to restrictions pursuant to Section 3, the Corporation will, within sixty (60) days of the date such shares cease to be subject to restrictions, transfer Common Stock for such shares free of all restrictions set forth in the Plan and this Agreement to the Director or the




Director's designee, or in the event of such Director's death subsequent to expiration of the Restriction Period, to the Director's legal representative, heir or legatee.

6.
Shareholder's Rights . Subject to the terms of this Agreement, during the Restriction Period:

(a)
The Director will have, with respect to the restricted Common Stock, the right to vote all shares of the restricted Common Stock received under or as a result of this Agreement, including shares which are subject to the restrictions on transfer in Section 2.

(b)
The Director shall not be paid any dividends with respect to the restricted Common Stock until the Director has become vested in the shares. At the time of vesting, the Director shall receive a cash payment equal to the aggregate dividends (without interest) that the Director would have received if the Director had owned all the shares in which the Director had vested for the period beginning on the date of grant of those shares, and ending on the date of vesting. No dividends shall be paid to the Director with respect to any shares of restricted Common Stock that are forfeited by the Director.

7.
Regulatory Compliance . The issue of shares of restricted Common Stock and Common Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Common Stock may be traded, as set forth in the Plan. Furthermore, the Corporation shall have the right to refuse to issue or transfer any shares under this Agreement if the Corporation, acting in its absolute discretion determines that the issuance or transfer of such Common Stock might violate any applicable law or regulation.

8.
Withholding Tax . The Corporation shall have the right to retain or sell without notice sufficient Common Stock to cover the amount of any federal income tax required to be withheld with respect to such Common Stock being issued or vested, remitting any balance to the Director; provided, however, that the Director shall have the right to provide the Corporation with the funds to enable it to pay such tax. Alternatively the Corporation reserves the right to not withhold taxes and to reflect any income on a Form 1099 or such other appropriate tax form.

9.
Investment Representation . The Director represents and agrees that if he or she is awarded and receives the restricted Common Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to the Corporation an investment letter in form and substance satisfactory to the Corporation, (iii) prior to selling or offering for sale any such shares, he or she will furnish the Corporation with an opinion of counsel satisfactory to the Corporation to the effect that such sale may lawfully be made and will furnish the Corporation with such certificates as to factual matters as the Corporation may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.

10.
Federal Income Tax Election . The Director hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Common Stock in accordance with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Restriction Period and the tax will be measured by the fair market value of the restricted Common Stock on the date of the taxable event.

11.
Adjustments . If, after the date of this Agreement, the Common Stock of the Corporation is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of the Corporation, increased or decreased or changed into or




exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, then:

(a)
there automatically will be substituted for each share of restricted Common Stock for which the Restriction Period has not ended granted under the Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and

(b)
the Corporation will make such other adjustments to the securities subject to provisions of the Plan and this Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Common Stock will always be a whole number.

12.
Notices . Each notice relating to this Agreement must be in writing and delivered in person or by registered mail to the Corporation at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as the Corporation has designated by notice. All notices to the Director or other person or persons succeeding to his or her interest will be delivered to the Director or such other person or persons at the Director's address below specified or such other address as specified in a notice filed with the Corporation.

13.
Determinations of the Corporation Final . Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Agreement will be determined by the Board of Directors of the Corporation or by a committee appointed by the Board of Directors of the Corporation (or any successor corporation). The Director hereby agrees to accept any such determination as final, binding and conclusive for all purposes.

14.
Successors . All rights under this Agreement are personal to the Director and are not transferable except that in the event of the Director's death, such rights are transferable to the Director's legal representatives, heirs or legatees. This Agreement will inure to the benefit of and be binding upon the Corporation and its successors and assigns.

15.
Obligations of the Corporation . The liability of the Corporation under the Plan and this Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Agreement will be construed to impose any liability on the Corporation in favor of the Director with respect to any loss, cost or expense which the Director may incur in connection with or arising out of any transaction in connection therewith.

16.
Governing Law . This Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.

17.
Plan . The First Financial Bancorp. 2012 Stock Plan (the "Plan") will control if there is any conflict between the Plan and this Agreement and on any matters that are not contained in this Agreement. A copy of the Plan has been provided to the Director and is incorporated by reference and made a part of this Agreement. Capitalized terms used but not specifically defined in this Agreement will have the definitions given to them in the Plan.

18.
Entire Agreement . This Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by the Corporation and/or any of its subsidiaries and the Director relating to the shares of restricted Common Stock that are granted under this Agreement. This Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan.

19.
Captions; Counterparts . The captions in this Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Agreement. This Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.





IN WITNESS WHEREOF, this Agreement for Restricted Stock Award has been executed and dated by the parties as of the date first set forth above.

FIRST FINANCIAL BANCORP.



By:     _______________________________________
Title:     


_______________________________________
Signature of Director







Restricted Stock Award (Director)(2012 Plan)



EXHIBIT 10.37

EMPLOYMENT AND
NON-COMPETITION AGREEMENT

This Employment and Non-competition Agreement (this “ Agreement ”) is made as of the Effective Date (as defined below), between First Financial Bank, National Association, a national banking association (the “ Company ”), and Richard S. Dennen (“ Employee ”).

WHEREAS , the Company has entered into an Agreement and Plan of Merger by an among the Company, AG-OSF Holdings, LLC, and Oak Street Holdings Corporation dated July 23, 2015 pursuant to which the Company shall acquire Oak Street Holdings Corporation, via a subsidiary merger (the “Merger”), and as a result, the subsidiaries of Oak Street Holdings Corporation including but not limited to Oak Street Funding LLC (“Oak Street Funding”).

WHEREAS, a condition to such merger is the execution of an employment agreement by the Company and Employee.

NOW , THEREFORE , the parties hereby agree as follows:

§ 1. Employment; Termination of Prior Agreement . Upon the consummation of the Merger described above, the Company hereby agrees to employ Employee, and Employee hereby agrees to accept employment with the Company, upon the terms and subject to the conditions described in this Agreement. Employee, Company, and Oak Street Funding expressly agree that the Second Amended and Restated Executive Employment Agreement by and between Employee and Oak Street Funding dated October 15, 2010 (the “Prior Employment Agreement” ) shall be terminated and of no further force or effect upon and after the consummation of the Merger, it being the intent of the parties that this Employment and Non-Competition Agreement replace the Prior Employment Agreement. Employee hereby waives any and all rights in and to the benefits and rights set forth in the Prior Employment Agreement. Oak Street Funding hereby waives and all rights sets forth in the Prior Employment Agreement.

§ 2. Term . The term of Employee’s employment with the Company pursuant to this Agreement shall begin on the first full day following the effective date of the Merger (the “ Effective Date ”) and shall continue for a period of three years from the Effective Date (the “ Initial Term ”), unless sooner terminated pursuant to § 6 of this Agreement. Following the Initial Term, this Agreement shall renew automatically for successive one year periods after the Initial Term (with each successive one year period referred to as a “ Renewal Term ”), unless and until this Agreement is not renewed by either the Company or Employee upon not less than 90 days prior written notice given by either party prior to the end of the Initial Term or any Renewal Term, as applicable. It being understood that non-renewal of this Agreement by the Company shall not result in a termination of employment unless the party providing such notice of non-renewal also specifies in such notice that Employee’s employment shall terminate at the expiration of the then-current term pursuant to § 6 of this Agreement. Unless specified as the Initial Term or as Renewal Term, the use of “ Term ” in this Agreement shall apply to both the Initial Term and any Renewal Term, collectively. Notwithstanding the foregoing, in the event of the consummation of a “ Change in Control ” of the Company (as defined below), the Term shall be the one-year period following the consummation of such Change in Control. For purposes of this Agreement, a “ Change in Control” has the meaning given such term in the Company’s 2012 Stock Plan, or any stock plan intended to succeed the 2012 Stock Plan, as in effect on the Effective Date.

§ 3. Services . During the Term, Employee shall be employed as the President of Oak Street Funding and its direct subsidiaries or in a position that is comparable to such position in responsibility for which Employee is suited by education and background. During the Term, Employee shall report directly to the Chief Executive Officer of the Company or to such other person as may be designated by the Chief Executive Officer from time to time (the “ Reporting Person ”) and shall perform such services and be responsible for such activities consistent with Employee’s then current position with the Company as may be reasonably assigned to him from time to time by the Reporting Person, subject to the business policies and operating


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programs, budgets, procedures, and directions established from time to time by the Company (the “ Services ”). Employee shall devote his best efforts and full business and professional time, attention, energy, loyalty, and skill to rendering the Services, seeing to the business affairs of the Company, and advancing the Company’s interests.

§ 4. Compensation .

(A) Base Salary . As compensation for his Services during the Term, the Company shall pay Employee a base salary at the annual rate of $380,000.00 (the “ Base Salary ”), payable in accordance with the Company’s general policies and procedures for payment of salaries to its employees as in effect from time to time. Employee’s performance shall be reviewed by the Reporting Person not less often than annually for the purpose of evaluating potential increases in the Base Salary for recommendation to and approval.

(B) Short-Term Incentive . With respect to each fiscal year of the Company ending during the Term (including with respect to the fiscal year that includes the Effective Date), Employee shall be eligible to participate in the Company’s Annual Short-Term Incentive Plan or such other short-term incentive compensation plan established by the Board or a Board committee as in effect from time to time (the “ Incentive Plan ”). For purposes of the Incentive Plan, Employee’s target annual incentive opportunity shall be equal to forty percent (40%) of the Employee’s annual rate of Base Salary as in effect at the start of the fiscal year of the Company to which the short-term incentive award relates (the “ Target Incentive Amount ”), with the actual amount and terms and conditions of any such short-term incentive award to be determined by the Compensation Committee of the Board (the “ Compensation Committee ”) consistent with and subject to the terms of the Incentive Plan; provided , however , that, other than with respect to the Target Incentive Amount, the terms of the Incentive Plan applicable to Employee shall be comparable in all material respects to the terms applicable to the Company’s employees generally. The incentive, if any, for each fiscal year shall be paid to Employee by no later than the fifteenth (15th) day of the third (3rd) month following the end of such fiscal year, unless the Company or Employee, as applicable, shall elect to defer the receipt of such incentive pursuant to an arrangement that meets the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”).

(C) Long-Term Incentive Award Opportunity . With respect to each fiscal year of the Company during the Term, Employee shall be eligible to be awarded a long-term incentive award (“ LTI Award ”), with a target award opportunity having a value (based on the grant date value of any such LTI Award, as determined in accordance with the Company’s standard valuation methodology and procedures for equity and equity-based awards as applied consistently with respect to other employees of the Company) equal to fifty percent (50%) of the Base Salary. The actual amount and terms and conditions of any such LTI Award shall be determined by the Compensation Committee consistent with and subject to the terms of the applicable long-term incentive plan of the Company as in effect from time to time.

(D) Employee Benefits . During the Term, Employee shall be eligible to participate in the Company’s retirement plans, including any pension plan, 401(k) discretionary contribution plan, or supplemental retirement plan as in effect from time to time, and other welfare benefits and group employee benefits such as , paid time off (or similar benefit), group disability and health, life and accident insurance and similar indirect compensation programs, which may from time to time be offered generally to the Company’s employees, subject in each case to the terms and conditions of the applicable retirement plan, welfare plan, or other benefit program and subject to the Company’s right to terminate, amend or modify such plans or programs in its sole discretion in accordance with their terms.



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§ 5. Confidentiality; Non-competition; Non-solicitation .

(A)      Confidentiality . During Employee’s employment with the Company or the Affiliated Companies, whether during the Term of this Agreement or outside of this Agreement, and after the termination of such employment for any reason, whether voluntary or involuntary, Employee shall not, without the prior written consent of the Chief Legal Officer of the Company (or such person’s designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than the Company or the Affiliated Companies, their employees, and those designated by the Company or the Affiliated Companies, or use any Confidential Information except for the benefit of the Company or the Affiliated Companies. Upon service to Employee of any subpoena, court order or other legal process requiring Employee to disclose Confidential Information, Employee shall immediately provide written notice to the Company of such service and the content of any Confidential Information to be disclosed.

Immediately upon the termination of Employee’s employment with the Company or the Affiliated Companies for any reason, Employee shall return to the Company or the Affiliated Companies all Confidential Information in Employee’s possession, including but not limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.

(B) Non-competition . In consideration for the benefits provided to Employee hereunder and in connection with the Merger, Employee agrees that during (i) Employee’s employment with the Company or the Affiliated Companies, whether during the Term of this Agreement or outside of this Agreement, (ii) the three (3) years following the separation of Employee’s employment (the “ Initial Term Restricted Period ”) for any reason, whether voluntary or involuntary, during the Initial Term, and (iii) the one (1) year following the separation of Employee’s employment (the “ Renewal Term Restricted Period ”) for any reason, whether voluntary or involuntary, during any Renewal Term; but subject to the exception set forth in §5(F), Employee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for the Company), enter into, engage in, or promote or assist (financially or otherwise), directly or indirectly, any business which provides the Restricted Services (as defined below) anywhere in the Restricted Territory (as defined below).

(C) Non-solicitation of Clients . During (i) Employee’s employment with the Company or the Affiliated Companies, whether during the Term of this Agreement or outside of this Agreement, (ii) the three (3) years following the separation of Employee’s employment for any reason, whether voluntary or involuntary, during the Initial Term, and (iii) the one (1) year following the separation of Employee’s employment for any reason, whether voluntary or involuntary, during any Renewal Term; but subject to the exception set forth in §5(F), Employee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for the Company or the Affiliated Companies):

(1) Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;

(2) Solicit or attempt in any manner to persuade any client or customer with which Employee was associated while employed by the Company or the Affiliated Companies to cease to do business, to refrain from doing business or to reduce the amount of business which any client or customer has customarily done or contemplates doing with the Affiliated Companies; or

(3) Interfere with or damage (or attempt to interfere with or damage) any relationship between the Affiliated Companies and any client or customer of with which Employee was associated while employed by the Company or the Affiliated Companies .


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(D) Non-solicitation of Employees; No Hire . During (i) Employee’s employment with the Company or the Affiliated Companies, whether during the Term of this Agreement or outside of this Agreement, (ii) the three (3) years following the separation of Employee’s employment for any reason, whether voluntary or involuntary, during the Initial Term, and (iii) the one (1) year following the separation of Employee’s employment for any reason, whether voluntary or involuntary, during any Renewal Term; but subject to the exception set forth in §5(F), Employee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for the Affiliated Companies), solicit any employee, officer, director, agent or independent contractor of the Affiliated Companies working in or with Oak Street Funding to terminate his or her relationship with, or otherwise refrain from rendering services to, the Affiliated Companies, or otherwise interfere or attempt to interfere with the Affiliated Companies’ relationship with any of its employees, officers, directors, agents or independent contractors.

(E)    For purposes of this §5, the following terms shall have the meaning set forth below:

“ Affiliated Companies ” shall mean the Company, all of its subsidiaries, and any other entities controlled by, controlling, or under common control with the Company, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of §§ 5(B) and (C), Affiliated Companies shall be limited to the Company and its subsidiaries as of immediately prior to the consummation of such Change in Control.

“ Confidential Information ” shall mean all trade secrets, proprietary data, and other confidential information of or relating to the Affiliated Companies, including without limitation financial information, information relating to business operations, services, promotional practices, and relationships with customers, suppliers, employees, independent contractors, or other parties, and any information which the Affiliated Companies are obligated to treat as confidential pursuant to any course of dealing or any agreement to which it is a party or otherwise bound, provided that Confidential Information shall not include information that is or becomes available to the general public and did not become so available through any breach of this Agreement by Employee or Employee’s breach of a duty owed to the Company.

“ Restricted Services” means services that are the same or similar to those services provided by the Company or the Affiliated Companies with which Employee was associated while employed by the Company or the Affiliated Companies.

“Restricted Territory” means, because of the nature of the business which is not dependent upon the physical location or presence of the Company or the Affiliated Companies or the Employee, the broadest geographic region enforceable by law (excluding any location where this type of restriction is prohibited by law) as follows: (1) the State of Indiana and any state in which Oak Street Funding or its direct subsidiaries has originated any loans, sold any products, or provided any services during the three years immediately preceding the Initial Term Restricted Period or the Renewal Term Restricted Period; and (2) each state, commonwealth, territory, province or other political subdivision located in North America in which the Company or the Affiliated Companies originated loans or provided banking services with which Employee was associated or in which Oak Street Funding maintained an office at any time during the three years immediately preceding the Initial Term Restricted Period or the Renewal Term Restricted Period.

“Solicit ” shall mean any direct or indirect communication of any kind whatsoever, inviting, advising, persuading, encouraging or requesting any person or entity, in any manner, to take or refrain from taking any action; provided , however , that the term “Solicit” shall not include general advertisements by an entity with which Employee is associated or other


4


communications in any media not targeted specifically at any specific individual described in § 5(C) or (D).

(F)    Notwithstanding the foregoing, ownership, for personal investment purposes only, of 1% or less of the outstanding capital stock of a publicly traded corporation shall not constitute a violation of this §5.

(G) Enforcement; Remedies; Blue Pencil . Employee acknowledges that: (1) the various covenants, restrictions, and obligations set forth in this § 5 are separate and independent obligations, and may be enforced separately or in any combination; (2) the provisions of this § 5 are fundamental and essential for the protection of the Company’s and the Affiliated Companies’ legitimate business and proprietary interests, and the Affiliated Companies (other than the Company) are intended third-party beneficiaries of such provisions; (3) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Employee; and (4) in the event of any violation by Employee of any of such provisions, the Company and, if applicable, the Affiliated Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this § 5 by Employee, the Company and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to them, including, without limitation, money damages and the cessation of the payment or provision of the Severance Benefits and the benefits provided under § 7(A). Should Employee breach the terms of this § 5, such violation will extend the time period applicable to §§ 5 (B), (C), and (D) by a length of time equal to the time that Employee is in breach. If any of the covenants set forth in this § 5 is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such covenant shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability, and the remaining such covenants shall not be affected thereby.

§ 6. Termination . Employee’s employment with the Company and the Term of this Agreement:

(A) Shall terminate automatically upon the death of Employee;

(B) May be terminated by Employee other than for Good Reason (as defined below) upon not less than ninety (90) days’ prior written notice given to the Company;

(C) May be terminated by the Company without Cause upon written notice to Employee at any time, which termination shall be effective immediately or as of such later date as specified in such notice (not to exceed thirty (30) days without Employee’s consent);

(D) May be terminated by Employee at any time for Good Reason upon not less than thirty (30) days’ prior written notice to the Company; provided however, Employee will not resign for Good Reason without first providing the Company with written notice within sixty (60) days of the event that Employee believes constitutes “Good Reason” specifically identifying the acts or omissions constituting the grounds for Good Reason and a reasonable cure period of not less than thirty (30) days following the date of such notice during which such condition must not have been cured; or

(E) May be terminated by the Company immediately upon notice to Employee at any time (1) for Cause or (2) if Employee is then under a Long-Term Disability (as defined below).

(F) For purposes of this Agreement, the following terms shall have the meaning set forth below:

“ Cause ” shall mean any one or more of the following:



5


(1) (a) an indictment of Employee, or plea of guilty or plea of nolo contendere by Employee, to a charge of an act constituting a felony under the federal laws of the United States, the laws of any state, or any other applicable law, (b) fraud, embezzlement, or misappropriation of assets, (c) willful misfeasance or dishonesty, or (d) other actions or criminal conduct which materially and adversely affects the business (including business reputation) or financial condition of the Company;

(2)     the continued failure of Employee to (a) perform substantially Employee’s duties with the Company (other than any such failures resulting from incapacity due to physical or mental illness), (b) observe all material obligations and conditions to be performed and observed by Employee under this Agreement, or (c) perform his duties in accordance, in all material respects, with the policies and directions established from time to time by the Company (any such failure described in this subparagraph (2), shall be a “ Performance Failure ”), and to correct such Performance Failure within not more than fifteen (15) days following written notice delivered to Employee, which notice specifically identifies the manner in which the Company believes that Employee has not substantially performed; or

(3)    having corrected (or the Company having waived the correction of) a Performance Failure, the occurrence of any subsequent Performance Failure (whether of the same or different type or nature).

“ Good Reason ” shall mean Employee's termination of employment within ninety (90) days following the expiration of any cure period (discussed below) following the occurrence, without Employee's consent, of one or more of the following:

(1) A material reduction in Employee's base compensation (except where there is a reduction applicable to all similarly situated Employee officers generally);

(2) The failure of the Company to pay or provide to Employee when due an material amount of compensation or material benefit that is required to be paid or provided under this Agreement, after written notice of such purported failure is provided to the Company by Employee and the Company is given a reasonable opportunity to cure such failure;

(3) A material and adverse change (which shall in no event arise from an enhancement of or addition to Employee’s responsibilities) in Employee’s responsibilities from the responsibilities customarily associated with a senior executive position in a company of the size and nature of the Company; or

(4) The failure of the Company to obtain the written agreement of any successor to the Company or the business of the Company to assume this Agreement (solely to the extent such assumption does not occur by operation of law).


“ Long-Term Disability ” shall mean that, because of physical or mental incapacity, it is more likely than not that Employee will be unable, within 180 days after such incapacity commenced, to perform the essential functions of his position with the Company, with or without reasonable accommodation. In the event of any disagreement about whether or when Employee is under a Long-Term Disability, the question shall be determined:



6


(1) by a physician selected by agreement between the parties if such a physician is selected within ten (10) days after either party requests the other to so agree; or, if not,

(2) by two physicians, the first of whom shall be selected by Employee and the second of whom shall be selected by the Company or, if Employee fails to make a selection within ten (10) days after being requested to do so by the Company, the second physician shall be selected by the first physician; and

(3) if the two physicians fail to agree, a third physician selected by the first two physicians. Employee shall submit to all reasonable examinations requested by any such physicians.

§ 7. Benefits Due Upon Separation.

(A)     Termination by the Company Without Cause, Termination by Employee for Good Reason . Subject to the terms herein, in the event that (1) during the Term, the Company terminates Employee’s employment without Cause pursuant to § 6(C) (for the avoidance of doubt, other than due to Employee’s death or Long-Term Disability, which shall be governed by § 7(C) below); (2) or during the Term, Employee terminates his employment for Good Reason pursuant to § 6(D), Employee shall receive the following payments and benefits (the “Severance Benefits” ) at the times specified below (subject to § 12 of this Agreement, including the Delay of Payment provision in § 12(B)):

(1) “ Termination Compensation ” equal to two years of Employee’s Base Salary (not taking into account any reduction in Base Salary that serves as the basis for a termination for Good Reason), payable in equal installments (no less frequently than monthly) over a 24-month period (the “ Severance Period ”) (commencing with the first payroll period following the sixtieth (60th) day after Employee’s date of termination of employment) in accordance with the Company’s general policies and procedures for the payment of salaries to its employees;

(2) “ Termination Short-Term Incentive ” equal to two (2) times the Target Incentive Amount, to be paid via lump sum on the sixtieth (60 th ) day following Employee’s date of termination.

(3) During the one-year period following the date of termination, Employee shall be entitled to full executive outplacement assistance with an agency selected by the Company with the fee paid by the Company in an amount not to exceed five percent (5%) of Employee’s Base Salary;

(4) If the Company’s severance plan of general applicability as in effect on Employee’s date of termination provides for continued payment by the Company of all or a portion of the cost of the premiums for continuation coverage under the Company’s health care plan pursuant to Section 4980B of the Code (“ COBRA Coverage ” ) and if the Employee timely and properly elects such COBRA Coverage, the Company shall pay on the Employee’s behalf the difference between the monthly COBRA Coverage premium paid by the Employee for himself and his dependents and the monthly premium amount paid by similarly situated active employees for the same coverage. Such reimbursement shall be paid directly to the COBRA Coverage administrator (if any) and shall be treated as a taxable benefit to the Employee. The Employee shall be eligible to receive such reimbursement until the earliest of: (a) the twelve-month anniversary of the Employee’s termination of employment; (b) the date the Employee is no longer eligible to receive COBRA Coverage; or (c) the date on which the Employee otherwise becomes eligible to receive substantially similar coverage from another employer. The Company reserves the right to modify or


7


terminate the COBRA Coverage benefit provided hereunder to the extent necessary to comply with applicable law.

(B) Employee agrees that in order to receive the Severance Benefits and the benefits provided in § 7(A), within fifty (50) days following Employee’s date of termination, Employee must execute and not thereafter revoke his signature to a general release in a form provided by and acceptable to the Company (the “ Release ”).

(C) Termination Due to Employee’s Death or Long-Term Disability, Termination by the Company for Cause or Termination by Employee Other than for Good Reason . If, during the Term, Employee’s employment is terminated: (1) by reason of his death or Long-Term Disability, (2) by the Company for Cause; or (3) voluntarily by Employee for any reason other than for Good Reason, the Company’s obligations to Employee shall be limited to the payment of the Accrued Obligations, as defined below, and the timely payment or provision of the Other Benefits, as defined below. The Accrued Obligations shall be paid to Employee or his estate or beneficiary in the event of his death, as applicable, in a lump sum in cash within thirty (30) days of the date of termination.

(D) Full Settlement . Except as expressly provided in this § 7, Employee shall have no right to receive any compensation or other benefits under this Agreement as a result of or in connection with the termination of this Agreement or the termination of his employment with the Company.

(E) Cessation of Payments and Benefits . Notwithstanding any other provision of this Agreement to the contrary, the obligation of the Company to pay or provide the Severance Benefits and the benefits under §§ 7(A) shall automatically and immediately terminate upon a breach by Employee of this Agreement, including without limitation a breach of Employee’s obligations under § 5, other than an immaterial and inadvertent breach that is discontinued and/or remedied (to the extent subject to cure) by Employee promptly to the Company’s satisfaction.

(F) Accrued Obligations and Other Benefits . Upon Employee’s separation of employment for any reason, the Company shall pay: (1) Employee’s accrued and unpaid Base Salary through the date of termination, to the extent not theretofore paid (the “ Accrued Obligations ”), which payments shall not be subject to the Release and shall be paid within thirty (30) days of the date of termination; and (2) any other benefits (other than benefits under any severance or termination pay plan of the Company or the Affiliated Companies) that are otherwise required to be provided to Employee or to which Employee is otherwise eligible to receive through the date of termination under the terms of the applicable Company plan shall be provided to Employee consistent with the terms of the applicable Company plan (the “ Other Benefits ”). Such payment of the Other Benefits shall not be subject to the Employee’s execution of the Release unless otherwise called for in the applicable governing Company plan.

§ 8. Limitation on Payments Under Certain Circumstances .

(A) Anything in this Agreement to the contrary notwithstanding, in the event the Accounting Firm (as defined below) shall determine that receipt of all Severance Benefits would subject Employee to the excise tax under Section 4999 of the Code, the Accounting Firm shall determine whether to reduce any of the Severance Benefits paid or payable pursuant to this Agreement (the “ Agreement Payments ”) so that the Parachute Value of all Severance Benefits, in the aggregate, equals the Safe Harbor Amount (as defined below). The Agreement Payments shall be so reduced only if the Accounting Firm determines that Employee would have a greater Net After-Tax Receipt (as defined below) of aggregate Severance Benefits if the Agreement Payments were so reduced. If the Accounting Firm determines that Employee would not have a greater Net After-Tax Receipt of aggregate Severance Benefits if the Agreement Payments were so reduced, Employee shall receive all Agreement Payments to which Employee is entitled hereunder.



8


(B) If the Accounting Firm determines that the aggregate Agreement Payments should be reduced so that the Parachute Value of all Severance Benefits, in the aggregate, equals the Safe Harbor Amount, the Company shall promptly give Employee notice to that effect and a copy of the detailed calculation thereof. All determinations made by the Accounting Firm under this § 8 shall be binding upon the Company and Employee and shall be made as soon as reasonably practicable and in no event later than thirty (30) days following the date of termination. For purposes of reducing the Agreement Payments so that the Parachute Value of all Severance Benefits, in the aggregate, equals the Safe Harbor Amount, only amounts payable under this Agreement (and no other payments) shall be reduced. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing the payments and benefits under the following sections in the following order: (1) first, any payments under § 7(A)(3); (2) second, any payments under § 7(A)(4); (3) third, any payments under § 7(A)(1); and (4) fourth, any payments under § 7(A)(2). All fees and expenses of the Accounting Firm shall be borne solely by the Company.

(C) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that amounts will have been paid or distributed by the Company to or for the benefit of Employee pursuant to this Agreement that should not have been so paid or distributed (“ Overpayment ”) or that additional amounts which will have not been paid or distributed by the Company to or for the benefit of Employee pursuant to this Agreement could have been so paid or distributed (“ Underpayment ”), in each case, consistent with the calculation of the Safe Harbor Amount hereunder. In the event that the Accounting Firm, based upon the assertion of a deficiency by the Internal Revenue Service against either the Company or Employee that the Accounting Firm believes has a high probability of success, determines that an Overpayment has been made, Employee shall promptly (and in no event later than sixty (60) days following the date on which the Overpayment is determined) pay any such Overpayment to the Company together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code; provided , however , that no amount shall be payable by Employee to the Company if and to the extent such payment would not either reduce the amount on which Employee is subject to tax under Sections 1 and 4999 of the Code or generate a refund of such taxes. If the Accounting Firm, based upon controlling precedent or substantial authority, determines that an Underpayment has occurred, any such Underpayment shall be paid promptly (and in no event later than sixty (60) days following the date on which the Underpayment is determined) by the Company to or for the benefit of Employee together with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code.

(D) To the extent requested by Employee, the Company shall cooperate with Employee in good faith in valuing, and the Accounting Firm shall take into account the value of, services provided or to be provided by Employee (including without limitation Employee’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, including that set forth in § 5 of this Agreement) before, on or after the date of a change in ownership or control of the Company (within the meaning of Q&A-2(b) of the final regulations under Section 280G of the Code), such that payments in respect of such services may be considered reasonable compensation within the meaning of Q&A-9 and Q&A-40 to Q&A-44 of the regulations under Section 280G of the Code and/or exempt from the definition of the term “parachute payment” within the meaning of Q&A-2(a) of the regulations under Section 280G of the Code in accordance with Q&A-5(a) of the regulations under Section 280G of the Code.

(E) Definitions. For purposes of this Agreement, the following terms shall have the meaning set forth below:

“Accounting Firm ” shall mean a nationally recognized certified public accounting firm that is selected by the Company for purposes of making the applicable determinations under § 8 and is reasonably acceptable to Employee, which firm shall not, without Employee’s consent, be a firm serving as accountant or auditor for the individual, entity or group effecting the change in control or ownership.



9


“Net After-Tax Receipt ” shall mean the present value (as determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Payment net of all taxes imposed on Employee with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to Employee’s taxable income for the immediately preceding taxable year, or such other rate(s) as the Accounting Firm determined to be likely to apply to Employee in the relevant tax year(s).

“ Parachute Value ” of a Payment means the present value as of the date of the change of control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2) of the Code, as determined by the Accounting Firm for purposes of determining whether and to what extent the excise tax under Section 4999 of the Code will apply to such Payment.

“ Payment ” means any payment or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of Employee, whether paid or payable pursuant to this Agreement or otherwise.

“ Safe Harbor Amount ” means (1) 3.0 times Employee’s “base amount,” within the meaning of Section 280G(b)(3) of the Code, minus (2) $1.00.

§ 9. Company Policies . Employee acknowledges that at all times both Employee and the compensation and benefits Employee receives (or is eligible to receive) from the Company pursuant to this Agreement or otherwise shall be subject to the policies of the Company, including the Company’s stock ownership guidelines and clawback or recoupment policies, as in effect from time to time.

§ 10. Capacity . Employee represents and warrants to the Company that he has the capacity and right to enter into this Agreement and perform all of his obligations under this Agreement without any restriction.

§ 11. Remedies .

(A) Arbitration . Subject to the right of the Company and the Affiliated Companies to exercise the remedies described in § 5 of this Agreement in any court having jurisdiction or the right of Employee to challenge, defend or contest same in any court having jurisdiction and except as otherwise prohibited by law, all disagreements and controversies arising with respect to this Agreement, or with respect to its application to circumstances not clearly set forth in this Agreement, shall be settled by binding arbitration to be held, and the award made, in Cincinnati, Ohio, pursuant to the then-applicable Commercial Arbitration Rules of the American Arbitration Association. In any such arbitration, the arbitrators shall consist of a panel of three arbitrators, which shall act by majority vote and which shall consist of one arbitrator selected by the party on one side of the issue subject to the arbitration, one arbitrator selected by the party on the other side of the issue, and a third arbitrator selected by the two arbitrators so selected, who shall be either a certified public accountant or an attorney at law licensed to practice in the State of Ohio and who shall act as chairman of the arbitration panel; provided that, if the party on one side of the issue selects its arbitrator for the panel and the other party fails so to select its arbitrator within ten (10) business days after being requested by the first party to do so, then the sole arbitrator shall be the arbitrator selected by the first party. A decision in any such arbitration shall apply both to the particular question submitted and to all similar questions arising thereafter and shall be binding and conclusive upon both parties and shall be enforceable in any court having jurisdiction over the party to be charged. Each party shall bear the cost of its own attorney’s fees. However, if Employee prevails in a challenge to the Company’s determination as to the basis or lack of basis for his termination or if Employee prevails on any claim that he was discriminated against in violation of any federal, state or local law, the Company shall reimburse Employee for any applicable filing fee and any reasonable costs or expenses incurred in such challenge, including reasonable attorney’s fees. All other costs and expenses of arbitration shall be borne by the Company. All rights and remedies of each party under this Agreement are


10


cumulative and in addition to all other rights and remedies that may be available to that party from time to time, whether under any other agreement, at law or in equity.

(B) Agreed Limitation of Action . In exchange for the benefits provided herein, Employee agrees not to commence any action or suit related to Employee’s employment, whether during the Term of this Agreement or outside of this Agreement, by the Company or the Affiliated Companies:

(1) More than six (6) months after the termination of Employee’s employment, if the action or suit is related to the termination of Employee’s employment; or

(2)     More than six (6) months after the event or occurrence on which Employee’s claim is based, if the action or suit is based on an event or occurrence other than the termination of Employee’s employment.

Employee agrees to waive any statute of limitations that is contrary to this § 11(B).

§ 12. Section 409A of the Code .

(A) General . It is intended that this Agreement shall comply with the provisions of Section 409A of the Code and the Treasury regulations relating thereto, or an exemption to Section 409A of the Code, and it shall be considered and interpreted in accordance with such intent. Any payments that qualify for the “short-term deferral” exception or another exception under Section 409A of the Code shall be paid under the applicable exception. For purposes of the limitations on nonqualified deferred compensation under Section 409A of the Code, each payment of compensation under this Agreement shall be treated as a separate payment of compensation for purposes of applying the Section 409A of the Code deferral election rules and the exclusion under Section 409A of the Code for certain short-term deferral amounts. All payments to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” under Section 409A of the Code. Despite any contrary provision of this Agreement, any references to “termination of employment” or the “date of termination” (or any similar term) shall mean and refer to the date of Employee’s “separation from service,” as that term is defined in Section 409A of the Code and Treasury Regulation Section 1.409A-1(h). In no event may Employee directly or indirectly designate the calendar year of any payment under this Agreement.

(B) Delay of Payments . Notwithstanding any other provision of this Agreement to the contrary, if Employee is considered a “specified employee” for purposes of Section 409A (as determined in accordance with the methodology established by the Company as in effect on the date of termination), any payment that constitutes nonqualified deferred compensation within the meaning of Section 409A of the Code that is otherwise due to Employee under this Agreement during the six-month period following his separation from service (as determined in accordance with Section 409A of the Code) on account of his separation from service shall be accumulated and paid to Employee on the first business day of the seventh month following his separation from service (the “ Delayed Payment Date ”). If Employee dies during the Section 409A postponement period, the amounts and entitlements delayed on account of Section 409A shall be paid to the personal representative (with interest as provided above) of his estate on the first to occur of the Delayed Payment Date or thirty (30) days after the date of Employee’s death.

(C) In-Kind Benefits and Reimbursements . Notwithstanding any other provision of this Agreement to the contrary, all (1) reimbursements and (2) in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (a) any reimbursement is for expenses incurred during Employee’s lifetime (or during a shorter period of time specified in this Agreement); (b) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (c) the reimbursement of an eligible expense will be made no later than


11


the last day of the calendar year following the year in which the expense is incurred; and (d) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

§ 13. Withholding . The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

§ 14. Survival . The termination of Employee’s employment by the Company for any reason, whether voluntary or involuntary, shall not relieve either party of its obligations existing at, arising as a result of, or relating to acts or omissions occurring prior to, such termination. In addition, in no event shall the termination of this Agreement or the termination of Employee’s employment for any reason, whether voluntary or involuntary, modify or affect any obligations of Employee or rights of the Company or the Affiliated Companies under §§ 5 or 11 of this Agreement, all of which shall survive the termination of this Agreement or such termination of Employee’s employment.

§ 15. Notices . All notices and other communications under this Agreement to either party shall be in writing and shall be deemed given when (A) delivered personally to that party, (B) sent by fax (which is confirmed) to that party, (C) mailed by certified mail (return receipt requested) to that party at the address for that party set forth in this Agreement, or (D) delivered to Federal Express, UPS, or any similar express delivery service for delivery the next business day to that party at that address.

If to the Company: First Financial Bank
255 East Fifth Street, Suite 2900
Cincinnati, Ohio 45202
Attention: Chief Legal Officer

If to Employee: At the most recent address on file at the Company.
    
            
With a copy to:
Bingham Greenebaum Doll LLP
10 West Market Street, Suite 2700
Indianapolis, Indiana 46204
Telephone: (317) 635-8900
Fax: (317) 236-9907
Attention: Matthew T. Troyer

Either party may change its address for notices under this Agreement by giving the other party written notice of such change.

§ 16. Severability . The intention of the parties is to comply fully with all rules, laws, and public policies to the extent possible. If and to the extent that any court of competent jurisdiction is unable to so construe any provision of this Agreement and holds that provision to be invalid, such invalidity shall not affect the remaining provisions of this Agreement, which shall remain in full force and effect. With respect to any provision in this Agreement finally determined by such a court to be invalid or unenforceable, such court shall have jurisdiction to reform this Agreement to the extent necessary to make such provision valid and enforceable, and, as reformed, such provision shall be binding on the parties.

§ 17. Non-Waiver . No failure by either party to insist upon strict compliance with any term of this Agreement, to exercise any option, to enforce any right, or to seek any remedy upon any default of the other party shall affect, or constitute a waiver of, the other party’s right to insist upon such strict compliance, exercise that option, enforce that right, or seek that remedy with respect to that default or any prior, contemporaneous, or subsequent default. No custom or practice of the parties at variance with any provision


12


of this Agreement shall affect or constitute a waiver of either party’s right to demand strict compliance with all provisions of this Agreement.

§ 18. Complete Agreement . This Agreement and all documents referred to in this Agreement and any stock award agreement executed by Employee, all of which are hereby incorporated herein by reference, contain the entire agreement between the parties and supersede all other agreements and understandings between the parties with respect to the subject matter of this Agreement. This Agreement shall be of no force or effect unless and until executed and delivered by both Employee and a duly authorized representative of the Company. No alterations, additions, or other changes to this Agreement shall be made or be binding unless made in writing and signed by both parties.

§ 19. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio applicable to contracts to be executed and performed entirely in such state.

§ 20. Captions . The captions of the various sections of this Agreement are not part of the context of this Agreement, are only guides to assist in locating those sections, and shall be ignored in construing this Agreement.

§ 21. Genders and Numbers . Where permitted by the context, each pronoun used in this Agreement includes the same pronoun in other genders and numbers, and each noun used in this Agreement includes the same noun in other numbers.

§ 22. Successors . This Agreement shall be personal to Employee, and no rights or obligations of Employee under this Agreement may be assigned or delegated by Employee to any person. Any assignment or attempted assignment by Employee in violation of the preceding sentence shall be null and void. Subject to the foregoing, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the heirs, personal representatives, successors, and assigns of each party. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid that assumes and agrees to perform this Agreement by operation of law, or otherwise.

§ 23. Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same Agreement.

§ 24. Compliance with Applicable Law . The benefits paid and provided under this Agreement are subject to and conditioned upon compliance with applicable requirements of federal, state and local law and regulation, whether currently in effect or subsequently enacted, including without limitation, 12
U.S.C. Section 1828(k) and the regulations promulgated thereunder in 12 C.F.R. Part 359. Consistent with the foregoing, the Company shall have the right to defer, cancel or recoup any payment or refuse to provide any benefit under this Agreement in the event the Company determines in good faith, acting in its sole discretion, that making such payment or providing such benefit violates any applicable law or regulation. Further, benefits paid and provided under this Agreement may be subject to any claw back policy generally applicable to the employees of the Company as may be required by applicable law or as may be established by the Company in its sole discretion. To the extent determined necessary to comply with the Guidance on Sound Incentive Compensation Policies issued by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision on June 21, 2010, as it may be implemented, modified and interpreted from time to time, the Employee and the Company mutually agree to amend the provisions of this Agreement and to cooperate in good faith with respect thereto.


[Remainder of page intentionally left blank. Signature page follows.]


13




IN WITNESS THEREOF, Employee has hereunto set his hand, and the Company has caused these presents to be executed in its name and on its behalf, all as of the day and year first above written.


EMPLOYEE
 
FIRST FINANCIAL BANK,
 
 
 
National Association
 
 
 
 
 
 
 
 
 
 
 /s/ Richard S. Dennen
 
By:
/s/ Claude E. Davis
Richard S. Dennen
 
Name:
Claude E. Davis
 
 
 
Title:
President and Chief Executive Officer
 
 
 
 
 
Date:
July 23, 2015
 
Date:
July 23, 2015
 
 
 
 
 



14

EXHIBIT 13
CELEBRATING 25 YEARS OF PROFITABILITY First Financial Bancorp 2015 Annual Report


To commemorate our latest milestone, we decided to give back to the communities where we live and work. After a successful campaign in which our clients nominated their favorite charities via social media and within our banking centers, 25 of those organizations received a $1,000 donation. All recipients are 501(c)(3) charitable organizations and fall within one of our three areas of giving: economic development, financial literacy and neighborhood development. WITH MORE THAN 150 YEARS OF SERVICE, WE ARE PROUD OF OUR RICH HISTORY. 2015 CELEBRATES A MAJOR MILESTONE FOR FIRST FINANCIAL BANCORP-100 QUARTERS, OR 25 YEARS, OF CONSECUTIVE PROFITABILITY. OUR CLIENTS, ASSOCIATES AND COMMUNITY SUPPORT HAVE MADE THIS SUCCESS POSSIBLE. In 2015, we recognized associates who had a big role in the Company’s success. We are proud to share that we have 88 associates, who have been with us for at least 25 years, with more than 2,700 collective years of service. THANK YOU FOR GROWING WITH US




Our Premier Business Bank model is focused on providing financial products and services to small and medium sized businesses, through a high-touch, client-focused approach, within our operating footprint. This strategic model enabled our company to record significant loan and deposit growth during 2015, and we will continue to be successful when we “Bank the Business, Bank the Owner and Bank the Employees.” Likewise, our strong capital position and ability to generate consistently strong earnings, enables our company to take advantage of strategic acquisition opportunities. Last year, we acquired Oak Street Funding, a nationwide specialty finance company serving the insurance agency industry. The acquisition, which was immediately accretive to earnings, complements our existing nationwide franchise finance business and adds further diversification to our business. We issued $120 million of subordinated debt to help support additional asset growth and, in connection with this offering, we received investment-grade ratings for both the holding company and the bank. From a technology perspective, 2015 was certainly another exciting and productive year for First Financial. We recently introduced a fresh and exciting new website that enhances product and service delivery to our clients through a more modern online experience. As we look forward to 2016 and beyond, we will continue to invest in innovative solutions that enable our clients to bank with us on their terms. In closing, I want to thank our associates for their hard work and support in delivering the First Financial brand of community banking to our clients each and every day. Their efforts to build lasting relationships and create value for our clients is foundational to our continued success. Claude E. Davis Chief Executive Officer Deliver top-quartile shareholder returns. Invest in innovative solutions that enable our clients to bank with us on their terms. Promote leadership and development within our communities. Deploy capital in an opportunistic, risk-appropriate manner. Proactively develop leadership talent across the organization. Achieve best-in-class compliance and risk management processes. Maintain a disciplined approach to process improvement and expense management. AS I REFLECT ON THE PAST YEAR, IN WHICH OUR COMPANY MARKED BOTH THE FIRST ANNIVERSARY OF OUR EXPANSION INTO THE COLUMBUS, OHIO MARKET AND OUR 100TH CONSECUTIVE QUARTER OF PROFITABILITY, I THINK OF OUR VIBRANT COMMUNITIES, OUR LOYAL CLIENTS, AND THE DEDICATION AND HARD WORK OF OUR ASSOCIATES, ALL OF WHICH CONTRIBUTED SO MUCH TO OUR CONTINUED SUCCESS IN 2015.2016 STRATEGIC GOALS


First Financial Bancorp 2015 Annual Report 1

BOARD OF DIRECTORS
 
SENIOR MANAGEMENT
 
 
 
Murph Knapke
 
Claude E. Davis
Chairman of the Board, First Financial Bancorp;
 
Chief Executive Officer
Partner, Knapke Law Office
 
 
 
 
Richard Barbercheck
J. Wickliffe Ach
 
Chief Credit Officer
Chief Executive Officer,
 
 
Hixson, Inc.
 
Matthew B. Burgess
 
 
Chief Internal Auditor
David S. Barker
 
 
President and Chief Executive Officer,
 
Richard S. Dennen
SIHO Insurance Services
 
President, Oak Street Funding, LLC
 
 
 
Cynthia O. Booth
 
Holly M. Foster
President and Chief Executive Officer,
 
Chief Compliance Officer
COBCO Enterprises
 
 
 
 
John M. Gavigan
Mark A. Collar
 
Chief Financial Officer and
Member
 
Principal Accounting Officer
Collar, Ltd
 
 
 
 
Gregory A. Harris
Claude E. Davis
 
Senior Vice President, Wealth Management
Chief Executive Officer,
 
 
First Financial Bancorp.
 
Shannon M. Kuhl
 
 
Chief Legal Officer and
Corinne R. Finnerty
 
Corporate Secretary
Partner,
 
 
McConnell Finnerty PC
 
C. Douglas Lefferson
 
 
President, Community Banking
Peter E. Geier
 
 
Principal,
 
Alisa E. Poe
PGeier Consulting, LLC
 
Chief Talent Officer
 
 
 
Susan L. Knust
 
Bradley J. Ringwald
Owner and President,
 
President, Corporate and Specialty Banking
Omega Warehouse Services
 
 
 
 
William J. Sorg
William J. Kramer
 
Chief Risk Officer
Vice President of Operations,
 
 
Valco Companies, Inc.
 
Jill A. Stanton
 
 
President, Mortgage Banking
Jeffrey D. Meyer
 
 
President
 
Anthony M. Stollings
Clean Title Agency, Inc.
 
President and Chief Operating Officer
 
 
 
John T. Neighbors
 
 
Partner,
 
 
Faegre Baker Daniels
 
 
 
 
 
Richard E. Olszewski
 
 
Owner/Operator,
 
 
7 Eleven Food Stores
 
 
 
 
 
Maribeth S. Rahe
 
 
President and Chief Executive Officer,
 
 
Fort Washington Investment
 
 
Advisors, Inc.
 
 

2 First Financial Bancorp 2015 Annual Report


FINANCIAL HIGHLIGHTS
 
 
 
 
 
 
 
(Dollars in thousands, except per share data)
 
2015
 
2014
 
% Change
Earnings
 
 
 
 
 
 
Net interest income
 
$
246,502

 
$
228,625

 
7.8
 %
Net income
 
75,063

 
65,000

 
15.5
 %
 
 
 
 
 
 
 
Per Share
 
 
 
 
 
 
Net income per common share-basic
 
$
1.23

 
$
1.11

 
10.8
 %
Net income per common share-diluted
 
1.21

 
1.09

 
11.0
 %
Cash dividends declared per common share
 
0.64

 
0.61

 
4.9
 %
Tangible book value per common share (end of year)
 
9.69

 
10.38

 
(6.6
)%
Market price (end of year)
 
18.07

 
18.59

 
(2.8
)%
 
 
 
 
 
 
 
Balance Sheet - End of Year
 
 
 
 
 
 
Total assets
 
$
8,147,411

 
$
7,217,821

 
12.9
 %
Deposits
 
6,179,624

 
5,655,742

 
9.3
 %
Loans
 
5,388,760

 
4,777,235

 
12.8
 %
Investment securities
 
1,970,626

 
1,761,090

 
11.9
 %
Shareholders' equity
 
809,376

 
784,077

 
3.2
 %
 
 
 
 
 
 
 
Ratios
 
 
 
 
 
 
Return on average assets
 
1.00
%
 
0.96
%
 
 
Return on average shareholders' equity
 
9.33
%
 
8.94
%
 
 
Return on average tangible shareholders' equity
 
12.66
%
 
11.18
%
 
 
Net interest margin
 
3.60
%
 
3.71
%
 
 
Net interest margin (fully tax equivalent)
 
3.66
%
 
3.76
%
 
 



First Financial Bancorp 2015 Annual Report 3








 
2015 Financial Highlights






4 First Financial Bancorp 2015 Annual Report

Glossary of Abbreviations and Acronyms

First Financial Bancorp has identified the following list of abbreviations and acronyms that are used in the Notes to Consolidated Financial Statements and the Management's Discussion and Analysis of Financial Condition and Results of Operations.

ABL
Asset based lending
 
First Bexley
The First Bexley Bank
the Act
Private Securities Litigation Reform Act
 
First Financial
First Financial Bancorp.
ALLL
Allowance for loan and lease losses
 
First Financial Bank
First Financial Bank, N.A.
ASC
Accounting standards codification
 
FNMA
Federal National Mortgage Association
ASU
Accounting standards update
 
Form 10-K
First Financial Bancorp. Annual Report on Form 10-K
ATM
Automated teller machine
 
FRB
Federal Reserve Bank
Bank
First Financial Bank, N.A.
 
GAAP
U.S. Generally Accepted Accounting Principles
Basel III
Basel Committee regulatory capital reforms, Third Basel Accord
 
GNMA
Government National Mortgage Association
BP
Basis point
 
Guernsey
Guernsey Bancorp, Inc.
CDs
Certificates of deposits
 
Insight
Insight Bank
C&I
Commercial and industrial
 
IRLC
Interest Rate Lock Commitment
CLOs
Collateralized loan obligations
 
MBSs
Mortgage-backed securities
CMOs
Collateralized mortgage obligations
 
N/A
Not applicable
Company
First Financial Bancorp.
 
NII
Net interest income
ERM
Enterprise Risk Management
 
Oak Street
Oak Street Holdings Corporation
EVE
Economic value of equity
 
OREO
Other real estate owned
FASB
Financial Accounting Standards Board
 
SEC
United States Securities and Exchange Commission
FDIC
Federal Deposit Insurance Corporation
 
Special Assets
Special Assets Division
FHLB
Federal Home Loan Bank
 
TDR
Troubled debt restructuring
FHLMC
Federal Home Loan Mortgage Corporation
 
 
 


First Financial Bancorp 2015 Annual Report 5

Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Table 1 • Financial Summary
 
 
 
 
 
 
 
 
 
 
December 31,
(Dollars in thousands, except per share data)
2015
 
2014
 
2013
 
2012
 
2011
Summary of operations
 
 
 
 
 
 
 
 
 
Interest income
$
269,759

 
$
247,859

 
$
245,208

 
$
280,930

 
$
308,817

Tax equivalent adjustment (1)
4,017

 
3,224

 
2,142

 
1,055

 
979

Interest income tax – equivalent (1)
273,776

 
251,083

 
247,350

 
281,985

 
309,796

Interest expense
23,257

 
19,234

 
16,888

 
27,589

 
44,921

  Net interest income tax – equivalent   (1)
$
250,519

 
$
231,849

 
$
230,462

 
$
254,396

 
$
264,875

Interest income
$
269,759

 
$
247,859

 
$
245,208

 
$
280,930

 
$
308,817

Interest expense
23,257

 
19,234

 
16,888

 
27,589

 
44,921

  Net interest income
246,502

 
228,625

 
228,320

 
253,341

 
263,896

Provision for loan and lease losses
9,641

 
1,528

 
8,909

 
50,020

 
83,291

Noninterest income
75,202

 
63,965

 
73,647

 
122,421

 
142,531

Noninterest expenses
201,130

 
196,034

 
225,475

 
221,997

 
218,097

Income before income taxes
110,933

 
95,028

 
67,583

 
103,745

 
105,039

Income tax expense
35,870

 
30,028

 
19,234

 
36,442

 
38,300

   Net income
$
75,063

 
$
65,000

 
$
48,349

 
$
67,303

 
$
66,739

 
 
 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
 
 
Basic
$
1.23

 
$
1.11

 
$
0.84

 
$
1.16

 
$
1.16

Diluted
$
1.21

 
$
1.09

 
$
0.83

 
$
1.14

 
$
1.14

Cash dividends declared per common share
$
0.64

 
$
0.61

 
$
0.94

 
$
1.18

 
$
0.78

Average common shares outstanding–basic (in thousands)
61,063

 
58,663

 
57,270

 
57,877

 
57,692

Average common shares outstanding–diluted (in thousands)
61,848

 
59,393

 
58,073

 
58,869

 
58,693

 
 
 
 
 
 
 
 
 
 
Selected year-end balances
 
 
 
 
 
 
 
 
 
Total assets
$
8,147,411

 
$
7,217,821

 
$
6,417,213

 
$
6,497,048

 
$
6,671,511

Earning assets
7,431,707

 
6,594,626

 
5,840,849

 
5,961,727

 
6,110,934

Investment securities (2)
1,970,626

 
1,761,090

 
1,798,300

 
1,874,343

 
1,516,002

Total loans and leases
5,388,760

 
4,777,235

 
3,963,514

 
3,927,180

 
4,021,691

FDIC indemnification asset
17,630

 
22,666

 
45,091

 
119,607

 
173,009

Interest-bearing demand deposits
1,414,291

 
1,225,378

 
1,125,723

 
1,160,815

 
1,317,339

Savings deposits
1,945,805

 
1,889,473

 
1,612,005

 
1,623,614

 
1,724,659

Time deposits
1,406,124

 
1,255,364

 
952,327

 
1,068,637

 
1,654,662

Noninterest-bearing demand deposits
1,413,404

 
1,285,527

 
1,147,452

 
1,102,774

 
946,180

Total deposits
6,179,624

 
5,655,742

 
4,837,507

 
4,955,840

 
5,642,840

Short-term borrowings
938,425

 
661,392

 
748,749

 
624,570

 
99,431

Long-term debt
119,540

 
48,241

 
60,780

 
75,202

 
76,544

Shareholders’ equity
809,376

 
784,077

 
682,161

 
710,425

 
712,221

 
 
 
 
 
 
 
 
 
 
Select Financial Ratios
 
 
 
 
 
 
 
 
 
Average loans to average deposits (3)
84.00
%
 
83.20
%
 
82.12
%
 
75.66
%
 
78.53
%
Net charge-offs to average loans and leases
0.18
%
 
0.27
%
 
0.99
%
 
1.34
%
 
1.51
%
Average shareholders’ equity to average total assets
10.73
%
 
10.75
%
 
11.17
%
 
11.30
%
 
11.33
%
Average common shareholders’ equity to average total assets
10.73
%
 
10.75
%
 
11.17
%
 
11.30
%
 
11.33
%
Return on average assets
1.00
%
 
0.96
%
 
0.77
%
 
1.07
%
 
1.06
%
Return on average common equity
9.33
%
 
8.94
%
 
6.89
%
 
9.43
%
 
9.37
%
Return on average equity
9.33
%
 
8.94
%
 
6.89
%
 
9.43
%
 
9.37
%
Net interest margin
3.60
%
 
3.71
%
 
3.97
%
 
4.37
%
 
4.55
%
Net interest margin (tax equivalent basis) (1)
3.66
%
 
3.76
%
 
4.01
%
 
4.39
%
 
4.57
%
Dividend payout
52.03
%
 
54.95
%
 
111.90
%
 
101.72
%
 
67.24
%
(1) Tax equivalent basis was calculated using a 35.00% tax rate in all years presented.
(2) Includes investment securities held-to-maturity, investment securities available-for-sale, investment securities trading, and other investments.
(3) Includes covered loans and loans held for sale.


6 First Financial Bancorp 2015 Annual Report

This annual report contains forward-looking statements. See the Forward-Looking Statements section that follows for further information on the risks and uncertainties associated with forward-looking statements. The following discussion and analysis is presented to facilitate the understanding of the financial position and results of operations of First Financial Bancorp. The discussion and analysis identifies trends and material changes that occurred during the reporting periods presented and should be read in conjunction with the Statistical Data, Consolidated Financial Statements and accompanying Notes.

Certain reclassifications of prior years' amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings, total assets, liabilities and shareholders' equity.

EXECUTIVE SUMMARY

First Financial is an $8.1 billion bank holding company headquartered in Cincinnati, Ohio.  As of December 31, 2015 , First Financial, through its subsidiaries, operated primarily in Ohio, Indiana and Kentucky.  These subsidiaries include a commercial bank, First Financial Bank, N.A. with 106 banking centers and 129 ATMs. First Financial provides banking and financial services products through its five lines of business: commercial, consumer, wealth management, specialty finance and mortgage. The commercial, consumer, specialty finance and mortgage business lines provide credit-based products, deposit accounts, retail brokerage, corporate cash management support and other services to commercial and consumer clients.  The Bank also 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 exclusively to insurance agents and brokers.  First Financial Wealth Management provides wealth planning, portfolio management, trust and retirement plan services and had approximately $2.3 billion in assets under management as of December 31, 2015.

First Financial acquired the banking operations of Peoples Community Bank, and Irwin Union Bank and Trust Company and Irwin Union Bank, F.S.B., through FDIC-assisted transactions in 2009. In connection with these FDIC-assisted transactions, First Financial entered into loss sharing agreements with the FDIC. Under the terms of these agreements the FDIC reimburses First Financial for a percentage of losses with respect to certain loans (covered loans) and other real estate owned (collectively, covered assets). These agreements provide for loss protection on covered 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 covered loans 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 five year loss sharing indemnification period related to non-single-family loans expired effective October 1, 2014. The loss sharing protection related to all other covered loans of approximately $113.3 million will expire in the third quarter 2019. Covered assets represented 1.4% of First Financial's total assets at December 31, 2015.

The major components of First Financial’s operating results for the previous five years are summarized in Table 1 – Financial Summary and discussed in greater detail on subsequent pages.

MARKET STRATEGY AND BUSINESS COMBINATIONS

First Financial’s goal is to develop a competitive advantage utilizing a local market focus, providing a superior level of service and building long-term relationships with clients to help them reach greater levels of success in their financial life. First Financial serves a combination of metropolitan and non-metropolitan markets in Ohio, Indiana and Kentucky through its full-service banking centers, while providing franchise and insurance lending services to borrowers throughout the United States. First Financial’s market selection process includes a number of factors, but markets are primarily chosen for their potential for growth and long-term profitability.  First Financial intends to continue focusing plans for future growth and capital investments within its current metropolitan markets and evaluate other growth opportunities in metropolitan markets located within, or in close proximity to, the Company's current geographic footprint as well as other strategic acquisitions that provide product line extensions or industry verticals that compliment our existing business.  First Financial's investment in smaller markets have historically provided stable, low-cost funding sources to First Financial and remain an important part of its funding base.  First Financial believes its historical strength in these markets should enable it to retain or improve its market share.

During 2015, First Financial completed an acquisition in the Indianapolis, Indiana market as follows:

Oak Street. On August 14, 2015 First Financial completed its acquisition of Oak Street and Oak Street became a wholly-owned subsidiary of First Financial Bank. Formed in 2003, Oak Street is a nationwide lender based in Indianapolis, Indiana that provides loans, secured by commissions and cash collateral accounts, exclusively 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

First Financial Bancorp 2015 Annual Report 7

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.

Oak Street utilizes deep industry knowledge, a proprietary technology platform and partner relationships to offer commission-based commercial financing for insurance professionals and third-party loan servicing for financial institutions nationwide. Oak Street's well-developed business model provides a strong strategic complement to First Financial's existing nationwide franchise finance business and an opportunity to expand and diversify the Company's service offerings.

During 2014, First Financial completed three business combinations in the Columbus, Ohio market (the Columbus acquisitions) as follows:

First Bexley. On August 7, 2014, First Financial completed its merger with First Bexley. Founded in 2006 and conducting operations out of one full service branch location in Bexley, Ohio, First Bexley served commercial and consumer clients throughout Columbus and central Ohio. First Financial acquired First Bexley in a cash and stock transaction in which First Bexley merged with and into First Financial Bank.

Insight. On August 7, 2014, First Financial also completed its merger with Insight. Founded in 2006 and conducting operations out of one full service location in Worthington, Ohio, and a mortgage origination office in Newark, Ohio, Insight provided commercial and consumer banking services to clients throughout Columbus and central Ohio. First Financial acquired Insight in a cash and stock transaction in which Insight merged with and into First Financial Bank.

Guernsey. On August 21, 2014, First Financial completed its merger with Guernsey. Headquartered in Worthington, Ohio, Guernsey conducted operations out of three full service branches and served commercial and consumer clients throughout Columbus and central Ohio. Under the terms of the merger agreement, First Financial acquired Guernsey for cash consideration and the transfer of a single bank-owned property to Guernsey's sole shareholder. The Company also paid off all amounts due under a promissory note to a third party on behalf of Guernsey. The Guernsey Bank, an Ohio state chartered bank and wholly-owned subsidiary of Guernsey, merged with and into First Financial as part of the merger agreement.

The First Bexley, Insight and Guernsey acquisitions provided First Financial an entrance into Central Ohio, and introduced the Company's diverse product set to the commercial and consumer clients of those institutions. These acquisitions positioned First Financial as one of the largest community banks serving the metropolitan Columbus market. The data conversions and re-branding efforts on the Columbus acquisitions were completed during the second half of 2014.

The following tables provide a summary of the purchase consideration, assets acquired and liabilities assumed, at their estimated fair value, and the resulting goodwill from the Oak Street and Columbus acquisitions. For further detail on the Oak Street and Columbus acquisitions, see Note 20 – Business Combinations in the Notes to the Consolidated Financial Statements.



First Financial Bancorp 2015 Annual Report 8

Table 2 •  Business Combinations
 
2015
 
(Dollars in thousands)
Total
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


2014
 
(Dollars in thousands)
Total
Purchase consideration
 
Cash consideration
$
34,190

Stock consideration
60,429

Other consideration
2,523

Total purchase consideration
$
97,142

 
 
Assets acquired
 
Loans
$
606,263

Intangible assets
3,556

Other assets
117,493

Total assets
$
727,312

 
 
Liabilities assumed
 
Deposits
$
568,605

Borrowings
94,891

Other liabilities
9,363

Total liabilities
$
672,859

 
 
Net identifiable assets
$
54,453

Goodwill
$
42,689





First Financial Bancorp 2015 Annual Report 9
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

OVERVIEW OF OPERATIONS
 
Net income for the year ended December 31, 2015 was $75.1 million , resulting in basic earnings per share of $1.23 and earnings per diluted share of $1.21 . This represented a 15.5% increase in net income from $65.0 million in 2014. Basic and diluted earnings per share for the year ended December 31, 2014 were $1.11 and $1.09 , respectively. First Financial’s return on average shareholders’ equity for 2015 was 9.33%, which compares to 8.94% for 2014 and First Financial’s return on average assets for 2015 was 1.00%, which compares to a return on average assets of 0.96% for 2014 . First Financial’s operational results are influenced by overall economic factors and conditions, including market interest rates, competition within the marketplace, business spending, consumer confidence and regulatory changes.
  
Net interest income in 2015 increased $17.9 million or 7.8% from 2014 , compared to a 0.1% increase in 2014 compared to 2013. The increase in 2015 was primarily driven by higher earning asset balances, partially offset by lower yields as a result of the prolonged low interest rate environment. The net interest margin on a fully tax equivalent basis was 3.66% for 2015 compared with 3.76% in 2014 and 4.01% in 2013.
 
Noninterest income increased $11.2 million, or 17.6%, during the year, from $64.0 million in 2014 to $75.2 million in 2015 . The increase in noninterest income was primarily due to increased income from the accelerated discount on covered loans that prepay during the year, higher gains from sales of loans, gain on sale of securities, higher client derivative fees and increased other noninterest income, partially offset by decreased FDIC loss sharing income and lower service charges on deposit accounts.

Noninterest expense increased $5.1 million, or 2.6%, during the year, from $196.0 million in 2014 to $201.1 million in 2015 . The increase was primarily due to higher salaries and benefits, higher other noninterest expenses as well as increased professional services expenses during 2015, partially offset by decreases in loss sharing and data processing expenses.
 
Total loans increased $611.5 million, or 12.8%, from $4.8 billion at December 31, 2014 to $5.4 billion at December 31, 2015 , driven by strong organic growth as well as the Oak Street acquisition. Total uncovered loans increased $633.9 million, from $4.6 billion at December 31, 2014 to $5.3 billion at December 31, 2015 while total covered loans decreased $22.4 million, from $135.7 million at December 31, 2014 to $113.3 million at December 31, 2015 . With the exception of higher yielding Oak Street loan originations, new loan originations in 2015 continued to be recorded at yields significantly lower than the yields on loans that paid off or matured during the period as a result of the low interest rate environment, muting the impact of increased balances on interest income and net interest margin.
 
First Financial experienced a $523.9 million or 9.3% increase in total deposits during 2015 , from $5.7 billion at December 31, 2014 to $6.2 billion as of December 31, 2015 as a result of strong deposit generation efforts during the year. Total interest-bearing checking accounts increased $188.9 million, time deposits increased $150.8 million and noninterest bearing deposits increased by $127.9 million during the period. The Company's total cost of funds increased to 0.35% in 2015 from 0.32% in 2014.
 
The ALLL was $53.4 million, or 0.99%, of loans compared to $52.9 million, or 1.11% of loans at December 31, 2014. Given the application of acquisition accounting and the resulting estimated fair value marks embedded in the carrying value of loans acquired in the Oak Street transaction during 2015, First Financial experienced an increase in loan balances without a corresponding increase to the ALLL, which results in the total ALLL being lower as a percentage of total loans. Consequently, the Company considers the total allowance for loan and lease losses and the remaining net fair value marks on all acquired loans, less the remaining indemnification asset balance, to be a relevant measure of the Company's loan loss protection. The balance of the Company's total allowance and credit marks on acquired loans, net of the indemnification asset, was 1.11% of total loans and leases as of December 31, 2015 as compared to 1.51% in 2014.

The Company's credit quality performance continued to improve in 2015, reflecting further recovery in the U.S. economy from the period of sustained weakness and falling real estate values experienced from 2007 to 2010. First Financial's lower levels of nonperforming and classified assets continue to reflect improving economic conditions, including lower unemployment rates and higher levels of business and consumer spending, in the markets in which we operate.

For a more detailed discussion of the above topics, please refer to the sections that follow.


10 First Financial Bancorp 2015 Annual Report

NET INCOME
 
2015 vs. 2014. First Financial’s net income increased $10.1 million or 15.5% to $75.1 million in 2015 , compared to net income of $65.0 million in 2014 . The increase was primarily related to a $21.9 million, or 8.8% increase in interest income as well as an increase in noninterest income of $11.2 million, or 17.6%, partially offset by an increase in interest expense of $4.0 million, or 20.9% and an increase in income tax expense of $5.8 million, or 19.5% during 2015.

2014 vs. 2013. First Financial’s net income increased $16.7 million or 34.4% to $65.0 million in 2014 , compared to net income of $48.3 million in 2013. The increase was primarily related to a $7.4 million, or 82.8% decrease in provision for loan and lease losses as well as a decline in noninterest expenses of $29.4 million, or 13.1%, partially offset by a decrease in noninterest income of $9.7 million, or 13.1% and an increase in income tax expense of $10.8 million, or 56.1% during 2014.

For more detail, refer to the Net interest income, Noninterest income, Noninterest expense and Income taxes sections that follow.

NET INTEREST INCOME
 
First Financial’s net interest income for the years 2011 through 2015 is shown in Table 1 – Financial Summary. Net interest income, First Financial’s principal source of income, is the excess of interest received from earning assets over interest paid on interest-bearing liabilities, plus fees for financial services provided to clients. The amount of net interest income is determined by the volume and mix of earning assets, the rates earned on such earning assets and the volume, mix and rates paid for the deposits and borrowed money that support the earning assets. Table 3 – Volume/Rate Analysis - Tax Equivalent Basis describes the extent to which changes in interest rates and changes in the volume of earning assets and interest-bearing liabilities have affected First Financial’s net interest income on a tax equivalent basis during the years presented. Nonaccrual loans and loans held for sale were included in the daily average loan balances used to determine the yields in Table 3 – Volume/Rate Analysis - Tax Equivalent Basis. Table 3 – Volume/Rate Analysis - Tax Equivalent Basis should be read in conjunction with the Statistical Information table.
 
For analytical purposes, net interest income is also presented in Table 1 – Financial Summary, adjusted to a tax equivalent basis assuming a 35.00% marginal tax rate for interest earned on tax-exempt assets such as municipal loans and investments.  This is to recognize the income tax savings that facilitates a comparison between taxable and tax-exempt assets.  Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully tax equivalent basis as these measures provide useful information to make peer comparisons. First Financial's tax equivalent net interest margin was 3.66%, 3.76% and 4.01% for 2015 , 2014 and 2013, respectively.
 
Loan fees included in the interest income computation for 2015 , 2014 and 2013 were $5.6 million, $4.3 million and $6.7 million, respectively. The increase in loan fees in 2015 was primarily a result of strong organic growth as well as the impact from the Oak Street acquisition.

2015 vs. 2014. Net interest income increased $17.9 million or 7.8%, from $228.6 million in 2014 to $246.5 million in 2015, primarily due to an increase in average earning assets, partially offset by lower yields during 2015. Average earning assets increased from $6.2 billion in 2014 to $6.8 billion in 2015, while the yield on earning assets declined 8 basis points from 4.02% in 2014 to 3.94% in 2015.

Interest income was $269.8 million in 2015 , a $21.9 million or 8.8% increase from 2014. The increase was primarily attributable to interest income from loans, which increased $21.4 million, or 10.3%, from $208.8 million in 2014 to $230.2 million in 2015, partially offset by a $1.3 million, or 3.3% decrease in interest income earned on taxable investment securities during the period as yields declined slightly. The increase in interest income resulted from an increase in interest and fee income earned on the Company's loan portfolio. This was primarily a result of strong organic loan growth during the period as well as the impact from the addition of $237.4 million of high-yielding loans acquired in the Oak Street transaction, partially offset by continued paydowns and resolutions in the Company's high-yielding covered loan portfolio and lower new origination loan yields. Average loan balances increased $669.1 million, or 15.6%, during 2015, however, new loan originations continue to be recorded at yields lower than the yields on loans that paid off or matured during the period, muting the impact of higher loan balances on interest income and net interest margin.

Interest expense was $23.3 million in 2015 , a $4.0 million, or 20.9%, increase from 2014 . Interest expense increased as the average balance of interest-bearing deposits increased $581.3 million, or 14.6%, primarily due to the Company's strong deposit generation efforts during the period. Additionally, the cost of funds related to these deposits increased 2 bp to 43 bps for 2015 from 41 bps in 2014, negatively impacting net interest margin. Interest expense was also impacted by an increase in average

First Financial Bancorp 2015 Annual Report 11
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

long-term borrowings of $14.1 million, or 24.5%, during 2015 primarily resulting from the issuance of $120.0 million of subordinated notes during the period.

2014 vs. 2013. Net interest income increased $0.3 million or 0.1%, from $228.3 million in 2013 to $228.6 million in 2014, primarily due to an increase in average earning assets, partially offset by lower yields during 2014. Average earning assets increased from $5.8 billion in 2013 to $6.2 billion in 2014, while the yield on earning assets declined 24 basis points from 4.26% in 2013 to 4.02% in 2014.

Interest income was $247.9 million in 2014, a $2.7 million or 1.1% increase from 2013. The increase was primarily attributable to interest income from investment securities, which increased $7.9 million or 21.7%, from $36.5 million in 2013 to $44.5 million in 2014, partially offset by a $7.5 million, or 3.5% decrease in interest income earned on loans during the period as the higher yielding covered loan portfolio continued to decline. The increase in interest income from investment securities during 2014 was the result of higher investment securities balances and yields during the year, as the average balance of investment securities increased $127.9 million or 7.5% in 2014 as compared to 2013 and the average yield on investment securities increased 29 basis points, to 2.44% in 2014 from 2.15% in 2013. The increased yield on investment securities was primarily related to sales of lower yielding assets and a decline in prepayment speeds during 2014.

Interest expense was $19.2 million in 2014, a $2.3 million or 13.9% increase from 2013. Interest expense increased as the average balance of interest-bearing deposits increased $249.4 million, or 6.7%, primarily due to the impact of the Columbus acquisitions, and the cost of funds related to these deposits increased 6 basis points to 0.41% for 2014 from 0.35% in 2013. Total cost of interest-bearing liabilities increased 2 basis points to 0.40% in 2014 from 0.38% in 2013. Interest expense was also impacted by an increase in average short-term borrowings of $159.4 million during 2014 due primarily to balance sheet growth, including the Columbus acquisitions, which was partially offset by a $12.1 million or 17.4% decline in long-term borrowings when compared to 2013.

Table 3 • Volume/Rate Analysis - Tax Equivalent Basis (1)  
 
 
 
 
 
 
2015 change from 2014 due to
 
2014 change from 2013 due to
(Dollars in thousands)
 
Volume
Rate
 
Total
 
Volume
Rate
 
Total
Interest income
 
 
 
 
 
 
 
 
 
 
 
 
Loans (2)
 
$
31,379

 
$
(9,742
)
 
$
21,637

 
$
16,427

 
$
(23,439
)
 
$
(7,012
)
Indemnification asset
 
2,843

 
(2,052
)
 
791

 
10,690

 
(8,549
)
 
2,141

Investment securities (3)
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
(573
)
 
(774
)
 
(1,347
)
 
2,281

 
4,496

 
6,777

Tax-exempt
 
1,400

 
217

 
1,617

 
1,393

 
391

 
1,784

Total investment securities interest  (3)
 
827

 
(557
)
 
270

 
3,674

 
4,887

 
8,561

Interest-bearing deposits with other banks
 
21

 
(26
)
 
(5
)
 
43

 
0

 
43

Total
 
35,070

 
(12,377
)
 
22,693

 
30,834

 
(27,101
)
 
3,733

 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
 
101

 
(171
)
 
(70
)
 
35

 
(214
)
 
(179
)
Savings deposits
 
455

 
(660
)
 
(205
)
 
325

 
2,241

 
2,566

Time deposits
 
2,756

 
840

 
3,596

 
849

 
(330
)
 
519

Short-term borrowings
 
(264
)
 
360

 
96

 
271

 
(180
)
 
91

Long-term debt
 
477

 
129

 
606

 
(381
)
 
(270
)
 
(651
)
Total
 
3,525

 
498

 
4,023

 
1,099

 
1,247

 
2,346

Net interest income
 
$
31,545

 
$
(12,875
)
 
$
18,670

 
$
29,735

 
$
(28,348
)
 
$
1,387


(1) Tax equivalent basis was calculated using a 35.00% tax rate.
(2) Includes nonaccrual loans and loans held-for-sale.
(3) Includes investment securities held-to-maturity, investment securities available-for-sale and other investments.


12 First Financial Bancorp 2015 Annual Report

NONINTEREST INCOME AND NONINTEREST EXPENSES
 
Noninterest income and noninterest expenses for 2015, 2014 and 2013 are shown in Table 4 – Noninterest Income and Noninterest Expense.
 
NONINTEREST INCOME
 
2015 vs. 2014. Noninterest income increased $11.2 million or 17.6% from $64.0 million in 2014 to $75.2 million in 2015 primarily related to a $6.6 million or 157.9% increase in accelerated discount on covered loans, a $2.9 million or 188.9% increase in client derivative fees, a $2.1 million or 48.3% increase in gains on sales of loans, a $2.0 million or 22.7% increase in other noninterest income and a $1.4 million net gain on sale of investment securities, partially offset by a $2.9 million or 781.4% decrease in FDIC loss sharing income.

Income from the accelerated discount on covered loans increased $6.6 million or 157.9% from $4.2 million in 2014 to $10.8 million in 2015. Accelerated discounts on covered loans that prepay result from the accelerated recognition of the remaining covered loan discount that would have been recognized over the expected life of the loan had it not prepaid. Higher income from the accelerated discount on covered loans during 2015 was related to the expiration of loss sharing coverage on non-single-family assets on October 1, 2014 as well as elevated levels of prepayment activity on non-single family assets during the year. Due to the expiration of the loss sharing coverage on non-single family assets, the Company no longer recognizes a proportionate share of accelerated discount as relief to the FDIC indemnification asset for prepayment activity on non-single-family assets. The increase in noninterest income related to accelerated discount was partially offset by a related $2.6 million increase in provision expense on covered/formerly covered loans during the period as a result of the pool level accounting for the majority of these loans.

Client derivative fees increased $2.9 million or 188.9% compared to 2014, as increases in variable rate lending led to strong customer demand for interest rate swaps. Gains on sales of loans increased $2.1 million or 48.3% from $4.4 million to $6.5 million in 2015 due to strong mortgage origination activity during the period. Other noninterest income increased, primarily due to $1.2 million of distributions received from limited partnership investments during the period. The increase in gain on sale of investment securities was primarily related to sales of agency mortgage-backed securities during 2015 in an effort to re-balance the mix and duration of certain investments in the portfolio.

FDIC loss sharing income represents the proportionate share of credit losses, recoveries and resolution expenses on covered assets that First Financial expects to receive from the FDIC. FDIC loss sharing income decreased $2.9 million or 781.4% from loss sharing income of $0.4 million during 2014 to $2.5 million of negative loss sharing income in 2015. Negative FDIC loss sharing income during 2015 reflects a net payable due to the FDIC.

2014 vs. 2013. Noninterest income decreased $9.7 million or 13.1% from $73.6 million in 2013 to $64.0 million in 2014 primarily related to lower FDIC loss sharing income, lower income from the accelerated discount on covered loans that prepaid, a decline in gains on sales of securities and a decrease in other noninterest income, partially offset by an increase in gains from loan sales. FDIC loss sharing income declined $3.4 million or 90.2% from 2013 to 2014 as a result of improvement in future expected cash flows on covered loans and declining losses on covered assets during the year. Income from the accelerated discount on covered loans decreased $3.0 million or 41.5%, while other noninterest income declined $1.7 million or 14.4%. Both loss sharing income and accelerated discount on covered/formerly covered loans were impacted by a decline in covered assets of $349.0 million, or 72.0%, due to the expiration of non-single family loss sharing agreements effective October 1, 2014 as well as the continued run-off of the covered/formerly covered assets.
 
Noninterest income from gain on sale of investment securities decreased $1.7 million or 95.9% in 2014 as $166.3 million of investment securities sold resulted in gains of $0.1 million during the period compared to sales of $91.0 million of investment securities that resulted in gains of $1.7 million during 2013. Other noninterest income decreased in 2014 due to an $0.8 million increase in the portfolio valuations related to customer derivatives in 2013 that did not recur in 2014, as well as lower rental income earned on OREO properties and lower fixed annuity income during the period. Partially offsetting the decrease in noninterest income was an increase in gain on sale of mortgage loans of $1.2 million, or 38.5%, due to strong mortgage origination activity and the impact of Columbus acquisitions during 2014.

First Financial Bancorp 2015 Annual Report 13
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Table 4 • Noninterest Income and Noninterest Expense
 
2015
 
2014
 
2013
 
 
% Change
 
 
% Change
 
 
% Change
 
 
increase
 
 
increase
 
 
increase
(Dollars in thousands)
Total
(decrease)
 
Total
(decrease)
 
Total
(decrease)
Noninterest income
 
 
 
 
 
 
 
 
Service charges on deposit accounts
$
19,015

(6.2
)%
 
$
20,274

(1.6
)%
 
$
20,595

(2.9
)%
Trust and wealth management fees
13,128

(3.7
)%
 
13,634

(4.8
)%
 
14,319

2.6
 %
Bankcard income
11,578

7.8
 %
 
10,740

(1.6
)%
 
10,914

8.8
 %
Client derivative fees
4,389

188.9
 %
 
1,519

(25.4
)%
 
2,037

(36.0
)%
Net gains from sales of loans
6,471

48.3
 %
 
4,364

38.5
 %
 
3,150

(31.1
)%
FDIC loss sharing income
(2,487
)
(781.4
)%
 
365

(90.2
)%
 
3,720

(89.5
)%
Accelerated discount on covered loans
10,791

157.9
 %
 
4,184

(41.5
)%
 
7,153

(47.6
)%
Other
10,812

22.7
 %
 
8,815

(12.2
)%
 
10,035

(40.4
)%
Subtotal
73,697

15.3
 %
 
63,895

(11.2
)%
 
71,923

(39.5
)%
Gains on sales of investment securities
1,505

N/M

 
70

(95.9
)%
 
1,724

(52.5
)%
Total
$
75,202

17.6
 %
 
$
63,965

(13.1
)%
 
$
73,647

(39.8
)%
 
 
 
 
 
 
 
 
 
Noninterest expenses
 
 
 
 
 
 
 
 
Salaries and employee benefits
$
111,792

3.8
 %
 
$
107,702

6.2
 %
 
$
101,402

(10.4
)%
Pension settlement charges
0

N/M

 
0

N/M

 
6,174

N/M

Net occupancy
18,232

(5.0
)%
 
19,187

(9.5
)%
 
21,207

2.5
 %
Furniture and equipment
8,722

2.0
 %
 
8,554

(4.6
)%
 
8,970

(2.4
)%
Data processing
10,863

(16.2
)%
 
12,963

26.7
 %
 
10,229

15.8
 %
Marketing
3,723

3.3
 %
 
3,603

(15.6
)%
 
4,270

(23.1
)%
Communication
2,161

(5.1
)%
 
2,277

(29.0
)%
 
3,207

(5.9
)%
Professional services
9,622

55.9
 %
 
6,170

(10.3
)%
 
6,876

(5.4
)%
State intangible tax
2,331

10.4
 %
 
2,111

(46.3
)%
 
3,929

0.8
 %
FDIC assessments
4,446

(0.4
)%
 
4,462

(0.9
)%
 
4,501

(3.9
)%
Loss (gain)-other real estate owned
1,861

115.9
 %
 
862

N/M

 
31

(99.5
)%
Loss sharing expense
1,865

(60.2
)%
 
4,686

(33.8
)%
 
7,083

(34.0
)%
FDIC indemnification impairment
0

N/M

 
0

N/M

 
22,417

N/M

Other
25,512

8.8
 %
 
23,457

(6.8
)%
 
25,179

(12.9
)%
Total
$
201,130

2.6
 %
 
$
196,034

(13.1
)%
 
$
225,475

1.6
 %

N/M = Not meaningful
 

NONINTEREST EXPENSES

2015 vs. 2014. Noninterest expenses increased $5.1 million or 2.6% in 2015 compared to 2014 , primarily due to a $4.1 million increase in salaries and employee benefits, a $3.5 million increase in professional services expenses and a $2.1 million increase in other noninterest expenses during the period. These increases were partially offset by a $2.8 million decrease in loss sharing expense and a $2.1 million decline in data processing expenses.
  
The $4.1 million, or 3.8%, increase in salaries and benefits was related to staff additions from the Oak Street and Columbus acquisitions and annual salary adjustments, partially offset by lower health care costs during the year. The increase in professional services was primarily related to $2.2 million of acquisition-related costs associated with the Oak Street transaction during the period. The increase in other noninterest expense was driven by a $0.9 million prepayment fee related to the extinguishment of FHLB debt and $0.7 million of reserve adjustments for litigation related items which were resolved in 2015.


14 First Financial Bancorp 2015 Annual Report

The decrease in loss sharing expenses in 2015 was due to lower collection costs resulting from the continued decline in covered asset balances. Data processing expenses declined $2.1 million in 2015 primarily due to acquisition-related expenses from the Columbus transactions in 2014.

2014 vs. 2013. Noninterest expenses decreased $29.4 million or 13.1% in 2014 compared to 2013, primarily due to a $22.4 million FDIC indemnification valuation adjustment and $6.2 million of pension settlement charges that occurred in 2013. Also, contributing to the decrease was a $2.4 million, or 33.8% decline in loss sharing expenses, a $2.0 million, or 9.5% reduction in occupancy expense, a $0.9 million, or 29.0% decline in communication expense, a $1.8 million, or 46.3% decrease in state intangible tax and a $1.7 million, or 6.8% decrease in other noninterest expense. These decreases were partially offset by a $6.3 million, or 6.2% increase in salaries and employee benefits and a $2.7 million, or 26.7% increase in data processing expenses. Excluding the FDIC indemnification valuation adjustment and pension settlement charges from 2013, noninterest expenses declined $0.9 million or 0.4% during 2014 as on-going efficiency efforts were partially offset by acquisition-related expenses.

The Company recorded a $22.4 million pre-tax non-cash valuation adjustment to reduce the value of the FDIC indemnification asset as of December 31, 2013. The FDIC indemnification valuation adjustment in 2013 was related to the Company’s collectability assessment of the indemnification asset during the period, which included evaluation of the primary activities that result in a reduction in the indemnification asset and the resulting projected balances of the indemnification asset upon expiration of commercial loss protection on October 1, 2014 and expiration of single family loss protection in 2019. The valuation adjustment was primarily driven by improvement in future expected cash flows on covered loans and the shorter remaining life of the commercial indemnification, which extended the lives of covered loans and pushed losses into periods beyond the indemnification agreement expiration date, and a meaningful decline in the realization of loss claims filed with the FDIC and higher reimbursements to the FDIC related to positive asset resolutions.
 
INCOME TAXES
 
First Financial’s income tax expense in 2015 totaled $35.9 million compared to $30.0 million in 2014 and $19.2 million in 2013 , resulting in effective tax rates of 32.3% , 31.6% and 28.5% in 2015 , 2014 and 2013 , respectively. The increase in the effective tax rate in 2015 compared to 2014 was primarily the result of non-deductible acquisition related expenses, partially offset by an increase in tax-exempt income in 2015. The increase in the effective tax rate in 2014 compared to 2013 was primarily the result of a favorable tax reversal related to a former Irwin subsidiary and a favorable change in state tax laws in 2013, partially offset by higher tax-exempt income earned in 2014. While the Company's effective tax rate may fluctuate due to tax jurisdiction changes and the level of tax-enhanced assets, the overall effective tax rate for 2016 is expected to be approximately 33.0%.
 
Further information on income taxes is presented in Note 13 – Income Taxes in the Notes to Consolidated Financial Statements.

LENDING PRACTICES
 
First Financial remains dedicated to meeting the financial needs of individuals and businesses through its client-focused business model. The loan portfolio is comprised of a broad range of borrowers primarily in the Ohio, Indiana and Kentucky markets; however, the franchise finance and insurance lending platforms serve a national client base.

First Financial’s loan portfolio is composed of commercial loan types, including C&I, real estate construction, commercial real estate and equipment leasing (lease financing), as well as consumer loan types, including residential real estate, home equity, installment and credit card loans.

Commercial and industrial – C&I loans include revolving lines of credit and term loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, leasehold improvements or other projects.  C&I loans are generally underwritten individually and secured with the assets of the Company and/or the personal guarantee of the business owners.  C&I loans also include ABL, equipment and leasehold improvement financing for select concepts and franchisees in the quick service and casual dining restaurant sector and commission-based loans to insurance agents and brokers.  ABL transactions typically involve larger commercial clients and are secured by specific assets, such as inventory, accounts receivable, machinery and equipment.  In the franchise lending space, First Financial focuses on a limited number of restaurant concepts that have sound economics, low closure rates and strong brand awareness within specified local, regional or national markets.  Under the nationwide insurance lending platform, First Financial serves insurance agents and brokers that are looking to maximize their book-of-business value and grow their agency business.  First Financial's franchise and insurance lending portfolios are managed to a risk-appropriate level so as not to create an industry, geographic or franchisee concept concentration.

First Financial Bancorp 2015 Annual Report 15
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations


While economic trends continued to improve during 2015, the pace of growth remains gradual. First Financial maintains vigorous underwriting processes to assess prospective C&I borrowers' credit worthiness prior to origination, and actively monitors C&I relationships subsequent to funding in order to ensure adequate oversight of the portfolio.

Real Estate Construction – Real estate construction loans are term loans to individuals, companies or developers used for the construction of a commercial or residential property for which repayment will be generated by the sale or permanent financing of the property. Generally, these loans are for construction projects that have been pre-sold, pre-leased or have secured permanent financing, as well as loans to real estate companies with significant equity invested in the project. Real estate construction loans are underwritten by an independent credit team, managed by experienced lending officers and monitored through the construction phase by a centralized funding desk that manages loan disbursements.

As economic conditions, including rising property values, have continued to show signs of improvement, First Financial has been more actively engaged in pursuing select real estate construction lending opportunities and continues to actively monitor industry and portfolio-specific credit trends affecting the portfolio.

Commercial Real Estate – Commercial real estate loans consist of term loans secured by a mortgage lien on real estate properties such as apartment buildings, office and industrial buildings and retail shopping centers. Additionally, the Company's franchise lending activities discussed in the "Commercial" section above often include the financing of real estate as well as equipment. The credit underwriting for both owner-occupied and investor income producing real estate loans includes detailed market analysis, historical and projected cash flow analysis, appropriate equity margins, assessment of lessees and lessors, type of real estate and other analysis.

The type, age, condition and location of commercial real estate properties, as well as any environmental risks associated with the properties, are considered in the underwriting process for both owner-occupied and investment properties. Credit risk is mitigated by limiting total credit exposure to individual borrowers or groups of borrowers and by requiring borrowers to have adequate down payments or cash equity, thereby limiting the loan balance in relation to the market value of the property. First Financial also regularly reviews borrowers' financial performance, makes periodic site visits to financed properties and monitors various other factors in the Company's markets that influence real estate collateral values such as rental rates, occupancy trends and capitalization rates.

While the commercial real estate sector continues to rebound from periods of stress resulting from elevated vacancy levels, lower rents and depressed property values in recent years, First Financial believes the sector has demonstrated gradual, but continuous improvement and that the Company's current underwriting criteria, coupled with active credit monitoring of loan relationships, provides adequate oversight of the commercial real estate loan portfolio.

Lease Financing – Lease financing consists of lease transactions for the purchase of both new and used business equipment for commercial clients. Lease products may include tax leases, finance leases, lease lines of credit and interim funding. The credit underwriting for lease transactions includes detailed analysis of the lessee's industry and business model, nature of the equipment, equipment resale values, historical and projected cash flow analysis, secondary sources of repayment and guarantor analysis as well as other considerations.

Residential Real Estate – Residential real estate loans represent loans to consumers for the financing of a residence.
These loans generally have a 15 to 30 year term and a fixed interest rate, but may have a shorter term to maturity with an adjustable interest rate, and in most cases, are extended to borrowers to finance their primary residence. First Financial sells residential real estate loan originations into the secondary market on both servicing retained and servicing released bases. Residential real estate loans are generally underwritten to secondary market lending standards, utilizing underwriting systems that rely on empirical data to assess credit risk as well as analysis of the borrowers’ ability to repay their obligations, credit history, the amount of any down payment and the market value or other characteristics of the property. First Financial also offers a residential mortgage product that features similar borrower credit characteristics but a more streamlined underwriting process than typically required to sell to the government-sponsored enterprises and thus is retained on the Consolidated Balance Sheets.

While First Financial continues to sell the majority of residential real estate originations into the secondary market, the Company believes its current underwriting criteria coupled with the monitoring of a number of portfolio metrics, including credit scores and loan-to-value ratios, provides adequate oversight in light of depressed residential property values in recent years.


16 First Financial Bancorp 2015 Annual Report

Home Equity – Home equity lending includes both home equity loans and revolving lines of credit secured by a first or second lien on the borrower’s residence. First Financial's origination practices for home equity lending keep both the credit decision and the documentation under the control of First Financial associates. Home equity lending underwriting includes consideration of the borrowers' credit history as well as to debt-to-income and loan-to-value policy limits.

First Financial believes its current underwriting criteria coupled with the monitoring of a number of portfolio metrics including credit scores, loan-to-value ratios, line size and usage provides adequate oversight. At December 31, 2015 , approximately 94.2% and 81.8% of the Company's outstanding home equity lines had credit line sizes of less than $100,000 and $50,000 respectively, and had an average outstanding balance of approximately $32,000.

Installment – Installment lending consists of consumer loans not secured by real estate, including loans secured by automobiles and personal unsecured loans.

Credit Card – Credit card lending consists of secured and unsecured revolving lines of credit to consumer and business customers. Credit card lines are generally available for an indefinite period of time as long as the borrower's credit characteristics do not materially or adversely change, but may be canceled by the Company under certain circumstances.

Underwriting for installment and credit card lending focuses on the borrowers’ ability to repay their obligations, including debt-to-income analysis, prior credit history and other information.

Credit Management. Subject to First Financial’s credit policy and guidelines, credit underwriting and approval occur within the market and/or the centralized line of business originating the loan. First Financial has delegated to each market president and line of business manager a lending limit sufficient to address the majority of client requests in a timely manner. Loan requests for amounts greater than those limits require the approval of a designated credit officer or senior credit committee and can include additional approvals from the chief credit officer, the chief executive officer and the board of directors as necessary. This allows First Financial to manage the initial credit risk exposure through a standardized, disciplined and strategically focused loan approval process, but with an increasingly higher level of authority. Plans to purchase or sell a participation in a loan or a group of loans require the approval of certain senior lending and administrative officers, and in some cases could include the board of directors.

Credit management practices are dependent on the type and nature of the loan. First Financial monitors all significant
exposures on an on-going basis. Commercial loans are assigned internal risk ratings reflecting the risk of loss inherent in the loan. These internal risk ratings are assigned upon initial approval of credit and are updated periodically thereafter. First Financial reviews and adjusts its risk ratings based on actual experience, which provides the Company with an assessment of the current risk level in the portfolio and is the basis for determining an appropriate ALLL. First Financial's commercial risk ratings of pass, special mention, substandard and doubtful are derived from standard regulatory rating definitions and facilitate the monitoring of credit quality across the commercial loan portfolio. For further information regarding these risk ratings, see Note 5 – Loans and Leases in the Notes to the Consolidated Financial Statements.

Commercial loans rated as special mention, substandard or doubtful are considered criticized, while loans rated as substandard or doubtful are considered classified. Commercial loans may be designated as criticized/classified based on individual borrower performance or industry and environmental factors. Criticized/classified loans are subject to additional reviews to adequately assess the borrower’s credit status and develop appropriate action plans.

Classified loans are managed by the Special Assets department. Special Assets is a credit group whose primary focus is to handle the day-to-day management of workouts, commercial recoveries and problem loan resolutions. Special Assets ensures that First Financial has appropriate oversight, improved communication and timely resolution of issues throughout the loan portfolio, including those loans covered by FDIC loss sharing agreements. Additionally, the Credit Risk Management group within First Financial's Risk Management function provides objective oversight and assessment of commercial credit quality and processes using an independent credit risk review approach.

Consumer lending credit approvals are based on, among other factors, the financial strength and payment history of the borrower, type of exposure and the transaction structure. Consumer loans are generally smaller dollar amounts than other types of lending and are made to a large number of customers which provides diversification within the portfolio. Credit risk in the consumer loan portfolio is managed by loan type. Consumer loan types are continuously monitored for changes in delinquency trends and other asset quality indicators. The Credit Risk Management group performs product-level reviews of portfolio performance and assesses credit quality and compliance with underwriting and loan administration guidelines across the consumer loan portfolio.

First Financial Bancorp 2015 Annual Report 17
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

LOANS AND LEASES
 
2015 vs. 2014. First Financial continued to experience strong loan demand in 2015 as a result of focused sales efforts, expanded presence in key metropolitan markets and investments in a diversified product suite. Loans, excluding loans held for sale, totaled $5.4 billion at December 31, 2015 , increasing $611.5 million or 12.8%, compared to December 31, 2014 . The increase in loan balances from December 31, 2014 was primarily related to strong organic growth and the Oak Street acquisition during the period. C&I loans increased $348.0 million, construction real estate loans increased $114.1 million and commercial real estate loans increased $117.6 million during 2015. Average loan balances, excluding loans held for sale increased $669.1 million, or 15.6%, from $4.3 billion at December 31, 2014 to $4.9 billion at December 31, 2015 .

Covered loans declined to $113.3 million at December 31, 2015 from $135.7 million as of December 31, 2014 .  Declines in covered loan balances were expected as there were no acquisitions of loans subject to loss sharing agreements during the period. The ten year period of loss protection on all remaining covered loans and covered OREO will expire during the third quarter of 2019.  The covered loan portfolio will continue to decline through payoffs, loan sales, charge-offs and termination or expiration of loss sharing coverage unless First Financial acquires additional loans subject to loss sharing agreements.

At December 31, 2015 , C&I loans represented 30.9% of loans while commercial real estate, construction real estate and lease financing balances represented 41.9%, 5.8% and 1.7%, respectively. Residential real estate loans represented 9.5% of loan balances while home equity, installment and credit card loans represented 8.7%, 0.8% and 0.8%, respectively.
 
Comparatively, at December 31, 2014 , C&I loans represented 27.5% of loans while commercial real estate, real estate construction and lease financing balances represented 44.8%, 4.1% and 1.6%, respectively. Residential real estate loans represented 10.5% of loan balances while home equity, installment and credit card loans represented 9.6%, 1.0% and 1.0%, respectively.

Table 5 • Loan and Lease Portfolio
 
 
 
 
 
 
 
 
 
 
December 31,
(Dollars in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Commercial and industrial
$
1,663,102

 
$
1,315,114

 
$
1,077,984

 
$
963,159

 
$
1,052,873

Real estate – construction
311,712

 
197,571

 
89,297

 
84,148

 
132,094

Real estate – commercial
2,258,297

 
2,140,667

 
1,765,620

 
1,882,563

 
1,870,111

Real estate – residential
512,311

 
501,894

 
433,664

 
418,904

 
409,097

Installment
41,506

 
47,320

 
52,774

 
65,484

 
80,719

Home equity
466,629

 
458,627

 
426,078

 
424,958

 
423,938

Credit card
41,217

 
38,475

 
37,962

 
37,176

 
35,548

Lease financing
93,986

 
77,567

 
80,135

 
50,788

 
17,311

Total loans and leases
$
5,388,760

 
$
4,777,235

 
$
3,963,514

 
$
3,927,180

 
$
4,021,691


Table 6 – Loan Maturity/Rate Sensitivity indicates the contractual maturity of C&I loans and real estate construction loans outstanding at December 31, 2015 . Loans due after one year are classified according to their sensitivity to changes in interest rates.

For discussion of risks associated with the loan portfolio and First Financial's ALLL, see the Credit Risk section included in Management’s Discussion and Analysis.

18 First Financial Bancorp 2015 Annual Report


Table 6 • Loan Maturity/Rate Sensitivity
 
 
December 31, 2015
 
 
Maturity
 
 
 
 
After one
 
 
 
 
 
 
Within
 
but within
 
After
 
 
(Dollars in thousands)
 
one year
 
five years
 
five years
 
Total
Commercial and industrial
 
$
515,755

 
$
839,376

 
$
307,971

 
$
1,663,102

Real estate – construction
 
119,588

 
165,922

 
26,202

 
311,712

   Total
 
$
635,343

 
$
1,005,298

 
$
334,173

 
$
1,974,814

 
 
 
 
 
 
 
 
 
 
 
 
 
Sensitivity to changes in interest rates
 
 
 
 
Predetermined

 
Variable
 
 
(Dollars in thousands)
 
 
 
rate
 
rate
 
Total
Due after one year but within five years
 
 
 
$
320,470

 
$
684,828

 
$
1,005,298

Due after five years
 
 
 
86,502

 
247,671

 
334,173

   Total
 


 
$
406,972

 
$
932,499

 
$
1,339,471


ASSET QUALITY

Nonperforming assets consist of nonaccrual loans, accruing TDRs and OREO. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to 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. Classified assets include nonperforming assets plus performing loans internally rated substandard or worse.

Purchased impaired loans were grouped into pools for purposes of periodically re-estimating expected cash flows and recognizing impairment or improvement in the loan pools. Accordingly, 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.

Loans are classified as TDRs when borrowers are experiencing financial difficulties and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement. OREO represents properties acquired by First Financial primarily through loan defaults by borrowers.

See Table 7 – Nonperforming Assets for a summary of First Financial’s nonaccrual loans, TDRs and OREO.

2015 vs. 2014. Total nonperforming assets decreased $16.9 million to $70.1 million at December 31, 2015 from $87.1 million at December 31, 2014 , due to a $20.5 million decline in nonaccrual loan balances and a $9.4 million decline in OREO balances, which were partially offset by a $12.9 million increase in accruing TDRs.

The decrease in nonaccrual loan balances during 2015 was due to strong resolution efforts and the improving credit performance of the Company's loan portfolio, particularly commercial real estate and covered/formerly covered loans. The decrease in OREO was the result of the resolution and sales of $15.8 million of commercial and residential real estate property as well as $2.0 million of valuation write-downs, partially offset by $8.4 million of additions during the year. The increase in accruing troubled debt restructurings was primarily due to the addition of two performing commercial relationships totaling $13.1 million, on which First Financial expects to receive all contractual principal and interest.

First Financial's nonperforming loans as a percentage of total loans and leases declined to 1.06% at December 31, 2015 from 1.35% at December 31, 2014 as a result of declining nonperforming loan balances and growth in the loan portfolio during the

First Financial Bancorp 2015 Annual Report 19
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

period. Additionally, classified asset balances declined $22.4 million, or 14.5%, to $132.4 million at December 31, 2015 from $154.8 million at December 31, 2014 .

The declines in nonperforming and classified assets during 2015 reflect successful resolution efforts as well as gradual improvement in economic conditions in the markets in which First Financial operates. The U.S. economy has continued to exhibit moderate growth in recent periods and management remains optimistic that sustained improvements in the employment outlook and real estate markets, as well as stable levels of business and consumer confidence, will contribute to the Company's credit quality trends in future periods.

Table 7 • Nonperforming Assets
 
December 31,
(Dollars in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Nonaccrual loans (1)
$
27,997

 
$
48,469

 
41,392

 
$
76,763

 
$
83,530

Accruing troubled debt restructurings
28,876

 
15,928

 
15,429

 
10,856

 
4,009

Other real estate owned (OREO)
13,254

 
22,674

 
46,926

 
41,388

 
56,135

Total nonperforming assets
$
70,127

 
$
87,071

 
$
103,747

 
$
129,007

 
$
143,674

 
 
 
 
 
 
 
 
 
 
Nonperforming assets as a percent of total loans plus OREO
1.30
%
 
1.81
%
 
2.59
%
 
3.25
%
 
3.52
%
 
 
 
 
 
 
 
 
 
 
Accruing loans past due 90 days or more
$
108

 
$
216

 
$
218

 
$
243

 
$
298

 
 
 
 
 
 
 
 
 
 
Classified assets
$
132,431

 
$
154,804

 
$
234,251

 
$
392,245

 
$
523,291


(1) Nonaccrual loans include nonaccrual TDRs of $9.3 million, $12.3 million, $13.8 million, $14.1 million and $18.1 million as of December 31, 2015, 2014, 2013, 2012, and 2011, respectively.

INVESTMENTS
 
First Financial utilizes its investment portfolio as a source of liquidity and interest income, as well as a tool for managing the Company's interest rate risk profile. As such, the Company's primary investment strategy is to invest in debt securities with low credit risk, such as treasury, government agency and agency residential MBSs. First Financial invests primarily in MBSs issued by U.S. government agencies and corporations, such as the GNMA, the FHLMC and the FNMA. Such securities, because of government agency guarantees, are considered to have a low credit risk and high liquidity profile. The investment portfolio is also managed with consideration to prepayment and extension/maturity risk. 76.1% and 88.9% of First Financial's investment securities portfolio consisted of government and agency backed securities as of December 31, 2015 and 2014, respectively.

The Company also invests in certain securities that are not supported by government or agency guarantees, whose realization is dependent on future principal and interest repayments and thus carry greater credit risk. First Financial performs a detailed pre-purchase collateral and structural analysis on these securities and strategically invests in asset classes in which First Financial has expertise and experience, as well as a senior position in the capital structure. First Financial continuously monitors credit risk and geographic concentration risk in its evaluation of market opportunities that would enhance the overall performance of the portfolio. 23.9% and 11.1% of First Financial's investment securities portfolio consisted of securities not supported by government and agency guarantees as of December 31, 2015 and 2014, respectively.

The other investments category in the Consolidated Balance Sheets consists primarily of First Financial’s investments in FRB and FHLB stock.

Gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost.  All securities with unrealized losses are reviewed quarterly to determine if any impairment is considered other than temporary, requiring a write-down to fair market value. First Financial considers the percentage loss on a security, duration of the loss, average life or duration of the security, credit rating of the security as well as payment performance and the Company’s intent and ability to hold the security when determining whether any impairment is other than temporary. First Financial had no other than temporary impairment expense for the years ended December 31, 2015 and 2014 .

20 First Financial Bancorp 2015 Annual Report


2015 vs. 2014. First Financial’s investment portfolio at December 31, 2015 totaled $2.0 billion, a $209.5 million, or 11.9%, increase from December 31, 2014 . The increase in the investment portfolio during 2015 was primarily related to investment strategies that the Company implemented in response to market conditions and the position of its balance sheet.

At December 31, 2015 and 2014 , First Financial classified $1.2 billion or 60.4% of investment securities and $840.5 million or 47.7% of investment securities, respectively, as available-for-sale. At December 31, 2015 and 2014 , First Financial classified $726.3 million or 36.9% of investment securities and $868.0 million or 49.3% of investment securities, respectively, as held-to-maturity.

First Financial recorded a $4.9 million unrealized after-tax loss on the investment portfolio, as a component of equity in accumulated other comprehensive income, at December 31, 2015 , which increased $2.4 million from $2.5 million at December 31, 2014 .

The investment portfolio represented 24.2% and 24.4% of total assets at December 31, 2015 and December 31, 2014 , respectively. Security debentures issued by the U.S. government and U.S. government agencies and corporations, including the FHLB, FHLMC, FNMA and the U.S. Export/Import Bank represented 1.2% and 1.7% of the investment portfolio at December 31, 2015 and 2014 , respectively.

Investments in MBSs, including CMOs, represented 75.3% and 82.2% of the investment portfolio at December 31, 2015 and 2014 , respectively. MBSs are participations in pools of residential real estate loans, the principal and interest payments of which are passed through to the security investors. MBSs are subject to prepayment risk, particularly during periods of falling interest rates, and duration is prone to extend during periods of rising interest rates. Prepayments of the underlying residential real estate loans may shorten the lives of the securities, thereby affecting yields to maturity and market values. First Financial does not own any interest-only securities, principal-only securities or other securities considered high risk.  

Tax-exempt securities of states, municipalities and other political subdivisions increased to $103.3 million as of December 31, 2015 from $79.7 million as of December 31, 2014 and comprised 5.4% and 4.7% of the investment portfolio at December 31, 2015 and 2014 , respectively. The securities are diversified to include states and issuing authorities within states, thereby decreasing geographic portfolio risk. First Financial continues to monitor the risk associated with this sector and reviews the underlying ratings for possible downgrades. First Financial does not own any currently impaired state or other political subdivision securities.

Asset-backed securities were $233.0 million or 12.2% of the investment portfolio at December 31, 2015 and $74.8 million , or 4.4% of the investment portfolio at December 31, 2014 . First Financial considers these investment securities to have lower credit risk and a high liquidity profile as a result of explicit guarantees on the collateral.

Other securities, consisting primarily of taxable securities of states, municipalities and other political subdivisions and debt securities issued by corporations, decreased to $113.3 million or 5.9% of the investment portfolio at December 31, 2015 from $120.2 million or 7.0% at December 31, 2014 .

The overall duration of the investment portfolio was 3.4 years as of December 31, 2015 and December 31, 2014 . First Financial has avoided adding to its portfolio any particular securities that would materially increase credit risk or geographic concentration risk and First Financial continuously monitors and considers these risks in its evaluation of current market opportunities that would enhance the overall performance of the portfolio.


First Financial Bancorp 2015 Annual Report 21
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Table 8 • Investment Securities as of December 31
 
 
 
 
 
 
 
 
2015
 
2014
 
 
 
Percent of
 
 
 
Percent of
(Dollars in thousands)
Amount
 
Portfolio
 
Amount
 
Portfolio
U.S. Treasuries
$
97

 
0.0
%
 
$
97

 
0.0
%
Securities of U.S. Government agencies and corporations
23,826

 
1.2
%
 
29,450

 
1.7
%
Mortgage-backed securities
1,443,385

 
75.3
%
 
1,404,213

 
82.2
%
Tax-exempt obligations of state and other political subdivisions
103,281

 
5.4
%
 
79,655

 
4.7
%
Asset-backed securities
233,001

 
12.2
%
 
74,836

 
4.4
%
Other securities
113,311

 
5.9
%
 
120,213

 
7.0
%
Total
$
1,916,901

 
100.0
%
 
$
1,708,464

 
100.0
%
 
The estimated maturities and weighted-average yields of the held-to-maturity and available-for-sale investment securities are shown in Table 9 – Investment Securities as of December 31, 2015 . Tax-equivalent adjustments, using a 35.00% rate, were included in calculating yields on tax-exempt obligations of state and other political subdivisions.

First Financial held cash on deposit with the Federal Reserve of $33.7 million and $22.6 million at December 31, 2015 and 2014 , respectively. First Financial continually monitors its liquidity position as part of its enterprise risk management framework, specifically through its asset/liability management process.
 
First Financial will continue to monitor loan and deposit demand, as well as balance sheet composition, capital sensitivity and the interest rate environment as it manages investment strategies in future periods. See Note 4 - Investment Securities in the Notes to Consolidated Financial Statements for additional information on First Financial's investment portfolio and Note 19 - Fair Value Disclosures for additional information on how First Financial determines the fair value of investment securities.

Table 9 • Investment Securities as of December 31, 2015
 
Maturity
 
Within one year
 
After one but within five years
 
After five but within ten years
 
After ten years
(Dollars in thousands)
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
 
Amount
 
Yield (1)
Held-to-Maturity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities of other U.S. government agencies and corporations
$
0

 
0.00
%
 
$
0

 
0.00
%
 
$
15,486

 
2.76
%
 
$
0

 
0.00
%
Mortgage-backed securities
868

 
2.63
%
 
532,512

 
2.67
%
 
144,938

 
3.11
%
 
0

 
0.00
%
Obligations of state and other political subdivisions
3,193

 
4.30
%
 
4,148

 
2.54
%
 
20,305

 
3.47
%
 
0

 
0.00
%
Other securities
0

 
0.00
%
 
0

 
0.00
%
 
4,809

 
5.39
%
 
0

 
0.00
%
   Total
$
4,061

 
3.94
%
 
$
536,660

 
2.67
%
 
$
185,538

 
3.18
%
 
$
0

 
0.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
0

 
0.00
%
 
$
0

 
0.00
%
 
$
97

 
2.00
%
 
$
0

 
0.00
%
Securities of other U.S. government agencies and corporations
0

 
0.00
%
 
0

 
0.00
%
 
8,340

 
2.63
%
 
0

 
0.00
%
Mortgage-backed securities
11,480

 
2.06
%
 
518,346

 
2.25
%
 
223,090

 
2.47
%
 
12,151

 
3.62
%
Obligations of state and other political subdivisions
1,551

 
3.84
%
 
29,405

 
2.56
%
 
40,730

 
3.20
%
 
3,949

 
4.12
%
Asset-backed securities
0

 
0.00
%
 
154,511

 
2.25
%
 
78,490

 
2.14
%
 
0

 
0.00
%
Other securities
8,621

 
4.63
%
 
38,198

 
2.49
%
 
38,254

 
3.39
%
 
23,429

 
2.08
%
   Total
$
21,652

 
3.22
%
 
$
740,460

 
2.27
%
 
$
389,001

 
2.57
%
 
$
39,529

 
2.74
%

(1) Tax equivalent basis was calculated using a 35.00% tax rate and yields were based on amortized cost.


22 First Financial Bancorp 2015 Annual Report

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.

While authorized to use a variety of derivative products, First Financial primarily utilizes interest rate swaps as a means to offer borrowers credit-based products that meet their needs and achieve the Company's desired interest rate risk profile. These interest rate swaps generally involve the receipt by First Financial of floating rate amounts from the swap counterparties in exchange for payments to these counterparties by First Financial of fixed rate amounts received from borrowers. This results in First Financial's loan customers receiving fixed rate funding while providing First Financial with a floating rate asset.

First Financial utilizes interest rate swaps designated as cash flow hedges to hedge against interest rate volatility on indexed floating rate deposits. These interest rate swaps qualify for hedge accounting and involve the receipt by First Financial of variable-rate interest amounts in exchange for fixed-rate interest payments by First Financial. As of December 31, 2014, the Company had active interest rate swaps with a notional value of $150.0 million. Accrued interest and other liabilities included $1.7 million at December 31, 2014, reflecting the fair value of the cash flow hedges. First Financial considers these interest rate swaps in conjunction with other strategic balance sheet and interest rate objectives, and as a result terminated all active cash flow hedges during 2015.
   
In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty.

First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure an IRLC with First Financial and the loan is intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and and Loans held for sale.

See Note 10 – Derivatives in the Notes to Consolidated Financial Statements for additional information regarding First Financial's use of derivative instruments.
 
DEPOSITS
 
First Financial solicits deposits by offering commercial and consumer clients a wide variety of savings and transaction accounts, including checking, savings, money-market and time deposits of various maturities and rates.
 
2015 vs. 2014. First Financial's total deposits increased $523.9 million, or 9.3%, from $5.7 billion at December 31, 2014 to $6.2 billion as of December 31, 2015 . Noninterest bearing deposits increased $127.9 million, while interest-bearing checking deposits increased $188.9 million, savings deposits increased $56.3 million and time deposits increased $150.8 million during the period.

Non-time deposit balances totaled $4.8 billion as of December 31, 2015 , increasing $373.1 million, or 8.5%, compared to December 31, 2014 while time deposit balances increased $150.8 million, or 12.0%. First Financial originated $211.5 million of brokered CDs in conjunction with the Oak Street acquisition, which drove the increase in time deposits.

Total average deposits for 2015 increased $751.3 million, or 14.6% from 2014 primarily due to increases in average interest-bearing deposits of $105.6 million, or 9.1%, average savings deposits of $215.0 million, or 12.2%, average time deposits of $260.7 million, or 24.3%, and average noninterest bearing deposits of $170.0 million, or 14.5%. The year-over-year growth in average deposits was due to the brokered deposits associated with the Oak Street transaction and strong organic deposit generation efforts, as well as the full year impact of the Columbus acquisitions during the period.
 
Table 10 – Maturities of Time Deposits Greater Than or Equal to $100,000 shows the contractual maturity of these deposits that were outstanding at December 31, 2015 , which represent 12.7% of total deposits.
  

First Financial Bancorp 2015 Annual Report 23
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Table 10 • Maturities Of Time Deposits Greater Than Or Equal To $100,000
 
December 31, 2015
(Dollars in thousands)
CDs
 
IRAs
 
Brokered CDs
 
Total
Maturing in
 
 
 
 
 
 
 
   3 months or less
$
62,254

 
$
10,431

 
$
178,180

 
$
250,865

   3 months to 6 months
54,728

 
1,898

 
37,925

 
94,551

   6 months to 12 months
100,822

 
4,120

 
8,873

 
113,815

   over 12 months
263,105

 
48,787

 
15,231

 
327,123

     Total
$
480,909

 
$
65,236

 
$
240,209

 
$
786,354


BORROWINGS
 
First Financial's short-term borrowings include repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place as well as overnight advances from the FHLB. The Company's long-term borrowings consist of subordinated debt, FHLB long-term advances and repurchase agreements utilizing investment securities pledged as collateral.

2015 vs. 2014. Short-term borrowings are utilized to manage normal liquidity needs and increased to $938.4 million at December 31, 2015 , from $661.4 million at December 31, 2014 .

First Financial utilizes short-term borrowings and longer-term advances from the FHLB as wholesale funding sources. First Financial had $849.1 million of short-term borrowings from the FHLB at December 31, 2015 as compared with $558.2 million at December 31, 2014 .

Total long-term debt increased $71.3 million, or 147.8%, to $119.5 million at December 31, 2015 , from $48.2 million at December 31, 2014 , primarily resulting from the issuance of $120.0 million of subordinated notes in 2015. 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 borrowings from the FHLB were $0.5 million and $22.5 million at December 31, 2015 and 2014 , respectively. The decrease in long-term FHLB borrowings is due to $25.0 million of repurchase agreements that matured during 2015.
 
Both short-term and long-term FHLB advances must be collateralized with qualifying assets, which are typically commercial and residential real estate loans, as well as government and agency securities. For ease of borrowing execution First Financial utilizes a blanket collateral agreement with the FHLB and had $3.3 billion of assets pledged as collateral at December 31, 2015 .

See Note 9 – Borrowings in the Notes to Consolidated Financial Statements for additional information on First Financial's borrowings.

LIQUIDITY

Liquidity management is the process by which First Financial manages the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost. These funding commitments include withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures. Liquidity is derived primarily from deposit growth, principal and interest payments on loans and investment securities, maturing loans and investment securities, access to wholesale funding sources and collateralized borrowings.

First Financial’s most stable source of liability-funded liquidity for both long and short-term needs is deposit growth and retention of the core deposit base. In addition to core deposit funding, First Financial also utilizes a variety of short and long-term funding sources, which include subordinated notes, longer-term advances from the FHLB and its short-term line of credit.

As of December 31, 2015 , outstanding subordinated debt totaled $118.3 million , which included prepaid debt issuance costs of $1.7 million . Long-term debt also included FHLB long-term advances of $0.5 million and $22.5 million as of December 31, 2015 and December 31, 2014 , respectively. First Financial's total remaining borrowing capacity from the FHLB was $312.5 million at December 31, 2015 .


24 First Financial Bancorp 2015 Annual Report

In conjunction with the issuance of the subordinated notes, both First Financial and the Bank received investment grade credit ratings from an independent rating agency. These credit ratings impact the cost and availability of financing to First Financial, and a downgrade to these credit ratings could affect First Financial's or the Bank’s abilities to access the credit markets and potentially increase borrowing costs, which would negatively impact financial condition and liquidity. Key factors in maintaining high credit ratings include consistent and diverse earnings, strong credit quality and capital ratios, diverse funding sources and disciplined liquidity monitoring procedures.

First Financial maintains a short-term credit facility with an unaffiliated bank for $15.0 million 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 December 31, 2015 and December 31, 2014 , there was no outstanding balance. The credit agreement requires First Financial to maintain certain covenants related to asset quality and capital levels, and First Financial was in compliance with all covenants associated with this line of credit as of December 31, 2015 and December 31, 2014 .

First Financial's principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. The market value of investment securities classified as available-for-sale totaled $1.2 billion at December 31, 2015 . Securities classified as held-to-maturity that are maturing within a short period of time are an additional source of liquidity and totaled $4.1 million at December 31, 2015 . Other types of assets such as cash and due from banks, interest-bearing deposits with other banks, as well as loans maturing within one year, are also sources of liquidity.

At December 31, 2015 , in addition to liquidity on hand of $148.6 million , First Financial had unused and available overnight wholesale funding sources of approximately $1.6 billion , or approximately 19.5% of total assets, to fund loan and deposit activities as well as general corporate requirements.

Certain restrictions exist regarding the ability of First Financial’s subsidiary, First Financial Bank, to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances. The approval of the Bank's primary federal regulator is required to pay dividends in excess of regulatory limitations. Dividends paid to First Financial from its subsidiaries totaled $17.3 million , $31.7 million and $58.7 million for 2015 , 2014 and 2013 , respectively. As of December 31, 2015 , First Financial’s subsidiaries had retained earnings of $449.0 million of which $100.8 million was available for distribution to First Financial without prior regulatory approval. Additionally, First Financial had $106.1 million in cash at the parent company as of December 31, 2015 , which is approximately two times the Company’s annual regular shareholder dividend and operating expenses.

Under a previously announced share repurchase plan, First Financial repurchased 239,967 shares of the Company's common stock for $4.5 million during 2015. First Financial repurchased 40,255 shares for $0.7 million and 750,145 shares for $11.8 million under this same plan during 2014 and 2013 , respectively.
Capital expenditures, such as banking center expansion, remodeling and technology investments, were $7.5 million for 2015 , $10.6 million for 2014 and $7.3 million for 2013 . Material commitments for capital expenditures as of December 31, 2015 , were $8.7 million . Management believes that sufficient liquidity exists to fund its future capital expenditure commitments.

Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on First Financial’s liquidity.
Table 11 • Contractual Obligations as of December 31, 2015
 
(Dollars in thousands)
 
Less than one year
 
One to three years
 
Three to five years
 
More than five years
 
Total
Contractual Obligations
 
 
 
 
 
 
 
 
 
 
Long-term debt obligations (including interest)
 
 
 
 
 
 
 
 
 

Federal Home Loan Bank borrowings
 
$
24

 
$
55

 
$
414

 
$
0

 
$
493

Subordinated debt
 
5,637

 
12,813

 
12,300

 
150,798

 
181,548

Capital loan with municipality
 
0

 
0

 
0

 
775

 
775

Operating lease obligations
 
7,046

 
11,167

 
9,311

 
14,246

 
41,770

Total
 
$
12,707

 
$
24,035

 
$
22,025

 
$
165,819

 
$
224,586

 

First Financial Bancorp 2015 Annual Report 25
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

CAPITAL

Risk-Based Capital. First Financial and its subsidiary, First Financial Bank, are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate regulatory action.

Quantitative measures established and defined by regulation to ensure capital adequacy require First Financial to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets and to average assets. Management believes that, as of December 31, 2015 , First Financial met all capital adequacy requirements to which it was subject. At December 31, 2015 and 2014 , regulatory notifications categorized First Financial Bank as well-capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events since those notifications that management believes has changed the Company’s category.

First Financial's Tier 1 capital is comprised of total shareholders' equity less unrealized gains and losses on investment securities available-for-sale, any amounts resulting from the application of FASB ASC Topic 715, Compensation-Retirement Benefits that are recorded within accumulated other comprehensive income (loss), intangible assets and any valuation related to mortgage servicing rights. Total risk-based capital consists of Tier 1 capital plus the qualifying ALLL and gross unrealized gains on investment securities.
  
For purposes of calculating the leverage ratio, average assets represents quarterly average assets less assets not qualifying for Total risk-based capital, including intangible assets, non-qualifying mortgage servicing rights and ALLL.

For further detail on First Financial's capital ratios at December 31, 2015 , see Note 16 – Capital in the Notes to Consolidated Financial Statements.

In 2013, the Board of Governors of the Federal Reserve System approved a final rule implementing changes intended to strengthen the regulatory capital framework for all banking organizations (Basel III) which became effective January 1, 2015, subject to a phase-in period for certain provisions.  Basel III establishes and defines quantitative measures to ensure capital adequacy which require First Financial to maintain minimum amounts and ratios of Common Equity tier 1 capital, total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets (leverage ratio).  

The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a new capital conservation buffer of 2.5% of risk-weighted assets that will begin on January 1, 2016 at 0.625% and be phased-in over a four-year period, increasing by the same amount on each subsequent January 1, until fully phased-in on January 1, 2019.  Further, the minimum ratio of tier 1 capital to risk-weighted assets increased from 4.0% to 6.0% and all banks are now subject to a 4.0% minimum leverage ratio.  The required total risk-based capital ratio was unchanged. Failure to maintain the required common equity Tier 1 capital conservation buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees.  The revised capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans, requiring higher capital allocations.

First Financial's tier 1 and total capital ratios decreased from 12.69% and 13.71% , respectively, as of December 31, 2014 to 10.29% and 13.04% as of December 31, 2015 . The decline in the tier 1 capital ratio was due primarily to an increase in risk-weighted assets resulting from the Oak Street acquisition, organic loan growth and the previously mentioned changes in the calculation of risk-weighted assets, as well as a reduction in tier 1 capital due to the addition of goodwill from the Oak Street acquisition. The total capital ratio was positively impacted by the issuance of subordinated notes, which qualify as tier 2 capital and partially offset the increase to risk-weighted assets during the period. The leverage ratio declined to 8.33% at December 31, 2015 compared to 9.44% as of December 31, 2014 and the Company’s tangible common equity ratio decreased from 9.02% at December 31, 2014 to 7.53% at December 31, 2015 primarily due to the increase in goodwill associated with the Oak Street acquisition as well as higher asset balances during the period.


26 First Financial Bancorp 2015 Annual Report

Table 12 • Capital Adequacy
 
 
 
 
December 31,
(Dollars in thousands)
2015
 
2014
Consolidated capital calculations
 
 
 
Common stock
$
571,155

 
$
574,643

 
Retained earnings
388,240

 
352,893

 
Accumulated other comprehensive loss
(30,580
)
 
(21,409
)
 
Treasury stock, at cost
(119,439
)
 
(122,050
)
Total shareholders' equity
809,376

 
784,077

 
Common equity tier I capital adjustments
 
 
 
 
Goodwill and other intangibles
(211,865
)
 
(145,853
)
Total tangible equity
$
597,511

 
$
638,224

 
Total assets
$
8,147,411

 
$
7,217,821

 
Goodwill and other intangibles
(211,865
)
 
(145,853
)
Total tangible assets
$
7,935,546

 
$
7,071,968

Common tier 1 capital
$
648,748

 
$
673,851

Tier 1 capital
$
648,852

 
$
673,955

Total capital
$
822,431

 
$
728,284

Total risk-weighted assets
$
6,308,139

 
$
5,311,573

Average assets (1)
$
7,787,019

 
$
7,137,840

 
 
 
 
 
Regulatory capital
 
 
 
 
Common tier 1 ratio
10.28
%
 
12.69
%
 
Tier 1 ratio
10.29
%
 
12.69
%
 
Total capital ratio
13.04
%
 
13.71
%
 
Leverage ratio
8.33
%
 
9.44
%
 
 
 
 
 
Other capital ratios
 
 
 
 
Total shareholders' equity to ending assets
9.93
%
 
10.86
%
 
Total tangible shareholders' equity to ending tangible assets
7.53
%
 
9.02
%
 
 
 
 
 
(1) For purposes of calculating the Leverage ratio, certain intangible assets are excluded from average assets.

Shelf Registrations. In July 2014, First Financial filed a shelf registration on Form S-3 with the SEC. This shelf registration allows First Financial to raise capital from time to time through the sale of various types of securities, subject to approval by the Company's board of directors, and expires on July 31, 2017. Under this shelf registration, First Financial issued $120.0 million of subordinated notes in 2015.

Shareholder Dividends. First Financial’s dividend payout ratio, or total dividends paid divided by net income available to common shareholders, was 52.0% , 55.0% and 111.9% for the years 2015, 2014 and 2013, respectively. The dividend payout ratio is continually reviewed by management and the board of directors for consistency with First Financial’s overall capital planning activities and compliance with applicable regulatory limitations.

Share Repurchases. In October 2012, First Financial's board of directors approved a share repurchase plan under which the Company has the ability to repurchase up to 5,000,000 common shares. In January 2014, First Financial's board of directors suspended further share repurchase activity under the 2012 share repurchase plan in connection with the Company's Columbus acquisitions, and maintained the suspension of share repurchases until the second half of 2015. As discussed previously in the Liquidity section, the Company repurchased 239,967 shares under the 2012 share repurchase plan during 2015 at an average price of $18.75 per share, 40,255 shares during 2014 at an average price of $17.32 per share and 750,145 shares during 2013 at an average price of $15.70 per share. At December 31, 2015 , 3,509,133 shares remained available for purchase under the 2012 share repurchase plan.

First Financial Bancorp 2015 Annual Report 27
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations


Over an extended period, the Company generally expects to return to shareholders a target range of 60% - 80% of earnings through a combination of its regular dividend and share repurchases while maintaining capital ratios consistent with internal targets and current regulatory capital requirements under Basel III.

Preferred Stock. During 2014, the shareholders of First Financial approved an amendment to the Company's Articles of Incorporation authorizing the Company to issue up to 10,000,000 preferred shares. The Company has not issued and has no current plans, arrangements or agreements to issue any of the authorized preferred shares at this time.

Shareholders' Equity. Total shareholders’ equity at December 31, 2015 was $809.4 million compared to total shareholders’ equity at December 31, 2014 of $784.1 million .

For further detail, see the Consolidated Statements of Changes in Shareholders’ Equity.

PENSION PLAN
 
First Financial sponsors a non-contributory defined-benefit pension plan covering substantially all employees. The significant assumptions used in the valuation and accounting for the pension plan include the discount rate, expected return on plan assets and the rate of employee compensation increase. The discount rate assumption was determined using published December 31, 2015 corporate bond indices and projected plan cash flows and comparisons to external industry surveys. The expected return on plan assets was 7.5% for 2015 and 2014, and was based on the composition of plan assets as well as economic forecasts and trends in addition to actual returns. First Financial will continue to monitor the return on plan assets and the investment vehicle used to fund the plan. The assumed rate of compensation increase was 3.5% and was compared to historical increases for plan participants for reasonableness.

Presented below is the estimated impact on First Financial’s projected benefit obligation and pension expense as of December 31, 2015 , assuming shifts in the significant assumptions: 
 
Discount rate
 
Expected return on
plan assets
 
Rate of compensation increase
 (Dollars in thousands)
 
-100 BP
 
+100 BP
 
-100 BP
 
+100 BP
 
-100 BP
 
+100 BP
Change in Projected Benefit Obligation
 
$
6,127

 
$
(4,880
)
 
N/A

 
N/A

 
$
(175
)
 
$
268

Change in Pension Expense
 
$
684

 
$
(559
)
 
$
1,259

 
$
(1,259
)
 
$
(60
)
 
$
129

 
As a result of the plan’s updated actuarial projections for 2015, First Financial recorded income related to its pension plan of $1.0 million for 2015 and $1.1 million for 2014 in the Consolidated Statements of Income, compared to pension expense of $5.5 million for 2013. Contributions, if necessary, are required to meet ERISA’s minimum funding standards and the estimated quarterly contribution requirements during this period.  First Financial made no cash contributions to fund the pension plan in 2015, 2014 or 2013 and does not expect to make a cash contribution to its pension plan in 2016 given the plan's current funding level.

As a result of lump sum distributions from the pension plan during 2013, First Financial was required to re-measure the plan's assets and liabilities and recognized pension settlement charges of $6.2 million. Consistent with FASB ASC Topic 715, Compensation - Retirement Benefits, pension settlement charges are an acceleration of previously deferred costs that would have been recognized in future periods and are triggered when lump sum distributions exceed an annual accounting threshold for the plan. Associates are eligible to request a lump sum distribution from the Company's pension plan at retirement or upon leaving the Company. The accounting threshold for lump sum distributions resets annually on January 1. No pension settlement charges were incurred during 2015 or 2014.

See Note 14 – Employee Benefit Plans in the Notes to Consolidated Financial Statements for additional information on First Financial's pension plan.

ENTERPRISE RISK MANAGEMENT
 
Risk is considered to be any issue that could impact First Financial’s ability to meet its objectives or have an adverse impact on its capital or earnings. First Financial manages risks through a structured ERM approach that routinely assesses the overall level of risk, identifies specific risks and evaluates the steps being taken to mitigate those risks. First Financial continues to enhance its risk management capabilities and has, over time, embedded risk awareness as part of the culture of the Company.

28 First Financial Bancorp 2015 Annual Report

ERM allows First Financial to align a variety of risk management activities within the Company into a cohesive, enterprise-wide approach and focus on process-level risk management activities and strategic objectives within the risk management culture. Additionally, ERM allows the Company to deliberately consider risk responses and the effectiveness of mitigation compared to established standards for risk appetite and tolerance, recognize and respond to the significant organizational changes and consolidate information obtained through a common process into concise business performance and risk information for management and the board of directors.

First Financial has identified nine types of risk that it monitors in its ERM framework.  These risks include credit, market, operational, compliance, strategic, reputation, information technology, legal and environmental/external.
 
First Financial uses a robust regulatory risk framework as one of the foundational components of its ERM framework.  This not only allows for a common categorization across the Company, but provides a consistent and complete risk framework that can be summarized and assessed enterprise-wide. In addition, the framework is consistent with that used by the Company’s regulators, allowing for additional feedback on First Financial’s ability to assess and measure risk across the organization and for management and the board of directors to identify and understand differences in assessed risk profiles using this same foundation.
 
ERM helps ensure that First Financial continues to identify and adequately address risks that emerge from a combination of new customers, products and associates, as well as changing markets, new lines of business and processes and new or evolving systems.
 
The goals of First Financial’s ERM framework are to:

•
focus on the Company at both the enterprise and line of business levels;
•
align the Company's risk appetite with its strategic and related operational, compliance and reporting objectives;
•
enhance risk response decisions;
•
reduce operational deficiencies and possible losses;
•
identify and manage interrelated risks;
•
provide integrated responses to multiple risks;
•
improve the deployment and allocation of capital; and
•
improve overall business performance.
 
Specific enterprise-level objectives include:

•
creating a holistic view of risk in which risk is comprehensively considered, consistently communicated and documented in decision making;
•
centralizing the oversight of risk management activities;
•
defining the risks that will be addressed by the enterprise and each functional area or business unit to create an awareness of risks facing the Company;
•
establishing and maintaining systems and mechanisms to comprehensively identify, assess, monitor and measure risks that may impact First Financial’s ability to achieve its business objectives;
•
creating a process which ensures that, for all new lines of business and new product decisions, management evaluates the expertise needed and comprehensively assesses the risks involved;
•
establishing and maintaining systems and mechanisms to monitor risk responses;
•
developing risk occurrence information systems to provide early warning of events or situations that create risk for the Company;
•
steadfastly maintaining a compliance culture and framework that ensures adherence to laws, rules, and regulations, fair treatment and privacy of customers, and prevention of money laundering and terrorist financing;
•
implementing and reviewing risk measurement techniques that management may use to establish the Company’s risk tolerance, assess risk likelihood and impact, and analyze risk monitoring processes; and
•
establishing appropriate management reporting systems regarding the enterprise-wide risk exposures and allocation of capital.

Line of business-level objectives focus on why the particular business or business unit risk exists; how the business affects the Company’s strategy, earnings, reputation and other key success factors; and whether the line of business objectives are aligned with the enterprise objectives.
 
Board of Directors and Board Risk & Compliance Committee. First Financial’s board of directors is responsible for understanding the Company’s compliance and risk management objectives and risk tolerance. Therefore, board oversight of

First Financial Bancorp 2015 Annual Report 29
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

the Company’s compliance and risk management activities is a key component to an effective risk management process.  Responsibilities of the board of directors include:

•
establishing and guiding the Company’s strategic direction and tolerance for risk, including the determination of the aggregate risk appetite, and identifying the senior managers who have the responsibility for managing this risk;
•
monitoring the Company’s performance and overall risk profile, ensuring that the level of risk is maintained at prudent levels and is supported by adequate capital;
•
ensuring that the Company implements sound fundamental principles that facilitate the identification, measurement, monitoring and control of risk; and
•
ensuring that adequate resources are dedicated to compliance and risk management and that awareness of risk management activities is evident throughout the organization.

The board of directors has defined broad risk tolerance levels or limits to guide management in the decision-making process and is responsible for establishing information and communication requirements to ensure that risk management activities remain within these tolerance limits. The board risk and compliance committee, a standing committee of the board of directors, is responsible for carrying out the board’s responsibilities in this regard. Other standing committees of the board (audit, compensation, corporate governance and nominating, and capital markets) oversee particular areas of risk assigned to them.

Executive and Senior Management. Executive and senior management members are responsible for managing risk activities and delegating risk authority and tolerance to the responsible functional or business line risk owners.

Management must identify which processes and activities are critical to achieving the Company’s business objectives within the designated tolerance levels.  Management must then delegate responsibility, authority and accountability to the appropriate risk owners who are responsible for ensuring that the respective processes and activities are designed and implemented to manage the related risks within those delegated tolerance levels.

Information and communication requirements must be clearly communicated to risk owners in order to support management’s analysis of how effectively risk management activities are operating and that these requirements support and facilitate required reporting to the board of directors.

Chief Risk Officer. The chief risk officer is responsible for the oversight of the Company’s ERM processes.  The chief risk officer may appoint such other officers or establish other management committees as required for effective risk management and governance, including risk identification, risk measurement, risk monitoring, risk control or mitigation and risk reporting.  The chief risk officer is also responsible for the maintenance of such procedures, methodologies and guidelines as are necessary to administer the ERM program.

Chief Compliance Officer. The chief compliance officer is responsible for the oversight of the Company’s compliance management function, which includes Bank Secrecy Act/Anti-Money Laundering and all other regulatory compliance.  The chief compliance officer is authorized to implement all necessary actions to ensure achievement of the objectives of an effective compliance program and may appoint such other officers or establish other management committees as required for effective compliance management. The chief compliance officer reviews and evaluates compliance issues and concerns within the Company and is responsible for monitoring and reporting results of the compliance efforts while providing guidance to the board of directors and senior management team on matters relating to compliance.

Committee Chairs. The ERM program utilizes fourteen management committees as its primary assessment and communication mechanism for the previously identified risks.  Committee chairs play key roles in the execution of risk management activities throughout the enterprise and are responsible for continuous updates and communication among committee members as well as with the risk management department regarding changes to risk profiles, changes to risk assessments and the emergence of new risks that could impact the Company.

Internal Audit. Internal audit is responsible for planning audit activities to periodically reassess the design and operation of key risk management processes and to make periodic evaluations of the ongoing accuracy and effectiveness of the communications from risk owners to senior management and from senior management to the board of directors.

Risk Assessment Process. The periodic assessment of risks is a key component of a sound ERM program.  Managers, business line leaders and executives are responsible for developing the risk assessment for their individual departments, business lines and subsidiaries consistent with their operating practices and strategies.  The chief risk officer, management and the board risk committee are responsible for ensuring that risk is viewed and analyzed from a portfolio perspective.

30 First Financial Bancorp 2015 Annual Report

Furthermore, interrelated risks should be considered, describing how a single risk or event may create multiple risks and the need for management to develop an entity-level portfolio view of risk.

First Financial’s risk management functional programs identify the objectives, scope, assessment frequency and methodology utilized in the assessment and reporting process.

Risk management programs, in total and in each functional component, accomplish the following:

•
identify risk issues and their respective risk owners;
•
link identified risks and their mitigation to the Company's strategic objectives;
•
evaluate the risks and their associated likelihood of occurrence and consequences;
•
develop strategies to manage risk, such as transferring the risk to another party; avoiding the risk; reducing the negative effect of the risk; and/or accepting some or all of the consequences of a particular risk;
•
prioritize the risk issues in regards to the current risk status and trend;
•
provide reports to management and risk owners that will assist them in implementing appropriate risk management processes;
•
assist management in assessing the alternatives for managing the risks;
•
assist management in the development of risk management plans; and
•
track risk management efforts and respond accordingly.

Monitoring and Reporting. The board of directors oversees risk reporting and monitoring through the board risk committee, which meets at least quarterly.  The board risk committee is responsible for establishing tolerance limits for monitoring enterprise-wide key risks.

Management continually reviews and challenges the risks identified as key, as well as the appropriateness of established tolerance limits and the actions identified as necessary to mitigate key risks.  As circumstances warrant, management will provide recommendations to the board risk and compliance committee for changes or adjustments to key risks or tolerance limits.
 
First Financial believes that communication is fundamental to successful risk management and is based on a strong partnership between risk management, management and the board of directors.  Productive reporting and communication with management is necessary to ensure collaborative and effective risk management.

CREDIT RISK
  
Credit risk represents the risk of loss due to failure of a customer or counterparty to meet its financial obligations in accordance with contractual terms. First Financial manages credit risk through its underwriting practices, periodically reviewing and approving its credit exposures using credit policies and guidelines approved by the board of directors.

Allowance for loan and lease losses. First Financial records a provision for loan and lease losses (provision) in the Consolidated Statements of Income to maintain the ALLL at a level considered sufficient to absorb probable loan and lease losses inherent in the portfolio. Actual losses on loans and leases are charged against the ALLL, which is a reserve accumulated on the Consolidated Balance Sheets through the recognition of the provision. The recorded values of the loans and leases actually removed from the Consolidated Balance Sheets due to credit deterioration are referred to as charge-offs. Any subsequent recovery of a previously charged-off loan is credited back to the ALLL. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect the principal amount owed in full either through payments from the borrower or from the liquidation of collateral. All loans charged-off are subject to continuous review and concerted efforts are made to maximize any recovery. In most cases, the borrower’s debt obligation is not canceled even though the balance may have been charged-off.

Purchased impaired loans are accounted for under FASB ASC Topic 310-30, whereby First Financial is required to periodically re-estimate the expected cash flows on the loans. For purposes of applying the guidance under FASB ASC Topic 310-30, First Financial grouped acquired loans into pools based on common risk characteristics. Generally, a decline in expected cash flows for a pool of loans is considered impairment and recorded as provision expense, and a related allowance for loan and lease losses, on a discounted basis during the period. Estimated reimbursements due from the FDIC under loss sharing agreements related to any declines in expected cash flows for a pool of loans are recorded as noninterest income. Improvement in expected cash flows for a pool of loans, once any previously recorded impairment is recaptured, is recognized prospectively as an adjustment to the yield on the loans in the pool.


First Financial Bancorp 2015 Annual Report 31
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Management determines the adequacy of the ALLL based on historical loss experience as well as other significant factors such as composition of the portfolio; economic conditions; geographic footprint; the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans; and any other situations that may affect a specific borrower's ability to repay. This evaluation is inherently subjective as it requires utilizing material estimates that may be susceptible to significant change. The evaluation of these factors is the responsibility of the Allowance for Loan and Lease Losses Committee, which is comprised of senior officers from the risk management, credit administration, finance and lending areas.

See Table 13 – Summary of Allowance for Loan and Lease Losses and Selected Statistics for a summary of activity impacting the allowance and Table 14 – Allocation of the Allowance for Loan and Lease Losses for detail on the composition of the allowance.

Given the applications of acquisition accounting and the resulting estimated fair value marks embedded in the carrying value of loans acquired in the Oak Street and Columbus transactions, First Financial experienced increases in loan balances without corresponding increases in the ALLL during 2015 and 2014. As such, the Company considers the total ALLL and the remaining net fair value marks on all acquired loans, less the remaining indemnification asset balance, to be a relevant measure of the Company's loan loss protection. The balance of the Company's total ALLL and credit marks on acquired loans, net of the indemnification asset, was 1.11% of total loans and leases as of December 31, 2015 as compared to 1.51% at December 31, 2014. This decrease is largely attributable to strong organic loan growth and the acquisition of Oak Street, coupled with a relatively flat ALLL balance during 2015.

2015 vs. 2014. The ALLL at December 31, 2015 was $53.4 million or 0.99% of loans,a $0.5 million or 1.0% increase from a balance of $52.9 million or 1.11% of loans at December 31, 2014. Provision expense increased $8.1 million, or 531.0%, to $9.6 million in 2015 from $1.5 million in 2014.

Net charge-offs decreased $2.3 million, or 20.2%, to $9.1 million for 2015 compared to $11.4 million for 2014, while the ratio of net charge-offs as a percentage of average loans outstanding declined to 0.18% in 2015 from 0.27% in 2014. The decline in net charge-offs during 2015 was primarily the result of lower net losses in the C&I and construction real estate portfolios. The allowance as a percentage of net charge-offs was 586.7% for the year ended December 31, 2015 compared to 463.7% for the year ended December 31, 2014.

The slight increase in the ALLL during 2015 was primarily due to strong loan growth, while the overall reserve percentage decrease was consistent with declines in net charge-offs, nonperforming assets and classified assets when compared to December 31, 2014. The ALLL also continues to reflect gradual improvement in property values and overall economic conditions across the Company's footprint. The ALLL as a percentage of nonperforming loans, including accruing TDRs was 93.9% at December 31, 2015 compared with 82.1% at December 31, 2014.

For further discussion of First Financial's allowance for loan and lease losses, see Note 6 – Allowance for Loan and Lease Losses in the Notes to Consolidated Financial Statements.

32 First Financial Bancorp 2015 Annual Report


Table 13 • Summary Of Allowance For Loan And Lease Losses And Selected Statistics
(Dollars in thousands)
2015
 
2014
 
2013
 
2012
 
2011
Transactions in the allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
Balance at January 1
$
52,858

 
$
62,730

 
$
92,967

 
$
95,411

 
$
73,728

Loans charged-off:
 
 
 
 
 
 
 
 
 
   Commercial and industrial
5,408

 
9,156

 
11,695

 
17,188

 
13,164

   Real estate – construction
84

 
1,348

 
611

 
5,555

 
9,028

   Real estate – commercial
10,083

 
9,478

 
36,622

 
23,986

 
36,128

   Real estate – residential
1,531

 
1,454

 
1,729

 
3,110

 
3,201

Installment
509

 
605

 
536

 
2,377

 
2,200

Home equity
1,892

 
2,774

 
3,533

 
5,751

 
6,240

Credit card
1,049

 
1,158

 
1,285

 
1,252

 
1,441

   Lease financing
0

 
0

 
496

 
0

 
0

      Total loans charged-off
20,556

 
25,973

 
56,507

 
59,219

 
71,402

 
 
 
 
 
 
 
 
 
 
Recoveries of loans previously charged-off:
 
 
 
 
 
 
 
 
 
   Commercial and industrial
3,724

 
4,769

 
4,218

 
2,546

 
1,775

   Real estate – construction
253

 
381

 
679

 
61

 
559

   Real estate – commercial
5,214

 
7,617

 
10,630

 
3,032

 
5,700

   Real estate – residential
558

 
531

 
265

 
90

 
116

Installment
463

 
358

 
393

 
558

 
532

Home equity
1,001

 
511

 
914

 
241

 
811

Credit card
240

 
343

 
253

 
227

 
301

   Lease financing
2

 
63

 
9

 
0

 
0

      Total recoveries
11,455

 
14,573

 
17,361

 
6,755

 
9,794

      Net charge-offs
9,101

 
11,400

 
39,146

 
52,464

 
61,608

 
 
 
 
 
 
 
 
 
 
   Provision for loan and lease losses
9,641

 
1,528

 
8,909

 
50,020

 
83,291

      Balance at December 31
$
53,398

 
$
52,858

 
$
62,730

 
$
92,967

 
$
95,411

 
 
 
 
 
 
 
 
 
 
FDIC loss sharing income (1)
$
(2,487
)
 
$
365

 
$
3,720

 
$
35,346

 
$
60,888

 
 
 
 
 
 
 
 
 
 
Credit quality ratios:
 
 
 
 
 
 
 
 
 
   As a percent of year-end loans, net of unearned income:
 
 
 
 
 
 
 
 
 
      Allowance for loan and lease losses
0.99
%
 
1.11
%
 
1.58
%
 
2.37
%
 
2.37
%
     Nonperforming loans  (2)
1.06
%
 
1.35
%
 
1.43
%
 
2.23
%
 
2.18
%
 
 
 
 
 
 
 
 
 
 
   As a percent of average loans, net of unearned income:
 
 
 
 
 
 
 
 
 
      Net charge-offs
0.18
%
 
0.27
%
 
0.99
%
 
1.34
%
 
1.51
%
 
 
 
 
 
 
 
 
 
 
   Allowance for loan and lease losses to nonperforming loans (2)
93.89
%
 
82.08
%
 
110.40
%
 
106.10
%
 
108.99
%

(1) Represents proportionate share of losses on covered assets expected to be reimbursed by the FDIC under loss sharing agreements.
(2) Includes loans classified as nonaccrual and troubled debt restructurings.


First Financial Bancorp 2015 Annual Report 33
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Table 14 • Allocation Of The Allowance For Loan And Lease Losses
 
December 31,
 
2015
 
2014
 
2013
 
2012
 
2011
(Dollars in thousands)
Allowance
Percent of Loans to Total Loans
 
Allowance
Percent of Loans to Total Loans
 
Allowance
Percent of Loans to Total Loans
 
Allowance
Percent of Loans to Total Loans
 
Allowance
Percent of Loans to Total Loans
Balance at End of Period Applicable to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
$
16,995

30.9
%
 
$
13,870

27.5
%
 
$
19,538

27.2
%
 
$
37,726

24.5
%
 
$
31,267

26.2
%
Real estate – construction
1,810

5.8
%
 
1,045

4.2
%
 
8,326

2.3
%
 
8,143

2.2
%
 
2,086

3.3
%
Real estate – commercial
23,656

41.9
%
 
27,086

44.8
%
 
23,432

44.6
%
 
38,108

47.9
%
 
30,384

46.5
%
Real estate – residential
4,014

9.5
%
 
3,753

10.5
%
 
9,668

10.9
%
 
7,907

10.7
%
 
5,111

10.2
%
Installment, home equity & credit card
6,102

10.2
%
 
6,669

11.4
%
 
15,113

13.0
%
 
12,616

13.4
%
 
9,857

13.4
%
Lease financing
821

1.7
%
 
435

1.6
%
 
59

2.0
%
 
1

1.3
%
 
3

0.4
%
  Total
$
53,398

100.0
%
 
$
52,858

100.0
%
 
$
76,136

100.0
%
 
$
104,501

100.0
%
 
$
78,708

100.0
%


MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary source of market risk for First Financial is interest rate risk. Interest rate risk is the risk to earnings and the value of the Company's equity arising from changes in market interest rates and arises in the normal course of business to the extent that there is a divergence between the amount of First Financial's interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods. First Financial seeks to achieve consistent growth in net interest income and equity while managing volatility arising from shifts in market interest rates.

Table 15 – Market Risk Disclosure projects the principal maturities and yields of First Financial’s interest-bearing financial instruments at December 31, 2015 for the next five years and thereafter, as well as the fair value of the instruments. For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and related weighted-average interest rates by contractual maturities. For investment securities, including MBSs and CMOs, principal cash flows are based on estimated average lives. For loan instruments without contractual maturities, such as credit card loans, principal payments are allocated based on historical trends of payment activity. Maturities for interest-bearing liability accounts with no contractual maturity dates are estimated according to historical experience of cash flows and current expectations of client behaviors when calculating fair value, but are included in the maturing in one year or less category as they can be withdrawn on demand. For interest rate swaps, the table includes notional amounts and weighted-average interest rates by contractual maturity dates. The variable receiving rates are indexed to one-month LIBOR or Prime plus a spread.
 
First Financial monitors the Company's interest rate risk position using income simulation models and EVE sensitivity analyses that capture both short-term and long-term interest rate risk exposure.  Income simulation involves forecasting NII under a variety of interest rate scenarios including instantaneous shocks. First Financial uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital.  EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios.  For both NII and EVE modeling, First Financial leverages instantaneous parallel shocks to evaluate interest rate risk exposure across rising and falling rate scenarios. Additional scenarios evaluated include implied market forward rate forecasts and various non-parallel yield curve twists.

First Financial’s interest rate risk models are based on the contractual and assumed cash flows and repricing characteristics for all of the Company’s assets, liabilities and off-balance sheet exposure. A number of assumptions are also incorporated into the interest rate risk models, including prepayment behaviors and repricing spreads for assets as well as attrition and repricing rates for liabilities. Assumptions are primarily derived from behavior studies of the Company’s historical client base and are continually refined. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process.

Non-maturity deposit modeling is particularly dependent on the assumption for repricing sensitivity known as a beta. Beta is the amount by which First Financial’s interest bearing non-maturity deposit rates will increase when short-term interest rates rise. The Company utilized a weighted average deposit beta of 58% in its interest rate risk modeling as of December 31, 2015.

34 First Financial Bancorp 2015 Annual Report

First Financial also includes an assumption for the migration of non-maturity deposit balances into CDs for all upward rate scenarios beginning with the +200 BP scenario, thereby increasing deposit costs and reducing asset sensitivity.

Presented below is the estimated impact on First Financial’s NII and EVE as of December 31, 2015 , assuming immediate, parallel shifts in interest rates:
 
% Change from base case for
 immediate parallel changes in rates
 
-100 BP (1)
 
+100 BP
 
+200 BP
NII - Year 1
(5.08)%
 
0.03%
 
1.03%
NII - Year 2
(3.62)%
 
3.20%
 
5.28%
EVE
(5.08)%
 
(0.91)%
 
0.95%

(1) Because certain current interest rates are at or below 1.00%, the 100 basis point downward shock assumes that certain corresponding interest rates approach an implied floor that, in effect, reflects a decrease of less than the full 100 basis point downward shock.

“Risk-neutral” refers to the absence of a strong bias toward either asset or liability sensitivity. “Asset sensitivity” is when a company's interest-earning assets reprice more quickly or in greater quantities than interest-bearing liabilities. Conversely, “liability sensitivity” is when a company's interest-bearing liabilities reprice more quickly or in greater quantities than interest-earning assets. In a rising interest rate environment, asset sensitivity results in higher net interest income while liability sensitivity results in lower net interest income. In a declining interest rate environment, asset sensitivity results in lower net interest income while liability sensitivity results in higher net interest income.

First Financial was within all internal policy limits set for interest rate risk monitoring as of December 31, 2015.  Projected results for NII and EVE continued to pivot around neutral and reflect a slightly asset sensitive position as of December 31, 2015 . First Financial continues to manage its balance sheet with a bias toward asset sensitivity while simultaneously balancing the potential earnings impact of this strategy.

First Financial continually evaluates the sensitivity of its interest rate risk position to modeling assumptions. The table that follows reflects First Financial’s estimated NII sensitivity profile as of December 31, 2015 assuming both a 25% increase and decrease to the beta assumption on managed rate deposit products:
 
Beta sensitivity (% change from base)
 
+100 BP
 
+200 BP
 
Beta 25% lower
 
Beta 25% higher
 
Beta 25% lower
 
Beta 25% higher
NII-Year 1
1.48
%
 
(1.42
)%
 
3.08
%
 
(1.02
)%
NII-Year 2
5.04
%
 
1.36
 %
 
7.76
%
 
2.81
 %

See the Net Interest Income section of Management’s Discussion and Analysis for further discussion.




First Financial Bancorp 2015 Annual Report 35
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

 
Table 15 • Market Risk Disclosure
 
 
Fair Value
 
Principal Amount Maturing In:
December 31,
(Dollars in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
2015
Rate sensitive assets
 
 
 
 
 
 
 
 
Fixed interest rate loans  (1)
$
323,460

$
306,254

$
316,855

$
238,692

$
161,873

$
384,787

$
1,731,921

$
1,728,359

   Average interest rate
4.12
 %
4.74
 %
4.52
 %
4.67
 %
5.06
%
4.23
%
4.48
 %
 
Variable interest rate loans (1)
752,469

405,086

354,065

287,837

390,136

1,434,805

3,624,398

3,673,663

   Average interest rate
3.80
 %
3.92
 %
4.09
 %
4.38
 %
4.36
%
4.22
%
4.12
 %
 
Fixed interest rate securities
178,961

151,749

135,827

137,396

130,578

776,319

1,510,830

1,457,498

   Average interest rate
3.16
 %
3.12
 %
3.10
 %
3.14
 %
3.20
%
2.85
%
2.99
 %
 
Variable interest rate securities
42,542

75,260

45,093

40,535

42,088

214,278

459,796

465,094

   Average interest rate
2.90
 %
1.92
 %
2.23
 %
1.98
 %
1.80
%
2.32
%
2.22
 %
 
Other earning assets
33,734

0

0

0

0

0

33,734

33,734

   Average interest rate
0.50
 %
0.00
 %
0.00
 %
0.00
 %
0.00
%
0.00
%
0.50
 %
 
FDIC indemnification asset
5,880

5,358

4,507

1,885

0

0

17,630

9,756

   Average interest rate
(26.70
)%
(26.70
)%
(26.70
)%
(26.70
)%
0.00
%
0.00
%
(26.70
)%
 
 
 
 
 
 
 
 
 
 
Rate sensitive liabilities
 
 
 
 
 
 
 
 
Noninterest-bearing checking  (2)
$
1,413,404

$
0

$
0

$
0

$
0

$
0

$
1,413,404

$
1,413,404

Savings and interest-bearing checking (2)
336,010

3,024,086

0

0

0

0

3,360,096

3,360,096

   Average interest rate
0.20
 %
0.20
 %
0.00
 %
0.00
 %
0.00
%
0.00
%
0.20
 %
 
Time deposits
703,341

206,373

200,806

202,738

84,304

8,562

1,406,124

1,406,489

   Average interest rate
0.54
 %
0.97
 %
1.62
 %
1.99
 %
1.45
%
1.33
%
1.03
 %
 
Fixed interest rate borrowings
849,129

29

0

395

0

119,087

968,640

967,791

   Average interest rate
0.47
 %
0.00
 %
0.00
 %
6.61
 %
0.00
%
5.16
%
1.05
 %
 
Variable interest rate borrowings
89,325

0

0

0

0

0

89,325

89,325

   Average interest rate
0.11
 %
0.00
 %
0.00
 %
0.00
 %
0.00
%
0.00
%
0.11
 %
 
 
 
 
 
 
 
 
 
 
Interest Rate Derivatives
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
 
 
 
 

 
Fixed to variable
$
4,454

$
259

$
350

$
74

$
79

$
0

$
5,216

$
(154
)
   Average pay rate (fixed)
6.97
 %
6.75
 %
6.73
 %
7.33
 %
7.33
%
0.00
%
6.95
 %
 
   Average receive rate (variable)
2.23
 %
2.66
 %
2.61
 %
2.89
 %
2.89
%
0.00
%
2.30
 %
 
 
 
 
 
 
 
 
 
 

(1) Includes loans held for sale.
(2) Deposits without a stated maturity are represented as maturing within one year due to the ability of the client to withdraw deposited amounts on demand.
   
OPERATIONAL RISK

Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls and external influences such as market conditions, fraudulent activities, disasters and security risks. First Financial continuously strives to strengthen the Company’s system of internal controls, operating processes and employee awareness to assess the impact on earnings and capital and to improve the oversight of operational risk.


36 First Financial Bancorp 2015 Annual Report

COMPLIANCE RISK

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from the Company’s failure to comply with rules and regulations issued by the various banking agencies and standards of good banking practice. Activities which may expose First Financial to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the Company’s expansion of its banking center network and employment and tax matters.

STRATEGIC AND REPUTATION RISK

Strategic risk represents the risk of loss due to failure to fully develop and execute business plans, failure to assess current and new opportunities in business, markets and products and any other event not identified in the defined risk types previously mentioned. Strategic risk focuses on analyzing factors that affect the direction of the institution or improper implementation of decisions.

Reputation risk represents the risk of loss due to impairment of earnings and capital from negative publicity. This affects the ability of First Financial to establish new relationships or services or to continue servicing existing relationships. Reputation risk is recognized by the potential effect that public opinion could have on First Financial's franchise value.

Mitigation of the various risk elements that represent strategic and reputation risk is achieved through initiatives that help First Financial better understand and report on the various risks it faces each day, including those related to the development of new products and business initiatives as well as the growth in social media.

INFORMATION TECHNOLOGY RISK

Information technology risk is the risk that the information technologies used in the business are not efficiently and effectively supporting the current and future needs of the business, operating as intended, or compromise the availability, integrity and reliability of data and information. This risk also considers whether or not the Company’s information technology exposes the Company's assets to potential loss or misuse, or threatens the Company’s ability to sustain the operation of critical business processes.

First Financial continuously strives to strengthen the Company’s posture toward cybersecurity. Four components are critical to the Company’s cyber risk control structure: corporate governance, threat intelligence, security awareness training and patch management programs. Ultimately, the Company seeks to effectively identify, protect, detect, respond and recover from cybersecurity threats.

LEGAL RISK

Legal risk encompasses the impact of unenforceable contracts, lawsuits or adverse judgments, which can disrupt or otherwise negatively affect the Company’s operations or condition. Legal risk also includes the exposure from litigation, fiduciary relationships and contractual obligations from both traditional and nontraditional financial institution activities. Legal risk is present in all areas of the Company and its activities.

ENVIRONMENTAL/EXTERNAL RISK

Environmental risk arises when there are external forces that could significantly change the fundamentals that drive the Company’s overall objectives and strategies and, in the extreme, threaten the continued operations of the Company. While not a specific element of the regulatory risk framework, environmental risks are a critical consideration in understanding the full potential of scenarios that could impact the Company. Therefore, First Financial identified this as a separate category (or source) of risk for consistent consideration.

Environmental risk arises from failure to understand customer needs and failure to anticipate or react to actions of competitors. Management’s assumptions regarding the business environment are a foundational element in formulating and evaluating business strategies. These assumptions include the strategic profile of major competitors, demographic and social trends, new technologies that provide opportunities for competitive advantage and economic, political and regulatory developments.


First Financial Bancorp 2015 Annual Report 37
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

CRITICAL ACCOUNTING POLICIES

First Financial’s Consolidated Financial Statements are prepared based on the application of accounting policies, the most significant of which are described in Note 1 – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. These policies require the reliance on estimates and assumptions. Changes in underlying factors, assumptions or estimates could have a material impact on First Financial’s future financial condition and results of operations. In management’s opinion, some of these estimates and assumptions have a more significant impact than others on First Financial’s financial reporting. For First Financial, these estimates and assumptions include accounting for the ALLL, acquired loans, the FDIC indemnification asset, goodwill, pension and income taxes.

ALLL. For each reporting period, management maintains the ALLL at a level that it considers sufficient to absorb probable loan and lease losses inherent in the portfolio. Management determines the adequacy of the ALLL based on historical loss experience as well as other significant factors such as composition of the portfolio, economic conditions, geographic footprint, the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans and any other adverse situations that may affect a specific borrower's ability to repay (including the timing of future payments). This evaluation is inherently subjective as it requires utilizing material estimates that may be susceptible to significant change.
 
Management's determination of the adequacy of the ALLL is based on an assessment of the probable loan and lease losses inherent in the portfolio given the conditions at the time. The ALLL is generally increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged off when management believes that the collection of the principal amount owed in full, either through payments from the borrower or from the liquidation of collateral, is unlikely.

For purchased impaired loans, expected cash flows are re-estimated periodically with any decline in expected cash flows recorded as provision expense and an allowance for loan losses on a discounted basis during the period. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. The related, estimated reimbursement on covered loan losses due from the FDIC under loss sharing agreements, if applicable, is recorded as both FDIC loss sharing income and an increase to the FDIC indemnification asset.

To the extent actual outcomes differ from management’s estimates, additional provision for credit losses may be required that would impact First Financial’s operating results. The Credit Risk section of this annual report provides management’s analysis of the ALLL.

Acquired loans. Acquired loans are recorded at their estimated fair value at the time of acquisition. Estimated fair values for acquired loans are based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, interest rate, term of loan, whether or not the loan was amortizing and a discount rate reflecting the Company's assessment of risk inherent in the cash flow estimates. Acquired loans are grouped together according to similar characteristics and treated in the aggregate when applying various valuation techniques. Certain loans acquired in FDIC-assisted transactions are covered under loss sharing agreements and are referred to as covered loans.

First Financial evaluates acquired loans for impairment in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Acquired loans with evidence of credit deterioration since origination are accounted for under FASB ASC Topic 310-30 and are referred to as purchased impaired loans. 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.
 
For purposes of applying the guidance under FASB ASC Topic 310-30, First Financial groups acquired loans into pools based on common risk characteristics. Expected cash flows are re-estimated periodically for all purchased impaired loans. The cash flows expected to be collected are estimated based upon the expected remaining life of the underlying loans, which includes the effects of estimated prepayments. Generally, a decline in expected cash flows for a pool of loans is referred to as impairment and recorded as provision expense on a discounted basis during the period. Improvement in expected cash flows for a pool of loans, once any previously recorded impairment is recaptured, is recognized prospectively as an adjustment to the yield on the loans in the pool. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.

For acquired loans that prepay, noninterest income may be recorded related to the accelerated recognition of the remaining purchase discount that would have been recognized over the life of the loan had it not prepaid, offset by a related adjustment to the FDIC indemnification asset if the loan is still covered under FDIC loss sharing protection. This scenario can occur either through a loan sale or ordinary prepayments that are typical in a loan portfolio.

38 First Financial Bancorp 2015 Annual Report

 
Acquired loans outside the scope of FASB ASC Topic 310-30 are accounted for under FASB ASC Topic 310-20, Receivables-Nonrefundable Fees and Costs. Discounts created when the loans were recorded at their estimated fair values at acquisition are amortized over the remaining term of the loan as an adjustment to the related loan's yield. The accrual of interest income is discontinued when the collection of a loan or interest, in whole or in part, is doubtful.

To the extent actual outcomes differ from management’s estimates, additional provision expense may be required that would impact First Financial’s operating results, net of the related reimbursements due under loss sharing agreements recorded as FDIC loss sharing income. The Credit Risk section of this annual report provides management’s analysis of the ALLL.

FDIC indemnification asset. The FDIC indemnification asset results from the loss sharing agreements entered into in conjunction with First Financial's FDIC-assisted transactions, and is measured separately from the related assets covered by loss sharing agreements with the FDIC as it is not contractually embedded in those assets and is not transferable should First Financial choose to dispose of the covered assets. The FDIC indemnification asset represents expected reimbursements from the FDIC for losses on covered assets. Pursuant to the terms of the loss sharing agreements, covered assets are subject to stated loss thresholds whereby the FDIC will reimburse First Financial for 80% of losses up to the stated loss thresholds, and 95% of losses in excess of the thresholds. The FDIC indemnification asset was recorded at its estimated fair value at the time of the FDIC-assisted transactions. Fair values were estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing of the loss sharing reimbursement from the FDIC.
 
The accounting for the FDIC indemnification asset is closely related to the accounting for the underlying, indemnified assets as well as on-going assessment of the collectibility of the assets. First Financial re-estimates the expected indemnification asset cash flows in conjunction with the periodic re-estimation of cash flows on covered loans accounted for under FASB ASC Topic 310-30. Improvements in cash flow expectations on covered loans generally result in a related decline in the expected indemnification cash flows and are reflected as a yield adjustment on the indemnification asset. Declines in cash flow expectations on covered loans generally result in an increase in expected indemnification cash flows and are reflected as both FDIC loss sharing income and an increase to the indemnification asset. First Financial performs a collectibility assessment which includes evaluation of claims activity with the FDIC, adjustments to the indemnification asset from the accelerated discount on covered loans, the yield on the indemnification asset in relation to the yield on the underlying covered loans and the remaining term of the loss sharing agreements. Changes in the assessed collectibility of the indemnification asset, if any, are recognized as FDIC indemnification impairment in Noninterest expenses in the Consolidated Statements of Income.
 
Goodwill. Assets and liabilities acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. The Company is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. First Financial performs its annual impairment test effective October 1, absent events or changes in circumstances that indicate the carrying value of goodwill may not be recoverable.

The first step in testing for goodwill impairment is to determine the fair value of the reporting unit. The Company’s goodwill is accounted for in a single reporting unit representing the consolidated entity. Fair value is estimated using the market capitalization of the Company, as of the annual impairment testing date. First Financial also utilizes additional information and analysis to corroborate the use of the Company’s market capitalization as a proper indicator of fair value for purposes of the annual goodwill impairment test.

The additional information and analysis compares readily available external market data regarding the Company's value to total shareholders' equity. These analyses include utilizing a multiple of earnings method in which First Financial’s annualized earnings are compared to equity to provide an implied book value-to earnings multiple, which is then compared to current marketplace earnings multiples at which banks are being traded. Also, the analyses use the discounted cash flows of First Financial’s assets and liabilities, to determine an implied fair value of the Company, which is compared to the Company’s book value.

The second step of impairment testing is necessary only if the carrying amount of the reporting unit exceeds its fair value. In that instance, First Financial would estimate a hypothetical purchase price for the reporting unit and then compare that hypothetical purchase price with the fair value of the unit’s net assets, excluding goodwill. Any excess of the estimated purchase price over the fair value of the reporting unit’s net assets represents the implied fair value of goodwill. An impairment loss would be recognized as a charge to earnings if the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill.


First Financial Bancorp 2015 Annual Report 39
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Pension. First Financial sponsors a non-contributory defined-benefit pension plan covering substantially all employees. Accounting for the pension plan involves material estimates regarding future plan obligations and investment returns on plan assets. Significant assumptions used in the pension plan include the discount rate, expected return on plan assets and the rate of compensation increase. First Financial determines the discount rate assumption using published corporate bond indices, projected cash flows of the pension plan and comparisons to external industry surveys were made to test for reasonableness. The expected long-term return on plan assets is based on the composition of plan assets as well as a economic forecasts and trends in addition to actual returns, while the rate of compensation increase is compared to historical increases for plan participants. Changes in these assumptions can have a material impact on the amount of First Financial’s future pension obligations, on the funded status of the plan and on the Company's operating results.

Income Taxes. First Financial evaluates and assesses the relative risks and appropriate tax treatment of transactions after considering statutes, regulations, judicial precedent and other information, and maintains tax accruals consistent with its evaluation of these relative risks. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to statutory, judicial and regulatory guidance that impact the relative risks of tax positions. These changes, when they occur, can affect deferred taxes and accrued taxes as well as the current period’s income tax expense and can be material to the Company's operating results.

First Financial regularly reviews its tax positions and establishes reserves for income tax-related uncertainties based on estimates of whether it is more likely than not that the tax uncertainty would be sustained upon challenge by the appropriate tax authorities which would then result in additional taxes, penalties and interest due.  These evaluations are inherently subjective as they require material estimates and may be susceptible to significant change.  Provisions for tax reserves, if any, are included in income tax expense in the Consolidated Financial Statements.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the Act). In addition, certain statements in future filings by First Financial with the SEC, in press releases, and in oral and written statements made by or with the approval of First Financial which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to, projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items, statements of plans and objectives of First Financial or its management or board of directors and statements of future economic performances and statements of assumptions underlying such statements. Words such as ''believes,'' ''anticipates,'' “likely,” “expected,” ''intends,'' and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Management's analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

▪
management's ability to effectively execute its business plan;
▪
the risk that the strength of the United States economy in general and the strength of the local economies in which we conduct operations may deteriorate resulting in, among other things, a further deterioration in credit quality or a reduced demand for credit, including the resultant effect on our loan portfolio, allowance for loan and lease losses and overall financial performance;
▪
U.S. fiscal debt and budget matters;
▪
the ability of financial institutions to access sources of liquidity at a reasonable cost;
▪
the impact of upheaval in the financial markets and the effectiveness of domestic and international governmental actions taken in response, and the effect of such governmental actions on us, our competitors and counterparties, financial markets generally and availability of credit specifically, and the U.S. and international economies, including potentially higher FDIC premiums arising from increased payments from FDIC insurance funds as a result of depository institution failures;
▪
the effect of and changes in policies and laws or regulatory agencies (notably the Dodd-Frank Wall Street Reform and Consumer Protection Act and the new capital rules promulgated by federal banking regulators);
▪
the effect of the current low interest rate environment or changes in interest rates on our net interest margin and our loan originations and securities holdings;
▪
our ability to keep up with technological changes;
▪
failure or breach of our operational or security systems or infrastructure, or those of our third party vendors or other service providers;

40 First Financial Bancorp 2015 Annual Report

▪
our ability to comply with the terms of loss sharing agreements with the FDIC;
▪
the expiration of loss sharing agreements with the FDIC;
▪
mergers and acquisitions, including costs or difficulties related to the integration of acquired companies;
▪
the risk that exploring merger and acquisition opportunities may detract from management's time and ability to successfully manage our business;
▪
expected cost savings in connection with acquisitions may not be fully realized or realized within the expected time frames, and deposit attrition, customer loss and revenue loss following completed acquisitions may be greater than expected;
▪
our ability to increase market share and control expenses;
▪
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and the SEC;
▪
adverse changes in the creditworthiness of our borrowers and lessees, collateral values, the value of investment securities and asset recovery values, including the value of the FDIC indemnification asset and related assets covered by FDIC loss sharing agreements;
▪
adverse changes in the securities, debt and/or derivatives markets;
▪
our success in recruiting and retaining the necessary personnel to support business growth and expansion and maintain sufficient expertise to support increasingly complex products and services;
▪
monetary and fiscal policies of the Board of Governors of the Federal Reserve System (Federal Reserve) and the U.S. government and other governmental initiatives affecting the financial services industry;
▪
unpredictable natural or other disasters could have an adverse effect on us in that such events could materially disrupt our operations or our vendors' operations or willingness of our customers to access the financial services we offer;
▪
our ability to manage loan delinquency and charge-off rates and changes in estimation of the adequacy of the allowance for loan losses; and
▪
the costs and effects of litigation and of unexpected or adverse outcomes in such litigation.

Such forward-looking statements are meaningful only on the date when such statements are made, and First Financial undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such a statement is made to reflect the occurrence of unanticipated events.

These and other risk factors are more fully described in First Financial's Annual Report on Form 10-K for the year ended December 31, 2015 under the section entitled “Item 1A. Risk Factors” and from time to time, in other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, First Financial undertakes no obligation to revise or update publicly any forward-looking statements for any reason.


First Financial Bancorp 2015 Annual Report 41

Statistical Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
2014
 
2013
(Dollars in thousands)
Average Balance
 
Interest
 
Average Yield
 
Average Balance
 
Interest
 
Average Yield
 
Average Balance
 
Interest
 
Average Yield
Earning assets
 
Loans and leases  (1), (4)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial  (2)
$
1,425,032

 
$
68,719

 
4.82
 %
 
$
1,188,882

 
$
54,305

 
4.57
 %
 
$
994,361

 
$
51,321

 
5.16
 %
Real estate-construction
249,559

 
10,872

 
4.36
 %
 
135,765

 
6,638

 
4.89
 %
 
96,104

 
4,893

 
5.09
 %
Real estate-commercial
2,148,139

 
100,026

 
4.66
 %
 
1,891,998

 
96,607

 
5.11
 %
 
1,835,806

 
107,880

 
5.88
 %
Real estate-residential
512,888

 
21,185

 
4.13
 %
 
471,710

 
20,492

 
4.34
 %
 
445,098

 
19,812

 
4.45
 %
Installment and other consumer
543,900

 
27,638

 
5.08
 %
 
524,815

 
29,024

 
5.53
 %
 
517,850

 
29,811

 
5.76
 %
Lease financing (2)
83,316

 
3,340

 
4.01
 %
 
77,783

 
3,077

 
3.96
 %
 
66,317

 
3,438

 
5.18
 %
Total loans and leases
4,962,834

 
231,780

 
4.67
 %
 
4,290,953

 
210,143

 
4.90
 %
 
3,955,536

 
217,155

 
5.49
 %
Indemnification asset
20,274

 
(4,740
)
 
(23.38
)%
 
32,436

 
(5,531
)
 
(17.05
)%
 
95,126

 
(7,672
)
 
(8.07
)%
Investment securities (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
1,667,933

 
39,577

 
2.37
 %
 
1,692,074

 
40,924

 
2.42
 %
 
1,597,763

 
34,147

 
2.14
 %
Tax-exempt  (2)
164,497

 
7,094

 
4.31
 %
 
132,033

 
5,477

 
4.15
 %
 
98,448

 
3,693

 
3.75
 %
Total investment securities  (3)
1,832,430

 
46,671

 
2.55
 %
 
1,824,107

 
46,401

 
2.54
 %
 
1,696,211

 
37,840

 
2.23
 %
Interest-bearing deposits with other banks
24,430

 
65

 
0.27
 %
 
16,507

 
70

 
0.42
 %
 
6,464

 
27

 
0.42
 %
Total earning assets
6,839,968

 
273,776

 
4.00
 %
 
6,164,003

 
251,083

 
4.07
 %
 
5,753,337

 
247,350

 
4.30
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonearning assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses
(54,111
)
 
 
 
 
 
(56,828
)
 
 
 
 
 
(84,033
)
 
 
 
 
Cash and due from banks
115,273

 
 
 
 
 
123,077

 
 
 
 
 
115,486

 
 
 
 
Accrued interest and other assets
602,939

 
 
 
 
 
530,707

 
 
 
 
 
496,621

 
 
 
 
Total assets
$
7,504,069

 
 
 
 
 
$
6,760,959

 
 
 
 
 
$
6,281,411

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand
$
1,263,388

 
1,207

 
0.10
 %
 
$
1,157,783

 
1,277

 
0.11
 %
 
$
1,125,836

 
1,456

 
0.13
 %
Savings
1,971,699

 
4,171

 
0.21
 %
 
1,756,682

 
4,376

 
0.25
 %
 
1,626,025

 
1,810

 
0.11
 %
Time
1,333,550

 
14,096

 
1.06
 %
 
1,072,858

 
10,500

 
0.98
 %
 
986,085

 
9,981

 
1.01
 %
Total interest-bearing deposits
4,568,637

 
19,474

 
0.43
 %
 
3,987,323

 
16,153

 
0.41
 %
 
3,737,946

 
13,247

 
0.35
 %
Borrowed funds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
625,674

 
1,364

 
0.22
 %
 
746,976

 
1,268

 
0.17
 %
 
587,548

 
1,177

 
0.20
 %
Long-term debt
71,748

 
2,419

 
3.37
 %
 
57,608

 
1,813

 
3.15
 %
 
69,717

 
2,464

 
3.53
 %
Total borrowed funds
697,422

 
3,783

 
0.54
 %
 
804,584

 
3,081

 
0.38
 %
 
657,265

 
3,641

 
0.55
 %
Total interest-bearing liabilities
5,266,059

 
23,257

 
0.44
 %
 
4,791,907

 
19,234

 
0.40
 %
 
4,395,211

 
16,888

 
0.38
 %
Noninterest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
1,339,802

 
 
 
 
 
1,169,851

 
 
 
 
 
1,078,800

 
 
 
 
Other liabilities
93,292

 
 
 
 
 
72,186

 
 
 
 
 
105,975

 
 
 
 
Shareholders' equity
804,916

 
 
 
 
 
727,015

 
 
 
 
 
701,425

 
 
 
 
Total liabilities and shareholders' equity
$
7,504,069

 
 
 
 
 
$
6,760,959

 
 
 
 
 
$
6,281,411

 
 
 
 
Net interest income and interest rate spread (fully tax equivalent)
 
 
$
250,519

 
3.56
 %
 
 
 
$
231,849

 
3.67
 %
 
 
 
$
230,462

 
3.92
 %
Net interest margin (fully tax equivalent)
 
 
 
 
3.66
 %
 
 
 
 
 
3.76
 %
 
 
 
 
 
4.01
 %
Interest income and yield
 
 
$
269,759

 
3.94
 %
 
 
 
$
247,859

 
4.02
 %
 
 
 
$
245,208

 
4.26
 %
Interest expense and rate
 
 
23,257

 
0.44
 %
 
 
 
19,234

 
0.40
 %
 
 
 
16,888

 
0.38
 %
Net interest income and spread
 
 
$
246,502

 
3.50
 %
 
 
 
$
228,625

 
3.62
 %
 
 
 
$
228,320

 
3.88
 %
Net interest margin
 
 
 
 
3.60
 %
 
 
 
 
 
3.71
 %
 
 
 
 
 
3.97
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)  Nonaccrual loans are included in average loan balance and loan fees are included in interest income.
 
 
 
 
 
 
(2)  Interest income on tax-exempt investments and on certain tax-exempt loans and leases has been adjusted to a tax equivalent basis using a 35.00% tax rate.
(3)  Includes investment securities held-to-maturity, investment securities available-for-sale, investment securities trading and other investments.
(4)  Includes loans held-for-sale.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

42 First Financial Bancorp 2015 Annual Report

Management’s Report On Internal Control Over Financial Reporting

First Financial’s management is responsible for establishing and maintaining adequate internal control over financial reporting. First Financial’s internal control over financial reporting is a process designed under the supervision of First Financial’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. As of December 31, 2015 , First Financial’s management, including the chief executive officer and the chief financial officer, evaluated the effectiveness of First Financial’s internal controls over financial reporting, using as its framework for that evaluation the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 framework). The Company’s evaluation of internal control over financial reporting did not include the internal controls of Oak Street Holdings Corporation, which is included in the 2015 consolidated financial statements and constituted approximately 3.2% of total assets as of December 31, 2015. Based upon that evaluation, management believes that First Financial’s internal control over financial reporting is effective based on those criteria.

Ernst & Young LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K, has issued an attestation report on First Financial’s internal control over financial reporting as of December 31, 2015 . The report, which expresses an unqualified opinion on First Financial’s internal control over financial reporting as of December 31, 2015 , is included in the information that follows under the heading “Report on Internal Control Over Financial Reporting.”

/s/ Claude E. Davis
 
/s/ John M. Gavigan
 
Chief Executive Officer
 
Senior Vice President and Chief Financial Officer
 
February 23, 2016
 
February 23, 2016
 


First Financial Bancorp 2015 Annual Report 43

Report of Independent Registered Public Accounting Firm
Report On Internal Control Over Financial Reporting
The Board of Directors and Shareholders of First Financial Bancorp
We have audited First Financial Bancorp’s Internal Control Over Financial Reporting as of December 31, 2015 , based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). First Financial Bancorp’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report On Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

As indicated in the accompanying Management’s Report On Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Oak Street Holdings Corporation , which is included in the 2015 consolidated financial statements of First Financial Bancorp and constituted 3.2% of total assets as of December 31, 2015. Our audit of internal control over financial reporting of First Financial Bancorp also did not include an evaluation of the internal control over financial reporting of Oak Street Holdings Corporation.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, First Financial Bancorp maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015 , based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of First Financial Bancorp as of December 31, 2015 and 2014 , and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows fo r each of the three years in the period ended December 31, 2015 , of First Financial Bancorp and our report dated February 23, 2016 expressed an unqualified opinion thereon.
.
Cincinnati, Ohio
 
February 23, 2016
Report Of Independent Registered Public Accounting Firm

Report On Consolidated Financial Statements
The Board of Directors and Shareholders of First Financial Bancorp
We have audited the accompanying consolidated balance sheets of First Financial Bancorp as of December 31, 2015 and 2014 , and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2015 . These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Financial Bancorp at December 31, 2015 and 2014 , and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015 , in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), First Financial Bancorp’s internal control over financial reporting as of December 31, 2015 , based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated  February 23, 2016 expressed an unqualified opinion thereon.
Cincinnati, Ohio
 
February 23, 2016

44 First Financial Bancorp 2015 Annual Report



Consolidated Balance Sheets
 
December 31,
(Dollars in thousands)
2015
 
2014
Assets
 
 
 
Cash and due from banks
$
114,841

 
$
110,122

Interest-bearing deposits with other banks
33,734

 
22,630

Investment securities available-for-sale, at market value (cost $1,203,065 at December 31, 2015 and $849,504 at December 31, 2014)
1,190,642

 
840,468

Investment securities held-to-maturity (market value $731,951 at December 31, 2015 and $874,749 at December 31, 2014)
726,259

 
867,996

Other investments
53,725

 
52,626

Loans held for sale
20,957

 
11,005

Loans and leases
 

 
 

Commercial and industrial
1,663,102

 
1,315,114

Lease financing
93,986

 
77,567

Real estate - construction
311,712

 
197,571

Real estate - commercial
2,258,297

 
2,140,667

Real estate - residential
512,311

 
501,894

Home equity
466,629

 
458,627

Installment
41,506

 
47,320

Credit card
41,217

 
38,475

Total loans and leases
5,388,760

 
4,777,235

Less:  Allowance for loan and lease losses
53,398

 
52,858

Net loans and leases
5,335,362

 
4,724,377

Premises and equipment
136,603

 
141,381

Goodwill and other intangibles
211,865

 
145,853

FDIC indemnification asset
17,630

 
22,666

Accrued interest and other assets
305,793

 
278,697

Total assets
$
8,147,411

 
$
7,217,821

 
 
 
 
Liabilities
 

 
 

Deposits
 

 
 

Interest-bearing demand
$
1,414,291

 
$
1,225,378

Savings
1,945,805

 
1,889,473

Time
1,406,124

 
1,255,364

Total interest-bearing deposits
4,766,220

 
4,370,215

Noninterest-bearing
1,413,404

 
1,285,527

Total deposits
6,179,624

 
5,655,742

Federal funds purchased and securities sold under agreements to repurchase
89,325

 
103,192

Federal Home Loan Bank short-term borrowings
849,100

 
558,200

      Total short-term borrowings
938,425

 
661,392

Long-term debt
119,540

 
48,241

Total borrowed funds
1,057,965

 
709,633

Accrued interest and other liabilities
100,446

 
68,369

Total liabilities
7,338,035

 
6,433,744

 
 
 
 
Shareholders' equity
 

 
 

Common stock - no par value
 

 
 

Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2015 and 2014
571,155

 
574,643

Retained earnings
388,240

 
352,893

Accumulated other comprehensive loss
(30,580
)
 
(21,409
)
Treasury stock, at cost, 7,089,051 shares in 2015 and 7,274,184 shares in 2014
(119,439
)
 
(122,050
)
Total shareholders' equity
809,376

 
784,077

Total liabilities and shareholders' equity
$
8,147,411

 
$
7,217,821


See Notes to Consolidated Financial Statements.


First Financial Bancorp 2015 Annual Report 45

Consolidated Statements of Income
 
Years ended December 31,
(Dollars in thousands except per share data)
2015
 
2014
 
2013
Interest income
 
 
 
 
 
Loans, including fees
$
230,246

 
$
208,836

 
$
216,306

Investment securities
 

 
 
 
 

Taxable
39,577

 
40,924

 
34,147

Tax-exempt
4,611

 
3,560

 
2,400

Total investment securities interest
44,188

 
44,484

 
36,547

Other earning assets
(4,675
)
 
(5,461
)
 
(7,645
)
Total interest income
269,759

 
247,859

 
245,208

Interest expense
 

 
 

 
 
Deposits
19,474

 
16,153

 
13,247

Short-term borrowings
1,364

 
1,268

 
1,177

Long-term borrowings
2,419

 
1,813

 
2,464

Total interest expense
23,257

 
19,234

 
16,888

Net interest income
246,502

 
228,625

 
228,320

Provision for loan and lease losses
9,641

 
1,528

 
8,909

Net interest income after provision for loan and lease losses
236,861

 
227,097

 
219,411

 
 
 
 
 
 
Noninterest income
 

 
 

 
 
Service charges on deposit accounts
19,015

 
20,274

 
20,595

Trust and wealth management fees
13,128

 
13,634

 
14,319

Bankcard income
11,578

 
10,740

 
10,914

Client derivative fees
4,389

 
1,519

 
2,037

Net gains from sales of loans
6,471

 
4,364

 
3,150

Gains on sales of investment securities
1,505

 
70

 
1,724

FDIC loss sharing income
(2,487
)
 
365

 
3,720

Accelerated discount on covered/formerly covered loans
10,791

 
4,184

 
7,153

Other
10,812

 
8,815

 
10,035

Total noninterest income
75,202

 
63,965

 
73,647

 
 
 
 
 
 
Noninterest expenses
 

 
 

 
 
Salaries and employee benefits
111,792

 
107,702

 
101,402

Pension settlement charges
0

 
0

 
6,174

Net occupancy
18,232

 
19,187

 
21,207

Furniture and equipment
8,722

 
8,554

 
8,970

Data processing
10,863

 
12,963

 
10,229

Marketing
3,723

 
3,603

 
4,270

Communication
2,161

 
2,277

 
3,207

Professional services
9,622

 
6,170

 
6,876

State intangible tax
2,331

 
2,111

 
3,929

FDIC assessments
4,446

 
4,462

 
4,501

Loss (gain) - other real estate owned
1,861

 
862

 
31

Loss sharing expense
1,865

 
4,686

 
7,083

FDIC indemnification impairment
0

 
0

 
22,417

Other
25,512

 
23,457

 
25,179

Total noninterest expenses
201,130

 
196,034

 
225,475

Income before income taxes
110,933

 
95,028

 
67,583

Income tax expense
35,870

 
30,028

 
19,234

Net income
$
75,063

 
$
65,000

 
$
48,349

 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
Basic
$
1.23

 
$
1.11

 
$
0.84

Diluted
$
1.21

 
$
1.09

 
$
0.83

Average common shares outstanding-basic
61,062,657

 
58,662,836

 
57,270,233

Average common shares outstanding-diluted
61,847,547

 
59,392,667

 
58,073,054


See Notes to Consolidated Financial Statements.

46 First Financial Bancorp 2015 Annual Report

Consolidated Statements of Comprehensive Income

 
Years ended December 31,
(Dollars in thousands)
2015
 
2014
 
2013
Net income
$
75,063

 
$
65,000

 
$
48,349

Other comprehensive income, net of tax:
 
 
 
 
 
Unrealized gains (losses) on investment securities arising during the period
(2,427
)
 
13,783

 
(29,091
)
Change in retirement obligation
(6,144
)
 
(2,339
)
 
15,773

Unrealized gain (loss) on derivatives
(650
)
 
(1,551
)
 
745

Unrealized gain (loss) on foreign currency exchange
50

 
(21
)
 
(31
)
Other comprehensive income (loss)
(9,171
)
 
9,872

 
(12,604
)
Comprehensive income
$
65,892

 
$
74,872

 
$
35,745


See Notes to Consolidated Financial Statements.



First Financial Bancorp 2015 Annual Report 47

Consolidated Statements of Changes in Shareholders' Equity
        
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Common
 
Common
 
 
 
other
 
 
 
 
 
stock
 
stock
 
Retained
 
comprehensive
 
Treasury stock
 
 
(Dollars in thousands, except share amounts)
shares
 
amount
 
earnings
 
income (loss)
 
Shares
 
Amount
 
Total
Balances at January 1, 2013
68,730,731

 
$
579,293

 
$
330,004

 
$
(18,677
)
 
(10,684,496
)
 
$
(180,195
)
 
$
710,425

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 

 
 

 
48,349

 
 

 
 

 
 

 
48,349

Other comprehensive income (loss)
 

 
 

 
 

 
(12,604
)
 
 

 
 

 
(12,604
)
Cash dividends declared:
 

 
 

 
 

 
 

 
 

 
 

 
 
Common stock at $0.94 per share
 

 
 

 
(54,161
)
 
 

 
 

 
 

 
(54,161
)
Purchase of common stock
 
 
 
 
 
 
 
 
(750,145
)
 
(11,778
)
 
(11,778
)
Excess tax benefit on share-based compensation
 

 
686

 
 

 
 

 
 

 
 

 
686

Exercise of stock options, net of shares purchased
 
 
(3,271
)
 
 
 
 
 
121,597

 
2,041

 
(1,230
)
Restricted stock awards, net of forfeitures
 

 
(3,435
)
 
 

 
 

 
115,359

 
2,106

 
(1,329
)
Share-based compensation expense
 

 
3,803

 
 

 
 

 
 

 
 

 
3,803

Balances at December 31, 2013
68,730,731

 
577,076

 
324,192

 
(31,281
)
 
(11,197,685
)
 
(187,826
)
 
682,161

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
65,000

 
 
 
 
 
 
 
65,000

Other comprehensive income (loss)
 
 
 
 
 
 
9,872

 
 
 
 
 
9,872

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock at $0.61 per share
 
 
 
 
(36,299
)
 
 
 
 
 
 
 
(36,299
)
Purchase of common stock
 
 
 
 
 
 
 
 
(40,255
)
 
(697
)
 
(697
)
Common stock issued in connection with business combinations
 
 
(946
)
 
 
 
 
 
3,657.937

 
61,375

 
60,429

Excess tax benefit on share-based compensation
 
 
153

 
 
 
 
 
 
 
 
 
153

Exercise of stock options, net of shares purchased
 
 
(1,337
)
 
 
 
 
 
120,441

 
2,018

 
681

Restricted stock awards, net of forfeitures
 
 
(4,273
)
 
 
 
 
 
185,378

 
3,080

 
(1,193
)
Share-based compensation expense
 
 
3,970

 
 
 
 
 
 
 
 
 
3,970

Balances at December 31, 2014
68,730,731

 
574,643

 
352,893

 
(21,409
)
 
(7,274,184
)
 
(122,050
)
 
784,077

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjustment for accounting changes:
 
 
 
 
 
 
 
 
 
 
 
 
 
FASB ASU 2014-01 adjustment
 
 
 
 
(306
)
 
 
 
 
 
 
 
(306
)
Net income
 
 
 
 
75,063

 
 
 
 
 
 
 
75,063

Other comprehensive income (loss)
 
 
 
 
 
 
(9,171
)
 
 
 
 
 
(9,171
)
Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock at $0.64 per share
 
 
 
 
(39,410
)
 
 
 
 
 
 
 
(39,410
)
Purchase of common stock
 
 
 
 
 
 
 
 
(239,967
)
 
(4,498
)
 
(4,498
)
Warrant Exercises
 
 
(975
)
 
 
 
 
 
58,812

 
988

 
13

Excess tax benefit on share-based compensation
 
 
146

 
 
 
 
 
 
 
 
 
146

Exercise of stock options, net of shares purchased
 
 
(367
)
 
 
 
 
 
62,261

 
1,046

 
679

Restricted stock awards, net of forfeitures
 
 
(6,341
)
 
 
 
 
 
304,027

 
5,075

 
(1,266
)
Share-based compensation expense
 
 
4,049

 
 
 
 
 
 
 
 
 
4,049

Balances at December 31, 2015
68,730,731

 
$
571,155

 
$
388,240

 
$
(30,580
)
 
(7,089,051
)
 
$
(119,439
)
 
$
809,376


See Notes to Consolidated Financial Statements.

48 First Financial Bancorp 2015 Annual Report

Consolidated Statements of Cash Flows
 
Year ended December 31,
(Dollars in thousands)
2015
 
2014
 
2013
Operating activities
 
 
 
 
 
Net income
$
75,063

 
$
65,000

 
$
48,349

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 
 
 
Provision for loan and lease losses
9,641

 
1,528

 
8,909

Depreciation and amortization
13,266

 
12,785

 
14,270

Stock-based compensation expense
4,049

 
3,970

 
3,803

Pension expense (income)
(1,042
)
 
(1,137
)
 
5,496

Net amortization of premiums/accretion of discounts on investment securities
7,899

 
7,379

 
13,088

Gains on sales of investments securities
(1,505
)
 
(70
)
 
(1,724
)
Originations of loans held for sale
(246,845
)
 
(145,377
)
 
(152,324
)
Net gains from sales of loans held for sale
(6,471
)
 
(4,364
)
 
(3,150
)
Proceeds from sales of loans held for sale
242,029

 
144,803

 
158,853

Deferred income taxes
4,192

 
(22,405
)
 
(25,328
)
Decrease (increase) in interest receivable
(995
)
 
(1,903
)
 
(1,181
)
Decrease (increase) in cash surrender value of life insurance
(5,379
)
 
(4,255
)
 
(4,187
)
Decrease (increase) in prepaid expenses
(211
)
 
(11,174
)
 
495

Decrease (increase) in indemnification asset
5,036

 
22,425

 
74,516

(Decrease) increase in accrued expenses
(2,729
)
 
(7,748
)
 
(1,536
)
(Decrease) increase in interest payable
2,296

 
30

 
(350
)
Other
(6,727
)
 
(2,833
)
 
26,355

Net cash provided by (used in) operating activities
91,567

 
56,654

 
164,354

 
 
 
 
 
 
Investing activities
 

 
 

 
 

Proceeds from sales of investment securities available-for-sale
70,219

 
166,356

 
92,684

Proceeds from calls, paydowns and maturities of securities available-for-sale
120,953

 
101,420

 
186,820

Purchases of securities available-for-sale
(547,901
)
 
(147,854
)
 
(214,398
)
Proceeds from calls, paydowns and maturities of securities held-to-maturity
140,059

 
105,623

 
157,647

Purchases of securities held-to-maturity
(3,520
)
 
(140,426
)
 
(233,111
)
Net decrease (increase) in interest-bearing deposits with other banks
(11,104
)
 
3,200

 
(1,489
)
Net decrease (increase) in loans and leases
(390,312
)
 
(226,558
)
 
(108,417
)
Proceeds from disposal of other real estate owned
15,817

 
30,570

 
27,319

Purchases of premises and equipment
(7,467
)
 
(10,609
)
 
(7,295
)
Net cash (paid) acquired from business combinations
(305,591
)
 
34,300

 
0

Net cash provided by (used in) investing activities
(918,847
)
 
(83,978
)
 
(100,240
)
 
 
 
 
 
 
Financing activities
 

 
 

 
 

Net (decrease) increase in total deposits
523,882

 
249,630

 
(118,333
)
Net (decrease) increase in short-term borrowings
277,033

 
(162,248
)
 
124,179

Payments on long-term borrowings
(46,238
)
 
(33,220
)
 
(14,394
)
Proceeds from issuance of long-term debt
120,000

 
0

 
0

Cash dividends paid on common stock
(39,070
)
 
(34,848
)
 
(61,429
)
Purchases of treasury stock
(4,498
)
 
(697
)
 
(11,778
)
Proceeds from exercise of stock options
744

 
1,056

 
73

Excess tax benefit on share-based compensation
146

 
153

 
686

Net cash provided by (used in) financing activities
831,999

 
19,826

 
(80,996
)
 
 
 
 
 
 
Cash and Due from Banks
 

 
 

 
 

Net increase (decrease) in Cash and Due from Banks
4,719

 
(7,498
)
 
(16,882
)
Cash and Due from Banks at beginning of year
110,122

 
117,620

 
134,502

Cash and Due from Banks at end of year
$
114,841

 
$
110,122

 
$
117,620



First Financial Bancorp 2015 Annual Report 49


Consolidated Statements of Cash Flows (continued)

Supplemental disclosures
 
 
 
 
 
Interest paid
$
20,961

 
$
18,154

 
$
17,238

Income taxes paid
$
31,193

 
$
61,180

 
$
36,312

Acquisition of other real estate owned through foreclosure
$
8,398

 
$
10,537

 
$
37,700

Issuance of restricted stock awards
$
7,760

 
$
4,601

 
$
4,730

Common stock issued in bank acquisitions
$
0

 
$
60,429

 
$
0



See Notes to Consolidated Financial Statements.


50 First Financial Bancorp 2015 Annual Report

Notes To Consolidated Financial Statements

1. Summary Of Significant Accounting Policies

Basis of presentation. The Consolidated Financial Statements of First Financial Bancorp. (First Financial or the Company), 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. (First Financial Bank or the Bank). All significant intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications of prior years' amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.
   
Use of estimates. The preparation of Consolidated Financial Statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make estimates, assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. Actual realized amounts could differ materially from those estimates.
 
Investment securities. First Financial classifies debt and equity securities into three categories: held-to-maturity, trading and available-for-sale. Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as appropriate.

Investment securities are classified as held-to-maturity when First Financial has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded at amortized cost.
 
Investment securities classified as trading are held principally for resale in the near term and are recorded at fair value. Gains or losses, either unrealized or realized, are reported in noninterest income. Quoted market prices are used to determine the fair value of trading securities.
 
Investment securities not classified as either held-to-maturity or trading are classified as available-for-sale. Available-for-sale securities are recorded at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.
 
The amortized cost of investment securities classified as either held-to-maturity or available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion are considered an adjustment to the yield on the security and included in interest income from investments. Interest and dividends are included in interest income from investment securities.
 
Realized gains and losses are based on the amortized cost of the security sold using the specific identification method. Available-for-sale and held-to-maturity securities are reviewed quarterly for potential impairment. In performing this review, management considers the length of time and extent to which the fair value of the security has been less than amortized cost, the financial condition and near-term prospects of the issuer and the ability and intent of First Financial to hold the security for a period sufficient to allow for any anticipated recovery in fair value. If the fair value of a security is less than the amortized cost and the impairment is determined to be other-than-temporary, the security is written down, establishing a new and reduced cost basis. The related charge is recorded in the Consolidated Statements of Income.
 
Other investments include holdings in Federal Reserve Bank (FRB) stock and Federal Home Loan Bank (FHLB) stock. FRB and FHLB stock are both carried at cost.

Loans held for sale. Loans held for sale consists of residential real estate loans newly originated for the purpose of sale to third parties, and in certain circumstances, loans previously originated that have been specifically identified by management for sale based on predetermined criteria. Loans originated for sale are immediately classified as held for sale upon origination and are considered to be at fair market value due to the commitment to sell in a short timeframe. Loans transferred to held for sale status are carried at the lower of cost or fair value with any difference charged to the allowance for loan and lease losses. Any subsequent change in the carrying value of transferred loans, not to exceed original cost, is recorded in the Consolidated Statements of Income.

Loans and leases, excluding purchased impaired loans. Loans and leases for which First Financial has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Consolidated Balance Sheets as loans and leases. Except for loans which are subject to fair value requirements, loans and leases are carried at the principal amount

First Financial Bancorp 2015 Annual Report 51
Notes To Consolidated Financial Statements

outstanding, net of unamortized deferred loan origination fees and costs, and net of unearned income. Loan origination and commitment fees received, as well as certain direct loan origination costs paid, are deferred, and the net amount is amortized as an adjustment to the related loan's yield. Interest income is recorded on an accrual basis. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued, but unpaid interest is reversed. Any payments received while a loan is classified as nonaccrual are applied as a reduction to the carrying value of the loan. A loan may return to accrual status if collection of future principal and interest payments is no longer doubtful.
 
Acquired loans. Acquired loans are recorded at their estimated fair value at the time of acquisition. Estimated fair values for acquired loans are based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, interest rate, term of loan, whether or not the loan was amortizing and a discount rate reflecting the Company's assessment of risk inherent in the cash flow estimates. Acquired loans are grouped together according to similar characteristics and treated in the aggregate when applying various valuation techniques. Certain loans acquired in FDIC-assisted transactions were initially covered under loss sharing agreements and are referred to as covered loans during the indemnification period. Subsequent to the indemnification period, they are referred to as formerly covered loans.
 
First Financial evaluates acquired loans for impairment in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Acquired loans with evidence of credit deterioration since origination are accounted for under FASB ASC Topic 310-30 and are referred to as purchased impaired loans. 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.
 
For purposes of applying the guidance under FASB ASC Topic 310-30, First Financial groups acquired loans into pools based on common risk characteristics. Expected cash flows are re-estimated periodically for all purchased impaired loans. The cash flows expected to be collected are estimated based upon the expected remaining life of the underlying loans, which includes the effects of estimated prepayments. Generally, a decline in expected cash flows for a pool of loans is referred to as impairment and recorded as provision expense on a discounted basis during the period (see "Allowance for loan and lease losses" below). Improvement in expected cash flows for a pool of loans, once any previously recorded impairment is recaptured, is recognized prospectively as an adjustment to the yield on the loans in the pool. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change.

For acquired loans that prepay, noninterest income may be recorded related to the accelerated recognition of the remaining purchase discount that would have been recognized over the life of the loan had it not prepaid, offset by a related adjustment to the FDIC indemnification asset if the loan is still covered under FDIC loss sharing protection. This scenario can occur either through a loan sale or ordinary prepayments that are typical in a loan portfolio.
 
Acquired loans outside the scope of FASB ASC Topic 310-30 are accounted for under FASB ASC Topic 310-20, Receivables-Nonrefundable Fees and Costs. Discounts created when the loans were recorded at their estimated fair values at acquisition are amortized over the remaining term of the loan as an adjustment to the related loan's yield. The accrual of interest income is discontinued when the collection of a loan or interest, in whole or in part, is doubtful.

Allowance for loan and lease losses. For each reporting period, management maintains the ALLL at a level that it considers sufficient to absorb probable loan and lease losses inherent in the portfolio. Management determines the adequacy of the ALLL based on historical loss experience as well as other significant factors such as composition of the portfolio, economic conditions, geographic footprint, the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans and any other adverse situations that may affect a specific borrower's ability to repay (including the timing of future payments). This evaluation is inherently subjective as it requires utilizing material estimates that may be susceptible to significant change.
 
Management's determination of the adequacy of the ALLL is based on an assessment of the probable loan and lease losses inherent in the portfolio given the conditions at the time. The ALLL is generally increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged off when management believes that the collection of the principal amount owed in full, either through payments from the borrower or from the liquidation of collateral, is unlikely.
 
In the commercial portfolio, which includes time and demand notes, tax-exempt loans, C&I, construction, commercial real estate, mezzanine loans, and lease financing, loan and lease relationships greater than $250,000 that are considered impaired, or designated as a TDR, are evaluated to determine the need for a specific allowance based on the borrower's overall financial condition, resources, payment record, guarantor support and the realizable value of any collateral.


52 First Financial Bancorp 2015 Annual Report

The allowance for non-impaired commercial loan and lease and impaired commercial loan and lease relationships less than $250,000 includes a process of estimating the probable losses inherent in the portfolio by loan type, based on First Financial's internal system of credit risk ratings and historical loss data. These estimates may also be adjusted for management's estimate of probable losses dependent upon trends in the values of the underlying collateral, delinquent and nonaccrual loans, prevailing economic conditions, changes in lending strategies and other influencing factors.
 
Consumer loans are generally evaluated by loan type, as these loans exhibit homogeneous characteristics. The allowance for consumer loans, which includes residential real estate, installment, home equity, credit card loans and overdrafts, is established by estimating losses inherent in each particular category of consumer loans. The estimate of losses is primarily based on historical loss rates for each category, as well as trends in delinquent and nonaccrual loans, prevailing economic conditions and other significant influencing factors. Consumer loans greater than $100,000 classified as TDRs are individually evaluated to determine an appropriate allowance.
 
For purchased impaired loans, expected cash flows are re-estimated periodically with declines in gross expected cash flows at the pool level recorded as provision expense during the period. These cash flow evaluations are inherently subjective as they require material estimates, all of which may be susceptible to significant change. The related, estimated reimbursement for loan losses due from the FDIC under loss sharing agreements, if applicable, is recorded as both FDIC loss sharing income and an increase to the FDIC indemnification asset.

Reserve for unfunded commitments . First Financial maintains a reserve that it considers sufficient to absorb probable losses inherent in standby letters of credit and outstanding loan commitments and is included in Accrued interest and other liabilities on the Consolidated Balance Sheets. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including consideration of historical commitment utilization experience, credit risk rating and historical loss rates, consistent with the allowance for loan and lease losses methodology previously discussed. Adjustments to the reserve for unfunded commitments are included in Other noninterest expense in the Consolidated Statements of Income.
 
FDIC indemnification asset. The FDIC indemnification asset results from the loss sharing agreements entered into in conjunction with First Financial's FDIC-assisted transactions, and is measured separately from the related assets covered by loss sharing agreements with the FDIC as it is not contractually embedded in those assets and is not transferable should First Financial choose to dispose of the covered assets. The FDIC indemnification asset represents expected reimbursements from the FDIC for losses on covered assets. Pursuant to the terms of the loss sharing agreements, covered assets are subject to stated loss thresholds whereby the FDIC will reimburse First Financial for 80% of losses up to the stated loss thresholds, and 95% of losses in excess of the thresholds. The FDIC indemnification asset was recorded at its estimated fair value at the time of the FDIC-assisted transactions. Fair values were estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These cash flows were discounted to reflect the uncertainty of the timing of the loss sharing reimbursement from the FDIC.
 
The accounting for the FDIC indemnification asset is closely related to the accounting for the underlying, indemnified assets as well as on-going assessment of the collectibility of the assets. First Financial re-estimates the expected indemnification asset cash flows in conjunction with the periodic re-estimation of cash flows on covered loans accounted for under FASB ASC Topic 310-30. Improvements in cash flow expectations on covered loans generally result in a related decline in the expected indemnification cash flows and are reflected as a yield adjustment on the indemnification asset. Declines in cash flow expectations on covered loans generally result in an increase in expected indemnification cash flows and are reflected as both FDIC loss sharing income and an increase to the indemnification asset. First Financial performs a collectibility assessment which includes evaluation of claims activity with the FDIC, adjustments to the indemnification asset from the accelerated discount on covered loans, the yield on the indemnification asset in relation to the yield on the underlying covered loans and the remaining term of the loss sharing agreements. Changes in the assessed collectibility of the indemnification asset, if any, are recognized as FDIC indemnification impairment in Noninterest expenses in the Consolidated Statements of Income.
 
Premises and equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are principally computed on the straight-line method over the estimated useful lives of the assets. Useful lives generally range from 10 to 40 years for building and building improvements; 3 to 10 years for furniture, fixtures and equipment; and 3 to 5 years for software, hardware and data handling equipment. Land improvements are depreciated over 20 years and leasehold improvements are depreciated over the lesser of the base term of the respective lease or the useful life of the asset. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Maintenance and repairs are charged to operations as incurred.
 

First Financial Bancorp 2015 Annual Report 53
Notes To Consolidated Financial Statements

Goodwill and other indefinite lived intangible assets. Under accounting for business combinations, the net assets of entities acquired by First Financial are recorded at their estimated fair value at the date of acquisition. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. Goodwill and intangible assets deemed to have indefinite lives, if any, are not amortized, but are subject to annual impairment tests. The Company is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. First Financial performs its annual impairment test effective October 1, absent events or changes in circumstances that indicate the carrying value of goodwill may not be recoverable.

The Company’s goodwill is accounted for in a single reporting unit representing the consolidated entity. Fair value is estimated using the market capitalization of the Company, as of the annual impairment testing date. First Financial also utilizes additional information and analysis to corroborate the use of the Company’s market capitalization as a proper indicator of fair value for purposes of the annual goodwill impairment test.

Core deposit intangibles. Core deposit intangibles represent the estimated value of acquired relationships with deposit customers. The estimated fair value of core deposit intangibles are based on a discounted cash flow methodology that gives appropriate consideration to expected customer attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits. Core deposit intangibles are amortized on an accelerated basis over their useful lives.
 
Other real estate owned. OREO represents properties acquired by the Company primarily through the loan foreclosure or repossession process, or other resolution activity that results in partial or total satisfaction of problem loans. OREO properties are recorded at the lower of cost or fair value, less estimated disposal costs (net realizable value) upon acquisition. Losses arising at the time of acquisition of such properties are charged against the ALLL. Management performs periodic valuations to assess the adequacy of the recorded OREO balances and subsequent write-downs in the carrying value of OREO properties are expensed as incurred. Improvements to OREO properties may be capitalized if the improvements contribute to the overall value of the property, but may not be capitalized in excess of the net realizable value of the property. When management disposes of an OREO property, any gains or losses realized at the time of disposal are reflected in the Consolidated Statements of Income.
 
Certain OREO properties are subject to loss sharing agreements whereby the FDIC will reimburse First Financial for 80% of losses up to the stated loss thresholds, and 95% of losses in excess of the thresholds. When management disposes of an OREO property subject to loss sharing agreements, any gains or losses realized at the time of disposal are reflected in the Consolidated Statements of Income and are substantially offset by a related adjustment to the FDIC indemnification asset.

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. Investments in affordable housing projects are included in Accrued income and other assets in the Consolidated Balance Sheets.
 
Income taxes. First Financial and its subsidiaries file a consolidated federal income tax return. Each subsidiary provides for income taxes on a separate return basis, and remits to First Financial amounts determined to be currently payable. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Interest and penalties on income tax assessments or income tax refunds are recognized in the Consolidated Financial Statements as a component of noninterest expense.
 
Pension. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. The measurement of the accrued benefit liability and the annual pension expense involves actuarial and economic assumptions. The assumptions used in pension accounting include those related to the discount rates, the expected return on plan assets and the rate of compensation increase.
 
Derivative instruments. First Financial accounts for its derivative financial instruments in accordance with FASB ASC Topic 815, Derivatives and Hedging. FASB ASC Topic 815 requires all derivative instruments to be carried at fair value on the balance sheet.


54 First Financial Bancorp 2015 Annual Report

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.  Derivatives used to hedge the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.  Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

First Financial utilizes interest rate swaps designated as fair value hedges as a means to offer commercial borrowers products that meet their needs, but are also designed to achieve First Financial’s desired interest rate risk profile.  First Financial utilizes interest rate swaps designated as cash flow hedges to manage the variability of cash flows, primarily net interest income, attributable to changes in interest rates.

Back to back swaps - First Financial enters into swap agreements with commercial borrowers and simultaneously enters into offsetting swap agreements, with substantially matching terms, with institutional counterparties. These matched interest rate swap agreements generally involve the receipt by First Financial of floating rate amounts from the counterparties in exchange for payments to these counterparties by First Financial of fixed rate amounts received from commercial borrowers over the life of the agreements.  This results in First Financial’s loan customers receiving fixed rate funding, while providing First Financial with a floating rate asset.

First Financial's matched interest rate swaps qualify as derivatives, but are not designated as hedging instruments. The net interest receivable or payable on matched interest rate swaps is accrued and recognized as an adjustment to interest income.  The fair values of back to back swaps are included within Accrued interest and other assets and Accrued interest and other liabilities on the Consolidated Balance Sheets.

Pay fixed interest rate swaps - For unmatched, pay fixed interest rate swaps, which qualify for hedge accounting, the corresponding fair-value adjustment is included on the Consolidated Balance Sheets in the carrying value of the hedged item. The net interest receivable or payable on unmatched interest rate swaps is accrued and recognized as an adjustment to the interest income of the hedged item.  Gains and losses from derivatives not considered effective in hedging the change in fair value of the hedged item, if any, are recognized in income immediately.

Cash flow hedges - The net interest receivable or payable on an interest rate swap designated as a cash flow hedge is accrued and recognized as an adjustment to interest income or interest expense, while the fair value is included within Accrued interest and other assets or Accrued interest and other liabilities on the Consolidated Balance Sheets. Changes in the fair value of interest rate swaps designated as cash flow hedges are included in accumulated other comprehensive income (loss). Gains and losses from derivatives not considered effective in hedging the cash flows related to the hedged items, if any, are recognized in income immediately.

Credit derivatives - In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty. The fair value of these agreements were recorded on the Consolidated Balance Sheets in Accrued interest and other liabilities.

Mortgage derivatives - First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure an IRLC with First Financial and the loan is intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and and Loans held for sale. The fair value of these agreements was recorded on the Consolidated Balance Sheets in Accrued interest and other assets.

Like other financial instruments, derivatives contain an element of credit risk, which is the possibility that First Financial will incur a loss because a counterparty fails to meet its contractual obligations. Generally, the credit risk associated with interest rate swaps is significantly less than the notional values associated with these instruments. The notional values represent contractual balances on which the calculations of amounts to be exchanged are based. First Financial manages this credit risk through counterparty credit policies.
 
Stock-based compensation. First Financial grants stock-based awards, including restricted stock awards for and options to purchase the Company’s common stock. Stock option grants are for a fixed number of shares to employees and directors with an exercise price equal to the fair value of the shares at the date of grant. Stock-based compensation expense is recognized in the Consolidated Statements of Income on a straight-line basis over the vesting period. The amortization of stock-based compensation expense reflects estimated forfeitures, adjusted for actual forfeiture experience. As compensation expense is

First Financial Bancorp 2015 Annual Report 55
Notes To Consolidated Financial Statements

recognized, a deferred tax asset is recorded that represents an estimate of the future tax deduction from exercise. At the time stock-based awards are exercised, canceled or expire, First Financial may be required to recognize an adjustment to tax expense.
 
Earnings per share. Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted net earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding, unvested shares and dilutive common stock equivalents outstanding during the period. Common stock equivalents, which consist of common stock issuable under the assumed exercise of stock options granted under First Financial's stock-based compensation plans and the assumed conversion of common stock warrants, are calculated using the treasury stock method.
 
Cash and due from banks. Cash and due from banks consist of currency, coin and cash items due from banks. Cash items due from banks include noninterest bearing deposits held at other banks.
 
Segments and related information. While the Company monitors the operating results of its four lines of business, the operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, and consistent with prior years, all of the Company's operations are considered by management to be aggregated in one reportable operating segment.

2. Recently Adopted and Issued Accounting Standards

In January 2014, the FASB issued an update (ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects) that permits First Financial to make an accounting policy election to account for its investments in qualified
affordable housing projects using a proportional amortization method if certain conditions are met. Under the proportional
amortization method, First Financial would amortize the initial cost of the investment in proportion to the tax credits and other
tax benefits received and recognize the net investment performance in the income statement as a component of income tax
expense. The amended guidance requires disclosure of the nature of First Financial’s investments in qualified affordable
housing projects, and the effect of the measurement of the investments in qualified affordable housing projects and the related
tax credits on First Financial’s financial position and results of operation. The provisions of this update became effective for the interim reporting period ended March 31, 2015. First Financial made the election to adopt the proportional amortization method during the first quarter 2015. This update did not have a material impact on the Company's Consolidated Financial Statements.

In January 2014, the FASB issued an update (ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure) which clarifies when an in substance repossession or foreclosure occurs, that is, when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan receivable should be de-recognized and the real estate property recognized . The provisions of this update became effective for the interim reporting period ended March 31, 2015. This update did not have a material impact on the Company's Consolidated Financial Statements.

In April 2014, the FASB issued an update (ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity) which redefines what constitutes a discontinued operation. Under the revised standard, a discontinued operation is a component of an entity or group of components that has been disposed of by sale, disposed of other than by sale or is classified as held for sale, that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results, or an acquired business or nonprofit activity that is classified as held for sale on the date of the acquisition. A strategic shift that has or will have a major effect on an entity’s operations and financial results could include the disposal of a major line of business, a major geographic area, a major equity method investment or other major parts of an entity. The new guidance eliminates the criteria prohibiting an entity from reporting a discontinued operation if it has certain continuing cash flows or involvement with the component after the disposal and requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation. The provisions of this update became effective for the interim reporting period ended March 31, 2015. This update did not have a material impact on the Company's Consolidated Financial Statements.

In May 2014, the FASB issued an update (ASU 2014-09, Revenue from Contracts with Customers) which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under the revised standard, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which

56 First Financial Bancorp 2015 Annual Report

the entity expects to be entitled in exchange for those goods or services. The ASU applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. Certain of the ASU’s provisions also apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities, such as sales of property, plant, and equipment; real estate; or intangible assets. The ASU also requires significantly expanded disclosures about revenue recognition. The provisions of ASU 2014-09 become effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning January 1, 2017. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.

In June 2014, the FASB issued an update (ASU 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures) that requires repurchase-to-maturity transactions to be accounted for as secured borrowings rather than as sales with a forward repurchase commitment and eliminates current guidance on repurchase financings. The ASU requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty. If the derecognition criteria are met, the initial transfer will generally be accounted for as a sale and the repurchase agreement will generally be accounted for as a secured borrowing. The ASU requires new disclosures for repurchase agreements, securities lending transactions and repurchase-to-maturity transactions that are accounted for as secured borrowings. The ASU also requires new disclosures for transfers of financial assets that are accounted for as sales that involve an agreement with the transferee entered into in contemplation of the initial transfer that result in the transferor retaining substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The provisions of this update became effective for the interim reporting period ended March 31, 2015. This update did not have a material impact on the Company's Consolidated Financial Statements.

In August 2014, the FASB issued an update (ASU 2014-14, Receivables - Troubled Debt Restructurings by Creditors: Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure) that requires a mortgage loan be derecognized and a separate other receivable be recognized upon foreclosure if the following conditions are met: a) the loan has a government guarantee that is not separable from the loan before foreclosure, b) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim and c) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The provisions of this update became effective for the interim reporting period ended March 31, 2015. This update did not have a material impact on the Company's Consolidated Financial Statements.
 
In August 2014, the FASB issued an update (ASU 2014-15, Presentation of Financial Statements-Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern) that requires management perform a going concern evaluation similar to the auditor’s evaluation required by standards issued by the PCAOB and the AICPA. The ASU requires management to evaluate relevant conditions, events and certain management plans that are known or reasonably knowable as of the evaluation date when determining whether substantial doubt about an entity’s ability to continue as a going concern exists for both annual and interim reporting periods. If management concludes that substantial doubt about an entity’s ability to continue as a going concern, the notes to the financial statements are required to include a statement that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The provisions of this update become effective for interim and annual periods ending after December 15, 2016. Early adoption is permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

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 are effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. First Financial adopted this accounting standard during the third quarter of 2015 and recorded $1.7 million of deferred debt issuance costs as a reduction to long-term debt in the Consolidated Balance Sheets as of December 31, 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. The amount of unamortized debt issuance costs not reclassified was $0.1 million as of December 31, 2014.

In May 2015, the FASB issued an update (ASU 2015-07, Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share) which will eliminate the requirement to categorize investments whose fair values are measured at net asset value within the fair value hierarchy using the practical expedient. This update will require entities to disclose the fair values of such investments so that financial statement users can reconcile amounts reported in the fair value hierarchy table and the amounts reported on the balance sheet. The provisions of this update become effective for the

First Financial Bancorp 2015 Annual Report 57
Notes To Consolidated Financial Statements

interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

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 will require 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 is effective for interim and annual reporting periods beginning after December 15, 2015 with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

3. Restrictions On Cash And Dividends

First Financial Bank is required to maintain average reserve balances either in the form of vault cash or reserves held on deposit with the Federal Reserve Bank, Federal Home Loan Bank or in pass-through reserve accounts with correspondent banks. The average amounts of these required reserve balances, based upon the average level of First Financial's transaction accounts for 2015 and 2014 were approximately $56.5 million and $56.2 million , respectively.

Dividends paid by First Financial to its shareholders are principally funded through dividends paid to the Company by its subsidiaries. However, certain restrictions exist regarding the ability of bank subsidiaries to transfer funds to First Financial in the form of cash dividends, loans or advances. The approval of the subsidiaries' respective primary federal regulators is required for First Financial's subsidiaries to pay dividends in excess of the regulatory limit, which is equal to the net income of the current year through the dividend date, combined with its retained net income from the two preceding years. As of December 31, 2015 , First Financial's subsidiaries had retained earnings of $449.0 million of which $100.8 million was available for distribution to First Financial without prior regulatory approval.

4. Investment Securities

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
 
Unrealized
gain
 
Unrealized
loss
 
Market
value
 
Amortized
cost
 
Unrealized
gain
 
Unrealized
loss
 
Market
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

 
73,815

 
2,491

 
(671
)
 
75,635

Asset-backed securities
 
0

 
0

 
0

 
0

 
236,411

 
35

 
(3,445
)
 
233,001

Other securities
 
4,809

 
0

 
(121
)
 
4,688

 
109,273

 
687

 
(1,458
)
 
108,502

Total
 
$
726,259

 
$
7,911

 
$
(2,219
)
 
$
731,951

 
$
1,203,065

 
$
6,078

 
$
(18,501
)
 
$
1,190,642



58 First Financial Bancorp 2015 Annual Report

The following is a summary of held-to-maturity and available-for-sale investment securities as of December 31, 2014 :
   
 
Held-to-maturity
 
Available-for-sale
 
 
Amortized
 
Unrealized
 
Unrealized
 
Market
 
Amortized
 
Unrealized
 
Unrealized
 
Market
(Dollars in thousands)
 
cost
 
gain
 
loss
 
value
 
cost
 
gain
 
loss
 
value
U.S. Treasuries
 
$
0

 
$
0

 
$
0

 
$
0

 
$
97

 
$
0

 
$
0

 
$
97

Securities of U.S. government agencies and corporations
 
17,570

 
24

 
(23
)
 
17,571

 
11,814

 
67

 
(1
)
 
11,880

Mortgage-backed securities
 
801,465

 
7,813

 
(2,064
)
 
807,214

 
611,497

 
4,462

 
(13,211
)
 
602,748

Obligations of state and other political subdivisions
 
44,164

 
1,275

 
(193
)
 
45,246

 
73,649

 
883

 
(947
)
 
73,585

Asset-backed securities
 
0

 
0

 
0

 
0

 
74,784

 
155

 
(103
)
 
74,836

Other securities
 
4,797

 
0

 
(79
)
 
4,718

 
77,663

 
1,193

 
(1,534
)
 
77,322

Total
 
$
867,996

 
$
9,112

 
$
(2,359
)
 
$
874,749

 
$
849,504

 
$
6,760

 
$
(15,796
)
 
$
840,468


During the year ended December 31, 2015 , First Financial sold available-for-sale securities with a fair value of $68.7 million at the date of sale and recorded a $1.5 million net pre-tax gain. The net investment gain after taxes was $1.0 million for the year ended December 31, 2015 .

During the year ended December 31, 2014 , First Financial sold available-for-sale securities with a fair value of $166.3 million at the date of sale and recorded a $0.1 million net pre-tax gain. The net investment gain after taxes was $44 thousand for the year ended December 31, 2014 .

During the year ended December 31, 2013 , First Financial sold available-for-sale securities with a fair value of $91.0 million at the date of sale and recorded a $1.7 million net pre-tax gain. The net investment gain after taxes was $1.1 million for the year ended December 31, 2013 .

The carrying value of investment securities pledged as collateral to secure public deposits, repurchase agreements and for other purposes as required by law totaled $1.0 billion at December 31, 2015 and $1.1 billion at December 31, 2014 , respectively.

The following table provides a summary of investment securities by estimated weighted average life as of December 31, 2015 . Estimated lives on certain 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
 
Market
value
 
Amortized
cost
 
Market
value
Due in one year or less
$
4,061

 
$
4,148

 
$
21,724

 
$
21,652

Due after one year through five years
536,660

 
540,266

 
748,300

 
740,460

Due after five years through ten years
185,538

 
187,537

 
393,652

 
389,001

Due after ten years
0

 
0

 
39,389

 
39,529

Total
$
726,259

 
$
731,951

 
$
1,203,065

 
$
1,190,642


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 unrealized loss position:

First Financial Bancorp 2015 Annual Report 59
Notes To Consolidated Financial Statements

 
 
December 31, 2015
 
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in thousands)
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
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
 
972

 
(6
)
 
29,287

 
(764
)
 
30,259

 
(770
)
Asset-backed securities
 
189,066

 
(3,042
)
 
17,144

 
(403
)
 
206,210

 
(3,445
)
Other securities
 
35,656

 
(651
)
 
24,716

 
(928
)
 
60,372

 
(1,579
)
Total
 
$
726,559

 
$
(9,062
)
 
$
317,670

 
$
(11,658
)
 
$
1,044,229

 
$
(20,720
)

 
 
December 31, 2014
 
 
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
 
$
493

 
$
(1
)
 
$
97

 
$
0

 
$
590

 
$
(1
)
Mortgage-backed securities
 
119,641

 
(420
)
 
428,486

 
(13,780
)
 
548,127

 
(14,200
)
Obligations of state and other political subdivisions
 
12,746

 
(126
)
 
37,516

 
(1,014
)
 
50,262

 
(1,140
)
Asset-backed securities
 
32,045

 
(103
)
 
0

 
0

 
32,045

 
(103
)
Other securities
 
12,831

 
(317
)
 
30,005

 
(1,296
)
 
42,836

 
(1,613
)
Total
 
$
177,756

 
$
(967
)
 
$
496,104

 
$
(16,090
)
 
$
673,860

 
$
(17,057
)

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 December 31, 2015 or 2014 .

For further detail on the fair value of investment securities, see Note 19 – Fair Value Disclosures.


60 First Financial Bancorp 2015 Annual Report

5. Loans and Leases

First Financial offers clients a variety of commercial and consumer loan and lease products with various interest rates and payment terms. 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 exclusively to insurance agents and brokers. Commercial loan categories include C&I, commercial real estate, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card. For more information on First Financial's lending practices, see "Lending Practices" in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 $191.6 million and $264.9 million , at December 31, 2015 and 2014 , respectively. The outstanding balance of all purchased impaired loans, including all contractual principal, interest, fees and penalties, was $213.3 million and $314.5 million as of December 31, 2015 and December 31, 2014 , respectively. These balances exclude contractual interest not yet accrued.

For more information on First Financial's accounting for purchased impaired loans, see Note 1 - Summary of Significant Accounting Policies.

Changes in the carrying amount of accretable difference for purchased impaired loans for the years ended December 31 were as follows:
(Dollars in thousands)
 
2015
 
2014
 
2013
Balance at beginning of year
 
$
106,622

 
$
133,671

 
$
224,694

Reclassification from non-accretable difference
 
1,075

 
23,216

 
1,470

Accretion
 
(21,544
)
 
(33,730
)
 
(58,422
)
Other net activity (1)
 
(21,296
)
 
(16,535
)
 
(34,071
)
Balance at end of year
 
$
64,857

 
$
106,622

 
$
133,671

  (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 $1.1 million during 2015 , $23.2 million during 2014 and $1.5 million during 2013 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 are 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, again on the same pro-rata basis.


First Financial Bancorp 2015 Annual Report 61
Notes To Consolidated Financial Statements

The Company's loss sharing agreements with the FDIC related to non-single family assets 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 $113.3 million as of December 31, 2015 and $135.7 million as of December 31, 2014 .

Credit quality. To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate allowance for loan and lease losses, 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 as the best indicator of credit quality for consumer loans. Consumer loans that have principal and interest payments that are past due by 90 days or more are generally classified as nonperforming. Additionally, consumer loans that have been modified in a TDR are classified as nonperforming.


62 First Financial Bancorp 2015 Annual Report

Commercial and consumer credit exposure by risk attribute was as follows:

 
 
As of December 31, 2015
 
 
 
 
Real Estate
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
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

 
 
Real Estate
Residential
 
Installment
 
Home Equity
 
Other
 
Total
Performing
 
$
503,317

 
$
41,253

 
$
461,188

 
$
41,217

 
$
1,046,975

Nonperforming
 
8,994

 
253

 
5,441

 
0

 
14,688

Total
 
$
512,311

 
$
41,506

 
$
466,629

 
$
41,217

 
$
1,061,663


 
 
As of December 31, 2014
 
 
 
 
Real Estate
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Construction
 
Commercial
 
Leasing
 
Total
Pass
 
$
1,265,116

 
$
195,787

 
$
2,027,897

 
$
75,839

 
$
3,564,639

Special Mention
 
30,903

 
0

 
25,928

 
1,728

 
58,559

Substandard
 
19,095

 
1,784

 
86,842

 
0

 
107,721

Doubtful
 
0

 
0

 
0

 
0

 
0

Total
 
$
1,315,114

 
$
197,571

 
$
2,140,667

 
$
77,567

 
$
3,730,919


 
 
Real Estate
Residential
 
Installment
 
Home Equity
 
Other
 
Total
Performing
 
$
490,314

 
$
46,806

 
$
452,281

 
$
38,475

 
$
1,027,876

Nonperforming
 
11,580

 
514

 
6,346

 
0

 
18,440

Total
 
$
501,894

 
$
47,320

 
$
458,627

 
$
38,475

 
$
1,046,316



Delinquency. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment.


First Financial Bancorp 2015 Annual Report 63
Notes To Consolidated Financial Statements

Loan delinquency, including nonaccrual loans, was as follows:
 
 
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 and industrial
 
$
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

Installment
 
197

 
111

 
48

 
356

 
39,206

 
39,562

 
1,944

 
41,506

 
0

Home equity
 
696

 
248

 
2,830

 
3,774

 
461,647

 
465,421

 
1,208

 
466,629

 
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


 
 
As of December 31, 2014
(Dollars in thousands)
 
30 - 59
days
past due
 
60 - 89
days
past due
 
> 90 days
past due
 
Total
past
due
 
Current
 
Subtotal
 
Purchased impaired
 
Total
 
> 90 days
past due and still accruing
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
1,002

 
$
3,647

 
$
2,110

 
$
6,759

 
$
1,290,975

 
$
1,297,734

 
$
17,380

 
$
1,315,114

 
$
0

Real estate - construction
 
276

 
0

 
223

 
499

 
195,773

 
196,272

 
1,299

 
197,571

 
0

Real estate - commercial
 
8,356

 
838

 
13,952

 
23,146

 
1,944,207

 
1,967,353

 
173,314

 
2,140,667

 
0

Real estate - residential
 
1,198

 
344

 
4,224

 
5,766

 
426,908

 
432,674

 
69,220

 
501,894

 
0

Installment
 
133

 
17

 
272

 
422

 
44,235

 
44,657

 
2,663

 
47,320

 
0

Home equity
 
697

 
466

 
4,079

 
5,242

 
452,357

 
457,599

 
1,028

 
458,627

 
0

Other
 
1,133

 
128

 
216

 
1,477

 
114,565

 
116,042

 
0

 
116,042

 
216

Total
 
$
12,795

 
$
5,440

 
$
25,076

 
$
43,311

 
$
4,469,020

 
$
4,512,331

 
$
264,904

 
$
4,777,235

 
$
216


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 be returned 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 covered loan loss provision or prospective yield adjustments.

Troubled debt restructurings. A loan modification is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) 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.

64 First Financial Bancorp 2015 Annual Report


TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated sustained performance with the restructured terms of the loan agreement.

First Financial had 271 TDRs totaling $38.2 million at December 31, 2015 , including $28.9 million of loans on accrual status and $9.3 million of loans classified as nonaccrual. First Financial has $1.8 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs as of December 31, 2015 . At December 31, 2015 , the allowance for loan and lease losses included reserves of $6.3 million related to TDRs and approximately $10.3 million of the accruing TDRs have been performing in accordance with the restructured terms for more than one year. For the year ended December 31, 2015 , First Financial charged off $2.7 million for the portion of TDRs determined to be uncollectible.

First Financial had 262 TDRs totaling $28.2 million at December 31, 2014 , including $15.9 million of loans on accrual status and $12.3 million of loans classified as nonaccrual. First Financial had an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs as of December 31, 2014 . At December 31, 2014 , the allowance for loan and lease losses included reserves of $3.7 million related to TDRs and approximately $10.5 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year. For the year ended December 31, 2014 , First Financial charged off $1.0 million for the portion of TDRs determined to be uncollectible.

The following table provides information on loan modifications classified as TDRs during the years ended December 31, 2015 and 2014 :
 
Years ended December 31,
 
2015
 
2014
 
Total TDRs
 
Total TDRs
(Dollars in thousands)
Number of loans
 
Pre-modification loan balance
 
Period end balance
 
Number of loans
 
Pre-modification loan balance
 
Period end balance
Commercial and industrial
33

 
$
9,035

 
$
8,203

 
24
 
$
5,282

 
$
4,256

Real estate - construction
0

 
0

 
0

 
0
 
0

 
0

Real estate - commercial
18

 
20,249

 
16,474

 
16
 
5,235

 
3,937

Real estate - residential
10

 
1,292

 
1,238

 
31
 
1,767

 
1,516

Installment
10

 
97

 
97

 
8
 
47

 
29

Home equity
25

 
2,859

 
2,221

 
36
 
1,977

 
1,036

Total
96

 
$
33,532

 
$
28,233

 
115
 
$
14,308

 
$
10,774

 
The following table provides information on how TDRs were modified during the years ended December 31, 2015 and 2014 .
 
Years Ended December 31,
(Dollars in thousands)
2015
 
2014
Extended maturities
$
12,883

 
$
6,961

Adjusted interest rates
0
 
299

Combination of rate and maturity changes
1,244
 
991

Forbearance
260
 
373

Other (1)
13,846
 
2,150

Total
$
28,233

 
$
10,774

(1) Other includes covenant modifications and other concessions or combination of concessions that do not consist of interest rate adjustments, forbearance and maturity extensions.

First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications. Borrowers that are 90 days or more past due on any principal or interest payments for a TDR, 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.


First Financial Bancorp 2015 Annual Report 65
Notes To Consolidated Financial Statements

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:
 
 
Years ended December 31,
 
 
2015
 
2014
(Dollars in thousands)
 
Number
of loans
 
Period end balance
 
Number
of loans
 
Period end balance
Commercial and industrial
 
2
 
$
344

 
1
 
$
143

Real estate - construction
 
0
 
0
 
0
 
0
Real estate - commercial
 
4
 
1,146
 
2
 
182
Real estate - residential
 
2
 
83
 
3
 
29
Installment
 
1
 
14
 
0
 
0
Home equity
 
1
 
34
 
3
 
91
Total
 
10
 
$
1,621

 
9
 
$
445


Impaired loans. Loans classified as nonaccrual and loans modified as TDRs are considered impaired. The following table provides information on impaired loans, excluding purchased impaired loans, as of December 31:

(Dollars in thousands)
 
2015
 
2014
 
2013
Impaired loans
 
 
 
 
 
 
Nonaccrual loans (1)
 
 
 
 
 
 
Commercial and industrial
 
$
8,405

 
$
6,627

 
$
8,474

Real estate-construction
 
0

 
223

 
223

Real estate-commercial
 
9,418

 
27,969

 
18,635

Real estate-residential
 
5,027

 
7,241

 
8,606

Installment
 
127

 
451

 
579

Home equity
 
4,898

 
5,958

 
4,875

Other
 
122

 
0

 
0

Total nonaccrual loans
 
27,997

 
48,469

 
41,392

Accruing troubled debt restructurings
 
28,876

 
15,928

 
15,429

Total impaired loans
 
$
56,873

 
$
64,397

 
$
56,821

 
 
 
 
 
 
 
Interest income effect
 
 
 
 
 
 
Gross amount of interest that would have been recorded under original terms
 
$
3,595

 
$
3,581

 
$
4,698

Interest included in income
 
 
 
 
 
 
Nonaccrual loans
 
475

 
537

 
560

Troubled debt restructurings
 
682

 
456

 
444

Total interest included in income
 
1,157

 
993

 
1,004

Net impact on interest income
 
$
2,438

 
$
2,588

 
$
3,694

 
 
 
 
 
 
 
Commitments outstanding to borrowers with nonaccrual loans
 
$
1

 
$
0

 
$
38

(1) Nonaccrual loans include nonaccrual TDRs of $9.3 million , $12.3 million and $13.8 million as of December 31, 2015 , 2014 and 2013 , respectively.

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, 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.

66 First Financial Bancorp 2015 Annual Report


First Financial's investment in impaired loans, excluding purchased impaired loans, is as follows:
 
 
As of December 31, 2015
(Dollars in thousands)
 
Current balance
 
Contractual
principal
balance
 
Related
allowance
 
Average
balance
 
Interest
income
recognized
Loans with no related allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
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

Installment
 
253

 
276

 
0

 
380

 
7

Home equity
 
5,340

 
7,439

 
0

 
5,648

 
82

Other
 
122

 
122

 
0

 
24

 
0

Total
 
45,881

 
54,521

 
0

 
44,176

 
875

 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
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

Installment
 
0

 
0

 
0

 
0

 
0

Home equity
 
101

 
101

 
2

 
101

 
3

Other
 
0

 
0

 
0

 
0

 
0

Total
 
10,992

 
11,545

 
1,573

 
16,134

 
282

 
 
 
 
 
 
 
 
 
 
 
Total
 
 

 
 

 
 

 
 

 
 

Commercial and industrial
 
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

Installment
 
253

 
276

 
0

 
380

 
7

Home equity
 
5,441

 
7,540

 
2

 
5,749

 
85

Other
 
122

 
122

 
0

 
24

 
0

Total
 
$
56,873

 
$
66,066

 
$
1,573

 
$
60,310

 
$
1,157



First Financial Bancorp 2015 Annual Report 67
Notes To Consolidated Financial Statements

 
 
As of December 31, 2014
(Dollars in thousands)
 
Current
balance
 
Contractual
principal
balance
 
Related
allowance
 
Average
balance
 
Interest
income
recognized
Loans with no related allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
7,611

 
$
9,284

 
$
0

 
$
7,146

 
$
146

Real estate - construction
 
223

 
443

 
0

 
223

 
0

Real estate - commercial
 
19,285

 
23,631

 
0

 
15,653

 
285

Real estate - residential
 
9,561

 
10,867

 
0

 
9,485

 
182

Installment
 
514

 
577

 
0

 
513

 
8

Home equity
 
6,246

 
9,041

 
0

 
5,658

 
85

Other
 
0

 
0

 
0

 
0

 
0

Total
 
43,440

 
53,843

 
0

 
38,678

 
706

 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded
 
 

 
 
 
 
 
 
 
 
Commercial and industrial
 
2,398

 
2,605

 
739

 
4,234

 
57

Real estate - construction
 
0

 
0

 
0

 
0

 
0

Real estate - commercial
 
16,439

 
17,662

 
4,002

 
11,471

 
187

Real estate - residential
 
2,019

 
2,080

 
310

 
2,088

 
40

Installment
 
0

 
0

 
0

 
0

 
0

Home equity
 
101

 
101

 
2

 
101

 
3

Other
 
0

 
0

 
0

 
0

 
0

Total
 
20,957

 
22,448

 
5,053

 
17,894

 
287

 
 
 
 
 
 
 
 
 
 
 
Total
 
 

 
 

 
 

 
 

 
 

Commercial and industrial
 
10,009

 
11,889

 
739

 
11,380

 
203

Real estate - construction
 
223

 
443

 
0

 
223

 
0

Real estate - commercial
 
35,724

 
41,293

 
4,002

 
27,124

 
472

Real estate - residential
 
11,580

 
12,947

 
310

 
11,573

 
222

Installment
 
514

 
577

 
0

 
513

 
8

Home equity
 
6,347

 
9,142

 
2

 
5,759

 
88

Other
 
0

 
0

 
0

 
0

 
0

Total
 
$
64,397

 
$
76,291

 
$
5,053

 
$
56,572

 
$
993



68 First Financial Bancorp 2015 Annual Report

 
 
As of December 31, 2013
(Dollars in thousands)
 
Current
balance
 
Contractual
principal
balance
 
Related
allowance
 
Average
balance
 
Interest
income
recognized
Loans with no related allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
6,087

 
$
8,214

 
$
0

 
$
12,544

 
$
176

Real estate - construction
 
223

 
443

 
0

 
599

 
0

Real estate - commercial
 
13,704

 
19,079

 
0

 
18,349

 
384

Real estate - residential
 
10,291

 
12,087

 
0

 
10,225

 
152

Installment
 
647

 
668

 
0

 
465

 
6

Home equity
 
5,101

 
7,007

 
0

 
5,756

 
59

Other
 
0

 
0

 
0

 
156

 
0

Total
 
36,053

 
47,498

 
0

 
48,094

 
777

 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded
 
 

 
 
 
 
 
 
 
 
Commercial and industrial
 
7,013

 
8,353

 
2,080

 
5,047

 
71

Real estate - construction
 
0

 
0

 
0

 
726

 
7

Real estate - commercial
 
11,638

 
14,424

 
2,872

 
21,098

 
110

Real estate - residential
 
2,016

 
2,072

 
348

 
1,997

 
37

Installment
 
0

 
0

 
0

 
0

 
0

Home equity
 
101

 
101

 
2

 
101

 
2

Other
 
0

 
0

 
0

 
167

 
0

Total
 
20,768

 
24,950

 
5,302

 
29,136

 
227

 
 
 
 
 
 
 
 
 
 
 
Total
 
 

 
 

 
 

 
 

 
 

Commercial and industrial
 
13,100

 
16,567

 
2,080

 
17,591

 
247

Real estate - construction
 
223

 
443

 
0

 
1,325

 
7

Real estate - commercial
 
25,342

 
33,503

 
2,872

 
39,447

 
494

Real estate - residential
 
12,307

 
14,159

 
348

 
12,222

 
189

Installment
 
647

 
668

 
0

 
465

 
6

Home equity
 
5,202

 
7,108

 
2

 
5,857

 
61

Other
 
0

 
0

 
0

 
323

 
0

Total
 
$
56,821

 
$
72,448

 
$
5,302

 
$
77,230

 
$
1,004



First Financial Bancorp 2015 Annual Report 69
Notes To Consolidated Financial Statements


OREO. OREO is comprised of properties acquired by the Company primarily through the loan foreclosure or repossession process, or other resolution activities that result in partial or total satisfaction of problem loans.

Changes in OREO were as follows:
 
 
Years ended December 31,
(Dollars in thousands)
 
2015
 
2014
 
2013
Balance at beginning of year
 
$
22,674

 
$
46,926

 
$
41,388

Additions
 
 
 
 
 
 
Commercial
 
5,187

 
8,208

 
35,966

Residential
 
3,211

 
2,329

 
1,734

Total additions
 
8,398

 
10,537

 
37,700

Disposals
 
 

 
 

 
 
Commercial
 
(12,722
)
 
(28,933
)
 
(25,214
)
Residential
 
(3,095
)
 
(1,637
)
 
(2,105
)
Total disposals
 
(15,817
)
 
(30,570
)
 
(27,319
)
Valuation adjustments
 
 

 
 

 
 
Commercial
 
(1,617
)
 
(3,765
)
 
(4,184
)
Residential
 
(384
)
 
(454
)
 
(659
)
Total valuation adjustments
 
(2,001
)
 
(4,219
)
 
(4,843
)
Balance at end of year
 
$
13,254

 
$
22,674

 
$
46,926


The preceding table includes OREO subject to loss sharing agreements of $1.4 million , $0.3 million and $27.1 million at December 31, 2015 , 2014 and 2013 , 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:
(Dollars in thousands)
Years ended December 31,
 
 
 
2015
 
2014
 
2013
 
Affected Line Item in the Consolidated Statements of Income
Balance at beginning of year
$
22,666

 
$
45,091

 
$
119,607

 
 
Adjustments not reflected in income
 
 
 
 
 
 
 
Net FDIC claims (received) / paid
2,423

 
(6,785
)
 
(22,103
)
 
 
Adjustments reflected in income
 
 
 
 
 
 
 
Amortization
(4,740
)
 
(5,531
)
 
(7,672
)
 
Interest income, other earning assets
FDIC loss sharing income
(2,487
)
 
365

 
3,720

 
Noninterest income, FDIC loss sharing income
Offset to accelerated discount
(232
)
 
(10,474
)
 
(26,044
)
 
Noninterest income, accelerated discount on covered loans
Impairment valuation adjustment
0

 
0

 
(22,417
)
 
Noninterest expenses, FDIC indemnification impairment
Balance at end of year
$
17,630

 
$
22,666

 
$
45,091

 
 

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.

FDIC claims - First Financial files quarterly certifications with the FDIC and submits claims for losses, valuation adjustments and collection expenses incurred, less recoveries of any previous amounts claimed that are reimbursable back to the FDIC, as allowed under the loss sharing agreements. Cash reimbursements are generally received within 30 days of filing and are recorded as a credit to the indemnification asset balance, thus reducing its carrying value.


70 First Financial Bancorp 2015 Annual Report

Amortization - As the yield on covered loans increased over time as a result of improvement in the expected cash flows on covered loans, the yield on the indemnification asset declined. The yield on the indemnification asset became negative in the first quarter of 2011 at which time the indemnification asset began to decline through monthly amortization at the negative yield.

FDIC loss sharing income - FDIC loss sharing income represents the proportionate share of credit costs on covered assets that First Financial expects to receive from the FDIC. Credit costs on covered assets include provision expense on covered loans, losses on covered OREO and other covered collection and asset resolution costs recorded as loss sharing expense under noninterest expenses in the Consolidated Statements of Income.

Offset to accelerated discount - Accelerated discounts on covered loans occur when covered loans prepay and represent the accelerated recognition of the remaining discount that would have been recognized over the life of the loan had the loan not prepaid. In conjunction with the recognition of accelerated discount, First Financial also recognizes a related offset through noninterest income and reduction to the indemnification asset for a portion of the discount representing expected credit loss included in the discount recorded at acquisition.

First Financial’s periodic collectibility assessment includes evaluation of these primary sources of indemnification asset recovery, the resulting projected balances and collectibility / recovery of the indemnification asset upon expiration of the non-single family loss protection in the third quarter of 2014 and expiration of the single-family, residential loss protection in the third quarter 2019.

As a result of improvement in future expected cash flows on covered loans, a meaningful decline in loss claims filed with the FDIC, higher reimbursements to the FDIC related to positive asset resolutions in recent periods and the significantly shorter remaining life of the indemnification asset in comparison to the weighted average life of the related covered loans, which extended covered assets and related losses beyond the commercial indemnification period, the Company recorded a valuation adjustment to reduce the value of the FDIC indemnification asset of $22.4 million during 2013.

6. Allowance for Loan and Lease Losses

Loans and leases. For each reporting period, management maintains the allowance for loan and lease losses at a level that it considers sufficient to absorb probable 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. For further discussion of First Financial's allowance methodology, see Note 1 – Summary of Significant Accounting Policies.

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.

During 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. During 2014, First Financial completed the mergers of First Bexley, Insight and Guernsey. Loans acquired in connection with those mergers were recorded at estimated fair value at the acquisition date with no carryover of the related ALLL. See Note 20 – 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. For further detail regarding accounting for purchased impaired loans and the related allowance, see Note 1 – Summary of Significant Accounting Policies.

First Financial updated the valuations related to covered/formerly covered loans periodically during 2015 . First Financial recognized provision expense of $1.7 million and realized net charge-offs of $1.5 million , resulting in an ending allowance of $10.2 million as of December 31, 2015 . During 2014 , the Company recognized negative provision expense, or impairment recapture, of $1.8 million and realized net charge-offs of $7.0 million , resulting in an ending allowance of $10.0 million .  During 2013 , the Company recognized total provision expense of $0.2 million and realized net charge-offs of $26.5 million , resulting in an ending allowance of $18.9 million .


First Financial Bancorp 2015 Annual Report 71
Notes To Consolidated Financial Statements

First Financial also recognized loss sharing expenses of $2.6 million for 2015 , $3.6 million for 2014 and $5.9 million for 2013 primarily related to attorney fees, delinquent taxes, appraisals and losses on covered OREO during the period.  The net payable of $2.5 million due to the FDIC under loss sharing agreements related to covered loan recoveries, gains/losses on covered OREO and loss sharing expenses was recognized as negative FDIC loss sharing income for 2015 and a corresponding decrease to the FDIC indemnification asset. The receivable due from the FDIC under loss sharing agreements of $0.4 million for 2014 and $3.7 million for 2013 , was recognized as FDIC loss sharing income and a corresponding increase to the FDIC indemnification asset.

Changes in the allowance for loan and lease losses for the three years ended December 31 were as follows:
(Dollars in thousands)
 
2015
 
2014
 
2013
Changes in the allowance for loan and lease losses on loans, excluding covered/formerly covered
 
 
Balance at beginning of year
 
$
42,820

 
$
43,829

 
$
47,777

Provision for loan and lease losses
 
7,926

 
3,369

 
8,714

Loans charged-off
 
(11,660
)
 
(7,877
)
 
(17,283
)
Recoveries
 
4,063

 
3,499

 
4,621

Balance at end of year
 
$
43,149

 
$
42,820

 
$
43,829

 
 
 
 
 
 
 
Changes in the allowance for loan and lease losses on covered/formerly covered loans
 
 
 
 
Balance at beginning of year
 
$
10,038

 
$
18,901

 
$
45,190

Provision for loan and lease losses
 
1,715

 
(1,841
)
 
195

Loans charged-off
 
(8,896
)
 
(18,096
)
 
(39,224
)
Recoveries
 
7,392

 
11,074

 
12,740

Balance at end of year
 
$
10,249

 
$
10,038

 
$
18,901

 
 
 
 
 
 
 
Changes in the allowance for loan and lease losses on total loans
 
 
 
 
 
Balance at beginning of year
 
$
52,858

 
$
62,730

 
$
92,967

Provision for loan and lease losses
 
9,641

 
1,528

 
8,909

Loans charged-off
 
(20,556
)
 
(25,973
)
 
(56,507
)
Recoveries
 
11,455

 
14,573

 
17,361

Balance at end of year
 
$
53,398

 
$
52,858

 
$
62,730



72 First Financial Bancorp 2015 Annual Report

Changes in the allowance for loan and lease losses by loan category as of December 31 were as follows:
   
 
2015
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Comm
 
Constr
 
Comm
 
Resid
 
Install
 
Home equity
 
Other
 
Total
 
Covered/formerly covered
 
Grand Total
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
$
11,259

 
$
1,045

 
$
20,668

 
$
2,828

 
$
323

 
$
4,260

 
$
2,437

 
$
42,820

 
$
10,038

 
$
52,858

Provision for loan and lease losses
 
5,634

 
720

 
(1,022
)
 
854

 
188

 
588

 
964

 
7,926

 
1,715

 
9,641

Gross charge-offs
 
3,149

 
85

 
4,801

 
696

 
395

 
1,485

 
1,049

 
11,660

 
8,896

 
20,556

Recoveries
 
972

 
130

 
1,574

 
366

 
199

 
580

 
242

 
4,063

 
7,392

 
11,455

Total net charge-offs
 
2,177

 
(45
)
 
3,227

 
330

 
196

 
905

 
807

 
7,597

 
1,504

 
9,101

Ending allowance for loan and lease losses
 
$
14,716

 
$
1,810

 
$
16,419

 
$
3,352

 
$
315

 
$
3,943

 
$
2,594

 
$
43,149

 
$
10,249

 
$
53,398

Ending allowance on loans individually evaluated for impairment
 
$
357

 
$
0

 
$
979

 
$
235

 
$
0

 
$
2

 
$
0

 
$
1,573

 
$
0

 
$
1,573

Ending allowance on loans collectively evaluated for impairment
 
14,359

 
1,810

 
15,440

 
3,117

 
315

 
3,941

 
2,594

 
41,576

 
10,249

 
51,825

Ending allowance for loan and lease losses
 
$
14,716

 
$
1,810

 
$
16,419

 
$
3,352

 
$
315

 
$
3,943

 
$
2,594

 
$
43,149

 
$
10,249

 
$
53,398

Loans and Leases
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Ending balance of loans individually evaluated for impairment
 
$
14,159

 
$
0

 
$
18,262

 
$
2,714

 
$
0

 
$
359

 
$
0

 
$
35,494

 
$
0

 
$
35,494

Ending balance of loans collectively evaluated for impairment
 
1,641,166

 
310,889

 
2,120,076

 
452,894

 
39,361

 
430,554

 
133,266

 
5,128,206

 
225,060

 
5,353,266

Total loans
 
$
1,655,325

 
$
310,889

 
$
2,138,338

 
$
455,608

 
$
39,361

 
$
430,913

 
$
133,266

 
$
5,163,700

 
$
225,060

 
$
5,388,760


 
 
2014
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Comm
 
Constr
 
Comm
 
Resid
 
Install
 
Home equity
 
Other
 
Total
 
Covered/formerly covered
 
Grand Total
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
$
10,568

 
$
824

 
$
20,478

 
$
3,379

 
$
365

 
$
5,209

 
$
3,006

 
$
43,829

 
$
18,901

 
$
62,730

Provision for loan and lease losses
 
871

 
221

 
1,325

 
181

 
23

 
565

 
183

 
3,369

 
(1,841
)
 
1,528

Gross charge-offs
 
1,440

 
0

 
2,329

 
922

 
283

 
1,745

 
1,158

 
7,877

 
18,096

 
25,973

Recoveries
 
1,260

 
0

 
1,194

 
190

 
218

 
231

 
406

 
3,499

 
11,074

 
14,573

Total net charge-offs
 
180

 
0

 
1,135

 
732

 
65

 
1,514

 
752

 
4,378

 
7,022

 
11,400

Ending allowance for loan and lease losses
 
$
11,259

 
$
1,045

 
$
20,668

 
$
2,828

 
$
323

 
$
4,260

 
$
2,437

 
$
42,820

 
$
10,038

 
$
52,858

Ending allowance on loans individually evaluated for impairment
 
$
739

 
$
0

 
$
4,002

 
$
310

 
$
0

 
$
2

 
$
0

 
$
5,053

 
$
0

 
$
5,053

Ending allowance on loans collectively evaluated for impairment
 
10,520

 
1,045

 
16,666

 
2,518

 
323

 
4,258

 
2,437

 
37,767

 
10,038

 
47,805

Ending allowance for loan and lease losses
 
$
11,259

 
$
1,045

 
$
20,668

 
$
2,828

 
$
323

 
$
4,260

 
$
2,437

 
$
42,820

 
$
10,038

 
$
52,858

Loans and Leases
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Ending balance of loans individually evaluated for impairment
 
$
6,122

 
$
0

 
$
25,938

 
$
2,963

 
$
0

 
$
609

 
$
0

 
$
35,632

 
$
0

 
$
35,632

Ending balance of loans collectively evaluated for impairment
 
1,291,190

 
196,272

 
1,948,757

 
429,712

 
44,269

 
415,420

 
113,969

 
4,439,589

 
302,014

 
4,741,603

Total loans
 
$
1,297,312

 
$
196,272

 
$
1,974,695

 
$
432,675

 
$
44,269

 
$
416,029

 
$
113,969

 
$
4,475,221

 
$
302,014

 
$
4,777,235



First Financial Bancorp 2015 Annual Report 73
Notes To Consolidated Financial Statements

 
 
2013
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Comm
 
Constr
 
Comm
 
Resid
 
Install
 
Home equity
 
Other
 
Total
 
Covered/formerly covered
 
Grand Total
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
$
7,926

 
$
3,268

 
$
24,151

 
$
3,599

 
$
522

 
$
5,173

 
$
3,138

 
$
47,777

 
$
45,190

 
$
92,967

Provision for loan and lease losses
 
5,385

 
(3,115
)
 
2,659

 
593

 
(132
)
 
1,937

 
1,387

 
8,714

 
195

 
8,909

Gross charge-offs
 
3,415

 
1

 
8,326

 
1,016

 
335

 
2,409

 
1,781

 
17,283

 
39,224

 
56,507

Recoveries
 
672

 
672

 
1,994

 
203

 
310

 
508

 
262

 
4,621

 
12,740

 
17,361

Total net charge-offs
 
2,743

 
(671
)
 
6,332

 
813

 
25

 
1,901

 
1,519

 
12,662

 
26,484

 
39,146

Ending allowance for loan and lease losses
 
$
10,568

 
$
824

 
$
20,478

 
$
3,379

 
$
365

 
$
5,209

 
$
3,006

 
$
43,829

 
$
18,901

 
$
62,730

Ending allowance on loans individually evaluated for impairment
 
$
2,080

 
$
0

 
$
2,872

 
$
348

 
$
0

 
$
2

 
$
0

 
$
5,302

 
$
0

 
$
5,302

Ending allowance on loans collectively evaluated for impairment
 
8,488

 
824

 
17,606

 
3,031

 
365

 
5,207

 
3,006

 
38,527

 
18,901

 
57,428

Ending allowance for loan and lease losses
 
$
10,568

 
$
824

 
$
20,478

 
$
3,379

 
$
365

 
$
5,209

 
$
3,006

 
$
43,829

 
$
18,901

 
$
62,730

Loans and Leases
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
Ending balance of loans individually evaluated for impairment
 
$
10,391

 
$
0

 
$
18,023

 
$
3,493

 
$
122

 
$
648

 
$
0

 
$
32,677

 
$
0

 
$
32,677

Ending balance of loans collectively evaluated for impairment
 
1,025,277

 
80,741

 
1,478,964

 
349,438

 
47,011

 
375,806

 
115,727

 
3,472,964

 
457,873

 
3,930,837

Total loans, excluding covered loans
 
$
1,035,668

 
$
80,741

 
$
1,496,987

 
$
352,931

 
$
47,133

 
$
376,454

 
$
115,727

 
$
3,505,641

 
$
457,873

 
$
3,963,514


7. Premises and Equipment

Premises and equipment at December 31 were as follows:
(Dollars in thousands)
2015
 
2014
Land and land improvements
$
41,398

 
$
42,238

Buildings
108,648

 
109,806

Furniture and fixtures
53,054

 
57,536

Leasehold improvements
19,806

 
17,948

Construction in progress
2,849

 
6,113

 
225,755

 
233,641

 
 
 
 
Less: Accumulated depreciation and amortization
89,152

 
92,260

   Total
$
136,603

 
$
141,381


Rental expense recorded under operating leases in 2015 , 2014 and 2013 was  $7.0 million , $7.6 million and $8.3 million , respectively.
 
First Financial's future minimum lease payments for operating leases are as follows: 
(Dollars in thousands)  
 
2016
$
7,046

2017
6,081

2018
5,086

2019
4,732

2020
4,579

Thereafter
14,246

Total
$
41,770



74 First Financial Bancorp 2015 Annual Report

8. 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. During 2015, First Financial recorded additions to goodwill resulting from the Oak Street acquisition. During 2014, First Financial recorded additions to goodwill related to the acquisitions of First Bexley, Insight and Guernsey. For further detail, see Note 20 – Business Combinations.

Changes in the carrying amount of goodwill for the years ended December 31, 2015 and 2014 are shown below.

(Dollars in thousands)
2015
 
2014
Balance at beginning of year
$
137,739

 
$
95,050

Goodwill resulting from business combinations
66,345

 
42,689

Balance at end of year
$
204,084

 
$
137,739


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 annual impairment test of goodwill as of October 1, 2015 and no impairment was indicated.  As of December 31, 2015, 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 December 31, 2015 and 2014 , First Financial had $7.8 million and $8.1 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 $5.9 million and $7.7 million as of December 31, 2015 and December 31, 2014 , respectively. First Financial recorded no additions to core deposit intangibles in 2015 and $3.5 million related to the Columbus acquisitions in 2014. First Financial's core deposit intangibles have an estimated weighted average remaining life of 5.6 years as of December 31, 2015 . Amortization expense recognized on intangible assets for 2015 , 2014 and 2013 was $1.9 million , $1.7 million and $1.5 million , respectively.

9. 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 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 December 31, 2015 and December 31, 2014 , 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 line of credit as of December 31, 2015 and December 31, 2014 .


First Financial Bancorp 2015 Annual Report 75
Notes To Consolidated Financial Statements

The following is a summary of short-term borrowings for the last three years:
 
 
2015
 
2014
 
2013
(Dollars in thousands)
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
At December 31,
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
89,325

 
0.11
%
 
$
103,192

 
0.05
%
 
$
94,749

 
0.05
%
FHLB borrowings
849,100

 
0.47
%
 
558,200

 
0.18
%
 
654,000

 
0.17
%
Total
$
938,425

 
0.44
%
 
$
661,392

 
0.16
%
 
$
748,749

 
0.16
%
 
 
 
 
 
 
 
 
 
 
 
 
Average for the year
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
73,191

 
0.07
%
 
$
119,795

 
0.05
%
 
$
115,486

 
0.08
%
FHLB borrowings
552,360

 
0.24
%
 
627,181

 
0.19
%
 
472,062

 
0.23
%
Other short-term borrowings
123

 
3.30
%
 
0

 
0.00
%
 
0

 
0.00
%
Total
$
625,674

 
0.22
%
 
$
746,976

 
0.17
%
 
$
587,548

 
0.20
%
 
 
 
 
 
 
 
 
 
 
 
 
Maximum month-end balances
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
123,374

 
 
 
$
132,332

 
 
 
$
158,911

 
 
FHLB borrowings
849,100

 
 
 
820,500

 
 
 
654,000

 
 
Other short-term borrowings
15,000

 
 
 
0

 
 
 
0

 
 

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 will be 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 FHLB long-term advances as of December 31, 2015 and December 31, 2014 , respectively. and repurchase agreements utilizing investment securities pledged as collateral. These instruments are primarily utilized to reduce overnight liquidity risk and to mitigate interest rate sensitivity on the Consolidated Balance Sheets. As of December 31, 2014, First Financial also had $25.0 million in repurchase agreements recorded in Long-term debt on the Consolidated Balance Sheets which matured during the third quarter of 2015. Securities pledged as collateral in conjunction with the repurchase agreements are included within Investment securities on the Consolidated Balance Sheets.
 
FHLB advances, both short-term and long-term, must be collateralized with qualifying assets, typically certain commercial and residential real estate loans, as well as certain government and agency securities. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB, and at December 31, 2015 , had collateral pledged with a book value of $3.3 billion .

The following is a summary of First Financial's long-term debt:
 
2015
 
2014
(Dollars in thousands)  
Amount
 
Average Rate
 
Amount
 
Average Rate
Subordinated debt
$
118,312

 
5.20
%
 
$
0

 
0.00
%
FHLB
453

 
2.37
%
 
22,466

 
2.52
%
National Market Repurchase Agreement
0

 
0.00
%
 
25,000

 
3.54
%
Capital loan with municipality
775

 
0.00
%
 
775

 
0.00
%
Total long-term debt
$
119,540

 
5.15
%
 
$
48,241

 
3.01
%
 

76 First Financial Bancorp 2015 Annual Report

As of December 31, 2015 , First Financial's long-term debt matures as follows:
 (Dollars in thousands)  
Long-term
borrowings
2016
$
15

2017
16

2018
15

2019
407

2020
0

Thereafter
119,087

Total
$
119,540


10. 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. For discussion of First Financial's accounting for derivative instruments, see Note 1 – Summary of Significant Accounting Policies.

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 well below all single counterparty and portfolio limits.

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 . At December 31, 2014 , First Financial had a total counterparty notional amount outstanding of $566.2 million , spread among nine counterparties, with an outstanding liability from these contracts of $12.4 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 allowance for loan and lease losses 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.


First Financial Bancorp 2015 Annual Report 77
Notes To Consolidated Financial Statements

Fair value hedges. First Financial utilizes interest rate swaps designated as fair value hedges 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 fair value hedges:
   
 
 
 
December 31, 2015
 
December 31, 2014
 
 
 
 
 
 
Estimated fair value
 
 
 
Estimated fair value
(Dollars in thousands)
 
Balance
Sheet Location
 
Notional
amount
 
Gain
 
Loss
 
Notional
amount
 
Gain
 
Loss
Fair Value Hedges - Instruments associated with loans
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed interest rate swaps with counterparty
 
Accrued interest and other liabilities
 
$
5,216

 
$
0

 
$
(120
)
 
$
8,739

 
$
0

 
$
(440
)
Matched interest rate swaps with borrower
 
Accrued interest and other assets and other liabilities
 
546,458

 
13,981

 
(44
)
 
407,423

 
11,150

 
(249
)
Matched interest rate swaps with counterparty
 
Accrued interest and other liabilities
 
546,458

 
44

 
(14,015
)
 
407,423

 
249

 
(11,227
)
Total
 
 
 
$
1,098,132

 
$
14,025

 
$
(14,179
)
 
$
823,585

 
$
11,399

 
$
(11,916
)

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 assets and liabilities recognized in the Consolidated Balance Sheets:
 
December 31, 2015
 
December 31, 2014
(Dollars in thousands)
Gross amounts of recognized liabilities
 
Gross amounts offset in the Consolidated Balance Sheets
 
Net amounts of assets 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
Fair value hedges
 
 
 
 
 
 
 
 
 
 
 
Pay fixed interest rate swaps with counterparty
$
120

 
$
0

 
$
120

 
$
440

 
$
0

 
$
440

Matched interest rate swaps
14,015

 
(16,710
)
 
(2,695
)
 
11,476

 
(12,260
)
 
(784
)
Total
$
14,135

 
$
(16,710
)
 
$
(2,575
)
 
$
11,916

 
$
(12,260
)
 
$
(344
)

The following table details the derivative financial instruments, the average remaining maturities and the weighted-average interest rates being paid and received by First Financial at December 31, 2015 :
 
 
 
 
 
 
 
 
Weighted-Average Rate
(Dollars in thousands)
 
Notional
amount
 
Average
maturity
(years)
 
Fair
value
 
Receive
 
Pay
Asset conversion swaps
 
 
 
 
 
 
 
 
 
 
Pay fixed interest rate swaps with counterparty
 
$
5,216

 
1.6
 
$
(120
)
 
2.21
%
 
6.95
%
Receive fixed, matched interest rate swaps with borrower
 
546,458

 
4.9
 
13,937

 
4.41
%
 
2.60
%
Pay fixed, matched interest rate swaps with counterparty
 
546,458

 
4.9
 
(13,971
)
 
2.60
%
 
4.41
%
Total asset conversion swaps
 
$
1,098,132

 
4.9
 
$
(154
)
 
3.50
%
 
3.52
%

Cash flow hedges. First Financial utilizes interest rate swaps designated as cash flow hedges to hedge against interest rate volatility on indexed floating rate deposits. These interest rate swaps qualify for hedge accounting and involve the receipt by First Financial of variable-rate interest amounts in exchange for fixed-rate interest payments by First Financial. As of December 31, 2014 , the Company had active interest rate swaps with a notional value of $150.0 million . Accrued interest and other liabilities included $1.7 million at December 31, 2014 , reflecting the fair value of these cash flow hedges. First Financial terminated all cash flow hedges during the second quarter of 2015.


78 First Financial Bancorp 2015 Annual Report

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 $33.6 million as of December 31, 2015 and $26.4 million as of December 31, 2014 . The fair value of these agreements were recorded on the Consolidated Balance Sheets as liabilities of $0.1 million as of December 31, 2015 and December 31, 2014 .

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 December 31, 2015 , the notional amount of the IRLCs was $18.5 million and the notional amount of forward commitments was $25.1 million . The fair value of these agreements was $0.1 million as of December 31, 2015 and was recorded on the Consolidated Balance Sheets in Accrued interest and other assets. There were no such derivatives as of December 31, 2014.

11. Commitments and Contingencies

First Financial offers a variety of financial instruments with off-balance-sheet risk to its clients to assist them 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 allowance for loan and lease losses methodology to maintain a reserve that it considers sufficient to absorb probable 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 as long as there is no violation of any condition established in the commitment agreement.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The amount of collateral obtained, if deemed necessary by First Financial upon extension of credit, is based on management’s credit evaluation of the client.  The collateral held varies, but may include securities, real estate, inventory, plant or equipment.  First Financial had commitments outstanding to extend credit totaling $2.0 billion and $1.8 billion at December 31, 2015 and December 31, 2014 , respectively.

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 clients’ contractual default to produce the contracted good or service to a third party.  First Financial has issued letters of credit (including standby letters of credit) aggregating $16.3 million and $22.8 million at December 31, 2015 , and December 31, 2014 , 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 $31.5 million and $14.9 million as of December 31, 2015 and December 31, 2014 , respectively. The affordable housing investments resulted in $1.4 million and $1.1 million of tax credits for the year ended December 31, 2015 and 2014 , respectively. First Financial had no affordable housing contingent commitments as of December 31, 2015 or December 31, 2014 .


First Financial Bancorp 2015 Annual Report 79
Notes To Consolidated Financial Statements

Contingencies/Litigation – First Financial and its subsidiaries are engaged in various matters of litigation, 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 is 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 December 31, 2015 . 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 $1.3 million and $0.6 million of reserves related to litigation matters as of December 31, 2015 and December 31, 2014 , respectively.

12. Loans to Related Parties

Loans to directors, executive officers, principal holders of First Financial’s common stock and certain related persons were as follows:
 
(Dollars in thousands)
 
2015
 
2014
 
2013
Beginning balance
 
$
6,195

 
$
8,097

 
$
10,426

Additions
 
5,609

 
5,034

 
827

Deductions
 
(1,321
)
 
(6,936
)
 
(3,156
)
Ending balance
 
$
10,483

 
$
6,195

 
$
8,097

Loans 90 days past due
 
$
0

 
$
0

 
$
0


Related parties of First Financial, as defined for inclusion in the table above, were clients of, and had transactions with, subsidiaries of First Financial during the periods noted. Similar transactions with related parties may be expected in future periods.

13. Income Taxes

Income tax expense consisted of the following components:
 
(Dollars in thousands)
2015
 
2014
 
2013
Current expense
 
 
 
 
 
Federal
$
31,428

 
$
49,561

 
$
41,679

State
250

 
2,872

 
2,883

Total current expense
31,678

 
52,433

 
44,562

Deferred (benefit) expense
 
 
 
 
 
Federal
3,980

 
(19,368
)
 
(21,393
)
State
212

 
(3,037
)
 
(3,935
)
Total deferred (benefit) expense
4,192

 
(22,405
)
 
(25,328
)
Income tax expense
$
35,870

 
$
30,028

 
$
19,234



80 First Financial Bancorp 2015 Annual Report

The difference between the federal income tax rates, applied to income before income taxes, and the effective rates were due to the following:

(Dollars in thousands)
2015
 
2014
 
2013
Income taxes computed at federal statutory rate (35%) on income before income taxes
$
38,827

 
$
33,260

 
$
23,646

Tax-exempt income
(2,380
)
 
(1,912
)
 
(1,266
)
Bank-owned life insurance
(435
)
 
(392
)
 
(409
)
Tax credits
(1,388
)
 
(1,100
)
 
(1,100
)
State income taxes, net of federal tax benefit
301

 
(107
)
 
(588
)
Tax settlement of unconsolidated subsidiary
0

 
0

 
(1,318
)
Other
945

 
279

 
269

Income tax expense
$
35,870

 
$
30,028

 
$
19,234


The major components of the temporary differences that give rise to deferred tax assets and liabilities at December 31, 2015 , and 2014 , were as follows:
(Dollars in thousands)
2015
 
2014
Deferred tax assets
 
 
 
Allowance for loan and lease losses
$
19,397

 
$
19,227

Deferred compensation
627

 
533

Postretirement benefits other than pension liability
971

 
938

Accrued stock-based compensation
1,354

 
1,170

Other real estate owned write-downs
1,714

 
1,962

Interest on nonaccrual loans
1,075

 
1,586

Accrued expenses
5,027

 
4,616

Net unrealized losses on investment securities and derivatives
3,574

 
1,926

Fair value adjustment on acquisitions
0

 
844

Other
1,004

 
438

Total deferred tax assets
34,743

 
33,240

 
 
 
 
Deferred tax liabilities
 
 
 
Tax depreciation greater than book depreciation
(6,011
)
 
(6,310
)
FHLB and FRB stock
(5,685
)
 
(5,852
)
Mortgage-servicing rights
(411
)
 
(136
)
Leasing activities
(5,003
)
 
(5,297
)
Prepaid pension
(11,384
)
 
(14,333
)
Intangible assets
(14,764
)
 
(12,963
)
Deferred loan fees and costs
(2,335
)
 
(1,167
)
Prepaid expenses
(384
)
 
(364
)
Partnership investments
(1,342
)
 
(1,220
)
Fair value adjustments on acquisitions
(1,492
)
 
0

Other
(682
)
 
(604
)
Total deferred tax liabilities
(49,493
)
 
(48,246
)
Total net deferred tax liability
$
(14,750
)
 
$
(15,006
)

The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in future periods, the reversal of deferred tax liabilities during the same period and the ability to carryback any losses. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be realized and thus no valuation allowance was required at December 31, 2015 and 2014 .


First Financial Bancorp 2015 Annual Report 81
Notes To Consolidated Financial Statements

At December 31, 2015 and 2014 , 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 December 31, 2015 and 2014 .
 
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 federal examination for the tax year 2012 was completed in the third quarter of 2015. There was no impact to the Company's financial position or 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 and 2014 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 2014 remain open to state and local examination by various other jurisdictions.
 
14. Employee Benefit Plans

Pension plan. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees and uses a December 31 measurement date for the plan.

For all years presented, 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.
 
The investment objective of the Plan is to structure the assets to, as much as feasible, mirror the liabilities of the Plan. The Plan's asset allocation includes both equity and fixed income assets, with the aim to use the fixed income component to match the identified near and long-term plan distributions and the equity component to generate growth of capital to meet other future Plan liabilities. The determination of the overall expected long-term return on plan assets was based on the composition of plan assets and a consensus of estimates from similarly managed portfolios of expected future returns.

Associates are eligible to request a lump sum distribution from the Company's pension plan at retirement or upon leaving the Company. As a result of lump sum distributions from the plan during 2013, First Financial was required to re-measure the plan's assets and liabilities and recognized pension settlement charges of $6.2 million . Consistent with FASB ASC Topic 715, Compensation - Retirement Benefits, pension settlement charges are an acceleration of previously deferred costs that would have been recognized in future periods and are triggered when lump sum distributions exceed an annual accounting threshold for the plan. The accounting threshold for lump sum distributions reset on January 1, 2014 and the annual accounting threshold was not exceeded during 2014 or 2015. Therefore, First Financial recognized no pension settlement charges for the years ended December 31, 2014 or 2015 .

As a result of the plan’s updated actuarial projections for 2015 , First Financial recorded income related to its pension plan of $1.0 million for 2015 and $1.1 million for 2014 compared to expense of $5.5 million for 2013 . First Financial made no cash contributions to the pension plan in 2013 , 2014 or 2015 .
 


82 First Financial Bancorp 2015 Annual Report

The following tables set forth information concerning amounts recognized in First Financial's Consolidated Balance Sheets and Consolidated Statements of Income:
 
 
December 31,
(Dollars in thousands)
 
2015
 
2014
Change in benefit obligation
 
 
 
 
Benefit obligation at beginning of year
 
$
59,780

 
$
55,591

Service cost
 
4,807

 
4,119

Interest cost
 
2,120

 
2,388

Amendments
 
0

 
0

Actuarial gain (loss)
 
(1,017
)
 
6,025

Benefits paid, excluding settlement
 
(5,026
)
 
(8,343
)
Settlements
 
0

 
0

Benefit obligation at end of year
 
60,664

 
59,780

 
 
 
 
 
Change in plan assets
 
 
 
 
Fair value of plan assets at beginning of year
 
133,326

 
131,647

Actual return on plan assets
 
(2,586
)
 
10,022

Employer contribution
 
0

 
0

Benefits paid, excluding settlement
 
(5,026
)
 
(8,343
)
Settlements
 
0

 
0

Fair value of plan assets at end of year
 
125,714

 
133,326

 
 
 
 
 
Amounts recognized in the Consolidated Balance Sheets
 
 
 
 
Assets
 
65,050

 
73,546

Liabilities
 
0

 
0

Net amount recognized
 
$
65,050

 
$
73,546

 
 
 
 
 
Amounts recognized in accumulated other comprehensive income (loss)
 
 
 
 
Net actuarial loss
 
$
40,770

 
$
31,644

Net prior service cost
 
(2,747
)
 
(3,159
)
Deferred tax assets
 
(13,975
)
 
(10,581
)
Net amount recognized
 
$
24,048

 
$
17,904

 
 
 
 
 
Change in accumulated other comprehensive income (loss)
 
$
6,144

 
$
2,339

 
 
 
 
 
Accumulated benefit obligation
 
$
60,040

 
$
59,063




First Financial Bancorp 2015 Annual Report 83
Notes To Consolidated Financial Statements

Components of net periodic benefit cost
 
 
 
 
 
 
 
 
December 31,
(Dollars in thousands)
 
2015
 
2014
 
2013
Service cost
 
$
4,807

 
$
4,119

 
$
3,705

Interest cost
 
2,120

 
2,388

 
2,319

Expected return on assets
 
(9,444
)
 
(9,055
)
 
(8,988
)
Amortization of prior service cost
 
(413
)
 
(413
)
 
(423
)
Recognized net actuarial loss
 
1,888

 
1,824

 
2,709

Settlement charges
 
0

 
0

 
6,174

Net periodic benefit (income) cost
 
(1,042
)
 
(1,137
)
 
5,496

 
 
 
 
 
 
 
Other changes recognized in accumulated other comprehensive income
 
 
 
 
Net actuarial (gain) loss
 
11,014

 
5,058

 
(17,178
)
Prior service cost
 
0

 
0

 
124

Amortization of prior service cost
 
413

 
413

 
423

Amortization of gain
 
(1,888
)
 
(1,824
)
 
(2,709
)
Settlement charges
 
0

 
0

 
(6,174
)
Total recognized in accumulated other comprehensive income
 
9,539

 
3,647

 
(25,514
)
Total recognized in net periodic benefit cost and accumulated other comprehensive income
 
$
8,497

 
$
2,510

 
$
(20,018
)
 
 
 
 
 
 
 
Amount expected to be recognized in net periodic pension expense in the coming year
 
 
 
 
Amortization of loss
 
$
1,642

 
$
1,780

 
$
1,926

Amortization of prior service credit
 
(413
)
 
(413
)
 
(413
)

Weighted-average assumptions to determine
 
 
 
 
 
 
December 31,
 
 
2015
 
2014
Benefit obligations
 
 
 
 
Discount rate
 
4.05
%
 
3.76
%
Rate of compensation increase
 
3.50
%
 
3.50
%
 
 
 
 
 
Net periodic benefit cost
 
 
 
 
Discount rate
 
3.76
%
 
4.62
%
Expected return on plan assets
 
7.50
%
 
7.50
%
Rate of compensation increase
 
3.50
%
 
3.50
%
 
The fair value of the plan assets as of December 31, 2015 by asset category is shown in the table that follows:
 
 
Fair Value Measurements
(Dollars in thousands)
 
Total
 
Quoted Prices in 
Active Markets 
for 
Identical Assets 
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Asset Category
 
 
 
 
 
 
 
 
Cash
 
$
181

 
$
181

 
$
0

 
$
0

U. S. Government agencies
 
6,573

 
6,573

 
0

 
0

Fixed income mutual funds
 
63,885

 
63,885

 
0

 
0

Equity mutual funds
 
55,075

 
55,075

 
0

 
0

Total
 
$
125,714

 
$
125,714

 
$
0

 
$
0


84 First Financial Bancorp 2015 Annual Report


The fair value of the plan assets as of December 31, 2014 by asset category is shown below.
 
 
Fair Value Measurements
(Dollars in thousands)
 
Total
 
Quoted Prices in 
Active Markets 
for 
Identical Assets 
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Asset Category
 
 
 
 
 
 
 
 
Cash
 
$
172

 
$
172

 
$
0

 
$
0

Fixed income mutual funds
 
49,938

 
49,938

 
0

 
0

Equity mutual funds
 
83,216

 
83,216

 
0

 
0

Total
 
$
133,326

 
$
133,326

 
$
0

 
$
0


An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. See Note 19 – Fair Value Disclosures for further information related to the framework for measuring fair value and the fair value hierarchy.
 
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
 
(Dollars in thousands)
 
Retirement
Benefits
2016
 
$
6,011

2017
 
3,815

2018
 
4,397

2019
 
4,499

2020
 
5,113

Thereafter
 
26,421


Effective January 1, 2014 all active plan participants immediately vest in their benefit, compared to the three year vesting period in effect as of December 31, 2013. Also beginning January 1, 2014, the Pension Plan no longer offers additional benefits for associates with compensation in excess of 50% of the Social Security wage base.

401(k) thrift plan. First Financial sponsors a defined contribution 401(k) thrift plan which covers substantially all employees. Employees may contribute up to 50.0% of their earnings into the plan, not to exceed applicable limitations prescribed by the Internal Revenue Service. First Financial contributions to the 401(k) plan are at the discretion of the board of directors and considers management's recommendation. First Financial measures the Company's performance compared to its identified peer group in determining whether to recommend a matching contribution, with the amount of the recommended matching contribution not to exceed 3% of the employee's annual earnings. Prior to January 1, 2014, First Financial contributed $1.00 for every $1.00 an employee contributed up to 3.00% of the employee's earnings and then contributed $0.50 for every $1.00 thereafter, up to a maximum First Financial total contribution of 4.00% of the employee's earnings. All First Financial matching contributions vest immediately. There were no matching contributions to the 401(k) plan during 2015 or 2014 . First Financial contributed $2.4 million during 2013 .

Bank-owned life insurance. First Financial purchases life insurance policies on the lives of certain employees and is the owner and beneficiary of the policies. The Bank invests in these policies to provide an efficient form of funding for long-term retirement and other employee benefits costs. The policies are included within Accrued interest and other assets in the Consolidated Balance Sheets at each policy’s respective cash surrender value, with changes recorded in other noninterest income in the Consolidated Statements of Income. The carrying value of bank-owned life insurance policies was $98.3 million and $93.0 million at December 31, 2015 , and 2014 , respectively.



First Financial Bancorp 2015 Annual Report 85
Notes To Consolidated Financial Statements

15. Accumulated Other Comprehensive Income (Loss)

Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss).  The related tax effects allocated to other comprehensive income and accumulated other comprehensive income (loss) are as follows:

 
December 31, 2015
 
Total other comprehensive income
 
Total accumulated
other comprehensive income
(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
$
(2,200
)
 
$
1,505

 
$
(3,705
)
 
$
1,278

 
$
(2,427
)
 
$
(2,506
)
 
$
(2,427
)
 
$
(4,933
)
Unrealized gain (loss) on derivatives
(1,020
)
 
0

 
(1,020
)
 
370

 
(650
)
 
(949
)
 
(650
)
 
(1,599
)
Retirement obligation
(11,014
)
 
(1,475
)
 
(9,539
)
 
3,395

 
(6,144
)
 
(17,904
)
 
(6,144
)
 
(24,048
)
Foreign currency translation
50

 
0

 
50

 
0

 
50

 
(50
)
 
50

 
0

Total
$
(14,184
)
 
$
30

 
$
(14,214
)
 
$
5,043

 
$
(9,171
)
 
$
(21,409
)
 
$
(9,171
)
 
$
(30,580
)

 
December 31, 2014
 
Total other comprehensive income
 
Total accumulated
other comprehensive income
(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
$
21,718

 
$
70

 
$
21,648

 
$
(7,865
)
 
$
13,783

 
$
(16,289
)
 
$
13,783

 
$
(2,506
)
Unrealized gain (loss) on derivatives
(2,902
)
 
(432
)
 
(2,470
)
 
919

 
(1,551
)
 
602

 
(1,551
)
 
(949
)
Retirement obligation
(5,058
)
 
(1,411
)
 
(3,647
)
 
1,308

 
(2,339
)
 
(15,565
)
 
(2,339
)
 
(17,904
)
Foreign currency translation
(21
)
 
0

 
(21
)
 
0

 
(21
)
 
(29
)
 
(21
)
 
(50
)
Total
$
13,737

 
$
(1,773
)
 
$
15,510

 
$
(5,638
)
 
$
9,872

 
$
(31,281
)
 
$
9,872

 
$
(21,409
)

 
December 31, 2013
 
Total other comprehensive income
 
Total accumulated
other comprehensive income
(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
$
(44,365
)
 
$
1,724

 
$
(46,089
)
 
$
16,998

 
$
(29,091
)
 
$
12,802

 
$
(29,091
)
 
$
(16,289
)
Unrealized gain (loss) on derivatives
778

 
(412
)
 
1,190

 
(445
)
 
745

 
(143
)
 
745

 
602

Retirement obligation
17,054

 
(8,460
)
 
25,514

 
(9,741
)
 
15,773

 
(31,338
)
 
15,773

 
(15,565
)
Foreign currency translation
(31
)
 
0

 
(31
)
 
0

 
(31
)
 
2

 
(31
)
 
(29
)
Total
$
(26,564
)
 
$
(7,148
)
 
$
(19,416
)
 
$
6,812

 
$
(12,604
)
 
$
(18,677
)
 
$
(12,604
)
 
$
(31,281
)


86 First Financial Bancorp 2015 Annual Report

The following table details the activity reclassified from accumulated other comprehensive income into income during the period:
 
 
Amount Reclassified from Accumulated Other Comprehensive Income (1)
 
 
 
 
December 31,
 
 
(Dollars in thousands)
 
2015
 
2014
 
2013
 
Affected Line Item in the Consolidated Statements of Income
Gain and loss on cash flow hedges
 
 
 
 
 
 
 
 
Interest rate contracts
 
$
0

 
$
(432
)
 
$
(412
)
 
Interest expense - deposits
Realized gains and losses on securities available-for-sale
 
1,505

 
70

 
1,724

 
Gains on sales of investments securities
Defined benefit pension plan
 
 
 
 
 
 
 
 
Amortization of prior service cost (2)
 
413

 
413

 
423

 
Salaries and employee benefits
Recognized net actuarial loss (2)
 
(1,888
)
 
(1,824
)
 
(2,709
)
 
Salaries and employee benefits
Pension settlement charges
 
0

 
0

 
(6,174
)
 
Pension settlement charges
Amortization and settlement charges of defined benefit pension items
 
(1,475
)
 
(1,411
)
 
(8,460
)
 
 
Total reclassifications for the period, before tax
 
$
30

 
$
(1,773
)
 
$
(7,148
)
 
 

(1) Negative amounts are debits to profit/loss.
(2) Included in the computation of net periodic pension cost (see Note 14 - Employee Benefit Plans for additional details).

16. Capital

Risk-based capital. First Financial and its subsidiary, First Financial Bank, are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate regulatory action.

Quantitative measures established by regulation to ensure capital adequacy require First Financial to maintain minimum amounts and ratios as defined by the regulations of Total and Tier 1 capital to risk-weighted assets and to average assets. Management believes, as of December 31, 2015 , that First Financial met all capital adequacy requirements to which it is subject. At December 31, 2015 and 2014 , regulatory notifications categorized First Financial as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, First Financial must maintain minimum Total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since those notifications that management believes has changed the Company's categorization.

For purposes of calculating the leverage ratio, average assets represents quarterly average assets less assets ineligible for total risk-based capital including all or portions of intangible assets, mortgage servicing assets and the allowance for loan and lease losses.
 
First Financial's Tier 1 capital is comprised of total shareholders' equity less unrealized gains and losses on investment securities available-for-sale, accounted for under FASB ASC Topic 320, Investments-Debt and Equity Securities, and any amounts resulting from the application of FASB ASC Topic 715, Compensation-Retirement Benefits, that are recorded within accumulated other comprehensive income (loss), intangible assets and any valuation related to mortgage servicing rights. Total risk-based capital consists of Tier 1 capital plus the qualifying allowance for loan and lease losses and gross unrealized gains on equity securities.

In 2013, the Board of Governors of the Federal Reserve System approved a final rule implementing changes intended to strengthen the regulatory capital framework for all banking organizations (Basel III) which became effective January 1, 2015, subject to a phase-in period for certain provisions.  Basel III establishes and defines quantitative measures to ensure capital

First Financial Bancorp 2015 Annual Report 87
Notes To Consolidated Financial Statements

adequacy which require First Financial to maintain minimum amounts and ratios of Common Equity tier 1 capital, total and tier 1 capital to risk-weighted assets and tier 1 capital to average assets (leverage ratio) as set forth in the table that follows.

The rule includes a new minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets that will begin on January 1, 2016 at 0.625% and be phased-in over a four-year period, increasing by the same amount each subsequent January 1, until fully phased-in on January 1, 2019.  Further, the minimum ratio of tier 1 capital to risk-weighted assets increased from 4.0% to 6.0% and all banks are now subject to a 4.0% minimum leverage ratio.  The required total risk-based capital ratio is unchanged. Failure to maintain the required common equity Tier 1 capital conservation buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and/or pay discretionary compensation to its employees. 

Management believes, as of December 31, 2015 , that First Financial met all capital adequacy requirements to which it was subject.  As of December 31, 2015 , and December 31, 2014 , the most recent regulatory notifications categorized First Financial as "well-capitalized" under the regulatory framework for prompt corrective action.  There have been no conditions or events since those notifications that management believes has changed the Company's categorization.

Consolidated regulatory capital ratios at December 31, 2015 , included the leverage ratio of 8.33% , common equity tier 1 capital ratio of 10.28% , tier 1 capital ratio of 10.29% and total capital ratio of 13.04% .  All regulatory capital ratios exceeded the amounts necessary to be classified as “well capitalized,” and total regulatory capital exceeded the “minimum” requirement by $317.8 million on a consolidated basis.  

The revised capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans, requiring higher capital allocations. First Financial's tier 1 and total capital ratios decreased from 12.69% and 13.71% , respectively, as of December 31, 2014 to 10.29% and 13.04% as of December 31, 2015 . The decline in the tier 1 capital ratio was due primarily to an increase in risk-weighted assets resulting from the Oak Street acquisition, organic loan growth and the previously mentioned changes in the calculation of risk-weighted assets, as well as a reduction in tier 1 capital due to the addition of goodwill from the Oak Street acquisition. The total capital ratio was positively impacted by the issuance of subordinated notes during the third quarter, which qualify as tier 2 capital and offset higher risk-weighted assets during the period. The leverage ratio declined to 8.33% at December 31, 2015 compared to 9.44% as of December 31, 2014 and the Company’s tangible common equity ratio decreased from 9.02% at December 31, 2014 to 7.53% during the current quarter primarily due to the increase in goodwill associated with the acquisition of Oak Street.


88 First Financial Bancorp 2015 Annual Report

The following table presents the actual and required capital amounts and ratios as of December 31, 2015 under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2015 based on the phase-in provisions of the Basel III Capital Rules as well as the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules have been fully phased-in. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
 
 
 
Actual
 
Minimum capital
required - Basel III
current period
 
Required to be
considered well
capitalized - current period
 
Minimum capital
required - Basel III
fully phased-in
(Dollars in thousands)
 
Capital
amount
 
Ratio
 
Capital
amount
 
Ratio
 
Capital
amount
 
Ratio
 
Capital
amount
 
Ratio
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
648,748

 
10.28
%
 
$
283,866

 
4.50
%
 
N/A

 
N/A

 
$
441,570

 
7.00
%
First Financial Bank
 
647,844

 
10.30
%
 
283,080

 
4.50
%
 
$
408,894

 
6.50
%
 
440,347

 
7.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
648,852

 
10.29
%
 
378,488

 
6.00
%
 
N/A

 
N/A

 
536,192

 
8.50
%
First Financial Bank
 
647,948

 
10.30
%
 
377,440

 
6.00
%
 
$
503,254

 
8.00
%
 
534,707

 
8.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
822,431

 
13.04
%
 
504,651

 
8.00
%
 
N/A

 
N/A

 
662,355

 
10.50
%
First Financial Bank
 
709,306

 
11.28
%
 
503,254

 
8.00
%
 
629,067

 
10.00
%
 
660,521

 
10.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
648,852

 
8.33
%
 
311,481

 
4.00
%
 
N/A

 
N/A

 
311,481

 
4.00
%
First Financial Bank
 
647,948

 
8.33
%
 
311,205

 
4.00
%
 
389,006

 
5.00
%
 
311,205

 
4.00
%
 
 
Actual
 
Minimum required
for capital
adequacy purposes
 
Required to be
considered well
capitalized
(Dollars in thousands)
Capital
amount
 
Ratio
 
Capital
amount
 
Ratio
 
Capital
amount
 
Ratio
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
Consolidated
673,955

 
12.69
%
 
212,463

 
4.00
%
 
N/A

 
N/A

First Financial Bank
602,133

 
11.38
%
 
211,724

 
4.00
%
 
317,585

 
6.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
Consolidated
728,284

 
13.71
%
 
424,926

 
8.00
%
 
N/A

 
N/A

First Financial Bank
662,865

 
12.52
%
 
423,447

 
8.00
%
 
529,309

 
10.00
%
 
 
 
 
 
 
 
 
 
 
 
 
Leverage
 
 
 
 
 
 
 
 
 
 
 
Consolidated
673,955

 
9.44
%
 
285,514

 
4.00
%
 
N/A

 
N/A

First Financial Bank
602,133

 
8.44
%
 
285,311

 
4.00
%
 
356,639

 
5.00
%
 
Shelf Registrations. On July 31, 2014, First Financial filed a shelf registration on Form S-3 with the Securities and Exchange Commission. This shelf registration allows First Financial to raise capital from time to time through the sale of various types of securities, subject to approval by the Company's board of directors, and expires on July 31, 2017. Under this shelf registration, First Financial issued $120.0 million of subordinated notes in 2015.

First Financial Bancorp 2015 Annual Report 89
Notes To Consolidated Financial Statements


Share repurchases. In October 2012, First Financial's board of directors approved a share repurchase plan under which the Company has the ability to repurchase up to 5,000,000 common shares. The Company repurchased 239,967 shares under the 2012 share repurchase plan during 2015 at an average price of $18.75 per share and 40,255 shares under this plan during 2014 at an average price of $17.32 . At December 31, 2015 , 3,509,133 common shares remained available for purchase under this repurchase plan.

Preferred Stock. During the second quarter of 2014, First Financial's shareholders approved an amendment to the Company's Articles of Incorporation authorizing the Company to issue up to 10,000,000 preferred shares. The Company has not issued and has no current plans, arrangements or agreements to issue any of the authorized preferred shares at this time.

17. Stock Options and Awards

First Financial follows the provisions of FASB ASC Topic 718, Compensation-Stock Compensation, which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation expense over the service period for all awards expected to vest. Share-based compensation expense for stock options and restricted stock awards included in salaries and employee benefits expense for the years ended December 31, 2015 and December 31, 2014 was $4.0 million . Total unrecognized compensation cost related to non-vested share-based compensation was $6.7 million at December 31, 2015 and is expected to be recognized over a weighted average period of 2.0 years .
 
As of December 31, 2015 , First Financial had five stock-based compensation plans. The 1999 Stock Incentive Plan for Officers and Employees and the 1999 Stock Option Plan for Non-Employee Directors (the 1999 Plans) provides incentive stock options, non-qualified stock options and stock awards to certain key employees and non-qualified stock options to non-employee directors of First Financial for up to 7,507,500 common shares. The options become exercisable at a rate of 25% per year on the anniversary date of the grant and remain outstanding for 10 years after the initial grant date with all options expiring at the end of the exercise period. No additional awards may be granted under the 1999 Plans.

On June 15, 2009, First Financial shareholders approved the 2009 Employee Stock Plan and the 2009 Non-Employee Director Plan providing for the issuance of 1,500,000 shares and 75,000 shares, respectively. The 2009 Employee Stock Plan expired on June 15, 2012, and thus, no new awards may be granted under this plan. On May 22, 2012, shareholders approved the First Financial Bancorp. 2012 Stock Plan and amendments to the 2009 Non-Employee Director Plan. At December 31, 2015 , there were 882,560 shares available for issuance under the 2012 stock plan and no shares were available for issuance under the 2009 Non-Employee Director Plan.
 
First Financial utilizes the Black-Scholes valuation model to determine the fair value of its stock options. In addition to the stock option strike price, the Black-Scholes valuation model incorporates the following assumptions: the expected dividend yield based on historical dividend payouts; the expected stock price volatility based on the historical volatility of Company stock for a period approximating the expected life of the options; the risk-free rate based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option; and the expected option life represented by the period of time the options are expected to be outstanding, and is based on historical trends. No options were granted in 2015 , 2014 or 2013 .
 
Stock option activity for the year ended December 31, 2015 , is summarized as follows:
(Dollars in thousands, except per share data)
 
Number of shares
 
Weighted
average exercise price
 
Weighted average
remaining contractual life
 
Aggregate intrinsic value
Outstanding at beginning of year
 
413,126

 
$
14.32

 
 
 
 
Granted
 
0

 
0.00

 
 
 
 
Exercised
 
(93,712
)
 
13.40

 
 
 
 
Forfeited or expired
 
(79,516
)
 
17.57

 
 
 
 
Outstanding at end of year
 
239,898

 
$
13.60

 
1.5 years
 
$
1,072

Exercisable at end of year
 
239,898

 
$
13.60

 
1.5 years
 
$
1,072



90 First Financial Bancorp 2015 Annual Report

The intrinsic value of stock options is defined as the difference between the current market value and the exercise price. First Financial uses treasury shares purchased under the Company's share repurchase program to satisfy share-based exercises.
 
 
2015
 
2014
 
2013
Total intrinsic value of options exercised
 
$
492

 
$
1,479

 
$
3,247

Cash received from exercises
 
$
744

 
$
1,056

 
$
73

Tax benefit from exercises
 
$
1,488

 
$
1,475

 
$
1,422


Restricted stock awards have historically been recorded as deferred compensation, a component of shareholders' equity, at the fair value of these awards as of the grant date and amortized on a straight-line basis to salaries and benefits expense over the specified vesting periods, which is currently three years for employees and one year for non-employee directors. The vesting of these awards for employees and non-employee directors only require a service period to be met, however, beginning in 2013, additional awards were granted which also require certain performance measures to be met.
 
Activity in restricted stock for the previous three years ended December 31 is summarized as follows:
 
 
2015
 
2014
 
2013
 
 
Number of shares
 
Weighted
 average
grant date
fair value
 
Number of shares
 
Weighted
 average
grant date
fair value
 
Number of shares
 
Weighted
 average
grant date
fair value
Nonvested at beginning of year
 
494,452

 
$
16.43

 
456,032

 
$
16.00

 
518,756

 
$
16.65

Granted
 
439,674

 
17.65

 
273,933

 
16.80

 
302,175

 
15.65

Vested
 
(227,905
)
 
16.45

 
(215,796
)
 
16.19

 
(263,302
)
 
16.63

Forfeited
 
(62,580
)
 
16.58

 
(19,717
)
 
16.40

 
(101,597
)
 
16.26

Nonvested at end of year
 
643,641

 
$
17.21

 
494,452

 
$
16.43

 
456,032

 
$
16.00


The fair value of restricted stock is determined based on the number of shares granted and the quoted price of First Financial's common stock. The total fair value of restricted stock vested during 2015 was $3.8 million .


18. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in thousands, except per share data)
 
2015
 
2014
 
2013
Numerator
 
 
 
 
 
 
Net income
 
$
75,063

 
$
65,000

 
$
48,349

 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
Basic earnings per common share - weighted average shares
 
61,062,657

 
58,662,836

 
57,270,233

Effect of dilutive securities
 
 
 
 
 
 
Employee stock awards
 
670,282

 
589,157

 
692,050

Warrants
 
114,608

 
140,674

 
110,771

Diluted earnings per common share - adjusted weighted average shares
 
61,847,547

 
59,392,667

 
58,073,054

 
 
 
 
 
 
 
Earnings per share available to common shareholders
 
 
 
 
 
 
Basic
 
$
1.23

 
$
1.11

 
$
0.84

Diluted
 
$
1.21

 
$
1.09

 
$
0.83


Warrants to purchase 322,312 , 465,117 and 465,117 shares of the Company's common stock were outstanding as of December 31, 2015 , 2014 and 2013 , 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.

First Financial Bancorp 2015 Annual Report 91
Notes To Consolidated Financial Statements


Stock options and warrants, with an exercise price 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 anti-dilutive.  Using the period end price, there were no out-of-the-money options at December 31, 2015 and 20,626 and 215,452 out-of-the-money options at December 31, 2014 and 2013 , respectively. 

As of December 31, 2015 , 2014 , and 2013 , no preferred shares were issued or outstanding.

19. Fair Value Disclosures

Fair Value Measurement
The fair value framework as disclosed in the Fair Value Measurements and Disclosure Topic of FASB ASC Topic 825, Financial Instruments (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 above 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.

Loans held for sale. Loans held for sale are carried at the lower of cost or 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 C&I, 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

92 First Financial Bancorp 2015 Annual Report

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.

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected.  Impaired loans are specifically reviewed for purposes of determining the appropriate amount of impairment to be allocated to the allowance for loan and lease losses.  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 vast majority of the collateral is real estate.  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 if not considered significant.  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 allowance for loan and lease losses 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 based on a discounted cash flow methodology that consider factors including 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 were 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 carrying amount of accrued interest approximates its fair value.

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.

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 carrying amount of accrued interest approximates its fair value. 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 of 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.  The discounted net present value calculated represents the cost to terminate the swap if First Financial should choose to do so. Additionally, First Financial utilizes a vendor-developed, proprietary model to value the credit risk component of both the 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.

First Financial Bancorp 2015 Annual Report 93
Notes To Consolidated Financial Statements


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
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

53,725

0

53,725

0

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

 
 
 
 
 
 
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



 
Carrying
Estimated Fair Value
(Dollars in thousands)
Value
Total
Level 1
Level 2
Level 3
December 31, 2014
 
 
 
 
 
Financial assets
 
 
 
 
 
Cash and short-term investments
$
132,752

$
132,752

$
132,752

$
0

$
0

Investment securities held-to-maturity
867,996

874,749

0

874,749

0

Other investments
52,626

52,626

0

52,626

0

Loans held for sale
11,005

11,005

0

11,005

0

Loans and leases, net of ALLL
4,724,377

4,763,619

0

0

4,763,619

FDIC indemnification asset
22,666

12,449

0

0

12,449

 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
Deposits
 
 
 
 
 
Noninterest-bearing
$
1,285,527

$
1,285,527

$
0

$
1,285,527

$
0

Interest-bearing demand
1,225,378

1,225,378

0

1,225,378

0

Savings
1,889,473

1,889,473

0

1,889,473

0

Time
1,255,364

1,254,070

0

1,254,070

0

Total deposits
5,655,742

5,654,448

0

5,654,448

0

Short-term borrowings
661,392

661,392

661,392

0

0

Long-term debt
48,241

49,674

0

49,674

0



94 First Financial Bancorp 2015 Annual Report

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as follows:

 
 
Fair Value Measurements Using
 
Assets/Liabilities
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
at Fair Value
December 31, 2015
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivatives
 
$
0

 
$
14,111

 
$
0

 
$
14,111

Available-for-sale investment securities
 
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


 
 
Fair Value Measurements Using
 
Assets/Liabilities
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
at Fair Value
December 31, 2014
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivatives
 
$
0

 
$
11,399

 
$
0

 
$
11,399

Available-for-sale investment securities
 
8,406

 
832,062

 
0

 
840,468

Total
 
$
8,406

 
$
843,461

 
$
0

 
$
851,867

 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

Derivatives
 
$
0

 
$
13,662

 
$
0

 
$
13,662


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-market 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
December 31, 2015
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Impaired loans
 
$
0

 
$
0

 
$
8,008

OREO
 
0

 
0

 
7,598



 
 
Fair Value Measurements Using
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
December 31, 2014
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Impaired loans
 
$
0

 
$
0

 
$
14,096

OREO
 
0

 
0

 
13,094




First Financial Bancorp 2015 Annual Report 95

20. Business Combinations

First Financial completed the following business combinations in 2015 and 2014:

Oak Street. Oak Street is a nationwide lender based in Indianapolis, Indiana that provides loans, secured by commissions and cash collateral accounts, exclusively 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.

First Bexley. Founded in 2006 and conducting operations out of one full service branch location in Bexley, Ohio, First Bexley served commercial and consumer clients throughout Columbus and central Ohio. Under the merger agreement, First Financial acquired First Bexley in a cash and stock transaction in which First Bexley was merged with and into First Financial Bank on August 7, 2014.

Insight. Founded in 2006 and conducting operations out of one full service location in Worthington, Ohio, and a mortgage origination office in Newark, Ohio, Insight provided commercial and consumer banking services to clients throughout Columbus and central Ohio. Under the merger agreement, First Financial acquired Insight in a cash and stock transaction in which Insight merged with and into First Financial Bank on August 7, 2014.

Guernsey. Headquartered in Worthington, Ohio, Guernsey conducted operations out of three full service branches, and served commercial and consumer clients throughout Columbus and central Ohio. Under the terms of the merger agreement, First Financial acquired Guernsey for cash consideration and the transfer of a single bank-owned property to Guernsey's sole shareholder. The Company also paid off all amounts due under a promissory note to a third party on behalf of Guernsey. The Guernsey Bank, an Ohio state chartered bank and wholly-owned subsidiary of Guernsey, merged with and into First Financial as part of the agreement on August 21, 2014.

Each of the acquisitions discussed above were 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 acquisitions as additional information relative to closing date fair values become available. The Company finalized fair values during the third quarter of 2015 for the First Bexley, Insight and Guernsey acquisitions, with no changes to the originally recorded adjustments. The Company continues to finalize the fair values of loans, intangible assets and liabilities for the Oak Street acquisition. As a result, the fair value adjustments for Oak Street are preliminary and may change as information becomes available, but no later than August 2016.

The following tables provide the purchase price calculation as of the acquisition dates and the identifiable assets purchased and the liabilities assumed at their estimated fair value. These fair value measurements are based on third-party valuations.


First Financial Bancorp 2015 Annual Report 96

2015
 
(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


2014
 
 
 
 
 
 
 
(Dollars in thousands)
First Bexley
 
Insight
 
Guernsey
 
Total
Purchase consideration
 
 
 
 
 
 
 
Cash consideration
$
10,810

 
$
9,880

 
$
13,500

 
$
34,190

Stock consideration
33,699

 
26,730

 
0

 
60,429

Other consideration
0

 
0

 
2,523

 
2,523

Total purchase consideration
$
44,509

 
$
36,610

 
$
16,023

 
$
97,142

 
 
 
 
 
 
 
 
Assets acquired
 
 
 
 
 
 
 
Loans
$
314,807

 
$
219,008

 
$
72,448

 
$
606,263

Intangible assets
1,280

 
1,277

 
999

 
3,556

Other assets
25,456

 
30,799

 
61,238

 
117,493

Total assets
$
341,543

 
$
251,084

 
$
134,685

 
$
727,312

 
 
 
 
 
 
 
 
Liabilities assumed
 
 
 
 
 
 
 
Deposits
$
273,860

 
$
179,330

 
$
115,415

 
$
568,605

Borrowings
40,000

 
44,149

 
10,742

 
94,891

Other liabilities
1,454

 
7,303

 
606

 
9,363

Total liabilities
$
315,314

 
$
230,782

 
$
126,763

 
$
672,859

 
 
 
 
 
 
 
 
Net identifiable assets
$
26,229

 
$
20,302

 
$
7,922

 
$
54,453

Goodwill
$
18,280

 
$
16,308

 
$
8,101

 
$
42,689


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.

First Financial Bancorp 2015 Annual Report 97

The goodwill arising from the First Bexley, Insight and Guernsey acquisitions reflects the increased market share and related synergies that are expected to result from the acquisitions.

The goodwill arising from the Oak Street, First Bexley and Insight transactions is not deductible for income tax purposes as the mergers were accounted for as tax-free exchanges. The tax-free exchanges 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. The goodwill arising from the Guernsey transaction is deductible for tax purposes as the Guernsey transaction was considered a taxable exchange. For further detail, see Note 8 – Goodwill and Other Intangible Assets.

21. First Financial Bancorp (Parent Company Only) Financial Information

Balance Sheets
 
December 31,
(Dollars in thousands)
2015
 
2014
Assets
 
 
 
Cash
$
106,072

 
$
55,192

Investment securities, available for sale
335

 
276

Other investments
6,190

 
5,399

Subordinated notes from subsidiaries
7,500

 
7,500

Investment in subsidiaries
 
 
 
Commercial banks
807,832

 
712,067

Total investment in subsidiaries
807,832

 
712,067

Premises and equipment
1,412

 
1,431

Other assets
12,312

 
13,870

Total assets
$
941,653

 
$
795,735

 
 
 
 
Liabilities
 
 
 
Subordinated debentures
$
118,312

 
$
0

Dividends payable
10,251

 
10,249

Other liabilities
3,714

 
1,409

Total liabilities
132,277

 
11,658

Shareholders’ equity
809,376

 
784,077

Total liabilities and shareholders’ equity
$
941,653

 
$
795,735



First Financial Bancorp 2015 Annual Report 98

Statements of Income  
 
Years Ended December 31,
(Dollars in thousands)
2015
 
2014
 
2013
Income
 
 
 
 
 
Interest income
$
81

 
$
73

 
$
75

Noninterest income
253

 
92

 
0

Dividends from subsidiaries
17,250

 
31,700

 
58,700

Total income
17,584

 
31,865

 
58,775

 
 
 
 
 
 
Expenses
 
 
 
 
 
Interest expense
2,157

 
0

 
0

Salaries and employee benefits
4,224

 
4,041

 
4,042

Miscellaneous professional services
723

 
708

 
663

Other
5,564

 
5,307

 
5,059

Total expenses
12,668

 
10,056

 
9,764

Income before income taxes and equity in undistributed net earnings of subsidiaries
4,916

 
21,809

 
49,011

Income tax benefit
(4,563
)
 
(3,674
)
 
(3,659
)
Equity in undistributed earnings (loss) of subsidiaries
65,584

 
39,517

 
(4,321
)
Net income
$
75,063

 
$
65,000

 
$
48,349

 

   

First Financial Bancorp 2015 Annual Report 99
Notes To Consolidated Financial Statements

Statements of Cash Flows
 
Years Ended December 31,
(Dollars in thousands)
2015
 
2014
 
2013
Operating activities
 
 
 
 
 
Net income
$
75,063

 
$
65,000

 
$
48,349

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Equity in undistributed (earnings) loss of subsidiaries
(65,584
)
 
(39,517
)
 
4,321

Depreciation and amortization
78

 
24

 
26

Stock-based compensation expense
4,049

 
3,970

 
3,803

Deferred income taxes
(85
)
 
180

 
(676
)
(Decrease) increase in dividends payable
2

 
1,071

 
(7,691
)
(Decrease) increase in other liabilities
1,965

 
(1,654
)
 
7,719

Decrease (increase) in other assets
1,459

 
(264
)
 
1,266

Net cash provided by (used in) operating activities
16,947

 
28,810

 
57,117

 
 
 
 
 
 
Investing activities
 
 
 
 
 
Capital contributions to subsidiaries
(40,000
)
 
(27,601
)
 
0

Net cash (paid) acquired from business acquisitions
0

 
(17,065
)
 
0

Proceeds from disposal of subsidiaries
0

 
18,695

 
0

Proceeds from calls and maturities of investment securities
87

 
29

 
48

Purchases of investment securities
(412
)
 
(192
)
 
(88
)
Purchases of premises and equipment
0

 
0

 
(80
)
Other
0

 
0

 
307

Net cash provided by (used in) investing activities
(40,325
)
 
(26,134
)
 
187

 
 
 
 
 
 
Financing activities
 
 
 
 
 
Proceeds from long-term borrowings
120,000

 
0

 
0

Cash dividends paid on common stock
(39,070
)
 
(34,848
)
 
(61,429
)
Treasury stock purchase
(4,498
)
 
(697
)
 
(11,778
)
Proceeds from exercise of stock options, net of shares purchased
744

 
1,056

 
73

Excess tax benefit on share-based compensation
146

 
153

 
686

Other
(3,064
)
 
(1,568
)
 
(2,632
)
Net cash provided by (used in) financing activities
74,258

 
(35,904
)
 
(75,080
)
Net increase (decrease) in cash
50,880

 
(33,228
)
 
(17,776
)
Cash at beginning of year
55,192

 
88,420

 
106,196

Cash at end of year
$
106,072

 
$
55,192

 
$
88,420




100 First Financial Bancorp 2015 Annual Report

Quarterly Financial And Common Stock Data (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended
(Dollars in thousands, except per share data)
 
March 31
 
June 30
 
September 30
 
December 31
2015
 
 
 
 
 
 
 
 
Interest income
 
$
64,008

 
$
63,844

 
$
68,675

 
$
73,232

Interest expense
 
5,422

 
5,170

 
5,516

 
7,149

Net interest income
 
58,586

 
58,674

 
63,159

 
66,083

Provision for loan and lease losses
 
2,060

 
3,070

 
2,647

 
1,864

Noninterest income
 
 
 
 
 
 
 
 
Gain on sale of investment securities
 
0

 
1,094

 
409

 
2

FDIC loss sharing income
 
(1,046
)
 
(304
)
 
(973
)
 
(164
)
Accelerated discount on covered loans
 
2,092

 
4,094

 
3,820

 
785

All other
 
16,567

 
16,531

 
17,099

 
15,196

Total noninterest income
 
17,613

 
21,415

 
20,355

 
15,819

Noninterest expenses
 
48,068

 
48,786

 
52,992

 
51,284

Income before income taxes
 
26,071

 
28,233

 
27,875

 
28,754

Income tax expense
 
8,450

 
9,284

 
9,202

 
8,934

Net income
 
$
17,621

 
$
18,949

 
$
18,673

 
$
19,820

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.29

 
$
0.31

 
$
0.31

 
$
0.33

Diluted
 
$
0.29

 
$
0.31

 
$
0.30

 
$
0.32

Cash dividends paid per common share
 
$
0.16

 
$
0.16

 
$
0.16

 
$
0.16

Market price
 
 
 
 
 
 
 
 
High
 
$
18.30

 
$
18.55

 
$
19.69

 
$
20.72

Low
 
$
16.52

 
$
16.68

 
$
17.55

 
$
17.83

 
 
 
 
 
 
 
 
 
2014
 
 
 
 
 
 
 
 
Interest income
 
$
58,988

 
$
58,727

 
$
63,391

 
$
66,753

Interest expense
 
4,169

 
4,423

 
5,028

 
5,614

Net interest income
 
54,819

 
54,304

 
58,363

 
61,139

Provision for loan and lease losses
 
(1,033
)
 
(384
)
 
893

 
2,052

Noninterest income
 
 
 
 
 
 
 
 
Gain on sale of investment securities
 
50

 
0

 
0

 
20

FDIC loss sharing income
 
(508
)
 
1,108

 
(192
)
 
(43
)
Accelerated discount on covered loans
 
1,015

 
621

 
789

 
1,759

All other
 
13,618

 
14,608

 
15,914

 
15,206

Total noninterest income
 
14,175

 
16,337

 
16,511

 
16,942

Noninterest expenses
 
47,842

 
47,111

 
51,419

 
49,662

Income before income taxes
 
22,185

 
23,914

 
22,562

 
26,367

Income tax expense
 
7,081

 
7,961

 
7,218

 
7,768

Net income
 
$
15,104

 
$
15,953

 
$
15,344

 
$
18,599

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.26

 
$
0.28

 
$
0.26

 
$
0.31

Diluted
 
$
0.26

 
$
0.28

 
$
0.26

 
$
0.30

Cash dividends paid per common share
 
$
0.15

 
$
0.15

 
$
0.15

 
$
0.15

Market price
 
 
 
 
 
 
 
 
High
 
$
18.20

 
$
18.43

 
$
17.66

 
$
19.00

Low
 
$
15.98

 
$
15.51

 
$
15.83

 
$
15.34


First Financial Bancorp common stock trades on the Nasdaq Stock Market under the symbol FFBC.

First Financial Bancorp 2015 Annual Report 101



Total Return to Shareholders

The following graph compares the five-year cumulative total return to shareholders of First Financial Bancorp common stock with that of companies that comprise the Nasdaq Composite Index and the KBW Regional Bank Index. The KBW Regional Bank Index is comprised of 50 bank holding companies headquartered throughout the country and is used frequently by investors when comparing First Financial Bancorp's stock performance to that of other similarly sized institutions. First Financial Bancorp is included in the KBW Regional Bank Index.

The following table assumes $100 invested on December 31, 2010 in First Financial Bancorp, the Nasdaq Composite Index and the KBW Regional Bank Index, and assumes that dividends are reinvested.


COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST FINANCIAL BANCORP, NASDAQ COMPOSITE INDEX
AND KBW REGIONAL BANK INDEX


 
2010
2011
2012
2013
2014
2015
First Financial Bancorp
100.00

94.47

89.45

113.27

125.24

126.17

Nasdaq Composite Index
100.00

99.20

116.79

163.69

187.91

201.27

KBW Regional Bank Index
100.00

94.82

107.39

157.64

161.46

171.14




102 First Financial Bancorp 2015 Annual Report

SHAREHOLDER INFORMATION Annual Shareholder Meeting The annual meeting of shareholders will be held on Tuesday, May 24, 2016, at 10:00 a.m. (EDT) at: 255 E. Fifth Street 9th Floor, Room 950 Cincinnati OH 45202 Common Stock Listing First Financial Bancorp’s common stock trades on the Nasdaq Stock Market under the symbol FFBC. Registrar and Transfer Agent Computershare Shareholder Services serves as the registrar and transfer agent for First Financial Bancorp common stock for registered shareholders. Shareholder account inquiries, including changes of address or ownership, transferring stock, and replacing lost certificates or dividend checks should be directed to Computershare Shareholder Services at: Transfer Agent Computershare Shareholder Services P.O. Box 30170 College Station, TX 77842-3170 1-800-368-5948 Shareholders of record can also access their shareholder account records and request information related to their shareholder account via the internet. To register for online account access, go to: www.computershare.com/investor. Dividend Reinvestment and Stock Purchase Plan Shareholders of record holding 25 shares or more are eligible to participate in our Dividend Reinvestment Plan. Shareholders of record may elect to have cash dividends automatically reinvested in additional common shares and can also purchase additional common shares by making optional cash payments. To obtain a prospectus, enroll in the plan, or to contact Investor Relations, please visit the Investor Relations section of our website at www.bankatfirst.com/investor. Investor Relations Corporate and investor information, including news releases, webcasts, investor presentations, annual reports, proxy statements and SEC filings as well as information on the company’s corporate governance practices is available within the Investor Relations section of our website at www.bankatfirst.com/investor. Shareholders, analysts and other investment professionals who would like corporate and financial information on First Financial Bancorp should contact: Eric R. Stables First Vice President, Investor Relations and Corporate Development First Financial Bancorp 255 East 5th Street, Suite 700 Cincinnati, OH 45202 513-458-6454 E-mail: eric.stables@bankatfirst.com Securities and Exchange Commission Filings All reports filed electronically by First Financial Bancorp with the United States Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current event reports on Form 8-K, as well as any amendments to those reports, are accessible at no cost within the Investor Relations section of our website at www. bankatfirst.com/investor, or by contacting Investor Relations. These filings are also accessible on the SEC’s website at www.sec.gov. Media Requests Members of the media should contact: Adam Kiefaber First Financial Bancorp 255 East Fifth Street, Suite 700 Cincinnati, Ohio 45202 Phone: 513-979-5735 E-mail: adam.kiefaber@bankatfirst.com We recently unveiled a fresh and exciting new website that enhances product and service delivery to our clients through a more modern online experience. www.bankatfirst.com CHECK OUT OUR NEW WEBSITE!

First Financial Bancorp 2015 Annual Report 103

First Financial Bancorp First Financial Center 255 East Fifth Street Suite 700, Cincinnati, OH 45202-4248 bankatfirst.com

CODE OF CONDUCT

 
Fellow Associates, At First Financial, nothing is more important to our mission and our business than the trust our clients put in us. Integrity is the cornerstone of our culture, and all of us share a personal responsibility to exemplify our principles of uncompromising ethics, respect, responsibility, and good citizenship. We will succeed by putting values first. We must rely on your sense of personal integrity to protect and enhance our reputation and ask that you seek appropriate guidance whenever necessary. Basing your decisions on our Company values will also lead you to do the right thing, especially in those circumstances where you cannot seek guidance or confirmation. Harm to our reputation affects the entire Company and is enduring. Any actual or perceived ethical transgression, no matter how isolated or minor, can substantially damage our reputation. Doing the right thing is key to our success! We expect each of you to understand and comply with this Code of Conduct, and all other policies that apply to you, both in letter and in spirit. Please take the time to review this Code of Conduct and other elements of the values first Program. These tools are designed to help you put values first. Sincerely, Claude E. Davis President and CEO

 
Mission Statements Our Mission We will exceed our clients’ expectations and satisfy their financial needs by building long-term relationships using a client-centered, value-added approach. Our Values Integrity. We steadfastly adhere to ethical principles and professional standards. Respect. We value the diversity and individuality of each associate and client. Responsiveness. We readily react to the needs and deadlines of our clients and co-workers. Commitment. We are committed to doing whatever we can to meet the needs of our clients and other stakeholders. Leadership. We believe that leadership should be encouraged and demonstrated at every level in our Company. Excellence. Our business decisions and our service to every stakeholder should reflect the highest standards. values first and Code of Conduct Mission The values first program and the Code of Conduct are designed to establish and encourage a Company culture based on the highest ethical principles that pervades throughout every office, level and function of the Company. These will guide our day to day decisions and activities in accordance with our Company values.

 
Table of Contents Living values first and Living by the Code of Conduct ........................................... 1 How the Code Works .................................................................................................. 2 To Whom Does the Code Apply? ........................................................................... 2 Making Good Decisions ......................................................................................... 3 Reporting Code of Conduct Violations and Sharing Concerns About Misconduct . 5 Non-Retaliation ...................................................................................................... 9 Investigations ........................................................................................................ 10 Where Do I Turn for Assistance; Help and Resources ....................................... 10 Your Responsibilities as an Associate .................................................................... 11 Special Responsibilities of Leadership ..................................................................... 12 Training and Acknowledgment ................................................................................ 13 Waivers and Exceptions to the Code of Conduct .................................................... 14 Our Responsibilities to All ....................................................................................... 15 Non-Discrimination and Equal Opportunity ............................................................. 15 Protection of Confidential Information ..................................................................... 15 Fair Dealing and Competition .................................................................................. 18 Compliance with Laws and Regulations .................................................................. 19 Our Responsibilities to the Company ..................................................................... 22 Protecting Company Assets .................................................................................... 22 Conflicts of Interest .................................................................................................. 24 Personal Financial Affairs ........................................................................................ 27 Gifts and Entertainment ........................................................................................... 28 Outside Activities ..................................................................................................... 29 Political Contributions and Activities ........................................................................ 31 Corporate Opportunities .......................................................................................... 33 Accuracy of Records and Information Reporting ...................................................... 33 Effectively Manage Risk and Lead in Risk Control .................................................. 35 Business Expenses .................................................................................................. 36 Our Responsibilities to Our Associates ................................................................. 37 Diversity and Equal Opportunity .............................................................................. 37 Discrimination and Harassment ............................................................................... 38 Personal Conduct .................................................................................................... 40 Workplace Safety and Health .................................................................................. 40 Our Responsibilities to the Market and Our Shareholders ................................... 42 Insider Trading ......................................................................................................... 42 Disclosure ................................................................................................................ 45 Media and Shareholder Inquiries ............................................................................. 45 Our Responsibilities to the Community .................................................................. 46 Community Reinvestment ....................................................................................... 46 Charitable Conduct and Donations .......................................................................... 46

 
1 Living values first and Living by the Code of Conduct First Financial Bancorp and First Financial Bank, and all related affiliates and subsidiaries (collectively “First Financial” or the “Company”), are committed to living and conducting business according to our core Company values and living values first. While Integrity is first among our core Company values, all of our core values are engaged in the values first program. The values first program identifies our approach to creating a culture based on the highest ethical principles that pervades throughout every office, level and function of the Company to guide our day to day decisions and activities in accordance with our Company values. Living values first at First Financial means basing your decisions and actions on your values to guide you to do what is right for yourself, our stakeholders and the Company. The Code of Conduct is the pillar of the values first program. This Code of Conduct:  Is designed to help you understand First Financial’s commitment to living values first;  Provides guidance, identifies resources and helps you understand First Financial’s expectations of a values-based culture; Doing the right thing is key to our success!

 
2  Includes certain questions and answers about issues that commonly arise, but does not address every situation you may face; and  Together with other components of the values first program, will give you the tools to help guide you in making ethical decisions in line with First Financial’ s Values. We believe living values first sets us apart from our competitors. The Code of Conduct identifies our commitment to our Values and our responsibilities to our stakeholders, including our clients, our shareholders, our fellow associates, our regulators, and our community. How the Code Works To Whom Does the Code Apply? The Code applies to all associates, officers, and directors of First Financial. Outside consultants, contractors, and agents used by First Financial are encouraged to abide by the Code of Conduct and may be required to comply with specific codes or policies established for their particular situations when performing services for First Financial. This Code represents the values first ethical foundation to which everyone is expected to live. Depending upon your individual role or position, you may also be subject to more stringent or more specific policies or standards. For example, the Chief Executive Officer and Chief Financial Officer, as well as certain other executive officers, are subject to the Code of Ethics for the Chief Executive Officer and Senior Financial Officers.

 
3 You may also have certain professional responsibilities or obligations with respect to specific licenses you hold. Similarly, many First Financial associates are subject to ethical and conduct standards stemming from fiduciary obligations and fiduciary positions. Applicable local or federal law may also dictate certain courses of action. If you believe there is a conflict between the Code and any other policy or standard you are expected to comply with, you should comply with the most restrictive standard. Making Good Decisions Situations that involve ethical questions are often complex, and it may be difficult to clearly identify the right choice of action. It is similarly difficult to express definitively whether something is right or wrong in many situations. You are expected to carefully weigh the various factors and reach a rational, well-reasoned, and ethically sound decision. When faced with these situations or decisions, there are several questions you should ask yourself before making a decision or taking action:  Do I have the necessary facts and information?  Have I identified and considered the alternatives?  Is the decision legal?  Is the decision ethical?  Does the action comply with values first, the Code of Conduct, the Company values, and any other directives? Q: What if I have a concern that is not covered by this Code of Conduct? A: Apply the decision tools in this Code of Conduct and the values first materials and listen to your own instincts! If you are not certain if it is right, please discuss the matter with your manager or appropriate representatives of the Talent Management. Legal, or Audit departments.

 
4  How does my decision affect each of our stakeholders: clients, shareholders, associates, regulators, and the community?  How would others perceive my decision and can it be explained and defended?  What would happen if my decision and the rationale behind it became front page news? How would it reflect on me and on First Financial?  What would happen if everyone made the same decision? Is this sustainable in the long term or is it a short term benefit (with possible long-term negative consequences)?  Should I consult with my manager, my Talent Management partner, Legal, or Audit before acting? And what do I expect their guidance would be? If you are uncertain as to the proper course, you should seek guidance from your manager or appropriate representatives from the Talent Management, Legal, or Audit departments. Additional information about where to turn for advice can be found on the values first page of the intranet as well as in the section of this Code titled “Where Do I Turn for Assistance; Help and Resources”.

 
5 Reporting Code of Conduct Violations and Sharing Concerns About Misconduct Not only are you expected to live values first in your own conduct, you are expected to help ensure that others within First Financial are doing likewise. Reporting violations of the Code, violations of law or other misconduct, or sharing concerns you have about the actions of others, is critical to First Financial’s success and its ability to protect its assets and reputation. You are obligated to report any misconduct or any violations or suspected violations of this Code, applicable law, or any other applicable policy or standard. You may be held responsible for not reporting misconduct, violations, or suspected violations if you knew or should have known of the matter. Even if you are not sure if a violation or misconduct has occurred or will occur, you should report it! We have set up several different channels for you to report violations or share concerns about misconduct. Any of these channels are available to you, and you are encouraged to use the channel that best suits your situation.  Call the Toll-free Ethics First Hotline The Ethics First Hotline number is 866-291-2909 and can be used at any time, day or night. The Ethics First Hotline is operated by an independent third-party reporting service, Ethicspoint, Inc., that will forward the information to the Audit Committee, Chief Internal Auditor and Chief Legal Officer for appropriate action. The Ethics First Hotline allows you to remain completely anonymous if you so choose. Q. I am suspicious that dishonest conduct may be occurring in my department. I would like to gather more facts before I report it. How is the best way to proceed? A. You should report it to your manager or through one of the other means identified in the Code immediately so a determination can be made on how best to proceed.

 
6 The Ethics First Hotline does not use caller-ID or other devices that identify you or trace your number. If you do choose to identify yourself, you may still request that your identity be kept confidential to the extent possible as described below.  Go Online to the Ethics First Hotline web-based reporting system The web-based Ethics First Hotline system is operated by an independent third-party reporting service, Ethicspoint, Inc., and allows you to remain completely anonymous if you choose to do so. This system may be accessed through the intranet at Important Links – Ethics First Hotline/Whistleblower or through the values first intranet page. You may also access this system directly at www.ethicsatfirst.com. If you do choose to identify yourself, you may still request that your identity be kept confidential to the extent possible as described below.  E-mail one of the Co-Managers of the Ethics First Hotline system via email You may also email: Matthew Burgess, Chief Internal Auditor at matthew.burgess@bankatfirst.com; or Corporate General Counsel at general.counsel@bankatfirst.com Any email you send from your work or personal accounts is not expected to provide anonymity. You may, however, request that your identity be kept confidential to the extent possible.

 
7  Correspond directly with the Audit Committee of the Board of Directors or with one of the Co- Managers of the Ethics First Hotline system through US mail This reporting channel allows you to remain anonymous or request that your identity remain confidential to the extent possible. Correspondence sent to the below post office box is only accessible by one of the three persons indicated. You may send written correspondence to the attention of any of the following: Audit Committee Chair – Confidential Chief Internal Auditor – Confidential Chief Legal Officer – Confidential You may also send correspondence to the attention of the Ethics First Hotline, in which case a copy will be routed to each of the three individuals above. The correspondence should be sent to the following address: First Financial Bancorp. Attn: [insert one of the titles above] P.O. Box 234 Hamilton, Ohio 45012-0234 Q. I am processing a transaction and the documentation appears to have been altered. I’m not sure there has been any misconduct and I don’t want to get anyone in trouble if my suspicions are not accurate. What do I do? A. You should report your concern as long as you have a good faith belief that there has been misconduct. After your report has been made, an investigation will be conducted by appropriate personnel to determine whether misconduct has occurred.

 
8  Discuss the situation with your Talent Management Partner, an attorney within the Legal Department, or a representative of the Audit Department. Depending on the situation, representatives of these areas of the Company may be able to more personally address your concerns. While anonymity may not be possible, you may request that your identity be kept confidential to the extent possible.  Discuss the situation with your manager or with higher levels of management within your business unit. You are encouraged to report violations or share concerns about misconduct with your manager or more senior management within your business line. In many situations, your manager may be attuned to the situation or particular issue. However, there may be situations that are not appropriate to discuss with your supervisor or where you wish to remain anonymous. In these situations, you should use one of the other channels available. A report of a violation, potential violation, or other mis- conduct made using any of these channels will be reviewed and investigated thoroughly by the Company. If you have chosen not to remain anonymous, you may still ask that your identity be kept confidential to the extent possible.

 
9 If you request that your identity remain confidential to the extent possible, we will take all reasonable steps to make certain that your identity is only shared on a need-to-know basis and only to the extent necessary to complete an adequate investigation or review, or to comply with applicable law or other legal obligations. Non-Retaliation We strictly prohibit retaliation, in any form, against anyone who makes a good faith effort to report any misconduct or any violations or suspected violations of this Code, applicable law, or any other applicable policy or standard. Your good faith report of misconduct or a suspected violation, or your participation in an investigation, cannot be the basis for any adverse employment action, including termination, demotion, loss of benefits, threats, harassment, or discrimination. Any retaliation against an employee who in good faith raises an issue or makes a report of misconduct or any violation or suspected violation of this Code, applicable law or any other applicable policy or standard, is itself a violation of this Code and should be reported to the Chief Legal Officer or through one of the channels identified above. Reporting in good faith does not mean that you have to be right when you raise a concern or that the investigation must reach the conclusion that misconduct has occurred. Reporting in good faith means you have to believe that the information you are providing is accurate. Making a report without good faith, or with malicious intent, can be extremely harmful to the Company’s operations and its associates. Making a report without good faith will itself be considered a violation of this Code. Q. My manager typically does nothing when concerns about potential misconduct are brought to her attention, and I believe she has made things difficult for associates who have raised issues. I have concerns about the actions of another associate and don’t know where to turn. A. Speak up. Our Code of Conduct says that you should report misconduct of which you are aware and that you can do so without fear of retaliation for good- faith reporting. You should also report any retaliation you perceive.

 
10 Investigations First Financial takes all reports of possible misconduct or violations seriously. We will investigate the matter thoroughly and, if appropriate, take corrective action. Any information you provide will be handled discreetly and shared only with those who will be investigating and resolving the matter, as well as any other party who we may have an obligation to inform, such as our regulators in certain situations. Where Do I Turn for Assistance; Help and Resources This Code and information concerning the values first program, including the Ethics First Hotline, are available on the Company’s intranet site through the values first link. The values first program and this Code provide guidelines to help you make appropriate decisions. We will provide decision tools, questions to ask yourself, and various scenarios and examples to help guide your decision making. If you are uncertain as to the proper course of action to take, you should seek guidance from your manager or appropriate representatives from the Talent Management, Legal, or Audit Departments. Specific contact information for these departments can be found at the values first intranet site. Representatives of these departments, in addition to your own manager, are open-door resources to you.

 
11 Your Responsibilities as an Associate First and foremost, it is your responsibility to understand and adhere to the Code of Conduct, both in letter and in spirit. You are also responsible for understanding and abiding by all other Company policies that affect your position. Your responsibilities include:  Acting in an ethical and professional manner at all times when performing your duties for First Financial.  Promptly reporting or raising concerns about any actual or suspected misconduct or violation of this Code, other Company policy or applicable law.  Promptly reporting any circumstance where you feel you are being told to do something unethical or illegal. We rely on you to make good decisions and help preserve the ethical standards and values first culture of First Financial. No one, at any level, has the authority to tell you to do something unethical or illegal.  Never asking or suggesting that any associate, officer, director, client or other business partner do something that would be prohibited by this Code. Q. My business unit has certain sales goals that we are asked to achieve. I sometimes feel pressured to violate the Code of Conduct to achieve these goals. Is this acceptable? A. No. While successful businesses set high goals and employees strive to achieve them, you should never violate the Code of Conduct or First Financial policies to achieve them.

 
12  Raising issues and making reports of actual or suspected misconduct or violation of this Code, other Company policy or applicable law in good faith.  Cooperating and providing honest and accurate information in any investigation conducted by the Company, as well as any audit, regulatory exam, legal proceeding, or similar activity.  Completing required Code of Conduct and values first training in a timely manner. Special Responsibilities of Leadership If you are in a leadership position, you have additional and heightened responsibilities. You are expected to:  Be a role model of living values first and be a resource to your reports concerning how to follow the Code, other policies and applicable law in their daily work.  Proactively prevent, identify and report misconduct within your group.

 
13  Create and encourage a work environment where ethical conduct is valued and recognized and where associates feel comfortable asking questions and raising concerns.  Not encourage or direct associates to achieve business results at the expense of ethical behavior or compliance with the Code.  Listen carefully to any questions or concerns related to the Code or certain conduct that are raised by your group. Answer any questions and respond appropriately. If you need help or if the concern requires investigation, contact the Legal, Talent Management, Corporate Fraud or Audit Departments. Investigations are conducted and managed by the preceding departments and while your assistance and cooperation are required, it is not your role to conduct an investigation. Training and Acknowledgment All associates are required to acknowledge the Code of Conduct upon hiring and at any other time as requested by the Chief Legal Officer. All associates are required to complete training on the Code of Conduct at least annually and at any other interval required by the Chief Legal Officer. Q. I am a manager and I would like to start discussions about ethical behavior during a team meeting. What resources can I use? A. Start with the Company’s core values and use any of the materials available at the values first intranet page. You might ask your direct reports to provide examples of behavior that support those values and examples that do not. Once initiated, the conversation will be productive and lively. The most important thing is that you’ve introduced the topic for discussion – a good example of leadership.

 
14 Waivers and Exceptions to the Code of Conduct Waivers of the Code, or the approval of certain actions or situations referenced in this Code, should be rare, but may be appropriate in certain cases, including conflicts of interest or use of Company assets. Any waiver or exception must be requested by you in writing and submitted to the executive vice president who leads your business unit. Any approval or waiver that is granted by an executive vice president must be in writing and a copy must be given to the Chief Legal Officer. If you are an executive officer or a director, any waiver or exception must be approved by the Audit Committee. Any approved waiver or exception to the Code of Conduct must be renewed at least annually and may be revoked at any time.

 
15 Our Responsibilities to All Non-Discrimination and Equal Opportunity It is our policy not to discriminate in any of our business or employment matters against any individual in violation of federal, state, and local laws as it relates to age, race, color, religion, national origin, sex, marital status, pregnancy, gender, disability, sexual orientation, genetic information, veteran/military service, or any other characteristic protected by law. We do not tolerate any discrimination or harassment, and you should immediately report any concerns about suspected discrimination or harassment. Protection of Confidential Information You are required to safeguard and maintain the confidentiality of Confidential Information entrusted to you by us, our customers or vendors, except when disclosure is authorized by the Legal Department or required by applicable law or regulation. “Confidential Information” includes all nonpublic information that: (i) might be of use to competitors; (ii) could be harmful to us or our customers, if disclosed; and (iii) information that vendors and customers have entrusted to us. Q. A close friend works for a competitor of ours. We sometimes talk about the challenges we have in marketing certain products and bounce ideas off one another. Is there a problem with this? A. Yes. You are discussing confidential information that belongs to the Company. You may also be violating anti- trust or anti- competitive laws. Do not talk about these types of matters with your friend, family members or anyone outside of the Company.

 
16 Some examples of Confidential Information include, but are not limited to, the following:  Pricing policies and information;  Business or strategic operating plans and outlooks;  Nonpublic financial information about us or our customers, business partners, and vendors;  New product, brand or marketing studies, developments, plans, or forecasts;  Customer data, including contact details, specifications, and preferences;  Contracts and agreements, including agreement terms such as expiration dates, any exclusivity provisions, and financial conditions;  Competitive intelligence that you or our third party business partners or consultants make or compile on our behalf;  Employee, client, business partner, and vendor lists with or without associated contact information;  Software or computer programs;  Merger, acquisition, or divesture plans, whether successful or not; Q. A former employee asked me to send her a copy of a report she created before she left. May I send it to her?   A: No. The report is property of First Financial and you cannot release it outside the company – not even to the person who created it. Want more information about this topic? Please click the links to the following policies: Disclosure Policy Consumer Privacy Policy Customer Information Security Policy Right to Financial Privacy Clean Desk Policy Information Technology and Acceptable Use Policy HIPAA Notice of Privacy Practices

 
17  Personnel plans or major management changes; and  Internal communications such as webcasts, audio transmissions of conference calls, memoranda to staff, and transcripts or minutes of Company meetings. Your obligation to preserve Confidential Information continues even after your association with us ends. All associates are expected to follow Company policies concerning the proper storage and disposal of such information. Before disclosing Confidential Information:  Seek advice from the Legal Department to ensure you are permitted to do so under applicable law and Company policies and procedures;  Disclose it only to those who are authorized to receive it and who have a need to know the information to perform their jobs;  Limit what you share to the amount actually required to achieve the stated business purpose; and  Obtain a confidentiality agreement if the Company is sharing information with someone outside of the Company. Q. We are hiring a new vendor who might need to see confidential customer information. What do I need to do? A. Customer information can only be shared in accordance with applicable law. The Company’s vendor management program addresses the process required to become a fully approved vendor, including any requirements concerning confidentiality agreements.

 
18 Customer Information. You may access customer information only for business purposes and must protect the confidentiality and security of that information at all times. You should be familiar with the Company’s privacy notice to customers and consumers, which details how the Company protects personal information and the circumstances under which the Company may share that information. Company Information. You must keep confidential and secure any nonpublic information about First Financial. Additionally, certain company information should only be shared within the Company with other associates who have a “need to know” the information to perform their duties. Ask your manager for more information if you have any questions about sharing Company information on a “need to know” basis. Associate Information. You must keep confidential and secure any information the Company has about its associates. Fair Dealing and Competition We seek to outperform our competition fairly and honestly and each of you is expected to deal fairly with clients, competitors, vendors and other associates. In order to meet this objective, you must:  Always award contracts and purchase goods and services solely in accordance with the Vendor Management Program and in the best interest of First Financial; Q: We recently hired a manager who was previously employed with one of our competitors. May I ask the manager for information about the competition? A: You must not inquire about their former employer’s trade secrets or any other confidential information of our competitor. Just as we expect you to honor your obligations to First Financial with respect to confidential information, we respect the rights of our competitors in their confidential information. All associates are expected to honor their obligations to former employers. Want more information about this topic? Please click the link to the following policy: Vendor Management Policy Vendor Management Program

 
19  Not take unfair advantage of anyone through manipulations, concealment, abuse of confidential information, misrepresentation of facts or any other unfair practice; and  Not give or accept bribes, kickbacks, or self-interested promises from a current or prospective client or vendor. Additional related information can be found in the Code of Conduct sections concerning Conflicts of Interest and Gifts and Entertainment. Compliance with Laws and Regulations First Financial operates in a highly regulated environment and under intense scrutiny by our regulators, our clients, and the general public. We will comply with all relevant laws and regulations. It is important that we maintain a positive and effective working relationship with our regulators. You must cooperate with our regulators and respond to requests for information in a complete and timely manner. You should feel free to bring concerns directly to the Legal Department, the Risk Management Department, or the Audit Department. As a financial institution, there are numerous laws, rules and regulations that govern our business. Any violation of these laws, rules or regulations could jeopardize our business and our reputation. You must not take any action, either personally or on our behalf, which violates any applicable laws, regulations or internal policies. Q. Meeting my production goals or goals in supporting revenue is very important to me and the success of First Financial, is compliance really a big deal? A. YES! You should consider compliance with all laws, rules and regulations at least equal to if not paramount to your business goals. We will only be successful if we are committed to compliance.

 
20 While we don’t expect you to be a legal expert, you are expected to understand and comply with the laws, rules and regulations that are applicable to your job or position, and you should also know when to seek advice from your manager, the Legal Department, or the Risk Management Department. Fraud, dishonesty or criminal conduct will not be tolerated. As appropriate for your job responsibilities and position, you should:  Learn about the laws, rules and regulations that affect what you do at First Financial;  Consult with the Legal Department if you have any questions about the applicability, existence or interpretation of any law, rule or regulation;  Take mandatory compliance training; and  Attend periodic training and seek to keep informed about any relevant legal or regulatory developments. We have established multiple policies and procedures that address laws and regulations that apply to First Financial. You are expected to comply, both in letter and in spirit, with all of these policies, procedures, laws and regulations. It is not practicable to identify here all the laws and regulations to which we are subject, and the following are just a sample. U.S. Foreign Corrupt Practices Act First Financial is prohibited from giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. You are strictly prohibited from making illegal payments to government officials of any country. Q. With so many laws and regulations affecting our business, where do I go to learn more? A. For general information, please visit the Policies section of Corporate Documents in The Path, ask your manager for information about procedures affecting your role, or review training resources available through the Associate Development Department. For specific questions or assistance, please contact the Compliance Department at ComplianceQuestions @bankatfirst.com.

 
21 Economic Sanction Regulations The U.S. Treasury’s Office of Foreign Assets Control (OFAC) prohibits financial institutions from providing financial services to certain foreign governments or individuals. Additionally, assets of these governments or individuals may be required to be frozen by First Financial. Payments and Gifts to U.S. Government Personnel There are a multitude of laws and regulations concerning business gratuities that may be accepted by U.S. government personnel. The promise, offer or delivery of a gift, favor or other gratuity to an official or employee of the U.S. government is prohibited and may also be a criminal offense. State and local governments may have similar rules that you are required to follow. Bank Secrecy Act and Anti-Money Laundering Regulations The Bank Secrecy Act and Anti-Money Laundering Regulations are designed to prevent money laundering and terrorist financing. These laws require, in addition to other items, that First Financial implement certain policies and procedures regarding customer identification, report instances of suspicious activity in a timely manner, and properly maintain certain records.

 
22 Our Responsibilities to the Company Protecting Company Assets Company assets are highly valuable and are meant only for business use. You have a responsibility to protect and safeguard these assets from loss, theft, carelessness, misuse, damage, and waste in order to preserve their value. Examples of our assets include, but are not limited to:  Computer systems, equipment and technology (including laptops, tablets and mobile devices);  Phones, copiers, scanners and fax machines;  Confidential information, including customer information;  Business, marketing and service plans;  Intellectual property, such as trade secrets, patents, trademarks and copyrights;  Software codes and licenses, ideas, concepts, content and inventions;  Customer information, salary information and any unpublished financial data and reports; Want more information about this topic? Please click the links to the following policies: Information Technology Acceptable Use Policy Physical Security Policy

 
23  Office supplies, furniture and equipment; and  The First Financial name, various brand names and logos. Company assets also include all memos, notes, lists, records and other documents (in paper and/or electronic format) that you or any of our third party business partners or consultants make or compile relating to our business. You should use Company assets appropriately for legitimate and authorized business purposes. You should not access systems or information unless you’ve been authorized and enabled to do so, and the extent of your access must be consistent with the scope of your authorization. Company assets should never be used for illegal activities. We allow and permit limited and occasional personal use of our e- mail, messaging, the internet and phones if the use is not excessive, does not interfere with work responsibilities, and otherwise does not violate this Code or other applicable policies. Misappropriation of Company assets is a breach of your duty to us and may be an act of fraud against us. Taking property from our facilities without permission is regarded as theft. In addition, carelessness or waste of our assets may also be a breach of your duty to us. If you become aware of loss, theft, misuse, damage, or waste of our assets, or if you have any questions about your proper use of these assets, you should speak with your manager. If you leave our employment, or upon our request, you must return any and all of our assets in your possession. Q. The Company uses certain financial modeling software that I think my friend’s business could really benefit from. I would like to ask an associate who works with this software frequently to use it to help my friend. A. This would be an inappropriate use of Company assets both with respect to the software and the associate’s time. Even though these circumstances may not seem to impact the Company’s use of the software, it is still not appropriate and may be prohibited by the terms of the software license.

 
24 Conflicts of Interest We expect that you will act in the best interests of First Financial and avoid conflicts of interest by making reasoned and impartial decisions. A conflict of interest may arise whenever a personal interest interferes with (or even appears to interfere with) the Company’s interests. A conflict of interest can also arise when you take an action or have an interest that makes it difficult for you to perform your work objectively and effectively. While we respect your right to manage your personal business and investments, you should place the Company’s interest in any business transaction ahead of any personal interest or gain. Conflicts of interest may also arise when you or your family members receive improper personal benefits as a result of your relationship with us. Loans and other transactions to you or any party related to you may create conflicts of interest. You are not permitted to process or approve any transactions between the Company and yourself or any party related to you.

 
25 A related party means:  Any of your family members, other relatives, or close friends;  Members of your household, including roommates and other unrelated individuals;  Any organization of which you or any of your family members are a sole proprietor, controlling shareholder, director, trustee, executive officer, or partner; or  Any trust or other estate in which you or your family members have a substantial beneficial interest, or for which you or your family members serve as trustee or in a similar capacity. For example, due to the potential conflicts of interest, you are not permitted to:  Process transactions involving accounts for which you are an authorized signer;  Approve extensions of credit to yourself or to family members; or  Authorize the use of a family member’s business to provide services to us. This is not intended to be a complete list of examples. Other similar transactions may create a conflict of interest. Q. My brother has a catering company that specializes in corporate events. Can I help him get business from First Financial? A. You can introduce him to persons that coordinate corporate events or meals, but then you must remove yourself from the conversation. You should also disclose your relationship and conflict to that group. You cannot do anything to influence our decision about engaging your brother to provide services, and you can’t be involved in our dealings with your brother or his business.

 
26 It is almost always a conflict of interest for you to work or volunteer simultaneously for a competitor, customer, or vendor of ours. You are not allowed to work for a competitor as an employee, consultant, or board member. You should never use your employment or position with us for personal advantage, or seek special terms or price concessions for your personal benefit from customers or vendors of ours. Conflicts of interest and related party transactions involving directors and executive officers must be reviewed by the Audit Committee of the Board of Directors. Extensions of credit from First Financial to executive officers, directors, their related interests and other insiders identified by law are subject to various dollar and other limits, and may be required to be approved by or reported to the Chief Legal Officer or the Board of Directors. Conflicts of interest are prohibited as a matter of our policy, and they must be avoided unless it can be shown that: (a) you or your related interest would receive no unfair advantages by virtue of your position with us, and (b) the Company is in no way disadvantaged by the transaction. Conflicts of interest may not always be clear-cut. If you have a question, you should consult with your manager or the Company’s Chief Legal Officer. If you become aware of an actual or a potential conflict of interest, you should bring it to the attention of your manager or other appropriate personnel by following the procedures described in this Code. For more information about lending to executive officers and directors, please see: Regulation O Policy

 
27 Personal Financial Affairs As a financial institution, our business depends on public confidence in our ability to help manage the financial affairs of others. In general, your personal finances are private. However, because you represent us, it is important that you manage your personal finances properly and in a prudent manner. Also, you must transact all personal financial business with us following the same procedures that are used by clients and from the “client side” of the window or desk. You are not allowed to handle or approve your own transactions, transactions on accounts over which you have any ownership interest, control or signing authority, or transactions for family members. You may not approve overdrafts or reverse or waive fees or service charges for:  Your own accounts;  Accounts in which you have an interest;  Accounts of family members, other relatives and close friends;  Accounts of members of your household, including roommates and other unrelated individuals; or  Accounts of companies or organizations controlled by you, your family members, other relatives and close friends. Q. My roommate has asked me to get a fee on her account waived. It is a fee we normally waive upon request. Can I waive the fee in the system? A. No. You should ask your roommate to contact the Client Service Center or an associate at the banking center to inquire about waiving the fee. Want more information about this topic? Please click the link to the following policy: Transactions Processing Internal Control Policy

 
28 Gifts and Entertainment We encourage you to develop strong relationships with our clients, vendors and others with whom the Company does business, however you should only do this in a manner that does not create or appear to create a conflict of interest. A conflict of interest may arise when you provide or receive gifts or entertainment. Such activities must be legal and should not be frequent, excessive, or extravagant. You must not accept or provide entertainment to or from current or prospective clients or vendors unless it is for a valid business purpose and provides an opportunity for a meaningful business conversation. You should not participate in any activity that could embarrass or reflect poorly on the Company. The acceptance of even a well-intentioned gift or offer of entertainment may present a conflict of interest, cloud your judgment when making a decision for the Company, or create the appearance of a conflict of interest, and can be misinterpreted as an attempt by the donor to improperly influence the recipient’s behavior. In some situations, the acceptance of any gift from a client will be inappropriate regardless of the intent of the person giving the gift. These situations include trustee and fiduciary relationships and any situation where the gift could be interpreted as taking advantage of the relationship with the client or where it is prohibited by law.

 
29 You should seek the prior approval of your manager if you are offered any gift or entertainment that exceeds $100 or you are not certain is appropriate in light of this Code. If you are a director or executive officer, you should seek the advice or prior approval of the Chief Legal Officer if you are uncertain about the appropriateness of a gift or entertainment or if the gift or entertainment exceeds $250. You should also seek prior approval if the aggregate of all gifts and/or entertainment in one year from the same person or company exceeds the above amounts. It is also important to remember that giving gifts, just like receiving gifts, can harm the Company’s reputation by creating an appearance of impropriety. In some situations, giving gifts or favors can also violate the law. There are strict laws restricting gifts to any government officials, and you should follow all applicable laws and regulations. These restrictions are not intended to apply to gifts or entertainment based on family relationships where the circumstances make it clear that it is the relationship – rather than our business – that is the motivating factor for giving the gift. Outside Activities We encourage you to participate in outside activities, provided these do not interfere with the performance of your job with First Financial. Working outside of First Financial or serving as a director of another company may create a conflict of interest. Being a director or serving on a standing committee or advisory board of some organizations, including government agencies, also may create a conflict, whether the position is compensated or not. Outside activities that compete with our business or present a conflict or potential conflict of interest are not permitted. Q. I have been asked to sit on the board of directors for a non-profit organization. Can I accept the appointment? A. Probably. You must notify your manager first to ensure that the activities do not create a conflict of interest with your job.

 
30 Before agreeing to work outside of First Financial or joining the board of a charity or non-profit organization, you should assess whether it would have the potential to be a conflict of interest, depending on the nature of the position and your involvement. You should inform and obtain the approval of your manager before you:  Pursue additional employment outside of First Financial;  Engage in an independent business venture;  Perform services for another business organization;  Become an officer, director, owner, partner or controlling shareholder of any business or organization; or  Run for or accept appointment to any political office. Directors and executive officers should not engage in the above activities without first notifying the Chief Legal Officer, who will determine whether securing approval from the Audit Committee of the Board of Directors is necessary. You must not pursue such outside business activities and relationships using Company assets (including but not limited to physical space, supplies, communications methods or time) or allow any outside business, civic or charitable activities to interfere with your job performance. You must not act on behalf of or appear to represent the Company in any transaction outside of your role and responsibilities with us. It is important that you and the Company work together to avoid any basis for criticism or misunderstandings.

 
31 Political Contributions and Activities We respect your right to engage in personal political activity; however, you must be sure any such activity:  Is lawful;  Does not use Company time or resources; and  Does not subject the Company to inappropriate risk, including reputational risk. Any volunteer activity must be done on your own time and cannot be done, or appear to be done, as a representative of First Financial. You may make personal political contributions, within applicable legal limits, to political candidates, political parties, political action committees, and other entities that make political expenditures. You may not:  Engage in political campaign fundraising or solicitation activities for your own political interest on Company premises; or  Commit First Financial to make any political contribution at any time, whether it is money, facilities or volunteering employee services, including buying tickets to political dinners or other political fundraising events. Q. A former colleague is running as a candidate for a local government position and has asked me to support her campaign with a personal financial contribution. Is this okay? A. We respect the right of our employees to personally support political or charitable activities as long as this support is not associated with the Company or uses Company assets. Therefore, you are free to personally support your former colleague’s campaign.

 
32 Subject to certain exceptions, it is against the law for the Company to make any contribution or expenditure or to provide any service (except usual and customary banking services) or anything of value in connection with any election to any political office, or in connection with any primary election or political convention or caucus held to select candidates for any political office. This prohibition applies to all federal, state, and local elections, political conventions, and caucuses. Under no circumstance may you solicit other associates to make political contributions or volunteer their time for a political purpose. Any legally permissible political contributions or activities, including lobbying or communicating with elected officials, for or on behalf of First Financial must be pre-approved by the Chief Executive Officer and must comply with all legal requirements.

 
33 Corporate Opportunities You owe a duty to First Financial to advance our interests to the best of your abilities. You may not take advantage of opportunities that rightfully belong to First Financial. For example, you may not:  Take personal advantage of opportunities that are discovered through the use of Company property, information or position;  Use corporate property, information or position for personal gain;  Personally receive a commission or fee for a transaction you have conducted for First Financial;  Divert business from First Financial; or  Compete with First Financial directly or indirectly. Accuracy of Records and Information Reporting We require honest and accurate recording and reporting of information in order to make responsible business decisions. You must ensure that complete and accurate financial and accounting records, that are not misleading, exist at all times. Internal controls and procedures must be closely followed so that all transactions are properly documented, recorded and reported. Q. A friend was looking for a loan to start a business. I referred him to one of our loan officers. He was successful in obtaining the loan from us and now would like to thank me for the referral by paying me a referral fee. Is this okay? A. No, you are not allowed to accept a fee or gift personally for any transactions you referred to us or for work you perform for a client.

 
34 Specifically, this means that:  All of your books, records and accounts – including time sheets, sales records, invoices, bills and expense reports – must be complete, accurate and reliable.  You must never falsify any document or distort the facts relating to a particular transaction.  Unrecorded or “off the books” funds or assets should not be maintained unless permitted by applicable law or regulation.  Financial records that reflect our activities and transactions should be maintained in accordance with our accounting policies and procedures and in compliance with applicable standards, laws and regulations.  Transactions are to be recorded in a timely manner and supported by appropriate documentation. Business records and communications often become public and you should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports. Want more information about this topic? Please click the link to the following policy: Accounting Policy

 
35 Records should always be retained or destroyed according to our Records Management Policy. We are each responsible for identifying and reporting any concerns about the Company’s business records, accounting, internal controls or other audit matters. Any complaints or concerns regarding accounting, internal accounting controls, audit matters, or recordkeeping must be reported immediately as described in the section of this Code titled Reporting Code of Conduct Violations and Sharing Concerns about Misconduct. Effectively Manage Risk and Lead in Risk Control Risk management is an important aspect of our corporate culture and values and an integral part of achieving our objectives. We are called upon daily to make decisions that impact our business risk. Managers are expected to set the tone of accountability for their teams. Each of you is expected to identify, assess, manage, and appropriately escalate risks associated with your job responsibilities. You are accountable for debating risk- related issues, escalating concerns, taking a stand, and making sound judgments about the risk/reward tradeoffs of business decisions. Q. In order to meet a project deadline, I worked overtime one evening. My manager wants me to record only my regular hours for that day and will give me time off on another day equal to the overtime hours. What should I do? A. Even though your manager may mean well, inaccurately recording hours worked is a policy and legal violation. You are responsible for reporting accurate and complete information. Want more information about this topic? Please click the link to the following policy: Enterprise Risk Management Policy

 
36 You should take an open, candid and fact-based approach to discussing risk issues, making all relevant facts and information available, so that we can consider all possible options and make decisions. You are also responsible for promptly communicating and escalating matters to management that may cause risk or potential harm to us, such as operational problems, inappropriate conduct, policy violations, illegal activities, or other risks. You should always act to protect our interests and the interests of our shareholders and other stakeholders. Business Expenses You must report your business expenses accurately and in a timely manner. Business credit cards must not be used for any purpose other than appropriate business expenses as outlined in our Accounts Payable Policy. If you are not sure whether a certain expense is legitimate, you should ask your manager. You may not approve your own expenses or request approval of those expenses by anyone who reports directly or indirectly to you. Approval of expenses must be obtained from your manager, in accordance with our policies. Want more information about this topic? Please click the links to the following policies: Travel Policy

 
37 Our Responsibilities to Our Associates Diversity and Equal Opportunity We strongly encourage diverse viewpoints and creative minds. We believe that by respect and appreciation for diversity we are contributing to our growth and your growth. It is our policy not to discriminate against any individual in violation of federal, state, or local laws as it relates to age, race, color, religion, national origin, sex, marital status, pregnancy, gender, disability, sexual orientation, genetic information, veteran/military service, or any other characteristic protected by law. As an equal opportunity employer and in order to provide equal employment and advancement opportunities to all individuals, employment decisions at First Financial will be based on merit, qualifications and abilities. Equal employment opportunity is not only good practice, it’s the law and it applies to all areas of employment, including recruitment, selection, hiring, training, transfer, promotion, demotion, termination, compensation, and benefits. Q: I’ve overheard another manager intimidating one of his employees with derogatory language, but the employee refuses to report his behavior. Is there anything I can do? A. If you’re comfortable doing so, encourage the employee to seek help from their Talent Management Partner. If you observe the behavior continuing, you should contact your Talent Management Partner yourself. Upholding the Code means sharing concerns, even though it may be easier to look the other way.

 
38 Discrimination and Harassment We strive to maintain a workplace that fosters mutual associate respect and promotes productive working relationships. Discrimination or harassment in any form is not only harmful to the associate(s) toward whom it is directed, it is damaging to the work environment and may be illegal. We prohibit discrimination and/or harassment of any kind including that which is sexual, racial or religious in nature or is related to anyone’s gender, color, national origin, age, sexual orientation, disability or veteran/military status, genetic information, or any other legally protected class. We do not tolerate unlawful discrimination or harassment of any kind in the workplace. Additionally, in order to provide a respectful, productive and professional workplace, conduct that does not violate the law, but that is inappropriate in the workplace, is also prohibited. This policy applies to all associates throughout the Company and all individuals who may have contact with any associates of this Company, including but not limited to vendors and clients. Q. A co-worker has made repeated references about a colleague’s sexual orientation, including using derogatory names. When the co-worker was confronted, she said it was only a joke. The behavior has not stopped. What should be done? A. “It was only a joke” is not an excuse for inappropriate behavior. This incident, or any concern about workplace behavior that may violate our Code of Conduct and other guidelines prohibiting harassment or discrimination should be reported to your manager or Talent Management Partner. Retaliation toward any associate who in good faith reports an integrity or ethical concern or issue will not be tolerated. Want more information about this topic? Please click the link below: Associate Handbook

 
39 Examples of conduct that is not acceptable include but are not limited to:  Unwelcome advances or physical contact;  Unwelcome or offensive jokes or innuendos;  Offensive flirtation or propositions;  Inappropriate comments about an individual’s sex, race or other protected characteristic;  Display of offensive objects or pictures;  Obscene gestures;  Derogatory comments that involve discriminatory treatment of a legally protected class;  Any conduct that has the effect of interfering with a person’s work performance or creates an intimidating, hostile, or offensive work environment; or  Conduct of a sexual nature that requires submission as a condition of employment, promotion or other benefit. Q. I sometimes receive e-mails from friends outside of the Company that I find amusing, but others may think are offensive. What should I do with these? A. Even if the e-mails do not offend you, you should delete them and not show or send them to anyone – including sending it to yourself at another e- mail address. Advise your friends that it would be prudent not to send these types of e-mails to your work e-mail address.

 
40 If you believe that you or another associate, client, or vendor is being harassed or discriminated against, you must report the incident to your Talent Management Partner. If you are uncomfortable reporting it to that individual, you must report the incident using one of the methods described in the section of this Code titled “Reporting Code of Conduct Violations and Sharing Concerns about Misconduct”. Any manager to whom such a report is made must report the incident to their Talent Management Partner or to the Chief Legal Officer. Personal Conduct In the spirit of our Company values, you are expected to treat and interact with your fellow associates, clients, vendors and members of the community with Integrity, Respect, Responsiveness, Commitment, Leadership and Excellence. We look to you to live values first. Workplace Safety and Health Your safety and health while on the job is among our highest priorities. Policies and procedures have been established to ensure you are provided an appropriate work environment. These policies and procedures ensure there is an appropriate means of reporting any safety concerns you may have and tell you what to do in the event of an injury or illness on the job. It is your responsibility to know and understand these policies and procedures and to report any unsafe work conditions.

 
41 The use of illegal drugs, reporting to work under the influence of alcohol, and the abuse of legal prescription pharmaceuticals are violations of state and federal laws. These activities can have severe health and personal consequences. These activities also diminish the safety of all associates and visitors and can damage the reputation of the Company in certain situations. These abuses account for tremendous losses in efficiency, attendance, and costs of Company-provided health care. For these reasons, the Company has adopted a zero tolerance drug and alcohol policy. With this policy, it is the intention of the Company to use every lawful means to establish and maintain a drug and alcohol free workplace. The policy addresses illegal drugs and the unauthorized use of legal drugs, such as expired prescriptions, or other substances that are controlled or outlawed, are not obtainable by lawful methods, or are legally obtainable but were not obtained in a lawful manner. Q: Is there somewhere I can go for help or counseling related to alcohol or drugs? A: If you believe you have an issue with alcoholism or drug use (or if you are experiencing other difficult personal issues), we encourage you to use the Employee Assistance Program.

 
42 Our Responsibilities to the Market and Our Shareholders Insider Trading You must not buy, sell, recommend or trade in First Financial Bancorp securities while in possession of material nonpublic information about the Company. Nonpublic information is information that is not generally known or available to the investing public. It is not considered public until First Financial releases the information through a press release, securities filing, distribution to shareholders, website posting, widely reported media coverage, or other official First Financial public communication. All nonpublic information about First Financial should be considered confidential and you have a duty to avoid using it for profit or to avoid a loss, as well as a duty not to disclose it to others. Breaching this duty of confidentiality is a violation of the law and can result in severe penalties. Disclosing any material nonpublic information to other persons, including relatives and friends who might trade on the information or disclose it to others, is considered “tipping” and is also strictly prohibited. Want more information about this topic? Please click the link to the following policy: Insider Trading Policy

 
43 Information about the financial performance of First Financial that has not been publicly released is a common example of material nonpublic information. The information can be either positive or negative information about the Company. Listed below are examples of material nonpublic information:  Changes to our business operations, projections or strategic plans  Mergers, acquisitions  Restructuring  Possible sale of assets or subsidiaries  Significant change to a major client, contract, product or service  Introduction of a major product or service  Securities offerings or repurchases as well as a declared stock split or a change in our dividend amounts  Executive management or Board of Director changes  Changes in accounting methods  Lawsuits, government or regulatory investigations Q. I overheard some associates talking about an upcoming announcement about First Financial. The information could affect the stock price. Since I was planning to buy some First Financial stock, can I go ahead with my plan even though the information has not been released to the public? A. No. You must not buy the stock until the information is released to the public. In addition, you may not pass the information to anyone else until the information is made public.

 
44 Material nonpublic information may also include information about a client, vendor, or other company that does business with First Financial, or that is negotiating a significant transaction or agreement with First Financial. You are similarly prohibited from conducting any transaction in the stock of any third party about whom you have material nonpublic information. You also may not share this information with anyone else. Contact the Chief Legal Officer if you need guidance as to whether information you have is material or nonpublic or any other concerns about insider trading before conducting any transactions in First Financial shares of stock. Your obligations described in this section also apply to any changes into or out of your FFBC Stock Fund in the First Financial Bancorp 401(k) Savings Plan. Certain associates are subject to certain additional requirements and may be restricted from engaging in any transaction in First Financial shares of stock except during certain “open-window” periods. If you are subject to these additional requirements and restrictions, you will be notified by the Chief Legal Officer. Please review First Financial’s Insider Trading Policy for more information about insider trading, what it means, and what activities are prohibited. Q: I believe that the bank is considering the acquisition of another financial institution. May I acquire the stock of the other institution in anticipation of the acquisition? A: No. Trading on material nonpublic information is illegal and a violation of this Code of Conduct.

 
45 Disclosure First Financial has a responsibility to ensure full, fair, accurate, timely, and understandable disclosure in reports and documents filed or submitted to the U.S. Securities and Exchange Commission and stock exchanges, as well as other public communications made by the Company. If you are involved in preparing or providing information for the Company’s public disclosures, you have a duty to ensure disclosures and information is in compliance with the Company’s Disclosure Policy. Media and Shareholder Inquiries It is imperative that we advance and protect First Financial and the brand by releasing information to the public in a consistent manner. There are professionals at the Company who are trained and qualified to release information to the public. It is critical for compliance and accuracy of the information that only authorized associates speak on behalf of the Company. You have a duty and responsibility to refer all inquiries from the media relating to First Financial to the designated Investor Relations or Communications Department representative. If you are not authorized to speak on behalf of First Financial, any request you receive for information from an outside person must be forwarded immediately to the appropriate department. Q. A shareholder is inquiring about a rumor he recently heard about First Financial and is anxious to find out if it is true. Even though I know the information to be false, should I refer him to the investor relations representative? A. Yes. You have a duty to direct him to the investor relations representative to ensure shareholder inquiries are handled in a consistent manner. Want more information about this topic? Please click the links to the following policy: Disclosure Policy

 
46 Our Responsibilities to the Community Community Reinvestment We are committed to ensuring that low and moderate income and minority individuals and communities have access to the services and programs they need to build financial stability and create healthy neighborhoods. We continuously seek opportunities that support our community reinvestment activities. Charitable Conduct and Donations We support the communities in which we operate through various charitable donations and volunteer services when appropriate opportunities arise. While other areas may be considered, specific target areas for these activities include:  Economic development programs that attract new business and nurture enterprise development zones;  Education programs that focus on financial literacy or that support the economically disadvantaged, and  Neighborhood development programs that focus on neighborhood revitalization or affordable housing initiatives. Charitable contribution opportunities are considered and approved by senior management of First Financial. You should not make any commitments concerning charitable contributions prior to receiving the appropriate approvals. Doing the right thing is key to our success! Adopted: October 27, 2015 Want more information about this topic? Please click the link below: Community Development Commitment Policy

 


EXHIBIT 21


FIRST FINANCIAL BANCORP. SUBSIDIARIES (as of 12/31/15)

Name
 
State of Other Jurisdiction of
Incorporation or Organization
First Financial Bank, National Association
 
Organized as a national banking association under the laws of the United States
First Financial Collateral, Inc.
 
Indiana
First Financial Equipment Finance, LLC
 
Ohio
First Financial Insurance Holding Company
 
Ohio
First Financial Insurance, Inc.
 
Ohio
First Franchise Capital Corporation
 
Indiana
Irwin Home Equity Corporation
 
Indiana
IHE Funding Corp. II
 
Delaware
Irwin Union Realty Corporation
 
Indiana
First Financial Securities Group, Inc.
 
Delaware
First Financial Preferred Capital, Inc.
 
Ohio
Oak Street Holdings Corporation
 
Indiana
Oak Street Funding LLC
 
Indiana
Oak Street Servicing, LLC
 
Indiana





EXHIBIT 23



Consent of Independent Registered Public Accounting Firm
 
We consent to the incorporation by reference in the following Registration Statements:

(1)
Registration Statement (Form S-8 No. 333-86781) pertaining to the First Financial Bancorp. 1999 Stock Incentive Plan for Officers and Employees and in the related Prospectus,
(2)
Registration Statement (Form S-8 No. 333-86781) pertaining to the First Financial Bancorp. 1999 Stock Option Plan for Non-Employee Directors and in the related Prospectus,
(3)
Registration Statement (Form S-3 No. 333-35745) pertaining to the First Financial Bancorp. Dividend Reinvestment and Share Purchase Plan and in the related Prospectus,
(4)
Registration Statement (Form S-3 No. 333-156841) pertaining to the First Financial Bancorp. Fixed Rate Cumulative Perpetual Preferred Stock, Series A, common stock and common stock warrants, and in the related Prospectus,
(5)
Registration Statement (Form S-3 No. 333-153751) pertaining to the First Financial Bancorp. shelf registration for the sale of securities and in the related Prospectus,
(6)
Registration Statement (Form S-8 No. 333-168675) pertaining to the First Financial Bancorp. 2009 Employee Stock Plan and the First Financial Bancorp. 2009 Non-Employee Director Stock Plan and in the related Prospectus,
(7)
Registration Statement (Form S-8 No. 333-188593) pertaining to the First Financial Bancorp. 2012 Stock Plan and in the related Prospectus, and
(8)
Registration Statement (Form S-3 No. 333-197771) pertaining to the First Financial Bancorp. shelf registration for the sale of securities and in the related Prospectus;
of our report dated February 23, 2016 , with respect to the consolidated financial statements of First Financial Bancorp. and the effectiveness of internal control over financial reporting of First Financial Bancorp. incorporated by reference in this Annual Report (Form 10-K) of First Financial Bancorp. for the year ended December 31, 2015 .

 /s/ Ernst & Young LLP

Cincinnati, Ohio
February 23, 2016





EXHIBIT 31.1

CERTIFICATIONS

I, Claude E. Davis, Chief Executive Officer of First Financial Bancorp., certify that:

1.
I have reviewed this annual report on Form 10-K of First Financial Bancorp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 
2/23/2016
 
/s/ Claude E. Davis
 
 
 
Claude E. Davis
Chief Executive Officer





EXHIBIT 31.2

CERTIFICATIONS

I, John M. Gavigan, Senior Vice President and Chief Financial Officer of First Financial Bancorp., certify that:

1.
I have reviewed this annual report on Form 10-K of First Financial Bancorp.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: 
2/23/2016
 
/s/ John M. Gavigan
 
 
 
John M. Gavigan
Senior Vice President and Chief Financial Officer





EXHIBIT 32.1

CERTIFICATION OF PERIODIC FINANCIAL REPORT BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Form 10-K for the annual period ended December 31, 2015 , of First Financial Bancorp. (the “Company”), as filed with the Securities and Exchange Commission on February 23, 2016 (the “Report”), I, Claude E. Davis, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Claude E. Davis
Claude E. Davis
Chief Executive Officer
 
February 23, 2016





EXHIBIT 32.2

CERTIFICATION OF PERIODIC FINANCIAL REPORT BY CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Form 10-K for the annual period ended December 31, 2015 , of First Financial Bancorp. (the “Company”), as filed with the Securities and Exchange Commission on February 23, 2016 (the “Report”), I, John M. Gavigan, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John M. Gavigan
John M. Gavigan
Senior Vice President and Chief Financial Officer
 
February 23, 2016