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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, 2017

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
Indicate 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, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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, 2017 , was $1,690,000,000 .  (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 23, 2018 , there were issued and outstanding 62,093,120 common shares of the registrant.

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Documents Incorporated by Reference:
Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2017 are incorporated by reference into Parts I, II, III and IV.

Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 22, 2018 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.

Statements concerning the potential merger of the Company and MainSource may also be forward-looking statements. Please refer to each of the Company’s filings with the SEC, for a more detailed discussion of risks, uncertainties and factors that could cause actual results to differ from those discussed in the forward-looking statements.

In addition to factors previously disclosed in reports filed by the Company and MainSource with the SEC, risks and uncertainties for the Company, MainSource and the combined company include, but are not limited to: the possibility that any of the anticipated benefits of the proposed Merger will not be realized or will not be realized within the expected time period; the risk that integration of MainSource's operations with those of the Company will be materially delayed or will be more costly or difficult than expected; the inability to close the Merger in a timely manner; diversion of management's attention from ongoing business operations and opportunities; the failure to satisfy other conditions to completion of the , including receipt of required regulatory and other approvals; the failure of the proposed Merger to close for any other reason; the challenges of integrating and retaining key employees; the effect of the announcement of the Merger on the Company’s, MainSource’s or the combined company's respective customer relationships and operating results; the possibility that the Merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events; and general competitive, economic, political and market conditions and fluctuations. All forward-looking statements included in this filing are made as of the date hereof and are based on information available at the time of the filing. Except as required by law, neither the Company nor MainSource assumes any obligation to update any forward-looking statement.

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 2017 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 (the Bank), which was founded in 1863. Effective December 30, 2016, the Bank converted its charter to an Ohio state chartered bank from a nationally chartered bank.

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).  Risk of loss related to lending activities is managed by adherence to standard loan policies that establish certain levels of performance prior to the extension of a loan to the borrower.  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).  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, 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 we believe have sound economics, lower closure rates, and higher 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 secured financing throughout the U.S. to the insurance industry through a wholly-owned subsidiary of the Bank, Oak Street Funding LLC (Oak Street Funding).  Insurance industry lending activities are driven by agency acquisitions, agency ownership transitions and the purchase by agencies of books of business, in addition to 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.  Market diversification within First Financial’s service area and industry diversification are other means by which First Financial manages the risk.  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 with 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 a limited number of foreign currency transactions and, in general, does not have significant exposure to loss from 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, 2017 , 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 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, free of charge, 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, 2017 , First Financial and its subsidiaries had 1,366 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

In August 2015, First Financial acquired Oak Street Funding. Founded in 2003 and headquartered in Carmel, Indiana, Oak Street Funding primarily 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.

In July 2017, First Financial Bancorp and MainSource Financial Group, Inc. entered into a definitive merger agreement under which MainSource will merge into First Financial in a stock-for-stock transaction and MainSource Bank, a wholly owned subsidiary of MainSource, will merge into First Financial Bank. Under the terms of the merger agreement, shareholders of MainSource will receive 1.3875 common shares of First Financial common stock for each share of MainSource common stock. Including outstanding options and warrants on MainSource common stock, the transaction is valued at approximately $1.0 billion. Upon closing, First Financial shareholders will own approximately 65% of the combined company and MainSource shareholders will own approximately 35%, on a fully diluted basis. The merger was approved by the FRB of Cleveland and the ODFI during the first quarter of 2018 and is expected to close on April 1, 2018. Once completed, the merger will position the combined company to better serve the complimentary geographies of Ohio, Indiana and Kentucky, and create a higher performing bank with greater scale and capabilities.

Market and Competitive Information

First Financial utilizes a community banking business model and 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

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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 to help them reach greater levels of financial success.

We also compete on a nationwide basis with respect to franchisee lending through our franchise finance subsidiary and the insurance industry 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.  The Midwestern markets that First Financial serves have historically not experienced the level of economic volatility experienced in other areas of the country, 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 local decision-making process and that it is better positioned to compete for business than smaller community banks that may have size or geographic limitations.  First Financial’s targeted customers include individuals and small to medium sized businesses within the Bank's geographic footprint. Through its diversified delivery systems of banking centers, ATMs, internet banking, and telephone-based transactions, First Financial is able to meet 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 consumer retail 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 and its subsidiaries are subject to an extensive system of laws and regulations that are intended primarily for the protection of customers, the Deposit Insurance Fund (DIF), and the banking system in general 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, interest rates that can be charged on loans and consumer protection communications and disclosures.  Certain elements of selected laws and regulations are described in more detail in the sections that follow.  These 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.

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, First Financial’s acquisition of a savings and loan association would require Federal Reserve Board approval. Acquisitions are also 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.

The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil monetary 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. A bank holding company is required by law and

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Federal Reserve Board policy to act as a source of financial strength to each subsidiary bank and to commit resources to support such subsidiary bank. 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 bank chartered under the laws of the State of Ohio and a member of the Federal Reserve Bank of Cleveland (Federal Reserve Bank), is subject to supervision and examination by the Federal Reserve Board and the Ohio Division of Financial Institutions (ODFI). The Bank's deposits are insured up to the legal limits by the DIF, which is administered by the FDIC and is subject to the provisions of the Federal Deposit Insurance Act (FDIA). The Bank is also subject to regulations of the Consumer Financial Protection Bureau (CFPB), which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and has broad powers to adopt and enforce consumer protection regulations.

Regulatory Capital

Financial institutions and their holding companies are required to maintain capital as a way of absorbing losses that can and cannot be predicted. The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies as well as state banks that are members of a Federal Reserve Bank. The Office of the Comptroller of the Currency (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.         

In July 2013, the United States banking regulators issued 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 when the new minimum capital requirements became effective on January 1, 2015. A capital conservation buffer (i.e. common equity) and additional deductions from common equity capital phase in from January 1, 2016, through January 1, 2019, and most deductions from common equity tier 1 capital phase in from January 1, 2015, through January 1, 2019.

The capital rules include (a) a minimum common equity tier 1 capital ratio of at least 4.5%, (b) a minimum Tier 1 capital ratio of at least 6.0%, (c) a minimum total capital ratio of 8.0% and (d) a minimum leverage ratio (tier 1 capital to average assets) 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.

The 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 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 requirement phases in starting on January 1, 2016, and is currently 1.875%.


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Federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks. Under these regulations, institutions that become undercapitalized become subject to mandatory regulatory scrutiny and limitations, which increase as capital continues to decrease. Each such institution is also required to file a capital plan with its primary federal regulator, and its holding company must guarantee the capital shortfall up to 5% of the assets of the capital deficient institution at the time it becomes undercapitalized.

In accordance with the Basel III Capital Rules, in order to be “well-capitalized” under the prompt corrective action guidelines, 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. At December 31, 2017, the Bank met the capital ratio requirements to be deemed “well-capitalized” according to the guidelines previously described.

A bank with a capital level that might qualify for well capitalized or adequately capitalized status may nevertheless be treated as though the bank is in the next lower capital category if the bank’s primary federal banking supervisory authority determines that an unsafe or unsound condition or practice warrants that treatment. A bank’s operations can be significantly affected by its capital classification under the prompt corrective action rules. For example, a bank that is not well capitalized generally is prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market without advance regulatory approval. These deposit-funding limitations can have an adverse effect on the bank’s liquidity. At each successively lower capital category, an insured depository institution is subject to additional restrictions. Undercapitalized banks are required to take specified actions to increase their capital or otherwise decrease the risks to the federal deposit insurance fund. Bank regulatory agencies generally are required to appoint a receiver or conservator within 90 days after a bank becomes critically undercapitalized with a leverage ratio of less than 2%. The Federal Deposit Insurance Act provides that a federal bank regulatory authority may require a bank holding company to divest itself of an undercapitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.

In September 2017, the Federal Reserve Board, along with other bank regulatory agencies, proposed amendments to its capital requirements to simplify various aspects of the capital rules and thereby reduce regulatory burden for “non-advanced approaches” banking organizations. The Bank is a non-advanced approach bank because it has total consolidated assets of less than $250 billion and balance sheet foreign exposures of less than the maximum amount for a non-advanced approach bank. Because the amendments were proposed with a request for comments and have not been finalized, we do not yet know what effect the final rules will have on the Bank’s capital calculations. In November 2017, the federal banking agencies extended, for such non-advanced approaches banks, the existing capital requirements for certain items that were scheduled to change effective January 1, 2018, in light of the simplification amendments being considered.

Limitations 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, the Bank may not, subject to certain limited exceptions, make loans or extensions of credit to, or investments in the securities of, First Financial. 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 capital levels established by the Federal Reserve Board. The amount of dividends payable by the Bank is also restricted if the Bank does not hold a capital conservation buffer as described above. In addition, the Bank must have the approval of the Federal Reserve Board and the ODFI 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. Under Ohio law, the Bank may pay a dividend from surplus only with the approval of First Financial (as the sole shareholder of the Bank) and the approval of the ODFI. 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, for the servicing of indebtedness and for other cash requirements is largely dependent on the amount of dividends that 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 Federal Reserve Board if the Federal Reserve Board deems such dividends to constitute an unsafe and/or unsound banking practice.


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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 generally 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. Under certain circumstances, a bank holding company must provide notice to the Federal Reserve Board of an intended dividend payment, to which the Federal Reserve Board might object if it determines the payment would be an unsafe or unsound practice.

Insurance of Accounts

The FDIC maintains the DIF, which insures the deposit accounts of the Bank to the maximum amount provided by law.  The general insurance limit is $250,000 per separately insured depositor.  This insurance is backed by the full faith and credit of the United States government.

The FDIC assesses deposit insurance premiums on each insured institution quarterly based on risk characteristics of the institution. The FDIC may also impose a special assessment in an emergency situation.

Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (DRR), which is the ratio of the DIF to insured deposits of the total industry. In March 2016, the FDIC adopted final rules designed to 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’s rules reduced assessment rates on all banks but imposed a surcharge on banks with assets of $10 billion or more until the DRR reaches 1.35% and provide assessment credits to banks with assets of less than $10 billion for the portion of their assessments that contribute to the increase of the DRR to 1.35%. The rules also changed the method to determine risk-based assessment rates for established banks with less than $10 billion in assets to better ensure that banks taking on greater risks pay more for deposit insurance than less risky banks.

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.

As insurer, the FDIC is authorized to conduct examinations of and to require reporting by DIF-insured institutions. 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.

Consumer Protection Laws and Regulations

Banks are subject to regular examination to ensure compliance with federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations. Potential penalties under these laws include, but are not limited to, fines. The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services. The CFPB has adopted numerous rules with respect to consumer protection laws, amending some existing regulations and adopting new ones, and has commenced enforcement actions. The following are just some of the consumer protection laws applicable to the Bank:

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Community Reinvestment Act of 1977: imposes a continuing and affirmative obligation to fulfill the credit needs of its entire community, including low- and moderate-income neighborhoods.

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Equal Credit Opportunity Act: prohibits discrimination in any credit transaction on the basis of any of various criteria.

•
Truth in Lending Act: requires that credit terms are disclosed in a manner that permits a consumer to understand and compare credit terms more readily and knowledgeably.

•
Fair Housing Act: makes it unlawful for a lender to discriminate in its housing-related lending activities against any person on the basis of any of certain criteria.


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Home Mortgage Disclosure Act: requires financial institutions to collect data that enables regulatory agencies to determine whether the financial institutions are serving the housing credit needs of the communities in which they are located.

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Real Estate Settlement Procedures Act: requires that lenders provide borrowers with disclosures regarding the nature and cost of real estate settlements and prohibits abusive practices that increase borrowers’ costs.

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Privacy provisions of the Gramm-Leach-Bliley Act: requires financial institutions to establish policies and procedures to restrict the sharing of non-public customer data with non-affiliated parties and to protect customer information from unauthorized access.

The banking regulators also use their authority under the Federal Trade Commission Act to take supervisory or enforcement action with respect to unfair or deceptive acts or practices by banks that may not necessarily fall within the scope of specific banking or consumer finance law.

In October 2017, the CFPB issued a final rule, referred to as the “Payday Rule,” that addresses commercial lending practices with respect to certain consumer loans. The Payday Rule was effective on January 16, 2018, although compliance with most of its provisions will not be required until August 19, 2019. The first major part of the rule makes it an unfair and abusive practice for a lender to make short-term and longer-term loans with balloon payments (with certain exceptions) without reasonably determining that the borrower has the ability to repay the loan. The second major part of the rule applies to the same types of loans as well as longer-term loans with an annual percentage rate greater than 36% that are repaid directly from the borrower’s account. The rule states that it is an unfair and abusive practice for the lender to withdraw payment from the borrower’s account after two consecutive payment attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account. The rule also requires lenders to provide certain notices to the borrower before attempting to withdraw payment on a covered loan from the borrower’s account.

On January 16, 2018, the CFPB issued a press release stating that it “intends to engage in a rulemaking process so that the Bureau may reconsider the Payday Rule.”

The Company does not currently expect the new rules to have a material effect on the Company’s financial condition or results of operations.

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.


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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.

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 excludes 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 various exceptions. The Bank from time to time may engage in trading activities or own the types of funds regulated by the Volcker Rule.

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 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.

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. The Joint Guidance made incentive compensation part of the regulatory agencies’ examination process, with the findings of the supervisory initiatives included in reports of examination and enforcement actions possible.


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In May 2016, the federal bank regulatory agencies approved a joint notice of proposed rules (the Proposed Joint Rules) designed to prohibit incentive-based compensation arrangements that encourage inappropriate risks at financial institutions. The Proposed Joint Rules apply to covered financial institutions with total assets of $1 billion or more. For all covered institutions, including Level 3 institutions like us, the proposed rule:

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prohibits incentive-based compensation arrangements that are “excessive” or “could lead to material financial loss;”
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requires incentive based compensation that is consistent with a balance of risk and reward, effective management and control of risk, and effective governance; and
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requires board oversight, recordkeeping and disclosure to the appropriate regulatory agency.

Further, as stock exchanges impose additional listing requirements under the Dodd-Frank Act, public companies are required 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.

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 it considers to be in compliance with the requirements of the Patriot Act.

State Law

As an Ohio-chartered bank, the Bank is subject to regular examination by the ODFI. State banking regulation affects the Bank’s internal organization and corporate governance, capital distributions, activities, acquisitions of other institutions and branching. State banking regulation may contain limitations on an institution’s activities that are in addition to limitations imposed under federal banking law. The ODFI may initiate supervisory measures or formal enforcement actions, and under certain circumstances, it may take control of an Ohio-chartered bank.

In 2017, the State of Ohio completed a substantial re-writing of Ohio’s banking laws that became effective on January 1, 2018. One of the primary purposes of the revision of the law was to adopt one universal bank charter for depository institutions chartered by the state, rather than having separate types of state depository institution charters with different powers and limitations for banks, savings banks and savings and loan associations. The result is that all Ohio-chartered depository institutions are now considered to have full commercial bank powers, unless an institution elects to continue to be governed by federal restrictions applicable to federal savings and loan associations and federal savings banks. While the most substantial changes in the law affect institutions chartered by Ohio as savings banks or savings and loan associations prior to the effectiveness of the new law, some changes also apply to institutions, like the Bank, that were chartered as commercial banks prior to the change in the law. The changes for all Ohio-chartered banks include provisions allowing Ohio-chartered banks to exercise the same powers, perform all acts, and provide all services that are permitted for federally chartered depository institutions, with the exception of laws and regulations dealing with interest rates, thereby enhancing opportunities for Ohio-chartered banks to compete with other financial institutions. Other provisions clarify previous laws addressing, or allow more flexibility with respect to, corporate governance matters, mergers and acquisitions and additional reliance on Ohio corporate law generally.

In addition, in October 2017, Ohio-chartered banks received notices of required assessments to be paid to the ODFI.  For two years, the ODFI was funded by State of Ohio excess unclaimed funds allocated to the ODFI by the State of Ohio.  That funding source has ceased to be available, and assessments are once again required, as before the funding by unclaimed funds.
 

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Regulations to Become Applicable upon the Merger with MainSource Financial Group, Inc.

Upon completion of First Financial’s merger with MainSource Financial Group, Inc. (MainSource), and the merger of the Bank with MainSource Bank, the Bank’s total assets will exceed $10 billion, and First Financial and the Bank will therefore become subject to increased regulatory requirements. The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies with $10 billion or more in total assets, including compliance with portions of the Federal Reserve Board’s enhanced prudential oversight requirements and annual stress testing requirements. Failure to meet the enhanced prudential standards and stress testing requirements could limit, among other things, First Financial’s ability to engage in expansionary activities or make dividend payments to its shareholders. In addition, banks with $10 billion or more in total assets are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations. Currently, the Bank is subject to regulations adopted by the CFPB, but the Federal Reserve Board is primarily responsible for examining the Bank’s compliance with federal consumer financial protection laws and those CFPB regulations. As a relatively new agency with evolving regulations and practices, and with a recent change in leadership at the CFPB, there is uncertainty as to how the CFPB’s examination and regulatory authority might impact First Financial’s business.

With respect to deposit-taking activities, banks with assets in excess of $10 billion are subject to two changes. First, these institutions are subject to a deposit assessment based on a new scorecard issued by the FDIC. This scorecard considers, among other things, the bank’s examination ratings, results of asset-related stress testing and funding-related stress, as well as the holding company’s use of core deposits, among other things. Depending on the results of the bank’s performance under that scorecard, the total base assessment rate is between 2.5 to 45 basis points. Any increase in the Bank’s deposit insurance assessments may result in an increased expense related to its use of deposits as a funding source.

Additionally, banks with over $10 billion in total assets are no longer exempt from the requirements of the Federal Reserve Board’s rules on interchange transaction fees for debit cards. As a result, beginning on July 1 following the Bank’s crossing the $10 billion threshold at the end of a calendar year, the Bank will be limited to receiving only a “reasonable” interchange transaction fee for any debit card transactions processed using debit cards issued to its customers. The Federal Reserve Board has determined that it is unreasonable for a bank with more than $10 billion in total assets to receive more than $0.21 plus 5 basis points of the transaction plus a $0.01 fraud adjustment for an interchange transaction fee for debit card transactions. A reduction in the amount of interchange fees the Bank receives for electronic debit interchange will reduce its revenues. During 2017, the Bank collected $12.9 million in debit card interchange fees. First Financial estimates that had it been subject to this limitation during 2017, its interchange fee revenue would have been reduced by approximately $6.6 million.

First Financial will become a financial holding company following the merger with MainSource. With some exceptions, the Bank Holding Company Act prohibits a bank holding company from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank or bank holding company or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve non-bank activities that, by statute or by Federal Reserve Board regulation or order, are held to be closely related to the business of banking or of managing or controlling banks. A bank holding company that elects to be a financial holding company may, however, engage in additional non-bank activities that are financial in nature or incidental to activities that are financial in nature.

Activities that are considered by the Federal Reserve Board to be “financial in nature” include:

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securities underwriting, dealing and market making;
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sponsoring mutual funds and investment companies;
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insurance underwriting and agency;
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merchant banking; and
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activities that the Federal Reserve Board has determined to be closely related to banking.

A financial holding company must be well-capitalized and well-managed, and each subsidiary bank must be well-capitalized and well-managed and have a CRA rating of at least satisfactory. If a financial holding company or a subsidiary bank fails to meet all requirements for the holding company to maintain financial holding company status, material restrictions may be placed on the activities of the holding company and on the ability of the holding company to enter into certain transactions or obtain regulatory approvals. The holding company could also lose its financial holding company status and be required to divest ownership or control of all banks owned by the financial holding company. If restrictions are imposed on the activities of a financial holding company, such restrictions may not be made publicly available pursuant to confidentiality regulations of the banking regulators.


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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.)

Risks Related to Economic and Market Conditions

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 record 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 different regions of the world 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, declining real estate values could adversely affect the value of property used as collateral as well as 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 also 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 result in increased charge-offs 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.
Changes in market interest rates or capital markets could adversely affect our revenues and expenses, 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 our 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

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income, which is the difference between the interest income generated by our interest-earning assets (consisting primarily of 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 operations and liquidity.
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) within 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 repay loans and the financial results of commercial clients in localities with higher unemployment, may result in loan defaults and foreclosures and 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.
Additionally, 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 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 with changes in fair value 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.

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Risks Related 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 probable incurred credit losses inherent in our 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.
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 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.
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 incurred 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.

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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.
Competition in the financial services industry is intense and could result in our losing business or experiencing reduced 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 as well as 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 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. Credit unions that compete with us have advantages that allow them to price products and services more competitively. 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.
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, or deposit funds electronically with banks having no branches within our market area, which could affect net income.
Technology and other changes allow parties to complete financial transactions without banks. For example, consumers can pay bills and transfer funds directly without banks. Consumers can also shop for higher deposit interest rates at banks across the country, which may offer higher rates because they have few or no physical branches and open deposit accounts electronically. 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, in addition to increasing our funding costs.
Our wealth management business subjects us to a variety of investment and market risks.
At December 31, 2017, we had $2.7 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 additional 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 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.

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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 cybersecurity 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 cybersecurity 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. 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. In recent years, some banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions. 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.
We are also at risk of the impact of natural disasters, terrorism and international hostilities on our systems or for the effects of outages or other failures involving power or communications systems operated by others.

Misconduct by employees could include fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information. We may not be able to prevent employee errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases. Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts. The recent massive breach of the systems of a credit bureau presents additional threats as criminals now have more information about a larger portion of our country's population than past breaches have involved, which could be used by criminals to pose as customers initiating transfers of money from customer accounts. Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers. Such activity can result in financial liability and harm to our reputation.

Unauthorized disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, or other breaches in the security of our systems could severely harm our business.  

As part of our business, we collect, process and retain sensitive and confidential client and customer information on behalf of our subsidiaries and other third parties. Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, theft of information, misplaced or lost data, programming and/or human errors, or other similar events. If information security is breached, information can be lost or misappropriated, resulting in financial loss or costs to us or damages to others. Our systems can be rendered inoperable, resulting in our inability to provide service to our customers. Any security breach involving the misappropriation, loss, destruction or unauthorized disclosure of confidential customer information, whether by

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us or by our vendors, could severely damage our reputation, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business.

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. Employee error or misconduct may result in failure to implement policies and procedures designed to avoid risks. Moreover, as technology and cyberattacks change over time, we must continually monitor and change systems to guard against new threats. We may not know of and be able to guard against a new threat until after an attack has occurred. In addition, the recent massive breach of the systems of a credit bureau presents additional threats. Congress and the legislatures of states in which we operate regularly consider legislation that would impose more stringent data privacy requirements.
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 in the form of requirements, restrictions and penalties, which could adversely affect us.
Weaknesses of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and lack of 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.
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, which 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 increased costs.
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 on 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, 2017 , the Bank had $163.1 million available to pay dividends to First Financial without prior regulatory approval.

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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, 2017 , we had indebtedness of $934.2 million .
Disruptions in our ability to access capital markets may negatively affect our capital resources, liquidity and business.

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 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.
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 unit. While this comparison provides some relative market information regarding the estimated fair value of our reporting unit, 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.
A reduction in our credit rating could adversely affect us or the holders of our securities.
The credit rating agencies rating our creditworthiness 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:

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• 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.
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 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, 2017 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 Exchange Act of 1934 (Exchange Act) is accurately accumulated and

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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 system of control, misstatements due to error or fraud may occur and not be detected.
Our revenues derived from investment securities may be volatile and subject to a variety of risks.
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 investment portfolio are affected by many factors, including our credit position, interest rate volatility and volatility in capital markets, among 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.
Risks Related to the Legal and Regulatory Environment

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, the SEC, the Financial Industry Regulatory Authority (FINRA), the Ohio Division of Financial Institutions, and various other 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.
The fiscal and monetary policies of the U.S. 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.
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

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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 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, property, 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.
On December 22, 2017, H.R.1, formally known as the “Tax Cuts and Jobs Act,” was enacted into law. This new tax legislation, among other changes, limits the amount of state, federal and local taxes that taxpayers are permitted to deduct on their individual tax returns and eliminates other deductions in their entirety. Such limits and eliminations may result in customer defaults on loans we have made and decrease the value of mortgage-backed securities in which we have invested.

Risks Related to the Merger with MainSource and our Business upon Completion of the Merger

MainSource and First Financial will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on MainSource or First Financial. These uncertainties may impair MainSource's or First Financial's ability to attract, retain and motivate key personnel until the merger is completed and could cause customers and others that deal with MainSource or First Financial to alter existing business relationships with MainSource of First Financial. Retention of certain employees by MainSource or First Financial may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with the combined company. If key employees depart because of issues relating to the uncertainty and difficulty of integration, or a desire not to remain with MainSource or First Financial, MainSource's business or First Financial's business could be harmed. In addition, subject to certain exceptions, each of First Financial and MainSource has agreed to operate its business in the ordinary course prior to closing the merger.

The market price of our common stock after the merger is completed may be affected by factors different from those affecting the stock of MainSource or First Financial currently.

Upon completion of the merger, holders of MainSource common stock will become holders of our common stock. Our business differs in important respects from that of MainSource, and, accordingly, the results of operations of the combined company and the market price of our common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of First Financial and MainSource.

The success of the merger and integration of First Financial and MainSource will depend on a number of uncertain factors.

The success of the merger will depend on a number of factors, including, without limitation:
•
our ability to integrate the branches acquired from MainSource Bank in the merger (which we refer to as the “acquired branches”) into First Financial Bank’s current operations;
•
our ability to limit the outflow of deposits held by our new customers and our existing customers in the acquired branches and to successfully retain and manage interest-earning assets (i.e., loans) acquired in the merger;
•
our ability to control the incremental noninterest expense from the acquired branches in a manner that enables it to maintain a favorable overall efficiency ratio;
•
our ability to retain and attract the appropriate personnel to staff the acquired branches; and
•
our ability to earn acceptable levels of interest and noninterest income, including fee income, from the acquired branches.


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Integrating the acquired branches will be an operation of substantial size and expense and may be affected by general market and economic conditions or government actions generally affecting the financial industry. Integration efforts will also likely divert management’s attention and resources. No assurance can be given that we will be able to integrate the acquired branches successfully, and the integration process could result in the loss of key employees, the disruption of ongoing business, or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the merger. We may also encounter unexpected difficulties or costs during the integration that could adversely affect our earnings and financial condition, perhaps materially. Additionally, no assurance can be given that the operation of the acquired branches will not adversely affect our existing profitability, that we will be able to achieve results in the future similar to those achieved by our existing banking business, or that we will be able to manage any growth resulting from the merger effectively.

Combining First Financial and MainSource may be more difficult, costly, or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.

First Financial and MainSource have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on our ability to successfully combine and integrate the businesses of First Financial and MainSource in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses, or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors and employees, or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect our ability to successfully conduct our business, which could have an adverse effect on our financial results and the value of our common stock. If we experience difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause First Financial and/or MainSource to lose customers or cause customers to remove their accounts from First Financial and/or MainSource and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of MainSource and First Financial during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings of the merger could be less than anticipated.

The combined company may be unable to retain personnel successfully after the merger is completed.

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by First Financial and MainSource. It is possible that these employees may decide not to remain with the combined company after the merger is consummated. If key employees terminate their employment, or if an insufficient number of employees is retained to maintain effective operations, the combined company’s business activities may be adversely affected and management’s attention may be diverted from successfully integrating MainSource to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, we may not be able to locate suitable replacements for any key employees who leave either company, or to offer employment to potential replacements on reasonable terms.
 
Holders of MainSource and First Financial common stock will have a reduced ownership and voting interest in the combined company after the merger and will exercise less influence over management.
 
Holders of MainSource and First Financial common stock currently have the right to vote in the election of the board of directors and on other matters affecting MainSource and First Financial, respectively. Upon completion of the merger, each MainSource shareholder who receives shares of First Financial common stock will become a shareholder of First Financial, with a percentage ownership of First Financial that is smaller than the shareholder’s percentage ownership of MainSource. Based on the number of shares outstanding on July 25, 2017 and the shares expected to be issued in the merger, the former shareholders of MainSource as a group will receive shares in the merger constituting approximately one-third of the outstanding shares of First Financial common stock immediately after the merger. As a result, current shareholders of First Financial as a group will own approximately two-thirds of the outstanding shares of First Financial common stock immediately after the merger. Because of this, MainSource shareholders may have less influence on the management and policies of First Financial than they now have on the management and policies of MainSource, and current First Financial shareholders may have less influence than they now have on the management and policies of First Financial.


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Upon completion of the merger, First Financial's assets will exceed $10 billion, and, as a result, we will become subject to increased regulatory requirements, which could materially and adversely affect us.

Upon completion of the merger, the Bank's total assets will exceed $10 billion, and we will therefore become subject to increased regulatory requirements. The Dodd-Frank Act and its implementing regulations impose various additional requirements on bank holding companies with $10 billion or more in total assets, including compliance with portions of the Federal Reserve Board’s enhanced prudential oversight requirements and annual stress testing requirements. Failure to meet the enhanced prudential standards and stress testing requirements could limit, among other things, our ability to engage in expansionary activities or make dividend payments to our shareholders. In addition, banks with $10 billion or more in total assets are primarily examined by the CFPB with respect to various federal consumer financial protection laws and regulations. Currently, the Bank is subject to regulations adopted by the CFPB, but the Federal Reserve Board is primarily responsible for examining the Bank’s compliance with federal consumer financial protection laws and those CFPB regulations. As a relatively new agency with evolving regulations and practices, there is uncertainty as to how the CFPB’s examination and regulatory authority might impact our business.

With respect to deposit-taking activities, banks with assets in excess of $10 billion are subject to two changes. First, these institutions are subject to a deposit assessment based on a new scorecard issued by the FDIC. This scorecard considers, among other things, the Bank’s CAMELS rating, results of asset-related stress testing and funding-related stress, as well as our use of core deposits, among other things. Depending on the results of the Bank’s performance under that scorecard, the total base assessment rate is between 2.5 and 45 basis points. Any increase in the Bank’s deposit insurance assessments may result in an increased expense related to its use of deposits as a funding source. Additionally, banks with over $10 billion in total assets are no longer exempt from the requirements of the Federal Reserve Board’s rules on interchange transaction fees for debit cards. This means that, beginning on July 1 following the Bank’s crossing the $10 billion threshold at the end of a calendar year, the Bank will be limited to receiving only a “reasonable” interchange transaction fee for any debit card transactions processed using debit cards issued to its customers. The Federal Reserve Board has determined that it is unreasonable for a bank with more than $10 billion in total assets to receive more than $0.21 plus 5 basis points of the transaction plus a $0.01 fraud adjustment for an interchange transaction fee for debit card transactions. A reduction in the amount of interchange fees the Bank receives for electronic debit interchange will reduce its revenues. During 2017, the Bank collected $12.9 million in debit card interchange fees. We estimate that had we been subject to this limitation during 2017, our interchange fee revenue would have been reduced by approximately $6.6 million.
  
In anticipation of becoming subject to the heightened regulatory requirements, we have begun to reorganize our compliance and risk personnel and implement various initiatives to address these regulatory requirements. However, compliance with these requirements may necessitate that we hire additional compliance or other personnel, design and implement additional internal controls and/or incur other significant expenses, any of which could have a material adverse effect on our business, financial condition or results of operations. Compliance with the annual stress testing requirements, part of which must be publicly disclosed, may also be generally misinterpreted by the market or our customers and, as a result, may adversely affect our stock price or ability to retain customers and effectively compete for new business opportunities. To ensure compliance with these heightened requirements when effective, our regulators may require us to take actions to prepare for compliance even before our total assets equal or exceed $10 billion at the end of four consecutive quarters. As a result, we have incurred and expect to continue to incur compliance-related costs before it is otherwise required. Our regulators may also consider our preparation for compliance with these regulatory requirements when examining our operations generally or considering any request for regulatory approval we may make, even requests for approvals on unrelated matters.

Item 1B.  Unresolved Staff Comments.
None.

Item 2.  Properties.
At December 31, 2017, the Company operated 94 banking centers, 19 of which are leased facilities.  Our core banking operating markets are located within the three state region of Ohio, Indiana and Kentucky. First Financial's executive office is a leased facility located in Cincinnati, Ohio and we operate 57 banking centers in Ohio, 34 banking centers in Indiana and three banking centers in Kentucky. In addition, we operate our Commercial Finance division, responsible for our insurance lending business and franchise lending business, from a non-banking center location in Indiana.

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,

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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 adjusted 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.

Supplemental Item. Executive Officers of the Registrant.

The following table sets forth information concerning the executive officers of First Financial as of February 15, 2018. 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
 
57
 
 
 
 
 
 
 
Anthony M. Stollings
 
President, Chief Banking Officer
 
President, Chief Banking Officer
 
63
 
 
 
 
 
 
 
John M. Gavigan
 
Chief Financial Officer
 
Chief Financial Officer
 
39
 
 
 
 
 
 
 
Scott T. Crawley
 
Corporate Controller and Principal Accounting Officer
 
Corporate Controller and Principal Accounting Officer
 
37
 
 
 
 
 
 
 
Matthew B. Burgess
 
Chief Internal Auditor
 
Chief Internal Auditor
 
58
 
 
 
 
 
 
 
Shannon M. Kuhl
 
Chief Legal Officer, Chief Risk Officer and Corporate Secretary
 
Chief Legal Officer, Chief Risk Officer and Corporate Secretary
 
47
 
 
 
 
 
 
 
Richard S. Dennen
 
 
 
President, Commercial Finance
 
51
 
 
 
 
 
 
 
Bradley J. Ringwald
 
 
 
President, Community Banking
 
44

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. 

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From October 1, 2004 until August 20, 2013, Mr. Davis held the title of President of First Financial Bank.  Mr. Davis has over 29 years of experience in the financial services industry.

Anthony M. Stollings - Anthony Stollings is presently the President, Chief Banking Officer of both First Financial Bancorp and First Financial Bank following his appointment to this role in April 2017.  From January 2017 to April 2017, he served as the President of Consumer Banking of First Financial Bank.  Mr. Stollings previously served as the President and Chief Operating Officer of First Financial Bancorp and Chief Operating Officer of First Financial Bank from December 2014 to January 2017.  He served as the Chief Financial Officer of both First Financial Bancorp and First Financial Bank from January 2013 through November 2014.  Mr. Stollings also serviced as the Chief Risk Officer of both First Financial Bancorp and First Financial Bank from September 2011 through January 2013.  He served as the Chief Accounting Officer of both First Financial Bancorp and First Financial Bank from his hire in December 2006 until September 2011.

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.  In 2017, Mr. Gavigan's role expanded to include Operations, Information Technology, Talent Management and Facilities. He was appointed to his current role in December 2014, having 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).

Scott T. Crawley - Scott Crawley is the Corporate Controller and Principal Accounting Officer of both First Financial Bancorp and First Financial Bank where he is responsible for the Company’s Accounting department. He was appointed to these roles in December 2014, and January 2017, respectively. He joined First Financial in January 2012 as the Assistant Controller, a position he held until December 2014. Mr. Crawley is a certified public accountant.

Matthew B. Burgess - Matt Burgess is the Chief Internal Auditor of both 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).

Shannon M. Kuhl - Shannon Kuhl is the Chief Legal Officer and Chief Risk Officer of both First Financial Bancorp and First Financial Bank. She has held the position of Chief Risk Officer since November 2017 and the position of Chief Legal Officer since November 2013. From September 2016 through October 2017, she also served as Chief Compliance Officer. 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.

Richard S. Dennen - Rick Dennen is the President of Commercial Finance, a position he has held since September 2016. He previously served as the President of First Financial Bank’s wholly owned subsidiary, 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.

Bradley J. Ringwald - Brad Ringwald is the President of Community Banking, a position he has held since September 2016. He oversees the bank’s development efforts for Commercial, Mortgage, and Wealth Management teams and works closely with local market leadership. He previously served as the President of Corporate and Specialty Banking of First Financial Bank from February 2016 to September 2016.  Mr. Ringwald also served as the 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).


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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, 2017 with respect to our stock price and dividends, is incorporated herein by reference in response to this item.

As of February 23, 2018 , our common shares were held by approximately 2,281 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, 2017 , a total of 11,800 stock options and 468,372 shares of restricted stock were outstanding. Additional information about stock options, restricted stock and restricted stock units is included in Note 18 - Stock Options and Awards in the Notes to Consolidated Financial Statements in First Financial’s 2017 Annual Report and in Item 12 below.
The payment of future cash dividends is at the discretion of our Board of Directors 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. 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 2017 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, 2017 with respect to compensation plans under which 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
 
11,800

 
$
11.64

 
2,154,251

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. Amended and Restated 2012 Stock Plan.  The Amended and Restated 2012 Plan includes provisions regarding adjustments to the number of securities available for future issuance under the Amended and Restated 2012 Plan 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 Amended and Restated 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 Amended and Restated 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 2017 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 2017 .

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, 2017
 
 
 
 
 
 
 
 
Share repurchase program
 
0

 
$
0.00

 
0

 
3,509,133

Stock Plans
 
0

 
0.00

 
N/A

 
N/A

November 1 to November 30, 2017
 
 

 
 

 
 

 
 

Share repurchase program
 
0

 
$
0.00

 
0

 
3,509,133

Stock Plans
 
0

 
0.00

 
N/A

 
N/A

December 1 to December 31, 2017
 
 

 
 

 
 

 
 

Share repurchase program
 
0

 
$
0.00

 
0

 
3,509,133

Stock Plans
 
4,909

 
28.02

 
N/A

 
N/A

Total
 
 

 
 

 
 

 
 

Share repurchase program
 
0

 
$
0.00

 
0

 
 

Stock Plans
 
4,909

 
$
28.02

 
N/A

 
 


(1)
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 Incentive Plan for Officers and Employees, Amended and Restated 2009 Non-Employee Director Stock Plan, 2012 Stock Plan, and Amended and Restated 2012 Stock Plan (collectively referred to hereafter as the Stock Plans).  The table shows the number of shares purchased pursuant to the Stock 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 2017 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 2017 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 2017 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 2017 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 2017 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 ensure that information required to be disclosed by First Financial in the reports it files or submits under the Exchange Act is 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 First Financial’s 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 such 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.

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 2017 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 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 that could have a material effect on the financial statements.  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, 2017 .

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,” 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 22, 2018 , 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.

Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires officers, directors and persons who own more than 10 percent of a registered class of First Financial’s equity securities to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.  Officers, directors and greater than 10 percent shareholders are required by SEC regulations to furnish First Financial with copies of all Forms 3, 4 and 5 they file.
Based solely on a review of the copies of these forms received by First Financial and written representations from certain reporting persons that they were not required to file a Form 5 for the specified fiscal year, First Financial believes that all of its officers, directors and greater than 10 percent shareholders complied with all filing requirements applicable to them with respect to transactions completed in 2017, except that Ms. Finnerty filed a late Form 4 on February 2, 2018 reporting one transaction from April 2011.

As of December 31, 2017 , there have been no material changes to the procedures by which shareholders may recommend nominees to the First Financial Board of Directors.

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 13 - Loans to Related Parties in the Notes to Consolidated Financial Statements included in First Financial’s 2017 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 2016 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 2016 Annual Report
 
 
 
 
 
Consolidated Balance Sheets as of December 31, 2017 and 2016 - Incorporated by reference from First Financial’s 2017 Annual Report
 
 
 
 
 
Consolidated Statements of Income for years ended December 31, 2017, 2016, and 2015 - Incorporated by reference from First Financial’s 2017 Annual Report
 
 
 
 
 
Consolidated Statements of Comprehensive Income for years ended December 31, 2017, 2016, and 2015 - Incorporated by reference from First Financial’s 2017 Annual Report
 
 
 
 
 
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2017, 2016, and 2015 - Incorporated by reference from First Financial’s 2017 Annual Report
 
 
 
 
 
Consolidated Statements of Cash Flows for years ended December 31, 2017, 2016, and 2015 - Incorporated by reference from First Financial’s 2017 Annual Report
 
 
 
 
 
Notes to Consolidated Financial Statements - Incorporated by reference from First Financial’s 2017 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
2.2
2.3
2.4
2.5
3.1
3.2
4.1
4.2
4.3
4.4
4.5
10.1
10.2
10.3
10.4

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10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25

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10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
13
14.1
14.2
21
23.1
23.2
31.1
31.2

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32.1
32.2
101.1
Financial statements from the Annual Report on Form 10-K of the Company for the year ended December 31, 2017, 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 
2/26/2018

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
 
 
 
 
 
 
Date
2/26/2018
 
Date
2/26/2018
 
 
 
 
/s/ Murph Knapke
 
/s/ Scott Crawley
Murph Knapke, Director
 
Scott T. Crawley, First Vice President and Controller
Chairman of the Board
 
(Principal Accounting Officer)
 
 
 
 
 
Date
2/26/2018
 
Date
2/26/2018
 
 
 
 
/s/ J. Wickliffe Ach
 
/s/ David S. Barker
J. Wickliffe Ach, Director
 
David S. Barker, Director
 
 
 
 
Date
2/26/2018
 
Date
2/26/2018
 
 
 
 
/s/ Cynthia O. Booth
 
/s/ Corinne R. Finnerty
Cynthia O. Booth, Director
 
Corinne R. Finnerty, Director
 
 
 
 
Date
2/26/2018
 
Date
2/26/2018
 
 
 
 
/s/ Susan L. Knust
 
/s/ William J. Kramer
Susan L. Knust, Director
 
William J. Kramer, Director
 
 
 
 
Date
2/26/2018
 
Date
2/26/2018


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/s/ Jeffrey D. Meyer
 
/s/ John T. Neighbours
Jeffrey D. Meyer, Director
 
John T. Neighbours, Director
 
 
 
 
Date
2/26/2018
 
Date
2/26/2018
 
 
 
 
/s/ Richard E. Olszewski
 
/s/ Maribeth S. Rahe
Richard E. Olszewski, Director
 
Maribeth S. Rahe, Director
 
 
 
Date
2/26/2018
 
Date
2/26/2018


35

EXHIBIT 10.36
AGREEMENT FOR PERFORMANCE STOCK AWARD
This Agreement for Performance Stock Award (the "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 Agreement (the "Grant Date"), is an employee of First Financial or a Subsidiary.
WHEREAS, First Financial maintains the Amended and Restated 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 Agreement containing the Performance Stock Award to the Participant upon the terms and conditions set forth in this Agreement.
WHEREAS, a Prospectus is delivered to the Participant simultaneously with this Agreement and is attached as Appendix A.

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 of <Enter Number of Shares Granted> shares of restricted Stock, in consideration of services to be rendered and subject to achievement of certain performance goals as set forth herein (the “Award”).
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 unless and until such restrictions lapse under the terms and conditions of the Plan and this Agreement.
3.
Performance Period . The “Performance Period” as used in this Agreement shall mean the three year period that begins on January 1, 20XX and ends on December 31, 20XX.
4.
Vesting and Forfeiture .
a.
General. Except as otherwise provided in this Agreement, the “Vesting Date” shall be <Enter Vest Date>. Provided the Participant remains in active employment with First Financial through the Vesting Date, the Committee shall determine the number of shares of restricted Stock that will become vested on the Vesting Date in accordance with, and subject to, Schedule 4 below.
Schedule 4
Performance Goal . The number of shares of restricted Stock that will become vested at the end of the Performance Period will be dependent upon the relative cumulative TSR and ROA achieved by First Financial during the Performance Period compared to KBW Regional Bank Index peers ("Peer Group"), as well as the earnings per share achieved by First Financial, as set forth in this Schedule 4. For purposes of this Agreement:
"TSR" means the Bloomberg-calculated change in market value of stock, plus reinvested dividends, of First Financial during the Performance Period.


"ROA" means the average of the SNL-calculated annual net income divided by total assets of First Financial.
Performance Level . Shares of 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. Notwithstanding any provision contained in this Agreement, earnings per share must be greater than $0 in order for any shares of restricted Stock to vest.
Vesting Percentage . The number of shares of restricted Stock that will become vested will be determined in accordance with the following table, by multiplying the total number of shares of restricted Stock subject to the Award by the Vesting Percentage in the table below that corresponds to the applicable Relative TSR and ROA Percentile in the table below achieved during the Performance Period. The Vesting Percentage for a Relative TSR and ROA Percentile between the percentiles listed below will be determined using linear interpolation.
Relative TSR and ROA
 Percentile (Equally weighted)*
Performance Level and Associated
 Vesting Percentage*
<25 th  Percentile
None (0%)
25th Percentile
Threshold (50% of Target)
30th Percentile
30th Percentile (57.14% of Target)
40th Percentile
40th Percentile (71.43% of Target)
50th Percentile
50th Percentile (85.71% of Target)
60th Percentile
Target ([•] shares)
> 75th Percentile
Maximum (120% of Target)
* To achieve any Performance Level, earnings per share must also be greater than $0.

b.
Certification of Award and Vesting . The Committee shall determine if the applicable performance goal or goals have been satisfied and the associated Performance Level and Associated Vesting Percentage achieved. Those shares of restricted Stock that vest upon achievement of the applicable performance goals as determined by the Committee will become vested on the Vesting Date. The portion of the Award that does not vest in accordance with this Schedule 4, and all of the Participant’s rights with respect to all shares of restricted Stock that are subject to such portion of the Award, shall be automatically forfeited as of the Vesting Date for no consideration.

c.
Termination of Employment. Except as otherwise provided in Sections 4(d) through 4(e) below, if the Participant’s employment with First Financial and its Subsidiaries is terminated before the Vesting Date for any reason, voluntarily or involuntarily, whether by resignation, dismissal or otherwise, the Award and all of the Participant’s rights hereunder shall be automatically forfeited as of the date of such termination of employment for no consideration. 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 Agreement. Notwithstanding the foregoing, a Participant's employment will be considered terminated for purposes of this 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.

d.
Retirement, Death or Disability . If the Committee determines that, prior to the Vesting Date under Section 4(a) (as may be modified under Section 4(e)(i)), the Participant's employment terminated as a result of the Participant’s “Retirement” (as defined in First Financial Bancorp 401(k) Savings Plan), “Disability” (as defined in the Plan) or death (each an "Early Termination", and the date of the Early Termination the “Early Termination Date”), the following provisions shall apply to the Award:
i.
The Award shall not become forfeited on the Early Termination Date and shall remain outstanding through the Vesting Date under Section 4(a);
ii.
On the Vesting Date, the Committee shall determine the number of shares of restricted Stock that will become vested in accordance with, and subject to, Schedule 4 below (for the avoidance of doubt, based on actual achievement of applicable performance goals during the entire Performance Period); and
iii.
The Award, to the extent vested in accordance with paragraph (ii) of this Section 4(d), will be further pro-rated based on the ratio of the number of the Participant’s completed full months of service during the Performance Period through the Early Termination Date to the total number of months in the Performance Period. The portion of the Award that does not vest in accordance with this Section 4(d) (after giving effect to the pro-ration under this paragraph), and all of the Participant’s rights with respect to all shares of restricted Stock that are subject to such portion of the Award, shall be automatically forfeited as of the Vesting Date for no consideration.
e.
Qualifying Event in Connection with a Change in Control. If the Committee determines that prior to the Vesting Date under Section 4(a) or the Early Termination Date under Section 4(d), (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 either (A) the Participant’s base compensation rate is reduced by at least 10%, or (B) the Participant’s employment is terminated by First Financial or its Subsidiaries other than for Cause (and other than due to the Participant's Disability or death) (each a “Qualifying Event”, and the date of the Qualifying Event the “Qualifying Event Date”), the following provisions shall apply to the Award:

(1)
The Performance Period shall end on the Qualifying Event Date, such date shall be the Vesting Date for purposes of this Agreement, and the Committee shall determine the Performance Level that has been achieved for the Performance Period as of the Qualifying Event Date based upon audited or unaudited financial information available;

(2)
If the Committee is unable to determine which Performance Level has been achieved as of the Qualifying Event Date, the Target Performance Level will be deemed to have been achieved on such date; and
(3)
The Award, to the extent vested in accordance with paragraphs (1) and (2) of this Section 4(e), will be further pro-rated based on the ratio of the number of completed days during the Performance Period through the Qualifying Event Date to the total number of days in the Performance Period (determined without regard to the provision in Section 4(c)(i) that causes


an early termination of the Performance Period). The portion of the Award that does not vest in accordance with this Section 4(e) (after giving effect to the pro-ration under this paragraph), and all of the Participant’s rights with respect to all shares of restricted Stock that are subject to such portion of the Award, shall be automatically forfeited as of the Vesting Date for no consideration.
f.
Plan Limitations. Notwithstanding anything herein to the contrary, Sections 4(d) through 4(e) above shall not apply if the Committee determines that applying any such Section would violate any restrictions under the Plan, including, without limitation, the restrictions under Section 3.4 of the Plan.

5.
Clawback Provision . The shares of restricted Stock received by the Participant 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 any First Financial clawback policy as may be amended from time to time.
6.
Issuance and Settlement of Stock Award .
a.
Upon award of the restricted Stock to the Participant, shares of restricted Stock underlying the Award 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 7(c) and (d) below, all shares of restricted Stock which become vested pursuant to Section 4 will be released of all restrictions set forth in the Plan and this Agreement on the Vesting Date.
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 applicable stock retention policies for the Participant as those policies may be amended from time to time.
7.
Shareholder's Rights . Subject to the terms of this 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 Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 4 of this Agreement.
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 Vesting Date. On or after the Vesting Date, the


Participant shall receive a cash payment (without interest) based on the dividends accumulated between the Grant Date and the Vesting Date on the shares of Stock (if any) that vested pursuant to 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 Vesting Date on 110% of the original Award. 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 calendar year following the calendar 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 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). In addition, First Financial shall have the right to retain or sell without notice sufficient Stock to cover the amount of any such tax required to be withheld with respect to such Stock being issued or vested, remitting any balance 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, (a) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (b) 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, (c) 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 (d) 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, (a) 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 (b) 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 Agreement, if, after the date of this 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 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 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):
(i)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;
(ii)
Solicit or attempt in any manner to persuade any Client of any Affiliated Company to cease to do business, to refrain from doing business or to reduce the amount of business which any Client has customarily done or contemplates doing with any of the Affiliated Companies; or
(iii)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any Client.
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 (1) 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):
(i)
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
(ii)
Hire, attempt to hire, employ or engage any person who, at any time within the two-year period immediately preceding such hire, or attempt to hire, employment or engagement, was an employee, officer or director of First Financial or Affiliated Company.
c.
Non-disclosure of Confidential Information .
(i)
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 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.
(ii)
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 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:
(i)
"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 Sections 13(a) and 13(b), Affiliated Companies shall be limited to First Financial and its Subsidiaries as e immediately prior to the consummation of such Change in Control.
(ii)
“ Client ” shall mean the customers or clients of First Financial or any Affiliated Company and shall include any and all individuals, organizations, or business entities that: (a) were actual customers or clients of First Financial or any Affiliated Company during Grantee’s employment by First Financial or any Affiliated Company, or which were prospective customers of First Financial or any Affiliated Company during Grantee’s employment; and (b) with which or whom Grantee had contact or about whom Grantee obtained Confidential Information during the Term from First Financial or any Affiliated Company. For purposes of this definition, an individual, organization, or business entity is a “prospective” client or customer of First Financial or any Affiliated Company if the Grantee or any other First Financial or any Affiliated Company employee, officer or manager took steps to obtain or secure the business of the individual, organization, or business entity.


(iii)
" 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 Participant or Participant's breach of a duty owed to First Financial.
(iv)
" Restricted Services " shall mean any commercial banking, savings banking, mortgage lending, or any similar lending or banking services.
(v)
" Restricted Territory " shall mean anywhere in the geographic area consisting of any county 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.
(vi)
" 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: (i) 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; (ii) 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; (iii) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Participant; and (iv) 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 Agreement and for continued employment, Participant agrees not to commence any action or suit related to Participant's employment by First Financial 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 Section 14.
15.
Notices. Each notice relating to this 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 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 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 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 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 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 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 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 Agreement and on any matters that are not contained in this Agreement. A copy of the Plan has been provided to the Participant 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.
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 First Financial and/or any of its Subsidiaries and


the Participant 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 Participant is subject to that includes provisions concerning confidentiality, non-competition or non-solicitation by the Participant (a "non-solicitation agreement"). Any non-solicitation agreement that Participant is subject to shall remain in full force and effect as written without impact from this Agreement.
23.
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 Performance Stock Award has been executed and dated by the parties hereto as of the day and year first above written.
EX10362017PERFORMANCE_IMAGE1.JPG
FIRST FINANCIAL BANCORP.

By:      __/s/ Claude E. Davis ______
Claude E. Davis
Title:     Chief Executive Officer




<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    



[APPENDIX A]

This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933, as amended.

PROSPECTUS

FIRST FINANCIAL BANCORP.
AMENDED AND RESTATED 2012 STOCK PLAN

Common Shares, no par value per share

Trading Symbol: FFBC (NASDAQ Stock Market LLC)

First Financial Bancorp., an Ohio corporation, is offering up to 1,750,000 shares of its common stock, no par value (“ Common Shares ”), under the First Financial Bancorp. Amended and Restated 2012 Stock Plan (the “ Plan ”).

This Prospectus summarizes the principal features of the Plan as of May 23, 2017. If there are any differences between the Plan as described in this Prospectus and the Plan itself, the terms of the Plan will govern. References in this Prospectus to the “Company,” “First Financial,” “we,” “us” or “our” refer to First Financial Bancorp.

Definitions of all capitalized terms that are used in this Prospectus without definition can be found at end of this Prospectus. These definitions are taken from the Plan.

                            


Neither the Securities and Exchange Commission (the “SEC”), nor any state securities commission, nor any bank regulatory agency, has approved or disapproved of these securities, or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
                            

The date of this Prospectus is May 23, 2017.



Documents Incorporated by Reference

We are incorporating certain documents into this Prospectus by reference, which means that we are disclosing important information to you by referring you to documents that contain such information. The information incorporated by reference is an important part of this Prospectus, and information we file later with the Securities and Exchange Commission (the “ SEC ”) will automatically update and supersede the information in this Prospectus and information in documents incorporated by reference. We incorporate by reference the documents listed below that we have previously filed with the SEC:

•
our Annual Report on Form 10-K for the fiscal year ended December 31, 2016;
•
other reports that we have filed with the SEC under Section 13(a) of the Securities Exchange of 1934, as amended (the “ Exchange Act ”), since December 31, 2016;
•
the definitive proxy statement for our 2017 Annual Meeting of Shareholders, filed on April 13, 2017; and
•
the description of our Common Shares contained in our Registration Statement on Form S-3 (File No. 333-197771) filed with the SEC on July 31, 2014, or contained in any subsequent amendment or report filed for the purpose of updating such description.
We are also incorporating by reference into this Prospectus all documents that we may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any information contained in a Current Report on Form 8-K, or any exhibit thereto, that is furnished to, rather than filed with, the SEC) after the date of this Prospectus and prior to the filing of a post-effective amendment which indicates that all of the Common Shares offered under the Plan have been sold or which deregisters all such Common Shares then remaining unsold.
Upon written or oral request, we will provide, without charge, to each person to whom this Prospectus is delivered: (i) copies of the documents incorporated by reference into this Prospectus but not delivered with this Prospectus (excluding exhibits); (ii) a copy of our annual report to shareholders for our latest fiscal year; (iii) copies of all reports, proxy statements and other communications distributed to our shareholders generally; and (iv) additional information regarding the Plan and the Compensation Committee (the “ Compensation Committee ”) of the Company’s Board of Directors (the “ Board ”) which administers the Plan. Requests may be directed to the attention of General Counsel, in writing, at First Financial Bancorp., 255 E. Fifth Street, Suite 2900, Cincinnati, Ohio 45202.
Description of the Plan

General Information

The purpose of the Plan is to recognize the contributions made to First Financial and its subsidiaries by employees and non-employee directors, to provide such persons with additional incentive to devote themselves to the future success of First Financial and its subsidiaries, and to enhance the ability of First Financial and its subsidiaries to attract, retain and motivate such individuals by providing them with the opportunity to acquire or increase their proprietary interest in First Financial. The Plan serves these purposes by making equity- and cash-based awards (“ Awards ”) available for grant to eligible participants in the form of:
 


•
Stock options to purchase Common Shares (“ Options ”), either in the form of incentive stock options (“ ISOs ”) or nonqualified stock options (“ NQSOs ”);

•
Stock appreciation rights (“ SARs ”);

•
Restricted Common Shares (“ Restricted Stock ”);

•
Stock Units that give the recipient the right to receive a cash payment based on the fair market value of a specified number of Common Shares on the date of exercise or the right to receive a specified number of Common Shares on the date of exercise (“ Stock Units ”); and

•
Restricted Stock, Options, SARs, Stock Units or other awards with performance-based conditions on vesting or exercisability (“ Performance Awards ”).

Administration

The Plan is administered by the Compensation Committee, which is comprised solely of “independent directors” within the meaning of the Nasdaq Stock Market Marketplace Rules (the “ Nasdaq Rules ”). To the extent that the Board determines it is appropriate for the compensation realized from Awards to be considered “performance based” compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “ Code ”), the Committee will be composed of two or more members who are “outside directors” within the meaning of Section 162(m) of the Code (and the Treasury Regulations promulgated thereunder), and, to the extent the Board determines it is appropriate for awards under the Plan to qualify for the exemption available under SEC Rule 16b-3(d)(1) or Rule 16b-3(e) promulgated under the Exchange Act, the Committee will be composed of two or more members who are “non-employee directors” within the meaning of Rule 16b-3. The members of the Compensation Committee do not serve fixed terms but may be appointed or removed at any time by the Board.

In its capacity as plan administrator, the Compensation Committee determines the type of each Award granted, the terms and conditions of each Award and, subject to limitations in the Plan, the individuals to whom Awards will be granted. The Compensation Committee also has full power and authority to (i) promulgate, amend and rescind rules and regulations relating to administration of the Plan, (ii) interpret the Plan and all related award agreements and (iii) exercise discretion in making any other determinations that it deems necessary or desirable for administration of the Plan. Any action taken by the Compensation Committee will be final, binding and conclusive.

Common Shares Subject to the Plan

Subject to the adjustments discussed below, the aggregate number of Common Shares available for the grant of Awards under the Plan will equal (i) 1,750,000 Common Shares plus (ii) 422,807, the number of Common Shares available for issuance under the 2012 Stock Plan. Common Shares issued under the Plan may consist of authorized, but unissued, Common Shares or treasury shares.

Upon the grant of an Award, we will reduce the number of Common Shares available for issuance under the Plan by an amount equal to the number of Common Shares subject to such Award. In the case of any SAR which is settled in Common Shares, we will count the gross number of Common Shares subject to the SAR against the number of Common Shares available for future Awards, regardless of the number of Common Shares used to settle the SAR upon its exercise. In addition, Common Shares subject to an Award that are used to pay the exercise price of such Award, are tendered in satisfaction of any condition to a grant of an Award or are withheld or repurchased by First Financial to satisfy any taxes required to be withheld with respect to a taxable event arising under such Award will not again be available for issuance under the Plan. However, any Common Shares subject to Awards that are forfeited will again become available for issuance under the Plan.



The Compensation Committee may not grant any Award under the Plan exceeding the following limitations:
 
•
Any participant may not receive Options or SARs covering more than 250,000 Common Shares in any calendar year;

•
Performance Awards (as defined below) granted to any employee in any calendar year may not cover more than 250,000 Common Shares, if to be settled in Common Shares, or an amount equal to the Fair Market Value of 250,000 common shares on the date on which the Award is settled, if to be settled in cash;

•
ISOs granted pursuant to the Plan may not cover more than 500,000 Common Shares in the aggregate;

•
The Fair Market Value of ISOs granted to any Employee,

•
Awards of Restricted Stock and Stock Units granted under the Plan may not cover more than the full amount of Common Shares subject to the Plan in the aggregate; and

•
Awards to any Non-Employee Director in any twelve-month period may not cover more than 40,000 shares in the aggregate.

Adjustment of Plan Shares

In the event of any Common Share dividend, Common Share split, or a corporate transaction, such as a reorganization, separation, liquidation, merger, consolidation or similar transaction affecting First Financial’s capitalization, the Compensation Committee shall make equitable adjustments to any of the following to reflect any change in capitalization of First Financial: (i) the number, kind and class of shares of First Financial for issuance under the Plan, (ii) the grant limitations imposed on Awards, as described above, (iii) the number, kind and class of shares of First Financial subject to Options, SARs, Restricted Stock grants, and Stock Unit grants; and (iv) the exercise price of Options and SARs.

Eligibility

Any employee of First Financial or its subsidiaries or any non-employee director of First Financial will be eligible to participate in the Plan. From time to time, the Compensation Committee may select the individuals to whom Awards will be granted, determine the number of Common Shares subject to each Award and the terms and conditions of each Award.

With respect to each Award granted under the Plan, we will enter into an award agreement with the participant which describes the terms and conditions of the Award, including (i) the type of Award and when and how it may be exercised or earned, (ii) any exercise price associated with the Award, (iii) how the Award will or may be settled and (iv) any other applicable terms and conditions affecting the Award.

Types of Awards

Stock Options and Stock Appreciation Rights

Options entitle the option holder to purchase shares at a price – the exercise price – to be established by the Committee. Options may be granted in the form of ISOs and NQSOs to employees and in the form of NQSOs to non-employee directors. ISOs are subject to certain additional restrictions under Section 422 of the Code, including that the fair market value of the Common Shares subject to


ISOs exercisable by a participant for the first time in any calendar year may not exceed $100,000. SARs entitle the SAR holder to receive cash or Common Shares equal to the positive difference (if any) between the exercise price and the fair market value of the Common Shares underlying the SAR on the exercise date. The exercise price of any Option or SAR granted under the Plan may not be less than the fair market value of the underlying Common Shares ( i.e ., the closing price of the Common Shares on the NASDAQ Global Select Market) on the date of grant.

The Compensation Committee will determine the terms under which the Options and SARs vest and become exercisable, which terms may be based on the continued service of the participant for specified time periods or on the attainment of specified business performance goals (or both) as established by the Compensation Committee in the applicable award agreement. The Plan requires Options and SARs to be subject to a minimum service requirement or a minimum performance requirement (or both) of not less than one year before they can vest; except that (i) up to 5% of the Common Shares available under the Plan may be granted pursuant to awards of Options, SARs, Restricted Stock or Stock Units with a vesting period of less than one year and (ii), subject to the “double trigger” requirements of the Plan, Awards may vest prior to one year as a result of a Change in Control, death or Disability (the “ Vesting Limitation Exception ”). Award agreements may allow the option or SAR holders to exercise vested Options or SARs upon his or her termination of service due to death, Disability or for other reasons determined by the Compensation Committee. The term for exercise of an Option or SAR may not exceed 10 years from the date of grant. Any part of an Option that has not be exercised by the end of the applicable term will expire and is forfeited.

A vested and exercisable Option may be exercised within the time period established by the Compensation Committee, by (i) providing written notice to the Compensation Committee or its delegate specifying the number of Common Shares to be purchased and (ii) furnishing payment in full of the exercise price for the specific number of Common Shares. The award agreement applicable to the Option may provide for payment of the exercise price (i) in cash, (ii) by previously acquired Common Shares (valued at the fair market value on the date of exercise) held for the period of time required by the Compensation Committee, (iii) through a cashless exercise (including by withholding Common Shares deliverable upon exercise and through a broker-assisted arrangement to the extent permitted by applicable law), and/or (iv) through any combination of these methods approved by the Compensation Committee.

Upon exercise of a SAR, a participant will be entitled to receive an amount equal to the difference between (i) the fair market value of a Common Share on the exercise date and (ii) the exercise price per Common Share, multiplied by the number of Common Shares with respect to which the SAR is exercised. A SAR may be settled in Common Shares, cash or a combination thereof, as specified by the Compensation Committee in the related award agreement.

The Plan provides that the Compensation Committee may incorporate a provision in an Option agreement that gives the option holder the right to surrender his or her Option in whole or in part in lieu of the exercise of such Option and to receive a payment in cash or Common Shares (as determined by the Compensation Committee), or a combination of cash and Common Shares, equal in amount of the date of exercise to (i) the number of Common Shares with respect to which the Option surrender right is exercised multiplied by (ii) the positive difference between the fair market value of a Common Share on such date over the Option exercise price.

Restricted Stock

An award of Restricted Stock represents a grant of Common Shares that are issued subject to transfer restrictions and vesting requirements. The Compensation Committee will determine the terms and conditions of each Restricted Stock award, including the restriction period, the number of Common Shares subject to the Award and other terms and conditions applicable to the Restricted Stock, as specified in the award agreement. Vesting of the Restricted Stock may occur upon satisfaction of one or


more stated conditions or terms including, without limitation, the achievement of specific performance goals or time-based service requirements; provided that awards of Restricted Stock must be subject to a minimum service requirement or a minimum performance requirement (or both) of not less than one year before they can vest, subject to the Vesting Limitation Exception as described above. The Common Shares underlying an award of Restricted Stock are subject to forfeiture if vesting does not occur.

Restricted Stock granted to a participant may not be sold, transferred, pledged or otherwise encumbered or disposed of during the restricted period established by the Compensation Committee. In the event a participant’s service with First Financial and its subsidiaries terminates prior to the vesting of a Restricted Stock award, that Award will be forfeited unless the terms of the Award, as approved by the Compensation Committee at the time of grant, provide (subject to the Plan’s minimum vesting requirements) for accelerated vesting or continued vesting. The Compensation Committee may impose additional restrictions on a participant’s right to dispose of or to encumber Restricted Stock, including satisfaction of performance objectives.

Stock Unit Awards

An award of Stock Units gives the recipient the right to receive, upon exercise of the Stock Units, (i) a cash payment based upon the fair market value of the number of Common Shares provided for in the award agreement at the time of exercise of the Stock Units, (ii) the number of Common Shares subject to the Stock Unit award, or (iii) the right to receive a combination of cash and Common Shares. Stock Units may vest as a result of continued service to First Financial or upon the achievement of applicable performance criteria established by the Compensation Committee; provided, that Stock Units granted under the Plan will be subject to a minimum service requirement or minimum performance requirement of not less than one year before they can vest, subject to the Vesting Limitation Exception. In the event a participant’s service with First Financial and its subsidiaries terminates prior to the vesting of a Stock Unit award, such Award will be forfeited unless the terms of the Award, as approved by the Committee at the time of grant and subject to the Plan’s minimum vesting requirements, provide for accelerated vesting or continued vesting.

Performance Awards.
The Compensation Committee may specify that the grant, retention, vesting or issuance of any Award under the Plan, including Awards in the form of Options, SARs, Restricted Stock, or Stock Units, or the amount paid under such Award, will be subject to or based upon performance objections or other standards of financial performance and/or personal performance evaluations.
The Compensation Committee may also grant awards of Restricted Stock and Stock Units in a manner that constitutes qualified “performance-based compensation” and is deductible by us under Section 162(m) of the Code and the Treasury Regulations promulgated thereunder. To qualify for this exemption, Performance Awards must be conditioned on the attainment of performance goals during a specified performance period, and the Compensation Committee must establish these performance goals no later than 90 days after the performance period begins (or such other date as may be required under Section 162(m)).
Performance goals will be objectively measurable and will be based upon or relate to the achievement of a specified percentage or level of one or more of the following performance measures:


Assets
Average Total Common Equity
Deposits
Earnings Per Share
Economic Profit Added
Efficiency Ratio
Gross Margin
Gross Revenue
Internal Rate Of Return
Loans
Net Charge-Offs
Net Income
Net Income Before Tax
Net Interest Income
Non-Interest Expense
Non-Interest Income
Non-Performing Assets
Operating Cash Flow
Pre-Provision Net Revenue
Return On Assets
Return On Equity
Return On Risk Weighted Assets
Return On Sales
Stock Price
Tangible Equity
Total Shareholder Return
 
 
The selected performance goals may be set in any manner determined by the Compensation Committee, including in relation to peer groups or indexes and may relate to First Financial as a whole or one or more operating units of First Financial, including our subsidiaries or affiliates. Performance Awards granted under the Plan may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Compensation Committee may determine, provided that, if the Performance Awards are intended to qualify as performance-based compensation under Section 162(m), such additional terms and conditions are also not inconsistent with Section 162(m).
At the end of each performance period, the Compensation Committee will certify in writing the level of achievement with respect to each performance measure and determine the corresponding amount payable with respect to the applicable Performance Award.

To the extent consistent with Section 162(m) of the Code, the Compensation Committee may calculate performance goals relating to any Performance Award intended to qualify as “performance-based compensation” without regard to extraordinary items, and may adjust such performance goals in recognition of unusual or non-recurring events affecting the Company or its affiliates or changes in applicable tax laws or accounting principles. The Compensation Committee has the authority to exercise negative discretion and reduce (but not increase) the amount of a Performance Award actually paid to a participant.

Forfeiture or Clawbacks

In an award agreement applicable to any Award under the Plan, the Compensation Committee may provide that a participant’s rights, payments and benefits with respect to the Award will be reduced, cancelled, forfeited or subject to recoupment upon the occurrence of specified events, in addition to any vesting conditions imposed on such Award. These specified events may include, but are not limited to, breach of non-competition, non-solicitation, confidentiality, or other restrictive covenants that are contained in the applicable award agreement or otherwise applicable to the participant, a termination of the participant’s employment or service with First Financial or its subsidiaries for Cause, or other conduct by the participant that is detrimental to the business or reputation of First Financial.

Following the payment or vesting of any Award, the Compensation Committee may also determine that such payment or vesting was based on materially inaccurate financial statements, including, but not limited to, statements of earnings, revenues or gains, or any other materially inaccurate performance metric criteria, or that such Award is subject to recovery under any applicable law, regulation, exchange listing requirement or First Financial policy. Upon this determination, the participant will be obligated to pay to First Financial the portion of the cash paid or Common Shares issued to the participant upon the vesting of any such Award that the Compensation Committee determines was not earned, or the greater amount requirement by applicable law, regulation, exchange listing requirement or First Financial policy.



Change in Control

The Plan permits the Compensation Committee to include provisions in any award agreement relating to a Change in Control, such as provisions relating to the acceleration of the vesting, delivery or exercisability of, or the lapse of restrictions with respect to, any outstanding Awards; provided that in addition to any conditions provided for in such award agreement, any acceleration of the vesting, delivery or exercisability of, or the lapse of restrictions with respect to, any outstanding Awards in connection with a Change in Control may occur with respect to any participant who is an employee only if (i) the Change in Control occurs and (ii) the participant’s employment with First Financial or any of its subsidiaries is terminated without Cause or by the participant for Good Reason within 18 months (or such shorter period that is set forth in the award agreement) following such Change in Control.

Unless otherwise determined by the Compensation Committee, in the event of a merger, consolidation, mandatory share exchange or other similar business combination of First Financial with or into any other entity or any transaction in which another person or entity acquires all of the issued and outstanding Common Shares or all or substantially all of the assets of First Financial and its subsidiaries, the Plan provides that an outstanding Award may be assumed or an award of equivalent value may be substituted by such successor entity or parent or subsidiary thereof, and such assumption or substitution shall not be deemed to violate the Plan or any provision of the applicable award agreement.

The Plan also provides that, unless otherwise determined by the Compensation Committee, if an Award is subject to performance goals, in the event of a Change in Control, all incomplete performance periods in respect of such award in effect on the date the Change in Control occurs will end on the date of the Change in Control and the Compensation Committee will (i) determine the extent to which performance goals with respect to the applicable performance period have been met based upon such audited or unaudited financial information then available and (ii) cause to be paid to the participant a pro-rated amount of the Award (based on each completed day of the performance period prior to the Change in Control) based upon the Compensation Committee’s determination of the degree of attainment of the applicable performance goals or, if not determinable, assuming that the applicable target levels of performance have been attained (or on such other basis as the Compensation Committee determines to be appropriate); provided that in no event shall a participant become entitled to a payout in excess of the target level payout with respect to a performance goal for which the Compensation Committee has not determined the actual level of achievement.

Transferability

Except as otherwise provided in a related award agreement, Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution, and during the participant’s lifetime, may be exercised only by the participant (or his or her personal representative or guardian if the participant is incapacitated).

Tax Withholding

The Compensation Committee may require payment, or withhold payments made pursuant to Awards, to satisfy applicable tax withholding requirements.

Rights as a Shareholder

Until exercised, holders of Options will have no rights as a shareholder with respect to those Options. With respect to shares of Restricted Stock, except as limited by the Plan or applicable award agreement, the recipient shall have all of the voting rights of a shareholder of First Financial with respect to the same class of shares as are represented by such Restricted Stock. With respect to SARs and Stock Units exercisable for Common Shares, a participant shall have no voting rights with respect to such awards until the shares underlying such Awards are properly issued to the participant.



In no event may cash dividends to be paid with respect to Restricted Stock or Stock Units become payable before the date such Restricted Stock or Stock Units have become fully vested and nonforfeitable. Any cash dividends paid with respect to unvested shares of Restricted Stock shall be withheld by First Financial for the award holder’s account. The withheld cash dividends will be distributed to the award holder in cash or, at the discretion of the Compensation Committee, in Common Shares equal to the fair market value of the amount of such dividends upon the vesting and release of restrictions on such Restricted Stock. If such Restricted Stock is forfeited, then the award holder shall have no right to, and will forfeit, any such dividends. Unless otherwise set forth in the applicable award agreement which evidences a Stock Unit grant, cash dividends will be treated as reinvested in Common Shares at the fair market value of such Common Shares on the date of payment of such dividend and will increase the number of Common Shares subject to such Stock Unit grant.
    
If a Common Share dividend is declared on a share of Restricted Stock, such dividend will be treated as part of the grant of the related Restricted Stock, and a participant’s interest in such dividend will be forfeited or shall become vested at the same time as the Common Shares with respect to which the dividend was paid is forfeited or becomes vested and nonforfeitable. Unless otherwise set forth in the applicable award agreement, if a Common Share dividend is declared on any Common Shares described in a Stock Unit grant, such dividend shall increase the number of Common Shares described in such Stock Unit grant, but shall only be issuable if and when the related Stock Unit becomes exercisable.

Repricing

The Plan prohibits any repricing, replacement, re-grant or modification of Options or SARs that would reduce the exercise price of the Options or SARs without shareholder approval, other than in connection with a change in our capitalization or certain corporate transactions, as described above under the heading “ Adjustment of Plan Shares .”
 
Term of the Plan

The Plan will continue until May 23, 2022.

Termination and Amendment of the Plan

Unless earlier terminated by the Board or Compensation Committee, the Plan will terminate on May 23, 2022, which is five years after the date of the Plan’s approval by our shareholders. Termination of the Plan will not affect any Awards granted under the Plan prior to such termination.

The Board or Compensation Committee may, at any time and for any reason, suspend or terminate the Plan or, from time to time, amend the Plan, provided that any amendment must be submitted to our shareholders for approval if required by federal or state law or regulation or by the Nasdaq Rules. In the event that the Plan is suspended or terminated, the Compensation Committee may contribute to exercise the powers given to it under the Plan with respect to awards granted prior to such suspension or termination.


U.S. Federal Income Tax Consequences

The following is a brief summary of the general U.S. federal income tax consequences relating to participation in the Plan. This summary is based on U.S. federal tax laws and Treasury Regulations in effect on the date of this Prospectus and does not purport to be a complete description of the U.S. federal income tax laws. In addition, this summary does not constitute tax advice or describe federal employment, state, local or foreign tax consequences. Each participant should consult with his or her tax advisor concerning the U.S. federal income tax and other tax consequences of participating in the Plan.

Options . There are no federal income tax consequences to a participant or to First Financial upon the grant of an ISO or an NQSO under the Plan.

Upon exercise of an NQSO, the option holder generally recognizes ordinary income in an amount equal to: (i) the fair market value of the acquired shares on the date of exercise, reduced by (ii) the exercise price the participant pays for the shares received in the exercise. Provided First Financial satisfies applicable reporting requirements, it is entitled to a tax deduction in the same amount as the participant includes as ordinary income.

An Option retains its status as an ISO during the period the option holder is an employee and, if the ISO does not expire at termination of employment, for three months after such termination of employment (with certain exceptions for death and disability). Upon the exercise of an ISO, an option holder generally recognizes no immediate taxable income. When the option holder sells shares acquired through the exercise of an ISO, the gain is treated as long-term capital gain (or the loss is a long-term capital loss) unless the sale is a “disqualifying disposition.” A “disqualifying disposition” occurs if the option holder sells shares acquired on exercise within two years from the grant date of the ISO or within one year from the date of exercise. On a disqualifying disposition, the option holder includes the gain realized on the sale of the shares as ordinary income (or ordinary loss). Gain (or loss) is determined by subtracting the exercise price paid from the greater of (i) the fair market value of the shares on the exercise date, or (ii) the amount realized by the option holder on the date of sale. The gain may constitute a tax preference item for computing the participant’s alternative minimum tax.

Generally, First Financial will not be entitled to any tax deduction for the grant or exercise of an ISO. If, however, the sale of shares acquired through exercise of an ISO is a disqualifying disposition, then provided it satisfies applicable reporting requirements, First Financial will be entitled to a deduction in the same amount the participant includes in income.
 
SARs . There are no federal income tax consequences to either a participant or First Financial upon the grant of a SAR. However, the participant generally will recognize ordinary income upon the exercise of a SAR in an amount equal to the aggregate amount of cash and the fair market value of the shares received upon exercise. Provided it satisfies applicable reporting requirements, First Financial will be entitled to a deduction equal to the amount included in the participant’s income.
 
Restricted Stock . Except as otherwise provided below, there are no federal income tax consequences to either a participant or to First Financial as a result of the grant of Restricted Stock. The participant recognizes ordinary income in an amount equal to the fair market value on the date of vesting of the Restricted Stock. Subject to Section 162(m), and provided First Financial satisfies applicable reporting requirements, it will be entitled to a corresponding deduction. Notwithstanding the above, a recipient of a Restricted Stock grant that is subject to a substantial risk of forfeiture may make an election under Section 83(b) of the Code, within 30 days after the date of the grant, to recognize ordinary income as of the date of grant and First Financial will be entitled to a corresponding deduction at that time.
 
Stock Units . When a Stock Unit is settled, the participant will recognize ordinary income in an amount equal to the fair market value of the Common Shares received or, if the Stock Unit is paid in cash, the amount paid.
 
Golden Parachute Payments . Awards that are granted, accelerated or enhanced upon the occurrence of, or in anticipation of, a change in control of First Financial may give rise, in whole or in part, to “excess parachute payments” under Section 280G and Code Section 4999. With respect to any excess parachute payment, the participant would be subject to a 20% excise tax on, and First Financial would be denied a deduction for, the “excess” amount.
 
Section 162(m) of the Code . As previously discussed, Section 162(m) generally provides that publicly held companies may not deduct compensation paid to certain of their top executive officers to the extent such compensation exceeds $1 million per officer in any year. Certain limited exceptions to Section 162(m) apply with respect to “performance-based compensation” that complies with conditions imposed by Section 162(m) rules, provided the material terms of such performance goals are disclosed to and approved by shareholders, as the First Financial shareholders have done at the 2017 Annual Meeting on May 23, 2017. Options, SARs and Performance Awards granted under the Plan and described above are intended to constitute qualified performance-based compensation eligible for such exceptions.
 
Section 409A of the Code . We intend that, to the extent any provisions of the Plan or any awards granted under the Plan are subject to Section 409A of the Code (which relates to nonqualified deferred compensation), they will be interpreted and administered in good faith in accordance with Section 409A requirements and that the Compensation Committee will have the authority to amend any outstanding awards so that they are in compliance with Section 409A or qualify for an exemption from Section 409A. First Financial will not indemnify any participant for taxes or penalties imposed by Section 409A. To the extent required to avoid accelerated taxation and tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six month period immediately following the participant’s termination of employment or service will instead be paid on the first payroll date after the six-month anniversary of the participant’s separation from service (or the participant’s death, if earlier).

IRS CIRCULAR 230 DISCLOSURE: In order to ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of (1) avoiding penalties that may be imposed under the U.S. Internal Revenue Code or (2) promoting, marketing, or recommending to another person, any transaction or other matter addressed herein.
Employee Retirement Income Security Act of 1974
The Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended.
Restrictions on Resale
The Plan provides that the award agreement applicable to an Option, SAR, Restricted Stock award or Stock Unit award will provide that, upon receipt of Common Shares, as a result of the exercise of an Option (or any related surrender right) or a SAR or the satisfaction of the conditions for an award of Restricted Stock or Stock Units payable in Common Shares, the participant shall, upon the request of First Financial, hold such Common Shares for investment and not with a view to resale or distribution to the public and, if requested by First Financial, will deliver to the Company a satisfactory written statement to that effect. Other than upon the request of First Financial or as otherwise provided by the Compensation Committee, the Plan does not impose any restrictions on the resale of Common Shares issued under the Plan . Restrictions are imposed by the federal securities laws on the resale of Common Shares acquired under the Plan by persons deemed to be “affiliates” of the Company within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”). Our directors and executive officers are deemed to be affiliates. Any Common Shares held by an affiliate (including Common Shares acquired under the Plan ) can only be resold pursuant to a registration statement under the Securities Act in which such affiliate is named as a selling shareholder or in a transaction in compliance with Rule 144 or another exemption under the Securities Act. To the extent applicable, participants in the Plan also must adhere to the Company’s insider trading policy.
Additional Provisions Affecting Certain Insiders
Any participants of the Plan who are executive officers or directors of the Company will be subject to the reporting requirements of Section 16(a) of the Exchange Act and thus subject to the short-swing profit liability provisions of the Exchange Act. Transactions involving Awards under the Plan may give rise to short-swing profit liability. Participants who are executive officers or directors must consult the Company’s Insider Trading Policy before selling any Common Shares acquired pursuant to the Plan.
Reports
Annual reports as to the amount and status of the Awards granted to them under the Plan are available to all Participants through Award management system . In addition, the Company will furnish to participants in the Plan copies of all shareholder communications, such as proxy statements, reports and other communications distributed to the Company’s shareholders.
Defined Terms
When used in this Prospectus and in the Plan, the following capitalized terms shall have the meanings set forth below:
“ Cause ” means (i) an indictment of a participant of the Plan, or plea of guilty or plea of nolo contendere by such participant, 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, fraud, embezzlement, or misappropriation of assets, willful misfeasance or dishonesty, or other actions or criminal conduct which materially and adversely affects the business (including business reputation) or financial condition of First Financial or any of its subsidiaries or (ii) the continued failure of a participant of the Plan to perform substantially his or her employment duties with First Financial or any of its subsidiaries (other than any such failure resulting from incapacity due to physical or mental illness), observe all material obligations and conditions to be performed and observed by a participant under the Plan and any award agreement for an Award granted pursuant to the Plan, or perform his or her duties in accordance, in all material respects, with the policies and directions established from time to time by First Financial or any of its subsidiaries.
“ Change in Control ” means a change in control of First Financial of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act as in effect at the time of such “change in control.” A Change in Control shall also be deemed to have occurred for purposes of the Plan at such time as (i) any “person” (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities representing 35% or more of the combined voting power for election of directors of the then outstanding securities of First Financial or any successor of First Financial; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constitute the Board cease, for any reason, to constitute at least a majority of the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period or whose election or nomination for election was previously so approved; (iii) there is a consummation of any reorganization, merger, consolidation or share exchange as a result of which the Common Shares of First Financial shall be changed, converted or exchanged into or for securities of another corporation (other than a merger with a wholly-owned subsidiary of First Financial) or any dissolution or liquidation of First Financial or any sale or the disposition of 50% or more of the assets or business of First Financial; or (iv) there is a consummation of any reorganization, merger, consolidation or share exchange unless (A) the persons who were the beneficial owners of the outstanding Common Shares of First Financial immediately before the consummation of such transaction beneficially own more than 65% of the outstanding shares of the common or other voting stock of the successor or survivor corporation in such transaction immediately following the consummation of such transaction and (B) the number of shares of the common or other voting stock of such successor or survivor corporation beneficially owned by the persons described in clause (A) above immediately following the consummation of such transaction is beneficially owned by each such person in substantially the same proportion that each such person had beneficially owned Common Shares of First Financial immediately before the consummation of such transaction, provided the percentage described in clause (A) above of the beneficially owned shares of the successor or survivor corporation and the number of shares described above in this clause (B) of the beneficially owned shares of the successor or survivor corporation shall be determined exclusively by reference to the shares of the successor or survivor corporation which result from the beneficial ownership of Common Shares of First Financial by the persons described in such clause (A) immediately before the consummation of such transaction.
“ Disability ” means, as determined by the Compensation Committee in its discretion exercised in good faith, (i) in the case of an Award that is exempt from the application of the requirements of Code Section 409A and is granted to a participant of the Plan who is covered by the Company’s long-term disability insurance policy or plan, if any, a physical or mental condition of the participant that would entitle him or her to payment of disability income payments under such long-term disability insurance policy or plan as then in effect, (ii) in the case of an Award that is exempt from the application of the requirements of Code Section 409A and is granted to a participant of the Plan who is not covered by the Company’s long-term disability insurance policy or plan for whatever reason, or in the event the Company does not maintain such a long-term disability insurance policy or plan, and for purposes of an ISO granted under the Plan, a permanent and total disability as defined in section 22(e)(3) of the Code and (iii) in the case of an Award that is not exempt from the application of the requirements of Code Section 409A, a physical or mental condition of a participant of the Plan where (A) the participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (B) the participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. A determination of Disability may be made by a physician selected or approved by the Compensation Committee and, in this respect, the participant shall submit to an examination by such physician upon request by the Committee.
“ Good Reason ” means, in connection with a termination of employment by participant of the Plan following a Change in Control, a material reduction in such participant’s base compensation or a material adverse alteration in such participant’s position or in the nature or status of such participant’s employment responsibilities from those in effect immediately prior to the Change in Control.




EXHIBIT 10.37
AGREEMENT FOR PERFORMANCE STOCK AWARD
This Agreement for Performance Stock Award (the "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 Agreement (the "Grant Date"), is an employee of First Financial or a Subsidiary.
WHEREAS, First Financial maintains the Amended and Restated 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 Agreement containing the Performance Stock Award to the Participant upon the terms and conditions set forth in this Agreement.
WHEREAS, a Prospectus is delivered to the Participant simultaneously with this Agreement and is attached as Appendix A.

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 of <Enter Number of Shares Granted> shares of restricted Stock, in consideration of services to be rendered and subject to achievement of certain performance goals as set forth herein (the “Award”).
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 unless and until such restrictions lapse under the terms and conditions of the Plan and this Agreement.
3.
Performance Period . The “Performance Period” as used in this Agreement shall mean the three year period that begins on January 1, 20XX and ends on December 31, 20XX.
4.
Vesting and Forfeiture .
a.
General. Except as otherwise provided in this Agreement, the “Vesting Date” shall be <Enter Vest Date>. Provided the Participant remains in active employment with First Financial through the Vesting Date, the Committee shall determine the number of shares of restricted Stock that will become vested on the Vesting Date in accordance with, and subject to, Schedule 4 below.
Schedule 4
Performance Goal . The number of shares of restricted Stock that will become vested at the end of the Performance Period will be dependent upon the relative cumulative TSR and ROA achieved by First Financial during the Performance Period compared to KBW Regional Bank Index peers ("Peer Group"), as well as the earnings per share achieved by First Financial, as set forth in this Schedule 4. For purposes of this Agreement:
"TSR" means the Bloomberg-calculated change in market value of stock, plus reinvested dividends, of First Financial during the Performance Period.


"ROA" means the average of the SNL-calculated annual net income divided by total assets of First Financial.
Performance Level . Shares of 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. Notwithstanding any provision contained in this Agreement, earnings per share must be greater than $0 in order for any shares of restricted Stock to vest.
Vesting Percentage . The number of shares of restricted Stock that will become vested will be determined in accordance with the following table, by multiplying the total number of shares of restricted Stock subject to the Award by the Vesting Percentage in the table below that corresponds to the applicable Relative TSR and ROA Percentile in the table below achieved during the Performance Period. The Vesting Percentage for a Relative TSR and ROA Percentile between the percentiles listed below will be determined using linear interpolation.
Relative TSR and ROA
Percentile (Equally weighted)*
Performance Level and Associated
Vesting Percentage*
< 25th Percentile
None (0%)
25th Percentile
Threshold (50% of Target)
30th Percentile
30th Percentile (57.14% of Target)
40th Percentile
40th Percentile (71.43% of Target)
50th Percentile
50th Percentile (85.71% of Target)
60th Percentile
Target ([•] shares)
> 75th Percentile
Maximum (120% of Target)
* To achieve any Performance Level, earnings per share must also be greater than $0.


b.
Certification of Award and Vesting . The Committee shall determine if the applicable performance goal or goals have been satisfied and the associated Performance Level and Associated Vesting Percentage achieved. Those shares of restricted Stock that vest upon achievement of the applicable performance goals as determined by the Committee will become vested on the Vesting Date. The portion of the Award that does not vest in accordance with this Schedule 4, and all of the Participant’s rights with respect to all shares of restricted Stock that are subject to such portion of the Award, shall be automatically forfeited as of the Vesting Date for no consideration.

c.
Termination of Employment. Except as otherwise provided in Sections 4(d) through 4(e) below, if the Participant’s employment with First Financial and its Subsidiaries is terminated before the Vesting Date for any reason, voluntarily or involuntarily, whether by resignation, dismissal or


otherwise, the Award and all of the Participant’s rights hereunder shall be automatically forfeited as of the date of such termination of employment for no consideration. 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 Agreement. Notwithstanding the foregoing, a Participant's employment will be considered terminated for purposes of this 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.

d.
Retirement, Death or Disability . If the Committee determines that, prior to the Vesting Date under Section 4(a) (as may be modified under Section 4(e)(i)), the Participant's employment terminated as a result of the Participant’s “Retirement” (as defined in First Financial Bancorp 401(k) Savings Plan), “Disability” (as defined in the Plan) or death (each an "Early Termination", and the date of the Early Termination the “Early Termination Date”), the following provisions shall apply to the Award:
i.
The Award shall not become forfeited on the Early Termination Date and shall remain outstanding through the Vesting Date under Section 4(a);
ii.
On the Vesting Date, the Committee shall determine the number of shares of restricted Stock that will become vested in accordance with, and subject to, Schedule 4 below (for the avoidance of doubt, based on actual achievement of applicable performance goals during the entire Performance Period); and
iii.
The Award, to the extent vested in accordance with paragraph (ii) of this Section 4(d), will be further pro-rated based on the ratio of the number of the Participant’s completed full months of service during the Performance Period through the Early Termination Date to the total number of months in the Performance Period. The portion of the Award that does not vest in accordance with this Section 4(d) (after giving effect to the pro-ration under this paragraph), and all of the Participant’s rights with respect to all shares of restricted Stock that are subject to such portion of the Award, shall be automatically forfeited as of the Vesting Date for no consideration.
e .
Qualifying Event in Connection with a Change in Control. If the Committee determines that prior to the Vesting Date under Section 4(a) or the Early Termination Date under Section 4(d), (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 either (A) the Participant’s base compensation rate is reduced by at least 10%, or (B) the Participant’s employment is terminated by First Financial or its Subsidiaries other than for Cause (and other than due to the Participant's Disability or death) (each a “Qualifying Event”, and the date of the Qualifying Event the “Qualifying Event Date”), the following provisions shall apply to the Award:

(1)
The Performance Period shall end on the Qualifying Event Date, such date shall be the Vesting Date for purposes of this Agreement, and the Committee shall determine the Performance Level that has been achieved for the Performance Period as of the Qualifying Event Date based upon audited or unaudited financial information available;
(2)
If the Committee is unable to determine which Performance Level has been achieved as of the Qualifying Event Date, the Target Performance Level will be deemed to have been achieved on such date; and
(3)
The Award, to the extent vested in accordance with paragraphs (1) and (2) of this Section 4(e), will be further pro-rated based on the ratio of the number of completed days during the


Performance Period through the Qualifying Event Date to the total number of days in the Performance Period (determined without regard to the provision in Section 4(c)(i) that causes an early termination of the Performance Period). The portion of the Award that does not vest in accordance with this Section 4(e) (after giving effect to the pro-ration under this paragraph), and all of the Participant’s rights with respect to all shares of restricted Stock that are subject to such portion of the Award, shall be automatically forfeited as of the Vesting Date for no consideration.
f.
Plan Limitations. Notwithstanding anything herein to the contrary, Sections 4(d) through 4(e) above shall not apply if the Committee determines that applying any such Section would violate any restrictions under the Plan, including, without limitation, the restrictions under Section 3.4 of the Plan.

5.
Clawback Provision . The shares of restricted Stock received by the Participant 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 any First Financial clawback policy as may be amended from time to time.
6.
Issuance and Settlement of Stock Award .
a.
Upon award of the restricted Stock to the Participant, shares of restricted Stock underlying the Award 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 7(c) and (d) below, all shares of restricted Stock which become vested pursuant to Section 4 will be released of all restrictions set forth in the Plan and this Agreement on the Vesting Date.
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 applicable stock retention policies for the Participant as those policies may be amended from time to time.
7.
Shareholder's Rights . Subject to the terms of this 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 Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 4 of this Agreement.


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 Vesting Date. On or after the Vesting Date, the Participant shall receive a cash payment (without interest) based on the dividends accumulated between the Grant Date and the Vesting Date on the shares of Stock (if any) that vested pursuant to 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 Vesting Date on 110% of the original Award. 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 calendar year following the calendar 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 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). In addition, First Financial shall have the right to retain or sell without notice sufficient Stock to cover the amount of any such tax required to be withheld with respect to such Stock being issued or vested, remitting any balance 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, (a) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (b) 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, (c) 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 (d) 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, (a) 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 (b) 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 Agreement, if, after the date of this 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 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 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):
(i)
contact or attempt to contact any Applicant, Borrower, or Referral Partner of First Financial or an Affiliated Company that the Participant has had contact with or solicited in the last two (2) years of the Participant's employment for the purpose of disparaging First Financial or an Affiliated Company, inducing or attempting to induce the Applicant, Borrower, or Referral Partner to terminate his/her business relationship with First Financial or an Affiliated Company, or soliciting the Applicant, Borrower, or Referral Partner to obtain financing other than with First Financial or an Affiliated Company.
(ii)
Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;
(iii)
Solicit or attempt in any manner to persuade any Client of any Affiliated Company to cease to do business, to refrain from doing business or to reduce the amount of business which any Client has customarily done or contemplates doing with any of the Affiliated Companies; or
(iv)
Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any Client.


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 (1) 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):
(i)
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
(ii)
Hire, attempt to hire, employ or engage any person who, at any time within the two-year period immediately preceding such hire, or attempt to hire, employment or engagement, was an employee, officer or director of First Financial or Affiliated Company.
c.
Non-Competition . During the Participant's employment with First Financial or any Affiliated Companies and for a period of one (1) year after Participant is no longer employed by First Financial or any Affiliated Companies, be employed by a Competitive Entity in the same capacity as the capacity the Participant was employed with by First Financial or provide the same services to a Competitive Entity as those the Participant provided in the previous year of employment with First Financial in the Restricted Territory.
d.
Non-disclosure of Confidential Information .
(i)
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 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.

(ii)
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.


e.
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:

(i)
"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 Sections 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.

(ii)
"Applicant" shall include any potential borrower who has executed a term sheet with First Financial or an Affiliated Company during the period of two (2) years prior to the termination of employment.

(iii)
"Borrower" shall include any borrower who has entered into a loan with First Financial or an Affiliated Company during the period of two (2) years prior to the termination of employment.

(iv)
“ Client ” shall mean the customers or clients of First Financial or any Affiliated Company and shall include any and all individuals, organizations, or business entities that: (a) were actual customers or clients of First Financial or any Affiliated Company during Grantee’s employment by First Financial or any Affiliated Company, or which were prospective customers of First Financial or any Affiliated Company during Grantee’s employment; and (b) with which or whom Grantee had contact or about whom Grantee obtained Confidential Information during the Term from First Financial or any Affiliated Company. For purposes of this definition, an individual, organization, or business entity is a “prospective” client or customer of First Financial or any Affiliated Company if the Grantee or any other First Financial or any Affiliated Company employee, officer or manager took steps to obtain or secure the business of the individual, organization, or business entity.

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

(vi)
" 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.

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

(viii)
" Restricted Territory " means, because of the nature of the business which is not dependent upon the physical location or presence of First Financial or the Participant, the broadest geographic region enforceable by law (excluding any location where this type of


restriction is prohibited by law) is as follows: (A) the State of Indiana and any state in which First Financial or any Affiliated Company has originated any loans, sold any products, or provided any services by the Participant during the one (1) year immediately preceding the Participant's termination of employment, whether voluntary or involuntary; and (B) each state, commonwealth, territory, province or other political subdivision located in North America in which First Financial or any Affiliated Company originated loans or provided banking services and to which Participant provided services during the one (1) year immediately preceding the Participant's termination of employment, whether voluntary or involuntary.

(ix)
" 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).

f.
Enforcement; Remedies; Blue Pencil . Participant acknowledges that: (i) 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; (ii) 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; (iii) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Participant; and (iv) 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 Agreement and for continued employment, Participant agrees not to commence any action or suit related to Participant's employment by First Financial 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 Section 14.
15.
Notices. Each notice relating to this 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 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 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 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 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 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 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 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 Agreement and on any matters that are not contained in this Agreement. A copy of the Plan has been provided to the Participant 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.
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 First Financial and/or any of its Subsidiaries and the Participant 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 Participant is subject to that includes provisions concerning confidentiality, non-competition or non-solicitation by the Participant (a "non-solicitation agreement"). Any non-solicitation agreement that Participant is subject to shall remain in full force and effect as written without impact from this Agreement.
23.
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 Performance Stock Award has been executed and dated by the parties hereto as of the day and year first above written.
EX10372017PERFORMANCE_IMAGE1.JPG
FIRST FINANCIAL BANCORP.

By:      /s/ Claude E. Davis
Claude E. Davis
Title:     Chief Executive Officer




<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    



[APPENDIX A]

This document constitutes part of a prospectus covering securities that have been registered under the Securities Act of 1933, as amended.

PROSPECTUS

FIRST FINANCIAL BANCORP.
AMENDED AND RESTATED 2012 STOCK PLAN

Common Shares, no par value per share

Trading Symbol: FFBC (NASDAQ Stock Market LLC)

First Financial Bancorp., an Ohio corporation, is offering up to 1,750,000 shares of its common stock, no par value (“ Common Shares ”), under the First Financial Bancorp. Amended and Restated 2012 Stock Plan (the “ Plan ”).

This Prospectus summarizes the principal features of the Plan as of May 23, 2017. If there are any differences between the Plan as described in this Prospectus and the Plan itself, the terms of the Plan will govern. References in this Prospectus to the “Company,” “First Financial,” “we,” “us” or “our” refer to First Financial Bancorp.

Definitions of all capitalized terms that are used in this Prospectus without definition can be found at end of this Prospectus. These definitions are taken from the Plan.

                            


Neither the Securities and Exchange Commission (the “SEC”), nor any state securities commission, nor any bank regulatory agency, has approved or disapproved of these securities, or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
                            

The date of this Prospectus is May 23, 2017.



Documents Incorporated by Reference

We are incorporating certain documents into this Prospectus by reference, which means that we are disclosing important information to you by referring you to documents that contain such information. The information incorporated by reference is an important part of this Prospectus, and information we file later with the Securities and Exchange Commission (the “ SEC ”) will automatically update and supersede the information in this Prospectus and information in documents incorporated by reference. We incorporate by reference the documents listed below that we have previously filed with the SEC:

•
our Annual Report on Form 10-K for the fiscal year ended December 31, 2016;
•
other reports that we have filed with the SEC under Section 13(a) of the Securities Exchange of 1934, as amended (the “ Exchange Act ”), since December 31, 2016;
•
the definitive proxy statement for our 2017 Annual Meeting of Shareholders, filed on April 13, 2017; and
•
the description of our Common Shares contained in our Registration Statement on Form S-3 (File No. 333-197771) filed with the SEC on July 31, 2014, or contained in any subsequent amendment or report filed for the purpose of updating such description.
We are also incorporating by reference into this Prospectus all documents that we may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (excluding any information contained in a Current Report on Form 8-K, or any exhibit thereto, that is furnished to, rather than filed with, the SEC) after the date of this Prospectus and prior to the filing of a post-effective amendment which indicates that all of the Common Shares offered under the Plan have been sold or which deregisters all such Common Shares then remaining unsold.
Upon written or oral request, we will provide, without charge, to each person to whom this Prospectus is delivered: (i) copies of the documents incorporated by reference into this Prospectus but not delivered with this Prospectus (excluding exhibits); (ii) a copy of our annual report to shareholders for our latest fiscal year; (iii) copies of all reports, proxy statements and other communications distributed to our shareholders generally; and (iv) additional information regarding the Plan and the Compensation Committee (the “ Compensation Committee ”) of the Company’s Board of Directors (the “ Board ”) which administers the Plan. Requests may be directed to the attention of General Counsel, in writing, at First Financial Bancorp., 255 E. Fifth Street, Suite 2900, Cincinnati, Ohio 45202.
Description of the Plan

General Information

The purpose of the Plan is to recognize the contributions made to First Financial and its subsidiaries by employees and non-employee directors, to provide such persons with additional incentive to devote themselves to the future success of First Financial and its subsidiaries, and to enhance the ability of First Financial and its subsidiaries to attract, retain and motivate such individuals by providing them with the opportunity to acquire or increase their proprietary interest in First Financial. The Plan serves these purposes by making equity- and cash-based awards (“ Awards ”) available for grant to eligible participants in the form of:
 


•
Stock options to purchase Common Shares (“ Options ”), either in the form of incentive stock options (“ ISOs ”) or nonqualified stock options (“ NQSOs ”);

•
Stock appreciation rights (“ SARs ”);

•
Restricted Common Shares (“ Restricted Stock ”);

•
Stock Units that give the recipient the right to receive a cash payment based on the fair market value of a specified number of Common Shares on the date of exercise or the right to receive a specified number of Common Shares on the date of exercise (“ Stock Units ”); and

•
Restricted Stock, Options, SARs, Stock Units or other awards with performance-based conditions on vesting or exercisability (“ Performance Awards ”).

Administration

The Plan is administered by the Compensation Committee, which is comprised solely of “independent directors” within the meaning of the Nasdaq Stock Market Marketplace Rules (the “ Nasdaq Rules ”). To the extent that the Board determines it is appropriate for the compensation realized from Awards to be considered “performance based” compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “ Code ”), the Committee will be composed of two or more members who are “outside directors” within the meaning of Section 162(m) of the Code (and the Treasury Regulations promulgated thereunder), and, to the extent the Board determines it is appropriate for awards under the Plan to qualify for the exemption available under SEC Rule 16b-3(d)(1) or Rule 16b-3(e) promulgated under the Exchange Act, the Committee will be composed of two or more members who are “non-employee directors” within the meaning of Rule 16b-3. The members of the Compensation Committee do not serve fixed terms but may be appointed or removed at any time by the Board.

In its capacity as plan administrator, the Compensation Committee determines the type of each Award granted, the terms and conditions of each Award and, subject to limitations in the Plan, the individuals to whom Awards will be granted. The Compensation Committee also has full power and authority to (i) promulgate, amend and rescind rules and regulations relating to administration of the Plan, (ii) interpret the Plan and all related award agreements and (iii) exercise discretion in making any other determinations that it deems necessary or desirable for administration of the Plan. Any action taken by the Compensation Committee will be final, binding and conclusive.

Common Shares Subject to the Plan

Subject to the adjustments discussed below, the aggregate number of Common Shares available for the grant of Awards under the Plan will equal (i) 1,750,000 Common Shares plus (ii) 422,807, the number of Common Shares available for issuance under the 2012 Stock Plan. Common Shares issued under the Plan may consist of authorized, but unissued, Common Shares or treasury shares.

Upon the grant of an Award, we will reduce the number of Common Shares available for issuance under the Plan by an amount equal to the number of Common Shares subject to such Award. In the case of any SAR which is settled in Common Shares, we will count the gross number of Common Shares subject to the SAR against the number of Common Shares available for future Awards, regardless of the number of Common Shares used to settle the SAR upon its exercise. In addition, Common Shares subject to an Award that are used to pay the exercise price of such Award, are tendered in satisfaction of any condition to a grant of an Award or are withheld or repurchased by First Financial to satisfy any taxes required to be withheld with respect to a taxable event arising under such Award will not again be available for issuance under the Plan. However, any Common Shares subject to Awards that are forfeited will again become available for issuance under the Plan.



The Compensation Committee may not grant any Award under the Plan exceeding the following limitations:
 
•
Any participant may not receive Options or SARs covering more than 250,000 Common Shares in any calendar year;

•
Performance Awards (as defined below) granted to any employee in any calendar year may not cover more than 250,000 Common Shares, if to be settled in Common Shares, or an amount equal to the Fair Market Value of 250,000 common shares on the date on which the Award is settled, if to be settled in cash;

•
ISOs granted pursuant to the Plan may not cover more than 500,000 Common Shares in the aggregate;

•
The Fair Market Value of ISOs granted to any Employee,

•
Awards of Restricted Stock and Stock Units granted under the Plan may not cover more than the full amount of Common Shares subject to the Plan in the aggregate; and

•
Awards to any Non-Employee Director in any twelve-month period may not cover more than 40,000 shares in the aggregate.

Adjustment of Plan Shares

In the event of any Common Share dividend, Common Share split, or a corporate transaction, such as a reorganization, separation, liquidation, merger, consolidation or similar transaction affecting First Financial’s capitalization, the Compensation Committee shall make equitable adjustments to any of the following to reflect any change in capitalization of First Financial: (i) the number, kind and class of shares of First Financial for issuance under the Plan, (ii) the grant limitations imposed on Awards, as described above, (iii) the number, kind and class of shares of First Financial subject to Options, SARs, Restricted Stock grants, and Stock Unit grants; and (iv) the exercise price of Options and SARs.

Eligibility

Any employee of First Financial or its subsidiaries or any non-employee director of First Financial will be eligible to participate in the Plan. From time to time, the Compensation Committee may select the individuals to whom Awards will be granted, determine the number of Common Shares subject to each Award and the terms and conditions of each Award.

With respect to each Award granted under the Plan, we will enter into an award agreement with the participant which describes the terms and conditions of the Award, including (i) the type of Award and when and how it may be exercised or earned, (ii) any exercise price associated with the Award, (iii) how the Award will or may be settled and (iv) any other applicable terms and conditions affecting the Award.

Types of Awards

Stock Options and Stock Appreciation Rights

Options entitle the option holder to purchase shares at a price – the exercise price – to be established by the Committee. Options may be granted in the form of ISOs and NQSOs to employees and in the form of NQSOs to non-employee directors. ISOs are subject to certain additional restrictions under Section 422 of the Code, including that the fair market value of the Common Shares subject to


ISOs exercisable by a participant for the first time in any calendar year may not exceed $100,000. SARs entitle the SAR holder to receive cash or Common Shares equal to the positive difference (if any) between the exercise price and the fair market value of the Common Shares underlying the SAR on the exercise date. The exercise price of any Option or SAR granted under the Plan may not be less than the fair market value of the underlying Common Shares ( i.e ., the closing price of the Common Shares on the NASDAQ Global Select Market) on the date of grant.

The Compensation Committee will determine the terms under which the Options and SARs vest and become exercisable, which terms may be based on the continued service of the participant for specified time periods or on the attainment of specified business performance goals (or both) as established by the Compensation Committee in the applicable award agreement. The Plan requires Options and SARs to be subject to a minimum service requirement or a minimum performance requirement (or both) of not less than one year before they can vest; except that (i) up to 5% of the Common Shares available under the Plan may be granted pursuant to awards of Options, SARs, Restricted Stock or Stock Units with a vesting period of less than one year and (ii), subject to the “double trigger” requirements of the Plan, Awards may vest prior to one year as a result of a Change in Control, death or Disability (the “ Vesting Limitation Exception ”). Award agreements may allow the option or SAR holders to exercise vested Options or SARs upon his or her termination of service due to death, Disability or for other reasons determined by the Compensation Committee. The term for exercise of an Option or SAR may not exceed 10 years from the date of grant. Any part of an Option that has not be exercised by the end of the applicable term will expire and is forfeited.

A vested and exercisable Option may be exercised within the time period established by the Compensation Committee, by (i) providing written notice to the Compensation Committee or its delegate specifying the number of Common Shares to be purchased and (ii) furnishing payment in full of the exercise price for the specific number of Common Shares. The award agreement applicable to the Option may provide for payment of the exercise price (i) in cash, (ii) by previously acquired Common Shares (valued at the fair market value on the date of exercise) held for the period of time required by the Compensation Committee, (iii) through a cashless exercise (including by withholding Common Shares deliverable upon exercise and through a broker-assisted arrangement to the extent permitted by applicable law), and/or (iv) through any combination of these methods approved by the Compensation Committee.

Upon exercise of a SAR, a participant will be entitled to receive an amount equal to the difference between (i) the fair market value of a Common Share on the exercise date and (ii) the exercise price per Common Share, multiplied by the number of Common Shares with respect to which the SAR is exercised. A SAR may be settled in Common Shares, cash or a combination thereof, as specified by the Compensation Committee in the related award agreement.

The Plan provides that the Compensation Committee may incorporate a provision in an Option agreement that gives the option holder the right to surrender his or her Option in whole or in part in lieu of the exercise of such Option and to receive a payment in cash or Common Shares (as determined by the Compensation Committee), or a combination of cash and Common Shares, equal in amount of the date of exercise to (i) the number of Common Shares with respect to which the Option surrender right is exercised multiplied by (ii) the positive difference between the fair market value of a Common Share on such date over the Option exercise price.

Restricted Stock

An award of Restricted Stock represents a grant of Common Shares that are issued subject to transfer restrictions and vesting requirements. The Compensation Committee will determine the terms and conditions of each Restricted Stock award, including the restriction period, the number of Common Shares subject to the Award and other terms and conditions applicable to the Restricted Stock, as specified in the award agreement. Vesting of the Restricted Stock may occur upon satisfaction of one or


more stated conditions or terms including, without limitation, the achievement of specific performance goals or time-based service requirements; provided that awards of Restricted Stock must be subject to a minimum service requirement or a minimum performance requirement (or both) of not less than one year before they can vest, subject to the Vesting Limitation Exception as described above. The Common Shares underlying an award of Restricted Stock are subject to forfeiture if vesting does not occur.

Restricted Stock granted to a participant may not be sold, transferred, pledged or otherwise encumbered or disposed of during the restricted period established by the Compensation Committee. In the event a participant’s service with First Financial and its subsidiaries terminates prior to the vesting of a Restricted Stock award, that Award will be forfeited unless the terms of the Award, as approved by the Compensation Committee at the time of grant, provide (subject to the Plan’s minimum vesting requirements) for accelerated vesting or continued vesting. The Compensation Committee may impose additional restrictions on a participant’s right to dispose of or to encumber Restricted Stock, including satisfaction of performance objectives.

Stock Unit Awards

An award of Stock Units gives the recipient the right to receive, upon exercise of the Stock Units, (i) a cash payment based upon the fair market value of the number of Common Shares provided for in the award agreement at the time of exercise of the Stock Units, (ii) the number of Common Shares subject to the Stock Unit award, or (iii) the right to receive a combination of cash and Common Shares. Stock Units may vest as a result of continued service to First Financial or upon the achievement of applicable performance criteria established by the Compensation Committee; provided, that Stock Units granted under the Plan will be subject to a minimum service requirement or minimum performance requirement of not less than one year before they can vest, subject to the Vesting Limitation Exception. In the event a participant’s service with First Financial and its subsidiaries terminates prior to the vesting of a Stock Unit award, such Award will be forfeited unless the terms of the Award, as approved by the Committee at the time of grant and subject to the Plan’s minimum vesting requirements, provide for accelerated vesting or continued vesting.

Performance Awards.
The Compensation Committee may specify that the grant, retention, vesting or issuance of any Award under the Plan, including Awards in the form of Options, SARs, Restricted Stock, or Stock Units, or the amount paid under such Award, will be subject to or based upon performance objections or other standards of financial performance and/or personal performance evaluations.
The Compensation Committee may also grant awards of Restricted Stock and Stock Units in a manner that constitutes qualified “performance-based compensation” and is deductible by us under Section 162(m) of the Code and the Treasury Regulations promulgated thereunder. To qualify for this exemption, Performance Awards must be conditioned on the attainment of performance goals during a specified performance period, and the Compensation Committee must establish these performance goals no later than 90 days after the performance period begins (or such other date as may be required under Section 162(m)).
Performance goals will be objectively measurable and will be based upon or relate to the achievement of a specified percentage or level of one or more of the following performance measures:


Assets
Average Total Common Equity
Deposits
Earnings Per Share
Economic Profit Added
Efficiency Ratio
Gross Margin
Gross Revenue
Internal Rate Of Return
Loans
Net Charge-Offs
Net Income
Net Income Before Tax
Net Interest Income
Non-Interest Expense
Non-Interest Income
Non-Performing Assets
Operating Cash Flow
Pre-Provision Net Revenue
Return On Assets
Return On Equity
Return On Risk Weighted Assets
Return On Sales
Stock Price
Tangible Equity
Total Shareholder Return
 
 
The selected performance goals may be set in any manner determined by the Compensation Committee, including in relation to peer groups or indexes and may relate to First Financial as a whole or one or more operating units of First Financial, including our subsidiaries or affiliates. Performance Awards granted under the Plan may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Compensation Committee may determine, provided that, if the Performance Awards are intended to qualify as performance-based compensation under Section 162(m), such additional terms and conditions are also not inconsistent with Section 162(m).
At the end of each performance period, the Compensation Committee will certify in writing the level of achievement with respect to each performance measure and determine the corresponding amount payable with respect to the applicable Performance Award.

To the extent consistent with Section 162(m) of the Code, the Compensation Committee may calculate performance goals relating to any Performance Award intended to qualify as “performance-based compensation” without regard to extraordinary items, and may adjust such performance goals in recognition of unusual or non-recurring events affecting the Company or its affiliates or changes in applicable tax laws or accounting principles. The Compensation Committee has the authority to exercise negative discretion and reduce (but not increase) the amount of a Performance Award actually paid to a participant.

Forfeiture or Clawbacks

In an award agreement applicable to any Award under the Plan, the Compensation Committee may provide that a participant’s rights, payments and benefits with respect to the Award will be reduced, cancelled, forfeited or subject to recoupment upon the occurrence of specified events, in addition to any vesting conditions imposed on such Award. These specified events may include, but are not limited to, breach of non-competition, non-solicitation, confidentiality, or other restrictive covenants that are contained in the applicable award agreement or otherwise applicable to the participant, a termination of the participant’s employment or service with First Financial or its subsidiaries for Cause, or other conduct by the participant that is detrimental to the business or reputation of First Financial.

Following the payment or vesting of any Award, the Compensation Committee may also determine that such payment or vesting was based on materially inaccurate financial statements, including, but not limited to, statements of earnings, revenues or gains, or any other materially inaccurate performance metric criteria, or that such Award is subject to recovery under any applicable law, regulation, exchange listing requirement or First Financial policy. Upon this determination, the participant will be obligated to pay to First Financial the portion of the cash paid or Common Shares issued to the participant upon the vesting of any such Award that the Compensation Committee determines was not earned, or the greater amount requirement by applicable law, regulation, exchange listing requirement or First Financial policy.



Change in Control

The Plan permits the Compensation Committee to include provisions in any award agreement relating to a Change in Control, such as provisions relating to the acceleration of the vesting, delivery or exercisability of, or the lapse of restrictions with respect to, any outstanding Awards; provided that in addition to any conditions provided for in such award agreement, any acceleration of the vesting, delivery or exercisability of, or the lapse of restrictions with respect to, any outstanding Awards in connection with a Change in Control may occur with respect to any participant who is an employee only if (i) the Change in Control occurs and (ii) the participant’s employment with First Financial or any of its subsidiaries is terminated without Cause or by the participant for Good Reason within 18 months (or such shorter period that is set forth in the award agreement) following such Change in Control.

Unless otherwise determined by the Compensation Committee, in the event of a merger, consolidation, mandatory share exchange or other similar business combination of First Financial with or into any other entity or any transaction in which another person or entity acquires all of the issued and outstanding Common Shares or all or substantially all of the assets of First Financial and its subsidiaries, the Plan provides that an outstanding Award may be assumed or an award of equivalent value may be substituted by such successor entity or parent or subsidiary thereof, and such assumption or substitution shall not be deemed to violate the Plan or any provision of the applicable award agreement.

The Plan also provides that, unless otherwise determined by the Compensation Committee, if an Award is subject to performance goals, in the event of a Change in Control, all incomplete performance periods in respect of such award in effect on the date the Change in Control occurs will end on the date of the Change in Control and the Compensation Committee will (i) determine the extent to which performance goals with respect to the applicable performance period have been met based upon such audited or unaudited financial information then available and (ii) cause to be paid to the participant a pro-rated amount of the Award (based on each completed day of the performance period prior to the Change in Control) based upon the Compensation Committee’s determination of the degree of attainment of the applicable performance goals or, if not determinable, assuming that the applicable target levels of performance have been attained (or on such other basis as the Compensation Committee determines to be appropriate); provided that in no event shall a participant become entitled to a payout in excess of the target level payout with respect to a performance goal for which the Compensation Committee has not determined the actual level of achievement.

Transferability

Except as otherwise provided in a related award agreement, Awards may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution, and during the participant’s lifetime, may be exercised only by the participant (or his or her personal representative or guardian if the participant is incapacitated).

Tax Withholding

The Compensation Committee may require payment, or withhold payments made pursuant to Awards, to satisfy applicable tax withholding requirements.

Rights as a Shareholder

Until exercised, holders of Options will have no rights as a shareholder with respect to those Options. With respect to shares of Restricted Stock, except as limited by the Plan or applicable award agreement, the recipient shall have all of the voting rights of a shareholder of First Financial with respect to the same class of shares as are represented by such Restricted Stock. With respect to SARs and Stock Units exercisable for Common Shares, a participant shall have no voting rights with respect to such awards until the shares underlying such Awards are properly issued to the participant.



In no event may cash dividends to be paid with respect to Restricted Stock or Stock Units become payable before the date such Restricted Stock or Stock Units have become fully vested and nonforfeitable. Any cash dividends paid with respect to unvested shares of Restricted Stock shall be withheld by First Financial for the award holder’s account. The withheld cash dividends will be distributed to the award holder in cash or, at the discretion of the Compensation Committee, in Common Shares equal to the fair market value of the amount of such dividends upon the vesting and release of restrictions on such Restricted Stock. If such Restricted Stock is forfeited, then the award holder shall have no right to, and will forfeit, any such dividends. Unless otherwise set forth in the applicable award agreement which evidences a Stock Unit grant, cash dividends will be treated as reinvested in Common Shares at the fair market value of such Common Shares on the date of payment of such dividend and will increase the number of Common Shares subject to such Stock Unit grant.
    
If a Common Share dividend is declared on a share of Restricted Stock, such dividend will be treated as part of the grant of the related Restricted Stock, and a participant’s interest in such dividend will be forfeited or shall become vested at the same time as the Common Shares with respect to which the dividend was paid is forfeited or becomes vested and nonforfeitable. Unless otherwise set forth in the applicable award agreement, if a Common Share dividend is declared on any Common Shares described in a Stock Unit grant, such dividend shall increase the number of Common Shares described in such Stock Unit grant, but shall only be issuable if and when the related Stock Unit becomes exercisable.

Repricing

The Plan prohibits any repricing, replacement, re-grant or modification of Options or SARs that would reduce the exercise price of the Options or SARs without shareholder approval, other than in connection with a change in our capitalization or certain corporate transactions, as described above under the heading “ Adjustment of Plan Shares .”
 
Term of the Plan

The Plan will continue until May 23, 2022.

Termination and Amendment of the Plan

Unless earlier terminated by the Board or Compensation Committee, the Plan will terminate on May 23, 2022, which is five years after the date of the Plan’s approval by our shareholders. Termination of the Plan will not affect any Awards granted under the Plan prior to such termination.

The Board or Compensation Committee may, at any time and for any reason, suspend or terminate the Plan or, from time to time, amend the Plan, provided that any amendment must be submitted to our shareholders for approval if required by federal or state law or regulation or by the Nasdaq Rules. In the event that the Plan is suspended or terminated, the Compensation Committee may contribute to exercise the powers given to it under the Plan with respect to awards granted prior to such suspension or termination.




U.S. Federal Income Tax Consequences

The following is a brief summary of the general U.S. federal income tax consequences relating to participation in the Plan. This summary is based on U.S. federal tax laws and Treasury Regulations in effect on the date of this Prospectus and does not purport to be a complete description of the U.S. federal income tax laws. In addition, this summary does not constitute tax advice or describe federal employment, state, local or foreign tax consequences. Each participant should consult with his or her tax advisor concerning the U.S. federal income tax and other tax consequences of participating in the Plan.

Options . There are no federal income tax consequences to a participant or to First Financial upon the grant of an ISO or an NQSO under the Plan.

Upon exercise of an NQSO, the option holder generally recognizes ordinary income in an amount equal to: (i) the fair market value of the acquired shares on the date of exercise, reduced by (ii) the exercise price the participant pays for the shares received in the exercise. Provided First Financial satisfies applicable reporting requirements, it is entitled to a tax deduction in the same amount as the participant includes as ordinary income.

An Option retains its status as an ISO during the period the option holder is an employee and, if the ISO does not expire at termination of employment, for three months after such termination of employment (with certain exceptions for death and disability). Upon the exercise of an ISO, an option holder generally recognizes no immediate taxable income. When the option holder sells shares acquired through the exercise of an ISO, the gain is treated as long-term capital gain (or the loss is a long-term capital loss) unless the sale is a “disqualifying disposition.” A “disqualifying disposition” occurs if the option holder sells shares acquired on exercise within two years from the grant date of the ISO or within one year from the date of exercise. On a disqualifying disposition, the option holder includes the gain realized on the sale of the shares as ordinary income (or ordinary loss). Gain (or loss) is determined by subtracting the exercise price paid from the greater of (i) the fair market value of the shares on the exercise date, or (ii) the amount realized by the option holder on the date of sale. The gain may constitute a tax preference item for computing the participant’s alternative minimum tax.

Generally, First Financial will not be entitled to any tax deduction for the grant or exercise of an ISO. If, however, the sale of shares acquired through exercise of an ISO is a disqualifying disposition, then provided it satisfies applicable reporting requirements, First Financial will be entitled to a deduction in the same amount the participant includes in income.
 
SARs . There are no federal income tax consequences to either a participant or First Financial upon the grant of a SAR. However, the participant generally will recognize ordinary income upon the exercise of a SAR in an amount equal to the aggregate amount of cash and the fair market value of the shares received upon exercise. Provided it satisfies applicable reporting requirements, First Financial will be entitled to a deduction equal to the amount included in the participant’s income.
 
Restricted Stock . Except as otherwise provided below, there are no federal income tax consequences to either a participant or to First Financial as a result of the grant of Restricted Stock. The participant recognizes ordinary income in an amount equal to the fair market value on the date of vesting of the Restricted Stock. Subject to Section 162(m), and provided First Financial satisfies applicable reporting requirements, it will be entitled to a corresponding deduction. Notwithstanding the above, a recipient of a Restricted Stock grant that is subject to a substantial risk of forfeiture may make an election under Section 83(b) of the Code, within 30 days after the date of the grant, to recognize ordinary income as of the date of grant and First Financial will be entitled to a corresponding deduction at that time.
 
Stock Units . When a Stock Unit is settled, the participant will recognize ordinary income in an amount equal to the fair market value of the Common Shares received or, if the Stock Unit is paid in cash, the amount paid.

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Golden Parachute Payments . Awards that are granted, accelerated or enhanced upon the occurrence of, or in anticipation of, a change in control of First Financial may give rise, in whole or in part, to “excess parachute payments” under Section 280G and Code Section 4999. With respect to any excess parachute payment, the participant would be subject to a 20% excise tax on, and First Financial would be denied a deduction for, the “excess” amount.
 
Section 162(m) of the Code . As previously discussed, Section 162(m) generally provides that publicly held companies may not deduct compensation paid to certain of their top executive officers to the extent such compensation exceeds $1 million per officer in any year. Certain limited exceptions to Section 162(m) apply with respect to “performance-based compensation” that complies with conditions imposed by Section 162(m) rules, provided the material terms of such performance goals are disclosed to and approved by shareholders, as the First Financial shareholders have done at the 2017 Annual Meeting on May 23, 2017. Options, SARs and Performance Awards granted under the Plan and described above are intended to constitute qualified performance-based compensation eligible for such exceptions.
 
Section 409A of the Code . We intend that, to the extent any provisions of the Plan or any awards granted under the Plan are subject to Section 409A of the Code (which relates to nonqualified deferred compensation), they will be interpreted and administered in good faith in accordance with Section 409A requirements and that the Compensation Committee will have the authority to amend any outstanding awards so that they are in compliance with Section 409A or qualify for an exemption from Section 409A. First Financial will not indemnify any participant for taxes or penalties imposed by Section 409A. To the extent required to avoid accelerated taxation and tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six month period immediately following the participant’s termination of employment or service will instead be paid on the first payroll date after the six-month anniversary of the participant’s separation from service (or the participant’s death, if earlier).

IRS CIRCULAR 230 DISCLOSURE: In order to ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of (1) avoiding penalties that may be imposed under the U.S. Internal Revenue Code or (2) promoting, marketing, or recommending to another person, any transaction or other matter addressed herein.
Employee Retirement Income Security Act of 1974
The Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended.
Restrictions on Resale
The Plan provides that the award agreement applicable to an Option, SAR, Restricted Stock award or Stock Unit award will provide that, upon receipt of Common Shares, as a result of the exercise of an Option (or any related surrender right) or a SAR or the satisfaction of the conditions for an award of Restricted Stock or Stock Units payable in Common Shares, the participant shall, upon the request of First Financial, hold such Common Shares for investment and not with a view to resale or distribution to the public and, if requested by First Financial, will deliver to the Company a satisfactory written statement to that effect. Other than upon the request of First Financial or as otherwise provided by the Compensation Committee, the Plan does not impose any restrictions on the resale of Common Shares issued under the Plan . Restrictions are imposed by the federal securities laws on the resale of Common Shares acquired under the Plan by persons deemed to be “affiliates” of the Company within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”). Our directors and executive officers are deemed to be affiliates. Any Common Shares held by an affiliate

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(including Common Shares acquired under the Plan ) can only be resold pursuant to a registration statement under the Securities Act in which such affiliate is named as a selling shareholder or in a transaction in compliance with Rule 144 or another exemption under the Securities Act. To the extent applicable, participants in the Plan also must adhere to the Company’s insider trading policy.
Additional Provisions Affecting Certain Insiders
Any participants of the Plan who are executive officers or directors of the Company will be subject to the reporting requirements of Section 16(a) of the Exchange Act and thus subject to the short-swing profit liability provisions of the Exchange Act. Transactions involving Awards under the Plan may give rise to short-swing profit liability. Participants who are executive officers or directors must consult the Company’s Insider Trading Policy before selling any Common Shares acquired pursuant to the Plan.
Reports
Annual reports as to the amount and status of the Awards granted to them under the Plan are available to all Participants through Award management system . In addition, the Company will furnish to participants in the Plan copies of all shareholder communications, such as proxy statements, reports and other communications distributed to the Company’s shareholders.
Defined Terms
When used in this Prospectus and in the Plan, the following capitalized terms shall have the meanings set forth below:
“ Cause ” means (i) an indictment of a participant of the Plan, or plea of guilty or plea of nolo contendere by such participant, 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, fraud, embezzlement, or misappropriation of assets, willful misfeasance or dishonesty, or other actions or criminal conduct which materially and adversely affects the business (including business reputation) or financial condition of First Financial or any of its subsidiaries or (ii) the continued failure of a participant of the Plan to perform substantially his or her employment duties with First Financial or any of its subsidiaries (other than any such failure resulting from incapacity due to physical or mental illness), observe all material obligations and conditions to be performed and observed by a participant under the Plan and any award agreement for an Award granted pursuant to the Plan, or perform his or her duties in accordance, in all material respects, with the policies and directions established from time to time by First Financial or any of its subsidiaries.
“ Change in Control ” means a change in control of First Financial of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act as in effect at the time of such “change in control.” A Change in Control shall also be deemed to have occurred for purposes of the Plan at such time as (i) any “person” (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities representing 35% or more of the combined voting power for election of directors of the then outstanding securities of First Financial or any successor of First Financial; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constitute the Board cease, for any reason, to constitute at least a majority of the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period or whose election or nomination for election was previously so approved; (iii) there is a consummation of any reorganization, merger, consolidation or share exchange as a result of which the Common Shares of First Financial shall be changed, converted or exchanged into or for securities of another corporation (other than a merger with a wholly-owned subsidiary of First Financial) or any dissolution or liquidation of First Financial or any sale or the disposition of 50% or more of the assets or business of First Financial; or (iv)

-xxiii-

there is a consummation of any reorganization, merger, consolidation or share exchange unless (A) the persons who were the beneficial owners of the outstanding Common Shares of First Financial immediately before the consummation of such transaction beneficially own more than 65% of the outstanding shares of the common or other voting stock of the successor or survivor corporation in such transaction immediately following the consummation of such transaction and (B) the number of shares of the common or other voting stock of such successor or survivor corporation beneficially owned by the persons described in clause (A) above immediately following the consummation of such transaction is beneficially owned by each such person in substantially the same proportion that each such person had beneficially owned Common Shares of First Financial immediately before the consummation of such transaction, provided the percentage described in clause (A) above of the beneficially owned shares of the successor or survivor corporation and the number of shares described above in this clause (B) of the beneficially owned shares of the successor or survivor corporation shall be determined exclusively by reference to the shares of the successor or survivor corporation which result from the beneficial ownership of Common Shares of First Financial by the persons described in such clause (A) immediately before the consummation of such transaction.
“ Disability ” means, as determined by the Compensation Committee in its discretion exercised in good faith, (i) in the case of an Award that is exempt from the application of the requirements of Code Section 409A and is granted to a participant of the Plan who is covered by the Company’s long-term disability insurance policy or plan, if any, a physical or mental condition of the participant that would entitle him or her to payment of disability income payments under such long-term disability insurance policy or plan as then in effect, (ii) in the case of an Award that is exempt from the application of the requirements of Code Section 409A and is granted to a participant of the Plan who is not covered by the Company’s long-term disability insurance policy or plan for whatever reason, or in the event the Company does not maintain such a long-term disability insurance policy or plan, and for purposes of an ISO granted under the Plan, a permanent and total disability as defined in section 22(e)(3) of the Code and (iii) in the case of an Award that is not exempt from the application of the requirements of Code Section 409A, a physical or mental condition of a participant of the Plan where (A) the participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (B) the participant is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company. A determination of Disability may be made by a physician selected or approved by the Compensation Committee and, in this respect, the participant shall submit to an examination by such physician upon request by the Committee.
“ Good Reason ” means, in connection with a termination of employment by participant of the Plan following a Change in Control, a material reduction in such participant’s base compensation or a material adverse alteration in such participant’s position or in the nature or status of such participant’s employment responsibilities from those in effect immediately prior to the Change in Control.



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

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first First Financial Bancorp Positioned for Success 2017 ANNUAL REPORT


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Consistent and dependable performance 109 CONSECUTIVE QUARTERS OF PROFITABILITY 154 YEARS OF STRENGTH AND STABILITY Dear Fellow Shareholders, 2017 was a transformative year for our Company in many ways. With the announcement of the merger with MainSource Financial Group midway through the year, we created excitement and opportunity, but also challenges and uncertainty. Through it all, our team remained focused on executing our strategy and providing exceptional service to clients. And, while things did not always go as planned, we adjusted course when necessary and produced another year of solid financial results. 2017 Highlights Net income increased 9.3% to $96.8 million or $1.56 per diluted share Return on average assets increased 5 basis points to 1.12% Total loans increased 4.4%, driven primarily by strong Commercial and Investor Commercial Real Estate originations Total deposits increased 5.7%, highlighted by noninterest bearing and transaction deposit growth reflecting execution of targeted strategic initiatives Solid execution of mid-year performance improvement plan, including a 10% reduction to staffing, consolidation of 8 banking centers and realigned deposit pricing and sales efforts Strong credit performance, including an 18% decline in nonperforming assets and a 30% decline in classified assets while loan losses remain at historically low levels Our strong performance in 2017, combined with the recent tax reform legislation, allowed us to announce a 12% dividend increase during the first quarter of 2018, increase the minimum starting wage for associates to $15 per hour and establish the First Financial Foundation with an initial $3 million contribution. Looking Ahead -2018 The past year’s performance provides a solid foundation for our Company moving forward. Put simply, the MainSource merger will make us a stronger company, with the depth of product, talent and scale to compete in a rapidly evolving industry. Combined with our ability to produce organic growth, I am more confident than ever in our ability to build on our past success and continue our trajectory in the coming years. In addition to continued execution and achievement of superior financial results, successfully completing the merger integration and providing a smooth transition for clients is a primary focus for our Company in 2018. Additionally, we will utilize the talent and scale across the combined company to enhance our efforts around innovation and technologies that improve the client experience. Finally, we remain committed to being an employer of choice with an emphasis on improving compensation for entry-level positions, continuing to embrace diversity and providing career development for all associates. In closing, I’d like to take this opportunity to point out that this is my last time writing to you as CEO of First Financial Bank. It has truly been an honor to serve in this role for the last 13 years alongside such wonderful associates and fellow leaders. Together, we have made tremendous strides along our own path to get us to this pivotal time in our Company’s history. I am extremely excited for what the future holds, and about working with Archie Brown, our next CEO, to continue our Company’s success. As I transition to the Executive Chairman position, my commitment remains to the long-term growth of our Company and providing superior returns to shareholders. Thank you for your continued support. I look forward to helping write the next chapter in our Company’s great history! Claude E. Davis Chief Executive Officer


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Solid financial performance A scalable platform to facilitate growth 109 CONSECUTIVE QUARTERS OF PROFITABILITY 154 YEARS OF STRENGTH AND STABILITY $4.0 $4.8 $5.4 $5.8 $6.0 (dollars in billions) Total Loans -20% 30% 80% 130% 180% 230% 280%Total Shareholder Return Product and Distribution Enterprise Data Warehouse Customer Relationship Management and Sales Process Talent Management Strategy Risk and Compliance Governance 10 Year7 Year5 Year3 Year1 Year First Financial Bancorp KBW Regional Bank Index NASDAQ Composite 20172016201520142013 2017201620152014201320172016201520142013 20172016201520142013 20172016201520142013 2017201620152014 $96.8 $88.5 $75.1 $65.0 $48.3 Earnings Per Share $1.56 $1.43 $1.21 $1.09 $0.83 55% 50%51% -5% 2% 30% 118% 126% 144% 95% 143% 185% 259% 85% 193% Return on Equity 6.89% 8.94% 9.33% 10.48% 10.78% Return on Assets 0.77% 0.96% 1.00% 1.07% 1.12% (dollars in billions) Total Deposits $6.9 $6.5$6.2 $5.7 $4.8 (dollars in millions) Net Income 2013

First Financial Bancorp 2017 Annual Report 1

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Senior Management Claude E. Davis Chief Executive Officer Matthew B. Burgess Chief Internal Auditor Scott T. Crawley Corporate Controller and Principal Accounting Officer Richard S. Dennen President, Commercial Finance John M. Gavigan Chief Financial Officer William R. Harrod Chief Credit Officer Shannon M. Kuhl Chief Legal Officer and Chief Risk Officer Bradley J. Ringwald President, Community Banking Paul C. Silva President, Investment Commercial Real Estate Anthony M. Stollings President and Chief Banking Officer Board of Directors Murph Knapke Chairman of the Board, First Financial Bancorp, Partner, Knapke Law Office J. Wickliffe Ach Vice Chair of the Board, Chief Executive Officer, Hixson Inc. David S. Barker Retired Cynthia O. Booth President and Chief Executive Officer, COBCO Enterprises, LLC Claude E. Davis Chief Executive Officer, First Financial Bancorp and First Financial Bank Corinne R. Finnerty Principal, McConnell Finnerty PC Susan L. Knust Owner and President, Omega Warehouse Services William J. Kramer Vice President of Operations, Valco Companies, Inc. Jeffrey D. Meyer President, Clean Title Agency, Inc. John T. Neighbours General Counsel, AmeriQual Holdings Group 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 2017 Annual Report


FINANCIAL HIGHLIGHTS
 
 
 
 
 
 
 
(Dollars in thousands, except per share data)
 
2017
 
2016
 
% Change
Earnings
 
 
 
 
 
 
Net interest income
 
$
283,545

 
$
272,671

 
4.0
 %
Net income
 
96,787

 
88,526

 
9.3
 %
 
 
 
 
 
 
 
Per Share
 
 
 
 
 
 
Net income per common share-basic
 
$
1.57

 
$
1.45

 
8.3
 %
Net income per common share-diluted
 
1.56

 
1.43

 
9.1
 %
Cash dividends declared per common share
 
0.68

 
0.64

 
6.3
 %
Tangible book value per common share (end of year)
 
11.62

 
10.56

 
10.0
 %
Market price (end of year)
 
26.35

 
28.45

 
(7.4
)%
 
 
 
 
 
 
 
Balance Sheet - End of Year
 
 
 
 
 
 
Total assets
 
$
8,896,923

 
$
8,437,967

 
5.4
 %
Loans
 
6,013,183

 
5,757,482

 
4.4
 %
Investment securities
 
2,056,556

 
1,854,201

 
10.9
 %
Deposits
 
6,895,046

 
6,525,788

 
5.7
 %
Shareholders' equity
 
930,664

 
865,224

 
7.6
 %
 
 
 
 
 
 
 
Ratios
 
 
 
 
 
 
Return on average assets
 
1.12
%
 
1.07
%
 
 
Return on average shareholders' equity
 
10.78
%
 
10.48
%
 
 
Return on average tangible shareholders' equity
 
14.07
%
 
13.96
%
 
 
Net interest margin
 
3.59
%
 
3.62
%
 
 
Net interest margin (fully tax equivalent)
 
3.66
%
 
3.68
%
 
 



First Financial Bancorp 2017 Annual Report 3








 
2017 Financial Highlights






4 First Financial Bancorp 2017 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
 
FHLMC
Federal Home Loan Mortgage Corporation
the Act
Private Securities Litigation Reform Act
 
First Financial
First Financial Bancorp.
ALLL
Allowance for loan and lease losses
 
FNMA
Federal National Mortgage Association
ASC
Accounting standards codification
 
Form 10-K
First Financial Bancorp. Annual Report on Form 10-K
ASU
Accounting standards update
 
FRB
Federal Reserve Bank
ATM
Automated teller machine
 
GAAP
U.S. Generally Accepted Accounting Principles
Bank
First Financial Bank
 
GDP
Gross Domestic Product
Basel III
Basel Committee regulatory capital reforms, Third Basel Accord
 
GNMA
Government National Mortgage Association
Bp/bps
Basis point(s)
 
IRLC
Interest Rate Lock Commitment
CDs
Certificates of deposit
 
MBSs
Mortgage-backed securities
C&I
Commercial and industrial
 
N/A
Not applicable
CLOs
Collateralized loan obligations
 
NII
Net interest income
CMOs
Collateralized mortgage obligations
 
N/M
Not meaningful
Company
First Financial Bancorp.
 
Oak Street
Oak Street Holdings Corporation
ERM
Enterprise Risk Management
 
ODFI
Ohio Department of Financial Institutions
EVE
Economic value of equity
 
OREO
Other real estate owned
Fair Value Topic
FASB ASC Topic 825, Financial Instruments
 
SEC
United States Securities and Exchange Commission
FASB
Financial Accounting Standards Board
 
Special Assets
Special Assets Division
FDIC
Federal Deposit Insurance Corporation
 
TDR
Troubled debt restructuring
FHLB
Federal Home Loan Bank
 
 
 


First Financial Bancorp 2017 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)
2017
 
2016
 
2015
 
2014
 
2013
Summary of operations
 
 
 
 
 
 
 
 
 
Interest income
$
333,073

 
$
305,950

 
$
269,759

 
$
247,859

 
$
245,208

Tax equivalent adjustment (1)
5,259

 
4,215

 
4,017

 
3,224

 
2,142

Interest income tax – equivalent (1)
338,332

 
310,165

 
273,776

 
251,083

 
247,350

Interest expense
49,528

 
33,279

 
23,257

 
19,234

 
16,888

  Net interest income tax – equivalent   (1)
$
288,804

 
$
276,886

 
$
250,519

 
$
231,849

 
$
230,462

Interest income
$
333,073

 
$
305,950

 
$
269,759

 
$
247,859

 
$
245,208

Interest expense
49,528

 
33,279

 
23,257

 
19,234

 
16,888

  Net interest income
283,545

 
272,671

 
246,502

 
228,625

 
228,320

Provision for loan and lease losses
3,582

 
10,140

 
9,641

 
1,528

 
8,909

Noninterest income
76,142

 
69,601

 
75,202

 
63,965

 
73,647

Noninterest expenses
239,942

 
201,401

 
201,130

 
196,034

 
225,475

Income before income taxes
116,163

 
130,731

 
110,933

 
95,028

 
67,583

Income tax expense
19,376

 
42,205

 
35,870

 
30,028

 
19,234

   Net income
$
96,787

 
$
88,526

 
$
75,063

 
$
65,000

 
$
48,349

 
 
 
 
 
 
 
 
 
 
Per share data
 
 
 
 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
 
 
 
 
Basic
$
1.57

 
$
1.45

 
$
1.23

 
$
1.11

 
$
0.84

Diluted
$
1.56

 
$
1.43

 
$
1.21

 
$
1.09

 
$
0.83

Cash dividends declared per common share
$
0.68

 
$
0.64

 
$
0.64

 
$
0.61

 
$
0.94

Average common shares outstanding–basic (in thousands)
61,529

 
61,206

 
61,063

 
58,663

 
57,270

Average common shares outstanding–diluted (in thousands)
62,172

 
61,985

 
61,848

 
59,393

 
58,073

 
 
 
 
 
 
 
 
 
 
Selected year-end balances
 
 
 
 
 
 
 
 
 
Total assets
$
8,896,923

 
$
8,437,967

 
$
8,147,411

 
$
7,217,821

 
$
6,417,213

Earning assets
8,117,115

 
7,719,285

 
7,431,707

 
6,594,626

 
5,840,849

Investment securities (2)
2,056,556

 
1,854,201

 
1,970,626

 
1,761,090

 
1,798,300

Total loans and leases
6,013,183

 
5,757,482

 
5,388,760

 
4,777,235

 
3,963,514

Interest-bearing demand deposits
1,453,463

 
1,513,771

 
1,414,291

 
1,225,378

 
1,125,723

Savings deposits
2,462,420

 
2,142,189

 
1,945,805

 
1,889,473

 
1,612,005

Time deposits
1,317,105

 
1,321,843

 
1,406,124

 
1,255,364

 
952,327

Noninterest-bearing demand deposits
1,662,058

 
1,547,985

 
1,413,404

 
1,285,527

 
1,147,452

Total deposits
6,895,046

 
6,525,788

 
6,179,624

 
5,655,742

 
4,837,507

Short-term borrowings
814,565

 
807,912

 
938,425

 
661,392

 
748,749

Long-term debt
119,654

 
119,589

 
119,540

 
48,241

 
60,780

Shareholders’ equity
930,664

 
865,224

 
809,376

 
784,077

 
682,161

 
 
 
 
 
 
 
 
 
 
Select Financial Ratios
 
 
 
 
 
 
 
 
 
Average loans to average deposits (3)
88.12
%
 
89.33
%
 
84.00
%
 
83.20
%
 
82.12
%
Net charge-offs to average loans and leases
0.13
%
 
0.10
%
 
0.18
%
 
0.27
%
 
0.99
%
Average shareholders’ equity to average total assets
10.42
%
 
10.24
%
 
10.73
%
 
10.75
%
 
11.17
%
Return on average assets
1.12
%
 
1.07
%
 
1.00
%
 
0.96
%
 
0.77
%
Return on average equity
10.78
%
 
10.48
%
 
9.33
%
 
8.94
%
 
6.89
%
Net interest margin
3.59
%
 
3.62
%
 
3.60
%
 
3.71
%
 
3.97
%
Net interest margin (tax equivalent basis) (1)
3.66
%
 
3.68
%
 
3.66
%
 
3.76
%
 
4.01
%
Dividend payout
43.31
%
 
44.14
%
 
52.03
%
 
54.95
%
 
111.90
%
(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 2017 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 $8.9 billion bank holding company headquartered in Cincinnati, Ohio and operates through its subsidiaries, primarily in Ohio, Indiana and Kentucky.  These subsidiaries include a commercial bank, First Financial Bank, with 94 banking centers and 117 ATMs. First Financial provides traditional banking and financial services products to business and retail clients through its four lines of business: commercial and private banking, retail banking, investment commercial real estate and commercial finance. Commercial finance primarily provides financing solutions for franchisees in the quick service and casual dining restaurant sector, as well as insurance agents and brokers throughout the United States. Commercial and private banking includes First Financial Wealth Management, which had $2.7 billion in assets under management as of December 31, 2017 and provides wealth planning, portfolio management, trust and estate, brokerage and retirement plan services. 

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 OREO (covered OREO) (collectively, covered assets). These agreements provided 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 were shared with the FDIC for an additional three year period, on the same pro-rata basis and the Company’s five year loss sharing indemnification period related to non-single-family loans expired effective October 1, 2014. The three year period for sharing recoveries on non-single-family loans expired on October 1, 2017. First Financial reached a preliminary agreement with the FDIC to early terminate the FDIC loss sharing agreements as of December 31, 2017, with final settlement expected to occur in the first quarter of 2018.

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

MARKET STRATEGY AND BUSINESS COMBINATIONS

First Financial’s goal is to develop a competitive advantage by utilizing a local market focus to provide a superior level of service and build long-term relationships with clients in order to help them reach greater levels of financial success. First Financial serves a combination of metropolitan and non-metropolitan markets in Ohio, Indiana and Kentucky through its full-service banking centers, and provides financing throughout the United States to franchise owners and clients within the financial services industry. 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 focus plans for future growth and capital investments within its current metropolitan markets and to evaluate other growth opportunities in metropolitan markets located within, or in close proximity to, the Company's current geographic footprint. In addition, First Financial will evaluate potential strategic acquisitions that provide product line extensions or industry verticals that compliment our existing business.  First Financial's investment in non-metropolitan markets has historically provided stable, low-cost funding sources and remains an important part of the Bank's core funding base.  

In July 2017, First Financial Bancorp and MainSource Financial Group, Inc. entered into a definitive merger agreement under which MainSource will merge into First Financial in a stock-for-stock transaction and MainSource Bank, a wholly owned subsidiary of MainSource, will merge into First Financial Bank. Under the terms of the merger agreement, shareholders of MainSource will receive 1.3875 common shares of First Financial common stock for each share of MainSource common stock. Including outstanding options and warrants on MainSource common stock, the transaction is valued at approximately $1.0 billion. Upon closing, First Financial shareholders will own approximately 65% of the combined company and MainSource shareholders will own approximately 35%, on a fully diluted basis. The merger was approved by the FRB of Cleveland and the ODFI during the first quarter of 2018 and is expected to close on April 1, 2018. Once complete, the merger will position the

First Financial Bancorp 2017 Annual Report 7

combined company to better serve the complimentary geographies of Ohio, Indiana and Kentucky, and will create a higher performing bank with greater scale and capabilities.

OVERVIEW OF OPERATIONS
 
Net income for the year ended December 31, 2017 was $96.8 million , resulting in earnings per diluted common share of $1.56 . This compares to net income of $88.5 million and earnings per diluted common share of $1.43 in 2016. First Financial’s return on average shareholders’ equity for 2017 was 10.78%, compared to 10.48% for 2016 , and First Financial’s return on average assets was 1.12% and 1.07% for 2017 and 2016 , respectively.
  
Net interest income in 2017 increased $10.9 million, or 4.0%, from 2016 , to $283.5 million, primarily driven by higher earning asset balances as well as higher yields earned on the investment and loan portfolios from rising interest rates. The net interest margin on a fully tax equivalent basis was 3.66% for 2017 compared with 3.68% in 2016 .
 
Noninterest income increased $6.5 million, or 9.4%, during the year, from $69.6 million in 2016 to $76.1 million in 2017 . The increase in noninterest income was primarily due to income from the early redemption of certain off-balance sheet securitizations associated with the 2009 FDIC-assisted transactions, increased client derivative fees and higher bankcard income, which were partially offset by lower gains from sales of loans.

Noninterest expense increased $38.5 million, or 19.1%, from $201.4 million in 2016 to $239.9 million in 2017 , as higher other noninterest expenses, salaries and benefits and professional services expenses were partially offset by a decline in net occupancy expenses.

Income tax expense decreased $22.8 million, or 54.1%, from $42.2 million in 2016 to $19.4 million in 2017, with the effective tax rate decreasing from 32.3% in 2016 to 16.7% in 2017. The lower effective tax rate in 2017 was primarily due to the passage of the Tax Cuts and Jobs Act, which was signed into law in December 2017, and the recognition of a significant historic tax credit investment.
 
Total loans increased $255.7 million, or 4.4%, from $5.8 billion at December 31, 2016 to $6.0 billion at December 31, 2017 , as a result of solid organic growth. Total deposits increased $369.3 million, or 5.7%, from $6.5 billion at December 31, 2016 to $6.9 billion as of December 31, 2017 , reflecting strong deposit generation efforts during the year.
 
The ALLL was $54.0 million, or 0.90% of total loans at December 31, 2017, compared to $58.0 million, or 1.01% of total loans at December 31, 2016. First Financial's credit quality performance remained strong in 2017, reflecting disciplined underwriting and credit monitoring procedures, as well as stable economic conditions in the Company's markets.

First Financial’s operational results may be influenced by certain economic factors and conditions, such as market interest rates, industry competition, household and business spending levels, consumer confidence and the regulatory environment. For a more detailed discussion of the Company's operations, please refer to the sections that follow.

NET INCOME
 
2017 vs. 2016. First Financial’s net income increased $8.3 million, or 9.3%, to $96.8 million in 2017 , compared to net income of $88.5 million in 2016 . The increase was primarily related to a $22.8 million, or 54.1%, decline in income tax expense, a $10.9 million, or 4.0%, increase in net interest income and a $6.5 million, or 9.4%, increase in noninterest income. These increases were partially offset by a $38.5 million, or 19.1%, increase in noninterest expenses during 2017.

2016 vs. 2015. First Financial’s net income increased $13.5 million, or 17.9%, to $88.5 million in 2016 , compared to net income of $75.1 million in 2015 . The increase was primarily related to a $26.2 million, or 10.6%, increase in net interest income, partially offset by a decrease in noninterest income of $5.6 million, or 7.4%, and an increase in income tax expense of $6.3 million, or 17.7%, during 2016.

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


First Financial Bancorp 2017 Annual Report 8

NET INTEREST INCOME
 
First Financial’s net interest income for the years 2013 through 2017 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, including loan-related fees, less interest paid on interest-bearing liabilities. The amount of net interest income is determined by the volume and mix of earning assets, the rates earned on such assets and the volume, mix and rates paid for the deposits and borrowed money that support the earning assets. Earning assets consist of interest-bearing loans to customers as well as marketable investment securities.
 
For analytical purposes, net interest income is also presented in Table 1 – Financial Summary on a tax equivalent basis assuming a 35.00% marginal tax rate. Net interest income is presented on a tax equivalent basis to consistently reflect income from tax-exempt assets, such as municipal loans and investments, in order to facilitate a comparison between taxable and tax-exempt amounts.  Management believes 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%, 3.68% and 3.66% for 2017 , 2016 and 2015, respectively.

Table 2 – Volume/Rate Analysis - Tax Equivalent Basis describes the extent to which changes in interest rates as well as changes in the volume of earning assets and interest-bearing liabilities have affected First Financial’s net interest income on a tax equivalent basis during the years presented. Nonaccrual loans and loans held for sale were included in the average loan balances used to determine the yields in Table 2 – Volume/Rate Analysis - Tax Equivalent Basis. Table 2 – Volume/Rate Analysis - Tax Equivalent Basis should be read in conjunction with the Statistical Information table.
 
Loan fees included in the interest income computation for 2017 , 2016 and 2015 were $7.4 million, $9.9 million and $5.6 million, respectively. Lower loan fees in 2017 were primarily a result of prepayment activity during the year.

2017 vs. 2016. Net interest income increased $10.9 million, or 4.0%, from $272.7 million in 2016 to $283.5 million in 2017, primarily due to an increase in average earning assets and higher yields earned during 2017. Average earning assets increased from $7.5 billion in 2016 to $7.9 billion in 2017, while the yield on earning assets increased from 4.07% in 2016 to 4.22% in 2017.

Interest income was $333.1 million in 2017 , a $27.1 million, or 8.9%, increase from 2016. The increase was primarily attributable to interest income from loans, which increased $17.4 million, or 6.6%, from $262.7 million in 2016 to $280.1 million in 2017 as well as a $7.5 million, or 17.3%, increase in taxable interest income earned on investment securities during the period. The increase in interest income on loans resulted from an increase in average loan balances of $219.3 million, or 3.9%, as well as higher loan yields resulting from rising interest rates. Higher loan balances in 2017 resulted from solid organic loan growth during the period. The increase in interest income on investment securities was driven by a $142.5 million, or 7.7%, increase in average investment balances as well as higher yields earned during the period.

Interest expense was $49.5 million in 2017 , which was a $16.2 million, or 48.8%, increase from 2016 . Interest expense increased as the average balance of interest-bearing deposits increased $249.6 million, or 5.2%, due to the Company's strong deposit generation efforts during the period. Additionally, rising interest rates and a higher mix of variable rate deposit balances during the twelve month period contributed to the cost of funds related to these deposits increasing to 69 bps for 2017 from 47 bps in 2016. In an effort to contain rising funding costs, First Financial converted approximately $1.5 billion of previously indexed deposits to managed rate products during the third quarter of 2017, while also lowering the rates paid on these products by a weighted average of 35 bps. Interest expense was also impacted in 2017 by an increase in short-term borrowing rates from 51 bps in 2016 to 99 bps in 2017 as a result of rising interest rates.

2016 vs. 2015. Net interest income increased $26.2 million, or 10.6%, from $246.5 million in 2015 to $272.7 million in 2016, primarily due to an increase in average earning assets and higher yields earned during 2016. Average earning assets increased from $6.8 billion in 2015 to $7.5 billion in 2016, while the yield on earning assets increased from 3.94% in 2015 to 4.07% in 2016.

Interest income was $306.0 million in 2016 , a $36.2 million, or 13.4%, increase from 2015. The increase was primarily attributable to interest income from loans, which increased $32.5 million, or 14.1%, from $230.2 million in 2015 to $262.7 million in 2016 as well as a $3.5 million, or 8.9%, increase in taxable interest income earned on investment securities during the period. The increase in interest income was primarily related to an increase in interest and fees earned on the Company's loan portfolio as average loan balances increased $666.0 million, or 13.5%, during 2016 resulted from strong organic loan growth during the period and the full year impact from loans acquired in the Oak Street transaction, which were partially offset by

First Financial Bancorp 2017 Annual Report 9
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

continued paydowns and resolutions in the Company's high-yielding covered/formerly covered loan portfolio. The increase in interest income on investment securities was driven by higher yields earned during the 2016.

Interest expense was $33.3 million in 2016 , which was a $10.0 million, or 43.1%, increase from 2015 . Interest expense increased as the average balance of interest-bearing deposits increased $275.6 million, or 6.0%, due to the Company's strong deposit generation efforts during 2016. Additionally, the cost of funds related to these deposits increased slightly to 47 bps for 2016 from 43 bps in 2015, reflecting the full year impact of an increase in interest rates in December 2015. Interest expense was also impacted in 2016 by a $254.8 million, or 40.7%, increase in average short-term borrowings which were utilized to help fund the Company's asset growth during the year.

Table 2 • Volume/Rate Analysis - Tax Equivalent Basis (1)  
 
 
 
 
 
 
2017 change from 2016 due to
 
2016 change from 2015 due to
(Dollars in thousands)
 
Volume
Rate
 
Total
 
Volume
Rate
 
Total
Interest income
 
 
 
 
 
 
 
 
 
 
 
 
Loans (2)
 
$
10,487

 
$
7,220

 
$
17,707

 
$
31,284

 
$
1,412

 
$
32,696

Indemnification asset
 
2,150

 
(1,512
)
 
638

 
1,655

 
(1,424
)
 
231

Investment securities (3)
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
 
2,783

 
4,682

 
7,465

 
641

 
2,885

 
3,526

Tax-exempt
 
1,906

 
222

 
2,128

 
54

 
(171
)
 
(117
)
Total investment securities interest  (3)
 
4,689

 
4,904

 
9,593

 
695

 
2,714

 
3,409

Interest-bearing deposits with other banks
 
101

 
128

 
229

 
(14
)
 
67

 
53

Total
 
17,427

 
10,740

 
28,167

 
33,620

 
2,769

 
36,389

 
 
 
 
 
 
 
 
 
 
 
 
 
Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand deposits
 
72

 
2,051

 
2,123

 
293

 
619

 
912

Savings deposits
 
2,578

 
7,804

 
10,382

 
140

 
1,248

 
1,388

Time deposits
 
(2,091
)
 
2,155

 
64

 
246

 
593

 
839

Short-term borrowings
 
(494
)
 
4,181

 
3,687

 
1,304

 
1,838

 
3,142

Long-term debt
 
60

 
(67
)
 
(7
)
 
2,465

 
1,276

 
3,741

Total
 
125

 
16,124

 
16,249

 
4,448

 
5,574

 
10,022

Net interest income
 
$
17,302

 
$
(5,384
)
 
$
11,918

 
$
29,172

 
$
(2,805
)
 
$
26,367


(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.

NONINTEREST INCOME AND NONINTEREST EXPENSES
 
Noninterest income and noninterest expenses for 2017, 2016 and 2015 are shown in Table 3 – Noninterest income and Noninterest expenses.
 
NONINTEREST INCOME
 
2017 vs. 2016. Noninterest income increased $6.5 million, or 9.4%, from $69.6 million in 2016 to $76.1 million in 2017. The increase was primarily related to a $2.0 million, or 14.8%, increase in other noninterest income, a $1.8 million, or 40.4% increase in client derivative fees, a $1.4 million, or 604.7%, increase in net gains on sales of investment securities and a $1.2 million, or 9.6%, increase in bankcard income, partially offset by a $1.6 million, or 24.0%, decrease in net gains from sales of loans. Accelerated discounts on covered/formerly covered loans result from prepayment activity and the accelerated recognition of the remaining discount that would have been recognized over the life of the loan had it not prepaid. Lower income from the accelerated discount on covered/formerly covered loans during 2016 was related to the continued decline in the covered/formerly covered portfolio as well as prepayment activity during the period.

Other noninterest income increased from $13.7 million in 2016 to $15.8 million in 2017, primarily related to $5.8 million of income from the early redemption of certain off balance sheet securitizations associated with the 2009 FDIC-assisted

10 First Financial Bancorp 2017 Annual Report

transactions, which was partially offset by a $3.5 million decrease in income from the accelerated discount on covered/formerly covered loans.

Higher client derivative fees in 2017 reflect strong loan demand and net gains on sales of investment securities increased in 2017 as proceeds from the sale of $190.0 million of available-for-sale securities resulted in gains of $1.8 million and losses of $0.2 million during the year. Bankcard income increased as a result of deeper client penetration and increased customer activity during 2017.
 
Partially offsetting the increase in noninterest income was a decrease in net gains on sales of loans from $6.8 million in 2016 to $5.2 million in 2017 primarily due to lower sales volume during the period.

2016 vs. 2015. Noninterest income declined $5.6 million, or 7.4%, from $75.2 million in 2015 to $69.6 million in 2016. The decline was primarily related to a $5.4 million, or 28.2%, decline in other noninterest income and a $1.3 million, or 84.5%, decline in net gains on sales of investment securities, partially offset by a $0.6 million, or 4.8%, increase in bankcard income.

Other noninterest income declined primarily as a result of a $6.9 million, or 64.3%, decrease in income from the accelerated discount on covered/formerly covered loans, related to lower levels of prepayment activity during the year. Lower income from accelerated discount was partially offset by an increase in FDIC loss sharing income of $0.9 million, or 37.2%, from negative $2.5 million during 2015 to negative $1.6 million in 2016. 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 or pay to the FDIC. Negative FDIC loss sharing income during 2016 and 2015 reflects a net payable due to the FDIC. First Financial also recognized $2.4 million of previously unrealized income from the redemption a limited partnership investment during 2016, which partially offset the decline in accelerated discount within other noninterest income.

Noninterest income from gains on sales of investment securities decreased $1.3 million, or 84.5%, in 2016 as $207.0 million of sales of investment securities resulted in net gains of $0.2 million during 2016 compared to sales of $70.2 million of investment securities that resulted in net gains of $1.5 million during 2015.

Bankcard income increased as a result of elevated card volume and customer activity during 2016.


First Financial Bancorp 2017 Annual Report 11
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Table 3 • Noninterest Income and Noninterest Expenses
 
2017
 
2016
 
2015
(Dollars in thousands)
Total
% Change
 
Total
% Change
 
Total
% Change
Noninterest income
 
 
 
 
 
 
 
 
Service charges on deposit accounts
$
19,775

4.4
 %
 
$
18,933

(0.4
)%
 
$
19,015

(6.2
)%
Trust and wealth management fees
14,073

6.6
 %
 
13,200

0.5
 %
 
13,128

(3.7
)%
Bankcard income
13,298

9.6
 %
 
12,132

4.8
 %
 
11,578

7.8
 %
Client derivative fees
6,418

40.4
 %
 
4,570

4.1
 %
 
4,389

188.9
 %
Net gains from sales of loans
5,169

(24.0
)%
 
6,804

5.1
 %
 
6,471

48.3
 %
Other
15,760

14.8
 %
 
13,728

(28.2
)%
 
19,116

43.0
 %
Subtotal
74,493

7.4
 %
 
69,367

(5.9
)%
 
73,697

15.3
 %
Gains on sales of investment securities
1,649

N/M

 
234

(84.5
)%
 
1,505

N/M

Total
$
76,142

9.4
 %
 
$
69,601

(7.4
)%
 
$
75,202

17.6
 %
 
 
 
 
 
 
 
 
 
Noninterest expenses
 
 
 
 
 
 
 
 
Salaries and employee benefits
$
132,560

8.3
 %
 
$
122,361

9.5
 %
 
$
111,792

3.8
 %
Net occupancy
17,397

(5.1
)%
 
18,329

0.5
 %
 
18,232

(5.0
)%
Furniture and equipment
8,443

(2.5
)%
 
8,663

(0.7
)%
 
8,722

2.0
 %
Data processing
14,022

22.9
 %
 
11,406

5.0
 %
 
10,863

(16.2
)%
Marketing
3,201

(19.3
)%
 
3,965

6.5
 %
 
3,723

3.3
 %
Communication
1,819

(3.7
)%
 
1,889

(12.6
)%
 
2,161

(5.1
)%
Professional services
15,023

138.3
 %
 
6,303

(34.5
)%
 
9,622

55.9
 %
State intangible tax
2,655

30.5
 %
 
2,034

(12.7
)%
 
2,331

10.4
 %
FDIC assessments
3,944

(8.1
)%
 
4,293

(3.4
)%
 
4,446

(0.4
)%
Loss (gain)-other real estate owned
642

(153.0
)%
 
(1,212
)
(165.1
)%
 
1,861

115.9
 %
Other
40,236

72.2
 %
 
23,370

(14.6
)%
 
27,377

(2.7
)%
Total
$
239,942

19.1
 %
 
$
201,401

0.1
 %
 
$
201,130

2.6
 %


NONINTEREST EXPENSES

2017 vs. 2016. Noninterest expenses increased $38.5 million, or 19.1%, in 2017 compared to 2016 , primarily due to a $16.9 million, or 72.2%, increase in other noninterest expense, a $10.2 million, or 8.3%, increase in salaries and employee benefits, an $8.7 million, or 138.3%, increase in professional services and a $2.6 million, or 22.9%, increase in data processing expenses during the period. These increases were partially offset by a $0.9 million, or 5.1%, decrease in net occupancy expenses and an $0.8 million, or 19.3%, decrease in marketing expenses.
  
Higher other noninterest expenses during 2017 were primarily driven by an $11.3 million historic tax credit investment write-down, a $5.1 million impairment charge resulting from the preliminary agreement to early terminate the Company's FDIC loss sharing agreements and a $3.0 million charitable contribution to the First Financial Foundation, partially offset by a $1.2 million decrease in regulatory fees. Higher salaries and employee benefits were primarily attributable to $3.4 million of severance costs related to efficiency efforts during the period as well as higher performance-based compensation and health care costs, in addition to annual compensation adjustments. Elevated professional service costs were primarily the result of merger-related expenses, while data processing expenses resulted from investments in enterprise data management and system upgrades, in addition to other software license expenses. For further discussion of the historic tax credit investment, see the Income taxes section that follows.

Lower net occupancy expenses were primarily driven by branch consolidation activities during the year as First Financial continues to assess branch profitability, while marketing expenses declined as a result of the Company's cost reduction efforts.

2016 vs. 2015. Noninterest expenses increased $0.3 million, or 0.1%, in 2016 compared to 2015 , primarily due to a $10.6 million, or 9.5%, increase in salaries and employee benefits and a $0.5 million, or 5.0%, increase in data processing expenses during the period. These increases were partially offset by a $3.3 million, or 34.5%, decrease in professional services, a $3.1 million, or 165.1%, decline in OREO losses and a $4.0 million, or 14.6%, decrease in other noninterest expenses.

12 First Financial Bancorp 2017 Annual Report

  
The increase in salaries and employee benefits in 2016 resulted from the full year impact of staff additions from the Oak Street acquisition and higher performance-based compensation, in addition to annual compensation adjustments. Higher data processing expenses were primarily related to investments in data management and system upgrades, in addition to various other software license expenses during 2016, while the decline in professional services was primarily related to $2.2 million of acquisition-related costs associated with the Oak Street transaction in 2015. OREO losses decreased as the Company recorded $1.2 million of gains on sales of OREO properties in 2016, compared to losses of $1.9 million in 2015. The decline in other noninterest expenses from $27.4 million in 2015 to $23.4 million in 2016 was primarily the result of a legal settlement accrual and debt extinguishment costs in 2015, in addition to a decline in loss sharing expenses in 2016 due to lower collection costs resulting from the continued decline in covered asset balances.

INCOME TAXES
 
First Financial’s income tax expense in 2017 totaled $19.4 million compared to $42.2 million in 2016 and $35.9 million in 2015 , resulting in effective tax rates of 16.7% , 32.3% and 32.3% in 2017 , 2016 and 2015 , respectively. The lower effective tax rate in 2017 was driven by corporate tax reform and the Company's investment in a historic tax credit. The Tax Cuts and Jobs Act was signed into law in December 2017, and as a result, First Financial revalued its deferred tax assets and liabilities as well as its investments in affordable housing projects utilizing a 21% federal rate resulting in an $8.2 million reduction in income tax expense. 2017 income tax expense was also impacted by the recognition of a significant historic tax credit investment, which reduced income tax expense by $12.5 million for the year, and resulted in a $1.1 million increase to net income for the year when netted against the investment write-down included in noninterest expense.

For further information on income taxes, see Note 14 – Income Taxes in the Notes to Consolidated Financial Statements.

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

First Financial’s loan portfolio consists of commercial loan types, including C&I, construction real estate, commercial real estate and lease financing (equipment leasing), as well as consumer loan types, such as 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 lending portfolios are managed to avoid the creation of inappropriate industry, geographic, franchise concept or borrower concentration risk.

While economic trends, including positive GDP momentum, wage gains and unemployment rates showed further improvement during 2017, the pace of growth remains gradual and business spending levels have not materially increased. First Financial is optimistic that economic improvements realized in 2017 and the tax reform legislation passed at the end of the year will lead to further economic expansion in the coming periods, and stimulate business growth and economic investment among current and prospective customers, resulting in additional lending opportunities for the Bank.

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.

Construction Real Estate – 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

First Financial Bancorp 2017 Annual Report 13
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

of the property. Generally, these loans are for construction projects that have been pre-sold, pre-leased or have secured permanent financing, as well as loans to real estate companies with significant equity invested in the project. An independent credit team underwrites construction real estate loans, which are managed by experienced lending officers and monitored through the construction phase by a centralized funding desk that manages loan disbursements.

First Financial moderated the pace of new construction originations in recent periods in an effort to improve profitability and limit certain sector concentrations. As economic conditions, and property values have improved, First Financial has pursued select real estate construction lending opportunities while actively monitoring industry and portfolio-specific credit trends and concentrations.

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

Credit risk is mitigated by limiting total credit exposure to individual borrowers and by requiring borrowers to have adequate down payments or cash equity, thereby limiting the loan balance in relation to the market value of the property. First Financial also regularly reviews borrower financial performance, makes periodic site visits to financed properties and monitors rental rates, occupancy trends, capitalization rates and other factors that could potentially influence real estate collateral values in the Company's markets.

The CRE sector has demonstrated gradual, but continuous improvement in recent periods and the Company believes its current underwriting criteria, coupled with active credit monitoring, 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 in addition to 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 processes that rely on empirical data to assess credit risk as well as analysis of the borrower's ability to repay their obligations, credit history, the amount of any down payment and the market value or other characteristics of the property. First Financial also offers a residential mortgage product that features similar borrower credit characteristics but a more streamlined underwriting process than typically required to sell to government-sponsored enterprises and thus is retained on the Consolidated Balance Sheets.

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

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 within First Financial's control. Home equity lending underwriting considerations include the borrower's credit history as well as to debt-to-income and loan-to-value policy limits.

First Financial believes its current underwriting criteria coupled with the monitoring of a number of portfolio metrics including credit scores, loan-to-value ratios, line size and utilization rates provide adequate oversight of the home equity portfolio.

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

14 First Financial Bancorp 2017 Annual Report


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 a borrower's debt-to-income ratios and credit history among other considerations.

Credit Management. Subject to First Financial’s credit policy and guidelines, credit underwriting and approval occur within the market and/or the centralized line of business originating the loan. First Financial has delegated 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 may require additional approvals from the chief credit officer, the chief executive officer and the board of directors. This allows First Financial to manage the initial credit risk exposure through a standardized, strategic and disciplined 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, requires the approval of certain senior lending and administrative officers, and in some cases could include the board of directors.

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

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

Classified loans are 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. 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, providing diversification within the portfolio. Credit risk in the consumer loan portfolio is managed by loan type, and consumer loan asset quality indicators, including delinquency, are continuously monitored. The Credit Risk Management group performs product-level performance reviews and assesses credit quality and compliance with underwriting and loan administration guidelines across the consumer loan portfolio.

LOANS AND LEASES
 
2017 vs. 2016. First Financial experienced solid loan demand in 2017 as a result of focused sales efforts, our diversified product suite and expanded presence in key metropolitan markets. Loans, excluding loans held for sale, totaled $6.0 billion at December 31, 2017 , increasing $255.7 million, or 4.4%, compared to December 31, 2016 . The increase in loan balances from December 31, 2016 reflected strong organic growth during the period. C&I loans increased $130.8 million, or 7.3%, construction real estate loans increased $68.3 million, or 17.1%, and commercial real estate loans increased $62.5 million, or 2.6%, during 2017 . Average loan balances, excluding loans held for sale, increased $219.3 million, or 3.9%, from $5.6 billion at December 31, 2016 to $5.8 billion at December 31, 2017 .

Covered loans declined to $78.8 million at December 31, 2017 from $93.1 million as of December 31, 2016 .  Declines in covered loan balances were expected as there were no acquisitions of loans subject to loss sharing agreements during the

First Financial Bancorp 2017 Annual Report 15
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

period.  In December 2017, First Financial entered into a preliminary agreement with the FDIC to early terminate its FDIC loss sharing agreements, and upon settlement, all future recoveries, gains, losses and expenses related to these previously covered assets will now be recognized entirely by First Financial given the FDIC will no longer share in such gains or losses. First Financial expects the remaining indemnification asset balance to be realized through the final settlement of the termination agreement with the FDIC in 2018.

At December 31, 2017 , C&I loans represented 31.8% of loans while commercial real estate, construction real estate and lease financing balances represented 41.4%, 7.8% and 1.5% of the portfolio, respectively. Residential real estate loans represented 7.8% of loan balances while home equity, installment and credit card loans represented 8.2%, 0.7% and 0.8%, respectively.
 
Comparatively, at December 31, 2016 , C&I loans represented 31.0% of loans while commercial real estate, construction real estate and lease financing balances represented 42.2%, 6.9% and 1.6%, respectively. Residential real estate loans represented 8.7% of loan balances while home equity, installment and credit card loans represented 8.0%, 0.9% and 0.8%, respectively.

Table 4 • Loan and Lease Portfolio
 
 
 
 
 
 
 
 
 
 
December 31,
(Dollars in thousands)
2017
 
2016
 
2015
 
2014
 
2013
Commercial and industrial
$
1,912,743

 
$
1,781,948

 
$
1,663,102

 
$
1,315,114

 
$
1,077,984

Lease financing
89,347

 
93,108

 
93,986

 
77,567

 
80,135

Real estate – construction
467,730

 
399,434

 
311,712

 
197,571

 
89,297

Real estate – commercial
2,490,091

 
2,427,577

 
2,258,297

 
2,140,667

 
1,765,620

Real estate – residential
471,391

 
500,980

 
512,311

 
501,894

 
433,664

Home equity
493,604

 
460,388

 
466,629

 
458,627

 
426,078

Installment
41,586

 
50,639

 
41,506

 
47,320

 
52,774

Credit card
46,691

 
43,408

 
41,217

 
38,475

 
37,962

Total loans and leases
$
6,013,183

 
$
5,757,482

 
$
5,388,760

 
$
4,777,235

 
$
3,963,514


Table 5 – Loan Maturity/Rate Sensitivity indicates the contractual maturity of C&I loans and construction real estate loans outstanding at December 31, 2017 as well as their sensitivity to changes in interest rates.

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

Table 5 • Loan Maturity/Rate Sensitivity
 
 
December 31, 2017
 
 
Maturity
 
 
 
 
After one
 
 
 
 
 
 
Within
 
but within
 
After
 
 
(Dollars in thousands)
 
one year
 
five years
 
five years
 
Total
Commercial and industrial
 
$
587,755

 
$
953,655

 
$
371,333

 
$
1,912,743

Construction real estate
 
250,595

 
200,563

 
16,572

 
467,730

   Total
 
$
838,350

 
$
1,154,218

 
$
387,905

 
$
2,380,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
After one
 
 
 
 
 
 
Within
 
but within
 
After
 
 
(Dollars in thousands)
 
one year
 
five years
 
five years
 
Total
Fixed rate
 
$
94,664

 
$
195,440

 
$
59,948

 
$
350,052

Variable rate
 
743,686

 
958,778

 
327,957

 
2,030,421

   Total
 
$
838,350

 
$
1,154,218

 
$
387,905

 
$
2,380,473



16 First Financial Bancorp 2017 Annual Report

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 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 consists of properties acquired by First Financial primarily through loan defaults by borrowers.

See Table 6 – Nonperforming Assets for a summary of First Financial’s nonaccrual loans, TDRs and OREO.

2017 vs. 2016. Total nonperforming assets declined $9.8 million, or 18.1%, to $44.4 million at December 31, 2017 from $54.3 million at December 31, 2016 , due to a $12.7 million decline in accruing TDRs and a $3.5 million decline in OREO, which were partially offset by a $6.4 million increase in nonaccrual loans.

The decline in accruing TDR's during 2017 was the result of resolution efforts during the period. Lower OREO balances resulted from the resolution and sale of $7.0 million of commercial and residential real estate property in addition to $0.6 million of valuation adjustments, partially offset by $4.1 million of additions during the year. The increase in nonaccrual loans was primarily attributable to the addition of a single relationship in 2017.

First Financial's nonperforming loans as a percentage of total loans and leases declined to 0.69% at December 31, 2017 from 0.83% at December 31, 2016 as a result of declining nonperforming loan balances and growth in the loan portfolio during the period. Additionally, classified asset balances declined $37.9 million, or 30.3%, to $87.3 million at December 31, 2017 from $125.2 million at December 31, 2016 .

The declines in nonperforming and classified assets during 2017 reflect successful resolution efforts and diligent credit monitoring practices as well as stable economic conditions in the markets in which First Financial operates. The U.S. economy has maintained consistent growth levels in recent periods and management remains optimistic that sustained improvement in employment rates and real estate markets, as well as stable levels of business and consumer confidence, will combine with the positive momentum generated from tax reform to positively impact the Company's credit quality trends in future periods.


First Financial Bancorp 2017 Annual Report 17
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Table 6 • Nonperforming Assets
 
December 31,
(Dollars in thousands)
2017
 
2016
 
2015
 
2014
 
2013
Nonaccrual loans (1)
$
24,082

 
$
17,730

 
$
27,997

 
$
48,469

 
$
41,392

Accruing troubled debt restructurings (2)
17,545

 
30,240

 
28,876

 
15,928

 
15,429

Other real estate owned (OREO)
2,781

 
6,284

 
13,254

 
22,674

 
46,926

Total nonperforming assets
$
44,408

 
$
54,254

 
$
70,127

 
$
87,071

 
$
103,747

 
 
 
 
 
 
 
 
 
 
Nonperforming assets as a percent of total loans plus OREO
0.74
%
 
0.94
%
 
1.30
%
 
1.81
%
 
2.59
%
 
 
 
 
 
 
 
 
 
 
Accruing loans past due 90 days or more
$
61

 
$
142

 
$
108

 
$
216

 
$
218

 
 
 
 
 
 
 
 
 
 
Classified assets
$
87,293

 
$
125,155

 
$
132,431

 
$
154,804

 
$
234,251


(1) Nonaccrual loans include nonaccrual TDRs of $5.5 million, $5.1 million, $9.3 million, $12.3 million and $13.8 million as of December 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(2) Accruing troubled debt restructurings include TDRs past due 90 days or more and still accruing of $2.7 million as of December 31, 2016. There were no TDRs 90 days past due and still accruing as of December 31, 2017, 2015, 2014 and 2013, respectively.

INVESTMENTS
 
First Financial utilizes its investment portfolio as a source of liquidity and interest income, as well as a tool for managing the Company's interest rate risk profile. As such, the Company's primary investment strategy is to invest in debt securities with low credit risk, such as treasury and agency-backed residential MBSs. The investment portfolio is also managed with consideration to prepayment and extension/maturity risk. First Financial invests primarily in MBSs issued by U.S. government agencies and corporations, such as the GNMA, the FHLMC and the FNMA, as these securities are considered to have a low credit risk and high liquidity profile due to government agency guarantees. Government and agency backed securities comprised 60.4% and 67.3% of First Financial's investment securities portfolio as of December 31, 2017 and 2016 , respectively.

The Company also invests in certain securities that are not supported by government or agency guarantees, and whose realization is dependent on future principal and interest repayments, thus carrying greater credit risk. First Financial performs a detailed pre-purchase collateral and structural analysis on these securities and limits investments to asset classes in which the Company has expertise and experience. The Company further limits these investments to securities with senior positions in the capital structure to provide additional credit protection. First Financial continuously monitors credit risk and geographic concentration risk in its evaluation of market opportunities that would enhance the overall performance of the portfolio. Securities not supported by government or agency guarantees represented 39.6% and 32.7% of First Financial's investment securities portfolio as of December 31, 2017 and 2016 , respectively.

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

Gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost.  All securities with unrealized losses are reviewed quarterly to determine if any impairment is considered other than temporary, requiring a write-down to fair value. First Financial considers the percentage loss on a security, duration of the loss, average life or duration of the security, credit rating of the security as well as payment performance and the Company’s intent and ability to hold the security when determining whether any impairment is other than temporary. First Financial had no other than temporary impairment expense for the years ended December 31, 2017 and 2016 .

2017 vs. 2016. First Financial’s investment portfolio at December 31, 2017 totaled $2.1 billion, a $202.4 million, or 10.9%, increase from December 31, 2016 , and represented 23.1% and 22.0% of total assets at December 31, 2017 and December 31, 2016 , respectively. The increase in the investment portfolio during 2017 was primarily related to loan demand, as well as the overall position of the Company's balance sheet.
 

18 First Financial Bancorp 2017 Annual Report

First Financial classified $1.3 billion , or 65.6%, and $1.0 billion , or 56.1%, of investment securities as available-for-sale at December 31, 2017 and 2016 , respectively. First Financial classified $654.0 million , or 31.8%, and $763.3 million , or 41.2%, of investment securities as held-to-maturity at December 31, 2017 and 2016 , respectively.

First Financial recorded a $0.2 million unrealized after-tax loss on the investment portfolio as a component of equity in accumulated other comprehensive income resulting from changes in the fair value of available-for-sale securities at December 31, 2017 , which increased $4.4 million from a $4.5 million unrealized after-tax loss at December 31, 2016 .

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 1.4% and 1.1% of the investment portfolio at December 31, 2017 and 2016 , respectively.

Investments in MBSs, including CMOs, represented 22.5% and 21.6% of First Financial's portfolio at December 31, 2017 and 2016 , 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 extension risk during periods of rising interest rates. Prepayments of the underlying residential real estate loans may shorten the lives of the securities, thereby affecting yields to maturity and market values.  

Tax-exempt securities of states, municipalities and other political subdivisions increased to $207.9 million as of December 31, 2017 from $167.5 million as of December 31, 2016 and comprised 10.4% and 9.3% of the investment portfolio at December 31, 2017 and 2016 , respectively. The securities are diversified to include states as well as issuing authorities within states, thereby decreasing geographic portfolio risk. First Financial continuously monitors the risk associated with this investment type and reviews underlying ratings for possible downgrades. First Financial does not own any state or other political subdivision securities that are currently impaired.

Asset-backed securities were $379.0 million , or 18.9% of the investment portfolio at December 31, 2017 and $321.2 million , or 17.8% of the investment portfolio at December 31, 2016 . 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, increased to $85.1 million , or 4.2% of the investment portfolio, at December 31, 2017 from $46.7 million and 2.6% at December 31, 2016 .

The overall duration of the investment portfolio decreased to 2.9 years as of December 31, 2017 from 3.2 years as of December 31, 2016 . First Financial has avoided adding to its portfolio any particular securities that would materially increase credit risk or geographic concentration risk and the Company continuously monitors and considers these risks in its evaluation of current market opportunities that would enhance the overall performance of the portfolio.

Table 7 • Investment Securities as of December 31
 
 
 
 
 
 
 
 
2017
 
2016
 
 
 
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
27,083

 
1.4
%
 
20,027

 
1.1
%
Mortgage-backed securities-residential
451,136

 
22.5
%
 
388,917

 
21.6
%
Mortgage-backed securities-commercial
404,130

 
20.2
%
 
432,329

 
24.0
%
Collateralized mortgage obligations
448,937

 
22.4
%
 
426,422

 
23.6
%
Obligations of state and other political subdivisions
207,930

 
10.4
%
 
167,466

 
9.3
%
Asset-backed securities
378,977

 
18.9
%
 
321,212

 
17.8
%
Other securities
85,126

 
4.2
%
 
46,654

 
2.6
%
Total
$
2,003,416

 
100.0
%
 
$
1,803,124

 
100.0
%
 
The estimated maturities and weighted-average yields of held-to-maturity and available-for-sale investment securities are shown in Table 8 – Investment Securities as of December 31, 2017 . 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 Bancorp 2017 Annual Report 19
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations


First Financial held cash on deposit with the Federal Reserve of $34.0 million and $82.5 million at December 31, 2017 and 2016 , 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 the Company's investment portfolio and Note 20 – Fair Value Disclosures for additional information on how First Financial determines the fair value of investment securities.

Table 8 • Investment Securities as of December 31, 2017
 
Maturity (2)
 
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
%
 
$
11,168

 
2.80
%
 
$
0

 
0.00
%
Mortgage-backed securities-residential
15,294

 
1.22
%
 
105,932

 
2.56
%
 
40,867

 
2.99
%
 
0

 
0.00
%
Mortgage-backed securities-commercial
2,987

 
3.00
%
 
244,517

 
2.79
%
 
7,523

 
2.21
%
 
0

 
0.00
%
Collateralized mortgage obligations
2,304

 
1.18
%
 
130,621

 
2.52
%
 
10,620

 
2.73
%
 
0

 
0.00
%
Obligations of state and other political subdivisions
1,220

 
2.14
%
 
29,078

 
3.20
%
 
36,109

 
2.90
%
 
15,768

 
3.29
%
   Total
$
21,805

 
1.51
%
 
$
510,148

 
2.70
%
 
$
106,287

 
2.86
%
 
$
15,768

 
3.29
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-Sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasuries
$
0

 
0.00
%
 
$
97

 
2.00
%
 
$
0

 
0.00
%
 
$
0

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

 
0.00
%
 
0

 
0.00
%
 
15,915

 
2.20
%
 
0

 
0.00
%
Mortgage-backed securities-residential
828

 
3.92
%
 
97,910

 
2.80
%
 
190,305

 
2.83
%
 
0

 
0.00
%
Mortgage-backed securities-commercial
15,295

 
3.24
%
 
110,934

 
3.12
%
 
22,874

 
3.11
%
 
0

 
0.00
%
Collateralized mortgage obligations
263

 
4.72
%
 
177,633

 
2.49
%
 
99,227

 
2.89
%
 
28,269

 
2.98
%
Obligations of state and other political subdivisions
14,131

 
0.80
%
 
57,054

 
2.70
%
 
51,418

 
3.30
%
 
3,152

 
3.88
%
Asset-backed securities
63,464

 
3.16
%
 
202,813

 
3.10
%
 
106,774

 
2.90
%
 
5,926

 
2.28
%
Other securities
7,556

 
4.86
%
 
41,454

 
5.50
%
 
23,313

 
4.60
%
 
12,803

 
2.86
%
   Total
$
101,537

 
2.98
%
 
$
687,895

 
3.01
%
 
$
509,826

 
2.98
%
 
$
50,150

 
2.91
%

(1) Tax equivalent basis was calculated using a 35.00% tax rate and yields were based on amortized cost.
(2) Maturity represents estimated life of investment securities.

DERIVATIVES
 
First Financial is authorized to use certain derivative instruments, including interest rate caps, floors and swaps, to meet the needs of its clients while managing the interest rate risk associated with certain transactions.  The Company does not use derivatives for speculative purposes.

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

20 First Financial Bancorp 2017 Annual Report

swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty.

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

See Note 11 – Derivatives in the Notes to Consolidated Financial Statements for additional information regarding First Financial's use of derivative instruments.
 
DEPOSITS
 
First Financial solicits deposits by offering commercial and consumer clients a wide variety of transaction and savings accounts, including checking, savings, money-market and time deposits of various maturities and rates.
 
2017 vs. 2016. First Financial's total deposits increased $369.3 million, or 5.7%, from $6.5 billion at December 31, 2016 to $6.9 billion as of December 31, 2017 . Noninterest bearing deposits increased $114.1 million, or 7.4%, and savings deposits increased $320.2 million, or 14.9%, while interest-bearing checking deposits decreased $60.3 million, or 4.0%, and time deposits decreased $4.7 million, or 0.4%, during the period.

Non-time deposit balances totaled $5.6 billion as of December 31, 2017 , increasing $374.0 million, or 7.2%, compared to December 31, 2016 from strong deposit sales efforts. Time deposit balances were relatively unchanged as lower retail CD balances were offset by an increase in brokered CDs, which the Company utilizes as an alternative to short and long-term borrowings.

Total average deposits for 2017 increased $333.2 million, or 5.3%, from 2016 primarily due to increases in average savings deposits of $390.2 million, or 19.3%, average noninterest bearing deposits of $83.6 million, or 5.7%, and average interest-bearing demand deposits of $25.3 million, or 1.7%, partially offset by a decrease in average time deposits of $165.9 million, or 12.2%. The year-over-year growth in average deposits was due to strong organic deposit generation efforts.
 
Table 9 – Maturities of Time Deposits Greater Than or Equal to $100,000 details the contractual maturity of these deposits. Time Deposits Greater Than or Equal to $100,000 represent 11.4% of total deposits outstanding at December 31, 2017.
  
Table 9 • Maturities Of Time Deposits Greater Than Or Equal To $100,000
 
December 31, 2017
(Dollars in thousands)
CDs
 
IRAs
 
Brokered CDs
 
Total
Maturing in
 
 
 
 
 
 
 
   3 months or less
$
48,929

 
$
3,019

 
$
264,039

 
$
315,987

   3 months to 6 months
38,588

 
703

 
88,477

 
127,768

   6 months to 12 months
89,586

 
12,733

 
0

 
102,319

   over 12 months
193,626

 
43,980

 
3,370

 
240,976

     Total
$
370,729

 
$
60,435

 
$
355,886

 
$
787,050


BORROWINGS
 
First Financial's short-term borrowings are utilized to manage normal liquidity needs and 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.

2017 vs. 2016. Short-term borrowings increased slightly to $814.6 million at December 31, 2017 , from $807.9 million at December 31, 2016 .


First Financial Bancorp 2017 Annual Report 21
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

First Financial utilizes short-term borrowings and longer-term advances from the FHLB as wholesale funding sources. First Financial had $742.3 million of short-term borrowings from the FHLB at December 31, 2017 compared to $687.7 million at December 31, 2016 . In addition to FHLB borrowings, short term borrowings included repurchase agreements of $72.3 million and $120.2 million at December 31, 2017 and 2016, respectively.

Total long-term debt was $119.7 million and $119.6 million at December 31, 2017 and 2016, respectively and consists primarily of subordinated notes, which 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 and are treated as Tier 2 capital for regulatory capital purposes. Outstanding subordinated debt totaled $118.6 million and $118.5 million, and included prepaid debt issuance costs of $1.4 million and $1.5 million as of December 31, 2017 and 2016 , respectively. Long-term debt also included FHLB long-term advances of $0.2 million and $0.4 million as of December 31, 2017 and 2016 , respectively, as well as an interest-free $0.8 million capital loan outstanding with a municipality at December 31, 2017 and 2016 . First Financial's total remaining borrowing capacity from the FHLB was $643.5 million at December 31, 2017 .
 
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-backed securities. For ease of borrowing execution First Financial utilizes a blanket collateral agreement with the FHLB and had $3.6 billion of assets pledged as collateral at December 31, 2017 .

See Note 10 – 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 a short-term line of credit.

Both First Financial and the Bank received investment grade credit ratings from Kroll Bond Rating Agency, Inc, an independent rating agency. These credit ratings impact the cost and availability of financing to First Financial, and a downgrade to these credit ratings could affect First Financial's or the Bank’s abilities to access the credit markets and potentially increase borrowing costs, which would negatively impact financial condition and liquidity. Key factors in maintaining high credit ratings include consistent and diverse earnings, strong credit quality and capital ratios, diverse funding sources and disciplined liquidity monitoring procedures. The ratings of First Financial and the Bank at December 31, 2017 were as follows:
 
First Financial Bancorp
First Financial Bank
Senior Unsecured Debt
BBB+
A-
Subordinated Debt
BBB
BBB+
Short-Term Debt
K2
K2
Deposit
N/A
A-
Short-Term Deposit
N/A
K2

First Financial maintains a short-term credit facility with an unaffiliated bank for $15.0 million that matures on May 29, 2018. 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, 2017 and December 31, 2016 , 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, 2017 and December 31, 2016 .

First Financial's principal source of asset-funded liquidity is marketable investment securities. The market value of investment securities classified as available-for-sale totaled $1.3 billion at December 31, 2017 . Securities classified as held-to-maturity

22 First Financial Bancorp 2017 Annual Report

that are maturing within one year are an additional source of liquidity and totaled $21.8 million at December 31, 2017 . Sources of liquidity also include 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.

At December 31, 2017 , in addition to liquidity on hand of $184.6 million , First Financial had unused and available overnight wholesale funding sources of $2.4 billion , or 27.5% 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 $54.6 million , $52.7 million and $17.3 million for 2017 , 2016 and 2015 , respectively. As of December 31, 2017 , First Financial’s subsidiaries had retained earnings of $546.5 million , of which $163.1 million was available for distribution to First Financial without prior regulatory approval. Additionally, First Financial had $57.7 million in cash at the parent company as of December 31, 2017 , which approximates the Company’s annual shareholder dividend and operating expenses.

Capital expenditures, such as banking center expansion, remodeling and technology investments, were $6.5 million for 2017 , $9.7 million for 2016 and $7.5 million for 2015 . Material commitments for capital expenditures as of December 31, 2017 , were $4.9 million . Management believes that sufficient liquidity exists to fund its future capital expenditure commitments.

Share repurchases, if any, also impact First Financial's liquidity. For further information regarding share repurchases, see the Capital section that follows. Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on First Financial’s liquidity.

Table 10 • Contractual Obligations as of December 31, 2017
 
(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
 
$
115

 
$
118

 
$
0

 
$
0

 
$
233

Subordinated debt
 
5,637

 
12,813

 
12,300

 
137,933

 
168,683

Capital loan with municipality
 
0

 
0

 
0

 
775

 
775

Operating lease obligations
 
6,468

 
12,174

 
8,273

 
8,346

 
35,261

Pension obligations
 
4,758

 
9,843

 
10,787

 
29,825

 
55,213

Time deposits
 
783,451

 
437,439

 
95,926

 
289

 
1,317,105

Total
 
$
800,429

 
$
472,387

 
$
127,286

 
$
177,168

 
$
1,577,270

 
CAPITAL

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

The Board of Governors of the Federal Reserve System approved a rule implementing changes intended to strengthen the regulatory capital framework for all banking organizations (Basel III), subject to a phase-in period for certain provisions.  Basel III established and defined 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).  

Basel III includes a 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 which began on January 1, 2016 at 0.625% and will 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, Basel III increased the minimum ratio of tier 1 capital to risk-weighted assets 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 by Basel III. Failure to maintain the

First Financial Bancorp 2017 Annual Report 23
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

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 capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans.

First Financial's tier 1 capital is comprised of total shareholders' equity less unrealized gains and losses on investment securities available-for-sale, any amounts resulting from retirement plan valuation adjustments 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 or losses 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 the ALLL.

First Financial's tier 1 capital increased from 10.46% at December 31, 2016 to 10.63%, at December 31, 2017, while the total capital ratio decreased from 13.10% to 13.07% during the same period. The increase in the Company's tier 1 capital ratio was primarily due to an increase in capital from increased earnings, partially offset by an increase in risk-weighted assets resulting from organic loan growth during the period. The decrease in the Company's total capital ratio was due to the increase in risk-weighted assets in 2017. The leverage ratio increased to 8.84% at December 31, 2017 compared to 8.60% as of December 31, 2016 and the Company’s tangible common equity ratio increased from 7.96% at December 31, 2016 to 8.30% at December 31, 2017 primarily due to a $54.7 million, or 12.5%, increase in retained earnings.

Management believes that, as of December 31, 2017 , First Financial met all capital adequacy requirements to which it was subject. At December 31, 2017 and 2016 , regulatory notifications categorized First Financial Bank as well-capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events that management believes has changed the Company’s capital categorization.

For further detail on First Financial's capital ratios at December 31, 2017 , see Note 17 – Capital in the Notes to Consolidated Financial Statements.


24 First Financial Bancorp 2017 Annual Report

Table 11 • Capital Adequacy
 
 
 
 
December 31,
(Dollars in thousands)
2017
 
2016
Consolidated capital calculations
 
 
 
Common stock
$
573,109

 
$
570,382

 
Retained earnings
491,847

 
437,188

 
Accumulated other comprehensive loss
(20,390
)
 
(28,443
)
 
Treasury stock, at cost
(113,902
)
 
(113,903
)
Total shareholders' equity
930,664

 
865,224

 
Common equity tier I capital adjustments
 
 
 
 
Goodwill and other intangibles
(209,379
)
 
(210,625
)
Total tangible equity
$
721,285

 
$
654,599

 
Total assets
$
8,896,923

 
$
8,437,967

 
Goodwill and other intangibles
(209,379
)
 
(210,625
)
Total tangible assets
$
8,687,544

 
$
8,227,342

Common tier 1 capital
$
755,735

 
$
703,891

Tier 1 capital
755,839

 
703,995

Total capital
929,148

 
881,158

Total risk-weighted assets
7,108,629

 
6,728,737

Average assets (1)
8,554,938

 
8,189,039

 
 
 
 
 
Regulatory capital
 
 
 
 
Common tier 1 ratio
10.63
%
 
10.46
%
 
Tier 1 ratio
10.63
%
 
10.46
%
 
Total capital ratio
13.07
%
 
13.10
%
 
Leverage ratio
8.84
%
 
8.60
%
 
 
 
 
 
Other capital ratios
 
 
 
 
Total shareholders' equity to ending assets
10.46
%
 
10.25
%
 
Total tangible shareholders' equity to ending tangible assets
8.30
%
 
7.96
%
 
 
 
 
 
(1) For purposes of calculating the Leverage ratio, certain intangible assets are excluded from average assets.

First Financial generally seeks to balance the return of earnings to shareholders through shareholder dividends and share repurchases with capital retention in order to maintain adequate levels of capital and support the Company's growth plans.

Shareholder Dividends. First Financial’s dividend payout ratio, or total dividends paid divided by net income available to common shareholders, was 43.3% , 44.1% and 52.0% for the years 2017, 2016 and 2015, respectively. The dividend payout ratio is continually reviewed by management and the board of directors for consistency with First Financial’s overall capital planning activities and compliance with applicable regulatory limitations. In January 2018, the board of directors authorized an increase to the Company's quarterly dividend from $0.17 to $0.19 per common share, payable on March 15, 2018 to all shareholders of record as of March 1, 2018.

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 did not repurchase any shares under this plan during 2016 or 2017. The Company repurchased 40,255 shares for $0.7 million under the 2012 share repurchase plan during 2015 at an average price of $17.32 per share. At December 31, 2017 , 3,509,133 shares remained available for purchase under the 2012 share repurchase plan.


First Financial Bancorp 2017 Annual Report 25
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Shareholders' Equity. Total shareholders’ equity at December 31, 2017 was $930.7 million , compared to total shareholders’ equity at December 31, 2016 of $865.2 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, 2017 corporate bond indices, projected plan cash flows and comparisons to external industry surveys. The expected return on plan assets was 7.25% for 2017 and 7.50% for 2016, and was based on the composition of plan assets as well as economic forecasts and trends in addition to actual returns. 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, 2017 , 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
 
$
6,930

 
$
(5,408
)
 
N/A

 
N/A

 
$
(426
)
 
$
715

Change in Pension Expense
 
239

 
(94
)
 
$
1,291

 
$
(1,291
)
 
(120
)
 
238

 
As a result of the plan’s current funding status and updated actuarial projections for 2017, First Financial recorded income related to its pension plan of $0.6 million for 2017, $1.2 million for 2016 and $1.0 million for 2015 in the Consolidated Statements of Income. 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 2017, 2016 or 2015 and does not expect to make a cash contribution to its pension plan in 2018 given the plan's over-funded status.

See Note 15 – Employee Benefit Plans in the Notes to Consolidated Financial Statements for additional information on First Financial's pension plan.

ENTERPRISE RISK MANAGEMENT
 
First Financial considers risk to be any issue that could impact the Company’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. ERM allows First Financial to align a variety of risk management activities within the Company into a cohesive, enterprise-wide approach and focus on process-level risk management activities and strategic objectives within the risk management culture. Additionally, ERM allows the Company to deliberately develop risk responses and evaluate the effectiveness of mitigation compared to established thresholds for risk appetite and tolerance, in addition to facilitating the consideration of significant organizational changes and consolidation of information through a common process for management and the board of directors.

First Financial has identified ten types of risk that it monitors in its ERM framework.  These risks include credit, market, operational, compliance, strategic, reputation, information technology, cyber, legal and environmental/external.
 
First Financial uses a robust regulatory risk framework as one of the foundational components of its ERM framework.  This allows for a common categorization across the Company and provides a consistent and complete risk framework that can be summarized and assessed enterprise-wide. Additionally, the risk framework utilized is consistent with that used by the Company’s regulators, which results in additional feedback on First Financial’s ability to assess and measure risk across the organization as well as the ability for management and the board of directors to identify and understand differences in assessed risk profiles.
 

26 First Financial Bancorp 2017 Annual Report

ERM helps ensure that First Financial continues to identify and adequately address risks that emerge from a combination of new customers, products and associates, changing markets, new lines of business and processes and new or evolving systems.
 
The goals of First Financial’s ERM framework are to:

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

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

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

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

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

First Financial Bancorp 2017 Annual Report 27
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

compensation, corporate governance and nominating, and capital markets) oversee particular areas of risk assigned specifically to them.

Executive and Senior Management. Members of executive and senior management are responsible for managing risk activities and delegating risk authority and tolerance to the responsible risk owners.

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

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

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

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

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

Risk Assessment Process. The periodic assessment of risks is a key component of a sound ERM program.  Managers, business line leaders and executives are responsible for developing the risk assessment for their individual departments, business lines and subsidiaries.  The chief risk officer, management and the board risk and compliance committee are responsible for ensuring that risk is viewed and analyzed from a global perspective. Furthermore, interrelated risks are considered, assessing how a single risk or event may create multiple risks.

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

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

Monitoring and Reporting. The board of directors oversees risk reporting and monitoring through the board risk and compliance committee, which meets at least quarterly. 


28 First Financial Bancorp 2017 Annual Report

Management continually reviews any risk identified as key, as well as the appropriateness of established tolerance limits and the actions considered as necessary to mitigate key risks.  As circumstances warrant, management provides recommendations to the board risk and compliance committee related to changes or adjustments to key risks or tolerance limits.
 
First Financial believes that communication is fundamental to successful risk management and productive reporting and communication between the risk management department, management and the board of directors is required for collaborative and effective risk management.

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

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

Management determines the adequacy of the ALLL based on historical loss experience as well as other significant factors such as composition of the portfolio; economic conditions; geographic footprint; the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans; and any other situations that may affect a specific borrower's ability to repay. The evaluation of these factors is the responsibility of the ALLL committee, which is comprised of senior officers from the risk management, credit administration, finance and lending areas.

See Table 12 – Summary of the ALLL and Selected Statistics for a summary of activity impacting the allowance and Table 13 – Allocation of the ALLL for detail on the composition of the allowance.

2017 vs. 2016. The ALLL at December 31, 2017 was $54.0 million , or 0.90% of loans, which was a $3.9 million, or 6.8%, decrease from $58.0 million , or 1.01% of loans at December 31, 2016 . Provision expense decreased $6.6 million, or 64.7%, to $3.6 million in 2017 from $10.1 million in 2016 .

Net charge-offs increased $1.9 million, or 34.9%, to $7.5 million for 2017 compared to $5.6 million for 2016 , while the ratio of net charge-offs as a percentage of average loans outstanding increased to 0.13% in 2017 from 0.10% in 2016 . The slight increase in net charge-offs during 2017 was primarily related to the charge-off of a single franchise relationship during 2017, however net charge-offs remain at historically low levels.

The decrease in the ALLL during 2017 reflected continued strong credit quality results which include declining nonperforming and classified asset balances during the period. The ALLL as a percentage of loans reflects continued stability in property values and improving economic conditions across the Company's footprint. The ALLL as a percentage of nonperforming loans, including accruing TDRs was 129.8% at December 31, 2017 compared with 120.8% at December 31, 2016 .

First Financial Bancorp 2017 Annual Report 29
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

For further discussion of First Financial's ALLL, see Note 6 – Allowance for Loan and Lease Losses in the Notes to Consolidated Financial Statements.
Table 12 • Summary Of The ALLL And Selected Statistics
(Dollars in thousands)
2017
 
2016
 
2015
 
2014
 
2013
Transactions in the allowance for loan and lease losses:
 
 
 
 
 
 
 
 
 
Balance at January 1
$
57,961

 
$
53,398

 
$
52,858

 
$
62,730

 
$
92,967

   Provision for loan and lease losses
3,582

 
10,140

 
9,641

 
1,528

 
8,909

Loans charged-off:
 
 
 
 
 
 
 
 
 
   Commercial and industrial
10,194

 
2,630

 
5,408

 
9,156

 
11,695

   Lease financing
0

 
0

 
0

 
0

 
496

   Real estate – construction
1

 
93

 
85

 
1,348

 
611

   Real estate – commercial
1,038

 
4,983

 
10,083

 
9,478

 
36,622

   Real estate – residential
435

 
387

 
1,531

 
1,454

 
1,729

Home equity
913

 
1,445

 
1,891

 
2,774

 
3,533

Installment
225

 
386

 
509

 
605

 
536

Credit card
857

 
1,190

 
1,049

 
1,158

 
1,285

      Total loans charged-off
13,663

 
11,114

 
20,556

 
25,973

 
56,507

 
 
 
 
 
 
 
 
 
 
Recoveries of loans previously charged-off:
 
 
 
 
 
 
 
 
 
   Commercial and industrial
1,650

 
1,155

 
3,724

 
4,769

 
4,218

   Lease financing
1

 
1

 
2

 
63

 
9

   Real estate – construction
89

 
285

 
253

 
381

 
679

   Real estate – commercial
2,719

 
2,502

 
5,214

 
7,617

 
10,630

   Real estate – residential
215

 
236

 
558

 
531

 
265

Home equity
1,027

 
720

 
1,001

 
511

 
914

Installment
234

 
335

 
463

 
358

 
393

Credit card
206

 
303

 
240

 
343

 
253

      Total recoveries
6,141

 
5,537

 
11,455

 
14,573

 
17,361

      Net charge-offs
7,522

 
5,577

 
9,101

 
11,400

 
39,146

      Balance at December 31
$
54,021

 
$
57,961

 
$
53,398

 
$
52,858

 
$
62,730

 
 
 
 
 
 
 
 
 
 
Net charge-offs to average loans and leases
 
 
 
 
 
 
 
 
 
Commercial and industrial
0.47
 %
 
0.08
 %
 
0.12
 %
 
0.37
 %
 
0.75
 %
Lease financing
0.00
 %
 
0.00
 %
 
0.00
 %
 
(0.05
)%
 
0.51
 %
Real estate-construction
(0.02
)%
 
(0.05
)%
 
(0.07
)%
 
0.71
 %
 
(0.07
)%
Real estate-commercial
(0.07
)%
 
0.11
 %
 
0.23
 %
 
0.10
 %
 
1.42
 %
Real estate-residential
0.05
 %
 
0.03
 %
 
0.19
 %
 
0.20
 %
 
0.34
 %
Home equity
(0.02
)%
 
0.16
 %
 
0.19
 %
 
0.52
 %
 
0.62
 %
Installment
(0.02
)%
 
0.11
 %
 
0.11
 %
 
0.50
 %
 
0.25
 %
Credit card
1.44
 %
 
2.10
 %
 
2.04
 %
 
2.14
 %
 
2.82
 %
Total net charge-offs
0.13
 %
 
0.10
 %
 
0.18
 %
 
0.27
 %
 
0.99
 %
 
 
 
 
 
 
 
 
 
 
Credit quality ratios:
 
 
 
 
 
 
 
 
 
   As a percent of year-end loans, net of unearned income:
 
 
 
 
 
 
 
 
 
      Allowance for loan and lease losses
0.90
 %
 
1.01
 %
 
0.99
 %
 
1.11
 %
 
1.58
 %
     Nonperforming loans  (1)
0.69
 %
 
0.83
 %
 
1.06
 %
 
1.35
 %
 
1.43
 %
 
 
 
 
 
 
 
 
 
 
   Allowance for loan and lease losses to nonperforming loans (1)
129.77
 %
 
120.83
 %
 
93.89
 %
 
82.08
 %
 
110.40
 %

(1) Includes loans classified as nonaccrual and troubled debt restructurings.

30 First Financial Bancorp 2017 Annual Report


Table 13 • Allocation Of The ALLL
 
December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
(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
$
17,598

31.8
%
 
$
19,225

31.0
%
 
$
16,995

30.9
%
 
$
13,870

27.5
%
 
$
19,968

27.2
%
Lease financing
675

1.5
%
 
716

1.6
%
 
821

1.7
%
 
435

1.6
%
 
461

2.0
%
Real estate – construction
3,577

7.8
%
 
3,282

6.9
%
 
1,810

5.8
%
 
1,045

4.2
%
 
824

2.3
%
Real estate – commercial
20,930

41.4
%
 
26,540

42.2
%
 
23,656

41.9
%
 
27,086

44.8
%
 
28,993

44.6
%
Real estate – residential
4,683

7.8
%
 
3,208

8.7
%
 
4,014

9.5
%
 
3,753

10.5
%
 
4,140

10.9
%
Installment, home equity & credit card
6,558

9.7
%
 
4,990

9.6
%
 
6,102

10.2
%
 
6,669

11.4
%
 
8,344

13.0
%
  Total
$
54,021

100.0
%
 
$
57,961

100.0
%
 
$
53,398

100.0
%
 
$
52,858

100.0
%
 
$
62,730

100.0
%


MARKET RISK

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

First Financial monitors the Company's interest rate risk position using income simulation models and EVE sensitivity analyses that capture both short-term and long-term interest rate risk exposure.  Income simulation involves forecasting NII under a variety of interest rate scenarios. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios and First Financial uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital.  For both NII and EVE modeling, First Financial leverages instantaneous parallel shocks to evaluate interest rate risk exposure across rising and falling rate scenarios. Additional scenarios evaluated include 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 the Company’s assets, liabilities and off-balance sheet exposure. A number of assumptions are incorporated into the interest rate risk models, including prepayment behaviors and repricing spreads for assets in addition to attrition and repricing rates for liabilities. Assumptions are primarily derived from behavior studies of the Company’s historical client base and are continually refined. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process.

Non-maturity deposit modeling is particularly dependent on the assumption for repricing sensitivity known as a beta. Beta is the amount by which First Financial’s interest bearing non-maturity deposit rates will increase when short-term interest rates rise. The Company utilized a weighted average deposit beta of 61% in its interest rate risk modeling as of December 31, 2017 . First Financial also includes an assumption for the migration of non-maturity deposit balances into CDs for all upward rate scenarios beginning with the +100 BP scenario, thereby increasing deposit costs and reducing asset sensitivity.


First Financial Bancorp 2017 Annual Report 31
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Presented below is the estimated impact on First Financial’s NII and EVE as of December 31, 2017 , assuming immediate, parallel shifts in interest rates:
 
% Change from base case for
 immediate parallel changes in rates
 
-100 BP
 
+100 BP
 
+200 BP
NII - Year 1
(5.77)%
 
2.40%
 
4.73%
NII - Year 2
(8.38)%
 
3.75%
 
7.27%
EVE
(4.09)%
 
1.65%
 
2.13%

“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 internal policy limits set for the above interest rate risk scenarios as of December 31, 2017 .  Projected results for NII became more asset sensitive during 2017 as a result of growth in variable rate loans and noninterest-bearing deposit balances in addition to fewer fixed rate investment securities and the conversion of certain indexed deposit products to managed rates in order to better align First Financial with market rates. The projected results for EVE became less asset sensitive during 2017 due to updated deposit discount rate assumptions. 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, 2017 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
4.19
%
 
0.62
%
 
8.16
%
 
1.30
%
NII-Year 2
5.50
%
 
2.00
%
 
10.62
%
 
3.93
%

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

Table 14 – Market Risk Disclosure projects the principal maturities and yields of First Financial’s interest-bearing financial instruments at December 31, 2017 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 of payment activity trends. Maturities for interest-bearing liability accounts with no contractual maturity dates are estimated according to historical experience of cash flows and current expectations of client behaviors when calculating fair value, but are included in the maturing in one year or less category as they can be withdrawn on demand. 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.



32 First Financial Bancorp 2017 Annual Report

 
Table 14 • Market Risk Disclosure
 
 
Fair Value
 
Principal Amount Maturing In:
December 31,
(Dollars in thousands)
2017
2018
2019
2020
2021
Thereafter
Total
2017
Rate sensitive assets
 
 
 
 
 
 
 
 
Fixed interest rate loans  (1)
$
326,647

$
208,287

$
176,793

$
165,963

$
124,246

$
340,643

$
1,342,579

$
1,342,272

   Average interest rate
4.66
%
4.88
%
4.83
%
4.76
%
5.36
%
4.43
%
4.73
%
 
Variable interest rate loans (1)
1,101,963

636,748

447,239

430,088

429,382

1,582,665

4,628,085

4,675,886

   Average interest rate
4.49
%
4.55
%
4.60
%
4.66
%
5.17
%
4.60
%
4.63
%
 
Fixed interest rate securities
52,516

118,068

209,472

253,654

281,155

444,468

1,359,333

1,358,415

   Average interest rate
3.78
%
3.13
%
2.85
%
2.84
%
2.73
%
2.97
%
2.92
%
 
Variable interest rate securities
70,826

35,786

82,575

58,684

158,649

237,563

644,083

644,094

   Average interest rate
2.35
%
2.72
%
2.33
%
2.80
%
3.36
%
3.00
%
2.90
%
 
Other earning assets
33,974

0

0

0

0

0

33,974

33,974

   Average interest rate
1.50
%
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
1.50
%
 
 
 
 
 
 
 
 
 
 
Rate sensitive liabilities
 
 
 
 
 
 
 
 
Noninterest-bearing checking  (2)
$
1,662,058

$
0

$
0

$
0

$
0

$
0

$
1,662,058

$
1,662,058

Savings and interest-bearing checking (2)
391,588

3,524,295

0

0

0

0

3,915,883

3,915,883

   Average interest rate
0.50
%
0.50
%
0.00
%
0.00
%
0.00
%
0.00
%
0.50
%
 
Time deposits
776,956

315,305

122,165

68,545

27,394

6,740

1,317,105

1,306,674

   Average interest rate
1.15
%
1.68
%
1.52
%
1.46
%
1.02
%
0.12
%
1.32
%
 
Fixed interest rate borrowings
742,418

124

0

0

0

119,412

861,954

860,208

   Average interest rate
1.43
%
5.99
%
0.00
%
0.00
%
0.00
%
5.15
%
1.95
%
 
Variable interest rate borrowings
72,265

0

0

0

0

0

72,265

72,265

   Average interest rate
0.19
%
0.00
%
0.00
%
0.00
%
0.00
%
0.00
%
0.19
%
 

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

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

COMPLIANCE RISK

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

STRATEGIC AND REPUTATION RISK

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

First Financial Bancorp 2017 Annual Report 33
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations


Reputation risk represents the risk of loss or impairment of earnings and capital from negative publicity. This affects the ability of First Financial to establish new relationships or services or to continue servicing existing relationships. Reputation risk is recognized by the effect that public opinion could have on First Financial's franchise value and has evolved in recent years with the growth in social media.

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

INFORMATION TECHNOLOGY RISK

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

CYBER RISK

Cyber risk is differentiated from information technology risk by threat interactions that yield high impact consequences and ever-increasing probability. While standard security operations address most day to day incidents, cyber risk includes threats and attacks that often use advanced tools, techniques and processes to evade detection or inflict maximum damage to an organization's information assets. Cyber threats and attacks adapt and evolve rapidly, so First Financial works to continuously strengthen the Company’s posture toward cybersecurity. Critical components to the Company’s cyber risk control structure include corporate governance, threat intelligence, security awareness training and patch management programs. Cyber risk mitigation includes effectively identifying, detecting, responding to, protecting and recovering from cyber threats.

LEGAL RISK

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

ENVIRONMENTAL/EXTERNAL RISK

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

CRITICAL ACCOUNTING POLICIES

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


34 First Financial Bancorp 2017 Annual Report

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

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

Goodwill. Assets and liabilities acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. The Company is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. First Financial performs its annual impairment test effective October 1, absent events or changes in circumstances that indicate the carrying value of goodwill may not be recoverable.

The Company’s goodwill is accounted for in a 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.

Pension. First Financial sponsors a non-contributory defined-benefit pension plan covering substantially all employees. Accounting for the pension plan involves material estimates regarding future plan obligations and investment returns on plan assets. Significant assumptions used in the pension plan include the discount rate, expected return on plan assets and the rate of compensation increase. First Financial determines the discount rate assumption using published corporate bond indices and the projected cash flows of the pension plan. First Financial also utilizes external surveys for industry comparisons which provided a 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.  Provisions for tax reserves, if any, are included in income tax expense in the Consolidated Financial Statements.


First Financial Bancorp 2017 Annual Report 35
Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (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 capital rules promulgated by federal banking regulators);
▪
the effect of the current interest rate environment or changes in interest rates on our net interest margin and our loan originations and securities holdings;
▪
our ability to 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;
▪
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 FASB and the SEC;
▪
adverse changes in the creditworthiness of our borrowers and lessees, collateral values, the value of investment securities and asset recovery values, 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 and lease losses; and

36 First Financial Bancorp 2017 Annual Report

▪
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, 2017 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 2017 Annual Report 37

Statistical Information
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2015
(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)
$
1,815,925

 
$
98,683

 
5.43
 %
 
$
1,741,084

 
$
91,278

 
5.24
 %
 
$
1,425,032

 
$
68,719

 
4.82
 %
Lease financing (2)
86,662

 
3,999

 
4.61
 %
 
96,337

 
3,968

 
4.12
 %
 
83,316

 
3,340

 
4.01
 %
Construction-real estate
429,868

 
18,076

 
4.21
 %
 
357,171

 
13,894

 
3.89
 %
 
249,559

 
10,872

 
4.36
 %
Commercial-real estate
2,448,570

 
110,586

 
4.52
 %
 
2,359,480

 
106,122

 
4.50
 %
 
2,148,139

 
100,026

 
4.66
 %
Residential-real estate
499,397

 
19,588

 
3.92
 %
 
521,654

 
21,037

 
4.03
 %
 
512,888

 
21,185

 
4.13
 %
Installment and other consumer
565,441

 
31,251

 
5.53
 %
 
552,891

 
28,177

 
5.10
 %
 
543,900

 
27,638

 
5.08
 %
Total loans and leases
5,845,863

 
282,183

 
4.83
 %
 
5,628,617

 
264,476

 
4.70
 %
 
4,962,834

 
231,780

 
4.67
 %
Indemnification asset
9,535

 
(3,871
)
 
(40.60
)%
 
14,831

 
(4,509
)
 
(30.40
)%
 
20,274

 
(4,740
)
 
(23.38
)%
Investment securities (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Taxable
1,791,729

 
50,568

 
2.82
 %
 
1,693,105

 
43,103

 
2.55
 %
 
1,667,933

 
39,577

 
2.37
 %
Tax-exempt  (2)
209,658

 
9,105

 
4.34
 %
 
165,773

 
6,977

 
4.21
 %
 
164,497

 
7,094

 
4.31
 %
Total investment securities  (3)
2,001,387

 
59,673

 
2.98
 %
 
1,858,878

 
50,080

 
2.69
 %
 
1,832,430

 
46,671

 
2.55
 %
Interest-bearing deposits with other banks
30,933

 
347

 
1.12
 %
 
21,907

 
118

 
0.54
 %
 
24,430

 
65

 
0.27
 %
Total earning assets
7,887,718

 
338,332

 
4.29
 %
 
7,524,233

 
310,165

 
4.12
 %
 
6,839,968

 
273,776

 
4.00
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nonearning assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for loan and lease losses
(56,599
)
 
 
 
 
 
(56,860
)
 
 
 
 
 
(54,111
)
 
 
 
 
Cash and due from banks
116,409

 
 
 
 
 
119,444

 
 
 
 
 
115,273

 
 
 
 
Accrued interest and other assets
663,875

 
 
 
 
 
664,886

 
 
 
 
 
602,939

 
 
 
 
Total assets
$
8,611,403

 
 
 
 
 
$
8,251,703

 
 
 
 
 
$
7,504,069

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand
$
1,491,114

 
$
4,242

 
0.28
 %
 
$
1,465,804

 
$
2,119

 
0.14
 %
 
$
1,263,388

 
$
1,207

 
0.10
 %
Savings
2,412,788

 
15,941

 
0.66
 %
 
2,022,564

 
5,559

 
0.27
 %
 
1,971,699

 
4,171

 
0.21
 %
Time
1,189,963

 
14,999

 
1.26
 %
 
1,355,875

 
14,935

 
1.10
 %
 
1,333,550

 
14,096

 
1.06
 %
Total interest-bearing deposits
5,093,865

 
35,182

 
0.69
 %
 
4,844,243

 
22,613

 
0.47
 %
 
4,568,637

 
19,474

 
0.43
 %
Borrowed funds
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term borrowings
830,365

 
8,193

 
0.99
 %
 
880,457

 
4,506

 
0.51
 %
 
625,674

 
1,364

 
0.22
 %
Long-term debt
120,794

 
6,153

 
5.09
 %
 
119,622

 
6,160

 
5.15
 %
 
71,748

 
2,419

 
3.37
 %
Total borrowed funds
951,159

 
14,346

 
1.51
 %
 
1,000,079

 
10,666

 
1.07
 %
 
697,422

 
3,783

 
0.54
 %
Total interest-bearing liabilities
6,045,024

 
49,528

 
0.82
 %
 
5,844,322

 
33,279

 
0.57
 %
 
5,266,059

 
23,257

 
0.44
 %
Noninterest-bearing liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Noninterest-bearing demand deposits
1,540,384

 
 
 
 
 
1,456,802

 
 
 
 
 
1,339,802

 
 
 
 
Other liabilities
128,564

 
 
 
 
 
105,795

 
 
 
 
 
93,292

 
 
 
 
Shareholders' equity
897,431

 
 
 
 
 
844,784

 
 
 
 
 
804,916

 
 
 
 
Total liabilities and shareholders' equity
$
8,611,403

 
 
 
 
 
$
8,251,703

 
 
 
 
 
$
7,504,069

 
 
 
 
Net interest income and interest rate spread (fully tax equivalent)
 
 
$
288,804

 
3.47
 %
 
 
 
$
276,886

 
3.55
 %
 
 
 
$
250,519

 
3.56
 %
Net interest margin (fully tax equivalent)
 
 
 
 
3.66
 %
 
 
 
 
 
3.68
 %
 
 
 
 
 
3.66
 %
Interest income and yield
 
 
$
333,073

 
4.22
 %
 
 
 
$
305,950

 
4.07
 %
 
 
 
$
269,759

 
3.94
 %
Interest expense and rate
 
 
49,528

 
0.82
 %
 
 
 
33,279

 
0.57
 %
 
 
 
23,257

 
0.44
 %
Net interest income and spread
 
 
$
283,545

 
3.40
 %
 
 
 
$
272,671

 
3.50
 %
 
 
 
$
246,502

 
3.50
 %
Net interest margin
 
 
 
 
3.59
 %
 
 
 
 
 
3.62
 %
 
 
 
 
 
3.60
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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, trading investment securities and other investments.
(4)  Includes loans held-for-sale.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

38 First Financial Bancorp 2017 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, 2017 , First Financial’s management, including the chief executive officer and the chief financial officer, evaluated the effectiveness of First Financial’s internal controls over financial reporting, using as its framework for that evaluation the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 framework). Based on the evaluation, we believe that, as of December 31, 2017 , our internal control over financial reporting is effective based on those criteria.

Crowe Horwath 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, 2017 . The report, which expresses an unqualified opinion on First Financial’s internal control over financial reporting as of December 31, 2017 , is included in the information that follows under the heading “Report of Independent Registered Public Accounting Firm."

/s/ Claude E. Davis
 
/s/ John M. Gavigan
 
Chief Executive Officer
 
Senior Vice President and Chief Financial Officer
 
February 26, 2018
 
February 26, 2018
 


First Financial Bancorp 2017 Annual Report 39

 
    
                   CROWELOGO2A04.JPG
 
CROWEHEADERPT2A09.JPG
                                
Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of First Financial Bancorp
Cincinnati, Ohio

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of First Financial Bancorp (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the years then ended and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2017 , based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017 , based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain

40 First Financial Bancorp 2017 Annual Report

to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

CROWESIGNATUREA04.JPG
Crowe Horwath LLP

We have served as the Company's auditor since 2015, which is the year the engagement letter was signed for the audit of the 2016 financial statements.

Indianapolis, Indiana
 
February 26, 2018


First Financial Bancorp 2017 Annual Report 41



        Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders of First Financial Bancorp

We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows of First Financial Bancorp (the Company) for the year 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 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 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of First Financial Bancorp for the year ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.


EYLOGOA4A14.JPG
Cincinnati, Ohio
 
February 23, 2016




First Financial Bancorp 2017 Annual Report 42


Consolidated Balance Sheets
 
December 31,
(Dollars in thousands)
2017
 
2016
Assets
 
 
 
Cash and due from banks
$
150,650

 
$
121,598

Interest-bearing deposits with other banks
33,974

 
82,450

Investment securities available-for-sale, at fair value (amortized cost $1,348,227 at December 31, 2017 and $1,045,337 at December 31, 2016)
1,349,408

 
1,039,870

Investment securities held-to-maturity (fair value $653,101 at December 31, 2017 and $763,575 at December 31, 2016)
654,008

 
763,254

Other investments
53,140

 
51,077

Loans held for sale
11,502

 
13,135

Loans and leases
 

 
 

Commercial and industrial
1,912,743

 
1,781,948

Lease financing
89,347

 
93,108

Construction real estate
467,730

 
399,434

Commercial real estate
2,490,091

 
2,427,577

Residential real estate
471,391

 
500,980

Home equity
493,604

 
460,388

Installment
41,586

 
50,639

Credit card
46,691

 
43,408

Total loans and leases
6,013,183

 
5,757,482

Less: Allowance for loan and lease losses
54,021

 
57,961

Net loans and leases
5,959,162

 
5,699,521

Premises and equipment
125,036

 
131,579

Goodwill and other intangibles
209,379

 
210,625

Accrued interest and other assets
350,664

 
324,858

Total assets
$
8,896,923

 
$
8,437,967

 
 
 
 
Liabilities
 

 
 

Deposits
 

 
 

Interest-bearing demand
$
1,453,463

 
$
1,513,771

Savings
2,462,420

 
2,142,189

Time
1,317,105

 
1,321,843

Total interest-bearing deposits
5,232,988

 
4,977,803

Noninterest-bearing
1,662,058

 
1,547,985

Total deposits
6,895,046

 
6,525,788

Federal funds purchased and securities sold under agreements to repurchase
72,265

 
120,212

Federal Home Loan Bank short-term borrowings
742,300

 
687,700

      Total short-term borrowings
814,565

 
807,912

Long-term debt
119,654

 
119,589

Total borrowed funds
934,219

 
927,501

Accrued interest and other liabilities
136,994

 
119,454

Total liabilities
7,966,259

 
7,572,743

 
 
 
 
Shareholders' equity
 

 
 

Common stock - no par value
 

 
 

Authorized - 160,000,000 shares; Issued - 68,730,731 shares in 2017 and 2016
573,109

 
570,382

Retained earnings
491,847

 
437,188

Accumulated other comprehensive income (loss)
(20,390
)
 
(28,443
)
Treasury stock, at cost, 6,661,644 shares in 2017 and 6,751,179 shares in 2016
(113,902
)
 
(113,903
)
Total shareholders' equity
930,664

 
865,224

Total liabilities and shareholders' equity
$
8,896,923

 
$
8,437,967


See Notes to Consolidated Financial Statements.


First Financial Bancorp 2017 Annual Report 43

Consolidated Statements of Income
 
Years ended December 31,
(Dollars in thousands except per share data)
2017
 
2016
 
2015
Interest income
 
 
 
 
 
Loans, including fees
$
280,111

 
$
262,703

 
$
230,246

Investment securities
 

 
 
 
 

Taxable
50,568

 
43,103

 
39,577

Tax-exempt
5,918

 
4,535

 
4,611

Total investment securities interest
56,486

 
47,638

 
44,188

Other earning assets
(3,524
)
 
(4,391
)
 
(4,675
)
Total interest income
333,073

 
305,950

 
269,759

Interest expense
 

 
 

 
 
Deposits
35,182

 
22,613

 
19,474

Short-term borrowings
8,193

 
4,506

 
1,364

Long-term borrowings
6,153

 
6,160

 
2,419

Total interest expense
49,528

 
33,279

 
23,257

Net interest income
283,545

 
272,671

 
246,502

Provision for loan and lease losses
3,582

 
10,140

 
9,641

Net interest income after provision for loan and lease losses
279,963

 
262,531

 
236,861

 
 
 
 
 
 
Noninterest income
 

 
 

 
 
Service charges on deposit accounts
19,775

 
18,933

 
19,015

Trust and wealth management fees
14,073

 
13,200

 
13,128

Bankcard income
13,298

 
12,132

 
11,578

Client derivative fees
6,418

 
4,570

 
4,389

Net gains on sales of loans
5,169

 
6,804

 
6,471

Net gains (losses) on sales of investment securities
1,649

 
234

 
1,505

Other
15,760

 
13,728

 
19,116

Total noninterest income
76,142

 
69,601

 
75,202

 
 
 
 
 
 
Noninterest expenses
 

 
 

 
 
Salaries and employee benefits
132,560

 
122,361

 
111,792

Net occupancy
17,397

 
18,329

 
18,232

Furniture and equipment
8,443

 
8,663

 
8,722

Data processing
14,022

 
11,406

 
10,863

Marketing
3,201

 
3,965

 
3,723

Communication
1,819

 
1,889

 
2,161

Professional services
15,023

 
6,303

 
9,622

State intangible tax
2,655

 
2,034

 
2,331

FDIC assessments
3,944

 
4,293

 
4,446

Loss (gain) - other real estate owned
642

 
(1,212
)
 
1,861

Other
40,236

 
23,370

 
27,377

Total noninterest expenses
239,942

 
201,401

 
201,130

Income before income taxes
116,163

 
130,731

 
110,933

Income tax expense
19,376

 
42,205

 
35,870

Net income
$
96,787

 
$
88,526

 
$
75,063

 
 
 
 
 
 
Earnings per common share
 
 
 
 
 
Basic
$
1.57

 
$
1.45

 
$
1.23

Diluted
$
1.56

 
$
1.43

 
$
1.21

Average common shares outstanding - basic
61,529,460

 
61,206,093

 
61,062,657

Average common shares outstanding - diluted
62,171,590

 
61,985,422

 
61,847,547


See Notes to Consolidated Financial Statements.

44 First Financial Bancorp 2017 Annual Report

Consolidated Statements of Comprehensive Income

 
Years ended December 31,
(Dollars in thousands)
2017
 
2016
 
2015
Net income
$
96,787

 
$
88,526

 
$
75,063

Other comprehensive income (loss), net of tax:
 
 
 
 
 
Unrealized gain (loss) on investment securities arising during the period
4,367

 
384

 
(2,427
)
Change in retirement obligation
3,172

 
1,245

 
(6,144
)
Unrealized gain (loss) on derivatives
514

 
508

 
(650
)
Unrealized gain (loss) on foreign currency exchange
0

 
0

 
50

Other comprehensive income (loss)
8,053

 
2,137

 
(9,171
)
Comprehensive income
$
104,840

 
$
90,663

 
$
65,892


See Notes to Consolidated Financial Statements.



First Financial Bancorp 2017 Annual Report 45

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, 2015
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
88,526

 
 
 
 
 
 
 
88,526

Other comprehensive income (loss)
 
 
 
 
 
 
2,137

 
 
 
 
 
2,137

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock at $0.64 per share
 
 
 
 
(39,578
)
 
 
 
 
 
 
 
(39,578
)
Warrant exercises
 
 
(1,507
)
 
 
 
 
 
89,383

 
1,507

 
0

Excess tax benefit on share-based compensation
 
 
264

 
 
 
 
 
 
 
 
 
264

Exercise of stock options, net of shares purchased
 
 
(379
)
 
 
 
 
 
65,515

 
1,105

 
726

Restricted stock awards, net of forfeitures
 
 
(4,505
)
 
 
 
 
 
182,974

 
2,924

 
(1,581
)
Share-based compensation expense
 
 
5,354

 
 
 
 
 
 
 
 
 
5,354

Balances at December 31, 2016
68,730,731

 
570,382

 
437,188

 
(28,443
)
 
(6,751,179
)
 
(113,903
)
 
865,224

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
96,787

 
 
 
 
 
 
 
96,787

Other comprehensive income (loss)
 
 
 
 
 
 
8,053

 
 
 
 
 
8,053

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock at $0.68 per share
 
 
 
 
(42,128
)
 
 
 
 
 
 
 
(42,128
)
Warrant exercises
 
 
(99
)
 
 
 
 
 
5,843

 
99

 
0

Exercise of stock options, net of shares purchased
 
 
(912
)
 
 
 
 
 
58,212

 
987

 
75

Restricted stock awards, net of forfeitures
 
 
(1,708
)
 
 
 
 
 
25,480

 
(1,085
)
 
(2,793
)
Share-based compensation expense
 
 
5,446

 
 
 
 
 
 
 
 
 
5,446

Balances at December 31, 2017
68,730,731

 
$
573,109

 
$
491,847

 
$
(20,390
)
 
(6,661,644
)
 
$
(113,902
)
 
$
930,664


See Notes to Consolidated Financial Statements.

46 First Financial Bancorp 2017 Annual Report

Consolidated Statements of Cash Flows
 
Year ended December 31,
(Dollars in thousands)
2017
 
2016
 
2015
Operating activities
 
 
 
 
 
Net income
$
96,787

 
$
88,526

 
$
75,063

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Provision for loan and lease losses
3,582

 
10,140

 
9,641

Depreciation and amortization
12,645

 
13,037

 
13,266

Stock-based compensation expense
5,446

 
5,354

 
4,049

Pension expense (income)
(628
)
 
(1,153
)
 
(1,042
)
Net amortization (accretion) on investment securities
10,798

 
8,476

 
7,899

Net (gains) losses on sales of investments securities
(1,649
)
 
(234
)
 
(1,505
)
Originations of loans held for sale
(157,796
)
 
(232,526
)
 
(246,845
)
Net (gains) losses on sales of loans held for sale
(5,169
)
 
(6,804
)
 
(6,471
)
Proceeds from sales of loans held for sale
163,300

 
246,829

 
242,029

Deferred income taxes
(4,488
)
 
346

 
4,192

Decrease (increase) cash surrender value of life insurance
(3,792
)
 
(186
)
 
(5,379
)
Decrease (increase) in interest receivable
(5,707
)
 
(1,456
)
 
(995
)
Decrease in indemnification asset
10,117

 
5,613

 
5,036

(Decrease) increase in interest payable
55

 
46

 
2,296

Decrease (increase) in other assets
(23,808
)
 
(5,347
)
 
(33,370
)
(Decrease) increase in other liabilities
21,478

 
7,700

 
23,703

Net cash provided by (used in) operating activities
121,171

 
138,361

 
91,567

 
 
 
 
 
 
Investing activities
 

 
 

 
 

Proceeds from sales of investment securities available-for-sale
189,962

 
206,990

 
70,219

Proceeds from calls, paydowns and maturities of securities available-for-sale
224,690

 
186,132

 
120,953

Purchases of securities available-for-sale
(723,131
)
 
(396,984
)
 
(547,901
)
Proceeds from sales of securities held-to-maturity
0

 
4,862

 
0

Proceeds from calls, paydowns and maturities of securities held-to-maturity
121,903

 
127,021

 
140,059

Purchases of securities held-to-maturity
(23,402
)
 
(11,196
)
 
(3,520
)
Net decrease (increase) in interest-bearing deposits with other banks
48,476

 
(48,716
)
 
(11,104
)
Net decrease (increase) in loans and leases
(266,043
)
 
(376,848
)
 
(390,312
)
Proceeds from disposal of other real estate owned
6,983

 
9,356

 
15,817

Purchases of premises and equipment
(6,537
)
 
(9,726
)
 
(7,467
)
Net cash (paid) acquired from business combinations
0

 
0

 
(305,591
)
Net cash provided by (used in) investing activities
(427,099
)
 
(309,109
)
 
(918,847
)
 
 
 
 
 
 
Financing activities
 

 
 

 
 

Net (decrease) increase in total deposits
369,258

 
346,164

 
523,882

Net (decrease) increase in short-term borrowings
6,653

 
(130,513
)
 
277,033

Payments on long-term borrowings
(94
)
 
(86
)
 
(46,238
)
Proceeds from issuance of long-term debt
0

 
0

 
120,000

Cash dividends paid on common stock
(41,178
)
 
(39,125
)
 
(39,070
)
Purchases of treasury stock
0

 
0

 
(4,498
)
Proceeds from exercise of stock options
341

 
801

 
744

Excess tax benefit on share-based compensation
0

 
264

 
146

Net cash provided by (used in) financing activities
334,980

 
177,505

 
831,999

 
 
 
 
 
 
Cash and due from banks
 

 
 

 
 

Net (decrease) increase in Cash and due from banks
29,052

 
6,757

 
4,719

Cash and due from banks at beginning of year
121,598

 
114,841

 
110,122

Cash and due from banks at end of year
$
150,650

 
$
121,598

 
$
114,841

 
 
 
 
 
 
Supplemental disclosures
 
 
 
 
 
Interest paid
$
49,474

 
$
33,233

 
$
20,961

Income taxes paid
$
38,329

 
$
37,566

 
$
31,193

Acquisition of other real estate owned through foreclosure
$
4,119

 
$
2,872

 
$
8,398

Issuance of restricted stock awards
$
6,416

 
$
5,759

 
$
7,760


See Notes to Consolidated Financial Statements.

First Financial Bancorp 2017 Annual Report 47

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of presentation. The Consolidated Financial Statements of First Financial Bancorp., a bank holding company, principally serving Ohio, Indiana and Kentucky, include the accounts and operations of First Financial and its wholly owned subsidiary, First Financial Bank. 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 GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. Actual realized amounts could differ materially from those estimates.

Cash and due from banks. Cash and due from banks consist of currency, coin and cash items due from banks. Cash items due from banks include noninterest bearing deposits held at other banks.
 
Investment securities. First Financial classifies debt and equity securities into three categories: held-to-maturity, trading and available-for-sale. Management classifies investment securities into the appropriate category at the time of purchase and re-evaluates that classification as deemed appropriate.

Investment securities are classified as 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. Fair value is determined using quoted market prices. Gains or losses on trading securities, both realized and unrealized, are reported in noninterest income.
 
Investment securities not classified as either 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 in the Consolidated Statements of Income.
 
Realized gains and losses are based on the amortized cost of the security sold using the specific identification method. 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. Other investments include holdings in FRB stock and FHLB stock, which 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 transferred to held for sale status are carried at the lower of cost or fair value. Any subsequent change in the carrying value of transferred loans, not to exceed original cost, is recorded in the Consolidated Statements of Income. The Bank sells loans with servicing retained or released depending on pricing and market conditions.  

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. Loans and leases are carried at the principal amount outstanding, net of unamortized deferred loan origination fees and

48 First Financial Bancorp 2017 Annual Report

costs, and net of unearned income, with the exception of loans subject to fair value requirements. Loan origination and commitment fees received, as well as certain direct loan origination costs paid, are deferred, and the net amount is amortized as an adjustment to the related loan's yield.

Interest income on loans and leases is recorded on an accrual basis. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued, but unpaid interest is reversed. Any payments received while a loan is classified as nonaccrual are applied as a reduction to the carrying value of the loan. A loan may return to accrual status if collection of future principal and interest payments is no longer doubtful.
 
Acquired loans. Acquired loans are recorded at their estimated fair value at the time of acquisition. Estimated fair values for acquired loans are based on a discounted cash flow methodology that considers various factors including the type of loan and related collateral, classification status, interest rate, term of loan, whether or not the loan was amortizing and a discount rate reflecting the Company's assessment of risk inherent in the cash flow estimates. Acquired loans are grouped together according to similar characteristics and treated in the aggregate when applying various valuation techniques.
 
First Financial evaluates acquired loans for impairment in accordance with the provisions of FASB ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. Acquired loans with evidence of credit deterioration since origination are accounted for under FASB ASC Topic 310-30 and are referred to as purchased impaired loans. 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.
 
Acquired loans outside of the scope of FASB ASC Topic 310-30 are accounted for under FASB ASC Topic 310-20, Receivables-Nonrefundable Fees and Costs. Discounts created when the loans were recorded at their estimated fair values at acquisition are amortized over the remaining term of the loan as an adjustment to the related loan's yield. The accrual of interest income is discontinued when the collection of a loan or interest, in whole or in part, is doubtful.

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.

Allowance for loan and lease losses. For each reporting period, management maintains the ALLL at a level that it considers sufficient to absorb probable incurred loan and lease losses inherent in the portfolio. Management determines the adequacy of the ALLL based on historical loss experience as well as other significant factors such as composition of the portfolio, economic conditions, geographic footprint, the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans and any other adverse situations that may affect a specific borrower's ability to repay, including the timing of future payments.
 
Management's determination of the adequacy of the ALLL is based on an assessment of the probable incurred loan and lease losses inherent in the portfolio given the conditions at the time. The ALLL is 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.
 
Commercial loan and lease relationships (including time and demand notes, tax-exempt loans, C&I, construction, commercial real estate, mezzanine loans and lease financing) 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.

The allowance for non-impaired commercial loans and leases, as well as impaired commercial loan and lease relationships less than $250,000 , includes a process of estimating the probable losses incurred in the portfolio by loan type, based on First Financial's internal system of credit risk ratings and historical loss data. These estimates may also be adjusted based upon trends in the values of the underlying collateral, delinquent and nonaccrual loans, prevailing economic conditions and changes in lending strategies, among 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 probable losses incurred 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

First Financial Bancorp 2017 Annual Report 49
Notes To Consolidated Financial Statements

and other significant influencing factors. Consumer loans greater than $250,000 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 recorded as provision expense during the period. The related, estimated reimbursement for loan losses due from the FDIC under loss sharing agreements, if applicable, is recorded as FDIC loss sharing income.

Reserve for unfunded commitments . First Financial maintains a reserve that it considers sufficient to absorb probable losses incurred in standby letters of credit and outstanding loan commitments. This reserve is included in Accrued interest and other liabilities on the Consolidated Balance Sheets, First Financial determines the adequacy of the reserve based upon an evaluation of the unfunded credit facilities, which includes consideration of historical commitment utilization experience, credit risk ratings and historical loss rates, consistent with the Company's ALLL methodology. 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 represents expected reimbursements from the FDIC for losses on covered assets. The FDIC indemnification asset 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. 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 ongoing assessment of the collectibility of the indemnification asset. The primary activities impacting the FDIC indemnification asset are FDIC claims, amortization, FDIC loss sharing income and accelerated discount.
 
In December 2017, First Financial entered into a preliminary agreement with the FDIC to early terminate the FDIC loss sharing agreements. See Note 5 for further discussion of the indemnification asset and the preliminary agreement to terminate the FDIC loss sharing agreements.

Premises and equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are principally computed on the straight-line method over the estimated useful lives of the assets. Useful lives generally range from 10 to 40 years for building and building improvements; 3 to 10 years for furniture, fixtures and equipment; and 3 to 5 years for software, hardware and data handling equipment. Land improvements are depreciated over 20 years and leasehold improvements are depreciated over the lesser of the term of the respective lease or the useful life of the asset. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Maintenance and repairs are expensed as incurred.
 
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 analyses to corroborate the use of the Company’s market capitalization as a proper indicator of fair value for purposes of the annual goodwill impairment test.

Core deposit intangibles. CDI represent the estimated value of acquired customer deposit relationships. CDI are recorded at fair value at the date of acquisition and are based on a discounted cash flow methodology that gives appropriate consideration to expected customer attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits. Core deposit intangibles are amortized on an accelerated basis over their estimated useful lives.

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Other real estate owned. OREO consists of properties acquired by the Company primarily through the loan foreclosure or repossession process, or other resolution activity that results in partial or total satisfaction of problem loans. OREO properties are recorded at fair value, less estimated disposal costs (net realizable value). Losses arising at the time of acquisition of such properties are charged against the ALLL. Management performs periodic valuations to assess the adequacy of recorded OREO balances and subsequent 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.
 
Affordable housing projects. First Financial has investment in certain qualified affordable housing projects. These projects are indirect federal subsidies that provide tax incentives to encourage investment in the development, acquisition and rehabilitation of affordable rental housing, and allow investors to claim tax credits and other tax benefits (such as deductions from taxable income for operating losses) on their federal income tax returns. The principal risk associated with qualified affordable housing investments is the potential for noncompliance with the tax code requirements, such as, failure to rent properties to qualified tenants, resulting in unavailability or recapture of the tax credits and other tax benefits. Investments in affordable housing projects are accounted for under the proportional amortization method and are included in Accrued interest and other assets in the Consolidated Balance Sheets.

Investments in historic tax credits. First Financial has noncontrolling financial investments in private investment funds and partnerships which are not consolidated. These investments may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. Investments in historic tax credits are accounted for under the equity method of accounting. The Company’s recorded investment in these entities is carried in Accrued interest and other assets on the Consolidated Balance Sheets.
 
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 as a component of noninterest expense in the Consolidated Statements of Income.
 
Pension. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. The measurement of the accrued benefit liability and the annual pension expense involves actuarial and economic assumptions, which include the discount rate, the expected return on plan assets and the rate of compensation increase.
 
Derivative instruments. First Financial accounts for its derivative financial instruments in accordance with FASB ASC Topic 815, Derivatives and Hedging. FASB ASC Topic 815 requires all derivative instruments to be carried at fair value on the balance sheet.

The accounting for changes in the fair value of derivatives is based on the intended use of the derivative and the resulting designation.  Derivatives used to hedge the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.  Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

Client derivatives - First Financial utilizes interest rate swaps as a means to offer commercial borrowers fixed rate funding while providing the Company with floating rate assets. Upon entering into an interest rate swap with a borrower, the Bank simultaneously enters into an offsetting swap agreement with an institutional counterparty, with substantially matching terms. These matched interest rate swap agreements generally involve the receipt by First Financial of floating rate amounts from the counterparties in exchange for payments to these counterparties by First Financial of fixed rate amounts received from commercial borrowers over the life of the agreements.

First Financial's matched interest rate swaps qualify as derivatives, but are not designated as hedging instruments. The net interest receivable or payable on matched interest rate swaps is accrued and recognized as an adjustment to interest income.  The fair values of back to back swaps are included within Accrued interest and other assets and Accrued interest and other liabilities on the Consolidated Balance Sheets.


First Financial Bancorp 2017 Annual Report 51
Notes To Consolidated Financial Statements

Credit derivatives - In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty. The fair value of these agreements is recorded 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 is recorded on the Consolidated Balance Sheets in Accrued interest and other assets.

Stock-based compensation. First Financial grants stock-based awards, including restricted stock awards and options to purchase the Company’s common stock. Stock option grants are for a fixed number of shares to employees and directors with an exercise price equal to the fair value of the shares at the date of grant. Stock-based compensation expense is recognized in the Consolidated Statements of Income on a straight-line basis over the vesting period. As compensation expense is recognized, a deferred tax asset is recorded that represents an estimate of the future tax deduction from exercise. At the time stock-based awards are exercised, canceled or expire, First Financial may be required to recognize an adjustment to tax expense.
 
Earnings per share. Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding, unvested shares and dilutive common stock equivalents outstanding during the period. Common stock equivalents, which consist of common stock issuable under the assumed exercise of stock options granted under First Financial's stock-based compensation plans and the assumed conversion of common stock warrants, are calculated using the treasury stock method.
 
Segments and related information. While the Company monitors the operating results of its four lines of business, operations are managed and financial performance is evaluated on a consolidated basis. Accordingly, and consistent with prior years, all of the Company's operations are considered by management to be aggregated in one reportable operating segment.

2. Recently Adopted and Issued Accounting Standards

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 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. The amended guidance does not apply to revenue associated with financial instruments, including loans and securities. As such management has evaluated revenue streams within noninterest income, specifically service charges on deposits and trust and wealth management fees, to assess applicability of this guidance, and anticipates adopting the amended guidance using a modified retrospective approach in the first quarter of 2018. First Financial does not anticipate that this update will impact Income before taxes or net income, however additional disclosures will be required upon adoption.

In January 2016, the FASB issued an update (ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities) which requires entities to measure many equity investments at fair value and recognize changes in fair value in net income. This update does not apply to equity investments that result in consolidation, those accounted for under the equity method and certain others, and will eliminate use of the available for sale classification for equity securities while providing a new measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient. The guidance in this ASU will become effective for

52 First Financial Bancorp 2017 Annual Report

interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In February 2016, the FASB issued an update (ASU 2016-02, Leases) which requires lessees to record most leases on their balance sheet and recognize leasing expenses in the income statement. Operating leases, except for short-term leases that are subject to an accounting policy election, will be recorded on the balance sheet for lessees by establishing a lease liability and corresponding right-of-use asset. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. Given operating leases outstanding as of December 31, 2017, First Financial does not expect this ASU to have a material impact on the income statement, but does anticipate an increase in the Company's assets and liabilities. Decisions to repurchase, modify or renew leases prior to the implementation date will impact this level of materiality.

In March 2016, the FASB issued an update (ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships) which clarifies that the novation of a derivative contract in a hedge accounting relationship does not, in and of itself, require de-designation of that hedge accounting relationship. In the event of a novation, hedge accounting relationships could continue if all other hedge accounting criteria are met, including the expectation that the hedge will be highly effective when the creditworthiness of the new counterparty to the derivative contract is considered. The guidance in this ASU became effective in the first quarter of 2017 and did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued an update (ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments) which clarifies that an assessment of whether an embedded contingent put or call option is clearly and closely related to the debt host requires only an analysis of the four-step decision sequence in FASB Topic ASC Topic 815, Derivatives and Hedging. Entities are required to apply the guidance to existing debt instruments (or hybrid financial instruments that are determined to have a debt host) using a modified retrospective transition method as of the period of adoption. The guidance in this ASU became effective in the first quarter of 2017 and did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued an update (ASU 2016-07, Investments-Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting) which eliminates the requirement to retrospectively apply the equity method when an investment that had been accounted for utilizing another method qualifies for use of the equity method. The guidance in this ASU became effective in the first quarter of 2017 and did not have a material impact on the Consolidated Financial Statements.

In March 2016, the FASB issued an update (ASU 2016-09, Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting) which requires recognition of the income tax effects of share-based awards in the income statement when the awards vest or are settled (i.e., Additional Paid-in-Capital pools will be eliminated). The guidance in this ASU became effective in the first quarter of 2017. Adoption of this guidance resulted in a $1.6 million reduction in income tax expense during 2017.

In June 2016, the FASB issued an update (ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments) which significantly changes how entities are required to measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. This update will replace the current incurred loss approach for estimating credit losses with an expected loss model for instruments measured at amortized cost, including loans and leases. Expected credit losses are required to be based on amortized cost and reflect losses expected over the remaining contractual life of the asset. Management is expected to consider any available information relevant to assessing the collectibility of contractual cash flows, such as information about past events, current conditions, voluntary prepayments and reasonable and supportable forecasts, when developing expected credit loss estimates.

In addition to the new framework for calculating the ALLL, this update requires allowances for available-for-sale debt securities rather than a reduction of the security's carrying amount under the current other-than-temporary impairment model. This update also simplifies the accounting model for purchased credit-impaired debt securities and loans and will require new and updated footnote disclosures.

The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted for all entities for interim and annual reporting periods beginning after December 15, 2018. First Financial has formed an internal committee that is currently evaluating the impact of this update on its Consolidated Financial Statements.

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Notes To Consolidated Financial Statements


In August 2016, the FASB issued an update (ASU 2016-15 Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments) which may change how an entity classifies certain cash receipts and cash payments on its statement of cash flows to reduce diversity in practice. The update also provides guidance on when an entity should separate cash flows and classify them into more than one class and when an entity should classify the aggregate of those cash flows into a single class based on the predominance principle. The guidance in this ASU will become effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In January 2017, the FASB issued an update (ASU 2017-01, Business Combinations (Topic 805), Clarifying the Definition of a Business) which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update also provides a more robust framework to use in determining when a set of assets and activities is a business. The guidance in this ASU will become effective for reporting periods beginning after December 15, 2017, and should be applied prospectively on or after the effective date, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In January 2017, the FASB issued an update (ASU 2017-04, Intangibles - Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment) which simplifies the subsequent measurement of goodwill by eliminating Step 2 from goodwill impairment testing. This update requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with any loss recognized not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, the update requires consideration of the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable, and eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. First Financial early adopted the provisions set forth in this update in 2017. Adoption of this update did not have a material impact on First Financial's Consolidated Financial Statements.

In March 2017, the FASB issued an update (ASU 2017-07, Compensation - Retirement Benefits (Topic 715), Improving the Presentation of the Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost) which requires disaggregation of the service cost component from the other components of net benefit cost. This update also provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. The guidance in this ASU will become effective for reporting periods beginning after December 15, 2017, with early adoption permitted. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements, but will result in updated disclosures.

In March 2017, the FASB issued an update (ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities) which amends the amortization period for certain purchased callable debt securities held at a premium and shortens the amortization period for the premium to the earliest call date rather than as an adjustment of yield over the contractual life of the instrument. This update more closely aligns the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities, as in most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon is below market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic best interest in an attempt to more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. The guidance in this ASU will become effective for reporting periods, beginning after December 15, 2018, with early adoption permitted. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.

In May 2017, the FASB issued an update (ASU 2017-09, Compensation - Stock Compensation (Topic 718), Scope of Modification Accounting), which provides clarity and reduces the diversity in practice, cost and complexity when accounting for a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718 clarifying that an entity will not apply modification accounting to a share-based payment award if the award's fair value (or calculated value or intrinsic value), vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. The guidance in this ASU will become effective for reporting periods beginning after December 15, 2017, with early adoption permitted and will be applied prospectively to an award

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modified on or after the adoption date. First Financial does not anticipate this update will have a material impact on its Consolidated Financial Statements.

In August 2017, the FASB issued an update (ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities) to better align financial reporting for hedging activities with the economic objectives of those activities. This update aligns certain aspects of hedge documentation, effectiveness assessments, accounting and disclosures, and expands permissible hedge strategies as of the date of adoption. The guidance in this ASU will become effective for reporting periods beginning after December 15, 2018, with early adoption permitted, and will require a modified retrospective transition method with recognition of the cumulative effect of the change on the opening balance of each affected component of equity. Amended disclosures will be required prospectively. First Financial is currently evaluating the impact of this update on its Consolidated Financial Statements.
In February 2018, the FASB issued an update (ASU 2018-02, Income statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminated the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. The amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not effected. The amendments in this update also require certain disclosures about stranded tax effects. The guidance in this ASU will become effective for reporting periods beginning after December 15, 2018, with early adoption permitted, and will be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. As a result of the guidance in this ASU, First Financial anticipates reclassifying $4.9 million from accumulated other comprehensive income to retained earnings during the first quarter of 2018.
3. Restrictions On Cash And Dividends

First Financial is required by the FRB to hold cash in reserve against deposit liabilities when total reservable deposit liabilities exceed the regulatory exemption known as the reserve requirement. The reserve requirement is calculated based on a two-week average of daily net transaction account deposits as defined by the FRB and may be satisfied with average vault cash during the following two-week maintenance period. When vault cash is not sufficient to meet the reserve requirement, the remaining amount must be satisfied with average funds held at the FRB. First Financial's deposit at the FRB is recorded in Interest-bearing deposits with other banks on the Consolidated Balance Sheets. The average required reserve balances, based upon the average level of First Financial's transaction deposits were $66.7 million and $58.9 million for 2017 and 2016 , 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 the Bank to transfer funds to First Financial in the form of cash dividends, loans or advances. The approval of the Federal Reserve Board and the Ohio Division of Financial Institutions is required for the Bank to pay dividends in excess of the regulatory limit, which is equal to the net income of the current year through the dividend date, combined with the Bank's retained net income from the two preceding years. As of December 31, 2017 , First Financial's subsidiaries had retained earnings of $546.5 million , of which $163.1 million was available for distribution to First Financial without prior regulatory approval.


First Financial Bancorp 2017 Annual Report 55
Notes To Consolidated Financial Statements

4. Investment Securities

The following is a summary of held-to-maturity and available-for-sale investment securities as of December 31, 2017 :
   
 
Held-to-maturity
 
Available-for-sale
(Dollars in thousands)
 
Amortized
cost
 
Unrecognized
gain
 
Unrecognized
loss
 
Fair
value
 
Amortized
cost
 
Unrealized
gain
 
Unrealized
loss
 
Fair
value
U.S. Treasuries
 
$
0

 
$
0

 
$
0

 
$
0

 
$
98

 
$
0

 
$
(1
)
 
$
97

Securities of U.S. government agencies and corporations
 
11,168

 
0

 
(76
)
 
11,092

 
15,695

 
220

 
0

 
15,915

Mortgage-backed securities - residential
 
162,093

 
2,042

 
(1,535
)
 
162,600

 
290,793

 
849

 
(2,599
)
 
289,043

Mortgage-backed securities - commercial
 
255,027

 
1,372

 
(3,000
)
 
253,399

 
150,356

 
164

 
(1,417
)
 
149,103

Collateralized mortgage obligations
 
143,545

 
354

 
(1,602
)
 
142,297

 
306,095

 
1,158

 
(1,861
)
 
305,392

Obligations of state and other political subdivisions
 
82,175

 
1,804

 
(266
)
 
83,713

 
124,269

 
2,162

 
(676
)
 
125,755

Asset-backed securities
 
0

 
0

 
0

 
0

 
377,655

 
1,628

 
(306
)
 
378,977

Other securities
 
0

 
0

 
0

 
0

 
83,266

 
2,147

 
(287
)
 
85,126

Total
 
$
654,008

 
$
5,572

 
$
(6,479
)
 
$
653,101

 
$
1,348,227

 
$
8,328

 
$
(7,147
)
 
$
1,349,408


The following is a summary of held-to-maturity and available-for-sale investment securities as of December 31, 2016 :
   
 
Held-to-maturity
 
Available-for-sale
(Dollars in thousands)
 
Amortized
cost
 
Unrecognized
gain
 
Unrecognized
loss
 
Fair
value
 
Amortized
cost
 
Unrealized
gain
 
Unrealized
loss
 
Fair
value
U.S. Treasuries
 
$
0

 
$
0

 
$
0

 
$
0

 
$
98

 
$
0

 
$
(1
)
 
$
97

Securities of U.S. government agencies and corporations
 
13,011

 
0

 
(110
)
 
12,901

 
7,056

 
0

 
(40
)
 
7,016

Mortgage-backed securities - residential
 
205,522

 
1,740

 
(1,166
)
 
206,096

 
184,960

 
1,175

 
(2,740
)
 
183,395

Mortgage-backed securities - commercial
 
278,728

 
3,254

 
(1,817
)
 
280,165

 
154,239

 
188

 
(826
)
 
153,601

Collateralized mortgage obligations
 
195,408

 
1,125

 
(1,476
)
 
195,057

 
232,701

 
634

 
(2,321
)
 
231,014

Obligations of state and other political subdivisions
 
70,585

 
117

 
(1,346
)
 
69,356

 
96,934

 
1,461

 
(1,514
)
 
96,881

Asset-backed securities
 
0

 
0

 
0

 
0

 
322,708

 
517

 
(2,013
)
 
321,212

Other securities
 
0

 
0

 
0

 
0

 
46,641

 
741

 
(728
)
 
46,654

Total
 
$
763,254

 
$
6,236

 
$
(5,915
)
 
$
763,575

 
$
1,045,337

 
$
4,716

 
$
(10,183
)
 
$
1,039,870


During the year ended December 31, 2017 , proceeds on the sale of $190.0 million of available-for-sale securities resulted in gains of $1.8 million and losses of $0.2 million . During the year ended December 31, 2016 , proceeds on the sale of $207.0 million of available-for-sale securities resulted in gains of $1.2 million and losses of $1.0 million . During the year ended December 31, 2015 , proceeds on the sale of $70.2 million of available-for-sale securities resulted in gains of $1.5 million and losses of $1 thousand .

The carrying value of investment securities pledged as collateral to secure public deposits, repurchase agreements and for other purposes as required by law totaled $819.4 million at December 31, 2017 and $1.0 billion at December 31, 2016 .


56 First Financial Bancorp 2017 Annual Report

The following table provides a summary of investment securities by contractual maturity as of December 31, 2017 , except for residential and commercial mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, which are shown as single totals, due to the unpredictability of the timing in principal repayments:

 
Held-to-maturity
 
Available-for-sale
(Dollars in thousands)
Amortized
cost
 
Fair
value
 
Amortized
cost
 
Fair
value
Due in one year or less
$
165

 
$
165

 
$
2,422

 
$
2,423

Due after one year through five years
4,492

 
4,494

 
37,064

 
37,149

Due after five years through ten years
2,500

 
2,723

 
82,404

 
84,168

Due after ten years
86,186

 
87,423

 
101,438

 
103,153

Mortgage-backed securities - residential
162,093

 
162,600

 
290,793

 
289,043

Mortgage-backed securities - commercial
255,027

 
253,399

 
150,356

 
149,103

Collateralized mortgage obligations
143,545

 
142,297

 
306,095

 
305,392

Asset-backed securities
0

 
0

 
377,655

 
378,977

Total
$
654,008

 
$
653,101

 
$
1,348,227

 
$
1,349,408


Unrealized gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost.  All securities with unrealized losses are reviewed quarterly to determine if any impairment 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, 2017 or 2016 .

As of December 31, 2017 , the Company's investment securities portfolio consisted of 775 securities, of which 237 securities were in an unrealized loss position. As of December 31, 2016, the Company's investment securities portfolio consisted of 706 securities, of which 255 were in an unrealized loss position.

The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position, aggregated by investment category and the length of time the individual securities have been in a continuous loss position:
 
 
December 31, 2017
 
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in thousands)
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
U.S. Treasuries
 
$
97

 
$
(1
)
 
$
0

 
$
0

 
$
97

 
$
(1
)
Securities of U.S. government agencies and corporations
 
11,092

 
(76
)
 
0

 
0

 
11,092

 
(76
)
Mortgage-backed securities - residential
 
175,183

 
(1,109
)
 
108,782

 
(3,025
)
 
283,965

 
(4,134
)
Mortgage-backed securities - commercial
 
132,818

 
(1,713
)
 
72,139

 
(2,704
)
 
204,957

 
(4,417
)
Collateralized mortgage obligations
 
164,909

 
(1,138
)
 
101,436

 
(2,325
)
 
266,345

 
(3,463
)
Obligations of state and other political subdivisions
 
38,450

 
(507
)
 
21,639

 
(435
)
 
60,089

 
(942
)
Asset-backed securities
 
44,941

 
(200
)
 
24,396

 
(106
)
 
69,337

 
(306
)
Other securities
 
2,605

 
(1
)
 
7,124

 
(286
)
 
9,729

 
(287
)
Total
 
$
570,095

 
$
(4,745
)
 
$
335,516

 
$
(8,881
)
 
$
905,611

 
$
(13,626
)


First Financial Bancorp 2017 Annual Report 57
Notes To Consolidated Financial Statements

 
 
December 31, 2016
 
 
Less than 12 months
 
12 months or more
 
Total
(Dollars in thousands)
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
 
Fair
value
 
Unrealized
loss
U.S. Treasuries
 
$
97

 
$
(1
)
 
$
0

 
$
0

 
$
97

 
$
(1
)
Securities of U.S. Government agencies and corporations
 
19,917

 
(150
)
 
0

 
0

 
19,917

 
(150
)
Mortgage-backed securities - residential
 
180,654

 
(3,621
)
 
9,890

 
(285
)
 
190,544

 
(3,906
)
Mortgage-backed securities - commercial
 
123,122

 
(1,200
)
 
65,007

 
(1,443
)
 
188,129

 
(2,643
)
Collateralized mortgage obligations
 
201,305

 
(2,882
)
 
42,314

 
(915
)
 
243,619

 
(3,797
)
Obligations of state and other political subdivisions
 
94,632

 
(2,710
)
 
12,023

 
(150
)
 
106,655

 
(2,860
)
Asset-backed securities
 
116,057

 
(764
)
 
92,629

 
(1,249
)
 
208,686

 
(2,013
)
Other securities
 
7,746

 
(237
)
 
21,357

 
(491
)
 
29,103

 
(728
)
Total
 
$
743,530

 
$
(11,565
)
 
$
243,220

 
$
(4,533
)
 
$
986,750

 
$
(16,098
)

For further detail on the fair value of investment securities, see Note 20 – Fair Value Disclosures.

5. Loans and Leases

First Financial offers clients a variety of commercial and consumer loan and lease products with various interest rates and payment terms. Commercial loan categories include commercial and industrial, commercial real estate, construction real estate and lease financing. Consumer loan categories include residential real estate, home equity, installment and credit card.

Lending activities are primarily concentrated in states where the Bank operates banking centers (Ohio, Indiana and Kentucky). First Financial also offers two nationwide lending platforms, one that provides equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and another that provides loans primarily to insurance agents and brokers that are secured by commissions and cash collateral accounts.

Credit quality. To facilitate the monitoring of credit quality for commercial loans, and for purposes of determining an appropriate ALLL, First Financial utilizes the following categories of credit grades:

Pass - Higher quality loans that do not fit any of the other categories described below.

Special Mention - First Financial assigns a special mention rating to loans and leases with potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or lease or in First Financial's credit position at some future date.

Substandard - First Financial assigns a substandard rating to loans or leases that are inadequately protected by the current sound financial worth and paying capacity of the borrower or the collateral pledged, if any. Substandard loans and leases have well-defined weaknesses that jeopardize repayment of the debt. Substandard loans and leases are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not addressed.

Doubtful - First Financial assigns a doubtful rating to loans and leases with all of the attributes of a substandard rating with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the credit quality of the loan or lease, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition or liquidation procedures, capital injection, perfecting liens on additional collateral and refinancing plans.


58 First Financial Bancorp 2017 Annual Report

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. Purchased impaired loans are not classified as nonperforming as the loans are considered to be performing under FASB ASC Topic 310-30.

Commercial and consumer credit exposure by risk attribute was as follows:

 
 
As of December 31, 2017
 
 
 
 
Real Estate
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Construction
 
Commercial
 
Lease
financing
 
Total
Pass
 
$
1,882,464

 
$
467,687

 
$
2,446,999

 
$
88,078

 
$
4,885,228

Special Mention
 
6,226

 
0

 
4,436

 
0

 
10,662

Substandard
 
24,053

 
43

 
38,656

 
1,269

 
64,021

Doubtful
 
0

 
0

 
0

 
0

 
0

Total
 
$
1,912,743

 
$
467,730

 
$
2,490,091

 
$
89,347

 
$
4,959,911

 
 
Residential
real estate
 
Home Equity
 
Installment
 
Credit card
 
Total
Performing
 
$
463,459

 
$
489,148

 
$
41,331

 
$
46,691

 
$
1,040,629

Nonperforming
 
7,932

 
4,456

 
255

 
0

 
12,643

Total
 
$
471,391

 
$
493,604

 
$
41,586

 
$
46,691

 
$
1,053,272


 
 
As of December 31, 2016
 
 
 
 
Real Estate
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Construction
 
Commercial
 
Lease
financing
 
Total
Pass
 
$
1,725,451

 
$
398,155

 
$
2,349,662

 
$
92,540

 
$
4,565,808

Special Mention
 
18,256

 
1,258

 
15,584

 
108

 
35,206

Substandard
 
38,241

 
21

 
62,331

 
460

 
101,053

Doubtful
 
0

 
0

 
0

 
0

 
0

Total
 
$
1,781,948

 
$
399,434

 
$
2,427,577

 
$
93,108

 
$
4,702,067


 
 
Residential
real estate
 
Home equity
 
Installment
 
Credit card
 
Total
Performing
 
$
491,380

 
$
456,314

 
$
50,202

 
$
43,408

 
$
1,041,304

Nonperforming
 
9,600

 
4,074

 
437

 
0

 
14,111

Total
 
$
500,980

 
$
460,388

 
$
50,639

 
$
43,408

 
$
1,055,415



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 2017 Annual Report 59
Notes To Consolidated Financial Statements

Loan delinquency, including nonaccrual loans, was as follows:
 
 
As of December 31, 2017
(Dollars in thousands)
 
30 – 59
days
past due
 
60 – 89
days
past due
 
> 90 days
past due
 
Total
past
due
 
Current
 
Subtotal
 
Purchased impaired
 
Total
 
> 90 days
past due
and still
accruing
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
755

 
$
1,657

 
$
5,078

 
$
7,490

 
$
1,901,821

 
$
1,909,311

 
$
3,432

 
$
1,912,743

 
$
0

Lease financing
 
485

 
0

 
0

 
485

 
88,862

 
89,347

 
0

 
89,347

 
0

Construction real estate
 
234

 
0

 
0

 
234

 
467,216

 
467,450

 
280

 
467,730

 
0

Commercial real estate
 
1,716

 
201

 
8,777

 
10,694

 
2,419,969

 
2,430,663

 
59,428

 
2,490,091

 
0

Residential real estate
 
526

 
811

 
1,992

 
3,329

 
430,500

 
433,829

 
37,562

 
471,391

 
0

Home equity
 
2,716

 
394

 
1,753

 
4,863

 
485,127

 
489,990

 
3,614

 
493,604

 
0

Installment
 
179

 
29

 
205

 
413

 
40,529

 
40,942

 
644

 
41,586

 
0

Credit card
 
285

 
87

 
62

 
434

 
46,257

 
46,691

 
0

 
46,691

 
62

Total
 
$
6,896

 
$
3,179

 
$
17,867

 
$
27,942

 
$
5,880,281

 
$
5,908,223

 
$
104,960

 
$
6,013,183

 
$
62


 
 
As of December 31, 2016
(Dollars in thousands)
 
30 - 59
days
past due
 
60 - 89
days
past due
 
> 90 days
past due
 
Total
past
due
 
Current
 
Subtotal
 
Purchased impaired
 
Total
 
> 90 days
past due and still accruing
Loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
1,257

 
$
208

 
$
1,339

 
$
2,804

 
$
1,773,939

 
$
1,776,743

 
$
5,205

 
$
1,781,948

 
$
0

Lease financing
 
137

 
0

 
115

 
252

 
92,856

 
93,108

 
0

 
93,108

 
0

Construction real estate
 
0

 
0

 
0

 
0

 
398,877

 
398,877

 
557

 
399,434

 
0

Commercial real estate
 
777

 
134

 
5,589

 
6,500

 
2,339,327

 
2,345,827

 
81,750

 
2,427,577

 
2,729

Residential real estate
 
821

 
37

 
2,381

 
3,239

 
450,631

 
453,870

 
47,110

 
500,980

 
0

Home equity
 
195

 
145

 
1,776

 
2,116

 
456,143

 
458,259

 
2,129

 
460,388

 
0

Installment
 
24

 
1

 
258

 
283

 
49,058

 
49,341

 
1,298

 
50,639

 
0

Credit card
 
457

 
177

 
142

 
776

 
42,632

 
43,408

 
0

 
43,408

 
142

Total
 
$
3,668

 
$
702

 
$
11,600

 
$
15,970

 
$
5,603,463

 
$
5,619,433

 
$
138,049

 
$
5,757,482

 
$
2,871


Nonaccrual. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan classified as nonaccrual may return to accrual status if collection of future principal and interest payments is no longer doubtful.

Purchased impaired loans are classified as performing, even though they may be contractually past due, as any nonpayment of contractual principal or interest is considered in the periodic re-estimation of expected cash flows and is included in the resulting recognition of current period provision for loan and lease losses or prospective yield adjustments.

Troubled debt restructurings. A loan modification is considered a TDR when the borrower is experiencing financial difficulty and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. The most common types of modifications include interest rate reductions, maturity extensions and modifications to principal amortization, including interest-only structures. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is managed by the Company’s credit administration group for resolution, which may result in foreclosure in the case of real estate.


60 First Financial Bancorp 2017 Annual Report

TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement.

First Financial had 214 TDRs totaling $23.9 million at December 31, 2017 , including $17.5 million of loans on accrual status and $6.4 million of loans classified as nonaccrual. First Financial had an insignificant amount of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs, and the ALLL included reserves of $1.3 million related to TDRs as of December 31, 2017 . For the years ended December 31, 2017 , 2016 and 2015 , First Financial charged off $0.3 million , $0.5 million and $2.7 million , respectively, for the portion of TDRs determined to be uncollectible. Additionally, as of December 31, 2017 , approximately $17.2 million of the accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 247 TDRs totaling $35.4 million at December 31, 2016 , including $30.2 million of loans on accrual status and $5.1 million of loans classified as nonaccrual. First Financial had $0.9 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs. At December 31, 2016 the ALLL included reserves of $1.9 million related to TDRs, and $22.6 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.

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 had $1.8 million of commitments outstanding to lend additional funds to borrowers whose loan terms have been modified through TDRs. At December 31, 2015 , the ALLL included reserves of $6.3 million related to TDRs, and $10.3 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year.

The following table provides information on loan modifications classified as TDRs during the years ended December 31, 2017 , 2016 and 2015 :
 
Years ended December 31,
 
2017
 
2016
 
2015
(Dollars in thousands)
Number of loans
 
Pre-modification loan balance
 
Period end balance
 
Number of loans
 
Pre-modification loan balance
 
Period end balance
 
Number of loans
 
Pre-modification loan balance
 
Period end balance
Commercial and industrial
7

 
$
5,724

 
$
5,661

 
18
 
$
3,402

 
$
3,508

 
33
 
$
9,035

 
$
8,203

Construction
real estate
0

 
0

 
0

 
0
 
0

 
0

 
0
 
0

 
0

Commercial
real estate
8

 
1,816

 
1,758

 
16
 
5,200

 
4,752

 
18
 
20,249

 
16,474

Residential
real estate
6

 
416

 
315

 
5
 
840

 
787

 
10
 
1,292

 
1,238

Home equity
1

 
39

 
39

 
5
 
165

 
156

 
25
 
2,859

 
2,221

Installment
0

 
0

 
0

 
3
 
9

 
9

 
10
 
97

 
97

Total
22

 
$
7,995

 
$
7,773

 
47

 
$
9,616

 
$
9,212

 
96

 
$
33,532

 
$
28,233

 
The following table provides information on how TDRs were modified during the years ended December 31, 2017 , 2016 and 2015 :
 
Years Ended December 31,
(Dollars in thousands)
2017
 
2016
 
2015
Extended maturities
$
3,261

 
$
2,571

 
$
12,883

Adjusted interest rates
2,767
 
0
 
0
Combination of rate and maturity changes
489
 
3,046

 
1,244

Forbearance
1,181
 
88

 
260

Other (1)
75
 
3,507

 
13,846

Total
$
7,773

 
$
9,212

 
$
28,233

(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 Bancorp 2017 Annual Report 61
Notes To Consolidated Financial Statements

First Financial considers repayment performance as an indication of the effectiveness of the Company's loan modifications. Borrowers that are 90 days or more past due on any principal or interest payments, or who prematurely terminate a restructured loan agreement without paying off the contractual principal balance (for example, in a deed-in-lieu arrangement), are considered to be in payment default of the terms of the TDR agreement.

For the twelve months ended December 31, 2017 , 2016 and 2015 , there were one , four and ten TDRs, respectively, with balances of $1.5 million , $0.3 million and $1.6 million , respectively, for which there was a payment default during the period that occurred within twelve months of the loan modification.
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired loans. Loans classified as nonaccrual and loans modified as TDRs are considered impaired. The following table provides information on impaired loans, excluding purchased impaired loans, as of December 31:

(Dollars in thousands)
 
2017
 
2016
 
2015
Impaired loans
 
 
 
 
 
 
Nonaccrual loans (1)
 
 
 
 
 
 
Commercial and industrial
 
$
5,229

 
$
2,419

 
$
8,405

Lease financing
 
82

 
195

 
122

Construction real estate
 
29

 
0

 
0

Commercial real estate
 
10,616

 
6,098

 
9,418

Residential real estate
 
4,140

 
5,251

 
5,027

Home equity
 
3,743

 
3,400

 
4,898

Installment
 
243

 
367

 
127

Total nonaccrual loans
 
24,082

 
17,730

 
27,997

Accruing troubled debt restructurings
 
17,545

 
30,240

 
28,876

Total impaired loans
 
$
41,627

 
$
47,970

 
$
56,873

 
 
 
 
 
 
 
Interest income effect
 
 
 
 
 
 
Gross amount of interest that would have been recorded under original terms
 
$
3,397

 
$
2,848

 
$
3,595

Interest included in income
 
 
 
 
 
 
Nonaccrual loans
 
535

 
375

 
475

Troubled debt restructurings
 
710

 
876

 
682

Total interest included in income
 
1,245

 
1,251

 
1,157

Net impact on interest income
 
$
2,152

 
$
1,597

 
$
2,438

 
 
 
 
 
 
 
Commitments outstanding to borrowers with nonaccrual loans
 
$
0

 
$
0

 
$
1

(1) Nonaccrual loans include nonaccrual TDRs of $6.4 million , $5.1 million and $9.3 million as of December 31, 2017 , 2016 and 2015 , respectively.

First Financial individually reviews all impaired commercial loan relationships greater than $250,000 , as well as consumer loan TDRs greater than $250,000 , to determine if a specific allowance is necessary based on the borrower’s overall financial condition, resources, and payment record, support from guarantors and the realizable value of any collateral. Specific allowances are based on discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.


62 First Financial Bancorp 2017 Annual Report

First Financial's investment in impaired loans, excluding purchased impaired loans, is as follows:
 
 
December 31, 2017
 
December 31, 2016
(Dollars in thousands)
 
Current balance
 
Contractual
principal
balance
 
Related
allowance
 
Current balance
 
Contractual
principal
balance
 
Related
allowance
Loans with no related allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
7,162

 
$
8,460

 
$
0

 
$
12,134

 
$
12,713

 
$
0

Lease financing
 
82

 
82

 
0

 
195

 
195

 
0

Construction real estate
 
29

 
60

 
0

 
0

 
0

 
0

Commercial real estate
 
18,423

 
20,837

 
0

 
12,232

 
14,632

 
0

Residential real estate
 
6,876

 
8,145

 
0

 
8,412

 
9,648

 
0

Home equity
 
4,356

 
5,399

 
0

 
3,973

 
5,501

 
0

Installment
 
255

 
422

 
0

 
437

 
603

 
0

Total
 
37,183

 
43,405

 
0

 
37,383

 
43,292

 
0

 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded
 
 
 
 
 
 
 
 
Commercial and industrial
 
169

 
169

 
169

 
1,069

 
1,071

 
550

Lease financing
 
0

 
0

 
0

 
0

 
0

 
0

Construction real estate
 
0

 
0

 
0

 
0

 
0

 
0

Commercial real estate
 
3,119

 
3,120

 
448

 
8,228

 
8,277

 
593

Residential real estate
 
1,056

 
1,063

 
160

 
1,189

 
1,189

 
179

Home equity
 
100

 
100

 
2

 
101

 
101

 
2

Installment
 
0

 
0

 
0

 
0

 
0

 
0

Total
 
4,444

 
4,452

 
779

 
10,587

 
10,638

 
1,324

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 

 
 

 
 

 
 
 
 
 
 
Commercial and industrial
 
7,331

 
8,629

 
169

 
13,203

 
13,784

 
550

Lease financing
 
82

 
82

 
0

 
195

 
195

 
0

Construction real estate
 
29

 
60

 
0

 
0

 
0

 
0

Commercial real estate
 
21,542

 
23,957

 
448

 
20,460

 
22,909

 
593

Residential real estate
 
7,932

 
9,208

 
160

 
9,601

 
10,837

 
179

Home equity
 
4,456

 
5,499

 
2

 
4,074

 
5,602

 
2

Installment
 
255

 
422

 
0

 
437

 
603

 
0

Total
 
$
41,627

 
$
47,857

 
$
779

 
$
47,970

 
$
53,930

 
$
1,324



First Financial Bancorp 2017 Annual Report 63
Notes To Consolidated Financial Statements

 
 
Years ended December 31,
 
 
2017
 
2016
 
2015
(Dollars in thousands)
 
Average
balance
 
Interest
income
recognized
 
Average
balance
 
Interest
income
recognized
 
Average
balance
 
Interest
income
recognized
Loans with no related allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
$
13,167

 
$
280

 
$
13,619

 
$
309

 
$
10,468

 
$
258

Lease financing
 
112

 
4

 
150

 
3

 
24

 
0

Construction real estate
 
601

 
1

 
0

 
0

 
150

 
0

Commercial real estate
 
20,935

 
563

 
14,252

 
357

 
19,363

 
344

Residential real estate
 
7,616

 
196

 
7,752

 
199

 
8,143

 
184

Home equity
 
4,032

 
99

 
4,830

 
86

 
5,648

 
82

Installment
 
332

 
4

 
366

 
7

 
380

 
7

Total
 
46,795

 
1,147

 
40,969

 
961

 
44,176

 
875

 
 
 
 
 
 
 
 
 
 
 
 
 
Loans with an allowance recorded
 
 
 
 
 
 
 
 
 
 
Commercial and industrial
 
1,204

 
28

 
1,098

 
37

 
1,409

 
26

Lease financing
 
0

 
0

 
214

 
8

 
0

 
0

Construction real estate
 
0

 
0

 
0

 
0

 
0

 
0

Commercial real estate
 
2,634

 
40

 
7,792

 
211

 
12,928

 
213

Residential real estate
 
1,112

 
26

 
1,374

 
30

 
1,696

 
40

Home equity
 
101

 
4

 
101

 
4

 
101

 
3

Installment
 
0

 
0

 
0

 
0

 
0

 
0

Total
 
5,051

 
98

 
10,579

 
290

 
16,134

 
282

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 

 
 

 
 

 
 

 
 

 
 

Commercial and industrial
 
14,371

 
308

 
14,717

 
346

 
11,877

 
284

Lease financing
 
112

 
4

 
364

 
11

 
24

 
0

Construction real estate
 
601

 
1

 
0

 
0

 
150

 
0

Commercial real estate
 
23,569

 
603

 
22,044

 
568

 
32,291

 
557

Residential real estate
 
8,728

 
222

 
9,126

 
229

 
9,839

 
224

Home equity
 
4,133

 
103

 
4,931

 
90

 
5,749

 
85

Installment
 
332

 
4

 
366

 
7

 
380

 
7

Total
 
$
51,846

 
$
1,245

 
$
51,548

 
$
1,251

 
$
60,310

 
$
1,157




64 First Financial Bancorp 2017 Annual Report


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)
 
2017
 
2016
 
2015
Balance at beginning of year
 
$
6,284

 
$
13,254

 
$
22,674

Additions
 
 
 
 
 
 
Commercial
 
1,732

 
1,850

 
5,187

Residential
 
2,387

 
1,022

 
3,211

Total additions
 
4,119

 
2,872

 
8,398

Disposals
 
 

 
 

 
 
Commercial
 
(5,409
)
 
(6,993
)
 
(12,722
)
Residential
 
(1,574
)
 
(2,363
)
 
(3,095
)
Total disposals
 
(6,983
)
 
(9,356
)
 
(15,817
)
Valuation adjustments
 
 

 
 

 
 
Commercial
 
(439
)
 
(345
)
 
(1,617
)
Residential
 
(200
)
 
(141
)
 
(384
)
Total valuation adjustments
 
(639
)
 
(486
)
 
(2,001
)
Balance at end of year
 
$
2,781

 
$
6,284

 
$
13,254


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 represents expected reimbursements from the FDIC for losses on covered assets. First Financial's FDIC indemnification asset balance was $1.9 million and $12.0 million as of December 31, 2017 and 2016 , respectively.

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.

In December 2017, First Financial reached a preliminary agreement with the FDIC to early terminate its loss sharing agreements. As such, First Financial recorded a $5.1 million impairment charge to its indemnification asset as a component of noninterest expense as all future recoveries, gains, losses and expenses related to these previously covered assets will now be recognized entirely by First Financial given the FDIC will no longer share in such gains or losses.

6. Allowance for Loan and Lease Losses

Loans and leases. Management maintains the ALLL at a level that it considers sufficient to absorb probable incurred loan and lease losses inherent in the portfolio. Management determines the adequacy of the ALLL based on historical loss experience as well as other significant factors such as composition of the portfolio, economic conditions, geographic footprint, the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans and any other adverse situations that may affect a specific borrower's ability to repay, including the timing of future payments. For further discussion of First Financial's allowance methodology, see Note 1 – Summary of Significant Accounting Policies.

The ALLL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect the principal amount owed in full, either through payments from the borrower, or from the liquidation of collateral.

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.


First Financial Bancorp 2017 Annual Report 65
Notes To Consolidated Financial Statements

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. For further detail regarding accounting for purchased impaired loans and the related allowance, see Note 1 – Summary of Significant Accounting Policies.

Changes in the ALLL for the three years ended December 31 were as follows:
(Dollars in thousands)
 
2017
 
2016
 
2015
Changes in the ALLL, excluding covered/formerly covered loans
 
 
Balance at beginning of year
 
$
49,422

 
$
43,149

 
$
42,820

Provision for loan and lease losses
 
8,038

 
9,322

 
7,926

Loans charged-off
 
(12,712
)
 
(6,652
)
 
(11,660
)
Recoveries
 
4,124

 
3,603

 
4,063

Balance at end of year
 
$
48,872

 
$
49,422

 
$
43,149

 
 
 
 
 
 
 
Changes in the ALLL for covered/formerly covered loans
 
 
 
 
Balance at beginning of year
 
$
8,539

 
$
10,249

 
$
10,038

Provision for loan and lease losses
 
(4,456
)
 
818

 
1,715

Loans charged-off
 
(951
)
 
(4,462
)
 
(8,896
)
Recoveries
 
2,017

 
1,934

 
7,392

Balance at end of year
 
$
5,149

 
$
8,539

 
$
10,249

 
 
 
 
 
 
 
Total changes in the ALLL
 
 
 
 
 
Balance at beginning of year
 
$
57,961

 
$
53,398

 
$
52,858

Provision for loan and lease losses
 
3,582

 
10,140

 
9,641

Loans charged-off
 
(13,663
)
 
(11,114
)
 
(20,556
)
Recoveries
 
6,141

 
5,537

 
11,455

Balance at end of year
 
$
54,021

 
$
57,961

 
$
53,398


Changes in the ALLL by loan category as of December 31 were as follows:
   
 
2017
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Lease financing
 
Construction
 
Commercial
 
Residential
 
Home Equity
 
Installment
 
Credit card
 
Total
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
$
19,225

 
$
716

 
$
3,282

 
$
26,540

 
$
3,208

 
$
3,043

 
$
388

 
$
1,559

 
$
57,961

Provision for loan and lease losses
 
6,917

 
(42
)
 
207

 
(7,291
)
 
1,695

 
1,778

 
(90
)
 
408

 
3,582

Gross charge-offs
 
(10,194
)
 
0

 
(1
)
 
(1,038
)
 
(435
)
 
(913
)
 
(225
)
 
(857
)
 
(13,663
)
Recoveries
 
1,650

 
1

 
89

 
2,719

 
215

 
1,027

 
234

 
206

 
6,141

Total net charge-offs
 
(8,544
)
 
1

 
88

 
1,681

 
(220
)
 
114

 
9

 
(651
)
 
(7,522
)
Ending allowance for loan and lease losses
 
$
17,598

 
$
675

 
$
3,577

 
$
20,930

 
$
4,683

 
$
4,935

 
$
307

 
$
1,316

 
$
54,021



66 First Financial Bancorp 2017 Annual Report

 
 
2016
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Lease financing
 
Construction
 
Commercial
 
Residential
 
Home Equity
 
Installment
 
Credit card
 
Total
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
$
16,995

 
$
821

 
$
1,810

 
$
23,656

 
$
4,014

 
$
3,943

 
$
386

 
$
1,773

 
$
53,398

Provision for loan and lease losses
 
3,705

 
(106
)
 
1,280

 
5,365

 
(655
)
 
(175
)
 
53

 
673

 
10,140

Gross charge-offs
 
(2,630
)
 
0

 
(93
)
 
(4,983
)
 
(387
)
 
(1,445
)
 
(386
)
 
(1,190
)
 
(11,114
)
Recoveries
 
1,155

 
1

 
285

 
2,502

 
236

 
720

 
335

 
303

 
5,537

Total net charge-offs
 
(1,475
)
 
1

 
192

 
(2,481
)
 
(151
)
 
(725
)
 
(51
)
 
(887
)
 
(5,577
)
Ending allowance for loan and lease losses
 
$
19,225

 
$
716

 
$
3,282

 
$
26,540

 
$
3,208

 
$
3,043

 
$
388

 
$
1,559

 
$
57,961


 
 
2015
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Lease financing
 
Construction
 
Commercial
 
Residential
 
Home Equity
 
Installment
 
Credit card
 
Total
Allowance for loan and lease losses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of year
 
$
13,870

 
$
435

 
$
1,045

 
$
27,086

 
$
3,753

 
$
4,260

 
$
407

 
$
2,002

 
$
52,858

Provision for loan and lease losses
 
4,809

 
384

 
597

 
1,439

 
1,234

 
573

 
25

 
580

 
9,641

Gross charge-offs
 
(5,408
)
 
0

 
(85
)
 
(10,083
)
 
(1,531
)
 
(1,891
)
 
(509
)
 
(1,049
)
 
(20,556
)
Recoveries
 
3,724

 
2

 
253

 
5,214

 
558

 
1,001

 
463

 
240

 
11,455

Total net charge-offs
 
(1,684
)
 
2

 
168

 
(4,869
)
 
(973
)
 
(890
)
 
(46
)
 
(809
)
 
(9,101
)
Ending allowance for loan and lease losses
 
$
16,995

 
$
821

 
$
1,810

 
$
23,656

 
$
4,014

 
$
3,943

 
$
386

 
$
1,773

 
$
53,398


The ALLL balance and the recorded investment in loans by portfolio segment and based on impairment method as of December 31 were as follows:
 
 
December 31, 2017
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Lease financing
 
Construction
 
Commercial
 
Residential
 
Home Equity
 
Installment
 
Credit card
 
Total
Ending allowance on loans individually evaluated for impairment
 
$
169

 
$
0

 
$
0

 
$
448

 
$
160

 
$
2

 
$
0

 
$
0

 
$
779

Ending allowance on loans collectively evaluated for impairment
 
17,429

 
675

 
3,577

 
20,482

 
4,523

 
4,933

 
307

 
1,316

 
53,242

Ending allowance for loan and lease losses
 
$
17,598

 
$
675

 
$
3,577

 
$
20,930

 
$
4,683

 
$
4,935

 
$
307

 
$
1,316

 
$
54,021

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans and Leases
 
 

 
 
 
 

 
 

 
 

 
 

 
 
 
 

 
 

Ending balance of loans individually evaluated for impairment
 
$
7,331

 
$
82

 
$
29

 
$
21,542

 
$
7,932

 
$
4,456

 
$
255

 
$
0

 
$
41,627

Ending balance of loans collectively evaluated for impairment
 
1,905,412

 
89,265

 
467,701

 
2,468,549

 
463,459

 
489,148

 
41,331

 
46,691

 
5,971,556

Total loans
 
$
1,912,743

 
$
89,347

 
$
467,730

 
$
2,490,091

 
$
471,391

 
$
493,604

 
$
41,586

 
$
46,691

 
$
6,013,183




First Financial Bancorp 2017 Annual Report 67
Notes To Consolidated Financial Statements

 
 
December 31, 2016
 
 
 
 
 
 
Real Estate
 
 
 
 
 
 
 
 
(Dollars in thousands)
 
Commercial and industrial
 
Lease financing
 
Construction
 
Commercial
 
Residential
 
Home equity
 
Installment
 
Credit card
 
Total
Ending allowance on loans individually evaluated for impairment
 
$
550

 
$
0

 
$
0

 
$
593

 
$
179

 
$
2

 
$
0

 
$
0

 
$
1,324

Ending allowance on loans collectively evaluated for impairment
 
18,675

 
716

 
3,282

 
25,947

 
3,029

 
3,041

 
388

 
1,559

 
56,637

Ending allowance for loan and lease losses
 
$
19,225

 
$
716

 
$
3,282

 
$
26,540

 
$
3,208

 
$
3,043

 
$
388

 
$
1,559

 
$
57,961

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans and Leases
 
 

 
 
 
 

 
 

 
 

 
 

 
 
 
 

 
 

Ending balance of loans individually evaluated for impairment
 
$
13,203

 
$
195

 
$
0

 
$
20,460

 
$
9,601

 
$
4,074

 
$
437

 
$
0

 
$
47,970

Ending balance of loans collectively evaluated for impairment
 
1,768,745

 
92,913

 
399,434

 
2,407,117

 
491,379

 
456,314

 
50,202

 
43,408

 
5,709,512

Total loans
 
$
1,781,948

 
$
93,108

 
$
399,434

 
$
2,427,577

 
$
500,980

 
$
460,388

 
$
50,639

 
$
43,408

 
$
5,757,482



7. Premises and Equipment

Premises and equipment at December 31 were as follows:
(Dollars in thousands)
2017
 
2016
Land and land improvements
$
41,711

 
$
41,112

Buildings
104,576

 
107,918

Furniture and fixtures
55,165

 
55,368

Leasehold improvements
19,377

 
19,544

Construction in progress
1,721

 
3,791

 
222,550

 
227,733

 
 
 
 
Less: Accumulated depreciation and amortization
97,514

 
96,154

   Total
$
125,036

 
$
131,579


Rental expense recorded under operating leases in 2017 , 2016 and 2015 was  $7.1 million , $7.9 million and $7.0 million , respectively.
 
First Financial's future minimum lease payments for operating leases are as follows: 
(Dollars in thousands)  
 
2018
$
6,468

2019
6,212

2020
5,962

2021
5,161

2022
3,112

Thereafter
8,346

Total
$
35,261



68 First Financial Bancorp 2017 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 2017 and 2016, First Financial did not record any additions to goodwill. Additions to goodwill in 2015 resulted from the acquisition of Oak Street.

Changes in the carrying amount of goodwill for the years ended December 31, 2017 , 2016 and 2015 are shown below.

(Dollars in thousands)
2017
 
2016
 
2015
Balance at beginning of year
$
204,084

 
$
204,084

 
$
137,739

Goodwill resulting from business combinations
0

 
0

 
66,345

Balance at end of year
$
204,084

 
$
204,084

 
$
204,084


Goodwill is evaluated for impairment on an annual basis as of October 1 of each year, or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value.  First Financial performed its annual impairment test of goodwill as of October 1, 2017 and no impairment was indicated.  As of December 31, 2017 , 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, 2017 and 2016 , First Financial had $5.3 million and $6.5 million , respectively, of other intangibles which primarily consist of core deposit intangibles and are included in Goodwill and other intangibles in the Consolidated Balance Sheets.  Core deposit intangibles represent the estimated fair value of acquired customer deposit relationships. Core deposit intangibles are recorded at fair value on the date of acquisition and are then amortized on an accelerated basis over their estimated useful lives. Core deposit intangibles were $3.3 million and $4.5 million as of December 31, 2017 and December 31, 2016 , respectively. First Financial recorded no additions to core deposit intangibles in 2017 or 2016. First Financial's core deposit intangibles have an estimated weighted average remaining life of 3.9 years as of December 31, 2017 .

Amortization expense recognized on intangible assets for 2017 , 2016 and 2015 was $1.3 million , $1.6 million and $1.9 million , respectively. The estimated amortization expense of intangible assets for the next five years is as follows:

(Dollars in thousands)
Amortization Expense
2018
$
1,097

2019
1,020

2020
788

2021
636

2022
189


9. Deposits

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2017 and 2016 were $174.8 million and $190.9 million , respectively.


First Financial Bancorp 2017 Annual Report 69

Scheduled maturities of time deposits for the next five years were as follows:
(Dollars in thousands)
Total
2018
$
783,451

2019
315,274

2020
122,165

2021
68,532

2022
27,394

Thereafter
289

Total
$
1,317,105


10. 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 the Bank and the client. The Bank is authorized to sell or repurchase U.S. Treasury, government agency and mortgage-backed securities to secure its liability to the client.

First Financial has a $15.0 million short-term credit facility with an unaffiliated bank that matures on May 29, 2018. This facility can have a variable or fixed interest rate and provides First Financial additional liquidity for various corporate activities, including the repurchase of First Financial shares and the payment of dividends to shareholders. As of December 31, 2017 and December 31, 2016 , there was no outstanding balance. The credit agreement requires First Financial to comply with certain covenants including those related to asset quality and capital levels, and First Financial was in compliance with all covenants associated with this facility as of December 31, 2017 and December 31, 2016 .

The following is a summary of short-term borrowings for the last three years:
 
 
2017
 
2016
 
2015
(Dollars in thousands)
Amount
 
Rate
 
Amount
 
Rate
 
Amount
 
Rate
At December 31,
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
72,265

 
0.19
%
 
$
120,212

 
0.12
%
 
$
89,325

 
0.11
%
FHLB borrowings
742,300

 
1.43
%
 
687,700

 
0.66
%
 
849,100

 
0.47
%
Total
$
814,565

 
1.32
%
 
$
807,912

 
0.58
%
 
$
938,425

 
0.44
%
 
 
 
 
 
 
 
 
 
 
 
 
Average for the year
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
69,766

 
0.19
%
 
$
89,157

 
0.05
%
 
$
73,191

 
0.07
%
FHLB borrowings
760,558

 
1.05
%
 
791,259

 
0.55
%
 
552,360

 
0.24
%
Other short-term borrowings
41

 
4.07
%
 
41

 
3.56
%
 
123

 
3.30
%
Total
$
830,365

 
0.98
%
 
$
880,457

 
0.50
%
 
$
625,674

 
0.22
%
 
 
 
 
 
 
 
 
 
 
 
 
Maximum month-end balances
 
 
 
 
 
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
$
130,633

 
 
 
$
122,242

 
 
 
$
123,374

 
 
FHLB borrowings
957,700

 
 
 
1,035,000

 
 
 
849,100

 
 
Other short-term borrowings
0

 
 
 
0

 
 
 
15,000

 
 

In 2015, First Financial issued $120.0 million of subordinated notes, which have a fixed interest rate of 5.13% payable semiannually and mature in August 2025. These notes are not redeemable by the Company or callable by the holders of the

First Financial Bancorp 2017 Annual Report 70

notes prior to maturity. The subordinated notes are treated as Tier 2 capital for regulatory capital purposes and are included in Long-term debt on the Consolidated Balance Sheets.

Long-term debt also includes FHLB long-term advances as of December 31, 2017 and 2016 . These instruments are primarily utilized to reduce overnight liquidity risk and to mitigate interest rate sensitivity on the Consolidated Balance Sheets.
 
FHLB advances, both short-term and long-term, must be collateralized with qualifying assets, typically certain commercial and residential real estate loans, as well as certain government and agency securities. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB, and at December 31, 2017 , had collateral pledged with a book value of $3.6 billion .

The following is a summary of First Financial's long-term debt:
 
2017
 
2016
(Dollars in thousands)  
Amount
 
Average Rate
 
Amount
 
Average Rate
Subordinated debt
$
120,000

 
5.13
%
 
$
120,000

 
5.13
%
Unamortized debt issuance costs
(1,362
)
 
n/a

 
(1,537
)
 
n/a

FHLB
241

 
1.09
%
 
351

 
1.43
%
Capital loan with municipality
775

 
0.00
%
 
775

 
0.00
%
Total long-term debt
$
119,654

 
5.14
%
 
$
119,589

 
5.15
%
 
As of December 31, 2017 , First Financial's long-term debt matures as follows:
 (Dollars in thousands)  
Long-term
debt
2018
$
15

2019
226

2020
0

2021
0

2022
0

Thereafter
119,413

Total
$
119,654


11. Derivatives

First Financial uses certain derivative instruments, including 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 also utilize interest rate swaps to manage the interest rate risk profile of the Company.

Interest rate payments are exchanged with counterparties, based on the notional amount as established in the swap agreement. As only interest rate payments are exchanged, the cash requirements and credit risk associated with interest rate swaps are significantly less than the notional amount and the Company’s credit risk exposure is limited to the market value of the instruments. First Financial manages this market value credit risk through counterparty credit policies, which require the Company to maintain a total derivative notional position of less than 35% of assets, total credit exposure of less than 3% of capital and no single counterparty credit risk exposure greater than $20.0 million . The Company is currently below all single counterparty and portfolio limits.

At December 31, 2017 , the Company had a total counterparty notional amount outstanding of $837.5 million , spread among thirteen counterparties, with an outstanding liability from these contracts of $1.3 million . At December 31, 2016 , the Company had a total counterparty notional amount outstanding of $677.8 million , spread among ten counterparties, with an outstanding liability from these contracts of $5.2 million .

First Financial Bancorp 2017 Annual Report 71
Notes To Consolidated Financial Statements


First Financial’s exposure to credit loss, in the event of nonperformance by a borrower, is limited to the market value of the derivative instrument associated with that borrower. First Financial monitors its derivative credit exposure to borrowers by monitoring the creditworthiness of the related loan customers through the normal credit review processes the Company performs on all borrowers. Additionally, the Company monitors derivative credit risk exposure related to problem loans through the Company's ALLL committee. First Financial considers the market value of a derivative instrument to be part of the carrying value of the related loan for these purposes as the borrower is contractually obligated to pay First Financial this amount in the event the derivative contract is terminated.

Client derivatives. First Financial utilizes interest rate swaps as a means to offer commercial borrowers fixed rate funding while providing the Company with floating rate assets. The following table details the location and amounts recognized in the Consolidated Balance Sheets for client derivatives:
  
 
 
 
December 31, 2017
 
December 31, 2016
 
 
 
 
 
 
Estimated fair value
 
 
 
Estimated fair value
(Dollars in thousands)
 
Balance
Sheet Location
 
Notional
amount
 
Gain
 
Loss
 
Notional
amount
 
Gain
 
Loss
Client derivatives
 
 
 
 
 
 
 
 
 
 
 
 
Matched interest rate swaps with borrower
 
Accrued interest and other assets and other liabilities
 
$
837,040

 
$
7,153

 
$
(5,529
)
 
$
677,028

 
$
8,401

 
$
(4,158
)
Matched interest rate swaps with counterparty
 
Accrued interest and other liabilities
 
837,040

 
5,529

 
(7,158
)
 
677,028

 
4,158

 
(8,429
)
Total
 
 
 
$
1,674,080

 
$
12,682

 
$
(12,687
)
 
$
1,354,056

 
$
12,559

 
$
(12,587
)

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, 2017
 
December 31, 2016
(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
Client derivatives
 
 
 
 
 
 
 
 
 
 
 
Matched interest rate swaps
$
12,687

 
$
2,279

 
$
14,966

 
$
12,587

 
$
(462
)
 
$
12,125


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, 2017 :
 
 
 
 
 
 
 
 
Weighted-Average Rate
(Dollars in thousands)
 
Notional
amount
 
Average
maturity
(years)
 
Fair
value
 
Receive
 
Pay
Client derivatives
 
 
 
 
 
 
 
 
 
 
Receive fixed, matched interest rate swaps with borrower
 
$
837,040

 
5.9
 
$
1,624

 
4.37
%
 
3.66
%
Pay fixed, matched interest rate swaps with counterparty
 
837,040

 
5.9
 
(1,629
)
 
3.66
%
 
4.37
%
Total client derivatives
 
$
1,674,080

 
5.9
 
$
(5
)
 
4.01
%
 
4.01
%


72 First Financial Bancorp 2017 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 $95.9 million as of December 31, 2017 and $64.9 million as of December 31, 2016 . The fair value of these agreements were recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets.

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, 2017 , the notional amount of the IRLCs was $12.3 million and the notional amount of forward commitments was $15.4 million . As of December 31, 2016 , the notional amount of IRLCs was $13.2 million and the notional amount of forward commitments was $17.8 million . The fair value of these agreements was recorded on the Consolidated Balance Sheets in Accrued interest and other assets and was $0.1 million at December 31, 2017 and $0.2 million at December 31, 2016 .

12. 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, is represented by the contractual amounts of those instruments. First Financial utilizes the ALLL methodology to maintain a reserve that it considers sufficient to absorb probable losses incurred in standby letters of credit and outstanding loan commitments and records the reserve within Accrued interest and other liabilities on the Consolidated Balance Sheets.

Loan commitments. Loan commitments are agreements to extend credit to a client absent any violation of 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 $2.1 billion and $2.0 billion at December 31, 2017 and December 31, 2016 , respectively. As of December 31, 2017 , loan commitments with a fixed interest rate totaled $44.3 million while commitments with variable interest rates totaled $2.0 billion . The fixed rate loan commitments have interest rates ranging from 0.00% to 21.00% and maturities ranging from 1 to 29 years .

Letters of credit. Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party.  First Financial’s portfolio of standby letters of credit consists primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services.  The risk to First Financial arises from its obligation to make payment in the event of the client's contractual default to produce the contracted good or service to a third party.  First Financial has issued letters of credit (including standby letters of credit) aggregating $25.3 million and $18.4 million at December 31, 2017 , and December 31, 2016 , respectively. Management conducts regular reviews of these instruments on an individual client basis.

Investments in affordable housing projects. First Financial has investments in certain qualified affordable housing tax credits. These credits are an indirect federal subsidy that provide tax incentives to encourage investment in the development, acquisition and rehabilitation of affordable rental housing, and allow investors to claim tax credits and other tax benefits (such as deductions from taxable income for operating losses) on their federal income tax returns. The principal risk associated with qualified affordable housing investments is the potential for noncompliance with the tax code requirements, such as failure to rent property to qualified tenants, resulting in the unavailability or recapture of the tax credits and other tax benefits. First Financial's affordable housing commitments totaled $35.9 million and $32.7 million as of December 31, 2017 and

First Financial Bancorp 2017 Annual Report 73
Notes To Consolidated Financial Statements

December 31, 2016 , respectively. The Company recognized tax credits of $3.2 million and $2.1 million related to its investments in affordable housing projects for the years ended December 31, 2017 and 2016 , respectively. The Company recognized amortization expense which was included in income tax expense of $4.2 million and $2.7 million for the years ended December 31, 2017 and 2016 , respectively. First Financial had no affordable housing contingent commitments as of December 31, 2017 or December 31, 2016 .

Investments in historic tax credits. First Financial has noncontrolling financial investments in private investment funds and partnerships which are not consolidated. These investments may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. The Company’s recorded investment in these entities was approximately $3.0 million at December 31, 2017 , and $4.9 million at December 31, 2016 . The maximum exposure to loss related to these investments was $3.0 million at December 31, 2017 and $13.7 million at December 31, 2016 , representing the Company’s investment balance and its unfunded commitments to invest additional amounts. Investments in historic tax credits resulted in $13.7 million and $0.6 million of tax credits for the years ended December 31, 2017 and 2016 , respectively. Recognition of a significant historic tax credit investment resulted in a $12.5 million reduction in income tax expense and $11.3 million of other noninterest expenses during 2017.

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, 2017 . Reserves are established for these various matters of litigation, when appropriate, under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel. First Financial had no reserves related to litigation matters as of December 31, 2017 or December 31, 2016 .

13. Related Party Transactions

Loans to directors, executive officers, principal holders of First Financial’s common stock and certain related persons were as follows:
 
(Dollars in thousands)
 
2017
Beginning balance
 
$
6,930

Additions
 
3,904

Deductions
 
(961
)
Ending balance
 
$
9,873

Loans 90 days or more past due
 
$
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.


74 First Financial Bancorp 2017 Annual Report

14. Income Taxes

Income tax expense consisted of the following components:
 
(Dollars in thousands)
2017
 
2016
 
2015
Current expense
 
 
 
 
 
Federal
$
22,599

 
$
40,537

 
$
31,428

State
1,265

 
1,322

 
250

Total current expense
23,864

 
41,859

 
31,678

Deferred (benefit) expense
 
 
 
 
 
Federal
(4,657
)
 
528

 
3,980

State
169

 
(182
)
 
212

Total deferred (benefit) expense
(4,488
)
 
346

 
4,192

Income tax expense
$
19,376

 
$
42,205

 
$
35,870


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)
2017
 
2016
 
2015
Income taxes computed at federal statutory rate (35%) on income before income taxes
$
40,657

 
$
45,756

 
$
38,827

Benefit from tax-exempt income
(3,427
)
 
(2,911
)
 
(2,815
)
Tax credits
(16,806
)
 
(2,691
)
 
(1,388
)
Tax rate reduction impact
(8,191
)
 
0

 
0

Basis reduction on historic tax credit
4,599

 
0

 
0

Tax benefit of equity compensation
(1,449
)
 
(72
)
 
(35
)
State income taxes, net of federal tax benefit
932

 
741

 
301

Affordable housing investments
2,798

 
1,923

 
455

Other
263

 
(541
)
 
525

Income tax expense
$
19,376

 
$
42,205

 
$
35,870


On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. As a result, First Financial revalued its deferred tax assets and liabilities as well as its investments in affordable housing projects utilizing a 21% federal rate compared to a 35% rate in prior periods. As a result, the Company recorded an $8.2 million tax benefit in 2017.

First Financial Bancorp 2017 Annual Report 75
Notes To Consolidated Financial Statements


The major components of the temporary differences that give rise to deferred tax assets and liabilities at December 31, 2017 , and 2016 , were as follows:
(Dollars in thousands)
2017
 
2016
Deferred tax assets
 
 
 
Allowance for loan and lease losses
$
12,134

 
$
20,955

Deferred compensation
384

 
627

Postretirement benefits other than pension liability
564

 
925

Accrued stock-based compensation
932

 
1,094

Other real estate owned write-downs
97

 
888

Interest on nonaccrual loans
616

 
844

Accrued expenses
3,051

 
5,081

Net unrealized losses on investment securities and derivatives
249

 
3,141

Other
708

 
453

Total deferred tax assets
18,735

 
34,008

 
 
 
 
Deferred tax liabilities
 
 
 
Tax depreciation greater than book depreciation
(2,510
)
 
(5,166
)
FHLB and FRB stock
(3,384
)
 
(5,535
)
Mortgage-servicing rights
(343
)
 
(530
)
Leasing activities
(2,792
)
 
(4,933
)
Prepaid pension
(8,888
)
 
(12,539
)
Intangible assets
(11,559
)
 
(16,611
)
Deferred loan fees and costs
(371
)
 
(1,238
)
Prepaid expenses
(210
)
 
(348
)
Partnership investments
(1,230
)
 
(1,218
)
Fair value adjustments on acquisitions
0

 
(1,404
)
Other
(2,415
)
 
(852
)
Total deferred tax liabilities
(33,702
)
 
(50,374
)
Total net deferred tax liability
$
(14,967
)
 
$
(16,366
)

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, 2017 and 2016 .

Unrecognized tax benefits

At December 31, 2017 and 2016 , First Financial had $2.9 million and $2.4 million of unrecognized tax benefits, as determined in FASB ASC Topic 740-10, Income Taxes, that, if recognized, would favorably affect the effective income tax rate in future periods. A progression of unrecognized tax benefits as of December 31, 2017 and 2016 is as follows:

(Dollars in thousands)
2017
 
2016
Balance at beginning of year
$
3,735

 
$
0

Additions for tax positions of prior years
0

 
3,735

Balance at end of year
$
3,735

 
$
3,735


The unrecognized tax benefits relate to state income tax exposures where First Financial believes it is likely that, upon examination, a state may take a position contrary to the position taken by the Company. The Company believes that resolution regarding our uncertain tax positions is reasonably possible within the next twelve months and could result in full, partial or no recognition of the benefit.

76 First Financial Bancorp 2017 Annual Report


First Financial recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. At December 31, 2017 and 2016, the Company had no interest or penalties recorded.

First Financial and its subsidiaries are subject to U.S. federal income tax as well as state and local income tax in several jurisdictions. Tax years prior to 2014 have been closed and are no longer subject to U.S. federal income tax examinations. Tax years 2014 through 2016 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 2016 remain open to state and local examination by various other jurisdictions.
 
15. Employee Benefit Plans

Pension plan. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees and uses a December 31 measurement date for the plan. Plan assets were primarily invested in 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 mirror the liabilities of the Plan, with the fixed income component matching the identified near and long-term plan distributions and the equity component generating growth of capital to meet other future Plan liabilities. The determination of the overall expected long-term return on plan assets was based on the composition of plan assets and a consensus of estimates from similarly managed portfolios of expected future returns.

As a result of the plan’s updated actuarial projections for 2017 , First Financial recorded income related to its pension plan of $0.6 million for 2017 , $1.2 million for 2016 and $1.0 million for 2015 . First Financial made no cash contributions to the pension plan in 2017 , 2016 or 2015 .
 

First Financial Bancorp 2017 Annual Report 77
Notes To Consolidated Financial Statements

The following tables set forth information concerning amounts recognized in First Financial's Consolidated Balance Sheets and Consolidated Statements of Income related to the Company's pension plan:
 
 
December 31,
(Dollars in thousands)
 
2017
 
2016
Change in benefit obligation
 
 
 
 
Benefit obligation at beginning of year
 
$
62,729

 
$
60,664

Service cost
 
4,894

 
5,034

Interest cost
 
2,325

 
2,262

Actuarial (gain) loss
 
6,107

 
142

Benefits paid, excluding settlement
 
(4,901
)
 
(5,373
)
Benefit obligation at end of year
 
71,154

 
62,729

 
 
 
 
 
Change in plan assets
 
 
 
 
Fair value of plan assets at beginning of year
 
131,011

 
125,714

Actual return on plan assets
 
18,239

 
10,670

Benefits paid, excluding settlement
 
(4,901
)
 
(5,373
)
Fair value of plan assets at end of year
 
144,349

 
131,011

 
 
 
 
 
Amounts recognized in the Consolidated Balance Sheets
 
 
 
 
Assets
 
73,195

 
68,282

Liabilities
 
0

 
0

Net amount recognized
 
$
73,195

 
$
68,282

 
 
 
 
 
Amounts recognized in accumulated other comprehensive income (loss)
 
 
 
 
Net actuarial loss
 
$
33,580

 
$
38,278

Net prior service cost
 
(1,921
)
 
(2,334
)
Deferred tax assets
 
(12,028
)
 
(13,141
)
Net amount recognized
 
$
19,631

 
$
22,803

 
 
 
 
 
Change in accumulated other comprehensive income (loss)
 
$
(3,172
)
 
$
(1,245
)
 
 
 
 
 
Accumulated benefit obligation
 
$
69,678

 
$
61,909




78 First Financial Bancorp 2017 Annual Report

Components of net periodic benefit cost
 
 
 
 
 
 
 
 
December 31,
(Dollars in thousands)
 
2017
 
2016
 
2015
Service cost
 
$
4,894

 
$
5,034

 
$
4,807

Interest cost
 
2,325

 
2,262

 
2,120

Expected return on assets
 
(9,358
)
 
(9,644
)
 
(9,444
)
Amortization of prior service cost
 
(413
)
 
(413
)
 
(413
)
Recognized net actuarial loss
 
1,924

 
1,608

 
1,888

Net periodic benefit (income) cost
 
(628
)
 
(1,153
)
 
(1,042
)
 
 
 
 
 
 
 
Other changes recognized in accumulated other comprehensive income (loss)
 
 
 
 
Net actuarial (gain) loss
 
(2,775
)
 
(884
)
 
11,014

Prior service cost
 
0

 
0

 
0

Amortization of prior service cost
 
413

 
413

 
413

Amortization of gain
 
(1,924
)
 
(1,608
)
 
(1,888
)
Total recognized in accumulated other comprehensive income (loss)
 
(4,286
)
 
(2,079
)
 
9,539

Total recognized in net periodic benefit cost and accumulated other comprehensive income (loss)
 
$
(4,914
)
 
$
(3,232
)
 
$
8,497

 
 
 
 
 
 
 
Amount expected to be recognized in net periodic pension expense in the coming year
 
 
 
 
Amortization of (gain) loss
 
$
2,090

 
$
1,754

 
$
1,642

Amortization of prior service credit
 
(413
)
 
(413
)
 
(413
)

Pension plan assumptions
 
 
 
 
 
 
 
 
December 31,
 
 
2017
 
2016
 
2015
Benefit obligations
 
 
 
 
 
 
Discount rate
 
3.43
%
 
3.88
%
 
4.05
%
Rate of compensation increase
 
3.50
%
 
3.50
%
 
3.50
%
 
 
 
 
 
 
 
Net periodic benefit cost
 
 
 
 
 
 
Discount rate
 
3.88
%
 
4.05
%
 
3.76
%
Expected return on plan assets
 
7.25
%
 
7.50
%
 
7.50
%
Rate of compensation increase
 
3.50
%
 
3.50
%
 
3.50
%
 
The fair value of the plan assets as of December 31, 2017 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
 
$
175

 
$
175

 
$
0

 
$
0

U. S. Government agencies
 
6,853

 
0

 
6,853

 
0

Fixed income mutual funds
 
69,154

 
69,154

 
0

 
0

Equity mutual funds
 
68,167

 
68,167

 
0

 
0

Total
 
$
144,349

 
$
137,496

 
$
6,853

 
$
0



First Financial Bancorp 2017 Annual Report 79
Notes To Consolidated Financial Statements

The fair value of the plan assets as of December 31, 2016 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
 
$
190

 
$
190

 
$
0

 
$
0

U. S. Government agencies
 
6,026

 
0

 
6,026

 
0

Fixed income mutual funds
 
66,483

 
66,483

 
0

 
0

Equity mutual funds
 
58,311

 
58,311

 
0

 
0

Total
 
$
131,010

 
$
124,984

 
$
6,026

 
$
0


The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement. See Note 20 – Fair Value Disclosures for further information related to the framework for measuring fair value and the fair value hierarchy.
 
The following benefit payments, which reflect expected future service, are expected to be paid:
(Dollars in thousands)
 
Retirement
Benefits
2018
 
$
4,758

2019
 
4,426

2020
 
5,417

2021
 
5,771

2022
 
5,016

Thereafter
 
29,825


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's contributions to the 401(k) plan are discretionary and vest immediately. First Financial measures the Company's performance compared to its identified peer group in determining whether to recommend a Company contribution, with the amount of the recommended contribution not to exceed 3% of the employee's annual earnings. First Financial recorded $1.9 million and $0.8 million of expense related to the Company's contributions to the 401(k) plan during the years ended December 31, 2017 and 2016 , respectively. First Financial made no contributions to the 401(k) plan during 2015 .

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 $102.3 million and $98.5 million at December 31, 2017 , and 2016 , respectively.


80 First Financial Bancorp 2017 Annual Report

16. 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, 2017
 
Total other comprehensive income (loss)
 
Total accumulated other
comprehensive income (loss)
(Dollars in thousands)
Prior to
Reclassification
 
Reclassification
from
 
Pre-tax
 
Tax-effect
 
Net of tax
 
Beginning Balance
 
Net Activity
 
Ending Balance
Unrealized gain (loss) on investment securities
$
8,447

 
$
1,649

 
$
6,798

 
$
(2,431
)
 
$
4,367

 
$
(4,549
)
 
$
4,367

 
$
(182
)
Unrealized gain (loss) on derivatives
810

 
0

 
810

 
(296
)
 
514

 
(1,091
)
 
514

 
(577
)
Retirement obligation
2,775

 
(1,511
)
 
4,286

 
(1,114
)
 
3,172

 
(22,803
)
 
3,172

 
(19,631
)
Total
$
12,032

 
$
138

 
$
11,894

 
$
(3,841
)
 
$
8,053

 
$
(28,443
)
 
$
8,053

 
$
(20,390
)

 
December 31, 2016
 
Total other comprehensive income (loss)
 
Total accumulated other
comprehensive income (loss)
(Dollars in thousands)
Prior to
Reclassification
 
Reclassification
from
 
Pre-tax
 
Tax-effect
 
Net of tax
 
Beginning Balance
 
Net Activity
 
Ending Balance
Unrealized gain (loss) on investment securities
$
751

 
$
234

 
$
517

 
$
(133
)
 
$
384

 
$
(4,933
)
 
$
384

 
$
(4,549
)
Unrealized gain (loss) on derivatives
809

 
0

 
809

 
(301
)
 
508

 
(1,599
)
 
508

 
(1,091
)
Retirement obligation
884

 
(1,195
)
 
2,079

 
(834
)
 
1,245

 
(24,048
)
 
1,245

 
(22,803
)
Total
$
2,444

 
$
(961
)
 
$
3,405

 
$
(1,268
)
 
$
2,137

 
$
(30,580
)
 
$
2,137

 
$
(28,443
)

 
December 31, 2015
 
Total other comprehensive income (loss)
 
Total accumulated other
comprehensive income (loss)
(Dollars in thousands)
Prior to
Reclassification
 
Reclassification
from
 
Pre-tax
 
Tax-effect
 
Net of tax
 
Beginning Balance
 
Net Activity
 
Ending Balance
Unrealized gain (loss) on investment securities
$
(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
)


First Financial Bancorp 2017 Annual Report 81
Notes To Consolidated Financial Statements

The following table details the activity reclassified from accumulated other comprehensive income into income during the period:
 
 
Amount Reclassified from Accumulated Other Comprehensive Income (1)
 
 
 
 
December 31,
 
 
(Dollars in thousands)
 
2017
 
2016
 
2015
 
Affected Line Item in the Consolidated Statements of Income
Realized gains and losses on securities available-for-sale
 
$
1,649

 
$
234

 
$
1,505

 
Gains on sales of investments securities
Defined benefit pension plan
 
 
 
 
 
 
 
 
Amortization of prior service cost (2)
 
413

 
413

 
413

 
Salaries and employee benefits
Recognized net actuarial loss (2)
 
(1,924
)
 
(1,608
)
 
(1,888
)
 
Salaries and employee benefits
Amortization and settlement charges of defined benefit pension items
 
(1,511
)
 
(1,195
)
 
(1,475
)
 
 
Total reclassifications for the period, before tax
 
$
138

 
$
(961
)
 
$
30

 
 

(1) Negative amounts are debits to profit/loss.
(2) Included in the computation of net periodic pension cost (see Note 15 - Employee Benefit Plans for additional details).

17. Capital

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

The Board of Governors of the Federal Reserve System approved 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 5.750% and a capital conservation buffer of 2.5% of risk-weighted assets that began on January 1, 2016 at 0.625% and will 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, Basel III increased the minimum ratio of tier 1 capital to risk-weighted assets increased from 4.00% to 7.250% and 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.

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. 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 ALLL.

The revised capital requirements also provide strict eligibility criteria for regulatory capital instruments, and the method for calculating risk-weighted assets includes identification of riskier assets which require higher capital allocations, such as highly volatile commercial real estate and nonaccrual loans.
 

82 First Financial Bancorp 2017 Annual Report

The following tables present the actual and required capital amounts and ratios as of December 31, 2017 and 2016 under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels based on the phase-in provisions of the Basel III Capital Rules as 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. All First Financial's regulatory capital ratios exceeded the amounts necessary to be classified as “well capitalized,” and total regulatory capital exceeded the “minimum” requirement by $271.6 million on a consolidated basis.  
 
 
 
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, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
755,735

 
10.63
%
 
$
408,746

 
5.750
%
 
N/A

 
N/A

 
$
497,604

 
7.00
%
First Financial Bank
 
794,251

 
11.21
%
 
407,220

 
5.750
%
 
$
460,336

 
6.50
%
 
495,746

 
7.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
755,839

 
10.63
%
 
515,376

 
7.250
%
 
N/A

 
N/A

 
604,233

 
8.50
%
First Financial Bank
 
794,355

 
11.22
%
 
513,452

 
7.250
%
 
$
566,567

 
8.00
%
 
601,978

 
8.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
929,148

 
13.07
%
 
657,548

 
9.250
%
 
N/A

 
N/A

 
746,406

 
10.50
%
First Financial Bank
 
856,363

 
12.09
%
 
655,093

 
9.250
%
 
708,209

 
10.00
%
 
743,619

 
10.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
755,839

 
8.84
%
 
342,198

 
4.00
%
 
N/A

 
N/A

 
342,198

 
4.00
%
First Financial Bank
 
794,355

 
9.29
%
 
342,113

 
4.00
%
 
427,642

 
5.00
%
 
342,113

 
4.00
%
 

First Financial Bancorp 2017 Annual Report 83
Notes To Consolidated Financial Statements

 
 
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, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
$
703,891

 
10.46
%
 
$
344,848

 
5.125
%
 
N/A

 
N/A

 
$
471,012

 
7.00
%
First Financial Bank
 
747,151

 
11.13
%
 
344,038

 
5.125
%
 
$
436,341

 
6.50
%
 
469,906

 
7.00
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
703,995

 
10.46
%
 
445,779

 
6.625
%
 
N/A

 
N/A

 
571,943

 
8.50
%
First Financial Bank
 
747,255

 
11.13
%
 
444,732

 
6.625
%
 
537,035

 
8.00
%
 
570,600

 
8.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total capital to risk-weighted assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
881,158

 
13.10
%
 
580,354

 
8.625
%
 
N/A

 
N/A

 
706,517

 
10.50
%
First Financial Bank
 
813,433

 
12.12
%
 
578,991

 
8.625
%
 
671,294

 
10.00
%
 
704,859

 
10.50
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Leverage
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
703,995

 
8.60
%
 
327,562

 
4.00
%
 
N/A

 
N/A

 
327,562

 
4.00
%
First Financial Bank
 
747,255

 
9.13
%
 
327,392

 
4.00
%
 
409,240

 
5.00
%
 
327,392

 
4.00
%

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 did not repurchase any shares under this plan during 2016 or 2017. The Company repurchased 239,967 shares under the 2012 share repurchase plan during 2015 at an average price of $18.75 per share. At December 31, 2017 , 3,509,133 common shares remained available for purchase under this repurchase plan.

ATM Offering. In March 2017, First Financial initiated an "at-the-market" equity offering program to provide flexibility with respect to capital planning and to support future growth. First Financial was not active through the ATM program during the period.

18. Stock Options and Awards

First Financial follows the provisions of FASB ASC Topic 718, Compensation-Stock Compensation, which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation expense over the service period for all awards expected to vest. First Financial recorded share-based compensation expense of $5.4 million for the years ended December 31, 2017 and December 31, 2016 and $4.0 million for the year ended December 31, 2015, within salaries and employee benefits expense related to stock options and restricted stock awards. Total unrecognized compensation cost related to non-vested share-based compensation was $5.5 million at December 31, 2017 and is expected to be recognized over a weighted average period of 1.9 years .
 
As of December 31, 2017 , First Financial had three active stock-based compensation plans: the 1999 Plan, the 2012 Stock Plan, and the Amended and Restated 2012 Stock Plan (each as described below), however additional awards may only be granted under the Amended and Restated 2012 Stock Plan.

The 1999 Stock Incentive Plan for Officers and Employees (the 1999 Plan) provided incentive stock options, non-qualified stock options and stock awards to certain key employees 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 Plan. At December 31, 2017, 11,800 options were outstanding under the 1999 Plan, all of which expire on or before February 14, 2018 .


84 First Financial Bancorp 2017 Annual Report

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, 2017 , there were no shares available for issuance under the 2012 stock plan.

On May 23, 2017, the shareholders amended and restated the 2012 Stock Plan as the First Financial Bancorp. Amended and Restated 2012 Stock Plan. At December 31, 2017 , there were 2,154,251 shares available for issuance under the Amended and Restated 2012 Stock Plan.

First Financial utilizes the Black-Scholes valuation model to determine the fair value of stock options granted. In addition to the stock option strike price, the Black-Scholes valuation model incorporates the following assumptions: the expected dividend yield based on historical dividend payouts; the expected stock price volatility based on the historical volatility of Company stock for a period approximating the expected life of the options; the risk-free rate based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option; and the expected option life represented by the period of time the options are expected to be outstanding, and is based on historical trends. No options were granted in 2017 , 2016 or 2015 .
 
Stock option activity for the year ended December 31, 2017 , is summarized as follows:
(Dollars in thousands, except share and per share data)
 
Number of shares
 
Weighted
average exercise price
 
Weighted average
remaining contractual life
 
Aggregate intrinsic value
Outstanding at beginning of year
 
113,307

 
$
12.08

 
 
 
 
Granted
 
0

 
0.00

 
 
 
 
Exercised
 
(101,507
)
 
12.13

 
 
 
 
Forfeited or expired
 
0

 
0.00

 
 
 
 
Outstanding at end of year
 
11,800

 
$
11.64

 
0.12
 
$
174

Exercisable at end of year
 
11,800

 
$
11.64

 
0.12
 
$
174


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.
 
 
2017
 
2016
 
2015
Total intrinsic value of options exercised
 
$
1,533

 
$
661

 
$
492

Cash received from exercises
 
$
341

 
$
801

 
$
744

Tax benefit from exercises
 
$
1,991

 
$
1,958

 
$
1,488


Restricted stock awards are recorded at fair value as of the grant date as a component of shareholders' equity and amortized on a straight-line basis to salaries and benefits expense over the specified vesting periods, which is currently three years for employees and one year for non-employee directors. The vesting of these awards for employees and non-employee directors may require a service period to be met, and certain awards may also require performance measures to be met.
 
Activity in restricted stock for the previous three years ended December 31 is summarized as follows:
 
 
2017
 
2016
 
2015
 
 
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
 
648,817

 
$
17.82

 
643,641

 
$
17.21

 
494,452

 
$
16.43

Granted
 
234,529

 
27.36

 
317,695

 
18.13

 
439,674

 
17.65

Vested
 
(307,825
)
 
18.12

 
(263,713
)
 
16.82

 
(227,905
)
 
16.45

Forfeited
 
(107,149
)
 
21.18

 
(48,806
)
 
17.37

 
(62,580
)
 
16.58

Nonvested at end of year
 
468,372

 
$
21.63

 
648,817

 
$
17.82

 
643,641

 
$
17.21



First Financial Bancorp 2017 Annual Report 85
Notes To Consolidated Financial Statements

The fair value of restricted stock is determined based on the number of shares granted and the quoted price of First Financial's common stock. The fair value of restricted stock vested during 2017 , 2016 and 2015 was $5.6 million , $4.4 million and $3.8 million , respectively.

19. Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in thousands, except share and per share data)
 
2017
 
2016
 
2015
Numerator
 
 
 
 
 
 
Net income
 
$
96,787

 
$
88,526

 
$
75,063

 
 
 
 
 
 
 
Denominator
 
 
 
 
 
 
Basic earnings per common share - weighted average shares
 
61,529,460

 
61,206,093

 
61,062,657

Effect of dilutive securities
 
 
 
 
 
 
Employee stock awards
 
581,329

 
729,335

 
670,282

Warrants
 
60,801

 
49,994

 
114,608

Diluted earnings per common share - adjusted weighted average shares
 
62,171,590

 
61,985,422

 
61,847,547

 
 
 
 
 
 
 
Earnings per share available to common shareholders
 
 
 
 
 
 
Basic
 
$
1.57

 
$
1.45

 
$
1.23

Diluted
 
$
1.56

 
$
1.43

 
$
1.21


Warrants to purchase 104,200 , 114,678 and 322,312 shares of the Company's common stock were outstanding as of December 31, 2017 , 2016 and 2015 , respectively. These warrants, each representing the right to purchase one share of common stock, no par value per share, have an exercise price of $12.12 and expire on December 23, 2018.

Stock options and warrants, 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 antidilutive.  Using the period end price, there were no antidilutive options at December 31, 2017 , 2016 , or 2015 .

As of December 31, 2017 , 2016 , and 2015 , no preferred shares were issued or outstanding.

20. 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.


86 First Financial Bancorp 2017 Annual Report

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 classified in Level 3.

First Financial utilizes values provided by third-party pricing vendors to price the investment securities portfolio in accordance with the fair value hierarchy of the Fair Value Topic and reviews the pricing methodologies utilized by the pricing vendors to ensure that the fair value determination is consistent with the applicable accounting guidance.  First Financial’s pricing process includes a series of quality assurance activities where prices are compared to recent market conditions, historical prices and other independent pricing services.  Further, the Company periodically validates the fair values of a sample of securities in the portfolio by comparing the fair values to prices from other independent sources for the same or similar securities.  First Financial analyzes unusual or significant variances, conducts additional research with the pricing vendor, and if necessary, takes appropriate action based on its findings.  The results of the quality assurance process are incorporated into the selection of pricing providers by the portfolio manager.

Other investments. Other investments include holdings in FRB and FHLB stock, which are carried at cost due to the inability to determine the fair value resulting from transferability restrictions.

Loans held for sale. Loans held for sale are carried at fair value.  These loans currently consist of one-to-four family residential real estate loans originated for sale to qualified third parties.  Fair value is based on the market price or contractual price to be received from these third parties, which is not materially different than cost due to the short duration between origination and sale (Level 2).  As such, First Financial records any fair value adjustments on a nonrecurring basis.  Gains and losses on the sale of loans are recorded as Net gains from sales of loans on the Consolidated Statements of Income.

Loans and leases. The fair value of C&I, lease financing, CRE, residential real estate and other consumer loans was estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities or repricing frequency.  The Company classifies the estimated fair value of loans as Level 3 in the fair value hierarchy.

Impaired loans are specifically reviewed for purposes of determining the appropriate amount of impairment to be allocated to the ALLL.  Fair value is generally measured based on the value of the collateral securing the loans.  Collateral may be in the form of real estate or business assets including equipment, inventory and accounts receivable.  The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed third-party appraiser (Level 3). The value of business equipment is based upon an outside appraisal, if deemed significant, or the net book value on the applicable borrower financial statements.  Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3).  Impaired loans are measured at fair value on a nonrecurring basis.  Any fair value adjustments are recorded in the period incurred as Provision for loan and lease losses on the Consolidated Statements of Income.

OREO. Assets acquired through loan foreclosure are recorded at fair value less costs to sell, with any difference between the fair value of the property and the carrying value of the loan recorded as a charge-off. If the fair value is higher than the carrying amount of the loan, the excess is recognized first as a recovery and then as noninterest income. Subsequent declines in value are reported as adjustments to the carrying amount and are recorded in noninterest expense. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value differs from the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. The Company classifies OREO in level 3 of the fair value hierarchy.

Accrued interest receivable and payable. The carrying amount of accrued interest receivable and accrued interest payable approximate their fair values and is aligned with the underlying assets or liabilities (Level 1, Level 2 or Level 3).


First Financial Bancorp 2017 Annual Report 87
Notes To Consolidated Financial Statements

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 is estimated using a discounted cash flow calculation which applies the interest rates currently offered for deposits of similar remaining maturities.  The Company classifies the estimated fair value of deposit liabilities as Level 2 in the fair value hierarchy.

Borrowings. The carrying amounts of federal funds purchased and securities sold under agreements to repurchase and other short-term borrowings approximate their fair values.  The Company classifies the estimated fair value of short-term borrowings as Level 1 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 which represents the cost to terminate the swap if First Financial should choose to do so. This net present value is derived using primarily observable market inputs such as interest rate yield curves. Additionally, First Financial utilizes an internally-developed model to value the credit risk component of derivative assets and liabilities, which is recorded as an adjustment to the fair value of the derivative asset or liability on the reporting date. Derivative instruments are classified as Level 2 in the fair value hierarchy.

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, 2017
 
 
 
 
 
Financial assets
 
 
 
 
 
Cash and short-term investments
$
184,624

$
184,624

$
184,624

$
0

$
0

Investment securities held-to-maturity
654,008

653,101

0

653,101

0

Other investments
53,140

N/A

N/A

N/A

N/A

Loans held for sale
11,502

11,502

0

11,502

0

Loans and leases, net of ALLL
5,959,162

6,006,656

0

0

6,006,656

Accrued interest receivable
24,496

24,496

0

8,265

16,231

 
 
 
 
 
 
Financial liabilities
 

 

 
 
 
Deposits
 

 

 
 
 
Noninterest-bearing
$
1,662,058

$
1,662,058

$
0

$
1,662,058

$
0

Interest-bearing demand
1,453,463

1,453,463

0

1,453,463

0

Savings
2,462,420

2,462,420

0

2,462,420

0

Time
1,317,105

1,306,674

0

1,306,674

0

Total deposits
6,895,046

6,884,615

0

6,884,615

0

Short-term borrowings
814,565

814,565

814,565

0

0

Long-term debt
119,654

117,908

0

117,908

0

Accrued interest payable
5,104

5,104

204

4,900

0




88 First Financial Bancorp 2017 Annual Report

 
Carrying
Estimated Fair Value
(Dollars in thousands)
Value
Total
Level 1
Level 2
Level 3
December 31, 2016
 
 
 
 
 
Financial assets
 
 
 
 
 
Cash and short-term investments
$
204,048

$
204,048

$
204,048

$
0

$
0

Investment securities held-to-maturity
763,254

763,575

0

763,575

0

Other investments
51,077

N/A

N/A

N/A

N/A

Loans held for sale
13,135

13,135

0

13,135

0

Loans and leases, net of ALLL
5,699,521

5,754,845

0

0

5,754,845

Accrued interest receivable
18,503

18,503

0

5,705

12,798

 
 
 
 
 
 
Financial liabilities
 
 
 
 
 
Deposits
 
 
 
 
 
Noninterest-bearing
$
1,547,985

$
1,547,985

$
0

$
1,547,985

$
0

Interest-bearing demand
1,513,771

1,513,771

0

1,513,771

0

Savings
2,142,189

2,142,189

0

2,142,189

0

Time
1,321,843

1,316,333

0

1,316,333

0

Total deposits
6,525,788

6,520,278

0

6,520,278

0

Short-term borrowings
807,912

807,912

807,912

0

0

Long-term debt
119,589

117,878

0

117,878

0

Accrued interest payable
5,049

5,049

410

4,639

0



First Financial Bancorp 2017 Annual Report 89
Notes To Consolidated Financial Statements

The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis:

 
 
Fair Value Measurements Using
 
Assets/Liabilities
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
at Fair Value
December 31, 2017
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivatives
 
$
0

 
$
12,757

 
$
0

 
$
12,757

Investment securities available-for-sale
 
2,969

 
1,346,439

 
0

 
1,349,408

Total
 
$
2,969

 
$
1,359,196

 
$
0

 
$
1,362,165

 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

Derivatives
 
$
0

 
$
12,755

 
$
0

 
$
12,755


 
 
Fair Value Measurements Using
 
Assets/Liabilities
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
 
at Fair Value
December 31, 2016
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Derivatives
 
$
0

 
$
12,922

 
$
0

 
$
12,922

Investment securities available-for-sale
 
8,711

 
1,031,159

 
0

 
1,039,870

Total
 
$
8,711

 
$
1,044,081

 
$
0

 
$
1,052,792

 
 
 
 
 
 
 
 
 
Liabilities
 
 

 
 

 
 

 
 

Derivatives
 
$
0

 
$
12,725

 
$
0

 
$
12,725


Certain financial assets and liabilities are measured at fair value on a nonrecurring basis.  Adjustments to the fair market value of these assets and liabilities usually result from the 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, 2017
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Impaired loans
 
$
0

 
$
0

 
$
2,671

OREO
 
0

 
0

 
1,086



 
 
Fair Value Measurements Using
(Dollars in thousands)
 
Level 1
 
Level 2
 
Level 3
December 31, 2016
 
 
 
 
 
 
Assets
 
 
 
 
 
 
Impaired loans
 
$
0

 
$
0

 
$
8,154

OREO
 
0

 
0

 
3,921




90 First Financial Bancorp 2017 Annual Report

21. Pending Business Combination (Unaudited)

In July 2017, First Financial Bancorp and MainSource Financial Group, Inc. entered into a definitive merger agreement under which MainSource will merge into First Financial in a stock-for-stock transaction. MainSource Bank, a wholly owned subsidiary of MainSource, will merge into First Financial Bank. Under the terms of the merger agreement, shareholders of MainSource will receive 1.3875 common shares of First Financial common stock for each share of MainSource common stock. Including outstanding options and warrants on MainSource common stock, the transaction is valued at approximately $1.0 billion . Upon closing, First Financial shareholders will own approximately 65% of the combined company and MainSource shareholders will own approximately 35% , on a fully diluted basis. The merger will position the combined company to better serve the complimentary geographies of Ohio, Indiana and Kentucky, and create a higher performing bank with greater scale and capabilities. Pro forma information for the periods ended June 30, 2017 and December 31, 2016 was as follows:

 
 
For the six
 
For the year
 
months ended
 
ended
 
 
June 30, 2017
 
December 31, 2016
(Dollars in thousands, except per share data)
(Unaudited)
 
(Unaudited)
Pro Forma Condensed Combined Income Statement Information
Net interest income
 
$
204,518

 
$
387,725

Provision for loan and lease losses
 
834

 
10,140

Income before income taxes
 
92,591

 
170,132

Net income
 
65,884

 
119,661

 
 
 
 
 
 
 
As of
June 30, 2017
 
 
 
 
(Unaudited)
 
 
Pro Forma Condensed Combined Balance Sheet Information
 
 
 
Loans and leases, net
 
$
8,818,392

 
 
Total assets
 
13,806,092

 
 
Deposits
 
9,987,298

 
 
Total shareholders' equity
 
1,913,682

 
 

The merger was approved by the FRB of Cleveland and the ODFI during the first quarter of 2018 and is expected to close on April 1, 2018.

The selected pro forma financial data included in the preceding table is based on preliminary estimates, and is subject to change upon completion of the merger. In October 2017, the Company filed a registration statement on Form S-4 that included historical and pro forma information required in connection with the merger.



First Financial Bancorp 2017 Annual Report 91
Notes To Consolidated Financial Statements

22. First Financial Bancorp (Parent Company Only) Financial Information

Balance Sheets
 
December 31,
(Dollars in thousands)
2017
 
2016
Assets
 
 
 
Cash
$
57,719

 
$
59,285

Investment securities, available for sale
442

 
386

Subordinated notes from subsidiaries
7,500

 
7,500

Investment in subsidiaries
 
 
 
Commercial banks
970,290

 
909,798

Total investment in subsidiaries
970,290

 
909,798

Premises and equipment
1,378

 
1,395

Other assets
26,778

 
19,487

Total assets
$
1,064,107

 
$
997,851

 
 
 
 
Liabilities
 
 
 
Subordinated debentures
$
118,638

 
$
118,463

Dividends payable
10,965

 
10,386

Other liabilities
3,840

 
3,778

Total liabilities
133,443

 
132,627

Shareholders’ equity
930,664

 
865,224

Total liabilities and shareholders’ equity
$
1,064,107

 
$
997,851


Statements of Income  
 
Years Ended December 31,
(Dollars in thousands)
2017
 
2016
 
2015
Income
 
 
 
 
 
Interest income
$
6

 
$
48

 
$
81

Noninterest income
86

 
2,596

 
253

Dividends from subsidiaries
54,600

 
52,700

 
17,250

Total income
54,692

 
55,344

 
17,584

 
 
 
 
 
 
Expenses
 
 
 
 
 
Interest expense
6,152

 
6,151

 
2,157

Salaries and employee benefits
5,519

 
5,445

 
4,224

Miscellaneous professional services
970

 
711

 
723

Other
4,819

 
4,841

 
5,564

Total expenses
17,460

 
17,148

 
12,668

Income before income taxes and equity in undistributed net earnings of subsidiaries
37,232

 
38,196

 
4,916

Income tax benefit
(7,080
)
 
(5,302
)
 
(4,563
)
Equity in undistributed earnings (loss) of subsidiaries
52,475

 
45,028

 
65,584

Net income
$
96,787

 
$
88,526

 
$
75,063

 

   

92 First Financial Bancorp 2017 Annual Report

Statements of Cash Flows
 
Years Ended December 31,
(Dollars in thousands)
2017
 
2016
 
2015
Operating activities
 
 
 
 
 
Net income
$
96,787

 
$
88,526

 
$
75,063

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
 
Equity in undistributed (earnings) loss of subsidiaries
(52,475
)
 
(45,028
)
 
(65,584
)
Depreciation and amortization
193

 
192

 
78

Stock-based compensation expense
5,446

 
5,354

 
4,049

Deferred income taxes
(360
)
 
584

 
(85
)
(Decrease) increase in dividends payable
579

 
135

 
2

(Decrease) increase in other liabilities
(889
)
 
(389
)
 
1,965

Decrease (increase) in other assets
(6,951
)
 
(9,065
)
 
1,459

Net cash provided by (used in) operating activities
42,330

 
40,309

 
16,947

 
 
 
 
 
 
Investing activities
 
 
 
 
 
Capital contributions to subsidiaries
0

 
(53,000
)
 
(40,000
)
Proceeds from calls and maturities of investment securities
0

 
5,978

 
87

Purchases of investment securities
0

 
(333
)
 
(412
)
Net cash provided by (used in) investing activities
0

 
(47,355
)
 
(40,325
)
 
 
 
 
 
 
Financing activities
 
 
 
 
 
Proceeds from long-term borrowings
0

 
0

 
120,000

Cash dividends paid on common stock
(41,178
)
 
(39,125
)
 
(39,070
)
Treasury stock purchase
0

 
0

 
(4,498
)
Proceeds from exercise of stock options, net of shares purchased
341

 
801

 
744

Excess tax benefit on share-based compensation
0

 
264

 
146

Other
(3,059
)
 
(1,681
)
 
(3,064
)
Net cash provided by (used in) financing activities
(43,896
)
 
(39,741
)
 
74,258

Net increase (decrease) in cash
(1,566
)
 
(46,787
)
 
50,880

Cash at beginning of year
59,285

 
106,072

 
55,192

Cash at end of year
$
57,719

 
$
59,285

 
$
106,072




First Financial Bancorp 2017 Annual Report 93

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
2017
 
 
 
 
 
 
 
 
Interest income
 
$
78,828

 
$
80,789

 
$
84,918

 
$
88,538

Interest expense
 
9,896

 
12,269

 
14,439

 
12,924

Net interest income
 
68,932

 
68,520

 
70,479

 
75,614

Provision for loan and lease losses
 
367

 
467

 
2,953

 
(205
)
Noninterest income
 
 
 
 
 
 
 
 
Gain on sale of investment securities
 
516

 
838

 
276

 
19

All other
 
16,848

 
16,616

 
22,666

 
18,363

Total noninterest income
 
17,364

 
17,454

 
22,942

 
18,382

Noninterest expenses
 
51,045

 
51,556

 
54,443

 
82,898

Income before income taxes
 
34,884

 
33,951

 
36,025

 
11,303

Income tax expense
 
10,470

 
11,215

 
11,199

 
(13,508
)
Net income
 
$
24,414

 
$
22,736

 
$
24,826

 
$
24,811

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.40

 
$
0.37

 
$
0.40

 
$
0.40

Diluted
 
$
0.39

 
$
0.37

 
$
0.40

 
$
0.40

Cash dividends paid per common share
 
$
0.16

 
$
0.17

 
$
0.17

 
$
0.17

Market price
 
 
 
 
 
 
 
 
High
 
$
28.90

 
$
28.95

 
$
28.50

 
$
29.15

Low
 
$
26.00

 
$
25.05

 
$
23.10

 
$
25.30

 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
Interest income
 
$
74,795

 
$
75,183

 
$
77,325

 
$
78,647

Interest expense
 
8,240

 
8,051

 
8,507

 
8,481

Net interest income
 
66,555

 
67,132

 
68,818

 
70,166

Provision for loan and lease losses
 
1,655

 
4,037

 
1,687

 
2,761

Noninterest income
 
 
 
 
 
 
 
 
Gain on sale of investment securities
 
24

 
(188
)
 
398

 
0

All other
 
15,488

 
20,382

 
16,551

 
16,946

Total noninterest income
 
15,512

 
20,194

 
16,949

 
16,946

Noninterest expenses
 
50,720

 
49,413

 
51,105

 
50,163

Income before income taxes
 
29,692

 
33,876

 
32,975

 
34,188

Income tax expense
 
9,878

 
11,308

 
10,125

 
10,894

Net income
 
$
19,814

 
$
22,568

 
$
22,850

 
$
23,294

 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.32

 
$
0.37

 
$
0.37

 
$
0.38

Diluted
 
$
0.32

 
$
0.36

 
$
0.37

 
$
0.38

Cash dividends paid per common share
 
$
0.16

 
$
0.16

 
$
0.16

 
$
0.16

Market price
 
 
 
 
 
 
 
 
High
 
$
18.36

 
$
20.16

 
$
22.52

 
$
29.35

Low
 
$
14.91

 
$
17.49

 
$
18.83

 
$
21.05


First Financial Bancorp common stock trades on the Nasdaq Stock Market under the symbol FFBC.

94 First Financial Bancorp 2017 Annual Report



Total Return to Shareholders

The following graph compares the five-year cumulative total return to shareholders of First Financial Bancorp common stock with that of companies that comprise the Nasdaq Composite Index and the KBW Regional Bank Index. The KBW Regional Bank Index is comprised of 50 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, 2012 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

Q4201610-K_CHARTX23227A04.JPG

 
2012
2013
2014
2015
2016
2017
First Financial Bancorp
100.00

126.61

139.96

140.91

228.81

217.49

Nasdaq Composite Index
100.00

140.16

160.94

172.38

187.84

243.67

KBW Regional Bank Index
100.00

146.83

150.39

159.41

221.77

225.79




First Financial Bancorp 2017 Annual Report 95

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Annual Shareholder Meeting The annual meeting of shareholders will be held on Tuesday, May 22, 2018, at 10:00 a.m. (EDT) via a virtual Shareholder meeting. Common Stock Listing First Financial Bancorp’s common stock trades on the Nasdaq Stock Market (NASDAQ) under the symbol FFBC. Registrar and Transfer Agent Computershare Shareholder Services serves as the registrar and transfer agent for First Financial Bancorp common stock for registered shareholders. Shareholder account inquiries, including changes of address or ownership, transferring stock, and replacing lost certificates or dividend checks should be directed to Computershare Shareholder Services at: Transfer Agent Computershare Shareholder Services P.O. Box 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 are available within the Investor Relations section of our website at www.bankatfirst.com/investor. Shareholders, analysts and other investment professionals who would like corporate and financial information on First Financial Bancorp should contact: John Gavigan Chief Financial Officer First Financial Bancorp 255 East Fifth Street, 29th Floor Cincinnati, OH 45202 513-887-5400 E-mail: InvestorRelations@bankatfirst.com Securities and Exchange Commission Filings All reports filed electronically by First Financial Bancorp with the United States Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current 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. Shareholder Information


96 First Financial Bancorp 2017 Annual Report

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First Financial Bancorp First Financial Center 255 East Fifth Street Suite 800 Cincinnati, OH 45202-4248 www.bankatfirst.com


CODE OF CONDUCT EXHIBIT 14.1

 
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 and Chief Internal Auditor 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 the Manager of the Ethics First Hotline system via email You may also email: Matthew Burgess, Chief Internal Auditor at matthew.burgess@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 the Manager 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 two persons indicated. You may send written correspondence to the attention of any of the following: Audit Committee Chair – Confidential Chief Internal Auditor – 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 Internal Auditor, Chief Talent Officer or 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 / RFPA Customer Information Security Policy Clean Desk Policy Information Technology and Acceptable Use Policy

 
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 Learning and 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 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 Corporate General Counsel if you are uncertain about the appropriateness of a gift or entertainment. 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 The Company will not 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 the chief legal officer.

 
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 24, 2017 Want more information about this topic? Please click the link below: Community Development Commitment Policy

 


EXHIBIT 21


FIRST FINANCIAL BANCORP. SUBSIDIARIES (as of 12/31/16)

Name
 
State of Other Jurisdiction of
Incorporation or Organization
First Financial Bank
 
Ohio
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
 
Delaware
Oak Street Funding LLC
 
Delaware
Oak Street Servicing, LLC
 
Delaware





EXHIBIT 23.1



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the incorporation by reference in the following Registration Statements of First Financial Bancorp:

Form S-8 No.  338-86781
Form S-3 No.  333-25745
Form S-3 No.  333-156841
Form S-3 No.  333-153751
Form S-8 No.  333-168675
Form S-8 No.  333-188593
Form S-3 No. 333-197771
Form S-8 No. 333-218188
Form S-3 No. 333-219554
Form S-4 No. 333-220583

of our report dated February 26, 2018 , relating to the 2017 consolidated financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K.



Crowe Horwath LLP

Indianapolis, Indiana
February 26, 2018



EXHIBIT 23.2



Consent of Independent Registered Public Accounting Firm
 

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 001-34762) of our report dated February 23, 2016, with respect to the consolidated financial statements of First Financial Bancorp for the year ended December 31, 2015 included in its Annual Report (Form 10-K) for the year ended December 31, 2017, filed with the Securities and Exchange Commission.




 /s/ Ernst & Young LLP

Cincinnati, Ohio
February 23, 2018





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: 
2/26/2018
 
/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: 
2/26/2018
 
/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, 2017 , of First Financial Bancorp. (the “Company”), as filed with the Securities and Exchange Commission on February 26, 2018 (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 26, 2018





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, 2017 , of First Financial Bancorp. (the “Company”), as filed with the Securities and Exchange Commission on February 26, 2018 (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 26, 2018