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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ 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 of incorporation) (I.R.S. Employer
Identification No.)
     
255 East Fifth Street, Suite 800 Cincinnati Ohio 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:  (877) 322-9530
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading symbol   Name of each exchange on which registered
Common stock, No par value FFBC   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.
☒ Yes     ☐ 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.
 ☐ Yes     ☒  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.
☒ Yes     ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted 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 such files).
☒ Yes     ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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  ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes    ☒  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, 2020, was $1,334,086,000.  (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 18, 2021, there were issued and outstanding 97,374,512 common shares of the registrant.
Documents Incorporated by Reference:
Portions of the registrant’s Annual Report to Shareholders for the year ended December 31, 2020 are incorporated by reference into Parts I and II. Portions of the registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2021 are incorporated by reference into Part III.

TABLE OF CONTENTS
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TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS


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

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

Forward-looking statements involve risks and uncertainties. Actual results may differ materially from those predicted by the forward-looking statements because of various factors and possible events, including those factors and events identified (i) in "Item 1A. Risk Factors" of this 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 2020 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.


TABLE OF CONTENTS
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, which has elected to become a financial holding company. 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 line of business.

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 commercial financing throughout the U.S. through two wholly-owned subsidiaries of the Bank, Oak Street Funding LLC (Oak Street) and First Franchise Capital Corporation (First Franchise). Oak Street lends to the insurance industry, registered investment advisors, certified public accountants and indirect auto finance companies, while First Franchise lends to restaurant franchisees. Together, these niche lending activities are driven by acquisitions, ownership transitions and financing general working capital needs.  The underwriting of Oak Street's loans involves analyses of collateral (through use of Oak Street’s proprietary system) that consists of revenue, which is then continuously monitored by Oak Street 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
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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.

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 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 risks as described previously for residential real estate loans.

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, 2020, and is incorporated herein by reference.

First Financial's executive office is located at 255 East Fifth Street, Suite 800, Cincinnati, Ohio 45202, and the telephone number is (877) 322-9530.  We maintain a website with the address www.bankatfirst.com. The information contained on our website is not included, a part of or incorporated by reference into this Annual Report on Form 10-K. 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.

COVID-19

The Company's operations and financial results in 2020 were substantially influenced by the COVID-19 pandemic. The pandemic negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, increased unemployment levels and decreased consumer confidence generally. In addition, the pandemic resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities, which directly impacted our financial results and operations.

In response, the Company updated operating protocols to ensure all banking services virtually while prioritizing the health and safety of clients and associates. Banking centers offered drive through services without interruption, while lobbies were fully open or accessible to clients via appointment depending on loacal conditions. Sales associates, support teams and management largely continued working remotely; however, associates located in the Company's corporate offices and operations centers began to gradually return to those locations at reduced capacity levels in the third quarter. In addition, the Company has maintained its focus on enhancing remote, mobile and online processes.

To assist clients during the pandemic, the Company implemented distinct COVID-19 relief programs to provide payment deferrals, fee waivers, and suspension of vehicle repossessions and residential property foreclosures. The Company also actively monitored the actions of federal and state governments to proactively assist clients and ensure awareness of each financial assistance program available.

The Bank underwent a significant level of cross training and redeployment of associate resources to rapidly meet the influx of
client requests in response to the passage of the CARES Act, the establishment of the Paycheck Protection Program and the approval of the Consolidated Appropriations Act. As of December 31, 2020, the Company had approximately 4,900 active PPP loans with $594.6 million in balances, net of unearned fees of $13.7 million.

Further, as of December 31, 2020, the Company had $320.2 million in loans, or 3.2% of the total portfolio, that were deferred to provide relief to borrowers adversely impacted by the pandemic. These deferrals consisted of $291.5 million of loans in which borrowers were temporarily making interest-only payments and $28.7 million of loans in which borrowers were provided temporary relief from full P&I payments.
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First Financial also contributed $1.0 million in the first quarter of 2020 to help fund agencies providing COVID-19 relief efforts in communities throughout its footprint.

Human Capital

At December 31, 2020, First Financial had approximately 2,107 full-time employees located primarily in the states of Ohio, Indiana, Kentucky, and Illinois.

Employee Wellbeing. A key motive behind the Company’s strategic intent is “Investing in our People.” To achieve this goal, First Financial has developed a “Wellbeing Program” that is designed to support employees and their families in a holistic way, focusing on the five core areas of wellbeing: physical, financial, social, community and purpose. The program provides employees with incentives (such as health savings account contributions, paid time off and reimbursements) in exchange for participation in a range of activities, including an annual physical, webinar participation and enrollment in Company fitness activities. In 2020, 62% of eligible employees qualified for benefits under the Wellbeing Program.

Compensation and Benefits. First Financial offers employees competitive short-term and long-term compensation, a comprehensive set of benefits including health, dental and vision insurance, free or low-cost access to an independent provider of primary care clinics, product discounts and various expense reimbursement programs. First Financial also provides all eligible employees with an annual allocation to the First Financial Pension Plan of 5% of eligible annual pay. The pension allocation is 100% company-paid, fully-vested and portable. We regularly review our compensation practices to ensure we are paying employees equitably, taking into consideration such factors as experience, education, and performance.

Employee Engagement. First Financial launched its engagement initiative in 2020, partnering with a third party to measure associate engagement and develop action plans for continued improvement. In 2020, we hosted virtual town hall meetings for all associates, opening the lines of communications and answering associate concerns. In conjunction with the town hall meetings, pulse surveys were completed with themes around wellbeing, return to work, diversity and inclusion, and career coaching and development. These surveys provided insight into our associates’ needs and desires, which we can use in future program development.

Diversity, Equity and Inclusion. First Financial prioritizes diversity, equity and inclusion (DEI) as an employer, a financial institution and as a member of the communities in which we operate. The DEI Committee of the Board provides guidance and oversight to First Financial’s executive committee, the Manager of Diversity, Equity and Inclusion, and the First Financial Diversity Council, which is comprised of 10 associates from across our footprint. First Financial supports several associate-led business resource groups designed to facilitate networking and leadership development. First Financial is in the process of building its DEI strategy which includes establishing goals for increased associate and management diversity. During 2020, First Financial’s CEO held a series of listening sessions with diverse associates as part of our goal to foster a more inclusive environment.

Subsidiaries

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

Business Combinations

In April 2018, First Financial acquired MainSource Financial Group, Inc., an Indiana bank holding company, in a stock-for-stock transaction, and MainSource Bank, a wholly owned subsidiary of MainSource, merged into First Financial Bank. Under the terms of the merger agreement, shareholders of MainSource received 1.3875 common shares of First Financial for each share of MainSource common stock. At the effective time of the merger, MainSource had assets of approximately $4.5 billion and operated 88 full-service offices in Indiana, Ohio, Illinois and Kentucky.

In August 2019, the Company acquired Bannockburn Global Forex, LLC, an industry-leading capital markets firm. The
Cincinnati-based company provides transactional currency payments, foreign exchange hedging and other advisory products to
closely held enterprises, financial sponsors and downstream financial institutions across the United States. Bannockburn
became a division of the Bank and will continue to operate under the name "Bannockburn Global Forex", taking advantage of its existing brand recognition within the foreign exchange industry. The total purchase consideration was $114.6 million consisting of $53.7 million in cash and $60.9 million of First Financial common stock.
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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, Kentucky and Illinois. Market selection is based upon a number of factors, but markets are primarily chosen for their potential for growth, long-term profitability and customer reach. First Financial’s goal is to develop a competitive advantage through a local market focus, building long-term relationships with clients to help them reach greater levels of financial success.

We also compete on a nationwide basis through Oak Street, which lends to the insurance industry, registered investment advisors, certified public accountants and indirect auto finance companies, First Franchise, which lends to restaurant franchisees, and Bannockburn, which provides foreign exchange services to customers throughout the United States.

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 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 consumers, depositors, borrowers, the Deposit Insurance Fund (DIF) of the Federal Deposit Insurance Corporation (FDIC), and the banking system in general and not for the protection of shareholders. These laws and regulations govern areas such as capital, permissible activities, allowance for credit 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

As a bank holding company that has elected to become a financial holding company, First Financial is subject to the provisions of the Bank Holding Company Act of 1956, as amended (the BHCA), and is subject to supervision and examination by the Federal Reserve Board. The BHCA requires prior approval by the Federal Reserve Board in any case where a financial holding company proposes to: (i) acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank that is not already majority-owned by the financial holding company; (ii) acquire all or substantially all of the assets of another bank or another financial or bank holding company; or (iii) merge or consolidate with any other financial or bank holding company. In addition, First Financial’s acquisition of a savings and loan association requires prior Federal Reserve Board approval.

A qualifying bank holding company that has elected to become a financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature and not otherwise permissible for a bank
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holding company, if: (i) the holding company is "well managed" and "well capitalized" and (ii) each of its subsidiary banks (a) is well capitalized under the Federal Deposit Insurance Corporation Act of 1991 prompt corrective action provisions, (b) is well managed, and (c) has at least a "satisfactory" rating under the Community Reinvestment Act (CRA). No regulatory approval is required under the BHCA for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board.

The Financial Services Modernization Act defines “financial in nature” to include:

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

If a financial holding company or a subsidiary bank fails to maintain 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 its subsidiaries and on the ability of the holding company to enter into certain transactions and obtain regulatory approvals for new activities and transactions. The holding company could also be required to divest itself of subsidiaries that engage in activities that are not permitted for bank holding companies that are not financial holding companies. If restrictions are imposed on the activities of a financial holding company, the existence of such restrictions may not be made publicly available pursuant to confidentiality regulations of the bank regulatory agencies.

Each subsidiary bank of a financial holding company is subject to certain restrictions on the maintenance of reserves against deposits, extensions of credit to the financial holding company and its subsidiaries, investments in the stock and other securities of the financial holding company and its subsidiaries and the taking of such stock and securities as collateral for loans to borrowers. Further, a financial holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of any services. Various consumer laws and regulations also affect the operations of these subsidiaries.

In April 2020, the Federal Reserve Board adopted a final rule to revise its regulations related to determinations of whether a company has the ability to exercise control over another company for purposes of the Bank Holding Company Act. The final rule expands and codifies the presumptions for use in such determinations. By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve Board generally views as supporting a facts-and-circumstances determination that one company controls another company. The Federal Reserve Board’s final rule applies to questions of control under the Bank Holding Company Act, but does not extend to the Change in Bank Control Act.

The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including 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 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.

Economic Growth, Regulatory Relief and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the Dodd-Frank Act), has had a broad impact on the financial services industry, imposing significant regulatory and compliance requirements, including the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector. Additionally, the Dodd-Frank Act established a new framework of authority to conduct systemic risk oversight within the United States financial system to be distributed among new and existing federal regulatory agencies, including the United States Financial Stability Oversight Council, the Federal Reserve Board, and the FDIC.

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On May 25, 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the Regulatory Relief Act) was enacted to modify or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act. Bank holding companies with consolidated assets of less than $100 billion, including First Financial, are no longer subject to the enhanced capital, liquidity, risk management and other prudential standards established under the Dodd-Frank Act. The Regulatory Relief Act also relieves bank holding companies and banks with consolidated assets of less than $100 billion, including First Financial, from certain record-keeping, reporting and disclosure requirements. Certain other regulatory requirements applied only to banks with assets in excess of $50 billion and so did not apply to the Company even before the enactment of the Regulatory Relief Act.

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, as amended (FDIA). The Bank is also subject to regulations of the Consumer Financial Protection Bureau (CFPB), which was established by the 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. 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 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 incentivizes 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 approved final rules (the Basel III Capital Rules) implementing the Basel III framework set forth by the Basel Committee on Banking Supervision, as well as certain provisions of the Dodd-Frank Act. 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 were phased in through January 1, 2019.

The Basel III capital rules include (i) a minimum common equity tier 1 capital ratio of at least 4.5%, (ii) a minimum tier 1 capital ratio of at least 6.0%, (iii) a minimum total capital ratio of 8.0% and (iv) a minimum leverage ratio of 4.0%.

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

Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not otherwise permitted), 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 specified 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 Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends and stock repurchases, 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.

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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, 2020, the Bank met the capital ratio requirements to be deemed “well-capitalized.”

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 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 DIF. 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 FDIA 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 December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under the current expected credit loss (CECL) model (accounting standard). The rule revised the federal banking agencies’ regulatory capital rules to identify which credit loss allowances under the CECL model are eligible for inclusion in regulatory capital and to provide banking organizations the option to phase in over three years the day-one adverse effects on regulatory capital that may result from the adoption of the CECL model. Concurrent with the enactment of the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the CARES Act), discussed below, federal banking agencies issued an interim final rule that delayed the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. First Financial adopted the capital transition relief over the five year permissible period.

Debit Card Interchange Fees

The “Durbin Amendment” to the Dodd-Frank Act, also known as Regulation II, was enacted into law in July 2010. The Durbin Amendment limits the amount of interchange fees that banks with assets of $10 billion or more may charge to process electronic debit transactions. Under the Durbin Amendment and the Federal Reserve Board’s implementing regulations, bank issuers which are not exempt may only receive an interchange fee from merchants that is reasonable and proportional to the cost of clearing the transaction. The maximum permissible interchange fee is equal to no more than $0.21 plus 5 basis points of the transaction value for many types of debit interchange transactions. A debit card issuer may also recover $0.01 per transaction for fraud prevention purposes if the issuer complies with certain fraud-related requirements established by the Federal Reserve Board. In addition, the Federal Reserve Board has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks for routing transactions on each debit or prepaid product.

First Financial became subject to the Durbin Amendment on July 1, 2019, which reduced noninterest income by $11.8 million in 2020.

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.
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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 or to fund the retirement of preferred stock. 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 First Financial 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.

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. As a bank with assets of more than $10 billion, First Financial is subject to a deposit assessment based on a 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 its 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 1.5 and 40 basis points. 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 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 reached 1.35%. The reserve ratio reached 1.36% on September 30, 2018, and, as a result, the surcharge on banks with assets of $10 billion or more ceased with the first assessment invoice in 2019. In addition, once the DRR reached 1.38%, the FDIC applied an assessment credit to banks that had assets below $10 billion at any time during the credit calculation period, which includes the Bank.

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. The Dodd-Frank Act established the CFPB, which has
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extensive regulatory and enforcement powers over consumer financial products and services. As a bank with total assets in excess of $10 billion, the Bank is primarily examined by the CFPB with respect to consumer protection laws and regulations. The CFPB has adopted numerous rules with respect to consumer protection laws and has commenced related enforcement actions. The following are just a few of the consumer protection laws applicable to the Bank:

•The CRA: imposes a continuing and affirmative obligation to fulfill the credit needs of its entire community, including low- and moderate-income neighborhoods.

•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.

•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.

•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.

•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.

On July 22, 2020, the CFPB issued a final small dollar loan rule related to payday, vehicle title and certain high cost installment loans (the Small Dollar Rule) that modified a former rule that was issued in November 2013. Specifically, the Small Dollar Rule revokes provisions contained in the 2013 rule that: (i) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; (ii) prescribe mandatory underwriting requirements for making the ability-to-repay determination; (iii) exempt certain loans from mandatory underwriting requirements; and (iv) establish related definitions, reporting, and recordkeeping requirements.

Separately, in May 2018, the OCC published guidance that encourages national banks and federal savings associations to offer responsible short-term, small-dollar installment loans with terms between two and twelve months and equal amortizing payments. Pursuant to the OCC’s guidance on this issue, banks are encouraged to offer these products in a manner that is consistent with sound risk management principles and clear, documented underwriting guidelines. Further, the federal bank regulatory agencies issued interagency guidance on May 20, 2020, to encourage banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes. The Small Dollar Rule did not have a material effect on First Financial’s financial condition or results of operations on a consolidated basis in 2020.

Community Reinvestment Act

Under the 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 from making an election to become a financial holding company. As of its last examination, the Bank received a CRA rating of “satisfactory.”


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Privacy Rules

Federal banking regulators, as required under the Gramm-Leach-Bliley Act, as amended (the GLBA), 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 GLBA affect how consumer information is transmitted through diversified financial services companies and conveyed to outside vendors.

Fiscal and Monetary Policies

The earnings of banks, and, therefore, the earnings of First Financial (and its subsidiaries), are affected by the fiscal and monetary policies of the United States government and its agencies, including the Federal Reserve Board. An important function of the Federal Reserve Board is to regulate the national supply of bank credit in an effort to prevent recession and to restrain inflation. Among the procedures used to implement these objectives are open market operations in United States 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 depository institutions, subject to certain exceptions. Such trading activity includes the purchase or sale as principal of a security derivative, commodity future, option, or similar instrument in order to benefit from short-term price movements or to realize short-term profits. The Volcker Rule exempts trading in specified United States government, agency, state and/or municipal obligations. The Volcker Rule also excludes: (i) 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; (ii) to satisfy a debt previously contracted; (iii) trading under certain repurchase and securities lending agreements; and (iv) trading in connection with risk-mitigating hedging activities. Further, the Volcker Rule prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, also known as “covered funds,” subject to a number of exceptions.

On June 25, 2020, the federal bank regulatory agencies finalized a rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring covered funds. The new rule permits certain banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker Rule was originally intended to address. To the extent First Financial engages in any of the trading activities or has any ownership interests in or relationship with any of the types of funds regulated by the Volcker Rule, First Financial believes that its activities and relationships comply with such rule, as modified through rule-making.

Office of Foreign Assets Control Regulation

The United States Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries and regimes, under authority of various laws, including designated foreign countries, nationals and others. OFAC publishes lists of specially designated targets and countries. First Financial is responsible for, among other things, blocking accounts of, and transactions with, such targets and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked transactions after their occurrence. Failure to comply with these sanctions could have serious financial, legal and reputational consequences, including causing applicable bank regulatory authorities not to approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required. Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

Cybersecurity

In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that
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a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack. If First Financial fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements. First Financial expects this trend of new state-level activity to continue and is actively monitoring developments in the states in which we conduct business.
In the ordinary course of business, First Financial relies on electronic communications and information systems to conduct its operations and to store sensitive data. First Financial employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. First Financial utilizes a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as report on any suspected advanced persistent threats. Notwithstanding the strength of First Financial’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, in addition to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

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.

The Coronavirus Aid, Relief, and Economic Security Act of 2020

In response to the novel COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020, to provide national emergency economic relief measures. Many of the CARES Act’s programs are dependent upon the direct involvement of United States financial institutions, such as the Company and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the United States Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19. In addition, it is possible that Congress will enact supplementary COVID-19 response legislation, including amendments to the CARES Act or new bills comparable in scope to the CARES Act. The Company is
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continuing to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to COVID-19.

The CARES Act amended the loan program of the Small Business Administration (the SBA) in which the Bank participates to create a guaranteed, unsecured loan program, the Paycheck Protection Program (the PPP), to fund operational costs of eligible businesses, organizations and self-employed persons during COVID-19. In June 2020, the Paycheck Protection Program Flexibility Act was enacted, which, among other things, gave borrowers additional time and flexibility to use PPP loan proceeds. Shortly thereafter, and due to the evolving impact of COVID-19, additional legislation was enacted authorizing the SBA to resume accepting PPP applications on July 6, 2020, and extending the PPP application deadline to August 8, 2020. As a participating lender in the PPP, the Bank continues to monitor related legislative, regulatory, and supervisory developments. On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or market risk in association with exposures pledged to such facilities. As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19.

The CARES Act encouraged the Federal Reserve Board, in coordination with the Secretary of the Treasury, to establish or implement various programs to help mitigate the adverse effects of COVID-19 on midsize businesses, nonprofits, and municipalities. In April 2020, the Federal Reserve Board established the Main Street Lending Program (MSLP) to implement certain of these recommendations. The MSLP supported lending to small and medium-sized businesses that were in sound financial condition before the onset of COVID-19. On November 19, 2020, Treasury Secretary Steven Mnuchin indicated that he would not reauthorize extending the MSLP past December 31, 2020. However, the Federal Reserve Board extended the program to January 8, 2021, in order to process loans that were submitted on or before December 14, 2020. The program ended on January 8, 2021.

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 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

The COVID-19 pandemic is adversely affecting us and our customers, employees, and third-party service providers, and the adverse impacts on our business, financial position, results of operations, and prospects could be significant.

COVID-19 has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, increased unemployment levels and decreased consumer confidence, generally. In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. The pandemic could influence the recognition of credit losses in our loan portfolios and increase our allowance for credit losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses. Furthermore, the pandemic could affect the stability of our deposit base as well as our capital and liquidity position, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, result in lost revenue and cause us to incur additional expenses. Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairments in future periods on the securities we hold as well as reductions in other comprehensive income.

The extent of the impact of the COVID-19 pandemic on our capital, liquidity, and other financial positions and on our business, results of operations, and prospects will depend on a number of evolving factors, including:

•The duration, extent, and severity of the pandemic. COVID-19 has not been contained and could affect significantly more households and businesses. The duration and severity of the pandemic continue to be impossible to predict.
•The response of governmental and nongovernmental authorities. Many of the actions taken by authorities have been directed at curtailing personal and business activity to contain COVID-19 while simultaneously deploying fiscal-and monetary-policy measures to assist in mitigating the adverse effects on individuals and businesses. These actions are not consistent across jurisdictions but, in general, have been rapidly expanding in scope and intensity.
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•The effect on our customers, counterparties, employees, and third-party service providers. COVID-19 and its associated consequences and uncertainties may affect individuals, households, and businesses differently and unevenly. In the near-term if not longer, however, our credit, operational, and other risks are generally expected to increase.
•The effect on economies and markets. Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional, and local economies and markets could suffer lasting disruptions.
•The success of hardship relief efforts to bridge the gap to reopening the economy. The U.S. government has implemented programs to directly compensate individuals and grant or loan money to businesses in an effort to provide funding while the economy is shut down. Many banks, including the Bank, have implemented hardship relief programs that include payment deferral and short-term funding options. The success of these programs could mute the effect on the Company's credit losses, which may be difficult to determine.

The duration of these business interruptions and related impacts on our business and operations, which will depend on future developments, are highly uncertain and cannot be reasonably estimated at this time. The pandemic could cause us to experience higher credit losses in our lending portfolio, impairment of our goodwill and other financial assets, reduced demand for our products and services, and other negative impacts on our financial position, results of operations, and prospects. You should consider that the effects of COVID-19 could be particularly pronounced with respect to certain of our lending portfolios:

•Commercial real estate-retail, including retail shopping centers, due to declining interest in such spaces by their users and declining interest in visiting large shared spaces. As of December 31, 2020, the retail portion of our ICRE portfolio was $875.2 million, or 8.8% of our loan portfolio.
•Residential real estate, due to customers' potential loss of income. As of December 31, 2020, this portfolio was $1.0 billion, or 10.1% of our loan portfolio.
•Franchise, which primarily includes quick service and casual dining, due to stay at home orders and requirements that restaurants provide carry-out only service. As of December 31, 2020, this portfolio was $423.8 million, or 4.3% of our loan portfolio.
•Hospitality, including hotel and motel lending, due to travel limitations implemented by governments and businesses as well as declining interest in travel generally. As of December 31, 2020, this portfolio was $433.0 million, or 4.4% of our loan portfolio.

The cumulative effects of COVID-19 and the measures implemented by governments to combat the pandemic on mortgaged properties may cause borrowers to be unable to meet their payment obligations under mortgage loans that we hold and may result in significant losses.

The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are uncertain and difficult to predict. Even after COVID-19 has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus's global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. The effects could have a material impact on our results of operations and heighten many of the other risk factors identified below.

Weakness in the economy and in the real estate market, including specific weakness within our geographic footprint, may affect us, including requiring us to record additional loan loss provision or to charge off 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, especially in light of COVID-19, may 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 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 United States 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
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resultant effect on our loan portfolio and allowance for credit losses. These factors could also result in higher delinquencies and greater charge-offs in future periods, which would materially 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 impact on our operations and financial condition even if other favorable events occur.

Weakness in the real estate market, including the secondary market for residential mortgage loans, could 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 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 or charge-offs in our mortgage loan portfolio 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 effects on borrowers that could result in higher delinquencies and greater charge-offs in future periods, which would affect our financial condition or results of operations. Additionally, declines in real estate values might 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 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 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 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. 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 affected. Earnings could also be 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 general impact of the 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:

•the yield on earning assets and rates paid on interest bearing liabilities may change in disproportionate ways;
•the value of certain balance sheet and off-balance sheet financial instruments or the value of equity investments that we hold could decline;
•the value of assets for which we provide processing services could decline;
•the demand for loans and refinancings may decline, which could negatively impact income related to loan originations; or
•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 affect our financial condition, results of operations and liquidity.

We may be impacted by the transition from LIBOR as a reference rate.

The London Interbank Offered Rate (LIBOR) is used extensively in the United States and globally as a reference rate for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. In November 2020, the Federal Reserve Board issued a statement supporting the release of a proposal and supervisory statements designed to provide a clear end date for U.S. Dollar LIBOR (USD LIBOR), and the federal banking
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agencies issued a release encouraging banks to stop entering into USD LIBOR contracts by the end of 2021, noting that most legacy contracts will mature prior to the date LIBOR ceases to be issued. It is uncertain at this time the extent to which those entering into financial contracts will transition to any other particular benchmark. Other benchmarks may perform differently than LIBOR or other alternative benchmarks or have other consequences that cannot currently be anticipated. It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding when LIBOR ceases to exist.

The Federal Reserve Board, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large financial institutions, is considering replacing USD LIBOR with a new index calculated by short-term repurchase agreements, backed by United States Treasury securities, otherwise known as the Secured Overnight Financing Rate (SOFR). SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR). SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions. The extent to which SOFR attains traction as a LIBOR replacement tool is not known, although transactions using SOFR have been completed, including by Fannie Mae. Both Fannie Mae and Freddie Mac ceased accepting adjustable rate mortgages tied to LIBOR and began accepting mortgages based on SOFR in 2020, and many issuers are now utilizing SOFR.

First Financial has established a working group to manage the LIBOR transition process. The working group has identified all LIBOR-related contracts and determined which will require amended language to incorporate a substitute reference rate. The working group has also developed and implemented flexible language regarding reference rates for all new loan products and agreements. First Financial continues to consider a replacement index for 2021 and beyond.

Until this replacement rate is identified and all agreements have been addressed, we will continue to have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk for us. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Further, our failure to adequately manage this transition process with our customers could impact our reputation. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, any market-wide transition away from LIBOR could adversely affect our business, financial condition and results of operations.

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 collateral, or in the local or national economy, could affect our customers' ability to pay these loans, which in turn could impact our results of operations and financial condition. Additionally, increases in unemployment also may 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. This is especially relevant in light of the impact COVID-19 has had on national and local economies. 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 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 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 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 loss 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 reviews of economic conditions and how these economic conditions 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 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 effect on our business, results of operations and financial condition.

Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.

We maintain an allowance for credit losses to provide for loans in our portfolio that may not be repaid in their entirety. We believe that our allowance for credit losses is maintained at a level adequate to absorb expected losses over the life of the life of the loans in the loan portfolio as of the corresponding balance sheet date. However, our allowance for credit losses may not be sufficient to cover actual loan losses, and future provision for credit losses could materially affect our operating results. The accounting measurements related to the allowance for credit losses require significant estimates which are subject to uncertainty and change related to new information and changing circumstances. Management estimates the allowance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. 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.

In addition, bank regulators periodically review our allowance for credit losses and may require us to increase our provision for loan losses or recognize further loan charge-offs. Moreover, the FASB has changed its requirements for establishing the allowance for credit losses. The new accounting guidance requires banks to record, at the time of origination, credit losses expected throughout the life of the asset on loans, leases and held-to-maturity debt securities, as opposed to the previous practice of recording losses when it was probable that a loss event had occurred. We adopted the CECL accounting guidance in 2020 and recognized a one-time cumulative effect adjustment to our allowance for credit losses and retained earnings as of January 1, 2020. Concurrent with the enactment of the CARES Act, federal bank regulatory agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact
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of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay.

We adopted CECL in the first quarter of 2020, including the regulatory phase-in. As a result, credit loss allowances, including reserves for unfunded commitments, increased $73.7 million on January 1, 2020, resulting in a corresponding decrease in retained earnings and a delayed impact to regulatory capital. CECL implementation poses operational risk, including the failure to properly transition internal processes or systems, which could lead to errors, financial misstatements or operational losses. As a result of CECL, our financial results may be negatively affected as soon as weak or deteriorating economic conditions are forecasted and alter our expectations for credit losses. In addition, we incurred a significant provision expense of $70.6 million during 2020, primarily as a result of COVID-19, and may incur significant provision expense for credit losses in future periods as well.

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 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 effect on the Bank’s business.

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 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. The OCC has also announced that it will accept applications for national bank charters from non-depository financial technology companies engaged in banking activities. These developments 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 affect our profitability.

The principal bases for competition are pricing (including the interest rates charged on loans or paid on interest bearing deposits), product structure, the range of products and services offered, and the quality of customer service (including convenience and responsiveness to customer needs and concerns). The ability to access and use technology is an increasingly important competitive factor in the financial services industry, and it is a critically important component to customer satisfaction as it affects our ability to deliver the right products and services.

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Failure to adequately address the competitive pressures we face could make it harder for us to attract and retain customers across our businesses. Similarly, meeting these competitive pressures could require us to incur significant additional expense, to reevaluate the number of branches through which we serve our customers, or to accept risk beyond what we would otherwise view as desirable under the circumstances. In addition, competitive pressure to increase rates on deposits or decrease rates on loans could reduce our net interest margin with a resulting negative impact on our net interest income.

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, in addition to increasing our funding costs.

Our wealth management business subjects us to a variety of investment and market risks.

At December 31, 2020, we had $3.0 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.

Our foreign exchange business is largely dependent upon a small number of large clients and volatility in the markets.

In August 2019, First Financial acquired Bannockburn, which is engaged in various foreign exchange market activities. Bannockburn’s business model relies, to some extent, upon a small number of large clients engaged in foreign currency transactions. The loss of one or more of these large client would adversely affect the revenue derived from Bannockburn. Additionally, foreign currency transactions increase as volatility in the market increases. Sustained periods of stability in the financial markets could adversely affect Bannockburn’s revenue.

Negative public opinion could damage our reputation and 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, social media and other marketing activities, or from actions taken by government regulators and community organizations in response to any of the foregoing. Negative public opinion could affect our ability to attract and/or retain clients, could expose us to litigation and regulatory action, and could have a material adverse effect on our stock price or result in heightened volatility. Negative public opinion could also affect our ability to borrow funds in the unsecured wholesale debt markets.

We rely on other companies to provide key components of our business infrastructure, creating risks of failures by such companies and cybersecurity incidents involving our customers’ information.

Third parties provide key components of our business infrastructure, such as processing and Internet connections and network access. These vendors also provide services that support our operations, including the storage and processing of sensitive consumer and business customer data, as well as our sales efforts. Any disruption in such services provided by these third parties or any failure of these third parties to handle current or higher volumes could affect our ability to deliver products and services to clients and to efficiently and effectively conduct our business. Technological or financial difficulties of a third-party service provider could affect our business to the extent those difficulties result in the interruption or discontinuation of services provided by that party. Further, the operations of our third-party vendors could fail or otherwise become delayed as a result of COVD-19.

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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. We may experience liability 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 could 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 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.

Additionally, we could be 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 an impact on our systems and operations from natural disasters, terrorism and international hostilities. Such events can also impact power or communications systems operated by others on which we rely.

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 breach of the systems of a credit bureau in 2019 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 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 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 effect on our business.

Cybersecurity 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. Congress and the legislatures of states in which we operate regularly consider legislation that would impose more stringent data privacy requirements.

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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 affect us.

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 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 the 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 December 31, 2020, the Bank had $198.0 million available to pay dividends to First Financial without prior regulatory approval.

To enhance liquidity, we may borrow under credit facilities or from other sources. 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 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, 2020, we had indebtedness of $942.8 million.

Disruptions in our ability to access capital markets on desirable terms may 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 on acceptable or desirable terms, such as a decline in the confidence of debt purchasers, a downgrade in our credit rating, or a downgrade in the credit rating of our depositors or counterparties participating in the capital markets, may affect our capital costs and our ability to raise capital and, in turn, our liquidity.

In addition, prior debt offerings could potentially have important consequences to us and our debt and equity investors, including:
•requiring a substantial portion of our cash flow from operations to make interest payments;
•making it more difficult to satisfy debt service and other obligations;
•increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
•increasing our vulnerability to general adverse economic and industry conditions;
•reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
•placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and
•limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase securities.

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We are continuing to evaluate these risks on an ongoing basis.

Significant or sustained declines in our current market capitalization could impact the carrying value of our goodwill.

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.

Other considerations include forecasts of revenues and expenses derived from internal management projections for a period of five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective and require significant management judgment. Changes in these key assumptions could materially affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.

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

The credit rating agencies assessing 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 changes in rating methodologies and conditions affecting the financial services industry and the economy. There can be no assurance that we will maintain our current credit rating. A downgrade of the credit rating of the Company could 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.

Potential acquisitions may disrupt our business and dilute shareholder value, and we may not be able to successfully consummate or integrate such acquisitions.

Acquiring other banks, businesses, or branches involves various risks commonly associated with acquisitions, including, among other things:
•potential exposure to unknown or contingent liabilities of the target company;
•exposure to potential asset quality issues of the target company;
•difficulty and expense of integrating the operations and personnel of the target company;
•difficulty or added costs in the wind-down of non-strategic operations;
•potential disruption to our business;
•potential diversion of our management’s time and attention;
•the possible loss of key employees and customers of the target company;
•difficulty in estimating the value (including goodwill) of the target company;
•difficulty in receiving appropriate regulatory approval for any proposed transaction; 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. Acquisitions could involve the payment of a premium over book and market values, and, therefore, dilution of our tangible book value and net income per common share may occur in connection with any such 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 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
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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 re-state prior period financial statements.

See the “Critical Accounting Policies” in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1- Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements, in our 2020 Annual Report (included within Exhibit 13 to this Form 10-K) 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 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.

In June 2016, FASB issued CECL. CECL was expected to result in earlier recognition of credit losses and required consideration of not only past and current events but also reasonable and supportable forecasts that affect collectability. The Bank became subject to the new standard in the first quarter of 2020. Concurrent with the enactment of the CARES Act, federal banking agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL. The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay. The CECL standard requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. See Note 2 - Accounting Standards Recently Adopted or Issued and Note 6 - Allowance for Credit Losses in the Company's Form 10-K for further information regarding the Company's adoption of CECL and the corresponding allowance for credit losses.

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 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 management's system of controls 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 management's system of controls, misstatements due to error or fraud may occur and not be detected.
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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 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 Federal Reserve Board, the FDIC, the SEC, the CFPB, the Financial Industry Regulatory Authority, and the ODFI. 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 operate our business. These actions could impact the Company and the Bank in a variety of ways, including subjecting us to 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.

General Risk Factors

Weaknesses of other financial institutions could affect us.

Our ability to engage in routine funding transactions could be affected by the actions and lack of commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, and counterparty relationships, among others. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry in general, have led 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 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.

The fiscal and monetary policies of the United States government and its agencies could have an 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 affect the value of certain financial assets we hold, such as debt securities. The policies of the Federal Reserve Board can also affect borrowers, potentially increasing the risk that they may fail to repay their loans. Changes in Federal Reserve Board policies are beyond our control and difficult to predict; consequently, the impact of these changes on our activities and results of operations is difficult to predict.


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Changes in tax laws could 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 tax liability could have a material 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 affect their ability to purchase homes or consumer products, which could 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.

Item 1B.  Unresolved Staff Comments.
None.

Item 2.  Properties.
At December 31, 2020, the Company operated 143 full service banking centers, 32 of which are leased facilities.  Our core banking operating markets are located within the four state region of Ohio, Indiana, Kentucky and Illinois. First Financial's executive office is a leased facility located in Cincinnati, Ohio and we operate 63 banking centers in Ohio, three banking centers in Illinois, 63 banking centers in Indiana and 14 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, 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. 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.

Item 4. Mine Safety Disclosures.
Not applicable.
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Supplemental Item. Information About Our Executive Officers.

The following table sets forth information concerning the executive officers of First Financial as of February 19, 2021. The executive officers perform policy-making functions for First Financial. The officers are elected annually at the organizational meeting of the board of directors and serve until the next organizational meeting, or until their successors are elected and duly qualified.
Position with
First Financial Bancorp 		Age
Archie M. Brown President and Chief Executive Officer 60
James M. Anderson EVP, Chief Financial Officer 49
Andrew K. Hauck EVP, Chief Commercial Banking Officer 59
Catherine M. Myers EVP, Consumer Banking 59
John M. Gavigan EVP, Chief Operating Officer 42
Karen B. Woods EVP, General Counsel and Chief Risk Officer 52
William R. Harrod EVP, Chief Credit Officer 53
Amanda N. Neeley EVP, Chief Strategy Officer 40

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

Archie M. Brown - Archie Brown is the President, Chief Executive Officer and a director of First Financial and the Bank, having been appointed to these positions on April 1, 2018 following First Financial’s acquisition of MainSource Financial Group, Inc. Previously, he served as the President and Chief Executive Officer of MainSource from August 2008 until April 2018 and chairman of the board of MainSource from April 2011 until April 2018.

James M. Anderson - Jamie Anderson became the Chief Financial Officer of First Financial and the Bank on April 1, 2018 following the merger of First Financial and MainSource. Previously Mr. Anderson served as the Chief Financial Officer of MainSource from January 2006 to April 2018. Prior to that role, he served in the following roles at MainSource: Administrative Vice President and Principal Accounting Officer from March 2005 to January 2006, Controller and Principal Accounting Officer from March 2002 to March 2005, and Controller from September 2000 to March 2002. Mr. Anderson is a certified public accountant (inactive).

Andrew K. Hauck - Andy Hauck is the Chief Commercial Banking Officer of First Financial. Mr. Hauck joined the organization in January 2019 following a long career with another institution. In his current capacity, he is responsible for all facets of the wholesale business of the Bank, including direct lending, treasury and other fee-based services, deposit gathering in the Commercial and Industrial space, as well as the Bank’s specialized units (Investor Commercial Real Estate, Business Capital, Equipment Finance and Foreign Exchange). Mr. Hauck’s prior experience includes these areas as well as International Banking, Capital Markets, and other forms of specialty finance.

Catherine M. Myers - Cathy Myers serves as Executive Vice President, Consumer Banking for First Financial and the Bank.  She is responsible for Retail Banking, Wealth Management, Mortgage Banking and Business Banking.  Cathy joined First Financial in 2018 and has over 34 years of experience in the banking industry. Prior to joining First Financial, Cathy served in various leadership capacities at U.S. Bank and Key Bank.  Most recently she was the USB Consumer Bank Technology Executive.  She began her career in banking as a Management Trainee for First National Bank of Southwestern Ohio.

25
John M. Gavigan - John Gavigan is the Executive Vice President, Chief Operating Officer for First Financial where he is responsible for Enterprise Digital Solutions, Information Technology, Operations, Customer Support Center, Project Management and Corporate Facilities.  Mr. Gavigan was appointed to his current role in late 2018, having previously served as Chief Administrative Officer for the majority of 2018 and Chief Financial Officer from 2014 through early 2018. He joined the Company in 2008 as Assistant Controller and also served as Corporate Controller from 2011 into 2014. Mr. Gavigan is a certified public accountant (inactive).

Karen B. Woods - Karen Woods serves as General Counsel and Chief Risk Officer of First Financial. She joined First Financial in April 2018 following the merger of First Financial and MainSource. She previously served as Corporate Counsel and Chief Risk Officer of MainSource from January 2016 to April 2018. Prior to joining MainSource, Ms. Woods was a partner at Krieg DeVault LLP in Indianapolis, Indiana. Ms. Woods previously served as a judicial law clerk to the Honorable John G. Baker, Indiana Court of Appeals.

William R. Harrod - Bill Harrod is the Chief Credit Officer of First Financial, a role he has held since October 2017. He is responsible for managing and monitoring the loan portfolio and other related credit functions in a risk appropriate manner including underwriting, approval, and collections. Mr. Harrod first joined First Financial in 2015 and has held various credit and management positions since then in specialty banking, corporate banking, commercial and industrial lending and commercial finance.

Amanda N. Neeley - Mandy Neeley is the Chief Strategy Officer of First Financial, a role she has held since 2016.  Ms. Neeley is responsible for the launch and evolution of the First Financial brand, the introduction of the Premier Business Bank acquisition strategy, the advancement of sales process and enterprise CRM, and development of a formalized strategic planning program.  Ms. Neeley has spent her entire career in banking with the Bank, beginning as a part-time teller during college and, after graduating in 2003, Marketing Coordinator.
26
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, 2020, with respect to our stock price and dividends, is incorporated herein by reference in response to this item.

As of February 18, 2021, our common shares were held by approximately 4,103 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, 2020, a total of 27,451 stock options and 763,283 shares of restricted stock were outstanding. Additional information about stock options, restricted stock and restricted stock units is included in Note 20 - Stock Options and Awards in the Notes to Consolidated Financial Statements in First Financial’s 2020 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 2020 Annual Report (included as Exhibit 13 of this report), which is incorporated by reference in response to this item.

Stock Performance Graph

The stock performance graph contained in “Total Return to Shareholders” of First Financial's 2020 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

None.
 
(c)Issuer Purchases of Equity Securities

In December 2018 the Board approved a stock repurchase plan pursuant to which the Company was authorized to repurchase up to 5,000,000 shares of stock through December 31, 2020. On December 22, 2020, the Board announced that it authorized a new repurchase plan that provided for the purchase of up to 5,000,000 additional shares of common stock of the Company (the 2020 Repurchase Plan). The 2020 Repurchase Plan became effective January 1, 2021, upon the expiration of the previously authorized stock repurchase plan, and will expire December 31, 2022. First Financial did not repurchase any shares in the fourth quarter of 2020 under this Plan.

Item 6.  Selected Financial Data.
The information contained in Table 1 of the Management’s Discussion and Analysis section of First Financial's 2020 Annual Report (included as Exhibit 13 of this report), is incorporated herein by reference in response to this item.

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 2020 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 14 - Market Risk Disclosure of the Management’s Discussion and Analysis section in First Financial's 2020 Annual Report (included as Exhibit 13 of this report), is incorporated herein by reference in response to this item.

27
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 2020 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 2020 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
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 defined in Rule 13a-15(e) under the Exchange Act)
as of the end of the fiscal year 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 to ensure that material information required to be disclosed by First Financial, including its consolidated subsidiaries, in the reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

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 2020 Annual Report (included as Exhibit 13 of this report), are incorporated herein by reference.

Changes in Internal Controls Over Financial Reporting
There were no changes in First Financial’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, First Financial’s internal control over financial reporting.

Item 9B.  Other Information.
None.

28
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,” “Shareholder Nominations for Election to the Board” and "Delinquent Section 16(a) Reports" of First Financial's Definitive Proxy Statement with respect to the Annual Meeting of Shareholders to be held on May 25, 2021, 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.

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 heading “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.

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2020 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 27,451  $ 10.53  5,454,816 
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. 2020 Stock Plan, which was approved by the shareholders at the 2020 Annual Meeting.

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 2020 Annual Report (included as Exhibit 13 of this report) is incorporated herein by reference in response to this item.  The information appearing under the heading “Corporate Governance-Transactions with Related Parties” in First Financial’s Proxy Statement is incorporated herein by reference 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.

29
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 2020 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 2020 Annual Report
    Consolidated Balance Sheets as of December 31, 2020 and 2019 - Incorporated by reference from First Financial’s 2020 Annual Report
    Consolidated Statements of Income for years ended December 31, 2020, 2019 and 2018 - Incorporated by reference from First Financial’s 2020 Annual Report
Consolidated Statements of Comprehensive Income for years ended December 31, 2020, 2019 and 2018 - Incorporated by reference from First Financial’s 2020 Annual Report
    Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2020, 2019 and 2018 - Incorporated by reference from First Financial’s 2020 Annual Report
    Consolidated Statements of Cash Flows for years ended December 31, 2020, 2019 and 2018 - Incorporated by reference from First Financial’s 2020 Annual Report
    Notes to Consolidated Financial Statements - Incorporated by reference from First Financial’s 2020 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
(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
3.1
3.2
4.1
30
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
31
4.19
4.20
4.21
10.1
10.2
10.3
10.4
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
32
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
13
14.1
14.2
21
23
31.1
31.2
33
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, 2020, 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.


Item 16. Form 10-K Summary.
None.

34
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/ Archie M. Brown
Archie M. Brown, Director
President and Chief Executive Officer
Date  2/19/2021

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/ Archie M. Brown /s/ James M. Anderson
Archie M. Brown, Director
President and Chief Executive Officer 		  James M. Anderson, Executive Vice President and Chief Financial Officer
       
Date 2/19/2021   Date 2/19/2021
       
/s/ Claude E. Davis   /s/ Scott T. Crawley
Claude E. Davis, Director   Scott T. Crawley, First Vice President and Controller
Chairman of the Board   (Principal Accounting Officer)
       
Date 2/19/2021   Date 2/19/2021
       
/s/ J. Wickliffe Ach /s/ William G. Barron
J. Wickliffe Ach, Director   William G. Barron, Director
       
Date 2/19/2021   Date 2/19/2021
       
/s/ Vincent A. Berta   /s/ Cynthia O. Booth
Vincent A. Berta, Director   Cynthia O. Booth, Director
       
Date 2/19/2021   Date 2/19/2021
/s/ Corinne R. Finnerty   /s/ Susan L. Knust
Corinne R. Finnerty, Director   Susan L. Knust, Director
       
Date 2/19/2021   Date 2/19/2021
       
/s/ William J. Kramer /s/ John T. Neighbours
William J. Kramer, Director John T. Neighbours, Director
Date 2/19/2021   Date 2/19/2021
35
TABLE OF CONTENTS
       
/s/ Thomas M. O'Brien   /s/ Maribeth S. Rahe
Thomas M. O'Brien, Director   Maribeth S. Rahe, Director
   
Date 2/19/2021   Date 2/19/2021

36
EXHIBIT 10.34        
AGREEMENT FOR RESTRICTED STOCK AWARD
This Agreement for Restricted Stock Award (the "Agreement") is made between FIRST FINANCIAL BANCORP., an Ohio corporation (the "Corporation"), and /$ParticipantName$/ (the "Grantee") who, as of /$GrantDate$/, which is the date of this Agreement, is an employee of the Corporation or a Subsidiary (as defined below).
WHEREAS, the Corporation established the First Financial Bancorp. 2020 Stock Plan (the "Plan"), and a Committee of the Board of Directors of the Corporation designated in the Plan (the "Committee") approved the execution of this Agreement containing the Restricted Stock Award to the Grantee upon the terms and conditions set forth in this Agreement.
WHEREAS, a Prospectus is delivered to the Grantee 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 Restricted Stock. The Corporation hereby awards to Grantee as of the date of this Agreement /$AwardsGranted$/ shares of restricted Common Stock of the Corporation ("Common Stock"), without par value, in consideration of services to be rendered.
2.Restrictions on Transfer. The shares of restricted Common Stock so received by the Grantee and any additional shares attributable thereto received by the Grantee as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to the restrictions set forth herein and may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restriction Period, except as permitted hereby.
3.Restriction Period. The Restriction Period as used in this Agreement shall mean the period that begins as of the date of this Agreement and ends with respect to the restricted Common Stock granted under this Agreement as of the applicable anniversary date(s) of the date of this Agreement (the "Anniversary Dates") as set forth below in the Vesting Schedule. The ending of the Restriction Period also may be referred to in this Agreement as the vesting of the restricted Common Stock or as when the Common Stock vests.
Vesting Schedule
    Shares of Common Stock
    Anniversary Date    First Eligible to Vest on
    Group    of this Agreement    Indicated Anniversary Date
A    1st anniversary date            33.33%
B    2nd anniversary     date            33.33%
C    3rd anniversary date            33.34%

Notwithstanding the foregoing or anything in this Agreement to the contrary, if the Committee determines that (i) there has been a Change in Control (as such term is defined in the Plan), and (ii) within 18 months following the Change in Control, the Grantee’s employment with the Corporation or any of its Subsidiaries is terminated without Cause or by the Grantee for Good Reason, the Restriction Period ends with respect to such shares of restricted Common Stock as of the date such termination takes effect. At such time, all Common Stock shall become fully vested and transferable.
Notwithstanding the foregoing, if Grantee’s employment with the Corporation or Subsidiary (as applicable) terminates due to death, Disability, or retirement after achieving Retirement Eligibility (defined below), as determined by the Committee, the Restriction Period shall lapse with respect to any shares of restricted Common Stock not vested as of the date termination of employment occurs,


and such shares of restricted Common Stock shall become fully vested. Any shares vesting as a result of death or Disability shall thereafter be fully transferable. Shares vesting as a result of Retirement shall be subject to a holding period ending on the Anniversary Date(s) applicable to such shares under Section 3 of this Agreement.
4.Retirement Eligibility. In the event nonvested shares of restricted Common Stock awarded hereunder are deemed to be immediately subject to state and local income taxation (and subject to withholding under Section 10 of this Agreement) upon Grantee’s attainment of age 55 and completion of ten (10) years of service as an Employee (“Retirement Eligibility”), the Corporation shall use such nonvested shares of restricted Common Stock to satisfy Grantee’s withholding obligation. In that event, all remaining shares of awarded restricted Common Stock will continue to be nonvested and subject to forfeiture and transferability restrictions until the earlier of (i) the Anniversary Date(s) applicable to such shares under Section 3 of this Agreement, or (ii) the occurrence of any event that would have otherwise caused such shares to become vested under this Agreement.
5.Forfeiture. Except as provided in Sections 3 and 4 of this Agreement, Grantee hereby agrees that if his or her employment with the Corporation or a Subsidiary is terminated for any reason, voluntarily or involuntarily, whether by resignation or dismissal for Cause or otherwise, and such termination is prior to the end of the Restriction Period applicable to any shares of the restricted Common Stock, the Grantee's ownership and all related rights with respect to all shares of Common Stock for which the Restriction Period has not ended as of the date that the termination of employment occurs will be forfeited automatically as of the date that such termination of employment occurs, and the Corporation automatically will become the sole owner of such shares as of such date.
A transfer of the Grantee's employment between Subsidiaries or between any Subsidiary and the Corporation will not be considered a termination of employment for purposes of this Agreement. Notwithstanding the foregoing, a Grantee's employment will be considered terminated for purposes of this Agreement as of the date that the Grantee's employing Subsidiary ceases to be a Subsidiary for any reason, unless prior to or as of such date the Grantee's employment is transferred to the Corporation or to a remaining Subsidiary.
6.Clawback Provision.
The shares of restricted Common Stock so received by the Grantee and any additional shares attributable thereto received by the Grantee as a result of any stock dividend, recapitalization, merger, reorganization or similar event are subject to any Corporation clawback policy, as may be amended from time to time, and the clawback provisions in the Plan.
7.Issuance of Stock Awards.
(a)Upon award of the restricted Common Stock to the Grantee, shares of restricted Common Stock shall be evidenced by a book entry registration by the Corporation for the benefit of the Grantee. Each such registration will be held by the Corporation or its agent. Any restricted Common Stock of the Corporation resulting from any stock dividend, recapitalization, merger, reorganization or similar event will also be held by the Corporation or its agent. All such Common Stock evidenced thereby will be subject to the forfeiture provisions, limitations on transferability and all other restrictions herein contained.
(b)With regard to any shares of restricted Common Stock that become fully vested and transferable hereunder, the Corporation will, within sixty (60) days of the date such shares become fully vested and transferable, transfer Common Stock for such shares free of all restrictions set forth in the Plan and this Agreement to the Grantee or the Grantee's designee, or in the event of such Grantee's death, to the Grantee's legal representative, heir or legatee.
2

(c)By accepting shares of restricted Common Stock, the Grantee agrees not to sell shares at a time when applicable laws or the Corporation's rules prohibit a sale. This restriction shall apply as long as the Grantee is an employee, consultant or director of the Corporation or a Subsidiary. The Grantee agrees, if requested by the Corporation, to hold such shares for investment and not with a view of resale or distribution to the public, and if requested by the Corporation, the Grantee must deliver to the Corporation a written statement satisfactory to the Corporation to that effect.
8.Shareholder's Rights. Subject to the terms of this Agreement, during the Restriction Period:
(a)The Grantee will have, with respect to the restricted Common Stock, the right to vote all shares of the restricted Common Stock received under or as a result of this Agreement, including shares which are subject to the restrictions on transfer in Section 2 and to the forfeiture provisions in Section 5 and (if applicable) the holding requirements in Section 7 of this Agreement.
(b)The Grantee shall not be paid any cash dividends with respect to the restricted Common Stock until each Restricted Period ends. At the time of vesting, the Grantee shall receive a cash payment equal to the aggregate dividends (without interest) that the Grantee would have received if the Grantee had owned all the shares in which the Grantee had vested for the period beginning on the date of grant of those shares, and ending on the date of vesting. By way of example, when the Restricted Period ends for Group B awards, Grantee will be entitled to two years of accumulated dividends from the date of grant to the 2nd anniversary date. No dividends shall be paid to the Grantee with respect to any shares of restricted Common Stock that are forfeited by the Grantee.
9.Regulatory Compliance. The issue of shares of restricted Common Stock and Common Stock will be subject to full compliance with all then-applicable requirements of law and the requirements of the exchange upon which Common Stock may be traded, as set forth in the Plan. Furthermore, the Corporation shall have the right to refuse to issue or transfer any shares under this Agreement if the Corporation, acting in its absolute discretion determines that the issuance or transfer of such Common Stock might violate any applicable law or regulation.
10.Withholding Tax. The Grantee agrees that, in the event that the award and receipt of the restricted Common Stock or the expiration of restrictions thereon results in the Grantee's realization of income which for federal, state or local income tax purposes is, in the opinion of counsel for the Corporation, subject to withholding of tax at source by the Grantee's employer, the Grantee will pay to such Grantee's employer an amount equal to such withholding tax or make arrangements satisfactory to the Corporation regarding the payment of such tax (or such employer on behalf of the Corporation may withhold such amount from Grantee's salary or from dividends paid by the Corporation on shares of the restricted Common Stock or any other compensation payable to the Grantee). In addition, the Corporation shall have the right to, and in the event Grantee attains Retirement Eligibility prior to his or her termination of employment, the Corporation shall retain or sell without notice sufficient Common Stock to cover the amount of any such tax required to be withheld with respect to such Common Stock being issued or vested, remitting any balance to the Grantee. Alternatively, if the Grantee makes a proper Code Section 83(b) election, the Grantee must notify the Corporation in accordance with the requirements of Code Section 83(b) and promptly pay the Corporation the applicable federal, state and local withholding taxes due with respect to the shares of restricted Common Stock subject to the election.
11.Investment Representation. The Grantee represents and agrees that if he or she is awarded and receives the restricted Common Stock at a time when there is not in effect under the Securities Act of 1933 a registration statement pertaining to the shares and there is not available for delivery a prospectus meeting the requirements of Section 10(A)(3) of said Act, (i) he or she will accept and receive such shares for the purpose of investment and not with a view to their resale or distribution, (ii) that upon such award and receipt, he or she will furnish to the Corporation an investment letter in
3

form and substance satisfactory to the Corporation, (iii) prior to selling or offering for sale any such shares, he or she will furnish the Corporation with an opinion of counsel satisfactory to the Corporation to the effect that such sale may lawfully be made and will furnish the Corporation with such certificates as to factual matters as the Corporation may reasonably request, and (iv) that certificates representing such shares may be marked with an appropriate legend describing such conditions precedent to sale or transfer.
12.Federal Income Tax Election. The Grantee hereby acknowledges receipt of advice that, pursuant to current federal income tax laws, (i) he or she has thirty (30) days in which to elect to be taxed in the current taxable year on the fair market value of the restricted Common Stock in accordance with the provisions of Internal Revenue Code Section 83(b), and (ii) if no such election is made, the taxable event will occur upon expiration of restrictions on transfer at termination of the Restriction Period and the tax will be measured by the fair market value of the restricted Common Stock on the date of the taxable event.
13.Adjustments. If, after the date of this Agreement, the Common Stock of the Corporation is, as a result of a merger, reorganization, consolidation, recapitalization, reclassification, split-up, spin-off, separation, liquidation, stock dividend, stock split, reverse stock split, property dividend, share repurchase, share combination, share exchange, issuance of warrants, rights or debentures or other change in corporate structure of the Corporation, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Corporation or of another corporation, then:
(a)there automatically will be substituted for each share of restricted Common Stock for which the Restriction Period has not ended granted under the Agreement the number and kind of shares of stock or other securities into which each outstanding share is changed or for which each such share is exchanged; and
(b)the Corporation will make such other adjustments to the securities subject to provisions of the Plan and this Agreement as may be appropriate and equitable; provided, however, that the number of shares of restricted Common Stock will always be a whole number.
14.Nonsolicitation and Non-disclosure of Confidential Information.
(a)Nonsolicitation of Clients. During the Grantee's employment with the Corporation or any Affiliated Companies (as defined below) and for a period of one year after Grantee is no longer employed by any Affiliated Companies, Grantee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for the Corporation or any Affiliated Companies):
(i)Solicit (as defined below) any person or entity located in the Restricted Territory for the provision of any Restricted Services;
(i)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
(ii)Interfere with or damage (or attempt to interfere with or damage) any relationship between any Affiliated Company and any Client.
i.Nonsolicitation of Employees; No Hire. During the Grantee's employment with the Corporation or any Affiliated Companies and for a period of one year after Grantee is no longer employed by
4

the Corporation or any Affiliated Companies, Grantee shall not, directly or indirectly, whether individually or as a shareholder or other owner, partner, member, director, officer, employee, independent contractor, creditor or agent of any person (other than for any Affiliated Company):
(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 the Corporation or an Affiliated Company.
ii.Non-disclosure of Confidential Information.
(i)During Grantee's employment with Corporation or any Affiliated Company and after the termination of such employment for any reason, Grantee shall not, without the prior written consent of the General Counsel of Corporation (or such person's designee) or as may be otherwise required by law or legal process, communicate or divulge any Confidential Information to any person or entity other than Corporation or an Affiliated Company, their employees, and those designated by Corporation or an Affiliated Company, or use any Confidential Information except for the benefit of Corporation or an Affiliated Company. Upon service to Grantee of any subpoena, court order or other legal process requiring Grantee to disclose Confidential Information, Grantee shall immediately provide written notice to Corporation of such service and the content of any Confidential Information to be disclosed.
(ii)Immediately upon the termination of Grantee's employment with Corporation or an Affiliated Company for any reason, Grantee shall return to Corporation or the applicable Affiliated Company all Confidential Information in Grantee's possession, including but not limited to any and all copies, reproductions, notes, or extracts of Confidential Information in paper or electronic form.
iii.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 the Corporation, all of its Subsidiaries, and any other entities controlled by, controlling, or under common control with the Corporation, including any successors thereof, except that, following the consummation of a Change in Control, for purposes of Sections 14(a) and 14(b), Affiliated Companies shall be limited to the Corporation and its Subsidiaries as of immediately prior to the consummation of such Change in Control.
(ii)“Client” shall mean the customers or clients of the Corporation or any Affiliated Company and shall include any and all individuals, organizations, or business entities that: (a) were actual customers or clients of the Corporation or any Affiliated Company during Grantee’s employment by the Corporation or any Affiliated Company, or which were prospective customers of the Corporation 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 the Corporation or any Affiliated Company. For purposes of this definition, an individual, organization, or business entity is a “prospective” client or customer of the Corporation or any Affiliated Company if the
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Grantee or any other Corporation 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 Grantee or Grantee's breach of a duty owed to the Corporation.
(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 Grantee's employment with the Corporation 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 Grantee is associated or other communications in any media not targeted specifically at any specific individual described in Section 14(a) or 14(b).
iv.Enforcement; Remedies; Blue Pencil. Grantee acknowledges that: (i) the various covenants, restrictions, and obligations set forth in this Section 14 are separate and independent obligations, and may be enforced separately or in any combination; (ii) the provisions of this Section 14 are fundamental and essential for the protection of the Corporation's and the Affiliated Companies' legitimate business and proprietary interests, and the Affiliated Companies (other than the Corporation) are intended third-party beneficiaries of such provisions; (iii) such provisions are reasonable and appropriate in all respects and impose no undue hardship on Grantee; and (iv) in the event of any violation by Grantee of any of such provisions, the Corporation and, if applicable, the Affiliated Companies, will suffer irreparable harm and their remedies at law may be inadequate. In the event of any violation or attempted violation of any provision of this Section 14 by Grantee, the Corporation and the Affiliated Companies, or any of them, as the case may be, shall be entitled to a temporary restraining order, temporary and permanent injunctions, specific performance, and other equitable relief, without any showing of irreparable harm or damage or the posting of any bond, in addition to any other rights or remedies that may then be available to them, including, without limitation, money damages and the cessation of the payment or provision of the issuance of stock awards as contemplated under Section 7. If any of the covenants set forth in this Section 14 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.
15.Employment Claims. In return for the benefits that Grantee may receive under this Agreement and for continued employment, Grantee agrees not to commence any action or suit related to Grantee's employment by the Corporation or an Affiliated Company:
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v.More than six months after the termination of Grantee's employment, if the action or suit is related to the termination of Grantee's employment; or
vi.More than six months after the event or occurrence on which Grantee's claim is based, if the action or suit is based on an event or occurrence other than the termination of Grantee's employment.
Grantee agrees to waive any statute of limitations that is contrary to this paragraph.
16.Notices. Each notice relating to this Agreement must be in writing and delivered in person or by registered mail to the Corporation at its office, 255 East Fifth Street, Suite 700, Cincinnati, Ohio 45202, attention of the Secretary, or at such other place as the Corporation has designated by notice. All notices to the Grantee or other person or persons succeeding to his or her interest will be delivered to the Grantee or such other person or persons at the Grantee's address as specified in a notice filed with the Corporation.
17.Determinations of the Corporation Final. Any dispute or disagreement which arises under, as a result of, or in any way relates to the interpretation or construction of this Agreement will be determined by the Board of Directors of the Corporation or by a committee appointed by the Board of Directors of the Corporation (or any successor corporation). The Grantee hereby agrees to accept any such determination as final, binding and conclusive for all purposes.
18.Successors. All rights under this Agreement are personal to the Grantee and are not transferable except that in the event of the Grantee's death, such rights are transferable to the Grantee's legal representatives, heirs or legatees. This Agreement will inure to the benefit of and be binding upon the Corporation and its successors and assigns.
19.Obligations of the Corporation. The liability of the Corporation under the Plan and this Agreement is limited to the obligations set forth therein. No term or provision of the Plan or this Agreement will be construed to impose any liability on the Corporation in favor of the Grantee with respect to any loss, cost or expense which the Grantee may incur in connection with or arising out of any transaction in connection therewith.
20.No Employment Rights. Nothing in the Plan or this Agreement or any related material shall give the Grantee the right to continue in the employment of the Corporation or any Subsidiary or adversely affect the right of the Corporation or any Subsidiary to terminate the Grantee's employment with or without Cause at any time.
21.Governing Law. This Agreement will be governed by and interpreted in accordance with the laws of the State of Ohio.
22. Plan. The Plan will control if there is any conflict between the Plan and this Agreement and on any matters that are not contained in this Agreement. A copy of the Plan has been provided to the Grantee and is incorporated by reference and made a part of this Agreement. Capitalized terms used but not specifically defined in this Agreement will have the definitions given to them in the Plan.
23.Entire Agreement. This Agreement and the Plan supersede any other agreement, whether written or oral, that may have been made or entered into by the Corporation and/or any of its Subsidiaries and the Grantee relating to the shares of restricted Common Stock that are granted under this Agreement. This Agreement and the Plan constitute the entire agreement by the parties with respect to such matters, and there are no agreements or commitments except as set forth herein and in the Plan. The terms of this Agreement do not replace or supersede the terms of any agreement or incentive compensation arrangement the Grantee is subject to that includes provisions concerning confidentiality, non-competition or non-solicitation by the Grantee (a "non-solicitation agreement").
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Any non-solicitation agreement that Grantee is subject to shall remain in full force and effect as written without impact from this Agreement.
24.Captions; Counterparts. The captions in this Agreement are for convenience only and will not be considered a part of or affect the construction or interpretation of any provision of this Agreement. This Agreement may be executed in any number of counterparts, each of which will constitute one and the same instrument.

IN WITNESS WHEREOF, this Agreement for Restricted Stock Award has been executed and dated by the parties hereto as of the day and year first above written.
FIRST FINANCIAL BANCORP.
IMAGE_01A.JPG
     IMAGE_11A.JPG     
    By:     _______________________________________
    Archie M. Brown
Title:     Chief Executive Officer



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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.

2021 Restricted Stock Award (2020 Stock Plan)

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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.
255 East Fifth Street, Suite 800
Cincinnati, Ohio 45202
(877) 322-9530

FIRST FINANCIAL BANCORP.
2020 STOCK PLAN
4,400,000 Common Shares, no par value
Trading Symbol: FFBC (NASDAQ)
First Financial Bancorp. is offering its common shares, no par value (“Common Shares”), under the First Financial Bancorp. 2020 Stock Plan (the “2020 Stock Plan”). The 2020 Stock Plan permits First Financial to offer Common Shares through grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, and stock units. A copy of the 2020 Stock Plan is included with this Prospectus.
This Prospectus summarizes the principal features of the 2020 Stock Plan as of May 26, 2020. If there are any differences between the 2020 Stock Plan as described in this Prospectus and the 2020 Stock Plan itself, the terms of the 2020 Stock Plan will govern. References in this Prospectus to “First Financial,” the “Company,” “we,” “us” or “our” refer to First Financial Bancorp.
                            
Neither the Securities and Exchange Commission (the “SEC”), nor any state securities commission, 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 26, 2020.




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TABLE OF CONTENTS
Page
Documents Incorporated by Reference 11
Description of the 2020 Stock Plan 12
Purpose 12
Plan Administration 12
Eligibility 13
Common Shares Available under the 2020 Stock Plan 14
Types of Plan Awards 15
Options 15
SARs 16
Restricted Stock and Stock Units 17
Forfeiture and Clawback 19
No Dividends Payable with Respect to Unvested Awards 19
Termination of Employment 19
Effect of Change in Control 19
Limits on Transferability 21
Adjustments as a Result of Changes in Capitalization and Other Transactions 21
No Rights as a Shareholder 22
No Repricing 22
Tax Withholding and Tax Offset Payments 22
Effective Date and Term 23
Amendment or Termination 23
U.S. Federal Income Tax Consequences 23
Incentive Stock Option 24
Nonqualified Stock Options 24
Stock Appreciation Rights 25
Restricted Stock 25
Restricted Stock Units 26
Section 162(m) of the Code 26
Section 409A of the Code 27
Sections 280G and 4999 of the Code     27
Section 401(a) of the Code 27
Employee Retirement Income Security Act of 1974 27
Restrictions on Resale 27
Reports 28


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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 the documents that contain such information. The information incorporated by reference is an important part of this Prospectus, and information we file later with 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 (Commission File No. 001-34762):
•our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on February 21, 2020;
•our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, filed with the SEC on May 8, 2020;
•our Current Reports on Form 8-K (excluding any information furnished under Item 2.02 or Item 7.01 thereof) filed with the SEC on April 24, 2020 and April 30, 2020;
•our definitive proxy statement Proxy Statement on Schedule 14A for the 2020 Annual Meeting of Shareholders, filed on April 16, 2020, and Supplemental Material to Proxy Statement on Schedule 14A for the 2020 Annual Meeting of Shareholders, filed on May 13, 2020; and
•the description of our Common Shares filed as Exhibit 4.19 to the our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed on February 21, 2020, together with any amendment or report filed with the SEC 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 Section 13(a), Section 13(c), Section 14 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), (excluding information furnished under any Current Reports on Form 8-K) after the date of this Prospectus and prior to the termination of the offering under the 2020 Stock Plan.
Upon written or oral request, we will provide, without charge, to each person to whom this Prospectus is delivered: (1) copies of the documents incorporated by reference into this Prospectus but not delivered with this Prospectus (excluding exhibits); (2) a copy of our Annual Report on Form 10-K for our latest fiscal year; (3) copies of all reports, proxy statements and other communications distributed to our shareholders generally; and (4) additional information regarding the 2020 Stock Plan, as well as the Compensation Committee (the “Committee”) of our Board of Directors (the “Board”), which administers the 2020 Stock Plan. Requests may be directed to our Corporate Secretary, in writing, at First Financial Bancorp., 255 East Fifth Street, Suite 800, Cincinnati, Ohio 45202, or by phone at (877) 322-9530.
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Description of the 2020 Stock Plan
Purpose
    The purpose of the 2020 Stock 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 2020 Stock Plan serves these purposes by making equity- and cash-based awards (“Awards”) available for grant to eligible participants in the form of:
•Stock Options (“Options”), either 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”).
Plan Administration
    The 2020 Stock Plan is administered by the Executive Compensation Committee of the Board, which is comprised solely of independent directors of First Financial as defined in the listing requirements of The NASDAQ Stock Market® (“NASDAQ”). The 2020 Stock Plan provides that, to the extent the Board determines it is appropriate for Awards under the 2020 Stock 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 shall be composed of two or more members who are “non-employee directors” within the meaning of Rule 16b-3. The full Board may also participate in the administration of the 2020 Stock Plan.
In its capacity as administrator of the 2020 Stock Plan, except as limited by law or by First Financial’s Amended and Restated Articles of Incorporation or Amended and Restated Code of Regulations, the Committee has full power, authority and sole and exclusive discretion to: (1) construe and interpret the 2020 Stock Plan and apply its provisions; (2) promulgate, amend and rescind rules and regulations relating to the administration of the 2020 Stock Plan; (3) authorize any person to execute, on behalf of First Financial, any instrument required to carry out the purposes of the 2020 Stock Plan; (4) determine when Awards are to be granted under the 2020 Stock Plan; (5) from time to time to select, subject to the limitations set forth in the 2020 Stock Plan, those individuals to whom Awards shall be granted; (6) determine the number of Common Shares to be made subject to each Award; (7) determine whether each Option is to be an ISO or an NQSO; (8) prescribe the terms and conditions of each Award, including, without limitation, the exercise price and medium of payment and vesting provisions,
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and to specify the provisions of the Award Agreement (as defined below) relating to such grant; (8) designate an Award as a performance-based Award and to select the performance criteria that will be used to establish the performance goals; (9) subject to any limitations set forth in the 2020 Stock Plan, to amend any outstanding Award Agreement, including for the purpose of modifying the time or manner of vesting, or the term of any outstanding Award; (10) determine the duration and purpose of leaves of absences which may be granted to an Employee (as defined below) without constituting a termination of their employment for purposes of the 2020 Stock Plan, which periods shall be no shorter than the periods generally applicable to Employees under First Financial’s employment policies; (11) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the 2020 Stock Plan and any instrument or agreement relating to, or Award granted under, the 2020 Stock Plan; and (12) exercise discretion to make any and all other determinations which it determines to be necessary or advisable for the administration of the 2020 Stock Plan.
To the extent permitted by applicable law, the Committee may delegate its authority to one or more executive officers of First Financial, including without limitation the authority to approve grants of Awards to Employees. Any such delegate shall serve at the pleasure of, and may be removed at any time by, the Committee.
In making any determination or in taking or not taking any action under the 2020 Stock Plan, the Committee or its delegate(s) may obtain and may rely on the advice of experts, including employees of and professional advisors to First Financial. Any action taken by, or inaction of, the Committee or its delegate(s) relating to or pursuant to the 2020 Stock Plan shall be within the absolute discretion of the Committee or its delegate(s). Such action or inaction of the Committee or its delegate(s) shall be conclusive and binding on First Financial, on each affected eligible person to whom an Award is granted pursuant to the 2020 Stock Plan or, if applicable, such other person who holds an outstanding Award and on each other person directly or indirectly affected by such action, unless such action or inaction is determined by a court having jurisdiction to be arbitrary and capricious.
Each Award will be evidenced by a written agreement (an “Award Agreement”) which shall set forth the terms of the Award. Each person who receives an Award (a “Participant”) will acknowledge receipt of the Award Agreement and will agree to be bound by the terms of the 2020 Stock Plan and the applicable Award Agreement. The terms and conditions of Awards need not be the same with respect to each Participant or with respect to each Award. Subject to provisions of the 2020 Stock Plan regarding adjustments to Awards, the Committee may amend or modify an Award Agreement and the related Award to the extent the Committee would have had the authority under the 2020 Stock Plan to grant such Award as so modified or amended, provided that such action would not otherwise require shareholder approval in accordance with the terms of the 2020 Stock Plan.
Eligibility
    Any officer or other employee of First Financial or any Subsidiary (as defined below) who is, in the judgment of the Committee acting in its absolute discretion, directly or indirectly responsible for or contributing to the management, growth and profitability of First Financial or any Subsidiary of First Financial (each, an “Employee”) or member of the Board who is not an Employee (a “Non-Employee Director”) is eligible to receive an Award under the 2020 Stock Plan. However, only Employees who qualify for an ISO grant under Section 422 of the Internal
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Revenue Code of 1986, as amended from time to time (the “Code”), are eligible to receive ISOs. As of March 27, 2020, there were approximately 2,103 Employees and 14 Non-Employee Directors eligible to participate in the 2020 Stock Plan. The 2020 Stock Plan defines a “Subsidiary” as any corporation which is a subsidiary (within the meaning of Code Section 424(f)) of First Financial except a corporation which has subsidiary corporation status under Code Section 424(f) exclusively as a result of First Financial or a First Financial subsidiary holding stock in such corporation as a fiduciary with respect to any trust, estate, conservatorship, guardianship or agency.
Common Shares Available under the 2020 Stock Plan
Total Common Shares Authorized
    Subject to adjustment pursuant to the terms of the 2020 Stock Plan (See “Adjustments as a Result of Changes in Capitalization and Other Transactions” below), the total number of Common Shares which may be delivered pursuant to Awards granted under the 2020 Stock Plan on and after May 26, 2020, the date on which the 2020 Stock Plan was adopted by the shareholders of First Financial (the “Effective Date”), shall not exceed 4,400,000 Common Shares.
    Common Shares issued pursuant to the 2020 Stock Plan may be authorized and unissued shares or treasury shares. The number of Common Shares issuable under the 2020 Stock Plan is subject to adjustment as to the number and kind of shares in the event of stock splits, stock dividends or certain other changes in the capitalization of First Financial as described below.
Share Counting
    To the extent any Award is canceled, terminates, expires, is forfeited or lapses for any reason or is settled in cash, any unissued Common Shares subject to such Award shall again become available for issuance under the 2020 Stock Plan; however, (a) any Common Shares used to satisfy a withholding obligation shall not again become available for issuance under the 2020 Stock Plan, (b) any Common Shares which are tendered to First Financial to pay the option price of an Option or which are tendered to First Financial in satisfaction of any condition to a grant of Restricted Stock shall not again become available for issuance under the 2020 Stock Plan and (c) the gross number of Common Shares covered by a SAR, to the extent it is exercised, shall not again become available for issuance under the 2020 Stock Plan, regardless of the number of Common Shares used to settle the SAR upon exercise. Any Common Shares subject to awards under the First Financial Bancorp. Amended and Restated 2012 Stock Plan (the “2012 Plan”), upon the cancelation, termination, expiration, forfeiture or lapse of such awards, shall not be available for issuance under the 2020 Stock Plan.
Limitations on Awards
    The 2020 Stock Plan provides for the following limitations on Awards granted under the 2020 Stock Plan:
    ISOs.    The maximum number of Common Shares that may be issued under the 2020 Stock Plan as ISOs is 1,250,000 shares.
    Award Grants to Non-Employee Directors.   Except as otherwise determined by the Committee, the maximum aggregate dollar value of Awards (based upon the grant date fair market value of Awards) granted to a Non-Employee Director in any twelve-month period is $500,000.
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    The limitations described above are subject to adjustment by the Committee as to the number and kind of shares in the event of stock splits, stock dividends or certain other changes in the capitalization of First Financial. See “Adjustments as a Result of Changes in Capitalization and Other Transactions” below.
Exception to Minimum Vesting Requirements
Notwithstanding the minimum vesting requirements set forth in the 2020 Stock Plan, up to five percent of the total number of Common Shares authorized for issuance under the 2020 Stock Plan may be issued under Awards, including Awards of Restricted Stock, that are immediately vested or that vest within less than one year.
Use of Proceeds
The proceeds which First Financial receives from the sale of any Common Shares under the 2020 Stock Plan shall be used for general corporate purposes and shall be added to the general funds of First Financial.
Types of Plan Awards
Options
Subject to the terms and conditions of the 2020 Stock Plan, the Committee may grant Options (ISOs and NQSOs to Employees and NQSOs to Non-Employee Directors) at any time during the term of the 2020 Stock Plan in such number, and upon such terms and conditions, as the Committee determines (subject to limitations on the number of Common Shares that may be subject to an ISO under Code Section 422). The exercise price for each Common Share subject to an Option shall be no less than the fair market value of a Common Share on the date the Option is granted. The exercise price shall be payable in full upon the exercise of any Option. An Award Agreement related to an Option (an “Option Award Agreement”), at the discretion of the Committee, may provide for the payment of the exercise price by any of the following means: (1) in cash, electronic funds transfer or a check acceptable to the Committee; (2) in Common Shares which have been held by the Participant for a period acceptable to the Committee and which Common Shares are otherwise acceptable to the Committee, provided that the Committee may impose whatever restrictions it deems necessary or desirable with respect to such method of payment; (3) through a broker-facilitated cashless exercise procedure acceptable to the Committee; (4) by instructing the Committee to withhold a number of Common Shares having a fair market value on the date of exercise equal to the aggregate exercise price of such Option; or (5) any combination of the methods described in (1)–(4) which is acceptable to the Committee.
Any payment made in Common Shares shall be treated as equal to the fair market value of such Common Shares on the date the properly endorsed stock certificate for such Common Shares is delivered to the Committee (or to its delegate) or, if payment is effected through a certification of ownership of Common Shares in lieu of a stock certificate, on the date the Option is exercised. The exercise of an Option by a Participant that involves or may involve a direct or indirect extension of credit or arrangement of an extension of credit by First Financial, directly or indirectly, in violation of Section 402(a) of the Sarbanes-Oxley Act of 2002, shall be prohibited.
Subject to the 2020 Stock Plan, the Committee will also determine the term of the Option, the vesting terms and conditions and any other terms and conditions of the Option, all of which will be reflected in the related Option Award Agreement. Each Option granted under the
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2020 Stock Plan shall be exercisable in whole or in part at such time or times as set forth in the related Option Award Agreement, but no Option Award Agreement shall make an Option exercisable before the date such Option is granted or on or after the date which is the tenth anniversary of the date such Option is granted. In the discretion of the Committee, an Option Award Agreement may provide for the exercise of an Option after the employment of an Employee or service of a Non-Employee Director has terminated for any reason whatsoever, including, but not limited to, death, Retirement or Disability (as those terms are defined in the 2020 Stock Plan).
Except as otherwise provided in the 2020 Stock Plan or as otherwise provided in the applicable Option Award Agreement in connection with the death, Retirement or Disability (as those terms are defined in the 2020 Stock Plan) of a Participant, vesting of an Option granted to an Employee under the 2020 Stock Plan shall be subject to the satisfaction of a minimum service requirement or a minimum performance period (or both) of at least one year. Except as otherwise provided in the 2020 Stock Plan, vesting of an Option granted to a Non-Employee Director shall become exercisable on the date that is at least one year from the date on which such Option was granted.
Except in accordance with the provisions of the 2020 Stock Plan, the Committee shall not, absent the approval of First Financial’s shareholders, take any action, whether through amendment, cancellation, replacement grants, exchanges or any other means, to directly or indirectly reduce the exercise price of any outstanding Option or to make a tender offer for any Option. The Committee shall not, absent the approval of First Financial’s shareholders, take any action to effect an exchange of an outstanding Option for a cash award. The applicable Option Award Agreement will specify whether the Option is intended to be an ISO or a NQSO. However, ISOs will be subject to certain additional restrictions, including, without limitation, compliance with the requirements of Code Section 422. The Committee may, from time to time, establish procedures for restricting the exercise of Options on any given date as the result of excessive volume of exercise requests or any other problem in the established system for processing Option exercise requests or for any other reason the Committee or its delegate(s) deem appropriate or necessary.
In no event shall any Option Award Agreement granted under the 2020 Stock Plan include any right to receive dividends or dividend equivalents with respect to such Award. A Participant shall have none of the rights of a shareholder with respect to an Option, including, but not limited to the right to dividends or voting rights, of First Financial until the Option has been exercised and the Common Shares subject to the Option have been delivered to the Participant in accordance with the 2020 Stock Plan.
SARs
Subject to the terms and conditions of the 2020 Stock Plan, the Committee may grant SARs representing a promise to deliver Common Shares, cash or other property equal in value to the excess of the fair market value of a Common Share over the exercise price of the SAR, subject to the terms of the applicable Award Agreement related to a SAR (a “SAR Award Agreement”); provided, however, that the exercise price for a SAR may not be less than the fair market value of a Common Share on the date of grant. The Committee shall have the right to make any such grant subject to such additional terms, including performance-based vesting
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provisions, as the Committee deems appropriate and such terms shall be set forth in the related SAR Award Agreement.
Each SAR granted under the 2020 Stock Plan will be exercisable in whole or in part at such time or times as set forth in the related SAR Award Agreement, but no SAR Award Agreement shall make a SAR exercisable before the date such SAR is granted or on or after the date which is the tenth anniversary of the date such SAR is granted. In the discretion of the Committee, a SAR Award Agreement may provide for the exercise of a SAR after the service of the Participant has terminated for any reason whatsoever, including, but not limited to, death, Retirement or Disability (as those terms are defined in the 2020 Stock Plan).
Except in accordance with the provisions of the 2020 Stock Plan, the Committee shall not, absent the approval of First Financial’s shareholders, take any action, whether through amendment, cancellation, replacement grants, exchanges or any other means, to directly or indirectly reduce the exercise price of any outstanding SAR or to make a tender offer for any SAR. The Committee shall not, absent the approval of First Financial’s shareholders, take any action to effect an exchange of an outstanding SAR for a cash award.
Except as otherwise provided in the 2020 Stock Plan or as otherwise provided in the applicable SAR Award Agreement in connection with the retirement, death or disability of a Participant, vesting of a SAR granted to an employee under the 2020 Stock Plan shall be subject to the satisfaction of a minimum service requirement or a minimum performance period (or both) of at least one year. Except as otherwise provided in the 2020 Stock Plan, a SAR granted to a Non-Employee Director shall become exercisable on the date that is at least one year from the date on which such SAR was granted.
In no event shall a SAR Award Agreement for a SAR granted under the 2020 Stock Plan include any right to receive dividends or dividend equivalent rights with respect to such Award.
Restricted Stock and Stock Units
Subject to the terms and conditions of the 2020 Stock Plan, the Committee may grant shares of Restricted Stock or Stock Units at any time during the term of the 2020 Stock Plan in such number, and upon such terms and conditions, as the Committee determines. Any Restricted Stock or Stock Unit awards issued to a Participant will be subject to forfeiture based upon satisfaction of certain terms, conditions and restrictions which will be set forth in the applicable Award Agreement. Except as otherwise set forth in the 2020 Stock Plan or described in the related Award Agreement, in connection with a Participant’s termination due to death, Disability or Retirement (as such terms are defined in the 2020 Stock Plan), the vesting of Restricted Stock or Stock Units granted to an Employee shall be subject to the satisfaction of a minimum service requirement or a minimum performance period (or both) of not less than one year. Except as otherwise provided in the 2020 Stock Plan, Restricted Stock or Stock Units granted to a Non-Employee Director shall become exercisable on the date that is not less than one year from the date on which such Restricted Stock or Stock Units were granted.
The Committee may make Restricted Stock issued to a Participant subject to the satisfaction of one, or more than one, objective employment, performance or other forfeiture condition which the Committee acting in its absolute discretion deems appropriate under the
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circumstances, and the related Award Agreement shall set forth each such forfeiture condition and the deadline for satisfying each such forfeiture condition.
The Committee may make Restricted Stock issued to a Participant or the Common Shares or cash that is issuable under any Stock Unit grant subject to one, or more than one, objective employment, performance or other forfeiture condition which the Committee acting in its absolute discretion deems appropriate under the circumstances, and the related Stock Agreement shall set forth each such forfeiture condition and the deadline for satisfying each such forfeiture condition. A Participant's nonforfeitable interest in Restricted Stock granted under the 2020 Stock Plan or the Common Shares or cash issuable pursuant to any Stock Unit granted under the 2020 Stock Plan shall depend on the extent to which each such condition is timely satisfied. Each share of Restricted Stock granted to a Participant shall again become available for issuance under the 2020 Stock Plan (as of the date of forfeiture) if such share of Restricted Stock is forfeited as a result of a failure to timely satisfy a forfeiture condition. When a stock certificate is issued for shares of Restricted Stock, such certificate shall be issued to, or for the benefit of, the Participant, subject to (i) the forfeiture conditions, if any, described in the applicable Award Agreement and (ii) a stock power in favor of First Financial in order for First Financial to effect any forfeitures of such Restricted Stock called for under the applicable Award Agreement.
Performance criteria to which the Committee may subject the issuance of Restricted Stock or subject the Restricted Stock issued to a Participant or the Common Shares or cash issuable under a Stock Unit may or may not include, in the Committee’s absolute discretion, performance goals relating to one or more of the following objectives:
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  
A performance goal may be set in any manner determined by the Committee, including looking to achievement on an absolute or relative basis 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. In the Committee's discretion, the business criteria may include or exclude "extraordinary items", including extraordinary charges, losses from discontinued operations, restatements and accounting changes and other unplanned special charges such as restructuring expenses, acquisitions, acquisition expenses, including expenses related to goodwill and other intangible assets, stock offerings, stock repurchases and loan loss provisions. The Committee may also adjust any performance goal for a period as it deems equitable in recognition of unusual or nonrecurring events affecting First Financial, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine.
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Performance based awards granted for a performance period shall be paid to participants as soon as administratively practicable following the Committee’s determination that the applicable performance criteria have been satisfied, but in no event later than 2 ½ months following the end of the calendar year during which the performance period is completed.
Forfeiture and Clawback
The Committee may specify in an Award Agreement that the Participant's rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain events, in addition to applicable vesting conditions of an Award. Such events may include, without limitation, breach of non-competition, non-solicitation, confidentiality, or other restrictive covenants that are contained in the Award Agreement or otherwise applicable to the Participant, a termination of the Participant's employment or service for Cause (as that term is defined in the 2020 Stock Plan), or other conduct by the Participant that is detrimental to the business or reputation of First Financial.
If, following the payment or vesting of any Award, the Committee determines that such payment or vesting was based on materially inaccurate financial statements (which includes, but is not limited to, statements of earnings, revenues or gains) or any other materially inaccurate performance metric criteria (or any Award is subject to recovery under any law, government regulation, exchange listing requirement or First Financial policy), First Financial shall be entitled to receive, and the Participant shall be obligated to pay to First Financial immediately upon demand therefor, the portion of the payment of such Award that the Committee determines was not earned (or such greater amount that may be required by applicable law, regulation, NASDAQ listing rule, or First Financial policy).
No Dividends Payable with Respect to Unvested Awards
The 2020 Stock Plan prohibits the payment of dividends or dividend equivalents with respect to any Common Shares underlying an Award granted under the 2020 Stock Plan until such underlying Common Shares have vested.
Termination of Employment
Subject to the terms of the 2020 Stock Plan, the Committee will determine the extent to which each Award granted under the 2020 Stock Plan will vest and the extent to which a Participant will have the right to exercise and/or settle the Award in connection with the Participant’s termination of employment. Such provisions, which will be reflected in the related Award Agreement, need not be uniform among all Awards and may reflect distinctions based on the reasons for termination.
Effect of Change in Control
The 2020 Stock Plan provides that the Committee may provide in any Award Agreement for provisions relating to a Change in Control, as that term is defined in the 2020 Stock Plan, including, without limitation, the acceleration of the vesting, delivery or exercisability of, or the lapse of restrictions with respect to, any outstanding Awards; provided, however, that, in addition to any conditions provided for in the applicable 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
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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 following such Change in Control. The terms “Cause” and “Good Reason” are defined in the 2020 Stock Plan.
The 2020 Stock Plan also provides that unless otherwise determined by the 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, an outstanding Award may be assumed or an Award of equivalent value may be substituted by such successor entity or a parent or subsidiary of such successor entity.
With respect to Awards subject to performance goals, except as otherwise determined by the Committee, 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 Committee shall (1) determine the extent to which performance goals with respect to each such performance period have been met based upon such audited or unaudited financial information then available and (2) cause to be paid to the Participant a pro-rated Award (based on each completed day of the performance period prior to the Change in Control) based upon the 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 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 Committee has not determined the actual level of achievement.
For purposes of the 2020 Stock Plan, “Change in Control” means, unless otherwise specified by the Committee in an Award Agreement, an occurrence of a nature that would be required to be reported by First Financial in response to Item 6(e) of Schedule 14A of Regulation 14A issued under the Exchange Act. A Change in Control will be deemed to have occurred as of the first day that any of the following conditions are satisfied:
•any person is or becomes the “beneficial owner” (as that term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of First Financial representing 25% or more of the combined voting power for the election of directors of the then outstanding securities of First Financial;
•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;
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•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
•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 50% 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.
Limits on Transferability
    Unless the Committee determines otherwise, 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).
Adjustments as a Result of Changes in Capitalization and Other Transactions
The number, kind or class (or any combination thereof) of shares of First Financial reserved under for issuance under the 2020 Stock Plan, the grant limitations set forth in the 2020 Stock Plan, the number, kind or class (or any combination thereof) of shares of First Financial subject to Options or SARs granted under the 2020 Stock Plan and the exercise price
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of such Options and SARs as well as the number, kind or class of shares of First Financial subject to Restricted Stock grants and the number, kind or class of shares of First Financial described in Stock Unit grants under the 2020 Stock Plan will be adjusted by the Committee in an equitable manner to reflect any change in the capitalization of First Financial, including, but not limited to, such changes as share dividends or share splits to the extent necessary to preserve the economic intent of the applicable Award; provided that unless the Committee specifically determines that such adjustment is in the best interests of First Financial, such adjustment will not be made in a manner that will adversely affect the taxation of such Awards under Code Sections 422 or 409A or the exemption of such Awards pursuant to Rule 16b-3 under the Exchange Act. Any such determination by the Committee will be final and binding on all affected Participants. The 2020 Stock Plan also provides that the Board shall make adjustments to the number, kind or class (or any combination thereof) of Common Shares of First Financial reserved for issuance under the 2020 Stock Plan and the grant limitations set forth in the 2020 Stock Plan, and certain adjustments to outstanding Restricted Stock, Stock Units, Options and SARS in connection with corporate transactions described in Code Section 424(a).
No Rights as a Shareholder
Except as otherwise provided in the 2020 Stock Plan or in a related Award Agreement, a Participant will not have any rights as a shareholder with respect to Common Shares covered by an Award granted under the 2020 Stock Plan unless and until the Participant becomes the record holder of such Common Shares.
No Repricing
The 2020 Stock Plan expressly prohibits the Board or the Committee, without shareholder approval, from amending or replacing previously granted Options or SARs in a transaction that constitutes a “repricing,” meaning any reduction in exercise price, cancellation of Options or SARs in exchange for other Options or SARs with a lower exercise price, cancellation of Options or SARs for cash, or cancellation of Options or SARs for another grant if the exercise price of the cancelled Options or SARs is greater than the fair market value of the Common Shares subject to the cancelled Options or SARs at the time of cancellation, other than in conjunction with a Change in Control or other adjustment expressly permitted under the 2020 Stock Plan.
Tax Withholding and Tax Offset Payments
First Financial and its Subsidiaries and affiliates are authorized to withhold from any Award granted under the 2020 Stock Plan, any payment relating to an Award granted under the 2020 Stock Plan, including from a distribution of Common Shares, or any payroll or other payment to a Participant, the amounts of any withholding and other taxes due or potentially payable in connection with any transaction or event involving an Award granted under the 2020 Stock Plan, or to require the Participant to remit an amount in cash or other property (including Common Shares) to satisfy the withholding before taking any action with respect to an Award granted under the 2020 Stock Plan. The Committee may take any other actions as the Committee deems advisable to enable First Financial or any Subsidiary or affiliate of First Financial and the Participant to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any award granted under the 2020 Stock Plan. First Financial
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can delay the delivery of Common Shares to a Participant under any Award granted under the 2020 Stock Plan to the extent necessary to allow First Financial to determine the amount of withholding to be collected and to collect and process that withholding.
No election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Section 83(b) of the Code) or under a similar provision of the laws of a jurisdiction outside the United States may be made unless expressly permitted by the terms of the applicable Award Agreement or by action of the Committee in writing prior to the making of the election. In any case in which a Participant is permitted to make such an election in connection with an Award granted under the 2020 Stock Plan, the Participant must notify First Financial of that election within ten days of filing the notice of election with the Internal Revenue Service or other governmental authority, in addition to any other filing and notification required pursuant to Treasury Regulations related to Section 83(b) of the Code or other applicable provisions.
Effective Date and Term
The 2020 Stock Plan became effective on the Effective Date. Unless earlier terminated by the Board, the authority of the Committee to make grants under the 2020 Stock Plan will terminate on the date that is five years after the Effective Date, and the 2020 Stock Plan will remain in effect until such time as no Common Shares remain available for delivery under the 2020 Stock Plan or until terminated as described above and First Financial has no further rights or obligations under the 2020 Stock Plan with respect to outstanding Awards granted under the 2020 Stock Plan.
Amendment or Termination
The Board or the Committee may, at any time and for any reason, suspend or terminate the 2020 Stock Plan or from time to time amend the 2020 Stock Plan, provided that any amendment will be submitted to First Financial’s shareholders for approval if such shareholder approval is required by federal or state law or regulation or the rules of NASDAQ (or any other stock exchange on which the Common Shares may then be listed or quoted). Even if the 2020 Stock Plan is suspended or terminated, the Committee will still retain authority to exercise powers given to it under the 2020 Stock Plan with respect to Awards granted before the 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 2020 Stock Plan. This summary is based on U.S. federal income 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. Participants should seek the advice of a qualified tax advisor to be sure they understand the U.S. federal income tax and other tax consequences of participating in the 2020 Stock Plan.
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Incentive Stock Options
First Financial intends for ISOs to qualify for special treatment available under Section 422 of the Code. A Participant will not recognize taxable income when an ISO is granted, and First Financial will not receive a deduction at that time. A Participant will not recognize ordinary income upon the exercise of an ISO, provided that the Participant was, without a break in service, an employee of First Financial or a Subsidiary during the period beginning on the grant date of the ISO and ending on the date three months prior to the date of exercise (one year prior to the date of exercise if the Participant’s employment is terminated due to Disability (as that term is defined in the 2020 Stock Plan)).
If a Participant does not sell or otherwise dispose of the Common Shares acquired upon the exercise of an ISO within two years from the grant date of the ISO or within one year after the Participant receives the Common Shares, then, upon disposition of such Common Shares, any amount realized in excess of the exercise price will be taxed to the Participant as a capital gain, and First Financial will not be entitled to a corresponding deduction. The Participant generally will recognize a capital loss to the extent that the amount realized is less than the exercise price.
If the foregoing holding period requirements are not met, the Participant generally will recognize ordinary income at the time of the disposition of the Common Shares in an amount equal to the lesser of: (i) the excess of the fair market value of the Common Shares on the date of exercise over the exercise price; or (ii) the excess, if any, of the amount realized upon disposition of the Common Shares over the exercise price, and First Financial will be entitled to a corresponding deduction (subject to the limitation described under “Section 162(m) of the Code” below). Any amount realized in excess of the value of the Common Shares on the date of exercise will be taxed as capital gain. If the amount realized is less than the exercise price, the Participant generally will recognize a capital loss equal to the excess of the exercise price over the amount realized upon the disposition of the Common Shares.
The rules that generally apply to ISOs do not apply when calculating any alternative minimum tax liability. The rules affecting the application of the alternative minimum tax are complex, and their effect depends on individual circumstances, including whether a Participant has items of adjustment other than those derived from ISOs.
Nonqualified Stock Options
A Participant will not recognize any income when a NQSO is granted, and First Financial will not receive a deduction at that time. However, when a NQSO is exercised, the Participant will recognize ordinary income equal to the excess, if any, of the fair market value of the Common Shares that the Participant purchased on the date of exercise over the exercise price. If a Participant uses Common Shares or a combination of Common Shares and cash to pay the exercise price of a NQSO, the Participant will recognize ordinary income equal to the value of the excess of the number of Common Shares that the Participant purchases over the number of Common Shares that the Participant surrenders, less any cash the Participant uses to pay the exercise price. When a NQSO is exercised, First Financial will be entitled to a deduction equal to the ordinary income that the Participant recognizes (subject to the limitation described under “Section 162(m) of the Code” below).
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If the amount a Participant receives upon disposition of the Common Shares that the Participant acquired by exercising a NQSO is greater than the sum of the aggregate exercise price that the Participant paid plus the amount of ordinary income recognized by the Participant upon exercise, the excess will be treated as a long-term or short-term capital gain, depending on whether the Participant held the Common Shares for more than one year after the Participant acquired them by exercising the NQSO. Conversely, if the amount a Participant receives upon disposition of the Common Shares that the Participant acquired by exercising a NQSO is less than the sum of the aggregate exercise price the Participant paid plus the amount of ordinary income recognized by the Participant upon exercise, the difference will be treated as a long-term or short-term capital loss, depending on whether the Participant held the Common Shares for more than one year after the Participant acquired them by exercising the NQSO.
Stock Appreciation Rights
A Participant will not recognize taxable income when a SAR is granted, and First Financial will not receive a deduction at that time. When a SAR is exercised, the Participant will recognize ordinary income equal to the excess of the cash and/or the fair market value of the Common Shares the Participant receives over the aggregate exercise price of the SAR, if any, and First Financial will be entitled to a corresponding deduction (subject to the limitation described under “Section 162(m) of the Code” below). If the amount a Participant receives upon disposition of the Common Shares that the Participant acquired by exercising a SAR is greater than the sum of the aggregate exercise price that the Participant paid plus the amount of ordinary income recognized by the Participant upon exercise, the excess will be treated as a long-term or short-term capital gain, depending on whether the Participant held the Common Shares for more than one year after the Participant acquired them by exercising the SAR. Conversely, if the amount a Participant receives upon disposition of the Common Shares that the Participant acquired by exercising a SAR is less than the sum of the aggregate exercise price that the Participant paid plus the amount of ordinary income recognized by the Participant upon exercise, the difference will be treated as a long-term or short-term capital loss, depending on whether the Participant held the Common Shares for more than one year after the Participant acquired them by exercising the SAR.
Restricted Stock
Unless a Participant makes an election under Section 83(b) of the Code (a “Section 83(b) Election”), the Participant generally will not recognize taxable income when Restricted Stock is granted, and we will not receive a deduction at that time. Instead, the Participant will recognize ordinary income when the Restricted Stock vests (i.e., when the underlying Common Shares are freely transferable or not subject to a substantial risk of forfeiture) equal to the fair market value of the Common Shares that become vested on that date, less any consideration paid for the Restricted Stock, and First Financial generally will be entitled to a deduction equal to the income that the Participant recognizes (subject to the limitation described under “Section 162(m) of the Code” below).
If the amount a Participant receives upon disposition of these Common Shares is greater than the fair market value of the Common Shares when the Restricted Stock vested, the excess will be treated as a long-term or short-term capital gain, depending on whether the Participant held the Common Shares for more than one year after the Restricted Stock vested. Conversely, if the amount the Participant receives upon disposition of these Common Shares is less than the
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fair market value of the Common Shares when the Restricted Stock vested, the difference will be treated as a long-term or short-term capital loss, depending on whether the Participant held the Common Shares for more than one year after the Restricted Stock vested.
If a Participant makes a Section 83(b) Election, the Participant will recognize ordinary income on the grant date equal to the fair market value of the Common Shares subject to the Restricted Stock award on the grant date, and First Financial will be entitled to a deduction equal to the income that the Participant recognizes at that time (subject to the limitation described under “Section 162(m) of the Code” below). However, the Participant will not recognize income when (and if) the Restricted Stock vests. If a Participant who has made a Section 83(b) Election earns the Common Shares subject to a Restricted Stock award, any appreciation between the grant date and the date the Participant disposes of the Common Shares will be treated as a long-term or short-term capital gain, depending on whether the Participant held the Common Shares for more than one year after the grant date. Conversely, if the amount the Participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares on the grant date, the difference will be treated as a long-term or short-term capital loss, depending on whether the Participant held the shares for more than one year after the grant date. Also, if a Participant forfeits his or her Restricted Stock, the Participant cannot take a tax deduction in connection with the forfeiture of the Restricted Stock subject to a Section 83(b) Election.
Restricted Stock Units
Participants will not recognize taxable income when a RSU is granted, and First Financial will not receive a deduction at that time. When a RSU vests and is settled, the Participant will recognize ordinary income equal to the cash and/or the fair market value of the Common Shares the Participant receives at the time of settlement, and First Financial will be entitled to a corresponding deduction (subject to the limitation described under “Section 162(m) of the Code” below).
If the amount a Participant receives upon disposition of the Common Shares received upon settlement of a RSU is greater than the fair market value of the Common Shares at the time the Participant recognized ordinary income with respect to the RSU, the excess will be treated as a long-term or short-term capital gain, depending on whether the Participant held the Common Shares for more than one year after that time. Conversely, if the amount the Participant receives upon disposition of these Common Shares is less than the fair market value of the Common Shares at the time the Participant recognizes ordinary income with respect to the RSU, the difference will be treated as a long-term or short-term capital loss, depending on whether the Participant held the Common Shares for more than one year after that time.
Section 162(m) of the Code
Prior to December 22, 2017, when the Tax Cuts and Jobs Act (the “TCJA”) was signed into law, Code Section 162(m) generally disallowed a tax deduction to publicly-held companies (such as First Financial) for compensation paid to certain “covered employees” in excess of $1,000,000 per covered employee in any year, except to the extent that the compensation in excess of the limit qualified as “performance-based.” Historically, awards granted to “covered employees” had been designed to qualify as “performance-based compensation” for purposes of Code Section 162(m) so that any compensation expense related to such awards would be
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fully deductible by First Financial. Effective December 22, 2017, when the TCJA was signed into law, the performance-based compensation exception was generally eliminated with respect to future compensatory awards. We expect that the compensation expense related to future awards under the 2020 Stock Plan will not be deductible, even if performance-based.
Section 409A of the Code
Section 409A of the Code imposes certain restrictions on amounts deferred under non-qualified deferred compensation plans and additional taxes on amounts that are subject to, but do not comply with, Section 409A. Section 409A includes a broad definition of non-qualified deferred compensation plans, which includes certain types of equity incentive compensation. First Financial intends for the Awards granted under the 2020 Stock Plan to comply with or be exempt from the requirements of Section 409A and the Treasury Regulations promulgated thereunder but First Financial does not guarantee such treatment.
Sections 280G and 4999 of the Code
Sections 280G and 4999 of the Code impose penalties on “excess parachute payments.” A parachute payment occurs when the value of all amounts paid to a “disqualified individual” within the meaning of Section 280G of the Code in connection with a change in control is equal to or greater than three times the disqualified individual’s taxable compensation averaged over the five calendar years ending before the change in control (or over the disqualified individual’s entire period of service if that period is less than five calendar years). This average is called the “Base Amount.” An excess parachute payment is the amount equal to the excess of any parachute payments over 100% of the Base Amount.
Under Section 4999 of the Code, if a disqualified individual receives an excess parachute payment, the disqualified individual is subject to an excise tax equal to 20% of such excess parachute payment. This tax is due in addition to other federal, state and local income, wage and employment taxes. Also, under Section 280G of the Code, First Financial would not be able to deduct the amount of any disqualified individual’s excess parachute payment.
Section 401(a) of the Code
The 2020 Stock Plan is not qualified under Section 401(a) of the Code.
Employee Retirement Income Security Act of 1974
The 2020 Stock Plan is not subject to any provisions of the Employee Retirement Income Security Act of 1974, as amended.
Restrictions on Resale
Other than any restrictions on transfer which the Committee or the Board may place on Awards granted under the 2020 Stock Plan, the 2020 Stock Plan does not impose any restrictions on the resale of Common Shares issued or delivered under the 2020 Stock Plan. Restrictions are imposed by the federal securities laws on the resale of Common Shares acquired under the 2020 Stock Plan by persons deemed to be “affiliates” of First Financial 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
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Common Shares held by an affiliate (including Common Shares issued or delivered under the 2020 Stock Plan) can only be resold publicly 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.
If you are subject to Section 16 of the Exchange Act, First Financial may recover from you any profits (as defined for purposes of Section 16(b) of the Exchange Act) from your non-exempt purchases and sales of Common Shares within six months of each other. Although the acquisition of Common Shares through the 2020 Stock Plan will generally be treated as an “exempt” purchase for purposes of Section 16(b) of the Exchange Act, sales of Common Shares acquired through the 2020 Stock Plan will generally be treated as “non-exempt” sales for purposes of Section 16(b) of the Exchange Act.
To the extent applicable, Participants also must adhere to our insider trading policy and our Code of Conduct.
Reports
No regular reports will be made available to Participants participating in the 2020 Stock Plan as to the amount and status of Awards granted to them under the 2020 Stock Plan.

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EXHIBIT 10.35
AGREEMENT FOR PERFORMANCE STOCK AWARD
This Agreement for Performance Stock Award (the "Agreement") is made between FIRST FINANCIAL BANCORP., an Ohio corporation ("First Financial"), and /$ParticipantName$/ (the "Participant") who, as of /$GrantDate$/, which is the date of this Agreement (the "Grant Date"), is an employee of First Financial or a Subsidiary.
WHEREAS, First Financial maintains the First Financial Bancorp. 2020 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 /$AwardsGranted$/ 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, 2020 and ends on December 31, 2020.
4.Vesting and Forfeiture.
a.General. Except as otherwise provided in this Agreement, the “Vesting Date” shall be /$LastVestDate$/. 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
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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, Disability 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 above (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 18 months following the Change in Control, the Participant’s employment with the Corporation or any of its Subsidiaries is terminated without Cause or by the Participant for Good Reason (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.
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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, and the clawback provisions in the Plan.
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 cash 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.
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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:
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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.Nonsolicitation and Non-disclosure of Confidential Information.
a.Nonsolicitation 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.
i.Nonsolicitation 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
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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.
c.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 of 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.
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(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).
c.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:
i.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
ii.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
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(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 or adversely affect the right of First Financial or any Subsidiary 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.

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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.
IMAGE_CS1.JPG
FIRST FINANCIAL BANCORP.

By:     IMAGE_2-AMB1.JPG
_______________________________
Archie M. Brown
Title:     Chief Executive Officer




/$ParticipantName$/
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    

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[APPENDIX A]

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

PROSPECTUS




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EXHIBIT 13
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2020 Annual Report Strengthening communities in a year like no other First First Financial Bancorp


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2016 2017 2018 $88.5 $96.8 $172.6 2020 $155.8 2019 $198.1Net Income (dollars in millions) 2016 2017 2018 $5.8 $6.0 $8.8 2019 $9.2 2020 $9.9Total Loans (dollars in billions) 2016 2017 2018 $6.5 $6.9 $10.1 2019 $10.2 2020 $12.2 Total Deposits (dollars in billions) 2016 2017 2018 $8.4 $8.9 $14.0 2019 $14.5 2020 $16.0 Total Assets (dollars in billions) 2016 2017 2018 $1.43 $1.56 2020 $1.59 $1.93 2019 $2.00 Diluted Earnings Per Share 7.02% 20202016 2017 2018 10.48% 10.78% 9.85% 2019 9.11% Return On Equity 121 CONSECUTIVE QUARTERS OF PROFITABILITY 1.00% 20202016 2017 2018 1.07% 1.12% 1.37% 2019 1.39% Return On Assets 157 YEARS OF STRENGTH & STABILITY






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Dear Fellow Shareholders, As I look back on 2020, I recall how routinely the year began, as we prepared the previous year’s annual report to shareholders. We were coming off a strong 2019 performance and had developed solid strategic and execution plans that would set the direction for the coming 12 months. Or so we thought. At that same time, a novel coronavirus was migrating from country to country. Over the course of weeks, a health crisis became a pandemic, and economic disruption evolved into a global recession. By March, we launched our crisis management procedures, unaware that those conditions would remain the standard for the balance of the year. Everything that we once took for granted seemed to vanish overnight – daily commutes, the workplace, personal interactions, even handshakes and casual conversations. Everything seemed to change, except First Financial Bank’s commitment to our clients, communities, and each other. The pandemic forced us to limit access to our banking centers, so we adapted to serve our clients in creative ways, with a combination of in-person, remote, and digital solutions. We made tens of thousands of calls to check on the personal and financial wellbeing of our clients, and created relief programs to help those impacted by sudden financial challenges. These efforts complemented the swift action taken by the Federal Reserve and our national, state, and local governments. Although the impact of this health crisis was felt throughout the economy, our financial systems were strong and moved quickly to lessen the immediate impact of the pandemic. Much needed stimulus came in the form of a reduction in interest rates, the passing of the CARES Act, and the establishment of the Small Business Administration’s Payroll Protection Program, to name a few. Implementing these programs was challenging, complicated by the fact that we shifted 90 percent of our associates to remote work arrangements. This tested the mettle of our technology teams, our networks, and the ability of our associates to reimagine and redesign everyday tasks and processes on the fly. Not surprisingly, our teams demonstrated their innovation and implemented new programs without sacrificing the quality of their work and our commitment to customer service. Throughout 2020, First Financial produced solid earnings as a result of record revenue, disciplined credit and expense management, historic production from key lines of business like our Mortgage and Bannockburn Global Forex divisions, record Commercial and Industrial loan production, and assets under management in our Wealth Management division. Despite pandemic-related headwinds, our careful management of resources positions us well as we rebound from this historic event. Looking to 2021, we will focus on leveraging the goodwill we established over the past year, growing core client relationships, building greater confidence and trust with our clients, and becoming a more integral part of their day-to-day financial activities. We want our associates to thrive in all aspects of their lives, promoting positive outcomes for themselves and our company. To accomplish this, we are creating a more engaged workplace, one that celebrates our diversity and addresses the complete wellbeing of our associates. As always, we will continue to advocate for our clients, make a difference in our communities, break traditional industry norms, improve functionality, be good corporate stewards, and diligently manage credit. Great challenges reveal true character. Many of the individual acts of adaptation, commitment, and selflessness on the part of our First Financial associates will never be known. However, the willingness to work long hours at night, on weekends, under incredible deadlines and during unparalleled times is, to me, the epitome of leadership. Our associates gave their all for those in need. This is what makes me so proud of the First Financial team, and so honored to present you with the results of this incomparable year. Archie M. Brown President & Chief Executive Officer “ Despite pandemic-related headwinds, our careful management of resources positions us well as we rebound from this historic event.

First Financial Bancorp 2020 Annual Report 1


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OUR YEAR IN REVIEW Remote Workforce Transition Ensuring our employees remained healthy and safe, we quickly transitioned 90 percent of our workforce to remote working conditions by providing immediate access to equipment and remote network access. Associates successfully modified their work processes and procedures through integrated virtual technologies to help maintain the quality of work and customer service for which we’ve become known. Many associates moved into entirely new roles to help alleviate the demanding workloads experienced in other departments of the bank. Innovating Under Pressure Throughout this challenging year, our teams continued to drive innovation, launching new technologies in response to business demands. Some initiatives were planned but many were designed and executed in real time, under tight deadlines and always with an eye on meeting the evolving needs of our clients. These innovations included: • Our online Client Hardship Relief application • SBA PPP online application, loan processing, and SBA platform integration • Robotic processing automation • Enhanced mobile deposit capabilities • Online banking upgrades • Online account opening • Online and remote loan origination capabilities • Live chat • DocuSign e-signature • Mortgage Coach • Disaster recovery site • Next-generation website development Retail Banking Centers During the early stages of the COVID-19 pandemic, First Financial Bank implemented strategic measures throughout our operations to prioritize the health and safety of our clients. We flexed staffing within our banking centers, installed Personal Protective Equipment, developed new processes for loan originations and closings, and assisted clients with online banking and mobile app adoption to continue delivering essential banking services while safely minimizing the risk of exposure. Despite incredible challenges, we continued to deliver innovative solutions like robotic processing automation, enhanced mobile deposit capabilities, online and remote loan origination capabilities, and other new banking features to ensure the seamless continuation of financial transactions during the pandemic.

2 First Financial Bancorp 2020 Annual Report

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Keeping Our Clients First 2020 was a challenging year for many of our clients, and we are proud to have helped many businesses and individuals manage through the difficulties of the pandemic. We conducted thousands of outreach calls to proactively check on the financial wellbeing of our consumer and business clients. Relief programs were developed to assist consumers, small businesses, and commercial clients. We offered deferred payments on auto loans, mortgages, home equity loans, and credit cards to help those customers who may have been affected more significantly than others. We also worked tirelessly to help successfully roll out the SBA’s Paycheck Protection Program and provide relief for thousands of businesses. Diversity, Equity & Inclusion As part of our progression as a company, we want to be a positive change-agent, both internally and externally. To that end, we launched our Diversity, Equity & Inclusion (DEI) program to eliminate bias, build a more inclusive workplace environment, and provide all of our associates with equitable access to resources and development opportunities. In 2020, we established an associate-led Diversity Council to oversee and manage our ongoing DEI initiatives and to identify opportunities to expand the reach and effectiveness of the program. To ensure oversight at every level of our organization, we also established a Diversity Committee within our Board of Directors. 2020 total production Mortgage Production $1.3 billion increase in referrals89% SBA Paycheck Protection Program PPP loans processed7,000 in PPP loans closed $900 million approximately over


First Financial Bancorp 2020 Annual Report 3

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LEADERSHIP Board of Directors Claude E. Davis Board Chair, First Financial Bancorp Managing Director Brixey and Meyer Capital J. Wickliffe Ach Retired President & CEO, Hixson, Inc. William G. Barron Chairman and President William G. Barron Enterprises Vincent A. Berta Lead Independent Director Board of Directors of First Financial Bancorp President and Managing Director Covington Capital, LLC Cynthia O. Booth President and Chief Executive Officer COBCO Enterprises, LLC Archie M. Brown President and Chief Executive Officer First Financial Bancorp and First Financial Bank Corinne R. Finnerty Principal McConnell Finnerty PC Susan L. Knust Owner and President Omega Warehouse Services K.P. Properties William J. Kramer Vice President of Operations Valco Companies, Inc. John T. Neighbours General Counsel AmeriQual Group Holdings Thomas M. O’Brien Senior Advisor Boston Consulting Group Maribeth S. Rahe President and Chief Executive Officer Fort Washington Investment Advisors, Inc. Senior Management Archie M. Brown President and Chief Executive Officer James M. Anderson Chief Financial Officer Richard S. Dennen President, Oak Street Funding John M. Gavigan Chief Operating Officer Gregory A. Harris Executive Vice President, Wealth Management & Affluent Banking William R. Harrod Chief Credit Officer Andrew K. Hauck Chief Commercial Banking Officer Catherine M. Myers Chief Consumer Banking Officer Amanda N. Neeley Chief Strategy Officer James R. Shank Chief Internal Auditor Karen B. Woods General Counsel and Chief Risk Officer




4 First Financial Bancorp 2020 Annual Report

FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data) 2020 2019 % Change
Earnings
Net interest income $ 456,511  $ 484,254  (5.7) %
Net income 155,810  198,075  (21.3) %
Per Share
Net income per common share-basic $ 1.60  $ 2.01  (20.4) %
Net income per common share-diluted 1.59  2.00  (20.5) %
Cash dividends declared per common share 0.92  0.90  2.2  %
Tangible book value per common share (end of year) 12.93  12.42  4.1  %
Market price (end of year) 17.53  25.44  (31.1) %
Balance Sheet - End of Year
Total assets $ 15,973,134  $ 14,511,625  10.1  %
Loans 9,900,970  9,201,665  7.6  %
Investment securities 3,689,465  3,119,966  18.3  %
Deposits 12,232,003  10,210,229  19.8  %
Shareholders' equity 2,282,070  2,247,705  1.5  %
Ratios
Return on average assets 1.00  % 1.39  %
Return on average shareholders' equity 7.02  % 9.11  %
Return on average tangible shareholders' equity 12.97  % 16.32  %
Net interest margin 3.46  % 3.95  %
Net interest margin (fully tax equivalent) 3.51  % 4.00  %


First Financial Bancorp 2020 Annual Report 5







2020 Financial Highlights





6 First Financial Bancorp 2020 Annual Report

Glossary of Abbreviations and Acronyms

First Financial Bancorp has identified the following list of abbreviations and acronyms that are used in the Notes to Consolidated Financial Statements and the Management's Discussion and Analysis of Financial Condition and Results of Operations.
ABL Asset backed loans First Financial First Financial Bancorp.
ACL Allowance for credit losses FNMA Federal National Mortgage Association
AFS Available-for-sale Form 10-K First Financial Bancorp. Annual Report on Form 10-K
ALLL Allowance for loan and lease losses FRB Federal Reserve Bank
Allowance Collectively or individually, Allowance for credit losses and Allowance for loan and lease losses GAAP U.S. Generally Accepted Accounting Principles
AOCI Accumulated other comprehensive income GNMA Government National Mortgage Association
ASC Accounting standards codification HTM Held-to-maturity
ASU Accounting standards update Insignificant Less than $0.1 million
ATM Automated teller machine IRLC Interest Rate Lock Commitment
Bank First Financial Bank MBSs Mortgage-backed securities
Basel III Basel Committee regulatory capital reforms, Third Basel Accord MSFG MainSource Financial Group, Inc.
BGF or Bannockburn Bannockburn Global Forex, LLC N/A Not applicable
Bp/bps Basis point(s) NII Net interest income
BOLI Bank owned life insurance N/M Not meaningful
CDs Certificates of deposit Oak Street Oak Street Holdings Corporation
CARES Act
Coronavirus Aid, Relief, and Economic Security Act
ODFI Ohio Department of Financial Institutions
CECL Current Expected Credit Loss OREO Other real estate owned
C&I Commercial & industrial PCA Prompt corrective action
CMOs Collateralized mortgage obligations PCD Purchase credit deteriorated
CRE Commercial real estate PCI Prompt corrective action
Company First Financial Bancorp. PD Probability of default
DDA Demand deposit account PPP Paycheck Protection Program
Dodd-Frank Dodd-Frank Wall Street Reform and Consumer Protection Act PPPLF Paycheck Protection Program Liquidity Facility
EAD Exposure at Default R&S Reasonable and supportable
ERISA Employee Retirement Income Security Act ROU Right-of-use
ERM Enterprise Risk Management SEC United States Securities and Exchange Commission
EVE Economic value of equity SOFR Secured Overnight Financing Rate
Fair Value Topic FASB ASC Topic 825, Financial Instruments Topic 842 FASB ASC Topic 842, Leasing
FASB Financial Accounting Standards Board Special Assets Special Assets Division
FDIC Federal Deposit Insurance Corporation TDR Troubled debt restructuring
FHLB Federal Home Loan Bank TTC Through the cycle
FHLMC Federal Home Loan Mortgage Corporation USD United States dollars

First Financial Bancorp 2020 Annual Report 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Table 1 • Financial Summary
December 31,
(Dollars in thousands, except per share data) 2020 2019 2018 2017 2016
Summary of operations
Interest income $ 524,963  $ 607,578  $ 540,382  $ 333,073  $ 305,950 
Tax equivalent adjustment (1)
6,529  6,328  5,147  5,259  4,215 
Interest income tax – equivalent (1)
531,492  613,906  545,529  338,332  310,165 
Interest expense 68,452  123,324  91,147  49,528  33,279 
  Net interest income tax – equivalent (1)
$ 463,040  $ 490,582  $ 454,382  $ 288,804  $ 276,886 
Interest income $ 524,963  $ 607,578  $ 540,382  $ 333,073  $ 305,950 
Interest expense 68,452  123,324  91,147  49,528  33,279 
  Net interest income 456,511  484,254  449,235  283,545  272,671 
Provision for credit losses 70,559  30,433  14,859  3,341  10,398 
Noninterest income 189,123  131,373  103,382  76,142  69,601 
Noninterest expenses 390,664  342,332  323,537  240,183  201,143 
Income before income taxes 184,411  242,862  214,221  116,163  130,731 
Income tax expense 28,601  44,787  41,626  19,376  42,205 
   Net income $ 155,810  $ 198,075  $ 172,595  $ 96,787  $ 88,526 
Per share data
Earnings per common share
Basic $ 1.60  $ 2.01  $ 1.95  $ 1.57  $ 1.45 
Diluted $ 1.59  $ 2.00  $ 1.93  $ 1.56  $ 1.43 
Cash dividends declared per common share $ 0.92  $ 0.90  $ 0.78  $ 0.68  $ 0.64 
Average common shares outstanding–basic (in thousands) 97,364  98,306  88,582  61,529  61,206 
Average common shares outstanding–diluted (in thousands) 98,093  98,851  89,614  62,172  61,985 
Selected year-end balances
Total assets $ 15,973,134  $ 14,511,625  $ 13,986,660  $ 8,896,923  $ 8,437,967 
Earning assets 13,651,843  12,392,259  12,190,567  8,117,115  7,719,285 
Investment securities 3,689,465  3,119,966  3,324,243  2,056,556  1,854,201 
Total loans and leases 9,900,970  9,201,665  8,824,214  6,013,183  5,757,482 
Interest-bearing demand deposits 2,914,787  2,364,881  2,307,071  1,453,463  1,513,771 
Savings deposits 3,680,774  2,960,979  3,167,325  2,462,420  2,142,189 
Time deposits 1,872,733  2,240,441  2,173,564  1,317,105  1,321,843 
Noninterest-bearing demand deposits 3,763,709  2,643,928  2,492,434  1,662,058  1,547,985 
Total deposits 12,232,003  10,210,229  10,140,394  6,895,046  6,525,788 
Short-term borrowings 166,594  1,316,181  1,040,691  814,565  807,912 
Long-term debt 776,202  414,376  570,739  119,654  119,589 
Shareholders’ equity 2,282,070  2,247,705  2,078,249  930,664  865,224 
Select Financial Ratios
Average loans to average deposits (2)
87.13  % 88.59  % 87.49  % 88.12  % 89.33  %
Net charge-offs to average loans and leases 0.14  % 0.33  % 0.15  % 0.13  % 0.10  %
Average shareholders’ equity to average total assets 14.30  % 15.30  % 13.89  % 10.42  % 10.24  %
Return on average assets 1.00  % 1.39  % 1.37  % 1.12  % 1.07  %
Return on average equity 7.02  % 9.11  % 9.85  % 10.78  % 10.48  %
Net interest margin 3.46  % 3.95  % 4.05  % 3.59  % 3.62  %
Net interest margin (tax equivalent basis) (1)
3.51  % 4.00  % 4.10  % 3.66  % 3.68  %
Dividend payout 57.50  % 44.78  % 40.00  % 43.31  % 44.14  %
(1) Tax equivalent basis was calculated using a 21.00% tax rate for 2020, 2019 and 2018 and a 35.00% tax rate for 2017 and 2016.
(2) Includes loans held for sale.

8 First Financial Bancorp 2020 Annual Report

This annual report contains forward-looking statements. See the Forward-Looking Statements section that follows for further information on the risks and uncertainties associated with forward-looking statements.

The following discussion and analysis is presented by management to facilitate the understanding of the financial position and results of operations of First Financial Bancorp. Management's discussion and analysis identifies trends and material changes that occurred during the reporting periods presented and should be read in conjunction with the Statistical Data, Consolidated Financial Statements and accompanying Notes.

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

EXECUTIVE SUMMARY

First Financial Bancorp. is a $16.0 billion financial holding company headquartered in Cincinnati, Ohio, which operates through its subsidiaries primarily in Ohio, Indiana, Kentucky and Illinois. These subsidiaries include First Financial Bank, an
Ohio-chartered commercial bank, which operated 143 full service banking centers as of December 31, 2020. First Financial
provides banking and financial services products to business and retail clients through its six lines of business: Commercial,
Retail Banking, Mortgage Banking, Wealth Management, Investment Commercial Real Estate and Commercial Finance.
Commercial Finance provides equipment and leasehold improvement financing for franchisees in the quick service and casual
dining restaurant sector and commission-based financing, primarily to insurance agents and brokers, throughout the United
States. Wealth Management had $3.0 billion in assets under management as of December 31, 2020 and provides the following
services: financial planning, investment management, trust administration, estate settlement, brokerage services and retirement planning.

Additional information about the Company, including its products, services and banking locations, is available on our website at www.bankatfirst.com.

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

MARKET STRATEGY

First Financial aims to develop a competitive advantage by utilizing a local market focus to provide superior service and build
long-term relationships with clients while helping them achieve greater financial success. First Financial serves a combination
of metropolitan and community markets in Ohio, Indiana, Kentucky and Illinois through its full-service banking centers, and
provides financing to franchise owners and clients within the financial services industry throughout the United States. First
Financial’s market selection process includes a number of factors, but markets are primarily chosen for their potential for long-term profitability and growth. First Financial intends to concentrate plans for future growth and capital investment within its
current metropolitan markets, and will continue to evaluate additional growth opportunities in metropolitan markets located
within, or in close proximity to, the Company's current geographic footprint. Additionally, First Financial may assess strategic
acquisitions that provide product line extensions or additional industry verticals that compliment its existing business and
diversify its product suite and revenue streams. First Financial's investment in community markets is an important part of the
Bank's core funding base and has historically provided stable, low-cost funding sources.

BUSINESS COMBINATIONS

In August 2019, the Company acquired Bannockburn Global Forex, LLC, an industry-leading capital markets firm. The
Cincinnati-based company provides transactional currency payments, foreign exchange hedging and other advisory products to
closely held enterprises, financial sponsors and financial institutions across the United States. Bannockburn became a division of the Bank and continues to operate as Bannockburn Global Forex, taking advantage of its existing brand recognition within the foreign exchange industry. The total purchase consideration was $114.6 million, consisting of $53.7 million in cash and $60.9 million of First Financial common stock. The transaction resulted in First Financial recording $58.0 million of goodwill on the Consolidated Balance Sheet, which reflects the business’s high growth potential and the expectation that the acquisition will provide additional revenue growth and diversification. The goodwill is deductible for income tax purposes as the transaction is considered a taxable exchange.

In April 2018, First Financial completed its acquisition of MainSource Financial Group, Inc. and its banking subsidiary,
MainSource Bank. The merger positioned the combined company to better serve the complementary geographies of Ohio,
First Financial Bancorp 2020 Annual Report 9

Indiana, Kentucky and Illinois by creating a higher performing bank with greater scale and capabilities. Under the terms of the
merger agreement, shareholders of MSFG received 1.3875 common shares of First Financial common stock for each share of
MSFG common stock. Including outstanding options and warrants on MSFG common stock, total purchase consideration was
$1.1 billion. In the merger, First Financial acquired $4.4 billion of total assets, $2.8 billion of loans and $3.3 billion of deposits,
which resulted in goodwill of $675.6 million.

The BGF and MSFG transactions were accounted for using the acquisition method of accounting. Accordingly, assets acquired,
liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance
with FASB ASC Topic 805, Business Combinations.

See Note 23 – Business Combinations in the Notes to Consolidated Financial Statements, for further discussion of these transactions.

COVID-19 CONSIDERATIONS

The Company's operations and financial results for the majority of 2020 were substantially influenced by the COVID-19
pandemic. The Company updated operating protocols to continuously provide virtually all banking services while prioritizing
the health and safety of both its clients and associates. Banking centers offered drive through services without interruption, while lobbies were fully open or accessible to clients via appointment, conditional to virus trends at any point in time during the year. Sales associates, support teams and management largely continued working remotely; however, associates located in the Company's corporate offices and operations centers began to gradually return to those locations at reduced capacity levels in the third quarter. In addition, the Company has maintained its focus on enhancing remote, mobile and online processes to better support a bank anytime anywhere environment.

To assist clients during the pandemic, the Company implemented distinct COVID-19 relief programs to provide
payment deferrals, fee waivers, and suspension of vehicle repossessions and residential property foreclosures, among others. The Company also actively monitored the actions of federal and state governments to proactively assist clients and ensure awareness of each financial assistance program available.

The Bank underwent a significant level of cross training and redeployment of associate resources to rapidly meet the influx of
client requests in response to the passage of the CARES Act, the establishment of the Paycheck Protection Program and the approval of the Consolidated Appropriations Act. The Company's response to the PPP resulted in early successes in providing customer relief, and First Financial ultimately secured SBA funding for $936.4 million in PPP loans for its borrowers in 2020. As of December 31, 2020, the Company had approximately 4,900 active PPP loans with $594.6 million in balances, net of unearned fees of $13.7 million.

Further, as of December 31, 2020, the Company had $320.2 million in loans, or 3.2% of the total portfolio, that were deferred to provide relief to borrowers adversely impacted by the pandemic. These deferrals consisted of $291.5 million of loans under which borrowers were temporarily making interest-only payments and $28.7 million of loans under which borrowers were provided temporary relief from full P&I payments. Franchise loans and hotel loans comprised $230.5 million, or 72%, of total loans deferred. As stated in the CARES Act and subsequently amended by the Consolidated Appropriations Act, loan modifications in response to COVID-19 executed on a loan that was not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or January 1, 2022 are not required to be reported as TDR.
Additionally, First Financial contributed $1.0 million in the first quarter of 2020 to help fund agencies providing COVID-19
relief efforts in the communities throughout its geographic footprint.

OVERVIEW OF OPERATIONS
 
Net income for the year ended December 31, 2020 was $155.8 million, resulting in earnings per diluted common share of $1.59. This compares to net income of $198.1 million and earnings per diluted common share of $2.00 in 2019. First Financial’s return on average shareholders’ equity for 2020 was 7.02%, compared to 9.11% for 2019, and First Financial’s return on average assets was 1.00% and 1.39% for 2020 and 2019, respectively.
Net interest income in 2020 decreased $27.7 million, or 5.7%, from 2019, to $456.5 million, primarily driven by lower yields earned on the loan and investment portfolios resulting from a lower interest rate environment. The net interest margin on a fully tax equivalent basis was 3.51% for 2020 compared to 4.00% in 2019.
First Financial Bancorp 2020 Annual Report 10

 
Noninterest income increased $57.8 million, or 44.0%, to $189.1 million during 2020 from $131.4 million in 2019. The increase in 2020 was driven by record gains on sales of mortgage loans, the full year impact of the BGF acquisition and gains on class B Visa shares.

Noninterest expense increased $48.3 million, or 14.1%, from $342.3 million in 2019 to $390.7 million in 2020. This increase was impacted by higher salaries and benefits directly related to the growth in noninterest income, higher data processing costs, and debt extinguishment costs.

Income tax expense decreased $16.2 million, or 36.1%, to $28.6 million in 2020 from $44.8 million in 2019, with the effective tax rate decreasing to 15.5% in 2020 from 18.4% in 2019. The lower effective tax rate in 2020 was primarily related to lower pre-tax income and recognition of tax credit investments during the period.
Total loans increased $699.3 million, or 7.6%, to $9.9 billion at December 31, 2020 from $9.2 billion at December 31, 2019, driven by PPP volume. Total deposits increased $2.0 billion, or 19.8%, to $12.2 billion as of December 31, 2020 from $10.2 billion at December 31, 2019 as clients benefited from government stimulus actions and account generation increased.

The ACL was $175.7 million, or 1.77% of total loans at December 31, 2020, compared to $57.7 million, or 0.63% of total loans at December 31, 2019. The adoption of ASC 326 effective January 1, 2020 accounted for $61.5 million of the increase in the ACL balance, with the remaining increase attributed to the expected impact from the COVID-19 pandemic. Provision expense increased $40.2 million, or 131.4%, to $70.8 million in 2020 largely in response to higher anticipated losses over the life of the loan portfolio arising from the economic uncertainty resulting from the pandemic, while classified assets increased $52.8 million, or 59.1%, during the year as a result of the economic impact of COVID-19.

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

NET INCOME
 
2020 vs. 2019. First Financial’s net income decreased $42.3 million, or 21.3%, to $155.8 million in 2020, compared to net income of $198.1 million in 2019. The decrease was primarily related to a $27.7 million, or 5.7%, decrease in net interest income as well as a $40.1 million, or 131.9%, increase in provision expense and a $48.3 million, or 14.1%, increase in noninterest expenses, which was partially offset by a $57.8 million, or 44.0%, increase in noninterest income and a $16.2 million, or 36.1%, decrease in income tax expense during 2020.

2019 vs. 2018. First Financial’s net income increased $25.5 million, or 14.8%, to $198.1 million in 2019, compared to net
income of $172.6 million in 2018. The increase was primarily related to a $35.0 million, or 7.8%, increase in net interest
income, combined with a $28.0 million, or 27.1%, increase in noninterest income. These increases were partially offset by an
$18.4 million, or 5.7%, increase in noninterest expenses and a $3.2 million, or 7.6%, increase in income tax expense during
2019.

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

NET INTEREST INCOME
 
First Financial’s net interest income for the years 2016 through 2020 is shown in Table 1 – Financial Summary. First Financial’s principal source of income is net interest income, which is the excess of interest received from earning assets, including loan-related fees and purchase accounting accretion, less interest paid on interest-bearing liabilities. The amount of net interest income is determined by the volume and mix of earning assets, the rates earned on such assets and the volume, mix and rates paid for the deposits and borrowed money that support the earning assets. Earning assets consist of interest-bearing loans to customers as well as marketable investment securities.
 
For analytical purposes, net interest income is also presented in Table 1 – Financial Summary on a tax equivalent basis assuming a 21% marginal tax rate for 2018 through 2020 and a 35% marginal tax rate for years 2016 and 2017. Net interest income on a taxable equivalent basis adjusts for the tax-favored status of income from certain loans and securities held by First Financial that are not taxable for federal income tax purposes in order to facilitate a comparison between taxable and tax-
First Financial Bancorp 2020 Annual Report 11
Management’s Discussion and Analysis of Financial Condition and Results of Operations
exempt amounts.  Management believes it is a standard practice in the banking industry to present net interest margin and net interest income on a fully tax equivalent basis as these measures provide useful information to make peer comparisons. First Financial's tax equivalent net interest margin was 3.51%, 4.00% and 4.10% for 2020, 2019 and 2018, respectively.

Table 2 – Volume/Rate Analysis - Tax Equivalent Basis describes the extent to which changes in interest rates as well as changes in the volume of earning assets and interest-bearing liabilities have affected First Financial’s net interest income on a tax equivalent basis during the years presented. Nonaccrual loans and loans held for sale were included in the average loan balances used to determine the yields in Table 2 – Volume/Rate Analysis - Tax Equivalent Basis, which should be read in conjunction with the Statistical Information table.
 
Loan fees included in the interest income computation for 2020, 2019 and 2018 were $32.8 million, $15.9 million and $16.5 million, respectively. Interest income also included purchase accounting accretion of $20.0 million, $26.8 million and $25.5 million for 2020, 2019 and 2018, respectively.

2020 vs. 2019. Net interest income decreased $27.7 million, or 5.7%, from $484.3 million in 2019 to $456.5 million in 2020, as interest rates declined and purchase accounting accretion moderated during 2020. Average earning assets increased from $12.3 billion in 2019 to $13.2 billion in 2020 primarily due to PPP activity, while the tax equivalent yield on earning assets decreased from 5.00% in 2019 to 4.03% in 2020.

Net interest margin on a fully tax equivalent basis decreased 49 bps to 3.51% for 2020 compared to 4.00% in 2019 as a decline in interest rates drove a 97 bp decline in asset yields, which combined with higher earning asset balances to more than offset a 61 bp decline in funding costs.

Interest income decreased $82.6 million, or 13.6%, in 2020 when compared to the prior year as the yield on earning assets declined to 4.03% from 5.00%, which more than offset the impact of higher earning asset balances. The declining yield on earning assets resulted from an approximate 150 bp reduction in the fed funds target rate from December 31, 2019. Average earning assets increased to $13.2 billion as of December 31, 2020 from $12.3 billion in 2019 as loan balances grew largely due to PPP activity.

Interest expense decreased due to lower rates paid on deposits, the Company's aggressive and deliberate management of funding costs and lower borrowing balances. Lower interest rates led to a 52 bp decline in the cost of interest-bearing deposits, which was 0.52% in 2020 compared to 1.04% for the same period in the prior year. The cost of borrowed funds decreased to 1.82% in 2020 from 2.65% during 2019, reflecting the decline in interest rates and a shift to FRB long-term borrowings, which were used to fund PPP activity and carry a relatively modest interest rate of 0.35%.

2019 vs. 2018. Net interest income increased $35.0 million, or 7.8%, from $449.2 million in 2018 to $484.3 million in 2019,
primarily due to an increase in average earning assets and higher yields earned during 2019. Average earning assets increased
from $11.1 billion in 2018 to $12.3 billion in 2019 primarily due to the full year impact of the MSFG merger and organic loan
growth, while the tax equivalent yield on earning assets increased from 4.93% in 2018 to 5.00% in 2019.

Interest income was $607.6 million in 2019, increasing $67.2 million, or 12.4%, from 2018. The increase was primarily
attributable to interest income from loans, which increased $51.8 million, or 11.6%, from $447.2 million in 2018 to $499.0
million in 2019. The increase in interest income on loans resulted from a merger driven increase in average loan balances,
including loans held for sale, of $797.8 million, or 9.8%, the impact from purchase accounting accretion and higher loan yields.
Additionally, interest income earned on investment securities increased $15.3 million, or 16.5%, during the 2019. Similar to
interest on loans, higher interest income on investment securities was driven by a $391.7 million, or 13.5%, merger-related
increase in average investment balances as well as higher yields when compared to 2018.

Interest expense was $123.3 million in 2019, which was a $32.2 million, or 35.3%, increase from 2018. Interest expense
increased as the average balance of interest-bearing deposits increased $478.5 million, or 6.7%, primarily due to the full year
impact of the MSFG merger in 2019, in addition to increased customer demand. Additionally, higher interest rates during the
twelve month period contributed to the cost of funds related to these deposits increasing to 1.04% for 2019 from 0.80% in 2018.
Interest expense was also impacted in 2019 by a $199.3 million, or 21.0%, increase in average Short-term borrowings and an
$83.8 million, or 19.1%, increase in average Long-term borrowings.
12 First Financial Bancorp 2020 Annual Report

Table 2 • Volume/Rate Analysis - Tax Equivalent Basis (1)
2020 change from 2019 due to 2019 change from 2018 due to
(Dollars in thousands) Volume Rate Total Volume Rate Total
Interest income
Loans (2)
$ 41,726  $ (109,315) $ (67,589) $ 44,638  $ 7,257  $ 51,895 
Investment securities (3)
Taxable (6,725) (9,654) (16,379) 7,846  3,246  11,092 
Tax-exempt 4,780  (2,696) 2,084  5,831  (555) 5,276 
Total investment securities interest (3)
(1,945) (12,350) (14,295) 13,677  2,691  16,368 
Interest-bearing deposits with other banks 150  (680) (530) 84  30  114 
Total 39,931  (122,345) (82,414) 58,399  9,978  68,377 
Interest expense
Interest-bearing demand deposits 518  (8,732) (8,214) 859  3,443  4,302 
Savings deposits 517  (14,668) (14,151) 261  3,072  3,333 
Time deposits (777) (13,968) (14,745) 5,750  8,685  14,435 
Short-term borrowings (6,059) (12,734) (18,793) 4,386  2,816  7,202 
Long-term debt 7,997  (6,966) 1,031  3,056  (151) 2,905 
Total 2,196  (57,068) (54,872) 14,312  17,865  32,177 
Net interest income $ 37,735  $ (65,277) $ (27,542) $ 44,087  $ (7,887) $ 36,200 

(1) Tax equivalent basis was calculated using a 21.00% tax rate.
(2) Includes nonaccrual loans and loans held-for-sale.
(3) Includes HTM securities, AFS securities and other investments.

NONINTEREST INCOME AND NONINTEREST EXPENSES
 
Noninterest income and noninterest expenses for 2020, 2019 and 2018 are shown in Table 3 – Noninterest Income and Noninterest Expenses.
 
NONINTEREST INCOME
 
2020 vs. 2019. Noninterest income increased $57.8 million, or 44.0%, from $131.4 million in 2019 to $189.1 million in 2020. The increase was primarily related to a $36.3 million, or 244.6%, increase in Gain on sale of loans, a $31.6 million, or 408.8%, increase in Foreign exchange income, a $5.0 million increase on Sales of investment securities and an $8.5 million increase in Unrealized gain (loss) on equity securities. These increases were partially offset by an $8.5 million, or 22.4%, decrease in Service charges on deposit accounts, a $7.1 million, or 37.6%, decrease in Bankcard income and a $5.3 million, or 34.2%, decrease in Client derivative fees.

Higher gain on sale of loans was a result of record mortgage banking origination activity driven by historically low interest rates, while foreign exchange income was attributable to the full-year impact of the BGF acquisition, which closed in August of 2019 and generated record income in the back half 2020. The Company recorded net realized gain on sale of Visa Class B shares of $4.5 million during the year, driving the increase in gain on sale of investment securities, while the Company recorded unrealized gains on its remaining investment in Visa Class B shares of $8.8 million in noninterest income when recording those shares on the Consolidated Balance Sheet at their estimated fair value, resulting in the increase in unrealized gain on equity securities.

Service charges on deposit accounts declined during 2020 due to pandemic related fee waivers and lower transaction activity, while the decline in bankcard income was due to the full-year impact of the Durbin Amendment cap on interchange fees, which became applicable to First Financial in the third quarter of 2019, along with lower transaction volumes due to the pandemic. Demand for back to back swaps slowed as loan growth moderated, resulting in lower client derivative fees during the year.

2019 vs. 2018. Noninterest income increased $28.0 million, or 27.1%, from $103.4 million in 2018 to $131.4 million in 2019.
The increase was primarily related to an $8.8 million, or 144.6%, increase in Gain on sale of loans, an $8.0 million, or 103.9%, increase in Client derivative fees and a $7.7 million increase in Foreign exchange income. These increases were partially offset
First Financial Bancorp 2020 Annual Report 13
Management’s Discussion and Analysis of Financial Condition and Results of Operations
by a $1.4 million, or 7.1% decrease in bankcard income.

Higher gain on sale of loans and client derivative fees were primarily driven by the full year impact of the MSFG merger and
strong loan origination activity, while foreign exchange income was directly attributable to the BGF acquisition, which closed
in August of 2019. The decline in bankcard income was due to the impact of the Durbin Amendment cap on interchange fees,
which became applicable to First Financial in the third quarter of 2019.
Table 3 • Noninterest Income and Noninterest Expenses
2020 2019 2018
(Dollars in thousands) Total % Change Total % Change Total % Change
Noninterest income
Service charges on deposit accounts $ 29,446  (22.4) % $ 37,939  8.1  % $ 35,108  77.5  %
Trust and wealth management fees 16,531  5.7  % 15,644  3.7  % 15,082  7.2  %
Bankcard income 11,726  (37.6) % 18,804  (7.1) % 20,245  52.2  %
Client derivative fees 10,313  (34.2) % 15,662  103.9  % 7,682  19.7  %
Foreign exchange income 39,377  408.8  % 7,739  N/M 0  N/M
Net gains from sales of loans 51,176  244.6  % 14,851  144.6  % 6,071  17.5  %
Unrealized gain (loss) on equity securities 9,045  N/M 575  376.4  % (208) N/M
Other 16,946  (17.6) % 20,565  5.1  % 19,563  24.1  %
Subtotal 184,560  40.1  % 131,779  27.3  % 103,543  39.0  %
Net gain (loss) on sales/transfers of investment securities 4,563  N/M (406) N/M (161) N/M
Total $ 189,123  44.0  % $ 131,373  27.1  % $ 103,382  35.8  %
Noninterest expenses
Salaries and employee benefits $ 236,779  13.3  % $ 209,061  10.6  % $ 188,990  37.7  %
Net occupancy 23,266  (3.3) % 24,069  (0.6) % 24,215  39.2  %
Furniture and equipment 14,968  (5.9) % 15,903  6.7  % 14,908  76.6  %
Data processing 27,514  25.7  % 21,881  (22.1) % 28,077  100.2  %
Marketing 6,414  (7.2) % 6,908  (9.1) % 7,598  137.4  %
Communication 3,492  6.9  % 3,267  3.2  % 3,167  74.1  %
Professional services 9,961  (11.5) % 11,254  (8.3) % 12,272  (18.3) %
Debt extinguishment 7,257  N/M 0  N/M 0  N/M
State intangible tax 6,058  3.9  % 5,829  40.4  % 4,152  56.4  %
FDIC assessments 5,110  159.0  % 1,973  (50.3) % 3,969  0.6  %
Intangible assets amortization 11,126  15.0  % 9,671  31.4  % 7,359  466.9  %
Other 38,719  19.1  % 32,516  12.8  % 28,830  (18.0) %
Total $ 390,664  14.1  % $ 342,332  5.8  % $ 323,537  34.7  %

NONINTEREST EXPENSES

2020 vs. 2019. Noninterest expenses increased $48.3 million, or 14.1%, in 2020 compared to 2019, primarily due to a $27.7 million, or 13.3%, increase in Salaries and employee benefits, $7.3 million of Debt extinguishment expenses, a $6.2 million, or 19.1%, increase in Other noninterest expenses, a $5.6 million, or 25.7%, increase in Data processing expenses and a $3.1 million, or 159.0% increase in FDIC assessments.

Higher salaries and employee benefits in 2020 were driven by performance related incentives and commissions, as well as higher healthcare costs and annual compensation adjustments. Noninterest expenses also increased as the Company incurred $7.3 million of debt extinguishment costs related to the prepayment of $120.0 million of higher cost long-term FHLB debt as the Company strategically repositioned its funding mix to take advantage of its liquidity position. The increase in other noninterest expenses was primarily due to a $5.3 million increase in contributions made to the First Financial Foundation during 2020 as well higher write downs of tax credit investments, while data processing expenses increased as the Company
14 First Financial Bancorp 2020 Annual Report

continued to make strategic investments to enhance its digital capabilities and establish required PPP lending processes. FDIC assessments increased in 2020 due to the recognition of a $3.4 million small bank assessment credit from the FDIC in 2019.

2019 vs. 2018. Noninterest expenses increased $18.4 million, or 5.7%, in 2019 compared to 2018, primarily due to a $20.1
million, or 10.6%, increase in Salaries and employee benefits, a $3.2 million, or 11.2%, increase in Other noninterest expenses,
and a $2.3 million, or 31.4%, increase in Intangible assets amortization expense. These increases were partially offset by a $6.2
million, or 22.1%, decrease in Data processing expenses and a $2.0 million, or 50.3%, decrease in FDIC assessments.

Higher Salaries and employee benefits in 2019 were attributed to merger related increases in staffing levels, higher
performance-based compensation and annual compensation adjustments. Intangible assets recorded in conjunction with the
purchase accounting for the MSFG and BFG business combinations resulted in higher intangible asset amortization during
2019, while the increase in other noninterest expense included a $2.9 million historic tax credit investment write-down. Lower
Data processing expenses were primarily due to elevated merger-related expenses in 2018, while the reduction of FDIC
assessments was attributed to the recognition of a $3.4 million FDIC small bank assessment credit in the second half of 2019.

INCOME TAXES
 
2020 vs. 2019. First Financial’s income tax expense in 2020 totaled $28.6 million compared to $44.8 million in 2019, resulting in effective tax rates of 15.5% and 18.4% for 2020 and 2019, respectively. The lower effective tax rate in 2020 was primarily related to lower pre-tax income, coupled with stable non-taxable revenue sources, as well as an increase in tax credit activity during the year.

2019 vs. 2018. First Financial’s income tax expense in 2019 totaled $44.8 million compared to $41.6 million in 2018, resulting
in effective tax rates of 18.4% and 19.4% for 2019 and 2018, respectively. The lower effective tax rate in 2019 was related to
the recognition of a historic tax credit investment, which reduced income tax expense by $3.2 million and increased 2019 net
income by $0.4 million when netted against the investment write-down included in noninterest expense.

For further information on income taxes, see Note 15 – Income Taxes in the Notes to Consolidated Financial Statements.

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

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

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

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

Commercial loans rated as special mention, substandard or doubtful are considered criticized, while loans rated as substandard or doubtful are considered classified. Commercial loans may be designated as criticized/classified based on individual
First Financial Bancorp 2020 Annual Report 15
Management’s Discussion and Analysis of Financial Condition and Results of Operations
borrower performance or industry and environmental factors. Criticized/classified loans are subject to more frequent internal reviews to assess the borrower’s credit status and develop appropriate action plans.

Classified loans are considered to be the leading indicator of credit losses, and are typically managed by the Special Assets Department. Special Assets is a commercial credit group whose primary focus is to handle the day-to-day management of commercial workouts, recoveries and problem loan resolutions. Special Assets ensures that First Financial has appropriate oversight, improved communication and timely resolution of issues throughout the loan portfolio. Additionally, the Credit Risk Management group within First Financial's Risk Management function provides independent, objective oversight and assessment of commercial credit quality and processes.

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

LOANS AND LEASES 

2020 vs. 2019. Loans, excluding loans held for sale, totaled $9.9 billion at December 31, 2020, increasing $699.3 million, or 7.6%, compared to December 31, 2019. C&I loans increased $541.6 million, or 22.0%, largely due to loans originated under the PPP program in response to COVID-19. Construction real estate loans increased $142.9 million, or 29.0%, while Commercial real estate loans increased $113.2 million, or 2.7%. These increases were partially offset by slight declines in Residential real estate loans, which decreased $52.9 million, or 5.0%, Home equity loans, which decreased $28.8 million, or 3.7%, and Installment loans, which decreased $0.7 million, or 0.9%, during 2020. Average loan balances, including loans held for sale, were $9.9 billion at December 31, 2020, an increase of $1.0 billion, or 10.7% compared to December 31, 2019.

Table 4 - Loan and Lease Portfolio details loan and lease balances by type as a percentage of the total portfolio as of December 31 for the last five years.
Table 4 • Loan and Lease Portfolio
December 31,
2020 2019 2018 2017 2016
(Dollars in thousands) Loans % of Loans to Total Loans Loans % of Loans to Total Loans Loans % of Loans to Total Loans Loans % of Loans to Total Loans Loans % of Loans to Total Loans
Commercial & industrial $ 3,007,509  30.4  % $ 2,465,877  26.8  % $ 2,514,661  28.5  % $ 1,912,743  31.8  % $ 1,781,948  31.0  %
Lease financing 72,987  0.8  % 88,364  1.0  % 93,415  1.1  % 89,347  1.5  % 93,108  1.6  %
Construction real estate 636,096  6.4  % 493,182  5.3  % 548,935  6.2  % 467,730  7.8  % 399,434  6.9  %
Commercial real estate 4,307,858  43.5  % 4,194,651  45.6  % 3,754,681  42.5  % 2,490,091  41.4  % 2,427,577  42.2  %
Residential real estate 1,003,086  10.1  % 1,055,949  11.5  % 955,646  10.8  % 471,391  7.8  % 500,980  8.7  %
Home equity 743,099  7.5  % 771,869  8.4  % 817,282  9.3  % 493,604  8.2  % 460,388  8.0  %
Installment 81,850  0.8  % 82,589  0.9  % 93,212  1.1  % 41,586  0.7  % 50,639  0.9  %
Credit card 48,485  0.5  % 49,184  0.5  % 46,382  0.5  % 46,691  0.8  % 43,408  0.7  %
Total loans and leases $ 9,900,970  100  % $ 9,201,665  100  % $ 8,824,214  100  % $ 6,013,183  100  % $ 5,757,482  100  %

Table 5 – Loan Maturity/Rate Sensitivity indicates the contractual maturity of C&I loans and Construction real estate loans outstanding at December 31, 2020 as well as their sensitivity to changes in interest rates.

For discussion of risks associated with the loan portfolio and First Financial's ACL, see the Credit Risk section included in Management’s Discussion and Analysis.
16 First Financial Bancorp 2020 Annual Report

Table 5 • Loan Maturity/Rate Sensitivity
December 31, 2020
Maturity
After one
Within but within After
(Dollars in thousands) one year five years five years Total
Commercial & industrial $ 1,019,913  $ 1,583,253  $ 404,343  $ 3,007,509 
Construction real estate 195,117  329,649  111,330  636,096 
   Total $ 1,215,030  $ 1,912,902  $ 515,673  $ 3,643,605 
After one
Within but within After
(Dollars in thousands) one year five years five years Total
Fixed rate $ 537,381  $ 461,921  $ 134,784  $ 1,134,086 
Variable rate 677,649  1,450,981  380,889  2,509,519 
   Total $ 1,215,030  $ 1,912,902  $ 515,673  $ 3,643,605 

OFF-BALANCE SHEET ARRANGEMENTS

Off-balance sheet arrangements include commitments to extend credit and financial guarantees.  Loan commitments are agreements to extend credit to a client absent any violation of any condition established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  First Financial had commitments outstanding to extend credit totaling $3.4 billion and $3.3 billion at December 31, 2020 and 2019, respectively. As of December 31, 2020, loan commitments with a fixed interest rate totaled $123.6 million while commitments with variable interest rates totaled $3.3 billion. The fixed rate loan commitments have interest rates ranging from 0% to 21% for both December 31, 2020 and 2019 and have maturities ranging from less than 1 year to 30.8 years at December 31, 2020 and less than 1 year to 31.6 years at December 31, 2019.

Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party.  First Financial’s portfolio of letters of credit consists primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services.  First Financial has issued letters of credit aggregating $36.1 million and $33.4 million at December 31, 2020, and 2019, respectively. Management conducts regular reviews of these instruments on an individual client basis.

First Financial is a party in risk participation transactions of interest rate swaps, which had total notional amount of $242.4 million and $216.2 million at December 31, 2020 and 2019, respectively

ASSET QUALITY

Nonperforming assets consist of nonaccrual loans, accruing TDRs (collectively, nonperforming loans) and OREO. Loans are
classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or
interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to a borrower's continued
failure to adhere to contractual payment terms, coupled with other pertinent factors. When a loan is classified as nonaccrual,
the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed.

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

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

2020 vs. 2019. Total nonperforming assets increased $27.5 million, or 44.6%, to $89.1 million at December 31, 2020 from $61.6 million at December 31, 2019. The increase in nonperforming assets was driven by a $32.6 million increase in nonacrual loans, which was partially offset by a $4.3 million decline in accruing TDR and a $0.7 million decline in OREO balances.
First Financial Bancorp 2020 Annual Report 17
Management’s Discussion and Analysis of Financial Condition and Results of Operations

First Financial's nonperforming assets as a percentage of total loans plus OREO increased to 0.90% at December 31, 2020 from 0.67% at December 31, 2019 as a result of higher nonperforming loan balances during the period. Additionally, classified asset balances increased $52.8 million, or 59.1%, to $142.0 million at December 31, 2020 from $89.3 million at December 31, 2019.

The increases in nonperforming and classified assets during 2020 were heavily influenced by economic impact of the COVID-19 pandemic, with three large borrowers, of which one is a sit-down franchise relationship and two are specialty finance relationships, accounting for $37.2 million of the increase in classified asset balances.
Table 6 • Nonperforming Assets
December 31,
(Dollars in thousands) 2020 2019 2018 2017 2016
Nonaccrual loans (1)
$ 80,752  $ 48,165  $ 70,700  $ 24,082  $ 17,730 
Accruing troubled debt restructurings (2)
7,099  11,435  16,109  17,545  30,240 
Other real estate owned (OREO) 1,287  2,033  1,401  2,781  6,284 
Total nonperforming assets $ 89,138  $ 61,633  $ 88,210  $ 44,408  $ 54,254 
Nonperforming assets as a percent of total loans plus OREO 0.90  % 0.67  % 1.00  % 0.74  % 0.94  %
Accruing loans past due 90 days or more $ 169  $ 201  $ 63  $ 61  $ 142 
Classified assets $ 142,021  $ 89,250  $ 131,668  $ 87,293  $ 125,155 

(1) Nonaccrual loans include nonaccrual TDRs of $14.7 million, $18.5 million, $22.4 million, $6.4 million and $5.1 million, as of December 31, 2020, 2019, 2018, 2017 and 2016, respectively.
(2) Accruing troubled debt restructurings include TDRs past due 90 days or more and still accruing of $2.7 million as of December 31, 2016. There were no TDRs 90 days past due and still accruing as of December 31, 2020, 2019, 2018, or 2017, respectively.

INVESTMENTS
 
First Financial utilizes its investment portfolio as a source of liquidity and interest income, as well as a tool for managing the Company's interest rate risk profile. As such, the Company's primary investment strategy is to invest in debt securities with low credit risk, such as treasury and agency-backed residential MBSs. The investment portfolio is also managed with consideration to prepayment and extension/maturity risk. First Financial invests primarily in MBSs issued by U.S. government agencies and corporations, such GNMA, FHLMC and FNMA, as these securities are considered to have a low credit risk and high liquidity profile due to government agency guarantees. Government and agency backed securities comprised 52.9% and 50.6% of First Financial's investment securities portfolio as of December 31, 2020 and 2019, respectively.

The Company also invests in certain securities that are not supported by government or agency guarantees and whose realization is dependent on future principal and interest repayments. Prior to purchase, First Financial performs a detailed collateral and structural analysis on these securities and strategically invests in asset classes in which First Financial has expertise and experience, as well as a senior position in the capital structure. First Financial continuously monitors credit risk and geographic concentration risk in its evaluation of market opportunities that would enhance the overall performance of the portfolio. Securities not supported by government or agency guarantees represented 47.1% and 49.4% of First Financial's investment securities portfolio as of December 31, 2020 and 2019, respectively.

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

2020 vs. 2019. First Financial’s investment portfolio at December 31, 2020 totaled $3.6 billion, compared to $3.0 billion at December 31, 2019, and represented 22.3% of total assets at December 31, 2020. The $561.3 million, or 18.7%, increase in the investment portfolio during 2020 was primarily related to Company's strategic redeployment of balance sheet liquidity resulting from an increase in deposits at year end.
18 First Financial Bancorp 2020 Annual Report

First Financial classified $3.4 billion, or 96.3%, and $2.9 billion, or 95.2%, of investment securities as AFS at December 31, 2020 and 2019, respectively. First Financial classified $131.7 million, or 3.7%, and $142.9 million, or 4.8%, of investment securities as HTM at December 31, 2020 and 2019, respectively.

First Financial recorded a $73.6 million unrealized after-tax gain on the investment portfolio as a component of equity in AOCI resulting from changes in the fair value of AFS securities at December 31, 2020,. This unrealized after-tax gain increased $32.3 million in 2020 from a $41.3 million unrealized after-tax gain at December 31, 2019.

Debt securities issued by the U.S. government and U.S. government agencies and corporations, including the FHLB, FHLMC, FNMA and the U.S. Export/Import Bank was not meaningful as a percentage of the portfolio at either December 31, 2020 or December 31, 2019.

Investments in MBS securities, which include CMOs, represented 57.9% and 60.9% of First Financial's total investment portfolio at December 31, 2020 and 2019, respectively. MBS are participations in pools of loans secured by mortgages under which payments of principal and interest are passed through to the security holders. These securities are subject to prepayment risk, particularly during periods of falling interest rates, and extension risk during periods of rising interest rates. Prepayments of the underlying residential real estate loans may shorten the lives of the securities, thereby affecting yields to maturity and market values.  

Tax-exempt securities of states, municipalities and other political subdivisions totaled $912.4 million as of December 31, 2020 and $687.3 million as of December 31, 2019, comprising 25.7% and 22.9% of the investment portfolio at December 31, 2020 and 2019, respectively. The securities are diversified to include states as well as issuing authorities within states, thereby decreasing geographic portfolio risk. First Financial continuously monitors the risk associated with this investment type and reviews underlying ratings for possible downgrades. First Financial does not own any state or other political subdivision securities that are currently impaired.

Asset-backed securities were $481.9 million, or 13.5% of the investment portfolio at December 31, 2020 and $400.4 million, or 13.4% of the investment portfolio at December 31, 2019. First Financial considers these investment securities to have lower credit risk and a high liquidity profile as a result of explicit guarantees on the collateral.

Other securities, consisting primarily of taxable securities of states, municipalities and other political subdivisions, in addition to debt securities issued by corporations, were $104.0 million, or 2.9% of the investment portfolio, at December 31, 2020 and $81.6 million, or 2.7% of the investment portfolio, at December 31, 2019.

The overall duration of the investment portfolio decreased to 3.2 years as of December 31, 2020 from 3.4 years as of December 31, 2019 as the Company positioned the investment portfolio to optimize a flattened yield curve. First Financial has avoided adding to its portfolio any particular securities that would materially increase credit risk or geographic concentration risk and the Company continuously monitors and considers these risks in its evaluation of current market opportunities that would enhance the overall performance of the portfolio.
Table 7 • Investment Securities as of December 31
2020 2019
Percent of Percent of
(Dollars in thousands) Amount Portfolio Amount Portfolio
U.S. Treasuries $ 103  0.0  % $ 100  0.0  %
Securities of U.S. government agencies and corporations 60  0.0  % 158  0.0  %
Mortgage-backed securities-residential 734,173  20.7  % 452,373  15.1  %
Mortgage-backed securities-commercial 662,673  18.6  % 577,785  19.3  %
Collateralized mortgage obligations 660,920  18.6  % 795,207  26.6  %
Obligations of state and other political subdivisions 912,429  25.7  % 687,267  22.9  %
Asset-backed securities 481,871  13.5  % 400,431  13.4  %
Other securities 104,038  2.9  % 81,625  2.7  %
Total $ 3,556,267  100.0  % $ 2,994,946  100.0  %
 
First Financial Bancorp 2020 Annual Report 19
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The estimated maturities and weighted-average yields of HTM and AFS investment securities as of December 31, 2020 are shown in Table 8 – Investment Securities. Tax-equivalent adjustments using a rate of 21% were included in calculating yields on tax-exempt obligations of state and other political subdivisions.

First Financial held cash on deposit with the Federal Reserve of $20.3 million and $56.9 million at December 31, 2020 and 2019, respectively. First Financial continually monitors its liquidity position as part of its ERM framework, specifically through its asset/liability management process.
 
First Financial will continue to monitor loan and deposit demand, balance sheet composition, capital sensitivity and the interest rate environment as it manages investment strategies in future periods. See Note 4 – Investment Securities in the Notes to Consolidated Financial Statements for additional information on the Company's investment portfolio and Note 22 – Fair Value Disclosures for additional information on how First Financial determines the fair value of investment securities.
Table 8 • Investment Securities as of December 31, 2020
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  % $ 0  0.00  % $ 0  0.00  %
Mortgage-backed securities-residential 0  0.00  % 13,990  2.01  % 0  0.00  % 0  0.00  %
Mortgage-backed securities-commercial 0  0.00  % 71,737  2.76  % 0  0.00  % 0  0.00  %
Collateralized mortgage obligations 1,568  1.29  % 4,231  1.75  % 0  0.00  % 0  0.00  %
Obligations of state and other political subdivisions 0  0.00  % 0  0.00  % 5,834  3.52  % 4,077  2.23  %
Other securities 0  0.00  % 10,250  4.52  % 5,000  4.26  % 15,000  5.09  %
   Total $ 1,568  1.29  % $ 100,208  2.80  % $ 10,834  3.86  % $ 19,077  4.48  %
Available-for-Sale
U.S. treasuries $ 0  0.00  % $ 103  1.97  % $ 0  0.00  % $ 0  0.00  %
Securities of other U.S. government agencies and corporations 60  4.08  % 0  0.00  % 0  0.00  % 0  0.00  %
Mortgage-backed securities-residential 10,332  1.24  % 600,939  2.04  % 80,395  0.08  % 28,517  2.59  %
Mortgage-backed securities-commercial 87,125  3.05  % 359,934  3.56  % 121,580  1.99  % 22,297  2.04  %
Collateralized mortgage obligations 156,296  3.14  % 405,235  2.83  % 63,516  2.97  % 30,074  2.22  %
Obligations of state and other political subdivisions 30,170  3.19  % 310,397  2.41  % 372,814  2.87  % 189,137  2.32  %
Asset-backed securities 109,046  3.06  % 303,307  2.34  % 69,518  2.47  % 0  0.00  %
Other securities 10,127  5.62  % 56,113  5.48  % 2,542  4.00  % 5,006  4.88  %
   Total $ 403,156  3.12  % $ 2,036,028  2.66  % $ 710,365  2.35  % $ 275,031  2.36  %

(1) Tax equivalent basis was calculated using a 21% tax rate and yields were based on amortized cost.
(2) Maturity represents estimated life of investment securities.

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

First Financial primarily utilizes interest rate swaps, which generally involve the receipt by First Financial of floating rate amounts from swap counterparties in exchange for payments to these counterparties by First Financial of fixed rate amounts
20 First Financial Bancorp 2020 Annual Report

received from borrowers. This results in the Company's loan customers receiving fixed rate funding while providing First Financial with a floating rate asset.
In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty.

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

First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts, First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge the exposure from client driven foreign exchange activity.

See Note 12 – Derivatives in the Notes to Consolidated Financial Statements for additional information regarding First Financial's use of derivative instruments.

DEPOSITS
 
First Financial solicits deposits by offering commercial and consumer clients a wide variety of transaction and savings accounts, including checking, savings, money-market and time deposits of various maturities and rates.
 
2020 vs. 2019. First Financial's total deposits increased $2.0 billion, or 19.8%, from $10.2 billion at December 31, 2019 to $12.2 billion as of December 31, 2020. During the period, noninterest bearing deposits increased $1.1 billion, or 42.4%, savings deposits increased $719.8 million, or 24.3%, interest-bearing checking deposits increased $549.9 million, or 23.3%, while time deposits decreased $367.7 million, or 16.4%. Total non-time deposit balances were $10.4 billion as of December 31, 2020 and $8.0 billion as of December 31, 2019.

Total average deposits for 2020 increased $1.3 billion, or 12.5%, from 2019 primarily due to an increase in average noninterest bearing deposits of $786.5 million, or 31.2%, an increase in average interest-bearing demand deposits of $300.1 million, or 12.9%, and an increase in average savings deposits $233.2 million, or 7.7%, partially offset by a decrease in average time deposits of $55.9 million, or 2.5%. The year-over-year growth in average deposits was largely attributable to customers retaining CARES Act stimulus payments and PPP loan proceeds as well as strong origination efforts during the year.
 
Table 9 – Maturities of Time Deposits Greater Than or Equal to $100,000 details the contractual maturity of these deposits. Time Deposits Greater Than or Equal to $100,000 represent 10.0% of total deposits outstanding at December 31, 2020.
  
Table 9 • Maturities of Time Deposits Greater than or Equal to $100,000
December 31, 2020
(Dollars in thousands) CDs IRAs Brokered CDs Total
Maturing in
   3 months or less $ 146,111  $ 13,621  $ 368,187  $ 527,919 
   3 months to 6 months 84,765  9,459  152,000  246,224 
   6 months to 12 months 131,539  18,995  156,628  307,162 
   over 12 months 117,364  29,199  0  146,563 
     Total $ 479,779  $ 71,274  $ 676,815  $ 1,227,868 


First Financial Bancorp 2020 Annual Report 21
Management’s Discussion and Analysis of Financial Condition and Results of Operations

BORROWINGS
 
First Financial's short-term borrowings are utilized to manage the Company's normal liquidity needs. These borrowings include repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place, as well as overnight advances from the FHLB. The Company's long-term borrowings consist of subordinated debt, FRB borrowings, FHLB long-term advances, repurchase agreements utilizing investment securities pledged as collateral and a capital loan from a municipality.

2020 vs. 2019. Short-term borrowings decreased $1.1 billion, or 87.3%, to $166.6 million at December 31, 2020, from $1.3 billion at December 31, 2019.

First Financial utilizes short-term borrowings and long-term advances from the FHLB as wholesale funding sources. First Financial had no short-term borrowings from the FHLB at December 31, 2020 compared to $1.2 billion at December 31, 2019. Short term borrowings also included repurchase agreements of $126.6 million and $90.2 million at December 31, 2020 and 2019, respectively, and federal funds purchased of $40.0 million and $75.0 million as of December 31, 2020 and 2019, respectively.

Total long-term debt was $776.2 million and $414.4 million at December 31, 2020 and 2019, respectively. The Company had $435.0 million of FRB advances from the PPPLF included in long-term borrowings as of December 31, 2020. The PPPLF was established by the Federal Reserve to supply a source of liquidity and term financing to financial institutions participating in the PPP. These borrowings carry an interest rate of 0.35% and are secured by the Company's PPP loans. FHLB long-term advances declined $222.5 million to $20.0 million at December 31, 2020 from $242.4 million as of December 31, 2019 as the Company shifted its funding to the PPPLF, and otherwise implemented funding strategies to manage liquidity and interest rate risk, which included prepaying $120.0 million of FHLB long-term advances in the fourth quarter of 2020. First Financial's total remaining borrowing capacity from the FHLB was $1.7 billion at December 31, 2020. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $6.3 billion of certain eligible residential, commercial and agricultural real estate loans, home equity lines of credit and certain agency CMOs, municipals and CMBS securities as collateral for borrowings from the FHLB as of December 31, 2020.  
Outstanding subordinated debt totaled $321.4 million and $171.0 million as of December 31, 2020 and 2019, respectively. This increase was driven by the issuance of $150.0 million of fixed to floating rate subordinated notes in the second quarter of
2020. The subordinated debt is treated as Tier 2 capital for regulatory capital purposes and also included unamortized valuation and debt issuance costs of $9.3 million and $7.9 million as of December 31, 2020 and 2019, respectively.

See Note 11 – Borrowings in the Notes to Consolidated Financial Statements for additional information on First Financial's borrowings.

LIQUIDITY

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

First Financial’s most stable source of liability-funded liquidity for both long and short-term needs is deposit growth and retention of the core deposit base. In addition to core deposit funding, First Financial also utilizes a variety of short and long-term funding sources, which include subordinated notes, longer-term advances from the FHLB and its short-term line of credit. For further information regarding the company's liability-funded liquidity, see Note 10 - Deposits and Note 11 - Borrowings.

Both First Financial and the Bank received investment grade credit ratings from Kroll Bond Rating Agency, Inc., an independent rating agency. These credit ratings impact the cost and availability of financing to First Financial, and a downgrade to these credit ratings could affect First Financial's or the Bank’s abilities to access the credit markets and potentially increase borrowing costs, negatively impacting financial condition and liquidity. Key factors in maintaining high credit ratings include consistent and diverse earnings, strong credit quality and capital ratios, diverse funding sources and disciplined liquidity monitoring procedures. The ratings of First Financial and the Bank at December 31, 2020 were as follows:
22 First Financial Bancorp 2020 Annual Report

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

For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $6.3 billion of certain eligible residential, commercial and farm real estate loans, home equity lines of credit and government, agency and CMBS investments as collateral for borrowings from the FHLB as of December 31, 2020.  

First Financial's principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. The market value of investment securities classified as AFS totaled $3.4 billion and $2.9 billion at December 31, 2020 and 2019, respectively. HTM securities that are maturing within a short period of time can be an additional source of liquidity. As of December 31, 2020 and 2019, the Company had no HTM securities maturing within one year.

Other sources of liquidity include cash and due from banks and interest-bearing deposits with other banks. At December 31, 2020, these balances totaled $251.4 million, and First Financial had unused and available overnight wholesale funding sources of $4.3 billion, or 26.7% of total assets, to fund loan and deposit activities in addition to general corporate requirements.

Certain restrictions exist regarding the Bank's ability to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances and the approval of the Bank's primary federal regulator is required to pay dividends in excess of regulatory limitations. Dividends paid to the parent company from its subsidiaries totaled $80.0 million, $196.8 million and $107.3 million for 2020, 2019 and 2018, respectively. As of December 31, 2020, the bank had retained earnings of $695.2 million, of which $198.0 million was available for distribution to First Financial without prior regulatory approval. As an additional source of liquidity, First Financial had $172.9 million in cash at the parent company as of December 31, 2020.

Share repurchases also impact First Financial's liquidity. For further information regarding share repurchases, see the Capital section that follows.

Capital expenditures, such as banking center expansion, remodeling and technology investments, were $16.5 million for 2020, $20.9 million for 2019 and $18.2 million for 2018. Material commitments for capital expenditures as of December 31, 2020, were $18.7 million. Management believes that sufficient liquidity exists to fund its future capital expenditure commitments.

Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on First Financial’s liquidity.

Table 10 • Contractual Obligations as of December 31, 2020
(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 $ 20,046  $ 0  $ 0  $ 0  $ 20,046 
Subordinated debt 14,657  33,303  160,651  243,874  452,485 
Capital loan with municipality 0  0  0  775  775 
Operating lease obligations 6,864  14,217  13,075  56,951  91,107 
Pension obligations 5,780  10,906  13,170  38,095  67,951 
Time deposits 1,544,131  272,737  55,188  677  1,872,733 
Total $ 1,591,478  $ 331,163  $ 242,084  $ 340,372  $ 2,505,097 
 
First Financial Bancorp 2020 Annual Report 23
Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAPITAL

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

The Board of Governors of the Federal Reserve System approved Basel III in order to strengthen the regulatory capital framework for all banking organizations, subject to a phase-in period for certain provisions.  Basel III established and defined quantitative measures to ensure capital adequacy. These measures require First Financial to maintain minimum amounts and ratios of Common Equity Tier 1 capital, Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets (leverage ratio).  

Basel III includes a minimum ratio of Common equity Tier 1 capital to risk-weighted assets of 7.0% and a fully phased-in capital conservation buffer of 2.5% of risk-weighted assets. Further, the minimum ratio of Tier 1 capital to risk-weighted assets is 8.5% and all banks are subject to a 4.0% minimum leverage ratio.  The required Total risk-based capital ratio is 10.5%. Failure to maintain the required Common equity Tier 1 capital will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and pay discretionary compensation to its employees. The capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans.

First Financial's tier 1 capital increased to 12.20% at December 31, 2020 from 11.69% at December 31, 2019, while the total capital ratio increased to 15.55% from 13.39% during the same period. The increase in these ratios was primarily due to the issuance of subordinated debt in the second quarter of 2020 as well as quarterly earnings. The leverage ratio was 9.55% at December 31, 2020, which was relatively unchanged from 9.58% at December 31, 2019. The Company’s tangible common equity ratio decreased to 8.47% at December 31, 2020 from 9.07% at December 31, 2019 primarily due to the adoption of CECL during the period and the impact of PPP activity.

As of December 31, 2020, management believes that First Financial met all capital adequacy requirements to which it was subject. At December 31, 2020 and 2019, regulatory notifications categorized First Financial Bank as well-capitalized under the regulatory framework for prompt corrective action. There have been no conditions or events that management believes has changed the Company’s capital categorization.

For further detail on First Financial's capital ratios at December 31, 2020, see Note 19 – Capital in the Notes to Consolidated Financial Statements.
24 First Financial Bancorp 2020 Annual Report

Table 11 • Capital Adequacy
December 31,
(Dollars in thousands) 2020 2019
Consolidated capital calculations
Common stock $ 1,638,947  $ 1,640,771 
Retained earnings 720,429  711,249 
Accumulated other comprehensive loss 48,664  13,323 
Treasury stock, at cost (125,970) (117,638)
Total shareholders' equity 2,282,070  2,247,705 
Common equity tier 1 capital adjustments
Goodwill and other intangibles (1,015,132) (1,024,622)
Total tangible equity $ 1,266,938  $ 1,223,083 
Total assets $ 15,973,134  $ 14,511,625 
Goodwill and other intangibles (1,015,132) (1,024,622)
Total tangible assets $ 14,958,002  $ 13,487,003 
Common tier 1 capital $ 1,325,922  $ 1,245,746 
Tier 1 capital 1,368,818  1,288,185 
Total capital 1,744,802  1,475,813 
Total risk-weighted assets 11,219,114  11,023,795 
Average assets (1)
14,338,156  13,440,151 
Regulatory capital
Common tier 1 ratio 11.82  % 11.30  %
Tier 1 ratio 12.20  % 11.69  %
Total capital ratio 15.55  % 13.39  %
Leverage ratio 9.55  % 9.58  %
Other capital ratios
Total shareholders' equity to ending assets 14.29  % 15.49  %
Total tangible shareholders' equity to ending tangible assets 8.47  % 9.07  %
(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 57.5%, 44.8% and 40.0% for the years 2020, 2019 and 2018, respectively. The dividend payout ratio is continually reviewed by management and the board of directors for consistency with First Financial’s overall capital planning activities and compliance with applicable regulatory limitations. In January 2021, the board of directors authorized a dividend of $0.23 per common share, payable on March 15, 2021 to all shareholders of record as of March 1, 2021.

Share Repurchases. In December 2020, First Financial's board of directors approved a stock repurchase plan, replacing the plan approved in 2019. The 2020 plan authorizes the purchase of up to 5,000,000 shares of the Company's common stock and expires in January 2023. First Financial repurchased 880,000 shares at an average market price of $18.96 during 2020 and 2,753,272 at an average market price of $24.05 in 2019 under the 2019 plan. At December 31, 2020, all 5,000,000 shares were available for purchase under the 2020 share repurchase plan.

Shareholders' Equity. Total shareholders’ equity at December 31, 2020 was $2.3 billion, compared to total shareholders’ equity at December 31, 2019 of $2.2 billion. The increase in shareholders' equity is primarily related to the Company's 2020 earnings.
First Financial Bancorp 2020 Annual Report 25
Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

PENSION PLAN
 
First Financial sponsors a non-contributory defined-benefit pension plan covering substantially all employees. The significant assumptions used in the valuation and accounting for the pension plan include the discount rate, expected return on plan assets and the rate of employee compensation increase. The discount rate assumption was determined based on highly rated corporate bonds, weighted to adjust for their relative size, projected plan cash flows using the annuity substitution method as well as comparisons to external industry surveys. The expected return on plan assets was 7.25% for both 2020 and 2019, and was based on the composition of plan assets, actual returns, economic forecasts and economic trends. The assumed rate of compensation increase was 3.50% and was compared to historical increases for plan participants for reasonableness.

Presented below is the estimated impact on First Financial’s projected benefit obligation and pension expense as of December 31, 2020, assuming shifts in the significant assumptions: 
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 $ 7,609  $ (5,488) N/A N/A $ (824) $ 1,360 
Change in Pension Expense 247  58  $ 1,355  $ (1,355) (201) 460 
 
Based upon the plan’s current funding status and updated actuarial projections for 2020, First Financial recorded expense related to its pension plan of $2.5 million for 2020, $1.0 million for 2019 and $0.9 million for 2018 in the Consolidated Statements of Income. First Financial will make contributions to the plan if plan assets do not meet or exceed ERISA’s minimum funding standards.  Given the plan's over-funded status, First Financial made no cash contributions to fund the pension plan in 2020, 2019 or 2018 nor does it expect to make a cash contribution in 2021.

See Note 16 – Employee Benefit Plans in the Notes to Consolidated Financial Statements for additional information on First Financial's pension plan.

ENTERPRISE RISK MANAGEMENT
 
First Financial considers risk to be any issue that could have an adverse impact on the Company's capital or earnings, or negatively impact the Company's ability to meet its objectives. First Financial manages risks through a structured ERM approach that routinely assesses the overall level of risk, identifies specific risks and evaluates the steps being taken to mitigate those risks. First Financial continues to enhance its risk management capabilities and has, over time, embedded risk awareness into the Company's culture. ERM allows First Financial to align a variety of risk management activities within the Company into a cohesive, enterprise-wide approach and focus on process-level risk management activities and strategic objectives within the risk management culture. Additionally, ERM allows the Company to deliberately develop risk responses and evaluate the effectiveness of mitigation compared to established thresholds for risk appetite and tolerance, in addition to facilitating the consideration of significant organizational changes and consolidation of information through a common process for management and the board of directors.

First Financial has identified nine types of risk that it monitors in its ERM framework. These risks include credit, market (composed of interest rate, liquidity, capital, foreign exchange and financial risk), operational, compliance, strategic, reputation, information technology, cyber and legal.

First Financial uses a robust regulatory risk framework as one of the foundational components of its ERM framework. This allows for a common categorization across the Company and provides a consistent and complete risk framework that can be summarized and assessed enterprise-wide. Additionally, the risk framework utilized is consistent with that used by the Company’s regulators, which results in additional feedback on First Financial’s ability to assess and measure risk across the organization as well as the ability for management and the board of directors to identify and understand differences in assessed risk profiles.
 
ERM helps ensure that First Financial continues to identify and adequately address risks that emerge from a combination of new customers, products and associates, changing markets, new lines of business and processes and new or evolving systems.
 
26 First Financial Bancorp 2020 Annual Report

The goals of First Financial’s ERM framework are to:

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

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

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

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

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

First Financial Bancorp 2020 Annual Report 27
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive and Senior Management. Members of executive and senior management are responsible for managing risk activities and delegating risk authority and tolerance to the responsible risk owners.

Management must identify which processes and activities are critical to achieving the Company’s business objectives within the designated tolerance levels.  Management must then delegate responsibility, authority and accountability to the appropriate risk owners who are responsible for ensuring that the respective processes and activities are designed and implemented to manage the related risks within those delegated tolerance levels. Management analyzes and monitors risk management performance with key risk indicator (KRI) and key performance indicator (KPI) dashboards.

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

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

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

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

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

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

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

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

28 First Financial Bancorp 2020 Annual Report

Management continually reviews any risk identified as key, as well as the appropriateness of established tolerance limits and the actions considered as necessary to mitigate key risks.  As circumstances warrant, management provides recommendations to the board risk and compliance committee related to changes or adjustments to key risks or tolerance limits.

First Financial believes that communication is fundamental to successful risk management and productive reporting and communication between the risk management department, management and the board of directors is required for collaborative and effective risk management.

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

Allowance for credit losses. The ACL is a reserve accumulated on the Consolidated Balance Sheets through the recognition of the provision for loan and lease losses. First Financial records provision expense in the Consolidated Statements of Income to maintain the ACL at a level considered sufficient to absorb expected credit losses for financial assets in the portfolio over their expected remaining lives with consideration given to current and forward-looking information.

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

Management's determination of the adequacy of the ACL is based on an assessment of the expected credit losses on loan and leases over the expected life of the loan. Management estimates the allowance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the Qualitative Framework. The evaluation of these factors is the responsibility of the ACL committee, which is comprised of senior officers from the risk management, credit administration, finance and lending areas.

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

2020 vs. 2019. The ACL at December 31, 2020 was $175.7 million, or 1.77% of loans, which was a $118.0 million, or 204.7%, increase from $57.7 million, or 0.63% of loans at December 31, 2019. Provision expense increased $40.2 million, or 131.4%, to $70.8 million in 2020 from $30.6 million in 2019. As detailed in Note 2 - Accounting Standards Recently Adopted or Issued, the initial adoption of CECL increased the ACL $61.5 million, while the remainder of the year over year increase in ACL, and elevated provision expense is attributed to the anticipated losses due to the economic impact of COVID-19.

The Company utilized the revised Moody's December baseline forecast as its R&S forecast in the quantitative model as of December 31, 2020, which included consideration of the impact from both the COVID-19 pandemic and the related government stimulus response. For reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts, slower prepayment speeds and increased default rates. These alternative analyses were utilized to inform the Company's qualitative adjustments. Additionally, First Financial considered its credit exposure to certain industries believed to be at risk for future credit stress related to the COVID-19 pandemic, such as franchise, hotel and investor commercial real estate lending when making qualitative adjustments to the ACL model.

Net charge-offs decreased $15.2 million, or 51.6%, to $14.3 million for 2020 compared to $29.5 million for 2019, while the ratio of net charge-offs as a percentage of average loans outstanding decreased to 0.14% in 2020 from 0.33% in 2019.

The ACL as a percentage of nonaccrual loans was 217.55% at December 31, 2020 and 119.69% at December 31, 2019. The ACL as a percentage of nonperforming loans, including accruing TDRs was 199.97% at December 31, 2020 compared with
First Financial Bancorp 2020 Annual Report 29
Management’s Discussion and Analysis of Financial Condition and Results of Operations
96.73% at December 31, 2019. The increase in this ratio was attributed to the increase in the ACL during the period, which more than offset the increase in nonperforming loans.

Provision expense is a product of the Company's ACL model combined with net charge-off activity during the period. Provision expense increased $40.2 million, or 131.4%, to $70.8 million in 2020 from $30.6 million in 2019. With moderate net charge-offs during the period, the majority of 2020 provision expense was related to the expected economic impact from COVID-19.

The ACL on unfunded commitments was $12.5 million as of December 31, 2020 and $0.6 million as of December 31, 2019.
Additionally, First Financial recorded $0.2 million of provision recapture on unfunded commitments for the years ended
December 31, 2020 and 2019. Similar to the increase in ACL on loans and leases, the increase in ACL on unfunded commitments was related to the adoption of CECL and consideration of the impact from the COVID-19 pandemic on future credit losses; however, provision expense declined during the year due to elevated levels of prepayment activity, which shortened the estimated weighted average remaining life of the portfolio for modeling purposes.

See Note 6 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements for further discussion of First
Financial's ACL.
30 First Financial Bancorp 2020 Annual Report

For further discussion of First Financial's ACL, see Note 6 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements.
Table 12 • Summary of the ACL and Selected Statistics
(Dollars in thousands) 2020 2019 2018 2017 2016
Transactions in the allowance for credit losses:
Balance at January 1 $ 57,650  $ 56,542  $ 54,021  $ 57,961  $ 53,398 
Day one adoption impact of ASC 326 61,505  0  0  0  0 
   Provision for credit losses 70,796  30,598  14,586  3,582  10,140 
Loans charged-off:
   Commercial & industrial 5,345  26,676  11,533  10,194  2,630 
   Lease financing 852  162  0  0  0 
Construction real estate 0  0  0  1  93 
Commercial real estate 12,100  3,689  4,835  1,038  4,983 
Real estate-residential 488  677  422  435  387 
Home equity 1,541  2,591  1,725  913  1,445 
Installment 148  223  435  225  386 
Credit card 885  1,547  1,720  857  1,190 
      Total loans charged-off 21,359  35,565  20,670  13,663  11,114 
Recoveries of loans previously charged-off:
   Commercial & industrial 2,907  2,883  2,066  1,650  1,155 
   Lease financing 0  0  1  1  1 
Construction real estate 17  68  146  89  285 
Commercial real estate 2,262  1,113  4,106  2,719  2,502 
Real estate-residential 381  273  211  215  236 
Home equity 1,132  1,335  1,309  1,027  720 
Installment 158  251  575  234  335 
Credit card 230  152  191  206  303 
      Total recoveries 7,087  6,075  8,605  6,141  5,537 
      Net charge-offs 14,272  29,490  12,065  7,522  5,577 
      Balance at December 31 $ 175,679  $ 57,650  $ 56,542  $ 54,021  $ 57,961 
Net charge-offs to average loans and leases
Commercial & industrial 0.08  % 0.95  % 0.38  % 0.47  % 0.08  %
Lease financing 1.07  % 0.17  % 0.00  % 0.00  % 0.00  %
Construction real estate 0.00  % (0.01) % (0.03) % (0.02) % (0.05) %
Commercial real estate 0.23  % 0.07  % 0.02  % (0.07) % 0.11  %
Real estate-residential 0.01  % 0.04  % 0.03  % 0.05  % 0.03  %
Home equity 0.05  % 0.16  % 0.06  % (0.02) % 0.16  %
Installment (0.01) % (0.03) % (0.15) % (0.02) % 0.11  %
Credit card 1.39  % 2.81  % 3.19  % 1.44  % 2.10  %
Total net charge-offs 0.14  % 0.33  % 0.15  % 0.13  % 0.10  %
Credit quality ratios:
   As a percent of year-end loans, net of unearned income:
      Allowance for credit losses 1.77  % 0.63  % 0.64  % 0.90  % 1.01  %
     Nonperforming loans (1)
0.89  % 0.65  % 0.98  % 0.69  % 0.83  %
   Allowance for credit losses to nonperforming loans (1)
199.97  % 96.73  % 65.13  % 129.77  % 120.83  %
First Financial Bancorp 2020 Annual Report 31
Management’s Discussion and Analysis of Financial Condition and Results of Operations

(1) Includes loans classified as nonaccrual and troubled debt restructurings.
Table 13 • Allocation of the ACL
December 31,
2020 2019 2018 2017 2016
(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 $ 51,454  30.4  % $ 18,584  32.6  % $ 18,746  28.5  % $ 17,598  31.8  % $ 19,225  31.0  %
Lease financing 995  0.8  % 971  0.8  % 1,130  1.1  % 675  1.5  % 716  1.6  %
Real estate – construction 21,736  6.4  % 2,381  5.0  % 3,413  6.2  % 3,577  7.8  % 3,282  6.9  %
Real estate – commercial 76,795  43.5  % 23,579  42.6  % 21,048  42.5  % 20,930  41.4  % 26,540  42.2  %
Real estate – residential 8,560  10.1  % 5,299  10.3  % 4,964  10.8  % 4,683  7.8  % 3,208  8.7  %
Installment, home equity & credit card 16,139  8.8  % 6,836  8.7  % 7,241  10.9  % 6,558  9.7  % 4,990  9.6  %
  Total $ 175,679  100.0  % $ 57,650  100.0  % $ 56,542  100.0  % $ 54,021  100.0  % $ 57,961  100.0  %

MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary sources of market risk for First Financial are interest rate risk and liquidity risk.

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

First Financial monitors its interest rate risk position using income simulation models and EVE sensitivity analyses that capture both short-term and long-term interest rate risk exposure.  Income simulation involves forecasting NII under a variety of interest rate scenarios. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest-rate scenarios. First Financial uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital.  For both NII and EVE modeling, First Financial leverages instantaneous parallel shocks to evaluate interest rate risk exposure across rising and falling rate scenarios. Additional scenarios evaluated include various non-parallel yield curve twists.

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

Non-maturity deposit modeling is particularly dependent on the assumption for repricing sensitivity known as a beta. Beta is the amount by which First Financial’s interest bearing non-maturity deposit rates will increase when short-term interest rates rise. The Company utilized a weighted average deposit beta of 36% in its interest rate risk modeling as of December 31, 2020. First Financial also includes an assumption for the migration of non-maturity deposit balances into CDs for all upward rate scenarios beginning with the +100 BP scenario, thereby increasing deposit costs and reducing asset sensitivity.

32 First Financial Bancorp 2020 Annual Report

Presented below is the estimated impact on First Financial’s NII and EVE as of December 31, 2020, assuming immediate, parallel shifts in interest rates:
% Change from base case for
immediate parallel changes in rates
-100 BP +100 BP +200 BP
NII - Year 1 (2.44)% 8.81% 16.23%
NII - Year 2 (2.99)% 12.11% 22.64%
EVE (9.94)% 8.36% 15.59%

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

First Financial was within policy limits set for the disclosed interest rate scenarios as of December 31, 2020. The projected
results for NII and EVE reflected an asset sensitive position, and were relatively in line with third quarter results, but has increased throughout 2020 due to large increases in low cost transactional deposits and fewer wholesale borrowings. First Financial continues to manage its balance sheet with a bias toward modest asset sensitivity while simultaneously balancing the potential earnings impact of this strategy.

First Financial continually evaluates the sensitivity of its interest rate risk position to modeling assumptions. The following table reflects First Financial’s estimated NII sensitivity profile as of December 31, 2020 assuming both a 25% increase and decrease to the beta assumption on managed rate deposit products:
Beta sensitivity (% change from base)
+100 BP +200 BP
Beta 25% lower Beta 25% higher Beta 25% lower Beta 25% higher
NII-Year 1 10.15  % 7.47  % 17.53  % 14.93  %
NII-Year 2 13.50  % 10.71  % 23.99  % 21.30  %

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

Table 14 – Market Risk Disclosure projects the principal maturities and yields of First Financial’s interest-bearing financial instruments at December 31, 2020 for the next five years and thereafter, as well as the fair value of the instruments. For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and related weighted-average interest rates by contractual maturities. For investment securities, including MBS and CMO, principal cash flows are based on estimated average lives. For loan instruments without contractual maturities, such as credit card loans, principal payments are allocated based on historical payment activity trends. Maturities for interest-bearing liability accounts with no contractual maturity dates are estimated according to historical experience of cash flows and current expectations of client behaviors when calculating fair value, but are included in the maturing in one year or less category as they can be withdrawn on demand.
 
First Financial Bancorp 2020 Annual Report 33
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Table 14 • Market Risk Disclosure
Fair Value
Principal Amount Maturing In December 31,
(Dollars in thousands) 2021 2022 2023 2024 2025 Thereafter Total 2020
Rate sensitive assets
Fixed interest rate loans (1)
$ 937,014  $ 318,440  $ 265,190  $ 188,026  $ 176,294  $ 886,924  $ 2,771,888  $ 2,861,312 
   Average interest rate 2.34  % 3.86  % 4.41  % 4.45  % 4.09  % 3.84  % 3.44  %
Variable interest rate loans (1)
1,181,666  1,011,252  815,529  774,148  688,193  2,523,718  6,994,506  6,923,288 
   Average interest rate 3.51  % 3.23  % 3.55  % 3.26  % 3.79  % 3.40  % 3.43  %
Fixed interest rate securities 311,910  365,222  603,481  375,637  339,138  951,432  2,946,820  2,951,820 
   Average interest rate 3.28  % 2.67  % 2.61  % 2.40  % 2.43  % 2.42  % 2.60  %
Variable interest rate securities 92,814  183,968  161,514  50,733  56,542  63,876  609,447  609,458 
   Average interest rate 2.67  % 3.38  % 3.17  % 2.39  % 3.56  % 2.81  % 3.06  %
Other earning assets 20,305  0  0  0  0  0  20,305  20,305 
   Average interest rate 0.10  % 0.00  % 0.00  % 0.00  % 0.00  % 0.00  % 0.10  %
Rate sensitive liabilities
Noninterest-bearing checking (2)
$ 3,763,709  $ 0  $ 0  $ 0  $ 0  $ 0  $ 3,763,709  $ 3,763,709 
Savings and interest-bearing checking (2)
6,595,561  0  0  0  0  0  6,595,561  6,595,561 
   Average interest rate 0.11  % 0.00  % 0.00  % 0.00  % 0.00  % 0.00  % 0.11  %
Time deposits 1,544,921  215,761  56,883  32,978  22,046  144  1,872,733  1,878,788 
   Average interest rate 0.56  % 1.37  % 0.81  % 0.86  % 0.51  % 1.81  % 0.67  %
Fixed interest rate borrowings 494,953  0  0  0  130,400  142,849  768,202  767,220 
   Average interest rate 0.37  % 0.00  % 0.00  % 0.00  % 5.19  % 5.83  % 2.20  %
Variable interest rate borrowings 126,594  0  0  0  0  48,000  174,594  174,048 
   Average interest rate 0.05  % 0.00  % 0.00  % 0.00  % 0.00  % 2.83  % 0.81  %

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

Liquidity risk is the potential that an entity will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain funding or that it cannot easily unwind or offset exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Management focuses on maintaining and enhancing liquidity by maximizing collateral based liquidity availability. First Financial manages liquidity in relation to the trend and stability of deposits; degree and reliance on short-term, volatile sources of funds, including any undue reliance on borrowings or brokered deposits to fund longer-term assets. Management identifies, measures, monitors and controls liquidity while seeking to maintain diversification of funding sources, both on- and off-balance-sheet.

In 2020, the bank continued to update liquidity risk management processes, such as refining the contingency funding plan, proactively meeting more frequently during the pandemic, securing additional contingent borrowing capacity, and developing additional ad-hoc liquidity reporting to monitor funding inflows and outflows related to the PPP funding and forgiveness. Management is closely monitoring the usage of excess business deposits, the balance of personal deposits and the broader macroeconomic environment during this period of heightened uncertainty and profound fiscal and monetary stimulus. For further discussion of the Company's liquidity, please see the Liquidity section within Management's Discussion and Analysis.

OPERATIONAL RISK

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

34 First Financial Bancorp 2020 Annual Report

COMPLIANCE RISK

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

STRATEGIC AND REPUTATION RISK

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

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

Mitigation of strategic and reputation risk elements is achieved through initiatives that help First Financial better understand and report on the various risks it faces each day, including those related to the development of new products and business initiatives and client feedback response and mitigation routines that analyze and share feedback data with business lines for client experience and process improvements.

INFORMATION TECHNOLOGY RISK

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

CYBERSECURITY RISK

Cyber risk is differentiated from information technology risk by threat interactions that yield high impact consequences and ever-increasing probability. First Financial continues to be the target of various evolving and adaptive cyber attacks, including malware, phishing and distributed denial-of-service, in order to disrupt the operations of financial institutions, potentially test their cybersecurity capabilities, commit fraud, or obtain confidential, proprietary or other information. While standard security operations address most day to day incidents, cyber risk includes threats and attacks that often use advanced tools, techniques and processes to evade detection or inflict maximum damage to an organization's information assets. Cyber threats and attacks adapt and evolve rapidly, so First Financial works to continuously enhance controls and processes to protect its networks and applications from attack, damage or unauthorized access. Critical components to the Company’s cyber risk control structure include corporate governance, threat intelligence, security awareness training and patch management programs. Cybersecurity risk mitigation includes effectively identifying, protecting against, detecting, responding to, and recovering from cyber threats.

LEGAL RISK

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

First Financial Bancorp 2020 Annual Report 35
Management’s Discussion and Analysis of Financial Condition and Results of Operations
CRITICAL ACCOUNTING POLICIES

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

Allowance for credit losses - loans and leases. The allowance for credit losses is a valuation account that is deducted from the
loans’ amortized cost basis to present the net amount expected to be collected on the loans. Management's determination of the
adequacy of the ACL is based on an assessment of the expected credit losses on loan and leases over the expected life of the
loan. The ACL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously
charged-off. Loans are charged off when management believes that the collection of the principal amount owed in full, either
through payments from the borrower or a guarantor or from the liquidation of collateral, is unlikely. Expected recoveries do not
exceed the aggregate of amounts previously charged-off and expected to be charged-off. Any interest that is accrued but not
collected is reversed against interest income when a loan is placed on nonaccrual status, which typically occurs prior to
charging off all, or a portion, of a loan. The Company made the policy election to exclude accrued interest receivable on loans
and leases from the estimate of credit losses.

Management estimates the allowance using relevant available information from both internal and external sources,
relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired
with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial
adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These
adjustments are commonly known as the Qualitative Framework.

First Financial quantitatively models expected credit loss using PD, LGD and EAD over the R&S forecast period, reversion and
post-reversion periods.

Utilizing third-party software, the Bank forecasts PD by using a parameterized transition matrix approach. Average transition
matrices are calculated over the TTC period, which was defined as the period from December 2007 to December 2016. TTC
transition matrices are adjusted under forward-looking macroeconomic expectations to obtain R&S forecasts.

First Financial is not required to develop forecasts over full the contractual term of the financial asset or group of financial
assets. Rather, for periods beyond which the entity is able to make or obtain R&S forecasts of expected credit losses, the
Company reverts in a straight line manner over a one year period to an average TTC loss level that is reflective of the
prepayment adjusted contractual term of the financial asset or group of financial assets. The R&S period, elected by the bank to
be two years, is forecasted using econometric data sourced from Moody's, an industry-leading independent third party.

FFB utilizes a non-parametric loss curve approach embedded within a third-party software for estimating LGD. The PD
multiplied by LGD produces an expected loss rate that, when calculating the ACL, is applied to contractual loan cash flows,
adjusted for expected future rates of principal prepayments.

The Company adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects
current conditions and R&S forecasts to differ from the conditions that existed for the period over which historical information
was evaluated. The Qualitative Framework reflects changes related to relevant data, such as changes in asset quality trends,
portfolio growth and composition, national and local economic factors, credit policy and administration and other factors not
considered in the base quantitative model.

Loans that do not share risk characteristics are evaluated on an individual basis. First Financial will typically evaluate on an
individual basis any loans that are on nonaccrual, designated as a TDR, or reasonably expected to be designated as a TDR.
When management determines that foreclosure is probable or when repayment is expected to be provided substantially through
the operation or sale of underlying collateral, expected credit losses are based on the fair value of the collateral at the reporting
date, adjusted for selling costs. For loans evaluated on an individual basis that are not determined to be collateral dependent, a
discounted cash flow analysis is performed to determine expected credit losses.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when
36 First Financial Bancorp 2020 Annual Report

appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following
applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with
an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date
and are not unconditionally cancellable by the Company. Credit card receivables do not have stated maturities. In determining
the estimated life of a credit card receivable, management first estimates the future cash flows expected to be received and then
applies those expected future cash flows to the credit card balance.

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

The Company’s goodwill is accounted for in a single reporting unit representing the consolidated entity. First Financial engaged a third party to perform a quantitative analysis of its goodwill to determine whether any impairment existed as of October 1, 2020 for its annual impairment test. This quantitative analysis was performed due to the on-going economic market disruption, the movement of the Company’s stock price in relation to other bank indexes and the length of time that the market value of the reporting unit has been below its book value. This analysis indicated that no impairment existed as of the issue date. Our quantitative impairment analysis utilized the discounted cash flow model for the income approach and the market multiple methodology and comparable transaction methodology as the market approach. These valuation methodologies utilize key assumptions that include forecasts of revenues and expenses derived from internal management projections for a period of five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective and require significant management judgment. Changes in these key assumptions could materially affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.

Additionally, in response to the COVID-19 pandemic and the related deterioration in general economic conditions, First Financial performed an interim qualitative impairment test as of the end of each quarter in 2020, including the quarter ended December 31, 2020. Likewise, the results of these interim qualitative tests did not indicate that the company's goodwill was impaired. First Financial will continue to monitor the status of its goodwill and intangible assets for signs of further deterioration and potential impairment.

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

Income Taxes. First Financial evaluates and assesses the relative risks and appropriate tax treatment of transactions after considering statutes, regulations, judicial precedent and other information, and maintains tax accruals consistent with its evaluation of these relative risks. Changes to the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, the status of examinations being conducted by taxing authorities and changes to statutory, judicial and regulatory guidance that impact the relative risks of tax positions. These changes, when they occur, can affect deferred taxes and accrued taxes as well as the current period’s income tax expense and can be material to the Company's operating results.

First Financial regularly reviews its tax positions and establishes reserves for income tax-related uncertainties based on estimates of whether it is more likely than not that the tax uncertainty would be sustained upon challenge by the appropriate tax authorities which would then result in additional taxes, penalties and interest due.  Reserves for uncertain tax positions, if any, are included in income tax expense in the Consolidated Financial Statements.

First Financial Bancorp 2020 Annual Report 37
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS

Certain statements contained in this report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as ‘‘believes,’’ ‘‘anticipates,’’ “likely,” “expected,” “estimated,” ‘‘intends’’ and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.  Examples of forward-looking statements include, but are not limited to, statements we make about (i) our future operating or financial performance, including revenues, income or loss and earnings or loss per share, (ii) future common stock dividends, (iii) our capital structure, including future capital levels, (iv) our plans, objectives and strategies, and (v) the assumptions that underlie our forward-looking statements.

As with any forecast or projection, forward-looking statements are subject to inherent uncertainties, risks and changes in circumstances that may cause actual results to differ materially from those set forth in the forward-looking statements.  Forward-looking statements are not historical facts but instead express only management’s beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management’s control. It is possible that actual results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-looking statements.  Important factors that could cause actual results to differ materially from those in our forward-looking statements include the following, without limitation:

•economic, market, liquidity, credit, interest rate, operational and technological risks associated with the Company’s business;

•future credit quality and performance, including our expectations regarding future loan losses and our allowance for credit losses;

•the effect of and changes in policies and laws or regulatory agencies, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and other legislation and regulation relating to the banking industry; (iv) management’s ability to effectively execute its business plans;

•mergers and acquisitions, including costs or difficulties related to the integration of acquired companies;

•the possibility that any of the anticipated benefits of the Company’s acquisitions will not be realized or will not be realized within the expected time period;

•the effect of changes in accounting policies and practices;

•changes in consumer spending, borrowing and saving and changes in unemployment;

•changes in customers’ performance and creditworthiness;

•the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;  

•current and future economic and market conditions, including the effects of declines in housing prices, high unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth;

•the adverse impact on the U.S. economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (“COVID-19”), global pandemic, and the impact of a slowing U.S. economy and increased unemployment on the performance of our loan and lease portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products;

•our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;

•financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;

38 First Financial Bancorp 2020 Annual Report

•the effect of the current interest rate environment or changes in interest rates or in the level or composition of our assets or liabilities on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;

•the effect of a fall in stock market prices on our brokerage, asset and wealth management businesses;

•a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber attacks;

•the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin; and

•our ability to develop and execute effective business plans and strategies.

These and other risk factors are more fully described in First Financial's Annual Report on Form 10-K for the year ended December 31, 2020 under the section entitled “Item 1A. Risk Factors” and from time to time, in other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, First Financial undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

First Financial Bancorp 2020 Annual Report 39

Statistical Information
2020 2019 2018
(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)
$ 2,999,223  $ 143,720  4.79  % $ 2,505,615  $ 153,128  6.11  % $ 2,518,333  $ 150,113  5.96  %
Lease financing (2)
79,882  3,769  4.72  % 92,902  3,964  4.27  % 91,476  3,911  4.28  %
Construction-real estate 535,740  20,497  3.83  % 491,503  26,637  5.42  % 540,014  28,761  5.33  %
Commercial-real estate (2)
4,317,396  177,038  4.10  % 3,906,992  216,757  5.55  % 3,310,697  178,235  5.38  %
Residential-real estate 1,077,430  48,001  4.46  % 1,025,394  47,635  4.65  % 821,454  38,543  4.69  %
Installment and other consumer 892,985  40,046  4.48  % 926,129  52,539  5.67  % 868,724  49,202  5.66  %
Total loans and leases 9,902,656  433,071  4.37  % 8,948,535  500,660  5.59  % 8,150,698  448,765  5.51  %
Indemnification asset 0  0  N/M 0  0  N/M 370  0  0.00  %
Investment securities (3)
Taxable 2,460,707  73,789  3.00  % 2,684,973  90,168  3.36  % 2,451,352  79,076  3.23  %
Tax-exempt (2)
751,344  24,357  3.24  % 603,902  22,273  3.69  % 445,815  16,997  3.81  %
Total investment securities (3)
3,212,051  98,146  3.06  % 3,288,875  112,441  3.42  % 2,897,167  96,073  3.32  %
Interest-bearing deposits with other banks 78,943  275  0.35  % 35,814  805  2.25  % 32,090  691  2.15  %
Total earning assets 13,193,650  531,492  4.03  % 12,273,224  613,906  5.00  % 11,080,325  545,529  4.93  %
Nonearning assets
Allowance for credit losses (153,596)   (58,504) (56,115)
Cash and due from banks 245,436    191,864  188,971 
Accrued interest and other assets 2,243,654    1,804,135  1,398,257 
Total assets $ 15,529,144  $ 14,210,719  $ 12,611,438 
Interest-bearing liabilities
Deposits
Interest-bearing demand $ 2,626,252  $ 4,534  0.17  % $ 2,326,193  $ 12,748  0.55  % $ 2,169,396  $ 8,446  0.39  %
Savings 3,260,882  7,232  0.22  % 3,027,725  21,383  0.71  % 2,990,731  18,050  0.60  %
Time 2,167,553  30,156  1.39  % 2,223,429  44,901  2.02  % 1,938,709  30,466  1.57  %
Total interest-bearing deposits 8,054,687  41,922  0.52  % 7,577,347  79,032  1.04  % 7,098,836  56,962  0.80  %
Borrowed funds
Short-term borrowings 590,903  6,442  1.09  % 1,146,719  25,235  2.20  % 947,427  18,033  1.90  %
Long-term debt 867,798  20,088  2.31  % 522,340  19,057  3.65  % 438,567  16,152  3.68  %
Total borrowed funds 1,458,701  26,530  1.82  % 1,669,059  44,292  2.65  % 1,385,994  34,185  2.47  %
Total interest-bearing liabilities 9,513,388  68,452  0.72  % 9,246,406  123,324  1.33  % 8,484,830  91,147  1.07  %
Noninterest-bearing liabilities
Noninterest-bearing demand deposits 3,310,483      2,524,011  2,217,349 
Other liabilities 484,628      265,623  156,998 
Shareholders' equity 2,220,645      2,174,679  1,752,261 
Total liabilities and shareholders' equity $ 15,529,144  $ 14,210,719  $ 12,611,438 
Net interest income and interest rate spread (fully tax equivalent) $ 463,040  3.31  % $ 490,582  3.67  % $ 454,382  3.86  %
Net interest margin (fully tax equivalent) 3.51  % 4.00  % 4.10  %
Interest income and yield $ 524,963  3.98  % $ 607,578  4.95  % $ 540,382  4.88  %
Interest expense and rate 68,452  0.72  % 123,324  1.33  % 91,147  1.07  %
Net interest income and spread $ 456,511  3.26  % $ 484,254  3.62  % $ 449,235  3.81  %
Net interest margin 3.46  % 3.95  % 4.05  %
(1) Nonaccrual loans are included in average loan balance and loan fees are included in interest income.
(2) Interest income on tax-exempt investments and on certain tax-exempt loans and leases has been adjusted to a tax equivalent basis using a 21% tax rate for 2020, 2019 and 2018.
(3) Includes HTM securities, AFS securities and other investments.
(4) Includes loans held-for-sale.
N/M = not meaningful
40 First Financial Bancorp 2020 Annual Report

Management’s Report on Internal Control over Financial Reporting

First Financial’s management is responsible for establishing and maintaining adequate internal control over financial reporting. First Financial’s internal control over financial reporting is a process designed under the supervision of First Financial’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. As of December 31, 2020, First Financial’s management, including the chief executive officer and the chief financial officer, evaluated the effectiveness of First Financial’s internal controls over financial reporting, using as its framework for that evaluation the Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission (2013 framework). Based on the evaluation, we believe that, as of December 31, 2020, our internal control over financial reporting is effective based on those criteria.

Crowe LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K, has issued an attestation report on First Financial’s internal control over financial reporting as of December 31, 2020. The report, which expresses an unqualified opinion on First Financial’s internal control over financial reporting as of December 31, 2020, is included in the information that follows under the heading “Report of Independent Registered Public Accounting Firm."



/s/ Archie M. Brown /s/ James M. Anderson
President and Chief Executive Officer Executive Vice President and Chief Financial Officer
February 19, 2021 February 19, 2021

First Financial Bancorp 2020 Annual Report 41

FFBC-20201231_G7.JPG
Crowe LLP
Independent Member Crowe Global








Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of First Financial Bancorp (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit loss standard and its subsequent application is also communicated as a critical audit matter below.

Basis for Opinions

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

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

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
42 First Financial Bancorp 2020 Annual Report

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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


Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses - Refer to Notes 2 and 6 to the financial statements

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2020 as described in Notes 2 and 6 of the consolidated financial statements. See also the explanatory paragraph above. The allowance for credit losses (the “ACL”) is an accounting estimate of expected credit losses over the estimated life of financial assets carried at amortized cost and off-balance-sheet credit exposures. The ASU requires a financial asset (or a group of financial assets), including the Company's loan portfolio, measured at amortized cost, to be presented at the net amount expected to be collected. Estimates of expected credit losses for loans are based on historical experience, current conditions and reasonable and supportable forecasts over the estimated life of the loans. In order to estimate the expected credit losses, the Company implemented a new loss estimation model. The Company disclosed the impact of adoption of this standard on January 1, 2020 with a $61.5 million increase to the allowance for credit losses, a $12.2 million increase for unfunded loan commitments and a $56.9 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption. Provision for credit losses for loans and leases for the year ending December 31, 2020 was $70.8 million and the Allowance for Credit Losses at December 31, 2020 was $175.7 million.

Management quantitatively models expected credit loss using Probability of Default (“PD”), Loss Given Default (“LGD”), and Exposure at Default (“EAD”) over the Reasonable and Supportable (“R&S”) forecast, reversion and post-reversion periods. Utilizing third-party software, the Company forecasts PD by using transition matrices to evaluate when events are more or less likely to occur based on previous events. The transition matrices are adjusted under forward-looking macroeconomic expectations to obtain R&S forecasts. Management utilizes third-party software for estimating LGD. The PD multiplied by LGD produces an expected loss rate that, when calculating the ACL, is applied to contractual loan cash flows, adjusted for expected future rates of principal prepayments. The Company adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects current conditions and R&S forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The qualitative framework reflects changes related to relevant data, such as changes in asset quality trends, portfolio growth and composition, national and local economic factors, credit policy and administration and other factors not considered in the base model. The ACL is measured on a
First Financial Bancorp 2020 Annual Report 43

collective (pool) basis when similar risk characteristics exist. The ACL is influenced by loan volumes, risk rating migration, delinquency status and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.

The Allowance for Credit Losses was identified by us as a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the initial adoption and subsequent application processes, including the need to involve our valuation services specialists. The principal considerations resulting in our determination included the following:

•Significant auditor judgment and audit effort to evaluate selection of the loss estimation model and adjustments to the transition matrices to estimate PD during the R&S forecast period, appropriateness of loan segmentation, and the reasonableness of PD and LGD assumptions.
•Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecast of economic variables.
•Significant auditor judgement and effort were used in evaluating the qualitative factors used in the calculation.
•Significant audit effort related to the completeness and accuracy of the high volume of data used to develop assumptions and in the model computation

The primary procedures performed to address the critical audit matter included:

•Evaluating the appropriateness of the Company's policies, methodologies, and elections involved in the adoption of ASC 326.
•Evaluating the completeness and accuracy of the financial statement disclosures related to the adoption of ASC 326.
•Testing the effectiveness of management’s review controls over the Company’s key assumptions and judgments such as the qualitative framework, approval of loan segmentation, credit loss implementation model, and accuracy of data input.
•Evaluated the appropriateness of the loan segmentation, the conceptual soundness of the methodology as applied in the credit loss estimation model and the adequacy of and control over independent model validation.
•Evaluated the appropriateness and conceptual soundness of the qualitative methodology deployed in the credit loss estimation models. Testing the effectiveness of controls over the completeness and accuracy of historical inputs.
•Testing appropriateness of the probability of default estimation, loss given default estimation and their respective inputs.
•With the assistance of our valuation specialists, evaluating the reasonableness of assumptions and judgments related to the PD including reasonable and supportable forecasts, the conceptual design of the credit loss estimation models, and the adequacy of the independent model validation.
•Substantively testing management’s process for developing and applying qualitative factors and assessing relevance of data used to develop factors, including evaluating their judgments and assumptions for reasonableness.
•Substantively testing the mathematical accuracy of the EAD including the completeness and accuracy of loan data used in the model to estimate ACL.



FFBC-20201231_G8.JPG
Crowe LLP

We have served as the Company's auditor since 2015, which is the year the engagement letter was signed for the audit of the 2016 financial statements.
Indianapolis, Indiana
February 19, 2021

44 First Financial Bancorp 2020 Annual Report


Consolidated Balance Sheets
December 31,
(Dollars in thousands) 2020 2019
Assets    
Cash and due from banks $ 231,054  $ 200,691 
Interest-bearing deposits with other banks 20,305  56,948 
Investment securities available-for-sale, at fair value (amortized cost $3,330,029 at December 31, 2020 and $2,798,298 at December 31, 2019) 3,424,580  2,852,084 
Investment securities held-to-maturity (fair value $136,698 at December 31, 2020 and $142,821 at December 31, 2019) 131,687  142,862 
Other investments 133,198  125,020 
Loans held for sale 41,103  13,680 
Loans and leases    
Commercial & industrial 3,007,509  2,465,877 
Lease financing 72,987  88,364 
Construction real estate 636,096  493,182 
Commercial real estate 4,307,858  4,194,651 
Residential real estate 1,003,086  1,055,949 
Home equity 743,099  771,869 
Installment 81,850  82,589 
Credit card 48,485  49,184 
Total loans and leases 9,900,970  9,201,665 
Less: Allowance for credit losses 175,679  57,650 
Net loans and leases 9,725,291  9,144,015 
Premises and equipment 207,211  214,506 
Goodwill 937,771  937,771 
Other intangibles 64,552  76,201 
Accrued interest and other assets 1,056,382  747,847 
Total assets $ 15,973,134  $ 14,511,625 
Liabilities    
Deposits    
Interest-bearing demand $ 2,914,787  $ 2,364,881 
Savings 3,680,774  2,960,979 
Time 1,872,733  2,240,441 
Total interest-bearing deposits 8,468,294  7,566,301 
Noninterest-bearing 3,763,709  2,643,928 
Total deposits 12,232,003  10,210,229 
Federal funds purchased and securities sold under agreements to repurchase 166,594  165,181 
FHLB short-term borrowings 0  1,151,000 
      Total short-term borrowings 166,594  1,316,181 
Long-term debt 776,202  414,376 
Total borrowed funds 942,796  1,730,557 
Accrued interest and other liabilities 516,265  323,134 
Total liabilities 13,691,064  12,263,920 
Shareholders' equity    
Common stock - no par value    
Authorized - 160,000,000 shares; Issued - 104,281,794 shares in 2020 and in 2019 1,638,947  1,640,771 
Retained earnings 720,429  711,249 
Accumulated other comprehensive income (loss) 48,664  13,323 
Treasury stock, at cost, 6,259,865 shares in 2020 and 5,790,796 shares in 2019 (125,970) (117,638)
Total shareholders' equity 2,282,070  2,247,705 
Total liabilities and shareholders' equity $ 15,973,134  $ 14,511,625 

See Notes to Consolidated Financial Statements.

First Financial Bancorp 2020 Annual Report 45

Consolidated Statements of Income
Years ended December 31,
(Dollars in thousands except per share data) 2020 2019 2018
Interest income    
Loans and leases, including fees $ 431,657  $ 499,009  $ 447,187 
Investment securities    
Taxable 73,789  90,168  79,076 
Tax-exempt 19,242  17,596  13,428 
Total interest on investment securities 93,031  107,764  92,504 
Other earning assets 275  805  691 
Total interest income 524,963  607,578  540,382 
Interest expense    
Deposits 41,922  79,032  56,962 
Short-term borrowings 6,442  25,235  18,033 
Long-term borrowings 20,088  19,057  16,152 
Total interest expense 68,452  123,324  91,147 
Net interest income 456,511  484,254  449,235 
Provision for credit losses- loan and lease losses 70,796  30,598  14,586 
Provision for credit losses- unfunded commitments (237) (165) 273 
Net interest income after provision for credit losses 385,952  453,821  434,376 
Noninterest income    
Service charges on deposit accounts 29,446  37,939  35,108 
Trust and wealth management fees 16,531  15,644  15,082 
Bankcard income 11,726  18,804  20,245 
Client derivative fees 10,313  15,662  7,682 
Foreign exchange income 39,377  7,739  0 
Net gain from sales of loans 51,176  14,851  6,071 
Net gain (loss) on sales/transfers of investment securities 4,563  (406) (161)
Unrealized gain (loss) on equity securities 9,045  575  (208)
Other 16,946  20,565  19,563 
Total noninterest income 189,123  131,373  103,382 
Noninterest expenses    
Salaries and employee benefits 236,779  209,061  188,990 
Net occupancy 23,266  24,069  24,215 
Furniture and equipment 14,968  15,903  14,908 
Data processing 27,514  21,881  28,077 
Marketing 6,414  6,908  7,598 
Communication 3,492  3,267  3,167 
Professional services 9,961  11,254  12,272 
Debt extinguishment 7,257  0  0 
State intangible tax 6,058  5,829  4,152 
FDIC assessments 5,110  1,973  3,969 
Intangible assets amortization 11,126  9,671  7,359 
Other 38,719  32,516  28,830 
Total noninterest expenses 390,664  342,332  323,537 
Income before income taxes 184,411  242,862  214,221 
Income tax expense 28,601  44,787  41,626 
Net income $ 155,810  $ 198,075  $ 172,595 
Earnings per common share
Basic $ 1.60  $ 2.01  $ 1.95 
Diluted $ 1.59  $ 2.00  $ 1.93 
Average common shares outstanding - basic 97,363,952  98,305,570  88,582,090 
Average common shares outstanding - diluted 98,093,098  98,851,471  89,614,205 

See Notes to Consolidated Financial Statements.
46 First Financial Bancorp 2020 Annual Report

Consolidated Statements of Comprehensive Income
Years ended December 31,
(Dollars in thousands) 2020 2019 2018
Net income $ 155,810  $ 198,075  $ 172,595 
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on debt securities arising during the period 32,312  51,959  (11,229)
Change in retirement obligation 3,029  4,649  (8,180)
Unrealized gain (loss) on derivatives 0  217  484 
Other comprehensive income (loss) 35,341  56,825  (18,925)
Comprehensive income $ 191,151  $ 254,900  $ 153,670 

See Notes to Consolidated Financial Statements.


First Financial Bancorp 2020 Annual Report 47

Consolidated Statements of Changes in Shareholders' Equity
Accumulated
Common Common other
stock stock Retained comprehensive Treasury stock
(Dollars in thousands, except share amounts) shares amount earnings income (loss) Shares Amount Total
Balance at January 1, 2018 68,730,731  $ 573,109  $ 491,847  $ (20,390) (6,661,644) $ (113,902) $ 930,664 
Impact of cumulative effect of adoption of new accounting principles 5,093  (5,093) 0 
Net income     172,595        172,595 
Other comprehensive income (loss)       (18,925)     (18,925)
Cash dividends declared:            
Common stock at $0.78 per share     (69,521)       (69,521)
Common stock issued in connection with business combinations 35,551,063  1,043,424  1,043,424 
Stock options and warrants acquired and converted in connection with business combinations 16,037  16,037 
Warrant exercises (1,120) 65,354  1,120  0 
Exercise of stock options, net of shares purchased (282) 32,941  566  284 
Restricted stock awards, net of forfeitures   (4,131)     175,841  1,603  (2,528)
Share-based compensation expense   6,219          6,219 
Balance at December 31, 2018 104,281,794  1,633,256  600,014  (44,408) (6,387,508) (110,613) 2,078,249 
Impact of cumulative effect of adoption of new accounting principles 2,636  906  3,542 
Net income 198,075  198,075 
Other comprehensive income (loss) 56,825  56,825 
Cash dividends declared:
Common stock at $0.90 per share (89,476) (89,476)
Purchase of common stock (2,753,272) (66,218) (66,218)
Common stock issued in connection with business combinations 13,658  2,601,823  47,276  60,934 
Warrant exercises (7,830) 452,134  7,830  0 
Exercise of stock options, net of shares purchased (264) 20,424  354  90 
Restricted stock awards, net of forfeitures (6,018) 275,603  3,733  (2,285)
Share-based compensation expense 7,969  7,969 
Balance at December 31, 2019 104,281,794  1,640,771  711,249  13,323  (5,790,796) (117,638) 2,247,705 
Impact of cumulative effect of adoption of new accounting principles (56,882) (56,882)
Net income 155,810  155,810 
Other comprehensive income (loss) 35,341  35,341 
Cash dividends declared:
Common stock at $0.92 per share (89,748) (89,748)
Purchase of common stock (880,000) (16,686) (16,686)
Exercise of stock options, net of shares purchased (140) 10,405  212  72 
Restricted stock awards, net of forfeitures (9,362) 400,526  8,142  (1,220)
Share-based compensation expense 7,678  7,678 
Balance at December 31, 2020 104,281,794  $ 1,638,947  $ 720,429  $ 48,664  (6,259,865) $ (125,970) $ 2,282,070 

See Notes to Consolidated Financial Statements.
48 First Financial Bancorp 2020 Annual Report

Consolidated Statements of Cash Flows
Year ended December 31,
(Dollars in thousands) 2020 2019 2018
Operating activities    
Net income $ 155,810  $ 198,075  $ 172,595 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for credit losses 70,559  30,598  14,586 
Depreciation and amortization 33,337  28,138  24,171 
Stock-based compensation expense 7,678  7,969  6,219 
Pension expense (income) 2,484  1,041  859 
Net amortization (accretion) on investment securities 21,053  11,430  10,846 
Net (gain) loss on sales/transfers of investments securities (4,563) 406  161 
Unrealized (gain) loss on equity securities (9,045) (575) 208 
Originations of loans held for sale (942,207) (390,578) (157,771)
Net (gains) losses on sales of loans held for sale (51,176) (14,851) (6,071)
Proceeds from sales of loans held for sale 965,960  396,121  167,374 
Deferred income taxes (8,380) 12,590  6,267 
Amortization of operating leases 7,897  7,324  0 
Payments for operating leases (8,196) (7,335) 0 
Decrease (increase) cash surrender value of life insurance (1,506) (3,748) (5,454)
Decrease (increase) in interest receivable (9,697) 2,117  (3,808)
(Decrease) increase in interest payable (7,431) 1,545  5,207 
Decrease (increase) in other assets (288,857) (165,902) 35,000 
(Decrease) increase in other liabilities 176,168  71,964  (10,043)
Net cash provided by (used in) operating activities 109,888  186,329  260,346 
Investing activities      
Proceeds from sales of investment securities available-for-sale 122,248  519,136  290,745 
Proceeds from calls, paydowns and maturities of securities available-for-sale 904,821  557,034  387,351 
Purchases of securities available-for-sale (1,551,952) (834,743) (852,131)
Proceeds from calls, paydowns and maturities of securities held-to-maturity 41,736  18,062  36,671 
Purchases of securities held-to-maturity (30,250) 0  (14,014)
Proceeds from calls, paydowns and maturities of other securities 29,526  0  1,052 
Purchases of other investment securities (28,659) (12,120) (31,385)
Net decrease (increase) in interest-bearing deposits with other banks 36,643  (19,210) (3,764)
Net decrease (increase) in loans and leases (714,594) (409,557) (28,577)
Proceeds from disposal of other real estate owned 2,076  1,453  3,797 
Purchases of premises and equipment (16,466) (20,934) (18,228)
Net cash acquired (paid) from business combinations 0  (51,663) 64,895 
Net cash (paid) received for branch divestitures 0  118  (41,197)
Net cash provided by (used in) investing activities (1,204,871) (252,424) (204,785)
Financing activities      
Net (decrease) increase in total deposits 2,021,774  69,953  (18,690)
Net (decrease) increase in short-term borrowings (1,149,587) 275,490  30,531 
Payments on long-term borrowings (681,511) (159,653) (52,460)
Proceeds from long-term borrowings 1,040,975  0  150,000 
Cash dividends paid on common stock (89,691) (89,097) (79,655)
Purchases of common stock (16,686) (66,218) 0 
Proceeds from exercise of stock options 72  90  284 
Net cash provided by (used in) financing activities 1,125,346  30,565  30,010 
Cash and due from banks      
Net (decrease) increase in Cash and due from banks 30,363  (35,530) 85,571 
Cash and due from banks at beginning of year 200,691  236,221  150,650 
Cash and due from banks at end of year $ 231,054  $ 200,691  $ 236,221 
First Financial Bancorp 2020 Annual Report 49

Supplemental disclosures
Interest paid $ 75,884  $ 121,779  $ 84,125 
Income taxes paid $ 32,579  $ 27,497  $ 16,004 
Acquisition of other real estate owned through foreclosure $ 1,017  $ 2,448  $ 3,182 
Issuance of restricted stock awards $ 9,370  $ 10,488  $ 8,797 
Securities transferred from HTM to AFS $ 0  $ 268,703  $ 372,128 
Common stock issued in acquisitions $ 0  $ 60,934  $ 1,043,424 
Initial recognition of operating lease right of use asset $ 0  $ 60,249  $ 0 
Initial recognition of operating lease liabilities $ 0  $ 65,799  $ 0 
Supplemental schedule for investing activities
Business combinations
Assets acquired, net of purchase consideration $ 0  $ (39,140) 3,342,781 
Liabilities assumed 0  18,380  4,018,948 
Goodwill $ 0  $ 57,520  $ 676,167 

See Notes to Consolidated Financial Statements.
50 First Financial Bancorp 2020 Annual Report

Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Basis of presentation. The Consolidated Financial Statements of First Financial Bancorp., a financial holding company, principally serving Ohio, Indiana, Kentucky and Illinois, include the accounts and operations of First Financial and its wholly owned subsidiary, First Financial Bank. All significant intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications of prior years' amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings.
Use of estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes. These estimates, assumptions and judgments are inherently subjective and my Actual realized amounts could differ materially from those estimates.

COVID-19. In the majority of 2020, First Financial's operations and financial results were significantly impacted by the COVID-19 pandemic. The spread of COVID-19 has caused significant economic disruption throughout the United States as state and local governments issued stay at home orders and temporarily closed non-essential businesses. The full financial impact from the pandemic is unknown at this time, however prolonged disruption may adversely impact several industries within the Company's geographic footprint and impair the ability of First Financial's customers to fulfill their contractual obligations to the Company. This could cause First Financial to experience a material adverse effect on business operations, asset valuations, financial condition and results of operations. Material adverse impacts may include all or a combination of valuation impairments on First Financial's intangible assets, investments, loans, mortgage servicing rights or counter-party risk derivatives.

Cash and due from banks. Cash and due from banks consist of currency, coin and cash items due from banks. Cash items due from banks include noninterest-bearing balances that are on deposit at other depository institutions.
 
Investment securities. First Financial classifies debt securities into three categories: HTM, trading and AFS. Management classifies investment securities into the appropriate category at the time of purchase and re-evaluates that classification as deemed appropriate.

Investment securities are classified as HTM when First Financial has the positive intent and ability to hold the securities to maturity. HTM securities are recorded at amortized cost.
 
Investment securities classified as trading are held principally for resale in the near-term and are recorded at fair value. Fair value is determined using quoted market prices. Gains or losses on trading securities, both realized and unrealized, are reported in noninterest income.
 
Investment securities not classified as either HTM or trading are classified as AFS. AFS securities are recorded at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.
 
The amortized cost of investment securities classified as either HTM or AFS is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage-backed securities, over the estimated life of the security. Such amortization and accretion are considered an adjustment to the yield on the security and included in interest income from investments. Interest and dividends are also included in interest income from investment securities in the Consolidated Statements of Income. Realized gains and losses are based on the amortized cost of the security sold using the specific identification method.
 
Other investments. Other investments include holdings in FRB and FHLB stock, which are both carried at cost as well as equity securities, including class B Visa shares which are carried at fair value. Changes in the fair value of equity securities are recorded in Unrealized gain (loss) on securities in the Consolidated Statements of Income.

Loans held for sale. Loans held for sale consist of residential real estate loans newly originated for the purpose of sale to third parties, and in certain circumstances, loans previously originated that have been specifically identified by management for sale based on predetermined criteria. Loans held for sale are carried at fair value. Any subsequent change in the carrying value of
First Financial Bancorp 2020 Annual Report 51
Notes to Consolidated Financial Statements
transferred loans, not to exceed original cost, is recorded in the Consolidated Statements of Income. First Financial sells loans with servicing retained or released depending on pricing and market conditions.  

Loans and leases. Loans and leases for which First Financial has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are classified in the Consolidated Balance Sheets as loans and leases. Loans and leases are carried at the principal amount outstanding, net of unamortized deferred loan origination fees and costs, and net of unearned income. Loan origination and commitment fees received, as well as certain direct loan origination costs paid, are deferred, and the net amount is amortized as an adjustment to the related loan's yield.

Interest income on loans and leases is recorded on an accrual basis. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued, but unpaid interest is reversed. Any payments received while a loan is classified as nonaccrual are applied as a reduction to the carrying value of the loan. A loan may return to accrual status if collection of future principal and interest payments is no longer doubtful.

Allowance for credit losses - held-to-maturity securities. Management measures expected credit losses on held-to-maturity debt securities on a collective basis by security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Management classifies the held-to-maturity portfolio into the following major security types: Mortgage-backed, CMOs and Obligations of state and other political subdivisions.

Nearly all of the HTM securities held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. The remainder of the Company's HTM securities are non-agency collateralized mortgage obligations and obligations of state and other political subdivisions which currently carry ratings no lower than A+. Accrued interest receivable on held-to maturity debt securities, which totaled $0.3 million as of December 31, 2020, is excluded by policy election from the estimate of credit losses.

Allowance for credit losses - available-for-sale securities. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as provision for credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available-for-sale debt securities, which totaled $12.9 million as of December 31, 2020, is excluded from the estimate of credit losses.

Allowance for credit losses - loans and leases. The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Management's determination of the adequacy of the ACL is based on an assessment of the expected credit losses on loan and leases over the expected life of the loan. The ACL is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. Loans are charged off when management believes that the collection of the principal amount owed in full, either through payments from the borrower or a guarantor or from the liquidation of collateral, is unlikely. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Any interest that is accrued but not collected is reversed against interest income when a loan is placed on nonaccrual status, which typically occurs prior to charging off all, or a portion, of a loan. The Company made the policy election to exclude accrued interest receivable on loans and leases from the estimate of credit losses. 

Management estimates the allowance balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired
52 First Financial Bancorp 2020 Annual Report

with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the Qualitative Framework.

First Financial quantitatively models expected credit loss using PD, LGD and EAD over the R&S forecast period, reversion and post-reversion periods.
Utilizing third-party software, the Bank forecasts PD by using a parameterized transition matrix approach. Average transition matrices are calculated over the TTC period, which was defined as the period from December 2007 to December 2016. TTC transition matrices are adjusted under forward-looking macroeconomic expectations to obtain R&S forecasts.
First Financial is not required to develop forecasts over full the contractual term of the financial asset or group of financial assets. Rather, for periods beyond which the entity is able to make or obtain R&S forecasts of expected credit losses, the Company reverts in a straight line manner over a one year period to an average TTC loss level that is reflective of the prepayment adjusted contractual term of the financial asset or group of financial assets. The R&S period, elected by the bank to be two years, is forecasted using econometric data sourced from Moody's, an industry-leading independent third party.

FFB utilizes a non-parametric loss curve approach embedded within a third-party software for estimating LGD. The PD multiplied by LGD produces an expected loss rate that, when calculating the ACL, is applied to contractual loan cash flows, adjusted for expected future rates of principal prepayments.
The Company adjusts its quantitative model for certain qualitative factors to reflect the extent to which management expects current conditions and R&S forecasts to differ from the conditions that existed for the period over which historical information was evaluated. The Qualitative Framework reflects changes related to relevant data, such as changes in asset quality trends, portfolio growth and composition, national and local economic factors, credit policy and administration and other factors not considered in the base quantitative model.

Loans that do not share risk characteristics are evaluated on an individual basis. First Financial will typically evaluate on an individual basis any loans that are on nonaccrual, designated as a TDR, or reasonably expected to be designated as a TDR. When management determines that foreclosure is probable or when repayment is expected to be provided substantially through the operation or sale of underlying collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs. For loans evaluated on an individual basis that are not determined to be collateral dependent, a discounted cash flow analysis is performed to determine expected credit losses.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company. Credit card receivables do not have stated maturities. In determining the estimated life of a credit card receivable, management first estimates the future cash flows expected to be received and then applies those expected future cash flows to the credit card balance.
Allowance for credit losses - unfunded commitments. Effective January 1, 2020, First Financial adopted ASC 326, at which time First Financial estimated expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the Company's ACL methodology for loans and leases. Adjustments to the reserve for unfunded commitments are recorded in Provision for credit losses - unfunded commitments in the Consolidated Statements of Income. The reserve for unfunded commitments is included in Accrued interest and other liabilities on the Consolidated Balance Sheets.

Prior to the adoption of ASC 326, First Financial maintained its reserve to absorb probable losses incurred in standby letters of credit and outstanding loan commitments. First Financial determined the adequacy of this reserve based upon an evaluation of the unfunded credit facilities, which included consideration of historical commitment utilization experience, credit risk ratings and historical loss rates, consistent with the Company's ALLL methodology at the time.
 
Premises and equipment. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are principally computed on the straight-line method over the estimated useful lives of the assets. Useful lives generally range from 10 to 40 years for building and building improvements; 3 to 10 years for furniture, fixtures
First Financial Bancorp 2020 Annual Report 53
Notes to Consolidated Financial Statements
and equipment; and 3 to 5 years for software, hardware and data handling equipment. Land improvements are depreciated over 20 years and leasehold improvements are depreciated over the lesser of the term of the respective lease or the useful life of the asset. Premises and equipment are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Maintenance and repairs are expensed as incurred.

Bank-owned life insurance. First Financial purchases life insurance policies on the lives of certain employees and is the owner and beneficiary of the policies. The Bank invests in these policies to provide an efficient form of funding for long-term retirement and other employee benefits costs. The policies are included within Accrued interest and other assets in the Consolidated Balance Sheets at each policy’s respective cash surrender value with changes recorded in Other noninterest income in the Consolidated Statements of Income.
 
Goodwill. Under accounting for business combinations, the net assets of entities acquired by First Financial are recorded at their estimated fair value at the date of acquisition. The excess cost of the acquisition over the fair value of net assets acquired is recorded as goodwill. Goodwill and other intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The Company is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. First Financial performs its annual impairment test effective October 1, absent events or changes in circumstances that indicate the carrying value of goodwill may not be recoverable.

The Company’s goodwill is accounted for in a single reporting unit representing the consolidated entity. Our quantitative impairment analysis utilized the discounted cash flow model for the income approach and the market multiple methodology and comparable transaction methodology as the market approach. These valuation methodologies utilize key assumptions that include forecasts of revenues and expenses derived from internal management projections for a period of five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective and require significant management judgment. Changes in these key assumptions could materially affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.

Other intangible assets. Other intangible assets consist primarily of core deposit, customer list and other miscellaneous intangibles.

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

First Financial recorded a customer list intangible asset in conjunction with the Bannockburn merger to account for the obligation or advantage on the part of either the Company or the customer to continue the pre-existing relationship subsequent to the merger. The customer list intangible asset is amortized on a straight-line basis over its estimated useful life.

Other miscellaneous intangibles include purchase commissions, non-compete agreements and trade name intangibles. Other intangible assets are included in Other intangibles in the Consolidated Balance Sheets.  
 
Other real estate owned. OREO consists of properties acquired by the Company primarily through the loan foreclosure or repossession process, or other resolution activity that results in partial or total satisfaction of problem loans. OREO properties are recorded at fair value, less estimated disposal costs (net realizable value). Losses arising at the time of acquisition of such properties are charged against the ACL. Management performs periodic valuations to assess the adequacy of recorded OREO balances and subsequent changes in the carrying value of OREO properties are recorded in the Consolidated Statements of Income. Improvements to OREO properties may be capitalized if the improvements contribute to the overall value of the property, but may not be capitalized in excess of the net realizable value of the property. When management disposes of an OREO property, any gains or losses realized at the time of disposal are reflected in the Consolidated Statements of Income.
 
Affordable housing projects. First Financial has investments in certain qualified affordable housing projects. These projects are indirect federal subsidies that provide tax incentives to encourage investment in the development, acquisition and rehabilitation of affordable rental housing, and allow investors to claim tax credits and other tax benefits (such as deductions from taxable income for operating losses) on their federal income tax returns. The principal risk associated with qualified affordable housing investments is the potential for noncompliance with the tax code requirements, such as failure to rent
54 First Financial Bancorp 2020 Annual Report

properties to qualified tenants, resulting in unavailability or recapture of the tax credits and other tax benefits. Investments in affordable housing projects are included in Accrued interest and other assets in the Consolidated Balance Sheets and are accounted for under the proportional amortization method. Under the proportional amortization method, the initial cost of the investment is amortized in proportion to the tax credits and other benefits received and recognized as a component of Income tax expense in the Consolidated Statements of Income.

Investments in historic tax credits. First Financial has noncontrolling financial investments in private investment funds and partnerships which are not consolidated. These investments may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. Investments in historic tax credits are accounted for under the equity method of accounting. The Company’s recorded investment in these entities is carried in Accrued interest and other assets on the Consolidated Balance Sheets. For historic tax credits, impairment is recorded in Other noninterest expense. These tax credits and other net tax benefits received are recognized as a component of income tax expense in the Consolidated Statements of Income. 
 
Investments in renewable energy credits. First Financial has investments in renewable energy projects where it has noncontrolling interest which is not consolidated. This investment may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. Investments in renewable energy tax credits are accounted for under the equity method of accounting and are included in Accrued interest and other assets on the Consolidated Balance Sheets. These tax credits and other net tax benefits received are recognized as a component of income tax expense in the Consolidated Statements of Income.

Income taxes. First Financial and its subsidiaries file a consolidated federal income tax return. Each subsidiary provides for income taxes on a separate return basis, and remits to First Financial amounts determined to be currently payable. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Interest and penalties on income tax assessments or income tax refunds are recorded in Other noninterest expense in the Consolidated Statements of Income.
 
Pension. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees. The measurement of the accrued benefit liability and the annual pension expense involves actuarial and economic assumptions, which include the discount rate, the expected return on plan assets and the rate of compensation increase.
 
Derivative instruments. First Financial accounts for its derivative financial instruments in accordance with FASB ASC Topic 815, Derivatives and Hedging. FASB ASC Topic 815 requires all derivative instruments to be carried at fair value on the balance sheet.

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

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

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

First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts, First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven foreign exchange activity. These derivatives are classified as free-standing instruments with the revaluation gain or loss recorded in Foreign exchange income in the Consolidated Statements of Income.
First Financial Bancorp 2020 Annual Report 55
Notes to Consolidated Financial Statements

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

Mortgage derivatives - First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure an IRLC with First Financial and the loan is intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and and Loans held for sale. The fair value of these agreements is recorded in the Consolidated Balance Sheets in Accrued interest and other assets.

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

2. Accounting Standards Recently Adopted or Issued

Standards Adopted in 2020

On January 1, 2020, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance-sheet (OBS) credit exposures. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net decrease to retained earnings of $56.9 million as of January 1, 2020 for the cumulative effect of adopting ASC 326. As detailed in the following table, the transition adjustment included a $61.5 million increase to the ACL, a $12.2 million increase in the ACL for unfunded commitments and a $16.8 million decrease in Deferred tax liability.

The Company adopted CECL using the prospective transition approach for financial assets purchased with credit deterioration that were previously classified as purchased credit impaired and accounted for under ASC 310-30. In accordance with the standard, First Financial did not reassess whether PCI assets met the definition of PCD assets as of the date of adoption.
56 First Financial Bancorp 2020 Annual Report


The final rule provides banking organizations the option to phase in over a three-year period the day-one adverse effects on regulatory capital that may result from the adoption of the new accounting standard.  In March 2020, the OCC, the Board of Governors of the Federal Reserve System, and the FDIC announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period. First Financial is adopting the capital transition relief over the five year permissible period.

The impact of adopting ASC 326 was as follows:
January 1, 2020
(dollars in thousands) As Reported under ASC 326 Pre-ASC 326 Impact of ASC 326 Adoption
Assets
Loans
Commercial and industrial $ 28,485  $ 18,584  $ 9,901 
Lease financing 1,089 971 118
Construction real estate 13,960 2,381 11,579
Commercial real estate 47,697 23,579 24,118
Residential real estate 10,789 5,299 5,490
Home equity 13,217 4,787 8,430
Installment 1,193 392 801
Credit card 2,725 1,657 1,068
Allowance for credit losses on loans $ 119,155  $ 57,650  $ 61,505 
Liabilities
Deferred tax liability $ 16,252  $ 33,030  $ (16,778)
Allowance for credit losses on OBS credit exposures 12,740 585 12,155

For more information on the calculation of the ACL, please refer to Note 1 - Summary of Significant Accounting Policies and Note 5 - Allowance for Credit Losses.

During the first quarter of 2020, the Company adopted ASU No. 2018-13, Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements.  Under the changes, entities are no longer required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but must disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.  This update did not have a material impact on the Company’s Consolidated Financial Statements.

Standards Adopted in 2019

In February 2016, the FASB issued an update (ASU 2016-02, Leases) which requires lessees to record most leases on their
balance sheet and recognize leasing expenses in the income statement. Operating leases where the Company is the lessee,
except for short-term leases that are subject to an accounting policy election, were recorded on the balance sheet by establishing
a lease liability and corresponding ROU asset. All entities are required to use a modified retrospective approach for leases that
exist or are entered into after the beginning of the earliest comparative period in the financial statements. As the Company
elected the transition option provided in ASU No. 2018-11, the modified retrospective approach was applied on January 1, 2019
(as opposed to January 1, 2017). The Company also elected certain relief options offered in ASU 2016-02 including the
package of practical expedients, the option not to separate lease and non-lease components and instead to account for them as a
single lease component and the option not to recognize ROU assets and lease liabilities that arise from short-term leases. The
Company did not elect the hindsight practical expedient, which allows entities to use hindsight when determining lease term
and impairment of ROU assets. The guidance in this ASU became effective January 1, 2019 at which time the Company
recorded on the Consolidated Balance Sheet an ROU asset of $60.2 million and a lease liability of $65.8 million. For further
First Financial Bancorp 2020 Annual Report 57
Notes to Consolidated Financial Statements
detail, see Note 7 – Leases.

In March 2017, the FASB issued an update (ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic
310-20), Premium Amortization on Purchased Callable Debt Securities) which amends the amortization period for certain
purchased callable debt securities held at a premium and shortens the amortization period for the premium to the earliest call
date rather than as an adjustment of yield over the contractual life of the instrument. This update more closely aligns the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities, as
in most cases, market participants price securities to the call date that produces the worst yield when the coupon is above
current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon is below
market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic best interest
in an attempt to more closely align interest income recorded on bonds held at a premium or a discount with the economics of
the underlying instrument. The guidance in this ASU became effective at the beginning of 2019 but did not have a material
impact on the Consolidated Financial Statements.

In August 2017, the FASB issued an update (ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting
for Hedging Activities) to better align financial reporting for hedging activities with the economic objectives of those activities.
This update aligns certain aspects of hedge documentation, effectiveness assessments, accounting and disclosures and expands
permissible hedge strategies as of the date of adoption. The guidance in this ASU became effective January 1, 2019. Upon
adoption, the Company reclassified $268.7 million of HTM securities to AFS, resulting in a $0.2 million loss in the
Consolidated Statement of Income.

Standards Issued But Not Adopted

In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and adding new requirements with the intention of simplifying and clarifying existing guidance. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of this standard to have a material impact on the Consolidated Financial Statements.

3. Restrictions on Cash and Dividends

In 2019, First Financial was required by the FRB to hold cash in reserve against deposit liabilities when total reservable deposit liabilities exceed the regulatory exemption known as the reserve requirement. The reserve requirement was calculated based on a two-week average of daily net transaction account deposits as defined by the FRB and may be satisfied with average vault cash during the following two-week maintenance period. When vault cash was not sufficient to meet the reserve requirement, the remaining amount was satisfied with average funds held at the FRB. First Financial's deposit at the FRB was recorded in Interest-bearing deposits with other banks on the Consolidated Balance Sheets. The average required reserve balances, based upon the average level of First Financial's transaction deposits was $84.1 million for 2019. Effective March 2020, the FRB eliminated reserve requirements for all depository institutions. Therefore, for 2020, First Financial had no required reserves.
Additionally, as of December 31, 2020 and 2019, First Financial had $38.0 million and $15.8 million, respectively, in cash restricted for withdrawal and usage due to the centrally cleared derivative initial margin requirement.

Dividends paid by First Financial to its shareholders are principally funded through dividends paid to the Company by its subsidiaries; however, certain restrictions exist regarding the ability of the Bank to transfer funds to First Financial in the form of cash dividends, loans or advances. The approval of the Federal Reserve Board and the ODFI is required for the Bank to pay dividends in excess of the regulatory limit, which is equal to the net income of the current year through the dividend date combined with the Bank's retained net income from the two preceding years. As of December 31, 2020, First Financial's subsidiaries had retained earnings of $700.0 million, of which $198.0 million was available for distribution to First Financial without prior regulatory approval.

4. Investment Securities

During the year ended December 31, 2020, proceeds on the sale of $117.8 million of AFS securities resulted in gains of $0.9 million and losses of $0.8 million. During the year ended December 31, 2019, proceeds on the sale of $519.1 million of AFS securities resulted in gains of $2.1 million and losses of $2.1 million. During the year ended December 31, 2018, proceeds on
58 First Financial Bancorp 2020 Annual Report

the sale of $290.7 million of AFS securities resulted in gains of $0.5 million and losses of $0.6 million. The impact to income tax expense from these sales was insignificant in all three years.

In 2020, there were no reclassifications of HTM securities. However, in the first quarter of 2019, in addition to the sale of certain securities, First Financial reclassified $268.7 million of HTM securities to AFS in conjunction with the adoption of ASU 2017-12, resulting in a $0.2 million realized loss recorded in the Consolidated Statement of Income. During the second quarter of 2018, First Financial sold certain securities and reclassified $372.1 million of HTM securities to AFS to align with post-merger investment strategies.

The carrying value of investment securities pledged as collateral to secure public deposits, repurchase agreements and for other purposes as required by law totaled $1.5 billion at December 31, 2020 and $1.1 billion at December 31, 2019.

The following is a summary of HTM and AFS investment securities as of December 31, 2020:
  
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  $ 99  $ 4  $ 0  $ 103 
Securities of U.S. government agencies and corporations 0  0  0  0  60  0  0  60 
Mortgage-backed securities - residential 13,990  197  0  14,187  704,482  15,938  (237) 720,183 
Mortgage-backed securities - commercial 71,737  3,485  0  75,222  584,125  10,395  (3,584) 590,936 
Collateralized mortgage obligations 5,799  79  0  5,878  634,418  21,148  (445) 655,121 
Obligations of state and other political subdivisions 9,911  1,239  0  11,150  856,054  46,755  (291) 902,518 
Asset-backed securities 0  0  0  0  478,539  4,158  (826) 481,871 
Other securities 30,250  11  0  30,261  72,252  1,544  (8) 73,788 
Total $ 131,687  $ 5,011  $ 0  $ 136,698  $ 3,330,029  $ 99,942  $ (5,391) $ 3,424,580 

The following is a summary of HTM and AFS investment securities as of December 31, 2019:
  
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  $ 99  $ 1  $ 0  $ 100 
Securities of U.S. government agencies and corporations 0  0  0  0  156  2  0  158 
Mortgage-backed securities - residential 20,818  122  (174) 20,766  421,945  9,709  (99) 431,555 
Mortgage-backed securities - commercial 101,267  571  (1,225) 100,613  474,174  4,988  (2,644) 476,518 
Collateralized mortgage obligations 9,763  0  (108) 9,655  769,076  16,753  (385) 785,444 
Obligations of state and other political subdivisions 11,014  804  (31) 11,787  652,986  23,729  (462) 676,253 
Asset-backed securities 0  0  0  0  400,081  1,414  (1,064) 400,431 
Other securities 0  0  0  0  79,781  1,959  (115) 81,625 
Total $ 142,862  $ 1,497  $ (1,538) $ 142,821  $ 2,798,298  $ 58,555  $ (4,769) $ 2,852,084 


First Financial Bancorp 2020 Annual Report 59
Notes to Consolidated Financial Statements
The following table provides a summary of investment securities by contractual maturity as of December 31, 2020, except for residential and commercial mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, which are shown as single totals, due to the unpredictability of the timing in principal repayments:
  Held-to-maturity Available-for-sale
(Dollars in thousands) Amortized
cost 		Fair
value 		Amortized
cost 		Fair
value
Due in one year or less $ 0  $ 0  $ 5,745  $ 5,802 
Due after one year through five years 0  0  62,930  64,886 
Due after five years through ten years 36,084  37,205  161,307  169,692 
Due after ten years 4,077  4,206  698,483  736,089 
Mortgage-backed securities - residential 13,990  14,187  704,482  720,183 
Mortgage-backed securities - commercial 71,737  75,222  584,125  590,936 
Collateralized mortgage obligations 5,799  5,878  634,418  655,121 
Asset-backed securities 0  0  478,539  481,871 
Total $ 131,687  $ 136,698  $ 3,330,029  $ 3,424,580 

Unrealized gains and losses on debt securities are generally due to fluctuations in current market yields relative to the yields of the debt securities at their amortized cost. All securities with unrealized losses are reviewed quarterly to determine if any impairment exists, requiring a write-down to fair value through income. For securities in an unrealized loss position, the Company first assesses whether it intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For debt securities available-for-sale that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

At this time, First Financial does not intend to sell, and it is not more likely than not that the Company will be required to sell, debt securities temporarily impaired prior to maturity or recovery of the recorded value. The Company recorded no reserves on investment securities for the twelve months ended December 31, 2020. Prior to the adoption of ASC 326, First Financial had no other than temporary impairment related to its investment securities portfolio for the twelve months ended December 31, 2019.

As of December 31, 2020, the Company's investment securities portfolio consisted of 1,351 securities, of which 94 were in an unrealized loss position. As of December 31, 2019, the Company's investment securities portfolio consisted of 1,273 securities, of which 140 were in an unrealized loss position. Prior to the adoption of ASC 326, there was no OTTI recorded during the twelve months ended December 31, 2019.

Primarily all of First Financial’s HTM debt securities are issued by U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. The remainder of the Company's HTM securities are non-agency collateralized mortgage obligations and obligations of state and other political subdivisions which currently carry ratings no lower than A+. There were no HTM securities on nonaccrual status, past due or in a loss position as of December 31, 2020. The Company did not record an allowance for credit losses for these securities as of December 31, 2020.

60 First Financial Bancorp 2020 Annual Report

The following tables provide the fair value and gross unrealized losses on investment securities in an unrealized loss position for which an allowance for credit losses was not recorded, aggregated by investment category and the length of time the individual securities have been in a continuous loss position:
  December 31, 2020
  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 $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Securities of U.S. government agencies and corporations 0  0  0  0  0  0 
Mortgage-backed securities - residential 57,872  (237) 0  0  57,872  (237)
Mortgage-backed securities - commercial 169,825  (986) 48,158  (2,598) 217,983  (3,584)
Collateralized mortgage obligations 49,161  (445) 1  0  49,162  (445)
Obligations of state and other political subdivisions 60,008  (291) 0  0  60,008  (291)
Asset-backed securities 84,749  (435) 68,967  (391) 153,716  (826)
Other securities 4,992  (8) 0  0  4,992  (8)
Total $ 426,607  $ (2,402) $ 117,126  $ (2,989) $ 543,733  $ (5,391)
  December 31, 2019
  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 $ 0  $ 0  $ 0  $ 0  $ 0  $ 0 
Securities of U.S. Government agencies and corporations 0  0  0  0  0  0 
Mortgage-backed securities - residential 40,190  (209) 11,063  (64) 51,253  (273)
Mortgage-backed securities - commercial 111,658  (298) 104,069  (3,571) 215,727  (3,869)
Collateralized mortgage obligations 85,248  (297) 30,628  (196) 115,876  (493)
Obligations of state and other political subdivisions 118,623  (457) 7,950  (36) 126,573  (493)
Asset-backed securities 125,889  (553) 54,963  (511) 180,852  (1,064)
Other securities 0  0  5,649  (115) 5,649  (115)
Total $ 481,608  $ (1,814) $ 214,322  $ (4,493) $ 695,930  $ (6,307)

For further detail on the fair value of investment securities, see Note 22 – Fair Value Disclosures.

First Financial Bancorp 2020 Annual Report 61
Notes to Consolidated Financial Statements
5. Loans and Leases

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

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

In accordance with the CARES Act, First Financial participated in offering PPP loans to its customers. These loans provide a direct incentive for small businesses to keep their workers on the payroll and to maintain their operations. PPP loans are eligible to be forgiven by the government provided certain conditions as outlined in the CARES Act are met. As of December 31, 2020, First Financial had $594.6 million in PPP loans, net of unearned fees of $13.7 million.

Credit quality. To facilitate the monitoring of credit quality for commercial loans, First Financial utilizes the following categories of credit grades:

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

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

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

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

The credit grades previously described are derived from standard regulatory rating definitions and are assigned upon initial approval of credit to borrowers and updated periodically thereafter.

First Financial considers repayment performance to be the best indicator of credit quality for consumer loans. Consumer loans that have principal and interest payments that are past due by 90 days or more are generally classified as nonperforming. Additionally, consumer loans that have been modified in a TDR are classified as nonperforming.


62 First Financial Bancorp 2020 Annual Report

The following table sets forth the Company's loan portfolio at December 31, 2020 by risk attribute and origination date:
(Dollars in thousands) 2020 2019 2018 2017 2016 Prior Term Total Revolving Total
Commercial & industrial
Pass $ 1,141,163  $ 460,210  $ 296,221  $ 208,077  $ 122,686  $ 138,307  $ 2,366,664  $ 502,286  $ 2,868,950 
Special mention 24,668  10,281  18,118  6,893  6,668  6,090  72,718  10,470  83,188 
Substandard 6,709  2,370  8,022  26,565  5,124  1,192  49,982  5,389  55,371 
Doubtful 0  0  0  0  0  0  0  0  0 
Total $ 1,172,540  $ 472,861  $ 322,361  $ 241,535  $ 134,478  $ 145,589  $ 2,489,364  $ 518,145  $ 3,007,509 
Lease financing
Pass $ 22,916  $ 22,397  $ 12,942  $ 6,967  $ 4,802  $ 2,368  $ 72,392  $ 0  $ 72,392 
Special mention 290 0 0 0 0 0 290 0 290
Substandard 5 0 0 180 120 0 305 0 305
Doubtful 0 0 0 0 0 0 0 0 0
Total $ 23,211  $ 22,397  $ 12,942  $ 7,147  $ 4,922  $ 2,368  $ 72,987  $ 0  $ 72,987 
Construction real estate
Pass $ 96,410  $ 259,524  $ 182,625  $ 23,185  $ 24,786  $ 426  $ 586,956  $ 19,671  $ 606,627 
Special mention 0  621  18,203  9,984  661  0  29,469  0  29,469 
Substandard 0  0  0  0  0  0  0  0  0 
Doubtful 0  0  0  0  0  0  0  0  0 
Total $ 96,410  $ 260,145  $ 200,828  $ 33,169  $ 25,447  $ 426  $ 616,425  $ 19,671  $ 636,096 
Commercial real estate - investor
Pass $ 515,950  $ 1,011,898  $ 427,077  $ 378,536  $ 286,587  $ 361,403  $ 2,981,451  $ 56,398  $ 3,037,849 
Special mention 0  17,463  15,534  44,426  32,408  43,704  153,535  559  154,094 
Substandard 6,198  2,043  22,497  7,067  68  14,724  52,597  0  52,597 
Doubtful 0  0  0  0  0  0  0  0  0 
Total $ 522,148  $ 1,031,404  $ 465,108  $ 430,029  $ 319,063  $ 419,831  $ 3,187,583  $ 56,957  $ 3,244,540 
Commercial real estate - owner
Pass $ 185,692  $ 162,480  $ 147,236  $ 125,275  $ 128,755  $ 211,519  $ 960,957  $ 36,721  $ 997,678 
Special mention 4,292  11,380  2,891  8,230  3,017  19,384  49,194  59  49,253 
Substandard 668  504  7,054  5,496  306  2,321  16,349  38  16,387 
Doubtful 0  0  0  0  0  0  0  0  0 
Total $ 190,652  $ 174,364  $ 157,181  $ 139,001  $ 132,078  $ 233,224  $ 1,026,500  $ 36,818  $ 1,063,318 
Residential real estate
Performing $ 290,277  $ 241,601  $ 115,747  $ 64,220  $ 60,094  $ 224,281  $ 996,220  $ 0  $ 996,220 
Nonperforming 321  429  673  643  87  4,713  6,866  0  6,866 
Total $ 290,598  $ 242,030  $ 116,420  $ 64,863  $ 60,181  $ 228,994  $ 1,003,086  $ 0  $ 1,003,086 
Home equity
Performing $ 60,967  $ 20,200  $ 17,445  $ 11,308  $ 9,744  $ 41,571  $ 161,235  $ 577,609  $ 738,844 
Nonperforming 0  0  0  39  28  138  205  4,050  4,255 
Total $ 60,967  $ 20,200  $ 17,445  $ 11,347  $ 9,772  $ 41,709  $ 161,440  $ 581,659  $ 743,099 
Installment
Performing $ 21,584  $ 15,614  $ 11,041  $ 8,812  $ 1,954  $ 3,185  $ 62,190  $ 19,479  $ 81,669 
Nonperforming 15  53  23  35  17  36  179  2  181 
Total $ 21,599  $ 15,667  $ 11,064  $ 8,847  $ 1,971  $ 3,221  $ 62,369  $ 19,481  $ 81,850 
Credit cards
Performing $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 47,845  $ 47,845 
Nonperforming 0  0  0  0  0  0  0  640  640 
Total $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 0  $ 48,485  $ 48,485 
Grand Total $ 2,378,125  $ 2,239,068  $ 1,303,349  $ 935,938  $ 687,912  $ 1,075,362  $ 8,619,754  $ 1,281,216  $ 9,900,970 


First Financial Bancorp 2020 Annual Report 63
Notes to Consolidated Financial Statements
Commercial and consumer credit exposure by risk attribute as of December 31, 2019 was as follows:
  As of December 31, 2019
    Real Estate
(Dollars in thousands) Commercial & industrial Construction Commercial Lease
financing 		Total
Pass $ 2,324,021  $ 493,182  $ 4,108,752  $ 85,262  $ 7,011,217 
Special Mention 100,954  0  59,383  488  160,825 
Substandard 40,902  0  26,516  2,614  70,032 
Doubtful 0  0  0  0  0 
Total $ 2,465,877  $ 493,182  $ 4,194,651  $ 88,364  $ 7,242,074 
Residential
real estate 		Home equity Installment Credit card Total
Performing $ 1,040,787  $ 766,169  $ 82,385  $ 48,983  $ 1,938,324 
Nonperforming 15,162  5,700  204  201  21,267 
Total $ 1,055,949  $ 771,869  $ 82,589  $ 49,184  $ 1,959,591 


Delinquency. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment.

Loan delinquency, including nonaccrual loans, was as follows:
  As of December 31, 2020
(Dollars in thousands) 30 – 59
days
past due 		60 – 89
days
past due 		> 90 days
past due 		Total
past
due 		Current Total > 90 days
past due
and still
accruing
Loans            
Commercial & industrial $ 6,532  $ 0  $ 1,861  $ 8,393  $ 2,999,116  $ 3,007,509  $ 0 
Lease financing 0  0  0  0  72,987  72,987  0 
Construction real estate 0  0  0  0  636,096  636,096  0 
Commercial real estate-investor 136  0  24,422  24,558  3,219,982  3,244,540  0 
Commercial real estate-owner 6,480  174  400  7,054  1,056,264  1,063,318  0 
Residential real estate 2,809  370  3,687  6,866  996,220  1,003,086  0 
Home equity 1,483  835  1,937  4,255  738,844  743,099  0 
Installment 94  35  51  180  81,670  81,850  0 
Credit card 303  163  174  640  47,845  48,485  169 
Total $ 17,837  $ 1,577  $ 32,532  $ 51,946  $ 9,849,024  $ 9,900,970  $ 169 
  As of December 31, 2019
(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 & industrial $ 1,266  $ 3,332  $ 14,518  $ 19,116  $ 2,443,680  $ 2,462,796  $ 3,081  $ 2,465,877  $ 0 
Lease financing 0  0  0  0  88,364  88,364  0  88,364  0 
Construction real estate 0  0  0  0  493,167  493,167  15  493,182  0 
Commercial real estate 776  857  5,613  7,246  4,151,513  4,158,759  35,892  4,194,651  0 
Residential real estate 8,032  1,928  5,031  14,991  1,014,138  1,029,129  26,820  1,055,949  0 
Home equity 2,530  1,083  2,795  6,408  762,863  769,271  2,598  771,869  0 
Installment 111  50  148  309  82,022  82,331  258  82,589  0 
Credit card 208  75  201  484  48,700  49,184  0  49,184  201 
Total $ 12,923  $ 7,325  $ 28,306  $ 48,554  $ 9,084,447  $ 9,133,001  $ 68,664  $ 9,201,665  $ 201 
64 First Financial Bancorp 2020 Annual Report


For PCD assets, the delinquency status was determined individually for each loan in accordance with the individual loan's contractual repayment terms. Prior to the adoption of CECL in the first quarter of 2020, PCI loans were classified as performing, even though they may have been contractually past due, as any nonpayment of contractual principal or interest was considered in the periodic re-estimation of expected cash flows and was included in the resulting recognition of current period provision for credit losses or prospective yield adjustments.

Nonaccrual. Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to the continued failure to adhere to contractual payment terms by the borrower, coupled with other pertinent factors. When a loan is classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed. Any payments received while a loan is on nonaccrual status are applied as a reduction to the carrying value of the loan. A loan classified as nonaccrual may return to accrual status if none of the principal and interest is due and unpaid, and the Bank expects repayment of the remaining contractual principal and interest.

Troubled debt restructurings. A loan modification is considered a TDR when the borrower is experiencing financial difficulty and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. The most common types of modifications include interest rate reductions, maturity extensions and modifications to principal amortization, including interest-only structures. Modified terms are dependent upon the financial position and needs of the individual borrower. If the modification agreement is violated, the loan is managed by the Company’s credit administration group for resolution, which may result in foreclosure in the case of real estate. In accordance with the CARES Act, performing loans that demonstrated limited signs of credit deterioration, but were modified to provide borrowers relief during the COVID-19 pandemic were not considered to be TDR as of December 31 2020.

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

First Financial had 155 TDRs totaling $21.8 million at December 31, 2020, including $7.1 million of loans on accrual status and $14.7 million of loans classified as nonaccrual. First Financial had $0.3 million commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs, and the ACL included reserves of $8.8 million related to TDRs as of December 31, 2020. For the year ended December 31, 2020, First Financial charged off $1.7 million for the portion of TDRs determined to be uncollectible. Additionally, as of December 31, 2020, approximately $5.0 million of the accruing TDRs have been performing in accordance with the restructured terms for more than one year.

First Financial had 157 TDRs totaling $30.0 million at December 31, 2019, including $11.4 million of loans on accrual status and $18.5 million of loans classified as nonaccrual. First Financial had $2.5 million commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2019 the ALLL included reserves of $2.5 million related to TDRs, and $4.7 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year. Additionally, First Financial charged off $2.6 million for the portion of TDRs determined to be uncollectible for the year ended December 31, 2019.

First Financial had 196 TDRs totaling $38.5 million at December 31, 2018, including $16.1 million of loans on accrual status and $22.4 million of loans classified as nonaccrual. First Financial had no commitments outstanding to lend additional funds to borrowers whose loan terms had been modified through TDRs. At December 31, 2018, the ALLL included reserves of $1.5 million related to TDRs, and $7.9 million of the accruing TDRs had been performing in accordance with the restructured terms for more than one year. Additionally, First Financial charged off $0.9 million for the portion of TDRs determined to be uncollectible for the year ended December 31, 2018.

First Financial Bancorp 2020 Annual Report 65
Notes to Consolidated Financial Statements
The following table provides information on loan modifications classified as TDRs during the years ended December 31, 2020, 2019 and 2018:
Years ended December 31,
2020 2019 2018
(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 & industrial 8  $ 14,984  $ 14,984  8 $ 25,009  $ 25,071  17 $ 23,943  $ 23,890 
Construction
real estate 		0  0  0  0 0  0  0 0  0 
Commercial
real estate 		0  0  0  9 3,024  2,932  8 3,385  3,150 
Residential
real estate 		24  1,953  1,847  30 3,415  3,062  13 1,148  1,073 
Home equity 11  351  349  14 395  366  5 95  192 
Installment 2  35  22  2 41  39  0 0  0 
Total 45  $ 17,323  $ 17,202  63  $ 31,884  $ 31,470  43  $ 28,571  $ 28,305 
 
The following table provides information on how TDRs were modified during the years ended December 31, 2020, 2019 and 2018:
Years Ended December 31,
(Dollars in thousands) 2020 2019 2018
Extended maturities $ 0  $ 2,877  $ 4,093 
Adjusted interest rates 0 5,284 52
Combination of rate and maturity changes 0 516  0 
Forbearance 4,759 20,320  23,175 
Other (1)
12,443 2,473  985 
Total $ 17,202  $ 31,470  $ 28,305 
(1) Other includes covenant modifications and other concessions or combination of concessions that do not consist of interest rate adjustments, forbearance and maturity extensions.

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

For the twelve months ended December 31, 2020, there was one TDR with an insignificant balance for which there was a payment default during the period that occurred within twelve months of the loan modification. For the twelve months ended December 31, 2019, there were three TDRs with a balance of $7.0 million for which there was a payment default during the period that occurred within twelve months of the loan modification. For the twelve months ended December 31, 2018, there was one TDR with an insignificant balance for which there was a payment default during the period that occurred within twelve months of the loan modification.

As stated in the CARES Act and subsequently modified by the Consolidated Appropriations Act, loan modifications in response to COVID-19 executed on loans that were not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020, and the earlier of 60 days after the date of termination of the National Emergency or January 1, 2022 are not required to be reported as a TDR. As of December 31, 2020, the Company's loan portfolio included $320.2 million of active modifications of which $18.5 million were from the first round of deferrals, $54.9 million were from the second round and $246.8 million were deferred a third time. Active full principal and interest modifications were $28.7 million at December 31, 2020, while $291.5 million of active modifications were making interest only payments at year end. Active modifications consist primarily of hotel and franchise loans, which were $186.2 million and $44.3 million respectively as of December 31, 2020, or 58% and 14% of the total active modifications at December 31, 2020.

66 First Financial Bancorp 2020 Annual Report

As of December 31, 2020, the Company's loan portfolio included 90 commercial loans with balances of $312.5 million and 53 consumer loans with balances of $7.7 million that were modified in response to COVID-19 that are not considered TDRs.
Nonperforming loans. Loans classified as nonaccrual and loans modified as TDRs are considered nonperforming for 2020 and impaired as of December 31, 2019. The following table provides information on nonperforming loans as of December 31:
2020 2019 2018
(Dollars in thousands) Nonaccrual loans with a related ACL Nonaccrual loans with no related ACL Total nonaccrual Total nonaccrual Total nonaccrual
Nonaccrual loans (1)
   
Commercial & industrial $ 18,711  $ 10,519  $ 29,230  $ 24,346  $ 30,925 
Lease financing 0  0  0  223  22 
Construction real estate 0  0  0  0  9 
Commercial real estate 6,957  27,725  34,682  7,295  20,500 
Residential real estate 251  11,350  11,601  10,892  13,495 
Home equity 0  5,076  5,076  5,242  5,580 
Installment 0  163  163  167  169 
Total nonaccrual loans $ 25,919  $ 54,833  $ 80,752  $ 48,165  $ 70,700 
Interest income effect
Gross amount of interest that would have been recorded under original terms $ 5,892  $ 5,813  $ 4,656 
Interest included in income
Nonaccrual loans 1,636  1,042  715 
Troubled debt restructurings 426  801  642 
Total interest included in income 2,062  1,843  1,357 
Net impact on interest income $ 3,830  $ 3,970  $ 3,299 
Commitments outstanding to borrowers with nonaccrual loans $ 0  $ 3  $ 200 
(1) Nonaccrual loans include nonaccrual TDRs of $14.7 million, $18.5 million and $22.4 million as of December 31, 2020, 2019 and 2018, respectively.

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

First Financial Bancorp 2020 Annual Report 67
Notes to Consolidated Financial Statements
First Financial's investment in impaired loans was as follows:
  December 31, 2019
(Dollars in thousands) Current balance Contractual
principal
balance 		Related
allowance
Loans with no related allowance recorded    
Commercial & industrial $ 16,726  $ 19,709  $ 0 
Lease financing 223  223  0 
Construction real estate 0  0  0 
Commercial real estate 10,160  17,897  0 
Residential real estate 14,868  17,368  0 
Home equity 5,700  6,462  0 
Installment 204  341  0 
Total 47,881  62,000  0 
Loans with an allowance recorded
Commercial & industrial 10,754  21,513  2,044 
Lease financing 0  0  0 
Construction real estate 0  0  0 
Commercial real estate 671  675  113 
Residential real estate 294  294  18 
Home equity 0  0  0 
Installment 0  0  0 
Total 11,719  22,482  2,175 
Total
Commercial & industrial 27,480  41,222  2,044 
Lease financing 223  223  0 
Construction real estate 0  0  0 
Commercial real estate 10,831  18,572  113 
Residential real estate 15,162  17,662  18 
Home equity 5,700  6,462  0 
Installment 204  341  0 
Total $ 59,600  $ 84,482  $ 2,175 
68 First Financial Bancorp 2020 Annual Report

Years ended December 31,
  2019 2018
(Dollars in thousands) Average
balance 		Interest
income
recognized 		Average
balance 		Interest
income
recognized
Loans with no related allowance recorded    
Commercial & industrial $ 31,846  $ 926  $ 14,498  $ 360 
Lease financing 168  0  21  0 
Construction real estate 6  0  20  2 
Commercial real estate 18,757  357  24,738  490 
Residential real estate 15,915  307  11,359  301 
Home equity 5,893  121  5,541  114 
Installment 170  2  274  2 
Total 72,755  1,713  56,451  1,269 
Loans with an allowance recorded
Commercial & industrial 4,721  87  900  44 
Lease financing 57  0  0  0 
Construction real estate 0  0  0  0 
Commercial real estate 1,339  31  1,402  18 
Residential real estate 446  12  895  23 
Home equity 0  0  80  3 
Installment 0  0  0  0 
Total 6,563  130  3,277  88 
Total        
Commercial & industrial 36,567  1,013  15,398  404 
Lease financing 225  0  21  0 
Construction real estate 6  0  20  2 
Commercial real estate 20,096  388  26,140  508 
Residential real estate 16,361  319  12,254  324 
Home equity 5,893  121  5,621  117 
Installment 170  2  274  2 
Total $ 79,318  $ 1,843  $ 59,728  $ 1,357 

First Financial Bancorp 2020 Annual Report 69
Notes to Consolidated Financial Statements
A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. The following table presents the amortized cost basis of collateral dependent loans by class of loan.
December 31, 2020
Type of Collateral
(Dollar in thousands) Business assets Commercial real estate Equipment Land Residential real estate Other Total
Class of loan
Commercial & industrial $ 30,961  $ 6,130  $ 2,608  $ 865  $ 0  $ 4,892  $ 45,456 
Commercial real estate-investor 0 20,212  661  5,537  872  0  27,282 
Commercial real estate-owner 5,842 3,495  0  42  344  0  9,723 
Residential real estate 0 0  0  0  11,601  0  11,601 
Home equity 0 0 0 0 5,076 0 5,076 
Installment 0 0 0 0 0 163 163 
Total $ 36,803  $ 29,837  $ 3,269  $ 6,444  $ 17,893  $ 5,055  $ 99,301 

Lease financing. The Company prospectively applied FASB ASC Topic 842 in the first quarter of 2019. First Financial originates both sales-type and direct financing leases, and the Company manages and reviews lease residuals in accordance with its credit policies. Sales-type lease contracts contain the ability to purchase the underlying equipment at lease maturity and profit or loss is recognized at lease commencement.  Direct financing leases are generally three to five years in length and may be extended at maturity, however, early cancellation may result in a fee to the borrower.  For direct financing leases, the net unearned income is deferred and amortized over the life of the lease.  Income recognized in 2020 and 2019 related to the implementation of FASB ASC Topic 842 was insignificant.

OREO. OREO is comprised of properties acquired by the Company primarily through the loan foreclosure or repossession process, that result in partial or total satisfaction of problem loans.

Changes in OREO were as follows:
  Years ended December 31,
(Dollars in thousands) 2020 2019 2018
Balance at beginning of year $ 2,033  $ 1,401  $ 2,781 
Additions
Commercial 510  415  1,269 
Residential 507  2,033  1,913 
Total additions 1,017  2,448  3,182 
Disposals    
Commercial (217) (541) (2,967)
Residential (1,859) (912) (830)
Total disposals (2,076) (1,453) (3,797)
Valuation adjustments    
Commercial 448  (112) (355)
Residential (135) (251) (410)
Total valuation adjustments 313  (363) (765)
Balance at end of year $ 1,287  $ 2,033  $ 1,401 

6. Allowance for Credit Losses

Allowance for credit losses - loans and leases. The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. The ACL is increased by provision
70 First Financial Bancorp 2020 Annual Report

expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect the principal amount owed in full either through payments from the borrower or a guarantor or from the liquidation of collateral. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable on loans and leases, which totaled $37.7 million as of December 31, 2020, is excluded from the estimate of credit losses. 

Management estimates the allowance balance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience paired with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses. First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model. These adjustments are commonly known as the Qualitative Framework.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the ACL using the following methods:

Commercial and industrial – C&I loans include revolving lines of credit and term loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, leasehold improvements or other projects. C&I loans are generally underwritten individually and secured with the assets of the Company and/or the personal guarantee of the business owners. C&I loans also include ABL, equipment and leasehold improvement financing for franchisees in the quick service and casual dining restaurant sector and commission-based loans to insurance agents and brokers. ABL transactions typically involve larger commercial clients and are secured by specific assets, such as inventory, accounts receivable, machinery and equipment. In the franchise lending space, First Financial focuses on a limited number of restaurant concepts that have sound economics, low closure rates and strong brand awareness within specified local, regional or national markets. Within the insurance lending platform, First Financial serves insurance agents and brokers that are looking to maximize their book-of-business value and grow their agency business.

Current period default rates are utilized in the modeling of the ACL for C&I loans, and are adjusted for forecasted changes in the treasury term spread and market volatility index. Changes in current period defaults or forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

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

The ACL model for leases sources expected default rates from the C&I portfolio model. Therefore, changes in forecasted expectations for the treasury term spread and market volatility index could result in volatility in the Company's ACL in future periods.

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

The ACL model for construction is adjusted for forecasted changes in rental vacancy rates in the Bank's geographic footprint and the housing price index. Changes in forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

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

First Financial Bancorp 2020 Annual Report 71
Notes to Consolidated Financial Statements
First Financial models owner-occupied and investor CRE separately when determining the ACL. For owner occupied CRE, current period default rates are utilized in the modeling, and are adjusted for forecasted changes in the BAA bond spread, national rental vacancy rates and the consumer confidence index. Current period default rates are also utilized in the modeling of investor CRE loans, and are adjusted for forecasted changes in the BAA bond spread, multifamily building permits within the Bank’s geographic footprint, and national rental vacancy rates. Changes in current period defaults and forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

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

The retail real estate ACL model is adjusted for forecasted changes in the housing price index, housing starts within the Bank’s geographic footprint and national single-family existing home sales. Changes in forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

Home equity – Home equity lending includes both home equity loans and revolving lines of credit secured by a first or second lien on the borrower’s residence. Home equity lending underwriting considerations include the borrower's credit history as well as to debt-to-income and loan-to-value policy limits.

The home equity ACL model is adjusted for forecasted changes in the consumer credit growth rate within the Bank’s geographic footprint and the working-age labor participation rate. Changes in forecasted expectations for these economic variables could result in volatility in the Company's ACL in future periods.

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

The ACL model for installment loans sources expected default rates from the residential real estate and home equity portfolio models and is paired with installment specific LGD rates. Changes in forecasted expectations for the consumer credit growth rate within the Bank’s geographic footprint, the working-age labor participation rate, the housing price index, housing starts within the Bank’s geographic footprint and national existing single-family existing home sales could result in volatility in the Company's ACL in future periods.

Credit card – Credit card lending consists of secured and unsecured revolving lines of credit to consumer and business customers. Credit card lines are generally available for an indefinite period of time as long as the borrower's credit characteristics do not materially or adversely change, but lines are unconditionally cancellable by the Company at any time.

The ACL model for credit card loans sources expected default rates from the residential real estate and home equity portfolio models and is paired with credit card specific LGD rates. Changes in forecasted expectations for the consumer credit growth rate within the Bank’s geographic footprint, the working-age labor participation rate, the housing price index, housing starts within the Bank’s geographic footprint and national existing single-family existing home sales could result in volatility in the Company's ACL in future periods.

The Company utilized the Moody's December baseline forecast as its R&S forecast in the quantitative model, which included consideration of the impact from both the COVID-19 pandemic and the related government stimulus response at the time. For reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts, slower prepayment speeds and increased default rates. These alternative analyses were utilized to inform the Company's qualitative adjustments. Additionally, First Financial considered its credit exposure to certain industries believed to be at risk for future credit stress related to the COVID-19 pandemic, such as franchise, hotel and investor commercial real estate lending when making qualitative adjustments to the ACL model.

First Financial's ACL is influenced by loan volumes, risk rating migration or delinquency status, and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.  For the twelve months
72 First Financial Bancorp 2020 Annual Report

ended December 31, 2020 the ACL increased due to First Financial's adoption of ASC 326 and management's expectation of higher credit losses resulting from the COVID-19 pandemic.

Changes in the allowance by loan category as of December 31 were as follows:
  
2020
(Dollars in thousands) Commercial & industrial Lease financing Construction real estate Commercial real estate Residential real estate Home equity Installment Credit card Total
Allowance for credit losses              
Beginning balance, prior to adoption of ASC 326 $ 18,584  $ 971  $ 2,381  $ 23,579  $ 5,299  $ 4,787  $ 392  $ 1,657  $ 57,650 
Impact of adopting ASC 326 9,901  118  11,579  24,118  5,490  8,430  801  1,068  61,505 
Provision for credit losses 25,407  758  7,759  38,936  (2,122) (939) 12  985  70,796 
Gross charge-offs (5,345) (852) 0  (12,100) (488) (1,541) (148) (885) (21,359)
Recoveries 2,907  0  17  2,262  381  1,132  158  230  7,087 
Total net charge-offs (2,438) (852) 17  (9,838) (107) (409) 10  (655) (14,272)
Ending allowance for credit losses $ 51,454  $ 995  $ 21,736  $ 76,795  $ 8,560  $ 11,869  $ 1,215  $ 3,055  $ 175,679 
  2019
(Dollars in thousands) Commercial & industrial Lease financing Construction real estate Commercial real estate Residential real estate Home equity Installment Credit card Total
Allowance for credit losses              
Balance at beginning of year $ 18,746  $ 1,130  $ 3,413  $ 21,048  $ 4,964  $ 5,348  $ 362  $ 1,531  $ 56,542 
Provision for credit losses 23,631  3  (1,100) 5,107  739  695  2  1,521  30,598 
Gross charge-offs (26,676) (162) 0  (3,689) (677) (2,591) (223) (1,547) (35,565)
Recoveries 2,883  0  68  1,113  273  1,335  251  152  6,075 
Total net charge-offs (23,793) (162) 68  (2,576) (404) (1,256) 28  (1,395) (29,490)
Ending allowance for credit losses $ 18,584  $ 971  $ 2,381  $ 23,579  $ 5,299  $ 4,787  $ 392  $ 1,657  $ 57,650 
  2018
(Dollars in thousands) Commercial & industrial Lease financing Construction real estate Commercial real estate Residential real estate Home equity Installment Credit card Total
Allowance for credit losses              
Balance at beginning of year $ 17,598  $ 675  $ 3,577  $ 20,930  $ 4,683  $ 4,935  $ 307  $ 1,316  $ 54,021 
Provision for credit losses 10,615  454  (310) 847  492  829  (85) 1,744  14,586 
Gross charge-offs (11,533) 0  0  (4,835) (422) (1,725) (435) (1,720) (20,670)
Recoveries 2,066  1  146  4,106  211  1,309  575  191  8,605 
Total net charge-offs (9,467) 1  146  (729) (211) (416) 140  (1,529) (12,065)
Ending allowance for credit losses $ 18,746  $ 1,130  $ 3,413  $ 21,048  $ 4,964  $ 5,348  $ 362  $ 1,531  $ 56,542 



As of December 31, 2019
(Dollars in thousands) Commercial & industrial Lease financing Construction real estate Commercial real estate Residential real estate Home equity Installment Credit card Total
Ending allowance balance attributable to loans
Individually evaluated for impairment $ 2,044  $ 0  $ 0  $ 113  $ 18  $ 0  $ 0  $ 0  $ 2,175 
Collectively evaluated for impairment 16,540  971  2,381  23,466  5,281  4,787  392  1,657  55,475 
Ending allowance for credit losses $ 18,584  $ 971  $ 2,381  $ 23,579  $ 5,299  $ 4,787  $ 392  $ 1,657  $ 57,650 
Loans                
Individually evaluated for impairment $ 27,480  $ 223  $ 0  $ 10,831  $ 15,162  $ 5,700  $ 204  $ 0  $ 59,600 
Collectively evaluated for impairment 2,438,397  88,141  493,182  4,183,820  1,040,787  766,169  82,385  49,184  9,142,065 
Total loans $ 2,465,877  $ 88,364  $ 493,182  $ 4,194,651  $ 1,055,949  $ 771,869  $ 82,589  $ 49,184  $ 9,201,665 

Allowance for credit losses - unfunded commitments. First Financial estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is
First Financial Bancorp 2020 Annual Report 73
Notes to Consolidated Financial Statements
unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life consistent with the Company's ACL methodology for loans and leases.

Prior to the adoption of ASC 326, First Financial maintained its reserve to absorb probable losses incurred in standby letters of credit and outstanding loan commitments. First Financial determined the adequacy of this reserve based upon an evaluation of the unfunded credit facilities, which included consideration of historical commitment utilization experience, credit risk ratings and historical loss rates, consistent with the Company's ALLL methodology at the time.

The ACL on unfunded commitments was $12.5 million as of December 31, 2020 and $0.6 million as of December 31, 2019. Due to the adoption of ASC 326, First Financial recorded $12.2 million in the ACL on unfunded commitments. Additionally, First Financial recorded $0.2 million of provision recapture related to the ACL on unfunded commitments for the twelve months ended December 31, 2020 and December 31, 2019.

7. Premises and Equipment

Premises and equipment at December 31 were as follows:
(Dollars in thousands) 2020 2019
Land and land improvements $ 52,373  $ 54,958 
Buildings 161,371  163,277 
Furniture and fixtures 70,177  74,881 
Leasehold improvements 29,525  31,728 
Construction in progress 8,434  4,096 
321,880  328,940 
Less: Accumulated depreciation and amortization 114,669  114,434 
   Total $ 207,211  $ 214,506 

Rental expense recorded under operating leases in 2020, 2019 and 2018 was $9.1 million, $11.2 million and $9.1 million, respectively.

8.  Leases

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. First Financial is primarily the lessee in its leasing agreements, and substantially all of those agreements are for real estate property for branches, ATM locations and office space.

On January 1, 2019, the Company adopted Topic 842 and all subsequent modifications. For First Financial, this adoption primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Substantially all of the Company's leases are classified as operating leases, and therefore, were previously not recognized on the Company’s Consolidated Balance Sheets.

With the adoption of Topic 842, operating lease agreements were required to be recognized on the Consolidated Balance Sheets as an ROU asset and a corresponding lease liability. The Company's right to use an asset over the life of a lease is recorded as a "right of use" asset in Accrued interest and other assets on the Consolidated Balance Sheet and was $63.9 million and $58.6 million at December 31, 2020 and 2019, respectively. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received. First Financial recorded a $71.7 million and $64.3 million lease liability in Accrued interest and other liabilities on the Consolidated Balance Sheet at December 31, 2020 and 2019, respectively.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its
74 First Financial Bancorp 2020 Annual Report

incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate was based upon the remaining lease term as of that date.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and First Financial recognizes lease expense for these leases on a straight-line basis over the term of the lease. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more. The exercise of renewal options on operating leases is at the Company's sole discretion, and certain leases may include options to purchase the leased property. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. First Financial does not enter into lease agreements which contain material residual value guarantees or material restrictive covenants.

Certain leases provide for increases in future minimum annual rental payments as defined in the lease agreements and leases generally also include real estate taxes and common area maintenance charges in the annual rental payments.

The components of lease expense for the years ended December 31, 2020 and 2019 were as follows:
(dollars in thousands) December 31, 2020 December 31, 2019
Operating lease cost $ 7,897  $ 7,324 
Short-term lease cost 142  55 
Variable lease cost 2,532  2,553 
Total operating lease cost $ 10,571  $ 9,932 

Future minimum commitments due under these lease agreements as of December 31, 2020 are as follows:
(dollars in thousands) Operating leases
2021 $ 6,864 
2022 7,074 
2023 7,143 
2024 6,858 
2025 6,217 
Thereafter 56,951 
Total lease payments 91,107 
Less imputed interest 19,395 
Total $ 71,712 

The weighted average lease term and discount rate for the Company's operating leases were as follows:
December 31, 2020 December 31, 2019
Operating leases
Weighted-average remaining lease term 15.1 years 15.6 years
Weighted-average discount rate 3.07  % 3.43  %

Supplemental cash information at year end related to leases was as follows:
(dollars in thousands) December 31, 2020 December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities  
Operating cash flows from operating leases $ 8,196  $ 7,335 
ROU assets obtained in exchange for lease obligations
Operating leases 9,725  64,902 

First Financial Bancorp 2020 Annual Report 75
Notes to Consolidated Financial Statements
9. Goodwill and Other Intangible Assets

Goodwill. Assets and liabilities acquired in a business combination are recorded at their estimated fair values as of the acquisition date. The excess of the purchase price of the acquisition over the fair value of net assets acquired is recorded as goodwill.

Changes in the carrying amount of goodwill for the years ended December 31, 2020, 2019 and 2018 are shown below.
(Dollars in thousands) 2020 2019 2018
Balance at beginning of year $ 937,771  $ 880,251  $ 204,084 
Goodwill resulting from business combinations 0  57,520  676,167 
Balance at end of year $ 937,771  $ 937,771  $ 880,251 

During 2019, First Financial recorded $58.0 million of additions to goodwill resulting from the Bannockburn acquisition. During 2018, First Financial recorded additions to goodwill of $676.2 million resulting from the merger with MSFG, and First Financial recorded its final adjustments to goodwill related to the MSFG merger in the first quarter of 2019. For further detail on the merger with MSFG or the acquisition of Bannockburn, see Note 23 - Business Combinations.

Goodwill is evaluated for impairment on an annual basis as of October 1 of each year, or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value. First Financial engaged a third party to perform a quantitative analysis of its goodwill to determine whether any impairment existed as of October 1, 2020 for its annual impairment test. This quantitative analysis was performed due to the on-going economic market disruption, the movement of the Company’s stock price in relation to other bank indexes and the length of time that the market value of the reporting unit had been below its book value. This analysis indicated that no impairment existed as of the issue date. Our quantitative impairment analysis utilized the discounted cash flow model for the income approach and the market multiple methodology and comparable transaction methodology as the market approach. These valuation methodologies utilize key assumptions that include forecasts of revenues and expenses derived from internal management projections for a period of five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective and require significant management judgment. Changes in these key assumptions could materially affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.

Additionally, in response to the COVID-19 pandemic and the related deterioration in general economic conditions, First Financial performed an interim qualitative impairment test as of the end of each quarter in 2020, including the quarter ended December 31, 2020. Likewise, the results of this interim qualitative tests performed did not indicate that the Company's goodwill was impaired. First Financial will continue to monitor the status of its goodwill and intangible assets for signs of further deterioration and potential impairment.

Other intangible assets. Other intangible assets consist primarily of core deposit, customer list and other miscellaneous intangibles.

Core deposit intangibles represent the estimated fair value of acquired customer deposit relationships on the date of acquisition and are amortized on an accelerated basis over their estimated useful lives. First Financial's core deposit intangibles have an estimated weighted average remaining life of 7.1 years.

First Financial recorded a $39.4 million customer list intangible asset in conjunction with the Bannockburn merger to account for the obligation or advantage on the part of either the Company or the customer to continue the pre-existing relationship subsequent to the merger. The customer list intangible asset is being amortized on a straight-line basis over its estimated useful life of 11 years.

Other miscellaneous intangibles include purchase commissions, non-compete agreements and trade name intangibles. Other intangible assets are included in Other intangibles in the Consolidated Balance Sheets.  

76 First Financial Bancorp 2020 Annual Report

The gross carrying amount and accumulated amortization of other intangible assets at December 31, 2020 and December 31, 2019 were as follows:
(Dollars in thousands) December 31, 2020 December 31, 2019
Amortized intangible assets
Core deposit intangibles $ 51,031  $ (27,524) $ 51,031  $ (21,149)
Customer list 39,420  (4,778) 39,420  (1,195)
Other 10,113  (3,710) 10,093  (1,999)
Total $ 100,564  $ (36,012) $ 100,544  $ (24,343)

Amortization expense recognized on intangible assets for 2020, 2019 and 2018 was $11.1 million, $9.7 million and $7.4 million, respectively. The estimated amortization expense of intangible assets for the next five years is as follows:
(Dollars in thousands) Intangible amortization
2021 $ 10,249 
2022 7,708 
2023 6,729 
2024 6,660 
2025 6,611 

10. Deposits

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2020 and 2019 were $220.5 million and $285.0 million, respectively.

Scheduled maturities of all time deposits for the next five years were as follows:
(Dollars in thousands) Time deposits
2021 $ 1,544,131 
2022 215,855 
2023 56,882 
2024 32,978 
2025 22,210 
Thereafter 677 
Total $ 1,872,733 

11. Borrowings

Short-term borrowings on the Consolidated Balance Sheets include repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place, federal funds purchased and overnight advances from the FHLB. All repurchase agreements are subject to terms and conditions agreed to by the Bank and the client. To secure its liability to the client, the Bank is authorized to sell or repurchase U.S. Treasury, government agency and mortgage-backed securities.

First Financial Bancorp 2020 Annual Report 77
Notes to Consolidated Financial Statements
The following shows the remaining contractual maturity of repurchase agreements by collateral pledged:
(Dollars in thousands) Overnight and Continuous
Repurchase agreements
Mortgage-backed securities $ 79,235 
Collateralized mortgage obligations 47,359 
Total $ 126,594 

Securities sold under agreements to repurchase are secured by securities with a carrying amount of $126.7 million and $90.2 million, as of December 31, 2020 and 2019, respectively.

The following is a summary of short-term borrowings for the last three years: 
2020 2019 2018
(Dollars in thousands) Amount Rate Amount Rate Amount Rate
At December 31,
Federal funds purchased and securities sold under agreements to repurchase $ 166,594  0.05  % $ 165,181  0.85  % $ 183,591  1.65  %
FHLB borrowings 0  0.00  % 1,151,000  1.73  % 857,100  2.48  %
Total $ 166,594  0.05  % $ 1,316,181  1.62  % $ 1,040,691  2.33  %
Average for the year
Federal funds purchased and securities sold under agreements to repurchase $ 149,036  0.26  % $ 155,859  1.15  % $ 87,221  0.58  %
FHLB borrowings 441,867  1.37  % 990,860  2.37  % 857,028  2.03  %
Other short-term borrowings 0  0.00  % 0  0.00  % 3,178  4.36  %
Total $ 590,903  1.09  % $ 1,146,719  1.90  % $ 947,427  1.90  %
Maximum month-end balances
Federal funds purchased and securities sold under agreements to repurchase $ 260,621  $ 260,621  $ 183,591 
FHLB borrowings 1,171,400  1,171,400  1,170,800 
Other short-term borrowings 0  0  10,000 

During 2020 First Financial participated in the PPPLF, which is a program created by the FRB to extend credit to eligible financial institutions that originate PPP loans. The bank had outstanding PPPLF advances of $435.0 million as of December 31, 2020, with an average interest rate of 35 basis points. These borrowings are secured by pledged PPP loans and prepay in conjunction with reductions in the principal balances of those loans.

In April 2020, First Financial issued $150.0 million of fixed to floating rate subordinated notes. The subordinated notes have an initial fixed interest rate of 5.25% to, but excluding, May 15, 2025, payable semi-annually in arrears. From, and including, May 15, 2025, the interest rate on the subordinated notes will reset quarterly to a floating rate per annum equal to a benchmark rate, which is expected to be the then-current three-month term SOFR, plus 509 basis points, payable quarterly in arrears. The subordinated notes mature on May 15, 2030. These notes are redeemable by the Company in whole or in part beginning with the interest payment date of May 15, 2025.

In 2015, First Financial issued $120.0 million of subordinated notes, which have a fixed interest rate of 5.13% payable semiannually and mature in August 2025. These notes are not redeemable by the Company or callable by the holders of the notes prior to maturity. In addition, First Financial acquired $49.5 million of variable rate subordinated notes in the MSFG merger that were issued to previously formed trusts in exchange for the trust proceeds. Interest on the acquired subordinated notes is payable quarterly, in arrears, and the Company has the option to defer interest payments for a period not to exceed 20 consecutive quarters. The acquired subordinated notes mature 30 years after the date of original issuance and may be called at par following the 5 year anniversary of issuance. First Financial also acquired $8.4 million of 6.00% fixed rate private placement subordinated debt in conjunction with the MSFG merger that was issued in 2015 and matures in 2025. These notes
78 First Financial Bancorp 2020 Annual Report

are redeemable by the Company at par following the 5 year anniversary of issuance. The subordinated notes are treated as Tier 2 capital for regulatory capital purposes and are included in Long-term debt on the Consolidated Balance Sheets.

In addition to subordinated notes, long-term debt included $20.0 million and $242.4 million of fixed rate FHLB long-term advances as of December 31, 2020 and December 31, 2019, respectively. As of December 31, 2020 and December 31, 2019, long-term FHLB advances had a weighted average interest rate of 1.43% and 1.94%, respectively. In the fourth quarter of 2020, First Financial redeemed $120.0 million of FHLB long-term advances with maturities of two to seven years. These instruments are primarily utilized to reduce overnight liquidity risk and to mitigate interest rate sensitivity on the Consolidated Balance Sheets.
 
FHLB advances, both short-term and long-term, must be collateralized with qualifying assets, typically certain commercial and residential real estate loans, as well as certain government and agency securities. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB, and at December 31, 2020, had collateral pledged with a book value of $6.3 billion.

The following is a summary of First Financial's long-term debt:
2020 2019
(Dollars in thousands) 
Amount Average Rate Amount Average Rate
FRB borrowings $ 434,982  0.35  % $ 0  n/a
FHLB borrowings 19,971  1.43  % 242,428  1.94  %
Subordinated debt 321,384  4.86  % 170,967  4.97  %
Unamortized debt issuance costs (2,770) n/a (1,007) n/a
Capital lease liability 1,860  3.81  % 1,213  4.48  %
Capital loan with municipality 775  0.00  % 775  0.00  %
Total long-term debt $ 776,202  2.25  % $ 414,376  3.20  %
 
As of December 31, 2020, First Financial's long-term debt matures as follows:
 (Dollars in thousands) 
Long-term debt
2021 $ 20,050 
2022 435,065 
2023 87 
2024 91 
2025 96 
Thereafter 320,813 
Total $ 776,202 

12. Derivatives

First Financial uses certain derivative instruments, including rate caps, floors, swaps and foreign exchange contracts, to meet the operating needs of its clients while managing the interest and currency rate risk associated with certain transactions.  First Financial may also utilize interest rate swaps to manage the interest rate risk profile of the Company. Interest rate payments are exchanged with counterparties, based on the notional amount as established in the interest rate agreement. As only interest rate payments are exchanged, the cash requirements and credit risk associated with interest rate swaps are significantly less than the notional amount and the Company’s credit risk exposure is limited to the market value of the instruments. First Financial does not use derivatives for speculative purposes.

First Financial manages this market value credit risk through counterparty credit policies including a review of total derivative notional position to total assets, total credit exposure to total capital and counterparty credit exposure risk.

First Financial Bancorp 2020 Annual Report 79
Notes to Consolidated Financial Statements
For discussion of First Financial's accounting for derivative instruments, see Note 1 – Summary of Significant Accounting Policies.

Client derivatives. First Financial utilizes interest rate swaps as a means to offer commercial borrowers fixed rate funding while providing the Company with floating rate assets.

At December 31, 2020, for interest rate derivatives, the Company had a total counterparty notional amount outstanding of $2.3 billion, spread among twenty counterparties, with an outstanding liability from these contracts of $182.3 million. At December 31, 2019, the Company had interest rate derivatives with a total counterparty notional amount outstanding of $1.9 billion, spread among eighteen counterparties, with an outstanding liability from these contracts of $67.5 million.

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

In connection with its use of derivative instruments, First Financial and its counterparties may be required to post cash collateral to offset the market position of the derivative instruments. First Financial maintains the right to offset these derivative positions with the collateral posted against them by or with the relevant counterparties.

Foreign Exchange Contracts. First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts, First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge a substantial portion of the exposure from client driven foreign exchange activity. These derivatives are classified as free-standing instruments with the revaluation gain or loss recorded in Foreign exchange income in the Consolidated Statements of Income. The Company has risk limits and internal controls in place to help ensure excessive risk is not being taken in providing this service to customers. These controls include an independent determination of currency volatility and credit equivalent exposure on these contracts, counterparty credit approvals and country limits performed by independent risk management. At December 31, 2020, the Company had total counterparty notional amount outstanding of $3.6 billion spread among six counterparties, with an estimated fair value of $33.1 million at December 31, 2020 related to foreign exchange contracts, which is included in Accrued interest and other liabilities in the Consolidated Balance Sheets. At December 31, 2019, the Company had total counterparty notional amounts outstanding of $1.9 billion spread among six counterparties, with an estimated fair value of $18.3 million.

In connection with its use of foreign exchange contracts, First Financial and its counterparties may be required to post cash collateral to offset the market position of the derivative instruments. First Financial maintains the right to offset these derivative positions with the collateral posted against them by or with the relevant counterparties.

The following table details the location and amounts of client derivatives and foreign exchange contracts recognized in the Consolidated Balance Sheets:
     December 31, 2020 December 31, 2019
  Estimated fair value Estimated fair value
(Dollars in thousands) Balance
Sheet Classification 		Notional
amount 		Gain Loss Notional
amount 		Gain Loss
Client derivatives-instruments associated with loans            
Matched interest rate swaps with borrower Accrued interest and other assets and other liabilities $ 2,300,336  $ 184,777  $ (107) $ 1,923,375  $ 70,799  $ (2,636)
Matched interest rate swaps with counterparty Accrued interest and other liabilities 2,300,336  107  (184,884) 1,923,375  2,636  (70,808)
Foreign exchange contracts
Matched foreign exchange contracts with customers Accrued interest and other assets 3,637,509  60,366  (27,249) 1,869,934  28,739  (10,433)
Match foreign exchange contracts with counterparty Accrued interest and other liabilities 3,637,509  27,249  (60,366) 1,869,934  10,433  (28,739)
Total   $ 11,875,690  $ 272,499  $ (272,606) $ 7,586,618  $ 112,607  $ (112,616)

80 First Financial Bancorp 2020 Annual Report

The following table discloses the gross and net amounts of client derivatives and foreign exchange contracts recognized in the Consolidated Balance Sheets:
December 31, 2020 December 31, 2019
(Dollars in thousands) Gross amounts of recognized liabilities Gross amounts offset in the Consolidated Balance Sheets Net amounts of (assets)/liabilities presented in the Consolidated Balance Sheets Gross amounts of recognized liabilities Gross amounts offset in the Consolidated Balance Sheets Net amounts of (assets)/liabilities presented in the Consolidated Balance Sheets
Client derivatives
Matched interest rate swaps $ 184,991  $ (385,088) $ (200,097) $ 73,444  $ (147,193) $ (73,749)
Foreign exchange contracts with counterparty
87,615  (17,392) 70,223  39,172  (41,202) (2,030)
Total $ 272,606  $ (402,480) $ (129,874) $ 112,616  $ (188,395) $ (75,779)

The following table details the derivative financial instruments, the average remaining maturities and the weighted-average interest rates being paid and received by First Financial at December 31, 2020:
(Dollars in thousands) Notional
amount 		Average
maturity
(years) 		Fair
value
Client derivatives-interest rate contracts      
Receive fixed, matched interest rate swaps with borrower $ 2,300,336  4.9 $ 184,670 
Pay fixed, matched interest rate swaps with counterparty 2,300,336  4.9 (184,777)
Client derivatives-foreign exchange contracts
Foreign exchange contracts - pay USD 3,637,509  0.6 33,117 
Foreign exchange contracts - receive USD 3,637,509  0.6 (33,117)
Total client derivatives $ 11,875,690  2.3 $ (107)

Credit derivatives. In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty. The total notional value of these agreements totaled $242.4 million as of December 31, 2020 and $216.2 million as of December 31, 2019. The fair value of these agreements were recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets was $0.3 million at December 31, 2020 and $0.2 million at December 31, 2019.

Mortgage Derivatives. First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure an IRLC with First Financial and the loans are intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and and loans held for sale. At December 31, 2020, the notional amount of the IRLCs was $114.2 million and the notional amount of forward commitments was $112.6 million. As of December 31, 2019, the notional amount of IRLCs was $33.4 million and the notional amount of forward commitments was $37.8 million. The fair value of these agreements was $2.7 million at December 31, 2020 and was $0.9 million at December 31, 2019 and was recorded in Accrued interest and other assets on the Consolidated Balance Sheets.

13. Commitments and Contingencies

First Financial offers a variety of financial instruments including letters of credit and outstanding commitments to extend credit to assist clients in meeting their requirement for liquidity and credit enhancement. GAAP does not require these financial instruments to be recorded in the Consolidated Financial Statements.

First Financial utilizes the same credit policies in issuing commitments and conditional obligations as it does for credit instruments recorded on the Consolidated Balance Sheets. First Financial’s exposure to credit loss in the event of nonperformance by the counterparty was represented by the contractual amounts of those instruments. Effective January 1, 2020, First Financial adopted ASC 326, at which time First Financial estimated credit losses over the contractual period in
First Financial Bancorp 2020 Annual Report 81
Notes to Consolidated Financial Statements
which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated useful life consistent with the Company's ACL methodology for loans and leases. Adjustments to the reserve for unfunded commitments are recorded in Provision for credit losses - unfunded commitments in the Consolidated Statements of Income. First Financial had $12.5 million of ACL for unfunded commitments recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets as of December 31, 2020.

Prior to the adoption of ASC 326, First Financial maintained its reserve to absorb probable losses incurred in standby letters of credit and outstanding loan commitments. First Financial determined the adequacy of this reserve based upon an evaluation of the unfunded credit facilities, which included consideration of historical commitment utilization experience, credit risk ratings and historical loss rates, consistent with the Company's ALLL methodology at the time. First Financial had $0.6 million of reserves for unfunded commitments recorded in Accrued interest and other liabilities on the Consolidated Balance Sheets as of December 31, 2019.

Loan commitments. Loan commitments are agreements to extend credit to a client absent any violation of any condition established in the commitment agreement.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The amount of collateral obtained, if deemed necessary by First Financial upon extension of credit, is based on management’s credit evaluation of the client.  The collateral held varies, but may include securities, real estate, inventory, plant or equipment.  First Financial had commitments outstanding to extend credit, totaling $3.4 billion and $3.3 billion at December 31, 2020 and 2019, respectively. As of December 31, 2020, loan commitments with a fixed interest rate totaled $123.6 million while commitments with variable interest rates totaled $3.3 billion. At December 31, 2019, loan commitments with a fixed interest rate totaled $123.7 million while commitments with variable interest rates totaled $3.2 billion. The fixed rate loan commitments have interest rates ranging from 0.00% to 21.00% for both December 31, 2020 and 2019 and have maturities ranging from less than 1 year to 30.8 years for December 31, 2020 and less than 1 year to 31.6 years for December 31, 2019.

The following table presents First Financial's loan balances and contractual obligations to extend credit as of December 31, 2020.
(dollars in thousands) Unfunded commitment Loan balance
Commercial & industrial $ 1,270,765  $ 3,007,509 
Lease financing 0 72,987
Construction real estate 374,008 636,096
Commercial real estate-investor 139,754 3,244,540
Commercial real estate-owner 51,637 1,063,318
Residential real estate 28,895 1,003,086
Home equity 762,406 743,099
Installment 18,229 81,850
Credit card 207,365 48,485
Total $ 2,853,059  $ 9,900,970 


Letters of credit. Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party.  First Financial’s portfolio of letters of credit consists primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services.  The risk to First Financial arises from its obligation to make payment in the event of the client's contractual default to produce the contracted good or service to a third party.  First Financial has issued letters of credit aggregating $36.1 million and $33.4 million at December 31, 2020, and 2019, respectively. Management conducts regular reviews of these instruments on an individual client basis.

Investments in affordable housing projects. First Financial has made investments in certain qualified affordable housing tax credits that are accounted for under ASU 2014-01, Accounting for Investments in Affordable Housing Projects. These credits are an indirect federal subsidy that provide tax incentives to encourage investment in the development, acquisition and rehabilitation of affordable rental housing, and allow investors to claim tax credits and other tax benefits (such as deductions from taxable income for operating losses) on their federal income tax returns. The principal risk associated with qualified
82 First Financial Bancorp 2020 Annual Report

affordable housing investments is the potential for noncompliance with the tax code requirements, such as failure to rent property to qualified tenants, resulting in the unavailability or recapture of the tax credits and other tax benefits. Investments in affordable housing projects are accounted for under the proportional amortization method and are included in Accrued interest and other assets in the Consolidated Balance Sheets.

First Financial's affordable housing commitments totaled $47.5 million and $38.5 million as of December 31, 2020 and 2019, respectively. The Company recognized tax credits of $7.6 million, $6.2 million and $4.9 million related to its investments in affordable housing projects for the years ended December 31, 2020, 2019 and 2018, respectively. The Company recognized amortization expense which was included in income tax expense of $8.1 million, $6.9 million and $5.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. First Financial had no affordable housing contingent commitments as of December 31, 2020 or December 31, 2019.

Investments in historic tax credits. First Financial has noncontrolling financial investments in private investment funds and partnerships which are not consolidated. These investments may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. Investments in historic tax credits are accounted for under the equity method of accounting and are included in Accrued interest and other assets on the Consolidated Balance Sheets. The Company’s recorded investment in these entities was approximately $3.6 million at December 31, 2020, and $3.1 million at December 31, 2019. The maximum exposure to loss related to these investments was $4.0 million at December 31, 2020 and $5.1 million at December 31, 2019, representing the Company’s investment balance and its unfunded commitments to invest additional amounts. Investments in historic tax credits resulted in $0.6 million, $3.5 million and $0.5 million of tax credits for the years ended December 31, 2020, 2019 and 2018, respectively.

Investments in renewable energy tax credits. During 2020, First Financial invested in a renewable energy project where it has noncontrolling interest which is not consolidated. This investment may generate a return through the realization of federal and state income tax credits, as well as other tax benefits, such as tax deductions from net operating losses of the investments over a period of time. Investments in renewable energy tax credits are accounted for under the equity method of accounting and are included in Accrued interest and other assets on the Consolidated Balance Sheets. The Company’s recorded investment in this project was approximately $5.2 million at December 31, 2020. The maximum exposure to loss related to this investment was $7.7 million, representing the Company’s investment balance and its unfunded commitments to invest additional amounts. The investment in renewable energy tax credits resulted in $4.8 million of tax credits for the year ended December 31, 2020.

Contingencies/Litigation. First Financial and its subsidiaries are engaged in various matters of litigation from time to time, and have a number of unresolved claims pending. Additionally, as part of the ordinary course of business, First Financial and its subsidiaries are parties to litigation involving claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral and foreclosure interests, that is incidental to our regular business activities. While the ultimate liability with respect to these litigation matters and claims cannot be determined at this time, First Financial believes that damages, if any, and other amounts relating to pending matters are not probable or cannot be reasonably estimated as of December 31, 2020. Reserves are established for these various matters of litigation, when appropriate, under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel. First Financial had no reserves related to litigation matters as of December 31, 2020 or December 31, 2019.

14. Related Party Transactions

Outstanding balance of loans to directors, executive officers, principal holders of First Financial’s common stock and certain related persons were as follows:
 
(Dollars in thousands) 2020
Beginning balance $ 5,289 
Additions 1,811 
Deductions (2,003)
Ending balance $ 5,097 
Loans 90 days or more past due $ 0 

First Financial Bancorp 2020 Annual Report 83
Notes to Consolidated Financial Statements
Related parties of First Financial, as defined for inclusion in the table above, were clients of, and had transactions with, subsidiaries of First Financial during the periods noted. Similar transactions with related parties may be expected in future periods.

15. Income Taxes

Income tax expense consisted of the following components:
 
(Dollars in thousands) 2020 2019 2018
Current expense
Federal $ 34,632  $ 31,343  $ 34,330 
State 2,349  854  1,029 
Total current expense 36,981  32,197  35,359 
Deferred expense (benefit)
Federal (8,624) 10,946  4,675 
State 244  1,644  1,592 
Total deferred expense (benefit) (8,380) 12,590  6,267 
Income tax expense $ 28,601  $ 44,787  $ 41,626 

The difference between the federal income tax rates applied to income before income taxes and the effective rates were due to the following:
(Dollars in thousands) 2020 2019 2018
Income taxes computed at federal statutory rate (21%) on income before income taxes $ 38,726  $ 51,001  $ 44,986 
Benefit from tax-exempt income (5,901) (5,964) (4,499)
Tax credits (13,064) (10,075) (5,439)
Basis reduction on tax credit 657  738  0 
Tax expense (benefit) of equity compensation 340  (140) (565)
State income taxes, net of federal tax benefit 2,049  1,973  2,070 
Affordable housing investments 6,635  5,825  4,725 
Other (841) 1,429  348 
Income tax expense $ 28,601  $ 44,787  $ 41,626 


84 First Financial Bancorp 2020 Annual Report


The major components of the temporary differences that gave rise to deferred tax assets and liabilities at December 31, 2020, and 2019, were as follows:
(Dollars in thousands) 2020 2019
Deferred tax assets
Allowance for credit losses $ 39,671  $ 13,011 
Fair value adjustments on business combinations 3,870  6,470 
Deferred compensation 235  228 
Postretirement benefits other than pension liability 684  666 
Accrued stock-based compensation 1,654  1,296 
OREO write-downs 8  162 
Interest on nonaccrual loans 1,712  548 
Accrued expenses 5,647  4,708 
State net operating loss 1,959  2,792 
Leasing liability 16,947  14,806 
Reserve for unfunded commitments 2,854  133 
Deferred loan fees and costs 1,691  0 
Other 577  683 
Total deferred tax assets 77,509  45,503 
Deferred tax liabilities
Tax depreciation in excess of book depreciation (11,923) (10,970)
FHLB and FRB stock (4,043) (4,043)
Mortgage-servicing rights (2,925) (2,435)
Leasing activities (6,661) (7,349)
Retirement obligation (10,984) (8,511)
Intangible assets (13,942) (11,647)
Deferred loan fees and costs 0  (1,100)
Prepaid expenses (619) (623)
Limited partnership investments (2,471) (2,249)
Net unrealized gains on investment securities (20,253) (11,359)
Foreign exchange deferred income (2,080) (2,845)
ASU 2016-01 unrealized gain/loss-equity securities (2,179) (128)
Right of use assets (15,053) (13,354)
Other (2,035) (1,920)
Total deferred tax liabilities (95,168) (78,533)
Total net deferred tax liability $ (17,659) $ (33,030)

In conjunction with the MSFG merger, First Financial acquired a state net operating loss. At December 31, 2020 and 2019, the state net operating loss carryforward was $2.5 million and $3.6 million. This carryforward begins to expire in 2025. The Company expects to fully utilize this net operating loss and, therefore, a valuation allowance was not required at December 31, 2020 and 2019. The acquired MSFG state net operating loss is subject to IRC Section 382 and is limited annually.

The realization of the Company’s deferred tax assets is dependent upon the Company’s ability to generate taxable income in future periods and the reversal of deferred tax liabilities during the same period. The Company has evaluated the available evidence supporting the realization of its deferred tax assets and determined it is more likely than not that the assets will be realized and thus no valuation allowance was recorded at December 31, 2020 and 2019.

The Bank’s retained earnings at December 31, 2020 and 2019 included base-year bad debt reserves of $16.1 million as a result of the merger with MSFG.  Base-year reserves are subject to recapture in the event the Bank redeems its stock, makes distributions in excess of current and accumulated earnings and profits (as calculated for federal income tax purposes), loses its
First Financial Bancorp 2020 Annual Report 85
Notes to Consolidated Financial Statements
“bank” status or liquidates.  The Bank has no intention of meeting any of the criteria for recapture.  Accordingly, a deferred income tax liability of $3.4 million has not been recorded.

At December 31, 2020 and 2019, First Financial had $1.9 million and $2.4 million of unrecognized tax benefits, as determined in FASB ASC Topic 740-10, Income Taxes, that, if recognized, would favorably affect the effective income tax rate in future periods. A progression of gross unrecognized tax benefits as of December 31, 2020 and 2019 is as follows:
(Dollars in thousands) 2020 2019
Balance at beginning of year $ 3,006  $ 3,735 
Settlements (620) (729)
Balance at end of year $ 2,386  $ 3,006 

The unrecognized tax benefits relate to state income tax exposures where First Financial believes it is likely that, upon examination, a state may take a position contrary to the position taken by the Company. The Company believes that resolution regarding our uncertain tax positions is reasonably possible within the next twelve months and could result in full, partial or no recognition of the benefit. First Financial recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. At December 31, 2020 and 2019, the Company had no interest or penalties recorded.

First Financial and its subsidiaries are subject to U.S. federal income tax as well as state and local income tax in several jurisdictions. Tax years prior to 2017 have been closed and are no longer subject to U.S. federal income tax examinations. Tax years 2017 through 2020 remain open to examination by the federal taxing authority.
 
First Financial is no longer subject to state and local income tax examinations for years prior to 2012. Tax years 2012 through 2020 remain open to state and local examination by various other jurisdictions.
 
16. Employee Benefit Plans

Pension plan. First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees and uses a December 31 measurement date for the plan. Plan assets were primarily invested in fixed income and equity mutual funds. The pension plan does not directly own any shares of First Financial common stock or any other First Financial security or product.
 
The investment objective of the Plan is to structure the assets to mirror the liabilities of the Plan, with the fixed income component matching the identified near and long-term plan distributions and the equity component generating growth of capital to meet other future Plan liabilities. The determination of the overall expected long-term return on plan assets was based on the composition of plan assets and a consensus of estimates from similarly managed portfolios of expected future returns.

First Financial recorded expense related to its pension plan of $2.5 million for 2020, $1.0 million for 2019 and $0.9 million for 2018. The components of net periodic benefit cost other than the service cost component are included in Other noninterest expense while service costs are recorded as a component Salaries and employee benefits in the Consolidated Statements of Income.

First Financial made no cash contributions to the pension plan in 2020, 2019 or 2018 and does not expect to make any contributions in 2020.
 
86 First Financial Bancorp 2020 Annual Report

The following tables set forth information concerning amounts recognized in First Financial's Consolidated Balance Sheets and Consolidated Statements of Income related to the Company's pension plan:
December 31,
(Dollars in thousands) 2020 2019
Change in benefit obligation
Benefit obligation at beginning of year $ 75,044  $ 68,286 
Service cost 7,932  6,591 
Interest cost 2,455  2,778 
Actuarial (gain) loss 9,171  6,848 
Benefits paid, excluding settlement (7,108) (9,459)
Benefit obligation at end of year 87,494  75,044 
Change in plan assets
Fair value of plan assets at beginning of year 141,816  130,078 
Actual return on plan assets 20,996  21,197 
Benefits paid, excluding settlement (7,108) (9,459)
Fair value of plan assets at end of year 155,704  141,816 
Amounts recognized in the Consolidated Balance Sheets
Assets 68,210  66,772 
Liabilities 0 0
Net amount recognized $ 68,210  $ 66,772 
Amounts recognized in accumulated other comprehensive income (loss)
Net actuarial loss $ 32,943  $ 37,278 
Net prior service cost (682) (1,095)
Deferred tax assets (7,349) (8,242)
Net amount recognized $ 24,912  $ 27,941 
Change in accumulated other comprehensive income (loss) $ (3,029) $ (4,649)
Accumulated benefit obligation $ 86,327  $ 74,424 

The changes in the defined benefit obligations for the period were primarily caused by a few factors. The actual return on the fair value of plan assets since the prior measurement date was greater than assumed, which improved the funded position. However, the discount rate declined 78 bp compared to the prior year, causing the funded position to deteriorate. Additionally, the interest crediting rate was updated to reflect the known return during 2020, which resulted in further deterioration of the funded position.
First Financial Bancorp 2020 Annual Report 87
Notes to Consolidated Financial Statements
The components of net periodic benefit cost are shown in the table that follows:
December 31,
(Dollars in thousands) 2020 2019 2018
Service cost $ 7,932  $ 6,591  $ 6,501 
Interest cost 2,455  2,778  2,394 
Expected return on assets (9,824) (9,718) (9,811)
Amortization of prior service cost (413) (413) (413)
Recognized net actuarial loss 2,334  1,803  2,188 
Net periodic benefit (income) cost 2,484  1,041  859 
Other changes recognized in accumulated other comprehensive income (loss)
Net actuarial (gain) loss (2,001) (4,630) 12,319 
Prior service cost 0  0  0 
Amortization of prior service cost 413  413  413 
Amortization of gain (2,334) (1,803) (2,188)
Total recognized in accumulated other comprehensive income (loss) (3,922) (6,020) 10,544 
Total recognized in net periodic benefit cost and accumulated other comprehensive income (loss) $ (1,438) $ (4,979) $ 11,403 

The pension plan assumptions are shown in the table that follows:
December 31,
2020 2019 2018
Benefit obligations
Discount rate 2.55  % 3.33  % 4.31  %
Rate of compensation increase 3.50  % 3.50  % 3.50  %
Weighted average interest crediting rate 2.14  % 2.82  % 3.61  %
Net periodic benefit cost
Discount rate 3.33  % 4.31  % 3.43  %
Expected return on plan assets 7.25  % 7.25  % 7.25  %
Rate of compensation increase 3.50  % 3.50  % 3.50  %
Weighted average interest crediting rate 2.82  % 3.61  % 2.63  %
 
The fair value of the plan assets as of December 31, 2020 by asset category is shown in the table that follows:
Fair Value Measurements
(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 $ 129  $ 129  $ 0  $ 0 
U. S. Government agencies 4,193  0  4,193  0 
Fixed income mutual funds 65,443  65,443  0  0 
Equity mutual funds 85,939  85,939  0  0 
Total $ 155,704  $ 151,511  $ 4,193  $ 0 

88 First Financial Bancorp 2020 Annual Report

The fair value of the plan assets as of December 31, 2019 by asset category is shown in the table that follows:
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 $ 195  $ 195  $ 0  $ 0 
U. S. Government agencies 5,357  0  5,357  0 
Fixed income mutual funds 75,720  75,720  0  0 
Equity mutual funds 60,544  60,544  0  0 
Total $ 141,816  $ 136,459  $ 5,357  $ 0 

The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement. See Note 22 – Fair Value Disclosures for further information related to the framework for measuring fair value and the fair value hierarchy.
 
The following benefit payments, which reflect expected future service, are expected to be paid:
(Dollars in thousands) Expected benefit payments
2021 $ 5,780 
2022 5,432 
2023 5,474 
2024 6,605 
2025 6,565 
Thereafter 38,095 

401(k) plan. First Financial sponsors a defined contribution 401(k) plan which covers substantially all employees. Employees may contribute up to 50.0% of their earnings into the plan, not to exceed applicable limitations prescribed by the Internal Revenue Service. First Financial's contributions to the 401(k) plan are discretionary. The Company made no contributions to the 401(k) plan during the years ended December 31, 2020, 2019 or 2018.

17. Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the guidance set forth in this update while prior period amounts continue to be reported in accordance with legacy GAAP. Adoption of this update did not result in a change to the accounting for any of the in-scope revenue streams. As such, no cumulative effect adjustment to retained earnings was recorded.

The majority of the Company's revenues come from sources that are outside of the scope of ASU 2014-09, Revenue from Contracts with Customers. Income sources that are outside of this standard include income earned on loans, leases, securities, derivatives and foreign exchange. The Company's services that fall within the scope of ASU 2019-09 are presented within Noninterest income and are recognized as revenue when the Company satisfies its obligation to the customer. Services within the scope of this guidance include service charges on deposits, trust and wealth management fees, bankcard income, gain/loss on the sale of OREO and investment brokerage fees.

Service charges on deposit accounts. The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned
First Financial Bancorp 2020 Annual Report 89

over the course of a month, representing the period over which the Company satisfies the performance obligation. Similarly, overdraft fees are recognized at the point in time that the overdraft occurs as this corresponds with the Company's performance obligation. Service charges on deposit accounts are withdrawn from the customer's account balance.

Trust and wealth management fees. Trust and wealth management fees are primarily asset-based, but can also include flat fees based upon a specific service rendered, such as tax preparation services. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fees. The Company does not earn performance-based incentives. Optional services such as real estate sales and tax return preparation services are also available to existing trust and wealth management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, as incurred.

Bankcard income. The Company earns interchange fees from cardholder transactions conducted through the Visa payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized concurrent with the transaction processing services provided to the cardholder. Interchange income is presented on the Consolidated Statements of Income net of expenses. Gross interchange income for 2020 was $23.9 million, and was partially offset by $12.2 million of expenses within Noninterest income. Gross interchange income for 2019 was $30.4 million, and was partially offset by $11.9 million of expenses within Noninterest income, while gross interchange income for 2018 was $31.3 million, and was partially offset by $11.0 million of expenses within Noninterest income.

Other. Other noninterest income consists of other recurring revenue streams such as transaction fees, safe deposit rental income, insurance commissions, merchant referral income, gain (loss) on sale of OREO and brokerage revenue. Transaction fees primarily include check printing sales commissions, collection fees and wire transfer fees which arise from in-branch transactions. Safe deposit rental income arises from fees charged to the customer on an annual basis and recognized upon receipt of payment. Insurance commissions are agent commissions earned by the Company and earned upon the effective date of the bound coverage. Merchant referral income is associated with a program whereby the Company receives a share of processing revenue that is generated from clients that were referred by First Financial to the service provider. Revenue is recognized at the point in time when the transaction occurs.

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of the executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectibility of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer.

Brokerage revenue represents fees from investment brokerage services provided to customers by a third party provider. The Company receives commissions from the third-party service provider on a monthly basis based upon customer activity for the month. The fees are recognized monthly and a receivable is recorded until commissions are paid the following month. Because the Company (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers, investment brokerage fees are presented net of related costs.
First Financial Bancorp 2020 Annual Report 90

18. Accumulated Other Comprehensive Income (Loss)

Shareholders’ equity is affected by transactions and valuations of asset and liability positions that require adjustments to accumulated other comprehensive income (loss).  The related tax effects allocated to other comprehensive income and accumulated other comprehensive income (loss) are as follows:
  December 31, 2020
  Total other comprehensive income (loss) Total accumulated
other comprehensive income (loss)
(Dollars in thousands) Prior to
reclass 		Reclass
from 		Pre-tax Tax effect Net of tax Beginning balance Net activity Ending balance
Unrealized gain (loss) on debt securities $ 36,643  $ (4,563) $ 41,206  $ (8,894) $ 32,312  $ 41,264  $ 32,312  $ 73,576 
Unrealized gain (loss) on derivatives 0  0  0  0  0  0  0  0 
Retirement obligation 2,001  (1,921) 3,922  (893) 3,029  (27,941) 3,029  (24,912)
Total $ 38,644  $ (6,484) $ 45,128  $ (9,787) $ 35,341  $ 13,323  $ 35,341  $ 48,664 
  December 31, 2019
  Total other comprehensive income (loss) Total accumulated other
comprehensive income (loss)
(Dollars in thousands) Prior to
reclass 		Reclass
from 		Pre-tax Tax-effect Net of tax Beginning Balance Net Activity Cumulative effect of new standard Ending Balance
Unrealized gain (loss) on debt securities $ 65,858  $ (370) $ 66,228  $ (14,269) $ 51,959  $ (11,601) $ 51,959  $ 906  $ 41,264 
Unrealized gain (loss) on derivatives 281  0  281  (64) 217  (217) 217  0  0 
Retirement obligation 4,630  (1,390) 6,020  (1,371) 4,649  (32,590) 4,649  0  (27,941)
Total $ 70,769  $ (1,760) $ 72,529  $ (15,704) $ 56,825  $ (44,408) $ 56,825  $ 906  $ 13,323 
  December 31, 2018
  Total other comprehensive income (loss) Total accumulated other
comprehensive income (loss)
(Dollars in thousands) Prior to
reclass 		Reclass
from 		Pre-tax Tax-effect Net of tax Beginning Balance Net Activity Cumulative effect of new standard Ending Balance
Unrealized gain (loss) on debt securities $ (14,461) $ (161) $ (14,300) $ 3,071  $ (11,229) $ (182) $ (11,229) $ (190) $ (11,601)
Unrealized gain (loss) on derivatives 628  0  628  (144) 484  (577) 484  (124) (217)
Retirement obligation (12,319) (1,775) (10,544) 2,364  (8,180) (19,631) (8,180) (4,779) (32,590)
Total $ (26,152) $ (1,936) $ (24,216) $ 5,291  $ (18,925) $ (20,390) $ (18,925) $ (5,093) $ (44,408)

First Financial Bancorp 2020 Annual Report 91
Notes to Consolidated Financial Statements
The following table details the activity reclassified from accumulated other comprehensive income into income during the period:
Amount Reclassified from Accumulated Other Comprehensive Income (1)
December 31,
(Dollars in thousands) 2020 2019 2018 Affected Line Item in the Consolidated Statements of Income
Realized gains and losses on securities available-for-sale $ (4,563) $ (370) $ (161) Net gain (loss) on sales of investment securities
Defined benefit pension plan
Amortization of prior service cost (2)
413  413  413  Other noninterest expense
Recognized net actuarial loss (2)
(2,334) (1,803) (2,188) Other noninterest expense
Amortization and settlement charges of defined benefit pension items (1,921) (1,390) (1,775)
Total reclassifications for the period, before tax $ (6,484) $ (1,760) $ (1,936)

(1) Negative amounts are debits to profit/loss.
(2) Included in the computation of net periodic pension cost (see Note 16 - Employee Benefit Plans for additional details).

19. Capital

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

The Board of Governors of the Federal Reserve System approved Basel III in order to strengthen the regulatory capital framework for all banking organizations, subject to a phase-in period for certain provisions.  Basel III established and defined quantitative measures to ensure capital adequacy. These measures require First Financial to maintain minimum amounts and ratios of Common equity Tier 1 capital, Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets (Leverage ratio).  

Basel III includes a minimum ratio of Common equity Tier 1 capital to risk-weighted assets of 7.00% and a fully phased-in capital conservation buffer of 2.5% of risk-weighted assets.  Further, the minimum ratio of Tier 1 capital to risk-weighted assets increased to 8.5% and all banks are subject to a 4.0% minimum leverage ratio.  The required Total risk-based capital ratio is 10.50%. Failure to maintain the required Common equity Tier 1 capital conservation buffer will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and pay discretionary compensation to its employees. The capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans.

As of December 31, 2020, management believes that First Financial met all capital adequacy requirements to which it was subject. To be categorized as well-capitalized, First Financial must maintain minimum Total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios as set forth in the table that follows. The Company's most recent regulatory notifications categorized First Financial as "well-capitalized" under the regulatory framework for prompt corrective action. There have been no conditions or events since those notifications that management believes have changed the Company's categorization. Total regulatory capital exceeded the minimum requirement by $566.8 million on a consolidated basis at December 31, 2020.  
92 First Financial Bancorp 2020 Annual Report

The following tables present the actual and required capital amounts and ratios as of December 31, 2020 and 2019 under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels based on the phase-in provisions of the Basel III Capital Rules as of the year presented. Capital levels required to be considered "well capitalized" are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
Actual Minimum capital
required - Basel III 		PCA requirement to be
considered well
capitalized
(Dollars in thousands) Capital
amount 		Ratio Capital
amount 		Ratio Capital
amount 		Ratio
December 31, 2020
Common equity tier 1 capital to risk-weighted assets
Consolidated $ 1,325,922  11.82  % $ 785,338  7.00  % N/A N/A
First Financial Bank 1,452,403  12.95  % 784,807  7.00  % $ 728,749  6.50  %
Tier 1 capital to risk-weighted assets
Consolidated 1,368,818  12.20  % 953,625  8.50  % N/A N/A
First Financial Bank 1,452,507  12.96  % 952,980  8.50  % 896,922  8.00  %
Total capital to risk-weighted assets
Consolidated 1,744,802  15.55  % 1,178,007  10.50  % N/A N/A
First Financial Bank 1,560,457  13.92  % 1,177,211  10.50  % 1,121,153  10.00  %
Leverage
Consolidated 1,368,818  9.55  % 573,526  4.00  % N/A N/A
First Financial Bank 1,452,507  10.14  % 573,094  4.00  % 716,367  5.00  %
 
Actual Minimum capital
required - Basel III 		PCA requirement to be
considered well
capitalized
(Dollars in thousands) Capital
amount 		Ratio Capital
amount 		Ratio Capital
amount 		Ratio
December 31, 2019
Common equity tier 1 capital to risk-weighted assets
Consolidated $ 1,245,746  11.30  % $ 771,666  7.00  % N/A N/A
First Financial Bank 1,333,978  12.11  % 770,997  7.00  % $ 715,926  6.50  %
Tier 1 capital to risk-weighted assets
Consolidated 1,288,185  11.69  % 937,023  8.50  % N/A N/A
First Financial Bank 1,334,082  12.11  % 936,211  8.50  % 881,140  8.00  %
Total capital to risk-weighted assets
Consolidated 1,475,813  13.39  % 1,157,498  10.50  % N/A N/A
First Financial Bank 1,399,817  12.71  % 1,156,496  10.50  % 1,101,425  10.00  %
Leverage
Consolidated 1,288,185  9.58  % 537,606  4.00  % N/A N/A
First Financial Bank 1,334,082  9.93  % 537,299  4.00  % 671,623  5.00  %

Share repurchases. In December 2020, First Financial's board of directors approved a stock repurchase plan, replacing the plan approved in 2019 which expired on December 31, 2020. The plan approved in 2020 will continue for two years and like the 2019 plan, authorizes the purchase of up to 5,000,000 shares of the Company's common stock. Under the 2019 plan, First Financial repurchased 880,000 shares at an average market price of $18.96 during 2020 and repurchased 2,753,272 shares at an
First Financial Bancorp 2020 Annual Report 93
Notes to Consolidated Financial Statements
average market price of $24.05 during 2019. Prior to the 2019 plan's expiration on December 31, 2020, it had 1,366,728 common shares available for repurchase. There were no share repurchases in 2018.

ATM Offering. In March 2017, First Financial initiated an "at-the-market" equity offering program to provide flexibility with respect to capital planning and to support future growth. First Financial was not active through the ATM program during the periods presented.

20. Stock Options and Awards

First Financial follows the provisions of FASB ASC Topic 718, Compensation-Stock Compensation, which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of compensation expense over the service period for all awards expected to vest. First Financial recorded share-based compensation expense within salaries and employee benefits on the Consolidated Statements of Income of $7.7 million, $8.0 million and $6.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, related to stock options and restricted stock awards. Total unrecognized compensation cost related to non-vested share-based compensation was $9.1 million at December 31, 2020 and is expected to be recognized over a weighted average period of 1.92 years.
 
As of December 31, 2020, First Financial had two active stock-based compensation plans, the Amended and Restated 2012 Stock Plan and the 2020 Stock Plan. New awards may only be granted from the 2020 Stock Plan. At December 31, 2020, there were 4,311,365 shares available for issuance under the 2020 Stock Plan.

In April 2018, in conjunction with the MSFG merger, First Financial assumed existing MSFG stock options, which were converted into options to purchase 83,551 shares of First Financial common stock. The converted MSFG options remain subject to all of the terms and conditions of the plan and grant agreements under which the MSFG Stock Options were originally issued. The assumed options were exercisable at the time of the merger and remain outstanding for 10 years after the initial grant date with all options expiring at the end of the exercise period. At December 31, 2020, 27,451 options were outstanding under the Plan, all of which expire on or before February 3, 2024.

First Financial utilizes the Black-Scholes valuation model to determine the fair value of stock options granted. In addition to the stock option strike price, the Black-Scholes valuation model incorporates the following assumptions: the expected dividend yield based on historical dividend payouts; the expected stock price volatility based on the historical volatility of Company stock for a period approximating the expected life of the options; the risk-free rate based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option; and the expected option life represented by the period of time the options are expected to be outstanding, and is based on historical trends. No new options were granted in 2020, 2019 or 2018.
 
Stock option activity for the year ended December 31, 2020, is summarized as follows:
(Dollars in thousands, except share and per share data) Number of shares Weighted
average exercise price 		Weighted average
remaining contractual life 		Aggregate intrinsic value
Outstanding at beginning of year 37,856  $ 9.54 
Granted 0 0.00 
Exercised (10,405) 6.92 
Forfeited or expired 0  0.00 
Outstanding at end of year 27,451  $ 10.53  2.53 years $ 192 
Exercisable at end of year 27,451  $ 10.53  2.53 years $ 192 

The intrinsic value of stock options is defined as the difference between the current market value and the exercise price. First Financial uses treasury shares purchased under the Company's share repurchase program to satisfy share-based exercises.
2020 2019 2018
Total intrinsic value of options exercised $ 86  $ 462  $ 734 
Cash received from exercises $ 72  $ 90  $ 284 
Tax benefit from exercises $ 1,776  $ 1,844  $ 1,439 
94 First Financial Bancorp 2020 Annual Report


Restricted stock awards are recorded at fair value as of the grant date as a component of shareholders' equity and amortized on a straight-line basis to salaries and benefits expense over the specified vesting periods, which is currently three years for employees and one year for non-employee directors. The vesting of these awards for employees and non-employee directors may require a service period to be met, and certain awards may also require performance measures to be met.
 
Activity in restricted stock for the previous three years ended December 31 is summarized as follows:
2020 2019 2018
Number of shares Weighted
 average
grant date
fair value 		Number of shares Weighted
 average
grant date
fair value 		Number of shares Weighted
 average
grant date
fair value
Nonvested at beginning of year 530,569  $ 27.19  462,446  $ 26.39  468,372  $ 21.63 
Granted 503,311  18.62  395,023  26.55  303,930  28.94 
Vested (233,828) 26.07  (295,633) 24.94  (267,031) 20.94 
Forfeited (36,769) 23.79  (31,267) 28.63  (42,825) 26.38 
Nonvested at end of year 763,283  $ 22.04  530,569  $ 27.19  462,446  $ 26.39 

The fair value of restricted stock is determined based on the number of shares granted and the quoted price of First Financial's common stock. The fair value of restricted stock vested during 2020, 2019 and 2018 was $6.1 million, $7.4 million and $5.6 million, respectively.

21. Earnings per Common Share

The following table sets forth the computation of basic and diluted earnings per share:
(Dollars in thousands, except share and per share data) 2020 2019 2018
Numerator
Net income $ 155,810  $ 198,075  $ 172,595 
Denominator
Basic earnings per common share - weighted average shares 97,363,952  98,305,570  88,582,090 
Effect of dilutive securities
Employee stock awards 729,146  545,901  514,680 
Warrants 0  0  517,435 
Diluted earnings per common share - adjusted weighted average shares 98,093,098  98,851,471  89,614,205 
Earnings per share available to common shareholders
Basic $ 1.60  $ 2.01  $ 1.95 
Diluted $ 1.59  $ 2.00  $ 1.93 

First Financial had no warrants outstanding to purchase the Company's common stock as of December 31, 2020 or 2019. Warrants acquired in the MSFG merger were outstanding as of December 31, 2018 and represented the right to purchase 804,858 shares of First Financial's common stock at an exercise price of $10.62 per share. These warrants were exercised in January 2019.

If applicable, stock options and warrants with exercise prices greater than the average market price of the common shares are excluded from the computation of net income per diluted share, as they would be antidilutive.  Using the end of period price of the Company's common shares, there were no antidilutive options at December 31, 2020, 2019, or 2018.

As of December 31, 2020, 2019, and 2018, First Financial was authorized to issue 10,000,000 preferred shares; however, no preferred shares were issued or outstanding.
First Financial Bancorp 2020 Annual Report 95
Notes to Consolidated Financial Statements
22. Fair Value Disclosures

The fair value framework as disclosed in the Fair Value Topic includes a hierarchy which focuses on prioritizing the inputs used in valuation techniques.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1), a lower priority to observable inputs other than quoted prices in active markets for identical assets and liabilities (Level 2) and the lowest priority to unobservable inputs (Level 3).  When determining the fair value measurements for assets and liabilities, First Financial looks to active markets to price identical assets or liabilities whenever possible and classifies such items in Level 1.  When identical assets and liabilities are not traded in active markets, First Financial looks to observable market data for similar assets and liabilities and classifies such items as Level 2.  Certain assets and liabilities are not actively traded in observable markets and First Financial must use alternative techniques, based on unobservable inputs, to determine the fair value and classifies such items as Level 3. The level within the fair value hierarchy is based on the lowest level of input that is significant in the fair value measurement.

The estimated fair values of First Financial's financial instruments not measured at fair value on a recurring or nonrecurring basis in the consolidated financial statements were as follows:
Carrying Estimated fair value
(Dollars in thousands) value Total Level 1 Level 2 Level 3
December 31, 2020
Financial assets    
Cash and short-term investments $ 251,359  $ 251,359  $ 251,359  $ 0  $ 0 
Investment securities held-to-maturity 131,687  136,698  0  136,698  0 
Other investments 133,198  133,198  837  122,953  9,408 
Loans and leases 9,725,291  9,743,497  0  0  9,743,497 
Accrued interest receivable 50,903  50,903  0  13,221  37,682 
Financial liabilities    
Deposits 12,232,003  12,238,058  0  12,238,058  0 
Short-term borrowings 166,594  166,594  166,594  0  0 
Long-term debt 776,202  774,674  0  774,674  0 
Accrued interest payable 6,240  6,240  14  6,226  0 

Carrying Estimated Fair Value
(Dollars in thousands) Value Total Level 1 Level 2 Level 3
December 31, 2019
Financial assets
Cash and short-term investments $ 257,639  $ 257,639  $ 257,639  $ 0  $ 0 
Investment securities held-to-maturity 142,862  142,821  0  142,821  0 
Other investments 125,020  125,020  699  123,821  500 
Loans and leases 9,144,015  9,134,215  0  0  9,134,215 
Accrued interest receivable 39,591  39,591  0  12,743  26,848 
Financial liabilities
Deposits 10,210,229  10,209,790  0  10,209,790  0 
Short-term borrowings 1,316,181  1,316,181  1,316,181  0  0 
Long-term debt 414,376  414,937  0  414,937  0 
Accrued interest payable 13,671  13,671  1,899  11,772  0 

The following methods, assumptions and valuation techniques were used by First Financial to measure different financial assets and liabilities at fair value on a recurring or nonrecurring basis.

Investment securities. Investment securities classified as available-for-sale are recorded at fair value on a recurring basis.  Fair value measurement is based upon quoted market prices, when available (Level 1).  If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar investment securities.  First Financial compiles prices from various sources who may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2).  Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for the specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities.  Any investment securities not valued based upon the methods previously described are considered Level 3.

First Financial utilizes values provided by third-party pricing vendors to price the investment securities portfolio in accordance with the fair value hierarchy of the Fair Value Topic and reviews the pricing methodologies utilized by the pricing vendors to ensure that the fair value determination is consistent with the applicable accounting guidance.  First Financial’s pricing process includes a series of quality assurance activities where prices are compared to recent market conditions, historical prices and other independent pricing services.  Further, the Company periodically validates the fair value of a sample of securities in the portfolio by comparing the fair values to prices from other independent sources for the same or similar securities.  First Financial analyzes unusual or significant variances, conducts additional research with the pricing vendor, and if necessary, takes appropriate action based on its findings.  The results of the quality assurance process are incorporated into the selection of pricing providers by the portfolio manager.

Loans held for sale. The fair value of the Company’s residential mortgage loans held for sale is determined on a recurring basis based on quoted prices for similar loans in active markets, and therefore, is classified as a Level 2 measurement.

Derivatives. The fair values of derivative instruments are based primarily on a net present value calculation of the cash flows related to the interest rate swaps and foreign exchange contracts at the reporting date, using primarily observable market inputs such as interest rate yield curves and currency exchange rates, which represents the cost to terminate the swap if First Financial should choose to do so. Additionally, First Financial utilizes an internally-developed model to value the credit risk component of derivative assets and liabilities, which is recorded as an adjustment to the fair value of the derivative asset or liability on the reporting date. Derivative instruments are classified as Level 2 in the fair value hierarchy.

Collateral dependent loans. Collateral dependent loans carried at fair value have been partially charged-off or receive specific allocations of the allowance for credit losses. For collateral dependent loans, fair value is generally based on real estate appraisals, a calculation of enterprise value or a valuation of business assets including equipment, inventory and accounts receivable. These loans had a principal amount of $45.3 million, with a valuation allowance of $13.5 million at December 31, 2020.

The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed third-party appraiser (Level 3). These appraisals may utilize a single valuation approach or a combination of approaches including the comparable sales approach and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Collateral is then adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Collateral dependent loans are evaluated on a quarterly basis for additional write-downs and are adjusted accordingly.

Enterprise value is defined as imputed value for the entire underlying business. To determine an appropriate range of enterprise value, FFB relies on a standardized set of valuation methodologies that take into account future projected cash flows, market based multiples as well as asset values. Valuations involve both quantitative and qualitative considerations and professional judgments concerning differences in financial and operating characteristics in addition to other factors that may impact values over time (Level 3).

The value of business equipment is based on an outside appraisal, if deemed significant, or the net book value on the applicable borrower financial statements.  Likewise, values for inventory and accounts receivable collateral are based on borrower financial statement balances or aging reports on a discounted basis as appropriate (Level 3).  

The fair value of collateral dependent loans is measured at fair value on a nonrecurring basis.  Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

OREO. Assets acquired through loan foreclosure are recorded at fair value less costs to sell, with any difference between the fair value of the property and the carrying value of the loan recorded as a charge-off. If the fair value is higher than the carrying amount of the loan, the excess is recognized first as a recovery and then as noninterest income. Subsequent declines in value are reported as adjustments to the carrying amount and are recorded in noninterest expense. The carrying value of OREO is not re-measured to fair value on a recurring basis, but is subject to fair value adjustments when the carrying value differs from the fair value, less estimated selling costs. Fair value is based on recent real estate appraisals and is updated at least annually. The Company classifies OREO in level 3 of the fair value hierarchy.

The financial assets and liabilities measured at fair value on a recurring basis, including those for which we elected the fair value option, were as follows:
  Fair Value Measurements Using Assets/Liabilities
(Dollars in thousands) Level 1 Level 2 Level 3 at Fair Value
December 31, 2020
Assets        
Investment securities available-for-sale $ 103  $ 3,383,902  $ 40,575  $ 3,424,580 
Loans held for sale 0  41,103  0  41,103 
Interest rate derivative contracts 0  185,032  0  185,032 
Foreign exchange derivative contracts 0  87,615  0  87,615 
Total $ 103  $ 3,697,652  $ 40,575  $ 3,738,330 
Liabilities        
Interest rate derivative contracts $ 0  $ 186,124  $ 0  $ 186,124 
Foreign exchange derivative contracts 0  87,615  0  87,615 
Total $ 0  $ 273,739  $ 0  $ 273,739 


  Fair Value Measurements Using Assets/Liabilities
(Dollars in thousands) Level 1 Level 2 Level 3 at Fair Value
December 31, 2019
Assets        
Investment securities available-for-sale $ 100  $ 2,842,794  $ 9,190  $ 2,852,084 
Loans held for sale 0  13,680  0  13,680 
Interest rate derivative contracts 0  73,558  0  73,558 
Foreign exchange derivative contracts 0  39,172  0  39,172 
Total $ 100  $ 2,969,204  $ 9,190  $ 2,978,494 
Liabilities        
Interest rate derivative contracts $ 0  $ 73,750  $ 0  $ 73,750 
Foreign exchange derivative contracts 0  39,172  0  39,172 
Total $ 0  $ 112,922  $ 0  $ 112,922 
The following table presents a reconciliation for certain AFS securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2020.
(dollars in thousands) December 31, 2020 December 31, 2019
Beginning balance $ 9,190  $ 14,715 
Accretion (amortization) 1  (552)
Increase (decrease) in fair value (17) 30 
Purchases (settlements) 31,401  (5,003)
Ending balance $ 40,575  $ 9,190 

Certain financial assets and liabilities are measured at fair value on a nonrecurring basis.  Adjustments to the fair market value of these assets usually result from the application of fair value accounting or write-downs of individual assets.  The following table summarizes financial assets and liabilities measured at fair value on a nonrecurring basis:
  Fair Value Measurements Using
(Dollars in thousands) Level 1 Level 2 Level 3
December 31, 2020
Assets      
Collateral dependent loans
Commercial $ 0  $ 0  $ 25,367 
Commercial real estate 0  0  6,432 
OREO 0  0  54 
  Fair Value Measurements Using
(Dollars in thousands) Level 1 Level 2 Level 3
December 31, 2019
Assets      
Collateral dependent loans
Commercial $ 0  $ 0  $ 8,710 
Commercial real estate 0  0  558 
OREO 0  0  1,088 

Fair value option. First Financial may elect to report most financial instruments and certain other items at fair value on an instrument-by instrument basis with changes in fair value reported in net income. After the initial adoption, the election is made at the acquisition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not be revoked once an election is made.

The Company elected the fair value option for residential mortgage loans held for sale. This election allows for a more effective offset of the changes in fair values of the loans held for sale and the derivative financial instruments used to financially hedge them without having to apply complex hedge accounting requirements. As noted above, the fair value of the Company’s residential mortgage loans held for sale was determined based on quoted prices for similar loans in active markets.

The aggregate fair value of the Company’s residential mortgage loans held for sale as of December 31, 2020 and 2019 was $41.1 million and $13.7 million, respectively. The aggregate unpaid principal balance of the Company’s residential mortgage loans held for sale as of December 31, 2020 and 2019 was $35.5 million and $12.7 million, respectively. The resulting difference between the aggregate fair value and the aggregate remaining principal balance for loans for which the fair value option has been elected was $5.6 million and $0.9 million as of December 31, 2020 and 2019, respectively.

Changes in the estimated fair value of residential mortgage loans held for sale are reported as a component of Net gain from sales of loans in the Company’s consolidated statements of income. For the year ended December 31, 2020, the net gain from the change in fair value of the Company’s residential mortgage loans held for sale was $4.6 million. For the year ended December 31, 2019, the net gain from the change in fair value of the Company’s residential mortgage loans held for sale was insignificant.
First Financial Bancorp 2020 Annual Report 96

23. Business Combination

In August, 2019, the Company completed its acquisition of Bannockburn Global Forex, LLC. Pursuant to the acquisition agreement, First Financial agreed to acquire all of the issued and outstanding membership interests of BGF for aggregate consideration of approximately $114.6 million consisting of $53.7 million in cash and $60.9 million of First Financial common stock. BGF was a privately held capital markets trading firm specializing in foreign currency advisory, hedge analytics and transaction processing for closely held enterprises.  Upon completion of the transaction, Bannockburn became a division of the Bank, but continues to operate as Bannockburn Global Forex, taking advantage of its existing brand recognition within the foreign exchange industry.

The Bannockburn transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed were $74.9 million and $18.4 million, respectively, and were subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values became available.  The fair value of assets acquired and liabilities assumed were considered final as of August 2020. Goodwill arising from the BGF acquisition was $58.0 million and reflects the business’s high growth potential and the expectation that the acquisition will provide additional revenue growth and diversification. The goodwill is deductible for income tax purposes as the transaction is considered a taxable exchange.  For further detail, see Note 9 – Goodwill and Other Intangible Assets.

In April 2018, First Financial completed its acquisition of MainSource Financial Group, Inc. and its banking subsidiary, MainSource Bank. Under the terms of the merger agreement, shareholders of MSFG received 1.3875 common shares of First Financial common stock for each share of MSFG common stock, with cash paid in lieu of fractional shares. Including outstanding options and warrants to purchase MSFG common stock, the total purchase consideration was $1.1 billion and resulted in goodwill of $675.6 million. The goodwill arising from the acquisition largely reflected synergies and cost savings resulting from combining the operations of the companies. First Financial incurred merger related expenses related to the MSFG acquisition of $3.2 million and $37.8 million during the years ended December 31, 2019 and 2018, respectively.

The MSFG acquisition provided additional revenue growth and diversification. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange. For further detail, see Note 9 – Goodwill and Other Intangible Assets.

The MainSource transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date, in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed were subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values became available.  The fair values of assets acquired and liabilities assumed were considered final as of March 31, 2019.

First Financial Bancorp 2020 Annual Report 97

The following table provides the purchase price calculation as of the acquisition date, identifiable assets purchased and liabilities assumed at their estimated fair value for the MSFG merger. As a condition of the merger, certain acquired assets and liabilities held for sale were divested subsequent to the closing of the merger. There was no gain or loss recorded in the Consolidated Statement of Income in conjunction with this divestiture.
(Dollars in thousands) MainSource
Purchase consideration
Cash consideration $ 43 
Stock consideration 1,043,424 
Warrant consideration 14,460 
Options consideration 1,577 
Total purchase consideration 1,059,504 
Assets acquired
Cash 71,806 
Investment securities available-for-sale 900,935 
Investment securities held-to-maturity 171,423 
Other investments 28,763 
Loans 2,792,572 
Premises and equipment 98,814 
Intangible assets 42,887 
Other assets 167,829 
Assets held for sale 127,775 
Total assets acquired 4,402,804 
Liabilities assumed
Deposits 3,263,920 
Subordinated notes 49,027 
FHLB advances 291,887 
Other borrowings 205,620 
Other liabilities 32,649 
Liabilities held for sale 175,840 
Total liabilities assumed 4,018,943 
Net identifiable assets 383,861 
Goodwill $ 675,643 

The fair value of net assets acquired includes fair value adjustments to certain loans that were not considered impaired as of the acquisition date as the Company believes that all contractual cash flows will be collected. The fair value adjustments were determined using discounted cash flows. In conjunction with the MSFG merger, First Financial acquired non-impaired loans with a fair value and gross contractual amounts receivable of $2.8 billion and $2.9 billion, respectively.

First Financial Bancorp 2020 Annual Report 98

The following table presents supplemental pro forma information as if the MSFG acquisition had occurred at the beginning of 2017. The pro forma information includes adjustments for interest income on acquired loans, amortization of intangible assets arising from the transaction, depreciation expense on property acquired, interest expense on deposits acquired, merger-related expenses incurred and the related income tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed date. The disclosures regarding the results of operations for MSFG subsequent to its acquisition date are omitted as this information is not practical to obtain.
Twelve months ended
December 31,
(Dollars in thousands, except per share data) (Unaudited) 2018 2017
Pro Forma Condensed Combined Income Statement Information
Net interest income $ 484,915  $ 454,579 
Net income $ 221,122  $ 130,402 
Basic earnings per share $ 2.27  $ 1.34 
Diluted earnings per share $ 2.25  $ 1.33 

24. First Financial Bancorp. (Parent Company Only) Financial Information

Balance Sheets
December 31,
(Dollars in thousands) 2020 2019
Assets
Cash $ 172,902  $ 55,869 
Investment securities 1,388  1,116 
Subordinated notes from subsidiaries 7,500  7,500 
Investment in subsidiaries
Commercial bank 2,346,009  2,272,991 
Non-banks 9,559  8,260 
Total investment in subsidiaries 2,355,568  2,281,251 
Premises and equipment 1,328  1,344 
Other assets 68,812  77,572 
Total assets $ 2,607,498  $ 2,424,652 
Liabilities
Subordinated notes $ 320,615  $ 171,983 
Dividends payable 674  849 
Other liabilities 4,139  4,115 
Total liabilities 325,428  176,947 
Shareholders’ equity 2,282,070  2,247,705 
Total liabilities and shareholders’ equity $ 2,607,498  $ 2,424,652 

First Financial Bancorp 2020 Annual Report 99

Statements of Income and Comprehensive Income
Years Ended December 31,
(Dollars in thousands) 2020 2019 2018
Income
Interest income $ 27  $ 30  $ 23 
Noninterest income 272  191  0 
Dividends from subsidiaries 81,725  196,800  107,340 
Total income 82,024  197,021  107,363 
Expenses
Interest expense 14,172  9,552  8,798 
Salaries and employee benefits 8,004  8,169  6,413 
Professional services 1,160  1,040  5,130 
Other 5,163  6,599  5,648 
Total expenses 28,499  25,360  25,989 
Income before income taxes and equity in undistributed net earnings of subsidiaries
53,525  171,661  81,374 
Income tax expense (benefit) (6,145) (5,975) (6,687)
Equity in undistributed earnings (loss) of subsidiaries 96,140  20,439  84,534 
Net income $ 155,810  $ 198,075  $ 172,595 
Comprehensive income $ 191,151  $ 254,900  $ 153,670 
 

  
First Financial Bancorp 2020 Annual Report 100
Notes to Consolidated Financial Statements
Statements of Cash Flows
Years Ended December 31,
(Dollars in thousands) 2020 2019 2018
Operating activities
Net income $ 155,810  $ 198,075  $ 172,595 
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed (earnings) loss of subsidiaries (96,140) (20,439) (84,534)
Depreciation and amortization 712  584  194 
Stock-based compensation expense 7,678  7,969  6,219 
Deferred income taxes (158) 1,255  739 
(Decrease) increase in dividends payable (175) 384  (10,500)
(Decrease) increase in other liabilities (22) (244) 9,979 
Decrease (increase) in other assets 8,635  (7,187) 16,346 
Net cash provided by (used in) operating activities 76,340  180,397  111,038 
Investing activities
Capital contributions to subsidiaries 0  0  (3,000)
Net cash acquired (paid) in business combinations 0  (53,660) 11,353 
Proceeds from sales and maturities of investment securities 0  264  0 
Purchases of investment securities 0  (500) 0 
Net cash (used in) provided by investing activities 0  (53,896) 8,353 
Financing activities
  (Decrease) increase in short-term borrowings 0  0  (8,333)
Proceeds from long-term borrowings 150,000  0  0 
Cash dividends paid on common stock (89,691) (89,097) (79,655)
Purchases of common stock (16,686) (66,218) 0 
Proceeds from exercise of stock options, net of shares purchased 72  90  284 
Other (3,002) (2,285) (2,528)
Net cash provided by (used in) financing activities 40,693  (157,510) (90,232)
Net increase (decrease) in cash 117,033  (31,009) 29,159 
Cash at beginning of year 55,869  86,878  57,719 
Cash at end of year $ 172,902  $ 55,869  $ 86,878 


101 First Financial Bancorp 2020 Annual Report

Quarterly Financial And Common Stock Data (Unaudited)
Three months ended
(Dollars in thousands, except per share data) December 31 September 30 June 30 March 31
2020
Interest income $ 130,029  $ 126,070  $ 129,360  $ 139,504 
Interest expense 11,556  13,890  17,784  25,222 
Net interest income 118,473  112,180  111,576  114,282 
Provision for loan and lease losses 11,508  13,374  20,229  25,448 
Noninterest income 61,515  49,499  42,725  35,384 
Noninterest expenses 114,798  97,511  88,689  89,666 
Income before income taxes 53,682  50,794  45,383  34,552 
Income tax expense 5,370  9,317  7,990  5,924 
Net income $ 48,312  $ 41,477  $ 37,393  $ 28,628 
Earnings per common share:
Basic $ 0.50  $ 0.43  $ 0.38  $ 0.29 
Diluted $ 0.49  $ 0.42  $ 0.38  $ 0.29 
Cash dividends paid per common share $ 0.23  $ 0.23  $ 0.23  $ 0.23 
Market price
High $ 17.77  $ 15.15  $ 16.38  $ 25.52 
Low $ 12.07  $ 11.40  $ 11.52  $ 12.67 
2019
Interest income $ 147,651  $ 153,645  $ 154,523  $ 151,759 
Interest expense 28,749  32,110  32,221  30,244 
Net interest income 118,902  121,535  122,302  121,515 
Provision for loan and lease losses 4,629  5,228  6,658  14,083 
Noninterest income 36,768  33,140  34,638  26,827 
Noninterest expenses 93,064  86,226  84,378  78,499 
Income before income taxes 57,977  63,221  65,904  55,760 
Income tax expense 9,300  12,365  13,201  9,921 
Net income $ 48,677  $ 50,856  $ 52,703  $ 45,839 
Earnings per common share:
Basic $ 0.49  $ 0.52  $ 0.54  $ 0.47 
Diluted $ 0.49  $ 0.51  $ 0.53  $ 0.47 
Cash dividends paid per common share $ 0.23  $ 0.23  $ 0.22  $ 0.22 
Market price
High $ 26.04  $ 25.49  $ 25.80  $ 28.56 
Low $ 23.24  $ 22.37  $ 22.16  $ 23.02 

First Financial Bancorp common stock trades on the Nasdaq Stock Market under the symbol FFBC.
First Financial Bancorp 2020 Annual Report 102


Total Return to Shareholders

The following graph compares the five-year cumulative total return to shareholders of First Financial Bancorp common stock with that of companies that comprise the Nasdaq Composite Index and the KBW Regional Bank Index. The KBW Regional Bank Index is comprised of 50 banks headquartered throughout the country and is used frequently by investors when comparing First Financial Bancorp's stock performance to that of other similarly sized institutions. First Financial Bancorp is included in the KBW Regional Bank Index.

The following table assumes $100 invested on December 31, 2015 in First Financial Bancorp, the Nasdaq Composite Index and the KBW Regional Bank Index, and assumes that dividends are reinvested.


COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG FIRST FINANCIAL BANCORP, NASDAQ COMPOSITE INDEX
AND KBW REGIONAL BANK INDEX

FFBC-20201231_G9.JPG
2015 2016 2017 2018 2019 2020
First Financial Bancorp 100.00  162.37  154.34  142.67  158.78  116.08 
Nasdaq Composite Index 100.00  108.97  141.36  137.38  187.86  272.49 
KBW Regional Bank Index 100.00  139.12  141.63  116.86  144.76  132.18 


103 First Financial Bancorp 2020 Annual Report

FFBC-20201231_G10.JPG
SHAREHOLDER INFORMATION Annual Meeting of Shareholders The annual meeting of shareholders will be held on Tuesday, May 25, 2021, at 10:00 AM (EDT) via a virtual shareholder meeting. Common Stock Listing First Financial Bancorp’s common stock trades on the Nasdaq Stock Market (NASDAQ) under the symbol FFBC. Registrar and Transfer Agent Computershare Shareholder Services serves as the registrar and transfer agent for First Financial Bancorp common stock for registered shareholders. Shareholder account inquiries, including changes of address or ownership, transferring stock and replacing lost certificates or dividend checks should be directed to Computershare Shareholder Services at: Transfer Agent Computershare Shareholder Services P.O. Box 505000 Louisville, KY 40233 (800) 368-5948 Shareholders of record can also access their shareholder account records and request information related to their shareholder account via the internet. To register for online account access, go to: www.computershare.com/investor. Dividend Reinvestment and Stock Purchase Plan Shareholders of record holding 25 shares or more are eligible to participate in our Dividend Reinvestment Plan. Shareholders of record may elect to have cash dividends automatically reinvested in additional common shares and can also purchase additional common shares by making optional cash payments. To obtain a prospectus, enroll in the plan, or to contact Investor Relations, please visit the Investor Relations section of our website at https://ir.bankatfirst.com/corporate-profile/default.aspx. Investor Relations Corporate and investor information, including news releases, webcasts, investor presentations, annual reports, proxy statements and SEC filings, as well as information on the Company’s corporate governance practices are available within the Investor Relations section of our website at https://ir.bankatfirst.com/ corporate-profile/default.aspx. Shareholders, analysts and other investment professionals who would like corporate and financial information on First Financial Bancorp should contact: James M. Anderson Chief Financial Officer First Financial Bancorp 255 East Fifth Street, 29th Floor Cincinnati, OH 45202 (513) 887-5400 Email: InvestorRelations@bankatfirst.com Securities and Exchange Commission Filings All reports filed electronically by First Financial Bancorp with the United States Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, as well as any amendments to those reports, are accessible at no cost within the Investor Relations section of our website at https://ir.bankatfirst.com/ corporate-profile/default.aspx, or by contacting Investor Relations. These filings are also accessible on the SEC’s website at www.sec.gov.


First Financial Bancorp 2020 Annual Report 104


FFBC-20201231_G11.JPG


First Financial Bancorp First Financial Bank First Financial Center 255 East Fifth Street Suite 800 Cincinnati, OH 45202-4248 www.bankatfirst.com


EXHIBIT 21


FIRST FINANCIAL BANCORP. SUBSIDIARIES (as of 12/31/20)
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
MSB Investments of Nevada, Inc. Nevada
MSB Holdings of Nevada, Inc. Nevada
MSB of Nevada, LLC Nevada
First Financial Preferred Capital, Inc. Ohio
Oak Street Holdings Corporation Delaware
Oak Street Funding LLC Delaware
Oak Street Servicing, LLC Delaware
CDE Fifty-One Service Corporation Indiana
FCBKY Holding, LLC Kentucky
Peoples Building and Savings Service Corporation of Troy, Ohio Ohio
MainSource Risk Management, Inc. Nevada
MainSource Statutory Trust I Connecticut
MainSource Statutory Trust II Connecticut
MainSource Statutory Trust III Delaware
MainSource Statutory Trust IV Delaware
FCB Bancorp Statutory Trust I Delaware
OSF Insurance Receivables, LLC Indiana





EXHIBIT 23



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
Form S-3 ASR No. 333-233701
Form S-8 No. 333-238698

of our report dated February 19, 2021 relating to the 2020 consolidated financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K.



        Crowe LLP

Indianapolis, Indiana
February 19, 2021




EXHIBIT 31.1

CERTIFICATIONS

I, Archie M. Brown, President and 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:  2/19/2021   /s/ Archie M. Brown
      Archie M. Brown
President and Chief Executive Officer



EXHIBIT 31.2

CERTIFICATIONS

I, James M. Anderson, Executive 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:  2/19/2021   /s/ James M. Anderson
      James M. Anderson
Executive 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, 2020, of First Financial Bancorp. (the “Company”), as filed with the Securities and Exchange Commission on February 19, 2021 (the “Report”), I, Archie M. Brown, President and 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/ Archie M. Brown
Archie M. Brown
President and Chief Executive Officer
 
February 19, 2021



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, 2020, of First Financial Bancorp. (the “Company”), as filed with the Securities and Exchange Commission on February 19, 2021 (the “Report”), I, James M. Anderson, Executive 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/ James M. Anderson
James M. Anderson
Executive Vice President and Chief Financial Officer
 
February 19, 2021