First Financial Bancorp.(US:FFBC)2021-11-03 16:00markdown PART I - FINANCIAL INFORMATION This section provides comprehensive unaudited financial statements and management's detailed analysis of the company's financial condition and operational results [Item 1 - Financial Statements](index=5&type=section&id=Item%201%20-%20Financial%20Statements) This section presents the unaudited consolidated financial statements, including the balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, recent accounting standards, and specific financial instrument disclosures [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates Consolidated Balance Sheets Summary | Metric | Sep 30, 2021 (Unaudited) (in thousands) | Dec 31, 2020 (in thousands) | | :----- | :-------------------------------------- | :-------------------------- | | **Assets (in thousands):** | | | | Cash and due from banks | $209,748 | $231,054 | | Interest-bearing deposits with other banks | $29,799 | $20,305 | | Investment securities available-for-sale, at fair value | $4,114,094 | $3,424,580 | | Investment securities held-to-maturity | $103,886 | $131,687 | | Other investments | $97,831 | $133,198 | | Loans held for sale, at fair value | $33,835 | $41,103 | | Total loans and leases | $9,360,931 | $9,900,970 | | Less: Allowance for credit losses | $(148,903) | $(175,679) | | Net loans and leases | $9,212,028 | $9,725,291 | | Premises and equipment | $192,580 | $207,211 | | Goodwill | $937,771 | $937,771 | | Other intangibles | $56,811 | $64,552 | | Accrued interest and other assets | $968,210 | $1,056,382 | | **Total assets** | **$15,956,593** | **$15,973,134** | | **Liabilities (in thousands):** | | | | Interest-bearing demand | $2,916,860 | $2,914,787 | | Savings | $4,223,905 | $3,680,774 | | Time | $1,517,419 | $1,872,733 | | Total interest-bearing deposits | $8,658,184 | $8,468,294 | | Noninterest-bearing | $4,019,197 | $3,763,709 | | Total deposits | $12,677,381 | $12,232,003 | | Federal funds purchased and securities sold under agreements to repurchase | $81,850 | $166,594 | | FHLB short-term borrowings | $107,000 | $0 | | Total short-term borrowings | $188,850 | $166,594 | | Long-term debt | $313,230 | $776,202 | | Total borrowed funds | $502,080 | $942,796 | | Accrued interest and other liabilities | $540,962 | $516,265 | | **Total liabilities** | **$13,720,423** | **$13,691,064** | | **Shareholders' equity (in thousands):** | | | | Common stock - no par value | $1,637,065 | $1,638,947 | | Retained earnings | $812,082 | $720,429 | | Accumulated other comprehensive income (loss) | $14,230 | $48,664 | | Treasury stock, at cost | $(227,207) | $(125,970) | | **Total shareholders' equity** | **$2,236,170** | **$2,282,070** | | **Total liabilities and shareholders' equity** | **$15,956,593** | **$15,973,134** | [Consolidated Statements of Income](index=7&type=section&id=Consolidated%20Statements%20of%20Income) This section presents the company's revenues, expenses, and net income over specific periods, reflecting operational profitability Consolidated Statements of Income Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Interest Income | $120,821 | $126,070 | $365,344 | $394,934 | | Total Interest Expense | $7,411 | $13,890 | $24,032 | $56,896 | | Net Interest Income | $113,410 | $112,180 | $341,312 | $338,038 | | Provision for credit losses - loans and leases | $(8,193) | $15,299 | $(9,499) | $57,038 | | Total Noninterest Income | $42,537 | $49,499 | $125,846 | $127,608 | | Total Noninterest Expenses | $99,058 | $97,511 | $291,207 | $275,866 | | Net Income | $60,012 | $41,477 | $158,215 | $107,498 | | Net earnings per common share - basic | $0.64 | $0.43 | $1.65 | $1.10 | | Net earnings per common share - diluted | $0.63 | $0.42 | $1.64 | $1.10 | [Consolidated Statements of Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section details net income and other comprehensive income items, such as unrealized gains/losses on securities, to arrive at total comprehensive income Consolidated Statements of Comprehensive Income Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $60,012 | $41,477 | $158,215 | $107,498 | | Unrealized gain (loss) on debt securities arising during the period | $(16,943) | $5,434 | $(35,693) | $27,861 | | Change in retirement obligation | $438 | $401 | $1,259 | $1,082 | | Other comprehensive income (loss) | $(16,505) | $5,835 | $(34,434) | $28,943 | | Comprehensive income | $43,507 | $47,312 | $123,781 | $136,441 | [Consolidated Statements of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) This section outlines changes in the company's equity accounts, including common stock, retained earnings, and other comprehensive income, over time Consolidated Statements of Changes in Shareholders' Equity Summary (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Total Shareholders' Equity | $2,236,170 | $2,282,070 | | Net income (9 months) | $158,215 | $107,498 | | Other comprehensive income (loss) (9 months) | $(34,434) | $(28,943) | | Cash dividends declared (9 months) | $(66,562) | $(67,381) | | Purchase of common stock (9 months) | $(108,077) | $(16,686) | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the cash generated and used by the company across operating, investing, and financing activities Consolidated Statements of Cash Flows Data (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by (used in) operating activities | $284,044 | $(43,869) | | Net cash provided by (used in) investing activities | $(135,610) | $(1,080,913) | | Net cash provided by (used in) financing activities | $(169,740) | $1,131,219 | | Change in cash and due from banks | $(21,306) | $6,437 | | Cash and due from banks at end of period | $209,748 | $207,128 | [Notes to Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The interim financial statements are prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, and should be read in conjunction with the 2020 Form 10-K. Management believes all necessary adjustments for fair presentation have been made[24](index=24&type=chunk) The COVID-19 pandemic significantly impacted operations and financial results in 2020 and the first nine months of 2021, with potential for material adverse effects on business operations, asset valuations, financial condition, and results of operations due to prolonged disruption[26](index=26&type=chunk) [NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=13&type=section&id=NOTE%201%3A%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines the basis of presentation for the consolidated financial statements, the use of management estimates, and the significant impact of the COVID-19 pandemic on the company's operations and financial results, highlighting potential adverse effects on asset valuations and customer obligations - Consolidated financial statements include First Financial Bancorp. and its wholly-owned subsidiary, First Financial Bank, with all significant intercompany transactions eliminated[23](index=23&type=chunk) - The preparation of financial statements requires management to make subjective estimates, assumptions, and judgments that could differ materially from actual realized amounts[25](index=25&type=chunk) - The COVID-19 pandemic has caused significant economic disruption, potentially impairing customers' ability to fulfill contractual obligations and leading to material adverse effects on business operations, asset valuations, financial condition, and results of operations[26](index=26&type=chunk) [NOTE 2: ACCOUNTING STANDARDS RECENTLY ADOPTED OR ISSUED](index=13&type=section&id=NOTE%202%3A%20ACCOUNTING%20STANDARDS%20RECENTLY%20ADOPTED%20OR%20ISSUED) This note details the adoption of ASU 2019-12 (Income Taxes) in Q1 2021, which had no material impact, and ASU 2016-13 (CECL) in January 2020. The CECL adoption replaced the incurred loss methodology with an expected loss methodology, resulting in a **$56.9 million** net decrease to retained earnings and a **$61.5 million** increase to the Allowance for Credit Losses (ACL) as of January 1, 2020. The company is adopting the CECL capital transition relief over five years - Adopted ASU 2019-12 (Income Taxes) in Q1 2021, which did not have a material impact on financial statements[27](index=27&type=chunk) - Adopted ASU 2016-13 (CECL) on January 1, 2020, replacing the incurred loss methodology with an expected loss methodology for financial assets at amortized cost and off-balance sheet credit exposures[28](index=28&type=chunk) NOTE 2: ACCOUNTING STANDARDS RECENTLY ADOPTED OR ISSUED Data (in thousands) | Metric (in thousands) | Pre-ASC 326 | Reported under ASC 326 | Impact of ASC 326 Adoption | | :-------------------- | :---------- | :--------------------- | :------------------------- | | Allowance for credit losses on loans | $57,650 | $119,155 | $61,505 | | Deferred tax liability | $33,030 | $16,252 | $(16,778) | | Allowance for credit losses on OBS credit exposures | $585 | $12,740 | $12,155 | - The company recorded a net decrease to retained earnings of **$56.9 million** as of January 1, 2020, due to the cumulative effect of adopting ASC 326[30](index=30&type=chunk) [NOTE 3: INVESTMENTS](index=14&type=section&id=NOTE%203%3A%20INVESTMENTS) The investment securities portfolio increased, with Available-for-Sale (AFS) securities totaling **$4.1 billion** at September 30, 2021, and Held-to-Maturity (HTM) securities at **$103.9 million**. The company recorded net realized losses on AFS securities for both the three and nine months ended September 30, 2021, and saw an increase in the number of securities in an unrealized loss position. No ACL was recorded for investment securities NOTE 3: INVESTMENTS Summary (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | AFS Investment Securities (Fair Value) | $4,114,094 | $3,424,580 | | HTM Investment Securities (Fair Value) | $105,679 | $136,698 | NOTE 3: INVESTMENTS Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Sales of AFS securities | $100,600 | $372,300 | $1,300 | $42,600 | | Gross realized gains on AFS | $2,800 | $6,300 | Insignificant | $100 | | Gross realized losses on AFS | $3,100 | $7,000 | Insignificant | $200 | - As of September 30, 2021, **240** out of **1,411** investment securities were in an unrealized loss position, compared to **94** out of **1,351** at December 31, 2020[41](index=41&type=chunk) - The company does not intend to sell, nor is it likely to be required to sell, temporarily impaired debt securities prior to maturity or recovery of recorded value, and recorded no reserves on investment securities for the periods presented[42](index=42&type=chunk) [NOTE 4: LOANS AND LEASES](index=17&type=section&id=NOTE%204%3A%20LOANS%20AND%20LEASES) First Financial offers diverse commercial and consumer loan products, with lending primarily concentrated in Ohio, Indiana, Kentucky, and Illinois, alongside nationwide platforms for franchise and insurance agent financing. PPP loans decreased significantly from **$594.6 million** at December 31, 2020, to **$175.7 million** at September 30, 2021. The company uses credit grades (Pass, Special Mention, Substandard, Doubtful) for commercial loans and repayment performance for consumer loans to monitor credit quality. Nonperforming loans, including TDRs, increased in total value, with a notable rise in TDRs - Lending activities are primarily concentrated in Ohio, Indiana, Kentucky, and Illinois, with nationwide platforms for equipment/leasehold financing for quick-service/casual dining franchisees and commission-based loans to insurance agents/brokers[48](index=48&type=chunk) NOTE 4: LOANS AND LEASES Data (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | PPP loans (net of unearned fees) | $175,700 | $594,600 | $(418,900) | - Commercial loans are categorized by credit grades: Pass, Special Mention, Substandard, and Doubtful. Consumer loans' credit quality is primarily indicated by repayment performance[50](index=50&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk)[57](index=57&type=chunk) NOTE 4: LOANS AND LEASES Data (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total TDRs | $31,800 | $21,800 | $10,000 | | Accrual TDRs | $11,400 | $7,100 | $4,300 | | Nonaccrual TDRs | $20,300 | $14,700 | $5,600 | | ACL related to TDRs | $6,300 | $8,800 | $(2,500) | - As of September 30, 2021, the loan portfolio included **$101.2 million** of active loan modifications under the CARES Act not classified as TDRs, concentrated in hotel (**$66.7 million**) and franchise (**$34.4 million**) loans[78](index=78&type=chunk) NOTE 4: LOANS AND LEASES Data (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Nonaccrual Loans | $65,966 | $80,752 | $(14,786) | | Total Nonperforming Loans (incl. TDRs) | $77,414 | $87,851 | $(10,437) | [NOTE 5: ALLOWANCE FOR CREDIT LOSSES](index=25&type=section&id=NOTE%205%3A%20ALLOWANCE%20FOR%20CREDIT%20LOSSES) The Allowance for Credit Losses (ACL) on loans and leases decreased to **$148.9 million** at September 30, 2021, from **$175.7 million** at December 31, 2020, primarily due to improvements in economic forecasts and the company's improved credit outlook. The ACL is estimated using a collective (pool) basis, incorporating historical experience, economic forecasts, and qualitative adjustments for specific risks like COVID-19 impacts on certain industries NOTE 5: ALLOWANCE FOR CREDIT LOSSES Data (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | ACL - loans and leases | $148,903 | $175,679 | $(26,776) | | ACL - unfunded commitments | $11,600 | $12,500 | $(900) | - The ACL declined due to improvements in economic forecasts and the Company's improved credit outlook, particularly related to the impact of the COVID-19 pandemic[108](index=108&type=chunk)[298](index=298&type=chunk) - The ACL is measured on a collective basis using historical credit loss experience, economic forecasts (Moody's September baseline forecast), and qualitative adjustments for conditions not captured by the model, including credit exposure to at-risk industries (franchise, hotel, investor commercial real estate) due to COVID-19[89](index=89&type=chunk)[107](index=107&type=chunk)[299](index=299&type=chunk) NOTE 5: ALLOWANCE FOR CREDIT LOSSES Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for credit losses - loans and leases | $(8,193) | $15,299 | $(9,499) | $57,038 | | Provision for credit losses - unfunded commitments | $(1,951) | $(1,925) | $(896) | $2,013 | | Total net charge-offs (loans and leases) | $(2,494) | $(5,416) | $(17,277) | $(7,649) | [NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS](index=29&type=section&id=NOTE%206%3A%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS) Goodwill remained unchanged at **$937.8 million** at September 30, 2021, with no impairment indicated in the most recent annual test. Other intangible assets, primarily core deposit and customer list intangibles, decreased from **$64.6 million** at December 31, 2020, to **$56.8 million** at September 30, 2021, due to amortization NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS Summary (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Goodwill | $937,771 | $937,771 | | Other Intangibles | $56,811 | $64,552 | - Goodwill is evaluated annually for impairment, with no impairment indicated as of October 1, 2020, or September 30, 2021[117](index=117&type=chunk) NOTE 6: GOODWILL AND OTHER INTANGIBLE ASSETS Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Amortization expense on intangible assets | $2,479 | $2,779 | $7,438 | $8,362 | [NOTE 7: LEASES](index=30&type=section&id=NOTE%207%3A%20LEASES) First Financial, primarily a lessee, recognized operating lease ROU assets of **$55.5 million** and corresponding lease liabilities of **$65.8 million** at September 30, 2021, following the adoption of Topic 842. Lease expense components include operating, short-term, and variable lease costs. The weighted-average remaining lease term is **13.6 years** with a weighted-average discount rate of **2.92%** - The company is primarily a lessee in its leasing agreements, mostly for real estate property (branches, ATMs, office space)[123](index=123&type=chunk) - Adoption of Topic 842 required recognition of operating lease ROU assets and corresponding lease liabilities on the balance sheet[124](index=124&type=chunk)[125](index=125&type=chunk) NOTE 7: LEASES Summary (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | ROU asset | $55,500 | $63,900 | | Lease liability | $65,800 | $71,700 | NOTE 7: LEASES Summary | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | Weighted-average remaining lease term | 13.6 years | 15.1 years | | Weighted-average discount rate | 2.92% | 3.07% | [NOTE 8: BORROWINGS](index=31&type=section&id=NOTE%208%3A%20BORROWINGS) Total borrowed funds decreased significantly from **$942.8 million** at December 31, 2020, to **$502.1 million** at September 30, 2021. This reduction was primarily driven by the repayment of **$435.0 million** in PPPLF advances and the redemption of **$8.4 million** in subordinated debt. Short-term borrowings increased due to FHLB advances, while long-term debt decreased overall NOTE 8: BORROWINGS Data (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Borrowed Funds | $502,080 | $942,796 | $(440,716) | | Short-term Borrowings | $188,850 | $166,594 | $22,256 | | Long-term Debt | $313,230 | $776,202 | $(462,972) | - The company had no outstanding PPPLF advances at September 30, 2021, compared to **$435.0 million** at December 31, 2020, due to repayment in conjunction with PPP loan reductions[137](index=137&type=chunk)[266](index=266&type=chunk) - Subordinated debt declined due to the redemption of **$8.4 million** of **6.00%** fixed rate private placement subordinated debt in Q1 2021[139](index=139&type=chunk)[267](index=267&type=chunk) - The company issued **$150.0 million** of fixed-to-floating rate subordinated notes in Q2 2020, maturing May 15, 2030, which are treated as Tier 2 capital[138](index=138&type=chunk)[268](index=268&type=chunk) [NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)](index=32&type=section&id=NOTE%209%3A%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME%20(LOSS)) Accumulated other comprehensive income (loss) decreased significantly from a gain of **$48.7 million** at December 31, 2020, to a gain of **$14.2 million** at September 30, 2021. This decline was primarily driven by substantial unrealized losses on debt securities during the nine-month period, partially offset by changes in retirement obligations NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Summary (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Accumulated other comprehensive income (loss) | $14,230 | $48,664 | NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Data (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Unrealized gain (loss) on debt securities (pre-tax) | $(45,518) | $35,529 | | Retirement obligation (pre-tax) | $1,631 | $1,401 | | Total other comprehensive income (loss) (net of tax) | $(34,434) | $28,943 | [NOTE 10: DERIVATIVES](index=34&type=section&id=NOTE%2010%3A%20DERIVATIVES) First Financial uses derivatives (interest rate caps, floors, swaps, foreign exchange contracts) for client needs and risk management, not speculation. Client interest rate swaps had a notional amount of **$2.3 billion** at September 30, 2021, with a fair value of **$100.4 million**. Foreign exchange contracts had a notional amount of **$6.9 billion** with a fair value of **$14.9 million**. The company also engages in credit derivatives and mortgage derivatives (IRLCs and forward commitments) - First Financial uses derivative instruments (interest rate caps, floors, swaps, foreign exchange contracts) to meet client needs and manage interest/currency rate risk, not for speculative purposes[144](index=144&type=chunk) NOTE 10: DERIVATIVES Summary (in thousands) | Derivative Type | Notional Amount (Sep 30, 2021, in thousands) | Estimated Fair Value (Sep 30, 2021, in thousands) | Notional Amount (Dec 31, 2020, in thousands) | Estimated Fair Value (Dec 31, 2020, in thousands) | | :-------------- | :------------------------------------------- | :------------------------------------------------ | :------------------------------------------- | :------------------------------------------------ | | Client Interest Rate Swaps | $2,348,651 | $103,083 (receive fixed) / $(103,159) (pay fixed) | $2,300,336 | $184,777 (gain) / $(184,884) (loss) | | Foreign Exchange Contracts | $6,900,729 | $14,863 (pay USD) / $(14,863) (receive USD) | $3,637,509 | $60,366 (gain) / $(60,366) (loss) | - Credit derivatives (risk participation agreements for commercial loans) had a total notional value of **$321.6 million** at September 30, 2021, up from **$242.4 million** at December 31, 2020[152](index=152&type=chunk) - Mortgage derivatives (IRLCs and forward commitments) had notional amounts of **$83.2 million** and **$92.5 million**, respectively, at September 30, 2021, used to hedge interest rate risk on loans held for sale[155](index=155&type=chunk) [NOTE 11: COMMITMENTS AND CONTINGENCIES](index=36&type=section&id=NOTE%2011%3A%20COMMITMENTS%20AND%20CONTINGENCIES) First Financial had **$3.7 billion** in outstanding loan commitments at September 30, 2021, an increase from **$3.4 billion** at December 31, 2020, with the majority being variable interest rate commitments. Letters of credit totaled **$36.2 million**. The company also invests in affordable housing and other tax credit projects, with total investments of **$127.7 million** and unfunded commitments of **$69.5 million** at September 30, 2021 NOTE 11: COMMITMENTS AND CONTINGENCIES Data (in millions) | Metric (in millions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | Commitments to extend credit | $3,700 | $3,400 | $300 | | Fixed interest rate commitments | $158.8 | $123.6 | $35.2 | | Variable interest rate commitments | $3,600 | $3,300 | $300 | NOTE 11: COMMITMENTS AND CONTINGENCIES Data (in millions) | Metric (in millions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------- | :----------- | :----------- | :----- | | Letters of credit | $36.2 | $36.1 | $0.1 | NOTE 11: COMMITMENTS AND CONTINGENCIES Data (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------------------------ | :----------- | :----------- | :----- | | Total Tax Credit Investments | $127,689 | $100,417 | $27,272 | | Unfunded commitment for Tax Credit Investments | $69,488 | $55,556 | $13,932 | [NOTE 12: INCOME TAXES](index=38&type=section&id=NOTE%2012%3A%20INCOME%20TAXES) Income tax expense for Q3 2021 was **$7.0 million**, resulting in an effective tax rate of **10.5%**, a decrease from **18.3%** in Q3 2020. For the nine months, expense was **$28.1 million** with an effective rate of **15.1%**, down from **17.8%** in 2020. The lower effective tax rates are primarily due to investments in various tax credits, partially offset by higher pre-tax income NOTE 12: INCOME TAXES Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense | $7,021 | $9,317 | $28,131 | $23,231 | | Effective tax rate | 10.5% | 18.3% | 15.1% | 17.8% | - The decrease in the effective tax rate is primarily due to investments in various tax credits, partially offset by higher pre-tax income[170](index=170&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - The company had **$1.9 million** of unrecognized tax benefits at September 30, 2021, and December 31, 2020, related to state income tax exposures, with resolution reasonably possible within the next twelve months[171](index=171&type=chunk) [NOTE 13: EMPLOYEE BENEFIT PLANS](index=38&type=section&id=NOTE%2013%3A%20EMPLOYEE%20BENEFIT%20PLANS) First Financial sponsors a non-contributory defined benefit pension plan for substantially all employees, with plan assets primarily invested in fixed income and publicly traded equity mutual funds. The net periodic benefit cost for the nine months ended September 30, 2021, was **$2.5 million**, an increase from **$1.7 million** in 2020. No cash contributions were made to the plan in 2021 or 2020, and none are expected for the remainder of 2021 - First Financial sponsors a non-contributory defined benefit pension plan covering substantially all employees, with assets invested in fixed income and publicly traded equity mutual funds[173](index=173&type=chunk) - No cash contributions were made to the pension plan during the nine months ended September 30, 2021, or the year ended December 31, 2020, and none are expected for the remainder of 2021[174](index=174&type=chunk) NOTE 13: EMPLOYEE BENEFIT PLANS Data (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net periodic benefit cost (income) | $835 | $779 | $2,530 | $1,705 | [NOTE 14: REVENUE RECOGNITION](index=39&type=section&id=NOTE%2014%3A%20REVENUE%20RECOGNITION) The majority of First Financial's revenues are outside the scope of ASU 2014-09 (Revenue from Contracts with Customers), including income from loans, leases, and securities. Noninterest income sources within the scope, such as service charges on deposits, trust and wealth management fees, and bankcard income, are recognized when performance obligations are satisfied - Most revenues, including income from loans, leases, securities, derivatives, and foreign exchange, are outside the scope of ASU 2014-09[178](index=178&type=chunk) - Service charges on deposit accounts (transaction-based, account maintenance, overdraft fees) are recognized when the transaction is executed or over the performance period[179](index=179&type=chunk) - Trust and wealth management fees are primarily asset-based, recognized monthly based on market value of assets under management, or as incurred for transactional services. Brokerage revenue is presented net of related costs[180](index=180&type=chunk)[181](index=181&type=chunk) - Bankcard income (interchange fees) is recognized concurrent with transaction processing services, presented net of expenses. Gross interchange income for Q3 2021 was **$7.3 million** (net **$3.8 million**) and for 9M 2021 was **$20.6 million** (net **$10.7 million**)[182](index=182&type=chunk) [NOTE 15: EARNINGS PER COMMON SHARE](index=40&type=section&id=NOTE%2015%3A%20EARNINGS%20PER%20COMMON%20SHARE) Basic earnings per common share for Q3 2021 was **$0.64**, up from **$0.43** in Q3 2020, and diluted EPS was **$0.63**, up from **$0.42**. For the nine months, basic EPS was **$1.65** (vs. **$1.10**) and diluted EPS was **$1.64** (vs. **$1.10**). The increase reflects higher net income and a slight decrease in weighted average shares outstanding NOTE 15: EARNINGS PER COMMON SHARE Data | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings per common share - basic | $0.64 | $0.43 | $1.65 | $1.10 | | Net earnings per common share - diluted | $0.63 | $0.42 | $1.64 | $1.10 | | Weighted average shares outstanding - basic | 94,289,097 | 97,247,080 | 95,752,759 | 97,400,942 | | Weighted average shares outstanding - diluted | 95,143,930 | 98,008,733 | 96,617,600 | 98,117,463 | - Stock options and warrants with exercise prices greater than the average market price were excluded from diluted EPS computation as they were antidilutive[186](index=186&type=chunk) [NOTE 16: FAIR VALUE DISCLOSURES](index=40&type=section&id=NOTE%2016%3A%20FAIR%20VALUE%20DISCLOSURES) This note details the fair value hierarchy (Level 1, 2, 3) used for financial instruments. Investment securities available-for-sale are primarily Level 2, while loans held for sale and derivatives are also Level 2. Collateral dependent loans and OREO are classified as Level 3, reflecting the use of unobservable inputs like appraisals and internal valuations - Fair value hierarchy prioritizes inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[187](index=187&type=chunk) - Investment securities available-for-sale are primarily valued using Level 2 inputs (independent valuation techniques, matrix pricing)[191](index=191&type=chunk) - Loans held for sale and derivative instruments are classified as Level 2 measurements, based on quoted prices for similar loans and net present value calculations using observable market inputs, respectively[195](index=195&type=chunk)[196](index=196&type=chunk) - Collateral dependent loans and OREO are classified as Level 3, with fair values based on real estate appraisals, enterprise value calculations, or business asset valuations, adjusted by management's expertise[197](index=197&type=chunk)[198](index=198&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk)[202](index=202&type=chunk) NOTE 16: FAIR VALUE DISCLOSURES Data (in thousands) | Asset/Liability (in thousands) | Sep 30, 2021 Fair Value | Level 1 | Level 2 | Level 3 | | :----------------------------- | :---------------------- | :------ | :------ | :------ | | Investment securities available-for-sale | $4,114,094 | $20,330 | $4,055,398 | $38,366 | | Loans held for sale | $33,835 | $0 | $33,835 | $0 | | Interest rate derivative contracts | $113,601 | $0 | $113,601 | $0 | | Foreign exchange derivative contracts | $126,497 | $0 | $126,497 | $0 | [Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations](index=45&type=section&id=Item%202%20-%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, covering key performance indicators, market strategies, the impact of COVID-19, and detailed analysis of net interest income, noninterest income and expense, asset quality, investments, funding, liquidity, and capital. It also discusses risk management, critical accounting policies, and forward-looking statements [EXECUTIVE SUMMARY](index=45&type=section&id=EXECUTIVE%20SUMMARY) This summary introduces First Financial Bancorp, its business lines, and key financial services offered across its operating regions - First Financial Bancorp. is a **$16.0 billion** financial holding company headquartered in Cincinnati, Ohio, operating primarily in Ohio, Indiana, Kentucky, and Illinois[213](index=213&type=chunk) - The company provides banking and financial services through six lines of business: Commercial, Retail Banking, Mortgage Banking, Wealth Management, Investment Commercial Real Estate, and Commercial Finance[213](index=213&type=chunk) - Wealth Management had **$3.2 billion** in assets under management as of September 30, 2021, offering financial planning, investment management, trust administration, estate settlement, brokerage, and retirement planning services[213](index=213&type=chunk) [MARKET STRATEGY](index=45&type=section&id=MARKET%20STRATEGY) This section outlines the company's approach to market engagement, focusing on local service, client relationships, and strategic growth opportunities - Market strategy emphasizes a local market focus to provide superior service and build long-term client relationships[214](index=214&type=chunk) - Future growth and capital investment will be concentrated within current markets (Ohio, Indiana, Kentucky, Illinois), with evaluation of additional growth opportunities in metropolitan areas and strategic acquisitions for product line extensions or new industry verticals[215](index=215&type=chunk) [COVID-19 CONSIDERATIONS](index=45&type=section&id=COVID-19%20CONSIDERATIONS) This section addresses the significant impact of the COVID-19 pandemic on the company's operations, client relief efforts, and loan portfolio adjustments - COVID-19 pandemic significantly influenced operations and financial results in 2020 and 2021[216](index=216&type=chunk) - The company implemented client relief programs, including payment deferrals and fee waivers, and temporarily suspended vehicle repossessions and residential property foreclosures[218](index=218&type=chunk) - As of September 30, 2021, the company had **$167.9 million** in outstanding PPP loans (net of unearned fees) and **$101.2 million** in active loan modifications (primarily hotel and restaurant industries) not classified as TDRs under CARES Act guidance[221](index=221&type=chunk)[222](index=222&type=chunk) [OVERVIEW OF OPERATIONS](index=46&type=section&id=OVERVIEW%20OF%20OPERATIONS) This overview presents key financial performance metrics, including net income, diluted EPS, and returns on assets and equity, for recent periods OVERVIEW OF OPERATIONS Summary | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------------- | :------ | :------ | :------ | :------ | | Net income (in millions) | $60.0 | $41.5 | $158.2 | $107.5 | | Diluted EPS | $0.63 | $0.42 | $1.64 | $1.10 | | Return on average assets | 1.49% | 1.04% | 1.32% | 0.93% | | Return on average shareholders' equity | 10.53% | 7.40% | 9.34% | 6.50% | [NET INTEREST INCOME](index=46&type=section&id=NET%20INTEREST%20INCOME) This section analyzes the company's primary revenue source, detailing interest income and expense trends, and net interest margin NET INTEREST INCOME Data (in thousands) | Metric (in thousands) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Net interest income | $113,410 | $112,180 | $341,312 | $338,038 | | Net interest income - tax equivalent | $114,844 | $113,808 | $346,017 | $342,954 | | Net interest margin (fully tax equivalent) | 3.32% | 3.36% | 3.34% | 3.52% | - Interest income declined by **$5.2 million** (**4.2%**) in Q3 2021 due to a **23 bps** decrease in the yield on earning assets, despite higher earning asset balances driven by increased investment securities[230](index=230&type=chunk) - Interest expense decreased by **$6.5 million** (**46.6%**) in Q3 2021 due to lower rates paid on deposits (cost of interest-bearing deposits down to **0.15%** from **0.39%**) and a strategic shift in funding mix, including a **$956.8 million** decline in average borrowed funds[231](index=231&type=chunk) [NONINTEREST INCOME](index=49&type=section&id=NONINTEREST%20INCOME) This section examines revenue streams beyond interest, including gains from loan sales, foreign exchange, wealth management fees, and service charges NONINTEREST INCOME Data (in thousands) | Metric (in thousands) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Total Noninterest Income | $42,537 | $49,499 | $125,846 | $127,608 | | Net gain from sales of loans | $8,586 | $18,594 | $26,529 | $38,087 | | Foreign exchange income | $9,191 | $10,530 | $31,985 | $27,072 | | Other noninterest income | $4,411 | $2,732 | $10,401 | $7,793 | | Trust and wealth management fees | $5,896 | $4,940 | $17,742 | $15,891 | | Service charges on deposit accounts | $8,548 | $7,356 | $23,231 | $21,792 | | Bankcard income | $3,838 | $3,124 | $10,698 | $8,666 | - Net gains from sales of loans decreased by **$10.0 million** (**53.8%**) in Q3 2021 due to declining mortgage originations and moderating premiums[236](index=236&type=chunk) - Foreign exchange income decreased by **$1.3 million** (**12.7%**) in Q3 2021 due to lower customer demand for currency transactions[236](index=236&type=chunk) [NONINTEREST EXPENSE](index=49&type=section&id=NONINTEREST%20EXPENSE) This section details the company's operating expenses, including salaries, data processing, and other administrative costs NONINTEREST EXPENSE Data (in thousands) | Metric (in thousands) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :-------------------- | :------ | :------ | :------ | :------ | | Total Noninterest Expenses | $99,058 | $97,511 | $291,207 | $275,866 | | Other noninterest expenses | $10,051 | $6,845 | $27,901 | $21,685 | | Data processing | $7,951 | $6,837 | $23,102 | $20,245 | | Salaries and employee benefits | $61,717 | $63,769 | $183,754 | $174,516 | - Other noninterest expenses increased by **$3.2 million** (**46.8%**) in Q3 2021 due to write-downs of certain tax credit investments[238](index=238&type=chunk) - Salaries and employee benefits decreased by **$2.1 million** (**3.2%**) in Q3 2021 due to lower incentive compensation from reduced foreign exchange income and mortgage banking revenue[238](index=238&type=chunk)[240](index=240&type=chunk) - For the nine months, other noninterest expenses increased by **$6.2 million** (**28.7%**) due to legal settlement costs and tax credit investment write-downs[241](index=241&type=chunk) [INCOME TAXES](index=50&type=section&id=INCOME%20TAXES) This section provides an analysis of the company's income tax expense and effective tax rates, highlighting factors influencing tax liabilities INCOME TAXES Summary | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :----------------- | :------ | :------ | :------ | :------ | | Income tax expense (in millions) | $7.0 | $9.3 | $28.1 | $23.2 | | Effective tax rate | 10.5% | 18.3% | 15.1% | 17.8% | - The decrease in the effective tax rate is primarily due to tax credit investments realized/placed into service during the period, partially offset by higher pre-tax income[170](index=170&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) [LOANS](index=50&type=section&id=LOANS) This section details the composition and changes in the company's loan portfolio, including commercial, residential, and PPP loans LOANS Data (in millions) | Loan Category (in millions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Total Loans (excluding HFS) | $9,360.9 | $9,901.0 | $(540.1) | | Commercial & industrial | $2,602.8 | $3,007.5 | $(404.7) | | Residential real estate | $922.5 | $1,003.1 | $(80.6) | | Home equity | $709.1 | $743.1 | $(34.0) | | Commercial real estate | $4,438.4 | $4,307.9 | $130.5 | - The decrease in C&I loans was largely driven by the repayment of PPP balances[246](index=246&type=chunk) - Average loans, excluding loans held for sale, decreased by **$733.8 million** (**7.2%**) in Q3 2021 compared to Q3 2020, primarily due to PPP repayment activity[247](index=247&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=50&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section describes the company's commitments to extend credit, letters of credit, and other off-balance sheet financial instruments OFF-BALANCE SHEET ARRANGEMENTS Data (in millions) | Metric (in millions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------- | :----------- | :----------- | :----- | | Commitments to extend credit | $3,700 | $3,400 | $300 | | Letters of credit | $36.2 | $36.1 | $0.1 | | Risk participation agreements (notional) | $321.6 | $242.4 | $79.2 | - The majority of loan commitments are variable interest rate, totaling **$3.6 billion** at September 30, 2021[248](index=248&type=chunk) [ASSET QUALITY](index=51&type=section&id=ASSET%20QUALITY) This section assesses the credit quality of the company's assets, including nonperforming assets, troubled debt restructurings, and classified assets ASSET QUALITY Data (in millions) | Metric (in millions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------- | :----------- | :----------- | :----- | | Nonperforming assets | $77.8 | $89.1 | $(11.3) | | Nonperforming assets as % of total assets | 0.49% | 0.56% | (0.07)% | | Troubled Debt Restructurings (TDRs) | $31.8 | $21.8 | $10.0 | | Classified assets | $165.5 | $142.0 | $23.5 | | Classified assets as % of total assets | 1.04% | 0.89% | 0.15% | - The decline in nonperforming assets was due to the resolution of several large non-accrual relationships[253](index=253&type=chunk) - The increase in TDRs was primarily driven by a single commercial real estate relationship modification[254](index=254&type=chunk) - The increase in classified assets was mainly due to COVID-related credit rating downgrades, particularly in the hospitality industry[255](index=255&type=chunk) [INVESTMENTS](index=52&type=section&id=INVESTMENTS) This section reviews the company's investment portfolio, including available-for-sale and held-to-maturity securities, and their impact on financial position INVESTMENTS Data (in billions) | Metric (in billions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------- | :----------- | :----------- | :----- | | Investment portfolio | $4.3 | $3.7 | $0.6 | | Investment portfolio as % of total assets | 27.0% | 23.1% | 3.9% | | AFS securities | $4.1 | $3.4 | $0.7 | | HTM securities | $0.1039 | $0.1317 | $(0.0278) | - The increase in the investment portfolio was a result of deploying excess balance sheet liquidity from increased deposits[259](index=259&type=chunk) - The effective duration of the investment portfolio increased to **3.8 years** at September 30, 2021, from **3.2 years** at December 31, 2020, due to portfolio growth and rising interest rates[259](index=259&type=chunk) INVESTMENTS Data (in millions) | Metric (in millions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :------------------- | :----------- | :----------- | :----- | | Unrealized after-tax gain on debt securities | $37.9 | $73.6 | $(35.7) | | Unrealized gain on equity securities | $0.4 | $9.0 | $(8.6) | [DEPOSITS AND FUNDING](index=53&type=section&id=DEPOSITS%20AND%20FUNDING) This section analyzes the company's deposit base and funding sources, including changes in deposit categories and borrowed funds DEPOSITS AND FUNDING Data (in billions) | Deposit Category (in billions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :----------------------------- | :----------- | :----------- | :----- | | Total deposits | $12.7 | $12.2 | $0.5 | | Savings deposits | $4.22 | $3.68 | $0.54 | | Noninterest-bearing demand deposits | $4.02 | $3.76 | $0.26 | | Time deposits | $1.52 | $1.87 | $(0.35) | - Deposit growth was attributed to increased consumer savings rates resulting from stimulus payments, PPP loan proceeds, and tax refunds[263](index=263&type=chunk) DEPOSITS AND FUNDING Data (in millions) | Borrowed Funds (in millions) | Sep 30, 2021 | Dec 31, 2020 | Change | | :--------------------------- | :----------- | :----------- | :----- | | Total borrowed funds | $502.1 | $942.8 | $(440.7) | | PPPLF advances | $0 | $435.0 | $(435.0) | | Subordinated debt | $310.7 | $318.6 | $(7.9) | | FHLB long-term advances | $0 | $20.0 | $(20.0) | [LIQUIDITY](index=54&type=section&id=LIQUIDITY) This section discusses the company's liquidity management strategies, available funding sources, and regulatory capital requirements - Liquidity is managed through deposit growth, principal/interest payments on loans and investment securities, and access to wholesale funding sources[272](index=272&type=chunk) - First Financial and First Financial Bank hold investment-grade credit ratings from Kroll Bond Rating Agency (e.g., BBB+ for Senior Unsecured Debt, BBB for Subordinated Debt)[274](index=274&type=chunk) - The company pledged **$6.0 billion** of eligible residential, commercial, farm real estate loans, home equity lines of credit, and government/agency/CMBS securities as collateral for FHLB borrowings[274](index=274&type=chunk) - At September 30, 2021, cash and interest-bearing deposits totaled **$239.5 million**, with **$4.6 billion** (**28.8%** of total assets) in unused and available overnight wholesale funding sources[276](index=276&type=chunk) - The Bank paid **$125.0 million** in dividends to First Financial Bancorp. for the first nine months of 2021, with **$163.4 million** of retained earnings available for distribution without prior regulatory approval[277](index=277&type=chunk) [CAPITAL](index=55&type=section&id=CAPITAL) This section details the company's capital structure and ratios, demonstrating compliance with regulatory requirements and capital management activities - Capital ratios decreased in 2021, primarily driven by an overall increase in risk-weighted assets[284](index=284&type=chunk) CAPITAL Summary | Capital Ratio | Sep 30, 2021 | Dec 31, 2020 | Minimum Required (Basel III) | Well Capitalized (PCA) | | :----------------------------------- | :----------- | :----------- | :--------------------------- | :--------------------- | | Common equity Tier 1 to RWA (Consolidated) | 11.54% | 11.82% | 7.00% | N/A | | Tier 1 capital to RWA (Consolidated) | 11.92% | 12.20% | 8.50% | N/A | | Total capital to RWA (Consolidated) | 14.97% | 15.55% | 10.50% | N/A | | Leverage ratio (Consolidated) | 9.05% | 9.55% | 4.00% | N/A | - First Financial met all capital adequacy requirements and was categorized as "well-capitalized," exceeding the minimum requirement by **$509.5 million** at September 30, 2021[285](index=285&type=chunk) - The company repurchased **4,633,355 shares** at an average price of **$23.33** under the 2020 Repurchase Plan during the nine months ended September 30, 2021[291](index=291&type=chunk) [RISK MANAGEMENT](index=57&type=section&id=RISK%20MANAGEMENT) This section outlines the company's enterprise risk management framework for identifying, assessing, and mitigating various financial and operational risks - First Financial manages risk through a structured ERM approach that assesses, identifies, and mitigates various risks[294](index=294&type=chunk) - Identified risk types include credit, market (interest rate, liquidity, capital, foreign exchange, financial), operational, compliance, strategic, reputation, information technology, cyber, and legal[294](index=294&type=chunk) [CREDIT RISK](index=57&type=section&id=CREDIT%20RISK) This section focuses on the management of credit risk within the loan portfolio, including the allowance for credit losses and credit quality trends - Credit risk is managed through underwriting processes, periodic review and approval of credit exposures, and adherence to credit policies and guidelines[296](index=296&type=chunk) CREDIT RISK Summary | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | | :----------------------------------- | :----------- | :----------- | :----- | | ACL on loans and leases | $148.9 million | $175.7 million | $(26.8) million | | ACL as % of period-end loans | 1.59% | 1.77% | (0.18)% | | ACL as % of nonaccrual loans | 225.7% | 217.6% | 8.1% | | ACL as % of nonperforming loans (incl. TDRs) | 192.3% | 200.0% | (7.7)% | - The decline in ACL was primarily driven by improvements in economic forecasts, particularly related to the pandemic's impact, and the company's improved credit quality and outlook[298](index=298&type=chunk) CREDIT RISK Data (in millions) | Metric (in millions) | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :------------------- | :------ | :------ | :------ | :------ | | Net charge-offs | $2.5 | $5.4 | $17.3 | $7.6 | | Provision recapture (loans and leases) | $8.2 | $(15.3) | $9.5 | $(57.0) | | Provision recapture (unfunded commitments) | $2.0 | $(1.9) | $0.9 | $(2.0) | [MARKET RISK](index=59&type=section&id=MARKET%20RISK) This section describes the company's exposure to market risks, primarily interest rate and liquidity risks, and the methods used for their measurement and management - Market risk primarily consists of interest rate risk and liquidity risk, managed using income simulation models and EVE sensitivity analyses[307](index=307&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk) MARKET RISK Summary | Scenario | NII-Year 1 | NII-Year 2 | EVE | | :--------- | :--------- | :--------- | :---- | | -100 bps | (5.15)% | (7.03)% | (10.97)% | | +100 bps | 8.52% | 11.96% | 6.91% | | +200 bps | 16.41% | 22.46% | 12.35% | - As of September 30, 2021, the company was in an asset-sensitive position, within policy limits, due to significant growth in low-cost transactional deposits replacing wholesale borrowings[316](index=316&type=chunk) - Liquidity risk management focuses on maintaining and enhancing liquidity by maximizing collateral-based liquidity availability and diversifying funding sources[319](index=319&type=chunk) [CRITICAL ACCOUNTING POLICIES](index=61&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section highlights accounting policies that require significant management judgment and estimates, such as those for credit losses and goodwill - Critical accounting policies, which require subjective estimates and assumptions, include ACL on loans and leases, goodwill, pension, and income taxes[321](index=321&type=chunk) - No changes were made to the accounting policies for ACL, goodwill, pension, or income taxes during the nine months ended September 30, 2021[321](index=321&type=chunk) [ACCOUNTING AND REGULATORY MATTERS](index=61&type=section&id=ACCOUNTING%20AND%20REGULATORY%20MATTERS) This section addresses the impact of recently adopted or issued accounting standards and relevant regulatory developments on the company's financial reporting - New accounting standards adopted in 2021 and 2020, and those issued but not yet adopted, are discussed in Note 2[322](index=322&type=chunk) - Material impacts of new accounting standards on financial condition, results of operations, or liquidity are discussed in relevant notes and MD&A sections[322](index=322&type=chunk) [FORWARD-LOOKING STATEMENTS](index=61&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section provides cautionary language regarding statements about future events, outlining inherent uncertainties and factors that could cause actual results to differ - Forward-looking statements are subject to inherent uncertainties, risks, and changes in circumstances that may cause actual results to differ materially[324](index=324&type=chunk) - Key risk factors include economic, market, liquidity, credit, interest rate, operational, and technological risks; regulatory changes; management's execution ability; M&A integration; accounting policy changes; consumer behavior; litigation; and the adverse impact of the COVID-19 pandemic[327](index=327&type=chunk)[328](index=328&type=chunk) - The company does not assume any obligation to update forward-looking statements, except as required by law[330](index=330&type=chunk) [Item 3 - Quantitative and Qualitative Disclosures about Market Risk](index=65&type=section&id=Item%203%20-%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This item incorporates by reference the detailed discussion on market risk from "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risk" within this report - The disclosures about market risk are incorporated by reference from "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations—Market Risk" of this report[332](index=332&type=chunk) [Item 4 - Controls and Procedures](index=65&type=section&id=Item%204%20-%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of the end of the reporting period. There were no material changes in internal control over financial reporting during the period - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at the reasonable assurance level[335](index=335&type=chunk) - No material changes occurred in internal control over financial reporting during the period covered by the report[336](index=336&type=chunk) PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and required exhibits and certifications [Item 1. Legal Proceedings.](index=66&type=section&id=Item%201.%20Legal%20Proceedings.) This section confirms no material changes to the legal proceedings disclosure from the prior annual report - No material changes to legal proceedings disclosure since the 2020 Annual Report on Form 10-K[339](index=339&type=chunk) [Item 1A. Risk Factors.](index=66&type=section&id=Item%201A.%20Risk%20Factors.) This section confirms no material changes to the risk factors previously disclosed in the prior annual report - No material changes from the risk factors disclosed in the 2020 Annual Report on Form 10-K[340](index=340&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=66&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's stock repurchase plan and the shares bought back during the reporting period - The Board approved a new 2020 Repurchase Plan, effective January 1, 2021, authorizing the purchase of up to **5,000,000 shares** through December 31, 2022[341](index=341&type=chunk) - The company repurchased **2,484,295 shares** at an average price of **$23.04** in Q3 2021 under the 2020 Repurchase Plan[341](index=341&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits to the Form 10-Q, including corporate governance documents and certifications - Exhibits include Amended Articles of Incorporation, Amended and Restated Regulations, CEO and CFO Certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and XBRL documents[343](index=343&type=chunk) [Signatures](index=68&type=section&id=Signatures) This section provides the official signatures of the company's principal financial and accounting officers, certifying the report's accuracy - The report is signed by James M. Anderson (EVP & CFO) and Scott T. Crawley (SVP & Controller) on November 4, 2021[347](index=347&type=chunk)