v3.25.2
FAIR VALUE DISCLOSURES
 6 Months Ended
Jun. 30, 2025
Fair Value Disclosures [Abstract]  
FAIR VALUE DISCLOSURES 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:
CarryingEstimated fair value
(Dollars in thousands)valueTotalLevel 1Level 2Level 3
June 30, 2025
Financial assets
Cash and interest-bearing deposits with other banks$780,360 $780,360 $780,360 $0 $0 
Investment securities held-to-maturity72,994 66,244 0 66,244 0 
Other investments (1)
11,776 11,776 1,736 40 10,000 
Loans and leases11,627,674 11,448,914 0 0 11,448,914 
Accrued interest receivable67,110 67,110 0 15,002 52,108 
Financial liabilities
Deposits14,369,993 14,359,704 0 14,359,704 0 
Short-term borrowings684,699 684,699 684,699 0 0 
Long-term debt344,955 351,273 0 351,273 0 
Accrued interest payable36,403 36,403 5,207 31,196 0 

CarryingEstimated fair value
(Dollars in thousands)valueTotalLevel 1Level 2Level 3
December 31, 2024
Financial assets
Cash and interest-bearing deposits with other banks$904,486 $904,486 $904,486 $0 $0 
Investment securities held-to-maturity76,960 68,989 0 68,989 0 
Other investments (1)
11,570 11,570 1,530 40 10,000 
Loans and leases11,604,987 11,417,941 0 0 11,417,941 
Accrued interest receivable67,420 67,420 0 14,263 53,157 
Financial liabilities
Deposits14,329,138 14,322,815 0 14,322,815 0 
Short-term borrowings755,452 755,452 755,452 0 0 
Long-term debt347,509 346,613 0 346,613 0 
Accrued interest payable43,411 43,411 4,663 38,748 0 
(1) FHLB stock and FRB stock of $110.5 million and $103.0 million as of June 30, 2025 and December 31, 2024, respectively, are excluded from the numbers above.

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 Level 2 in the fair value hierarchy.

Derivatives. The fair values of derivative instruments, which includes interest rate derivatives, foreign exchange derivatives, floors, collars and commodities contracts, are based primarily on a net present value calculation of the cash flows related to the contracts at the reporting date, using primarily observable market inputs such as interest rate yield curves which represents the cost to terminate the swap if First Financial should choose to do so. Additionally, First Financial utilizes an internally-developed model to value the credit risk component of derivative assets and liabilities, 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 are defined as loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrowers are experiencing financial difficulty. Collateral dependent loans are carried at fair value when the value of the operation or collateral less any costs to sell is not sufficient to cover the remaining balance. In these instances, the loans will either be 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 $27.8 million and $3.9 million at June 30, 2025 and December 31, 2024, respectively, with a valuation allowance of $4.9 million and $2.1 million at June 30, 2025 and December 31, 2024, respectively.

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.

Mortgage servicing rights. Mortgage servicing rights are evaluated for impairment based upon the fair value of the rights as compared to the carrying amount. If the carrying amount of the servicing asset exceeds fair value, impairment is recorded so that the servicing asset is carried at fair value. Fair value is determined based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model utilized a discount rate of 11.53% at June 30, 2025 and 11.52% at December 31, 2024, respectively, weighted average prepayment speeds of 6.15% at June 30, 2025 and 5.96% at
December 31, 2024, respectively, and other economic factors that market participants would use in estimating future net servicing income and that can be validated against available market data.

The financial assets and liabilities measured at fair value on a recurring basis in the consolidated financial statements were as follows:
 Fair value measurements using
(Dollars in thousands)Level 1Level 2Level 3Assets/liabilities
at fair value
June 30, 2025
Assets    
Investment securities available-for-sale$94 $3,343,899 $42,569 $3,386,562 
Loans held for sale0 26,504 0 26,504 
Interest rate derivative contracts0 76,552 0 76,552 
Foreign exchange derivative contracts0 225,886 0 225,886 
Interest rate collars and floors0 2,006 0 2,006 
Commodities contracts0 142 0 142 
Total$94 $3,674,989 $42,569 $3,717,652 
Liabilities    
Interest rate derivative contracts$0 $76,851 $0 $76,851 
Foreign exchange derivative contracts0 225,886 0 225,886 
Commodities contracts0 142 0 142 
Total$0 $302,879 $0 $302,879 

 Fair value measurements using
(Dollars in thousands)Level 1Level 2Level 3Assets/liabilities
at fair value
December 31, 2024
Assets    
Investment securities available-for-sale$91 $3,139,503 $44,182 $3,183,776 
Loans held for sale0 13,181 0 13,181 
Interest rate derivative contracts0 102,152 0 102,152 
Foreign exchange derivative contracts0 294,418 0 294,418 
Interest rate collars and floors0 387 0 387 
Commodities contracts0 158 0 158 
Total$91 $3,549,799 $44,182 $3,594,072 
Liabilities    
Interest rate derivative contracts$0 $102,265 $0 $102,265 
Foreign exchange derivative contracts0 294,418 0 294,418 
Interest rate collars and floors0 619 0 619 
Commodities contracts0 158 0 158 
Total$0 $397,460 $0 $397,460 
The following table presents a reconciliation for certain AFS securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

Three months endedSix months ended
June 30,June 30,
(dollars in thousands)2025202420252024
Beginning balance$43,338 $32,129 $44,182 $32,945 
Accretion (amortization)(18)(18)(40)(26)
Increase (decrease) in fair value(29)20 (21)22 
Settlements(722)(703)(1,552)(1,513)
Transfers into level 30 0 0 0 
Ending balance$42,569 $31,428 $42,569 $31,428 

Certain financial assets and liabilities are measured at fair value on a nonrecurring basis.  Adjustments to the fair 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 1Level 2Level 3
June 30, 2025
Assets   
Collateral dependent loans
Commercial & industrial$0 $0 $16,515 
Construction real estate0 0 1,122 
Commercial real estate0 0 2,319 
Lease financing0 0 2,893 
OREO0 0 55 
 Fair value measurements using
(Dollars in thousands)Level 1Level 2Level 3
December 31, 2024
Assets   
Collateral dependent loans
Commercial & industrial$0 $0 $793 
Lease financing0 0 1,012 

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. 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 June 30, 2025 and December 31, 2024 was $26.5 million and $13.2 million, respectively. The aggregate unpaid principal balance of the Company’s residential mortgage loans held for sale as of June 30, 2025 and December 31, 2024 was $25.1 million and $12.4 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 $1.4 million and $0.8 million as of June 30, 2025 and December 31, 2024, 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. The change in fair value of the Company’s residential mortgage loans held for sale resulted in a gain of $0.1 million for the quarter ended June 30, 2025 and an immaterial gain for the same period in 2024. The change in fair value of the Company’s residential mortgage loans held for sale resulted in gains of $0.6 million and $0.5 million for the six months ended June 30, 2025 and June 30, 2024, respectively.