First Financial engages in the business of commercial banking and other banking
and banking-related activities through its wholly owned subsidiary, First Financial
Bank, National Association (the Bank), which was founded in 1863.
The range of banking services provided by First Financial to individuals and
businesses includes commercial lending, real estate lending, and consumer financing.
Real estate loans are loans secured by a mortgage lien on the real property
of the borrower, which may either be residential property (one to four family
residential housing units) or commercial property (owner-occupied and/or investor
income producing real estate, such as apartments, shopping centers, or office
buildings). In addition, First Financial offers deposit products that include
interest-bearing and noninterest-bearing accounts, time deposits, and cash management
services for commercial customers. A full range of trust and wealth management
services is also provided through First Financial’s Wealth Management
division.
Commercial and industrial loans are made to all types of businesses for a variety
of purposes including, but not limited to, inventory, receivables, and equipment.
First Financial works with businesses to meet their shorter term working capital
needs while also providing long-term financing for their business plans. First
Financial also offers lease and equipment financing through a wholly-owned subsidiary
of the Bank, First Financial Equipment Finance LLC (First Equipment Finance),
primarily in its principal markets. Credit risk for lending activities is managed
through standardized loan policies, established and authorized credit limits,
centralized portfolio management and the diversification of market area and
industries. The overall strength of the borrower is evaluated through the credit
underwriting process and includes a variety of analytical activities, including
the review of historical and projected cash flows, historical financial performance,
financial strength of the principals and guarantors, and collateral values,
where applicable.
Commercial and industrial lending activities also include equipment and leasehold
improvement financing for franchisees throughout the U.S., principally in the
quick service and casual dining sector. The underwriting of these loans incorporates
basic credit proficiencies combined with knowledge of select franchise concepts
to measure the creditworthiness of proposed multi-unit borrowers. The focus
is on a limited number of concepts that have sound economics, lower closure
rates, and brand awareness within specified local, regional or national markets.
Loan terms for equipment are generally up to 84 months fully amortizing and
up to 180 months on real estate related requests.
First Financial also offers financing to the insurance industry through a wholly-owned
subsidiary of the Bank, Oak Street Funding LLC (Oak Street Funding), in 47 states.
Insurance industry lending activities are driven by agency acquisitions, agency
ownership transitions, the purchase by agencies of books of business, as well
as financing general working capital needs. The underwriting of these loans
involves analyses of collateral (through use of Oak Street Funding’s proprietary
system) that consists of insurance commissions revenue, which is then monitored
by Oak Street Funding throughout the life of the loans.
Commercial real estate loans are secured by a mortgage lien on the real property.
The credit underwriting for both owner-occupied and investor income producing
real estate loans includes detailed market analysis, historical and projected
cash flow analysis, appropriate equity margins, assessment of lessees and lessors,
type of real estate and other analyses. Risk of loss is managed by adherence
to standard loan policies that establish certain levels of performance prior
to the extension of a loan to the borrower. Market diversification within First
Financial’s service area, as well as a diversification by industry, are
other means by which the risk of loss is managed by First Financial. First Financial
does not have a significant exposure to residential builders and developers.
The majority of residential real estate loans originated by the Bank conform
to secondary market underwriting standards and are sold within a short timeframe
to unaffiliated third parties. The Bank sells the loans both servicing-retained
and servicing-released, depending on pricing and other market conditions. The
credit underwriting standards adhere to a required level of documentation, verifications,
valuation, and overall credit performance of the borrower. The underwriting
of these loans includes an evaluation of these and other pertinent factors prior
to the extension of credit. These underwriting standards increase the marketability
and address the credit risk associated with the loans.
Consumer loans are primarily loans made to individuals. These types of loans
include new and used vehicle loans, second mortgages on residential real estate,
and unsecured loans. Risk elements in the consumer loan portfolio are primarily
focused on the borrower’s cash flow and credit history, which are key
indicators of the ability to repay. A level of security is provided through
liens on automobile titles and second mortgage liens, where applicable. Consumer
loans are generally smaller dollar amounts than other types of lending and are
made to a large number of customers, increasing diversification within the portfolio.
Economic conditions that affect consumers in First Financial’s markets
have a direct impact on the credit quality of these loans. Higher levels of
unemployment, lower levels of income growth and weaker economic growth are factors
that may adversely impact consumer loan credit quality.
Home equity lines of credit consist mainly of revolving lines of credit secured
by residential real estate. Home equity lines of credit are generally governed
by the same lending policies and subject to the same credit risk as described
previously for residential real estate loans.