What changed in this filing

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Item 1. Business

2022-02-18 compared with 2021-02-19 · 47 added, 41 removed, 307 unchanged (22% of the section changed)

48 unchanged sentences

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 .

The Company's operations and financial results in 2020 were substantially influenced by the COVID-19 pandemic.

The Company's operations and financial results in 2021 continued to be 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.

Some of these issues persisted in 2021, in particular impacts to the global supply chains and the effects of a shrinking workforce, resulting in higher wages and more employee resignations across many industries.

The Company continued to prioritize the health and safety of clients and associates in 2021, although without the significant disruptions to our workforce that occurred in 2020.

Banking centers offered drive through services without interruption, while lobbies were fully open and accessible to clients.

Sales associates, support teams and management returned to corporate offices and operations centers in the second and third quarters of 2021.

To assist clients during the pandemic, the Company implemented distinct COVID-19 relief programs to provide payment

deferrals and fee waivers, in addition to temporarily suspending vehicle repossessions and residential property foreclosures.

Further, the Company continuously monitored the actions of federal and state governments to proactively assist clients and

ensure awareness of each financial assistance program available to them, while focusing internally on enhancing remote, mobile

and online processes to better support a bank anytime, anywhere environment.

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.

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.

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 Bank proactively reached out to customers during 2020 to assist in seeking SBA forgiveness of PPP loans.

The Company's response to the PPP resulted in successes in providing customer relief, although the program and assistance had substantially wound down by the end of 2021.

As such, the Company had outstanding PPP loans totaling $55.6 million in balances, net of $2.6 million of unearned fees, as of of December 31, 2021, compared to $594.6 million of PPP loans, net of $13.7 million of unearned fees, as of December 31, 2020.

Additionally, in 2021, the Company had $16.5 million in loans that were still in a payment deferral to provide relief to borrowers adversely impacted by the pandemic, compared to $320.2 million as of December 31, 2020.

Human Capital

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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 October 2021 First Financial launched its second all-associate engagement survey, which resulted in teams throughout the Bank formulating action plans to help bolster engagement across the company.

In 2021, we continued to host monthly 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.

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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.

First Financial continues to mature its DEI strategy, which includes goals and action plans designed to increase associate and management diversity.

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 December 2021, the Company completed its acquisition of Summit Funding Group, Inc.

and its subsidiaries.

Summit was a privately held, full service, equipment financing company that originates, purchases, sells and services equipment leases to commercial businesses in the United States and Canada.

Upon completion of the transaction, Summit became a subsidiary of the Bank and continues to operate as Summit Funding Group, taking advantage of its existing brand recognition within the equipment financing industry.

Pursuant to the purchase agreement, First Financial agreed to acquire all of the issued and outstanding equity securities of Summit for aggregate consideration of approximately $ 127.1 million consisting of $ 113.5 million in cash and $ 10.0 million of First Financial common stock, and a $ 3.6 million earn-out payment.

In August 2019, the Company acquired Bannockburn Global Forex, LLC, an industry-leading capital markets firm.

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closely held enterprises, financial sponsors and downstream financial institutions across the United States.

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.

became a division of the Bank and continues 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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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

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.

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:

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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.

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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.

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.

10 unchanged sentences

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.

Concurrent with the enactment of 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.

7 unchanged sentences

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

5 unchanged sentences

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.

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.

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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.

On June 30, 2020, the DRR fell below the statutory minimum to 1.30%.

This drop resulted in the FDIC adopting a restoration plan requiring the restoration of the DRR to 1.35% within eight years, by September 30, 2028.

This restoration plan maintained the scheduled assessment rates for all insured institutions.

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

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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

extensive regulatory and enforcement powers over consumer financial products and services.

The Dodd-Frank Act established the CFPB, which has 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.

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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.

Lenders are required to comply with the Small Dollar Rule by June 13, 2022.

Specifically, the Small Dollar Rule revokes provisions contained in the 2013 rule that:

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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.”

As of its 2021 examination, the Bank received a CRA rating of “outstanding.”

Privacy Rules

35 unchanged sentences

These SEC guidelines, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.

In November 2021, the FDIC, the OCC and the Federal Reserve Board issued a final rule requiring banking organizations that experience a computer-security incident to notify certain entities.

A computer-security incident occurs when there is a violation or imminent threat of a violation to banking security policies and procedures, or when actual or potential harm to the confidentiality, integrity, or availability of an information system or the information occurs.

The affected bank must notify its respective federal regulator of the computer-security incident as soon as possible and no later than 36 hours after the bank determines a computer-security incident has occurred.

These notifications are intended to promote early awareness of threats to banking organizations and will help banks react to those threats before they manifest into bigger incidents.

This rule also requires bank service providers to notify their customers of a computer-security incident.

State regulators have also been increasingly active in implementing privacy and cybersecurity standards and regulations.

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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

continuing to assess the impact of the CARES Act and other statues, regulations and supervisory guidance related to COVID-19.

The Company is 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.

After previously being extended by Congress, the application deadline for PPP loans expired on May 31, 2021.

As a participating lender in the PPP, the Bank continues to monitor related legislative, regulatory, and supervisory developments.

1 unchanged sentence

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business