What changed in this filing

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Item 1A. Risk Factors

2022-02-18 compared with 2021-02-19 · 85 added, 78 removed, 294 unchanged (36% of the section changed)

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Risks Related to Economic and Market Conditions

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

COVID-19 has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, increased unemployment levels and decreased consumer confidence, generally.

In addition, the pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities.

The pandemic could influence the recognition of credit losses in our loan portfolios and increase our allowance for credit losses, particularly as businesses remain closed and as more customers are expected to draw on their lines of credit or seek additional loans to help finance their businesses.

Furthermore, the pandemic could affect the stability of our deposit base as well as our capital and liquidity position, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, result in lost revenue and cause us to incur additional expenses.

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

COVID-19 has negatively impacted global, national and local economies, 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 and may result in the same or similar restrictions in the future.

As a result, the demand for our products and services have been and may continue to be significantly impacted, which could adversely affect our revenue and results of operations.

Furthermore, the pandemic could continue to result in the recognition of credit losses in our loan portfolios and increase our allowance for credit losses, particularly if businesses remain required to operate at diminished capacities or are required to close again, the impact on the global, national and local economies worsen, or more customers draw on their lines of credit or seek additional loans to help finance their businesses.

Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with COVID-19.

The pandemic could also affect the stability of our deposit base as well as our capital and liquidity position, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, result in lost revenue and cause us to incur additional expenses.

Similarly, because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairments in future periods on the securities we hold as well as reductions in other comprehensive income.

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

The extent of the impact of the COVID-19, including the reise of new strains thereof, on our capital, liquidity, and other financial positions and on our business, results of operations, and prospects will depend on a number of evolving factors, that cannot be predicted, including:

• The duration, extent, and severity of the pandemic .

COVID-19 has not been contained and could affect significantly more households and businesses.

The duration and severity of the pandemic continue to be impossible to predict.

• The response of governmental and nongovernmental authorities .

Many of the actions taken by authorities have been directed at curtailing personal and business activity to contain COVID-19 while simultaneously deploying fiscal-and monetary-policy measures to assist in mitigating the adverse effects on individuals and businesses.

These actions are not consistent across jurisdictions but, in general, have been rapidly expanding in scope and intensity.

The duration and severity of COVID-19, including new variants thereof, continues to be impossible to predict.

• The continued response of governmental and nongovernmental authorities .

Authorities may continue to take action in the future directed at curtailing personal and business activity to contain COVID-19 while simultaneously deploying fiscal-and monetary-policy measures to assist in mitigating the adverse effects on individuals and businesses.

• The effect on our customers, counterparties, employees, and third-party service providers .

COVID-19 and its associated consequences and uncertainties may affect individuals, households, and businesses differently and unevenly.

In the near-term if not longer, however, our credit, operational, and other risks are generally expected to increase.

• The effect on economies and markets .

Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear.

National, regional, and local economies and markets could suffer lasting disruptions.

COVID-19, including new variants thereof, and its associated consequences and uncertainties may affect individuals, households, and businesses differently and unevenly.

• The success of hardship relief efforts to bridge the gap to reopening the economy .

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The success of these programs could mute the effect on the Company's credit losses, which may be difficult to determine.

The duration of these business interruptions and related impacts on our business and operations, which will depend on future developments, are highly uncertain and cannot be reasonably estimated at this time.

The pandemic could cause us to experience higher credit losses in our lending portfolio, impairment of our goodwill and other financial assets, reduced demand for our products and services, and other negative impacts on our financial position, results of operations, and prospects.

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• Residential real estate , due to customers' potential loss of income.

As of December 31, 2020, this portfolio was $1.0 billion, or 10.1% of our loan portfolio.

As of December 31, 2021, this portfolio was $896.1 million, or 9.6% of our loan portfolio.

• Franchise , which primarily includes quick service and casual dining, due to stay at home orders and requirements that restaurants provide carry-out only service.

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

The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are uncertain and difficult to predict.

Even after COVID-19 has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus's global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

Even after COVID-19 has subsided, the U.S.

economy will likely require time to recover, the length of which is unknown and during which the U.S.

may experience a recession or market correction.

We may continue to experience materially adverse impacts to our business as a result of any such recession or market correction.

We continue to closely monitor COVID-19 and related risks as they evolve.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change.

The effects could have a material impact on our results of operations and heighten many of the other risk factors identified below.

The effects could have a material impact on our results of operations and heighten many of the other risk factors identified in this Item.

Weakness in the economy and in the real estate market, including specific weakness within our geographic footprint, may affect us, including requiring us to record additional loan loss provision or to charge off loans.

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Due to First Financial's volume of real estate loans, declining real estate values could affect the value of property used as collateral as well as First Financial’s ability to sell the collateral upon foreclosure.

If the strength of the United States economy in general and the strength of the local economies in which we conduct operations decline, this could result in, among other things, a deterioration of credit quality or a reduced demand for credit, including a

resultant effect on our loan portfolio and allowance for credit losses.

These factors could also result in higher delinquencies and greater charge-offs in future periods, which would materially affect our financial condition and results of operations.

These factors could also result in higher delinquencies and greater charge-offs in future periods, which could materially affect our financial condition and results of operations.

There is no assurance that our non-impaired loans will not become impaired or that our impaired loans will not suffer further deterioration in value.

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

The London Interbank Offered Rate (LIBOR) is used extensively in the United States and globally as a reference rate for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives.

In November 2020, the Federal Reserve Board issued a statement supporting the release of a proposal and supervisory statements designed to provide a clear end date for U.S.

Dollar LIBOR (USD LIBOR), and the federal banking

agencies issued a release encouraging banks to stop entering into USD LIBOR contracts by the end of 2021, noting that most legacy contracts will mature prior to the date LIBOR ceases to be issued.

It is uncertain at this time the extent to which those entering into financial contracts will transition to any other particular benchmark.

Other benchmarks may perform differently than LIBOR or other alternative benchmarks or have other consequences that cannot currently be anticipated.

It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding when LIBOR ceases to exist.

The Federal Reserve Board, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large financial institutions, is considering replacing USD LIBOR with a new index calculated by short-term repurchase agreements, backed by United States Treasury securities, otherwise known as the Secured Overnight Financing Rate (SOFR).

SOFR is observed and backward looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.

Given that SOFR is a secured rate backed by government securities, it will be a rate that does not take into account bank credit risk (as is the case with LIBOR).

SOFR is therefore likely to be lower than LIBOR and is less likely to correlate with the funding costs of financial institutions.

The extent to which SOFR attains traction as a LIBOR replacement tool is not known, although transactions using SOFR have been completed, including by Fannie Mae.

Both Fannie Mae and Freddie Mac ceased accepting adjustable rate mortgages tied to LIBOR and began accepting mortgages based on SOFR in 2020, and many issuers are now utilizing SOFR.

LIBOR is set based on interest rate information reported by certain banks, which may stop reporting such information after 2021.

On July 27, 2017, the United Kingdom’s Financial Conduct Authority (FCA) announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

On November 30, 2020, to facilitate an orderly LIBOR transition, the OCC, the FDIC, and the Federal Reserve Board jointly announced that entering into new contracts using LIBOR as a reference rate after December 31, 2021, would create a safety and soundness risk.

On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month LIBOR, and immediately after June 30, 2023, in the case of the remaining LIBOR settings.

In the United States, efforts to identify a set of alternative U.S.

dollar reference interest rates are ongoing, and the Alternative Reference Rate Committee (ARRC) has recommended the use of a Secured Overnight Funding Rate (SOFR).

SOFR is different from LIBOR in that it is a backward looking secured rate rather than a forward looking unsecured rate.

These differences could lead to a greater disconnect between our costs to raise funds for SOFR as compared to LIBOR.

For cash products and loans, ARRC has also recommended Term SOFR, which is a forward looking SOFR based on SOFR futures and may in part reduce differences between SOFR and LIBOR.

There are operational issues which may create a delay in the transition to SOFR or other substitute indices, leading to uncertainty across the industry.

First Financial has established a working group to manage the LIBOR transition process.

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Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, any market-wide transition away from LIBOR could adversely affect our business, financial condition and results of operations.

Declining values of real estate, increases in unemployment, insurance market disruptions and the related effects on local economies may increase our credit losses, which would negatively affect our financial results.

Declining values of real estate, increases in unemployment, insurance market disruptions and the related effects on local economies may increase our credit losses, which could negatively affect our financial results.

We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans.

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When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk, or the risk of loss if our borrowers do not repay their loans or our counterparties fail to perform according to the terms of their contracts.

As lending is one of our primary business activities, the credit quality of our portfolio can have a significant impact on our earnings.

Since lending is one of our primary business activities, the credit quality of our portfolio can have a significant impact on our earnings.

We estimate and establish reserves for credit risks and probable incurred credit losses inherent in our loan portfolio.

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

We maintain an allowance for credit losses to provide for loans in our portfolio that may not be repaid in their entirety.

We believe that our allowance for credit losses is maintained at a level adequate to absorb expected losses over the life of the life of the loans in the loan portfolio as of the corresponding balance sheet date.

However, our allowance for credit losses may not be sufficient to cover actual loan losses, and future provision for credit losses could materially affect our operating results.

We maintain an allowance for credit losses that we believe is a reasonable estimate of the expected losses within the CECL model.

We believe that our allowance for credit losses is maintained at a level adequate to absorb expected losses over the life of the loans in the loan portfolio as of the corresponding balance sheet date.

However, our allowance for credit losses may not be sufficient to cover actual credit losses, and future provision for credit losses could materially affect our operating results.

The accounting measurements related to the allowance for credit losses require significant estimates which are subject to uncertainty and change related to new information and changing circumstances.

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Historical credit loss experience paired with economic forecasts provide the basis for the quantitatively modeled estimation of expected credit losses.

First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by the quantitative model.

First Financial adjusts its quantitative model, as necessary, to reflect conditions not already considered by such model.

Our estimates of the risk of loss and amount of loss on any loan are complicated by the significant uncertainties surrounding our borrowers’ abilities to successfully execute their business models through changing economic environments, competitive challenges and other factors.

Because of the degree of uncertainty and susceptibility of these factors to change, our actual losses may vary from our current estimates.

In addition, bank regulators periodically review our allowance for credit losses and may require us to increase our provision for loan losses or recognize further loan charge-offs.

Moreover, the FASB has changed its requirements for establishing the allowance for credit losses.

In addition, bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further loan charge-offs.

Moreover, the Financial Accounting Standards Board (FASB) has changed its requirements for establishing the allowance for credit losses.

The new accounting guidance requires banks to record, at the time of origination, credit losses expected throughout the life of the asset on loans, leases and held-to-maturity debt securities, as opposed to the previous practice of recording losses when it was probable that a loss event had occurred.

We adopted the CECL accounting guidance in 2020 and recognized a one-time cumulative effect adjustment to our allowance for credit losses and retained earnings as of January 1, 2020.

Under the CECL model, we are required to use historical information, current conditions and reasonable and supportable forecasts to estimate the expected credit losses.

If the methodologies and assumptions we use in the CECL model prove to be incorrect, or inadequate, the allowance for credit losses may not be sufficient, resulting in the need for additional allowance for credit losses to be established, which could have a material adverse impact on our financial condition and results of operations.

We adopted the CECL accounting guidance in 2020 and recognized a one-time cumulative effect adjustment to our allowance for credit losses

and retained earnings as of January 1, 2020.

Concurrent with the enactment of the CARES Act, federal bank regulatory agencies issued an interim final rule that delays the estimated impact on regulatory capital resulting from the adoption of CECL.

The interim final rule provided banking organizations that implemented CECL prior to the end of 2020 the option to delay for two years the estimated impact

of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of capital benefit provided during the initial two-year delay.

The 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.

We adopted CECL in the first quarter of 2020, including the regulatory phase-in.

As a result, credit loss allowances, including reserves for unfunded commitments, increased $73.7 million on January 1, 2020, resulting in a corresponding decrease in retained earnings and a delayed impact to regulatory capital.

CECL implementation poses operational risk, including the failure to properly transition internal processes or systems, which could lead to errors, financial misstatements or operational losses.

As a result of CECL, our financial results may be negatively affected as soon as weak or deteriorating economic conditions are forecasted and alter our expectations for credit losses.

In addition, we incurred a significant provision expense of $70.6 million during 2020, primarily as a result of COVID-19, and may incur significant provision expense for credit losses in future periods as well.

In 2021, we were able to reverse previous provision expense of $19.0 million as the credit conditions related to COVID-19 were not as significant as originally anticipated.

However, depending upon future COVID-19 variants and circumstances, we may incur significant provision expense for credit losses in future periods.

Projections for new business initiatives and strategies may prove inaccurate.

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Securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions.

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

These developments may significantly change the competitive environment in which we conduct business.

Some of our competitors have greater financial resources and/or face fewer regulatory constraints.

Credit unions that compete with us have advantages that allow them to price products and services more competitively.

As a result of these various sources of competition, we could lose business to competitors or be forced to price products and services on less advantageous terms to retain or attract clients, either of which would affect our profitability.

Credit unions that compete with us have regulatory and other advantages that allow them to price products and services more competitively.

The principal bases for competition are pricing (including the interest rates charged on loans or paid on interest bearing deposits), product structure, the range of products and services offered, and the quality of customer service (including convenience and responsiveness to customer needs and concerns).

The ability to access and use technology is an increasingly important competitive factor in the financial services industry, and it is a critically important component to customer satisfaction as it affects our ability to deliver the right products and services.

For example, digital or cryptocurrencies, blockchain, and other “fintech” technologies that are designed to enhance transactional security have the potential to disrupt the

financial industry, change the way banks do business, and reduce the need for banks as financial deposit-keepers and intermediaries.

Failure to adequately address the competitive pressures we face could make it harder for us to attract and retain customers across our businesses.

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Checking and savings account balances and other forms of client deposits could decrease if clients perceive alternative investments as providing superior expected returns.

Consumers may move money out of bank deposits in favor of other investments, including digital or cryptocurrency.

When clients move money out of bank deposits in favor of alternative investments, we can lose a relatively inexpensive source of funds, increasing our funding costs.

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Consumers can also shop for higher deposit interest rates at banks across the country, which may offer higher rates because they have few or no physical branches and open deposit accounts electronically.

This process could result in the loss of fee income, as well as the loss of client deposits, in addition to increasing our funding costs.

This process could result in the loss of fee income and client deposits and could increase our funding costs.

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

At December 31, 2021, we had $3.4 billion in assets under management.

A sharp decline in the stock market could negatively impact the amount of assets under management and thus subject our earnings to additional risks and uncertainties.

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

A sharp decline or heightened volatility in the stock market could negatively impact the amount of assets under management and thus subject our earnings to additional risks and uncertainties.

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

In August 2019, First Financial acquired Bannockburn, which is engaged in various foreign exchange market activities.

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The loss of one or more of these large client would adversely affect the revenue derived from Bannockburn.

Additionally, foreign currency transactions increase as volatility in the market increases.

Sustained periods of stability in the financial markets could adversely affect Bannockburn’s revenue.

Additionally, foreign currency transactions increase as market volatility increases.

Sustained periods of stability in global financial markets could adversely affect Bannockburn’s revenue.

Negative public opinion could damage our reputation and impact business operations and revenues.

As a financial institution, our earnings and capital are subject to risks associated with negative public opinion.

Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, the failure of any product or service sold by us to meet our clients’ expectations or applicable regulatory requirements, corporate governance and acquisitions, social media and other marketing activities, or from actions taken by government regulators and community organizations in response to any of the foregoing.

Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, the failure of any of our products or services to meet our clients’ expectations or applicable regulatory requirements, corporate governance and acquisitions, social media and other marketing activities, the implementation of environmental, social and governance practives or actions taken by government regulators and community organizations in response to any of the foregoing.

Negative public opinion could affect our ability to attract and/or retain clients, could expose us to litigation and regulatory action, and could have a material adverse effect on our stock price or result in heightened volatility.

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Any disruption in such services provided by these third parties or any failure of these third parties to handle current or higher volumes could affect our ability to deliver products and services to clients and to efficiently and effectively conduct our business.

Technological or financial difficulties of a third-party service provider could affect our business to the extent those difficulties result in the interruption or discontinuation of services provided by that party.

Further, the operations of our third-party vendors could fail or otherwise become delayed as a result of COVD-19.

Technological or financial difficulties of a third-party

service provider could affect our business to the extent such difficulties result in the interruption or discontinuation of services provided by that party.

Further, the operations of our third-party vendors could fail or otherwise become delayed as a result of COVD-19 and any new variants thereof.

A cybersecurity breach of a vendor's system may result in theft of our data or disruption of business processes.

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In recent years, some banks have experienced denial of service attacks in which individuals or organizations flood the bank's website with extraordinarily high volumes of traffic, with the goal and effect of disrupting the ability of the bank to process transactions.

Additionally, we could be affected if one of our employees causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems.

Additionally, we could be affected if one of our employees or a third-party service provider causes a significant operational break-down or failure, either as a result of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems.

We are also at risk of an impact on our systems and operations from natural disasters, terrorism and international hostilities.

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Misconduct by employees could include fraudulent, improper or unauthorized activities on behalf of clients or improper use of confidential information.

We may not be able to prevent employee errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases.

We may not be able to prevent employee or third-party errors or misconduct, and the precautions we take to detect this type of activity might not be effective in all cases.

Employee errors or misconduct could subject us to civil claims for negligence or regulatory enforcement actions, including fines and restrictions on our business.

In addition, there have been instances where financial institutions have been victims of fraudulent activity in which criminals pose as customers to initiate wire and automated clearinghouse transactions out of customer accounts.

The breach of the systems of a credit bureau in 2019 presents additional threats as criminals now have more information about a larger portion of our country's population than past breaches have involved, which could be used by criminals to pose as customers initiating transfers of money from customer accounts.

Although we have policies and procedures in place to verify the authenticity of our customers, we cannot assure that such policies and procedures will prevent all fraudulent transfers.

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As part of our business, we collect, process and retain sensitive and confidential client and customer information on behalf of our subsidiaries and other third parties.

Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, theft of information, misplaced or lost data, programming and/or human errors, or other similar events.

Despite the security measures we have in place, our facilities and systems, and those of our third-party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, malware, ransomware, theft of information, misplaced or lost data, programming and/or human errors, or other similar events.

If information security is breached, information can be lost or misappropriated, resulting in financial loss or costs to us or damages to others.

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Moreover, as technology and cyberattacks change over time, we must continually monitor and change systems to guard against new threats.

We may not know of and be able to guard against a new threat until after an attack has occurred.

We may not know of and be able to guard against a new threat until after an

attack has occurred.

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

Any of these occurrences could result in our diminished ability to operate one or more of our businesses, potential liability to clients, reputational damage and regulatory intervention in the form of requirements, restrictions and penalties, which could affect us.

We may not pay dividends on our common shares.

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Although we have historically declared cash dividends on our common shares, we are not required to do so and may reduce or eliminate our common share dividend in the future.

Additionally, our funds to pay dividends on common shares are dependent upon dividends paid to us by the Bank, which are subject to regulatory restrictions in certain circumstances.

Additionally, our funds to pay dividends on common shares are dependent upon dividends paid to us by the Bank, which are subject to regulatory restrictions.

A reduction in our dividend rate could affect the market price of our common shares.

Our liquidity is dependent upon our ability to receive dividends from our subsidiaries, which accounts for most of our revenue and could affect our ability to pay dividends, and we may be unable to enhance liquidity from other sources.

We are a separate and distinct legal entity from our subsidiaries, notably the Bank.

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• limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase securities.

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

We continue to evaluate these risks on an ongoing basis.

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

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Acquisitions could involve the payment of a premium over book and market values, and, therefore, dilution of our tangible book value and net income per common share may occur in connection with any such transaction.

Furthermore, any difficulty integrating businesses acquired as a result of a merger or acquisition and the failure to realize the expected revenue increases, cost savings, increases in geographic or product presence, and/or other projected benefits from an acquisition could have an impact on our liquidity, results of operations and financial condition and any such integration could divert management’s time and attention from managing our company in an effective manner.

condition and any such integration could divert management’s time and attention from managing our company in an effective manner.

Any merger or acquisition opportunity that we decide to pursue will ultimately be subject to regulatory approval or other closing conditions.

We may expend substantial time and resources pursuing potential acquisitions which may not be

consummated because regulatory approval or other closing requirements are not satisfied.

We may expend substantial time and resources pursuing potential acquisitions which may not be consummated because regulatory approval or other closing requirements are not satisfied.

Additionally, the banking regulators and applicable laws and regulations may restrict our ability to engage in acquisitions under certain circumstances.

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Accounting policies and processes are fundamental to how we record and report our financial condition and results of operations.

Management must exercise judgment in selecting and applying many of these accounting policies and processes so they comply with Generally Accepted Accounting Principles in the United States (GAAP).

Management must exercise judgment in selecting and applying many of these accounting policies and processes so they comply with Generally Accepted Accounting Principles in the United States.

Management has identified certain accounting policies as being critical because they require management’s judgment to ascertain the valuations of assets, liabilities, commitments and contingencies.

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Because of the uncertainty surrounding our judgments and the estimates pertaining to these matters, we cannot guarantee that we will not be required to adjust accounting policies or re-state prior period financial statements.

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

See the “Critical Accounting Policies” in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 1- Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements, in our 2021 Annual Report to Shareholders (included within Exhibit 13 to this Form 10-K) for more information.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial results and condition.

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Risks Related to the Legal and Regulatory Environment

If our regulators deem it appropriate, they can take regulatory actions that could impact our ability to compete for new business, constrain our ability to fund our liquidity needs and increase the cost of our services.

Regulatory actions could impact our ability to compete for new business, constrain our ability to fund our liquidity needs and increase the cost of our services.

First Financial and its subsidiaries are subject to the supervision and regulation of various state and federal regulators, including the Federal Reserve Board, the FDIC, the SEC, the CFPB, the Financial Industry Regulatory Authority, and the ODFI.

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These actions could impact the Company and the Bank in a variety of ways, including subjecting us to fines, restricting our ability to pay dividends, precluding mergers or acquisitions, limiting our ability to offer certain products or services, or imposing additional capital, operating, or oversight requirements.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (ESG) practices and disclosure.

Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights.

Increased ESG-related compliance costs for us as well as among our third-party suppliers, vendors and various other parties within our supply chain could result in increases to our overall operational costs.

Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, access to capital, and the price of our common shares.

General Risk Factors

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Our success depends, in part, on our ability to adapt products and services to evolving industry standards.

There is increasing pressure to provide products and services at lower prices, which can reduce net interest income and noninterest income from fee-based products and services.

In addition, the widespread adoption of new technologies could require us to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services.

There is increasing pressure to provide products and services at lower prices, which can reduce net interest income and noninterest income from

fee-based products and services.

In addition, the widespread adoption of new technologies, including digital or cryptocurrencies, blockchain, and other “fintech” technologies, could require us to make substantial capital expenditures to modify or adapt existing products and services or develop new products and services.

We may not be successful in introducing new products and services in response to industry trends or developments in technology or those new products may not achieve market acceptance.

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The resultant changes in interest rates can also materially affect the value of certain financial assets we hold, such as debt securities.

The policies of the Federal Reserve Board can also affect borrowers, potentially increasing the risk that they may fail to repay their loans.

The policies of the Federal Reserve Board can adversely affect borrowers,adn increase default risk on their loans.

Changes in Federal Reserve Board policies are beyond our control and difficult to predict;

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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 1A. Risk Factors