What changed in this filing

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Item 1. Business

2023-02-24 compared with 2022-02-18 · 90 added, 106 removed, 248 unchanged (44% of the section changed)

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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).

First Financial also offers lease and equipment financing through two wholly-owned subsidiaries of the Bank, First Financial Equipment Finance LLC (First Equipment Finance) and Summit Funding Group, Inc.

(Summit) (discussed below).

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.

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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 with both servicing retained and servicing released, depending on pricing and other market conditions.

Certain 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 these loans with both servicing retained and servicing released, depending on pricing and other market conditions.

The credit underwriting standards adhere to a required level of

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Home equity lines of credit are generally governed by the same lending policies and subject to the same credit risks as described previously for residential real estate loans.

Information regarding statistical disclosure required by the Securities and Exchange Commission’s Industry Guide 3 is included on the "Statistical Information" page in First Financial's 2021 Annual Report to Shareholders for the year ended December 31, 2021, and is incorporated herein by reference.

Bannockburn Global Forex (Bannockburn), a division of the Bank, is an industry-leading capital markets firm based in Cincinnati, Ohio, that provides transactional currency payments, foreign exchange hedging and other advisory products to closely held enterprises, financial sponsors and downstream financial institutions across the United States.

Their primary focus is on small- and middle-market clients that have a need for tailored foreign exchange solutions.

Bannockburn has a nationwide presence with offices in 10 locations throughout the U.S.

Information regarding statistical disclosure required by the Securities and Exchange Commission’s Industry Guide 3 is included in "Table 4 - Statistical Information" of First Financial's 2022 Annual Report to Shareholders for the year ended December 31, 2022, and is incorporated herein by reference.

First Financial's executive office is located at 255 East Fifth Street, Suite 800, Cincinnati, Ohio 45202, and the telephone number is (877) 322-9530.

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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 2021 continued to be substantially influenced by the COVID-19 pandemic.

The Company's operations and financial results in 2022 continued to be 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.

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.

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.

Some of these issues persisted in 2022, particularly with respect to global supply chains and the effects of a shrinking workforce, resulting in higher wages and more employee resignations across a number of industries.

The Company's response to the Paycheck Protection Program (the PPP) succeeded in providing relief to our customers, although the program and assistance had substantially wound down by the end of 2021.

The Company had outstanding PPP loans totaling $3.0 million in balances, net of $0.1 million of unearned fees, as of December 31, 2022, compared to $55.6 million of PPP loans, net of $2.6 million of unearned fees, as of December 31, 2021.

Additionally, in 2022, the Company had no loans that were still in a payment deferral to provide relief to borrowers adversely impacted by the pandemic, compared to $16.5 million as of December 31, 2021.

Human Capital

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Employee Wellbeing .

A key motive behind the Company’s strategic intent is “Investing in our People.” To achieve this goal, First Financial has developed a “Wellbeing Program” that is designed to support employees and their families in a holistic way, focusing on the five core areas of wellbeing:

A key component of the Company’s strategic intent is “Investing in our People.” The company firmly believes that wellbeing is directly linked to engagement and engagement is a key pillar to the overall bank success.

Financial “invests’ in associates and their families through various programs.

One such program is the “Wellbeing Program”, designed to support employees and their families in a holistic way, focusing on the five core areas of wellbeing:

physical, financial, social, community and purpose.

The program provides employees with incentives (such as health savings account contributions, paid time off and reimbursements) in exchange for participation in a range of activities, including an annual physical, webinar participation and enrollment in Company fitness activities.

The program provides employees with incentives (such as health savings account contributions, paid time off and reimbursements) in exchange for voluntary participation in a range of activities, including an annual physical, health-risk assessment, webinar participation and enrollment in Company sponsored fitness activities.

In 2022, 54% of eligible employees qualified for benefits under the Wellbeing Program.

Additionally, First Financial partners with an independent primary care clinic that offers no or low cost preventive and routine care to associates and families.

Compensation and Benefits.

First Financial offers employees competitive short-term and long-term compensation, a comprehensive set of benefits including health, dental and vision insurance, free or low-cost access to an independent provider of primary care clinics, product discounts and various expense reimbursement programs.

First Financial offers employees competitive short-term and long-term compensation, a comprehensive set of benefits including health, dental and vision insurance, free or low-cost access to an independent provider of primary care clinics, life and disability programs, parental leave, product discounts and various expense reimbursement programs.

First Financial also provides all eligible employees with an annual allocation to the First Financial Pension Plan of 5% of eligible annual pay.

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Employee Engagement.

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 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.

These surveys provided insight into our associates’ needs and desires, which we can use in future program development.

First Financial launched its engagement strategy in 2020, partnering with a third party to create a culture of highly engaged associates by providing managerial training and coaching, measuring associate engagement and developing action plans to deepen engagement.

In July 2022 First Financial launched its third all-associate engagement survey, which reflected the Company's success in increasing engagement through coaching and training, intentional action plans, sharing success stories, and highlighting engagement champions.

The 2022 survey results showed a marked increase in engagement from the survey conducted in 2021.

As in prior years, teams throughout the Bank continue to engage in team huddles, manager training, town halls, mentoring, career and leadership development programs, and updated action plans to continue to increase engagement across the company.

In 2022, we hosted virtual town hall meetings for all associates, sharing business updates, opening the lines of communications and answering associate questions.

In conjunction with senior management and town hall meetings, several additional pulse surveys were completed which provided insight into our associates’ needs, which will shape future engagement strategies.

Diversity, Equity and Inclusion.

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First Financial supports several associate-led business resource groups designed to facilitate networking and leadership development.

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

First Financial continues to develop our 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.

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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.

Cincinnati-based company provides transactional currency payments, foreign exchange hedging and other advisory products to

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

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.

Market and Competitive Information

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First Financial’s goal is to develop a competitive advantage through a local market focus, building long-term relationships with clients to help them reach greater levels of financial success.

We also compete on a nationwide basis through Oak Street, which lends to the insurance industry, registered investment advisors, certified public accountants and indirect auto finance companies, First Franchise, which lends to restaurant franchisees, and Bannockburn, which provides foreign exchange services to customers throughout the United States.

We also compete on a nationwide basis through Oak Street, which lends to the insurance industry, registered investment advisors, certified public accountants and indirect auto finance companies, First Franchise, which lends to restaurant franchisees, Bannockburn, which provides foreign exchange services to customers throughout the United States, and Summit, which provides equipment financing to commercial businesses to the United States and Canada.

The Company’s markets support many different types of business activities, such as manufacturing, agriculture, education, healthcare and professional services.

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(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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By codifying the presumptions, the final rule provides greater transparency on the types of relationships that the Federal Reserve Board generally views as supporting a facts-and-circumstances determination that one company controls another company.

The Federal Reserve Board’s final rule applies to questions of control under the Bank Holding Company Act, but does not extend to the Change in Bank Control Act.

The Federal Reserve Board also has extensive enforcement authority over bank holding companies, including the ability to assess civil monetary penalties, issue cease and desist or removal orders, and require that a bank holding company divest subsidiaries (including a subsidiary bank).

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Economic Growth, Regulatory Relief and Consumer Protection Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the Dodd-Frank Act), has had a broad impact on the financial services industry, imposing significant regulatory and compliance requirements, including the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector.

Additionally, the Dodd-Frank Act established a new framework of authority to conduct systemic risk oversight within the United States financial system to be distributed among new and existing federal regulatory agencies, including the United States Financial Stability Oversight Council, the Federal Reserve Board, and the FDIC.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended (the Dodd-Frank Act), imposes significant regulatory and compliance requirements, including the imposition of increased capital, leverage, and liquidity requirements, and numerous other provisions designed to improve supervision and oversight of, and strengthen safety and soundness within, the financial services sector.

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-

Bank holding companies with consolidated assets of less than $100 billion, including First Financial, are no longer subject to the enhanced 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.

Certain other regulatory requirements applied only to banks with assets in excess of $50 billion and so did not apply to the Company even before the enactment of the Regulatory Relief Act.

Depository Institution Regulation

The Bank, as a bank chartered under the laws of the State of Ohio and a member of the Federal Reserve Bank of Cleveland (Federal Reserve Bank), is subject to supervision and examination by the Federal Reserve Board and the Ohio Division of Financial Institutions (ODFI).

The Bank's deposits are insured up to the legal limits by the DIF, which is administered by the FDIC and is subject to the provisions of the Federal Deposit Insurance Act, as amended (FDIA).

Financial Institutions (ODFI).

The Bank's deposits are insured up to applicable legal limits by the DIF, which is administered by the FDIC and is subject to the provisions of the Federal Deposit Insurance Act, as amended (FDIA).

The Bank is also subject to regulations of the Consumer Financial Protection Bureau (CFPB), which was established by the Dodd-Frank Act and has broad powers to adopt and enforce consumer protection regulations.

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The guidelines provide a systematic analytical framework that makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposures expressly into account in evaluating capital adequacy and incentivizes to holding liquid, low-risk assets.

Capital levels as measured by these standards are also used to categorize financial institutions for purposes of prompt corrective action regulatory provisions.

Capital levels as measured by these standards are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

In July 2013, the United States banking regulators approved final rules (the Basel III Capital Rules) implementing the Basel III framework set forth by the Basel Committee on Banking Supervision, as well as certain provisions of the Dodd-Frank Act.

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common equity) and additional deductions from common equity capital were phased in through January 1, 2019.

The Basel III capital rules include (i) a minimum common equity tier 1 capital ratio of at least 4.5%, (ii) a minimum tier 1 capital ratio of at least 6.0%, (iii) a minimum total capital ratio of 8.0% and (iv) a minimum leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio includes common stock (plus related surplus) and retained earnings, plus limited amounts of minority interests in the form of common stock, less the majority of certain regulatory deductions.

Tier 1 capital includes common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not otherwise permitted), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, includes certain capital instruments (such as subordinated debt) and limited amounts of the allowance for loan and lease losses, subject to specified eligibility criteria, less applicable deductions.

The Basel III capital rules include (i) a minimum common equity tier 1 capital ratio of 4.5%, (ii) a minimum tier 1 capital ratio of 6.0%, (iii) a minimum total capital ratio of 8.0% and (iv) a minimum leverage ratio of 4.0%.

Common equity for the common equity tier 1 capital ratio generally consists of common stock (plus related surplus), retained earnings, accumulated other comprehensive income (unless an institution elects to exclude such income from regulatory capital) and limited amounts of minority interests in the form of common stock, subject to applicable regulatory adjustments and deductions.

Tier 1 capital generally consists of common equity as defined for the common equity tier 1 capital ratio, plus certain non-cumulative preferred stock and related surplus, cumulative preferred stock and related surplus, trust preferred securities that have been grandfathered (but which are not otherwise permitted), and limited amounts of minority interests in the form of additional tier 1 capital instruments, less certain deductions.

Tier 2 capital, which can be included in the total capital ratio, generally consists of other preferred capital and subordinated debt meeting certain conditions plus limited amounts of the allowance for credit losses, subject to specified eligibility criteria, less applicable deductions.

The deductions from common equity tier 1 capital include goodwill and other intangibles, certain deferred tax assets, mortgage-servicing assets above certain levels, gains on sale in connection with a securitization, investments in a banking organization’s own capital instruments and investments in the capital of unconsolidated financial institutions (above certain levels).

The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends and stock repurchases, and certain discretionary bonus payments to executive officers if the Company does not hold a capital conservation buffer greater than 2.5% composed of common equity tier 1 capital compared to its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter.

Under the guidelines, capital is compared to the relative risk included in the balance sheet.

To derive the risk included in the balance sheet, one of several risk weights is applied to different balance sheet and off-balance sheet assets, primarily based on the relative credit risk of the counterparty.

The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Basel III Capital Rules also place restrictions on the payment of capital distributions, including dividends and stock repurchases, and certain discretionary bonus payments to executive officers if the Company does not hold a capital conservation buffer of greater than 2.5% composed of common equity tier 1 capital compared to its minimum risk-based capital requirements, or if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter.

Federal banking regulators have established regulations governing prompt corrective action to resolve capital deficient banks.

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.

Under these regulations, institutions that become under-capitalized are 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 under-capitalized.

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.

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At each successively lower capital category, an insured depository institution is subject to additional restrictions.

Undercapitalized banks are required to take specified actions to increase their capital or otherwise decrease the risks to the DIF.

Bank regulatory agencies generally are required to appoint a receiver or conservator within 90 days after a bank becomes critically undercapitalized with a leverage ratio of less than 2%.

The FDIA provides that a federal bank regulatory authority may require a bank holding company to divest itself of an undercapitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.

Under-capitalized banks are required to take specified actions to increase their capital or otherwise decrease the risks to the DIF.

Bank regulatory agencies generally are required to appoint a receiver or conservator within 90 days after a bank becomes critically under-capitalized with a leverage ratio of less than 2.0%.

The FDIA provides that a federal bank regulatory authority may require a bank holding company to divest itself of an under-capitalized bank subsidiary if the agency determines that divestiture will improve the bank’s financial condition and prospects.

In December 2018, the federal banking agencies issued a final rule to address regulatory treatment of credit loss allowances under the current expected credit loss (CECL) model (accounting standard).

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 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 Coronavirus Aid, Relief, and Economic Recovery Act (CARES Act) in March 2020, 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.

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The amount of dividends payable by the Bank is also restricted if the Bank does not hold a capital conservation buffer as described above.

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.

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 net income for the current year 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.

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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However, because the Federal Reserve Board expects First Financial to serve as a source of strength to the Bank, as discussed above, payment of dividends by the Bank may be restricted at any time at the discretion of the Federal Reserve Board if the Federal Reserve Board deems such dividends to constitute an unsafe and/or unsound banking practice.

The Federal Reserve Board has issued a policy statement with regard to the payment of cash dividends by bank holding companies.

The policy statement provides that, as a matter of prudent banking, a bank holding company should not maintain a rate of cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the bank holding company’s capital needs, asset quality, and overall financial condition.

Accordingly, a bank holding company generally should not pay cash dividends that exceed its net income or can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing.

The Federal Reserve Board has also issued a policy statement with regard to the payment of cash dividends by financial holding companies and other bank holding companies.

The policy statement provides that, as a matter of prudent banking, a bank holding company should not maintain a rate of cash dividends unless its net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the bank holding company’s capital needs, asset quality, and overall financial condition.

Accordingly, a bank holding company generally should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the bank holding company’s financial health, such as by borrowing.

Under certain circumstances, a bank holding company must provide notice to the Federal Reserve Board of an intended dividend payment, to which the Federal Reserve Board might object if it determines the payment would be an unsafe or unsound practice.

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The FDIC may also impose a special assessment in an emergency situation.

Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio (DRR), which is the ratio of the DIF to insured deposits of the total industry.

In March 2016, the FDIC adopted final rules designed to meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act.

The FDIC’s rules reduced assessment rates on all banks but imposed a surcharge on banks with assets of $10 billion or more until the DRR reached 1.35%.

The reserve ratio reached 1.36% on September 30, 2018, and, as a result, the surcharge on banks with assets of $10 billion or more ceased with the first assessment invoice in 2019.

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.

The FDIA requires the FDIC's Board of Directors to set a target or Designated Reserve Ratio (DRR) for the DIF annually.

The DRR is the total of the DIF divided by the total estimated insured deposits of the industry.

Under the long-range plan, the FDIC set the DRR at 2.0% and set a schedule of assessment rates that would progressively decrease when the DRR reached 2.0% and 2.5%.

The FDIC views the 2.0% DRR as a long-term goal and the minimum level needed to withstand future crises of the magnitude of past crises.

Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DRR to decline below the statutory minimum of 1.35% as of June 30, 2020.

In September 2020, the FDIC Board of Directors adopted a restoration plan to restore the DRR to at least 1.35% by 2028, absent extraordinary circumstances, as required by the FDIC.

The restoration plan maintained the assessment rate schedules in place at the time and required the FDIC to update its analysis and projections for the DIF balance and DRR at least semiannually.

In the semiannual update for the restoration plan in June 2022, the FDIC projected that the DRR was at risk of not reaching the statutory minimum of 1.35% by September 30, 2028, the statutory deadline to restore the DRR.

Based on this update, the FDIC Board approved an amended restoration plan, and concurrently proposed an increase in initial base deposit insurance assessment rate schedules uniformly by two basis points, applicable to all insured depository institutions.

In October 2022, the FDIC Board finalized the increase with an effective date of January 1, 2023, applicable to the first quarterly assessment period of 2023.

The revised assessment rate schedules are intended to increase the likelihood that the DRR reaches the statutory minimum level of 1.35% by September 30, 2028.

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

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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.

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.

The CFPB has adopted numerous rules with respect to consumer protection laws and has commenced related enforcement actions.

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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.

Lenders were 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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Further, the federal bank regulatory agencies issued interagency guidance on May 20, 2020, to encourage banks, savings associations, and credit unions to offer responsible small-dollar loans to customers for consumer and small business purposes.

The Small Dollar Rule did not have a material effect on First Financial’s financial condition or results of operations on a consolidated basis in 2021.

The Small Dollar Rule did not have a material effect on First Financial’s financial condition or results of operations on a consolidated basis in 2021 or 2022.

Community Reinvestment Act

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

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

Privacy Rules

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In December 2013, five federal agencies adopted a final regulation implementing the so-called Volcker Rule provision of the Dodd-Frank Act (the Volcker Rule).

The Volcker Rule places limits on the trading activity of insured depository institutions and entities affiliated with depository institutions, subject to certain exceptions.

Such trading activity includes the purchase or sale as principal of a security derivative, commodity future, option, or similar instrument in order to benefit from short-term price movements or to realize short-term profits.

The Volcker Rule exempts trading in specified United States government, agency, state and/or municipal obligations.

The Volcker Rule also excludes:

The Volcker Rule placed limits on the trading activity of insured depository institutions and entities affiliated with depository institutions, subject to certain exceptions.

Such trading activity included the purchase or sale as principal of a security derivative, commodity future, option, or similar instrument in order to benefit from short-term price movements or to realize short-term profits.

The Volcker Rule exempted trading in specified United States government, agency, state and/or municipal obligations.

The Volcker Rule also excluded:

(i) trading conducted in certain capacities, including as a broker or other agent, through a deferred compensation or pension plan, as a fiduciary on behalf of customers;

(ii) to satisfy a debt previously contracted;

(ii) trading to satisfy a debt previously contracted;

(iii) trading under certain repurchase and securities lending agreements;

and (iv) trading in connection with risk-mitigating hedging activities.

Further, the Volcker Rule prohibits a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, also known as “covered funds,” subject to a number of exceptions.

Further, the Volcker Rule prohibited a banking entity from having an ownership interest in, or certain relationships with, a hedge fund or private equity fund, also known as “covered funds,” subject to a number of exceptions.

On June 25, 2020, the federal bank regulatory agencies finalized a rule modifying the Volcker Rule’s prohibition on banking entities investing in or sponsoring covered funds.

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One statement indicates that financial institutions should design multiple layers of security controls to establish several lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution.

The other statement indicates that

a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cyber-attack.

The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the financial institution’s operations after a cyber-attack involving destructive malware.

A financial institution is also expected to develop appropriate processes to enable recovery of data and business

operations and address rebuilding network capabilities and restoring data if the financial institution or its critical service providers fall victim to this type of cybersecurity-attack.

If First Financial fails to observe the regulatory guidance, it could be subject to various regulatory sanctions, including financial penalties.

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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.

In November 2021, the FDIC, the OCC and the Federal Reserve Board issued a final rule that became effective in May 2022 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.

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 larger incidents.

This rule also requires bank service providers to notify their customers of a computer-security incident that has caused, or is reasonably likely to cause, a material service disruption or degradation for four or more hours.

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

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In the ordinary course of business, First Financial relies on electronic communications and information systems to conduct its operations and to store sensitive data.

First Financial employs an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls.

First Financial employs an in-depth, layered, defensive approach that leverages people, processes, encryption and multi-factor authentication technology to manage and maintain cybersecurity controls.

First Financial utilizes a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as report on any suspected advanced persistent threats.

Notwithstanding the strength of First Financial’s defensive measures, the threat from cyber-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.

Notwithstanding the strength of First Financial’s defensive measures, the threat from cybersecurity-attacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures.

First Financial’s systems and those of its customers and third-party service providers are under constant threat and it is possible that First Financial could experience a significant event in the future.

Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, in addition to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.

A major focus of governmental policy on financial institutions in recent years has been aimed at combating money laundering and terrorist financing.

In response to the terrorist events of September 11, 2001, the Uniting and Strengthening of America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the Patriot Act) substantially broadened the scope of United States anti-money laundering laws and regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties, and expanding the extra-territorial jurisdiction of the United States.

The Patriot Act gives the United States government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements.

Title III of the Patriot Act takes measures intended to encourage information sharing among bank regulatory agencies and law enforcement bodies.

Title III of the Patriot Act encourage information sharing among bank regulatory agencies and law enforcement bodies.

Further, certain provisions of Title III impose affirmative obligations on a broad range of financial institutions.

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State banking regulation affects the Bank’s internal organization and corporate governance, capital distributions, activities, acquisitions of other institutions and branching.

State banking regulation may contain limitations on an institution’s activities that are in addition to limitations imposed under federal banking law.

State banking regulation may contain limitations on an institution’s activities that are in addition to limitations

imposed under federal banking law.

The ODFI may initiate supervisory measures or formal enforcement actions, and under certain circumstances, it may take control of an Ohio-chartered bank.

The Coronavirus Aid, Relief, and Economic Security Act of 2020

In response to the novel COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020, to provide national emergency economic relief measures.

Many of the CARES Act’s programs are dependent upon the direct involvement of United States financial institutions, such as the Company and the Bank, and have been implemented through rules and guidance adopted by federal departments and agencies, including the United States Department of Treasury, the Federal Reserve Board and other federal banking agencies, including those with direct supervisory jurisdiction over the Company and the Bank.

Furthermore, as COVID-19 evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, lifecycle, and eligibility requirements for the various CARES Act programs as well as industry-specific recovery procedures for COVID-19.

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 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.

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.

On September 29, 2020, the federal bank regulatory agencies issued a final rule that neutralizes the regulatory capital and liquidity coverage ratio effects of participating in certain COVID-19 liquidity facilities due to the fact there is no credit or market risk in association with exposures pledged to such facilities.

As a result, the final rule supports the flow of credit to households and businesses affected by COVID-19.

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