What changed in this filing

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Item 1. Business

2024-02-22 compared with 2023-02-24 · 68 added, 39 removed, 299 unchanged (26% of the section changed)

41 unchanged sentences

Economic conditions that affect consumers in First Financial’s markets have a direct impact on the credit quality of these loans.

Higher levels of unemployment, lower levels of income growth and weaker economic growth are factors that may impact consumer loan credit quality.

Higher levels of unemployment, lower levels of income growth and weaker economic growth are factors that may adversely impact consumer loan credit quality.

Home equity lines of credit consist mainly of revolving lines of credit secured by residential real estate.

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

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

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.

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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 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 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

At December 31, 2022, First Financial had approximately 2,108 full-time employees located primarily in the states of Ohio, Indiana, Kentucky, and Illinois.

As of December 31, 2023, First Financial had approximately 2,165 employees located primarily in the states of Ohio, Indiana, Kentucky, and Illinois.

Employee 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.

First Financial invests in employees 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:

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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.

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

The pension allocation is 100% company-paid, fully-vested and portable.

We regularly review our compensation practices to ensure we are paying employees equitably, taking into consideration such factors as experience, education, and performance.

The Bank regularly reviews it’s total rewards practices to ensure compensation is equitable, taking into consideration such factors as experience, education, performance and market data.

Employee Engagement.

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.

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

In July 2023 First Financial launched its fourth all-associate engagement survey.

The results were positive and confirmed that engagement is strongly woven into the culture.

The Bank sets clear expectations of managers for high-levels of accountability and to foster engagement principles.

This focus drives the Company's success in improved client relations and outcomes.

The engagement strategy includes coaching and training, intentional action plans, sharing success stories, and highlighting engagement champions.

The 2023 survey results showed a marked increase in engagement from the survey conducted in 2022.

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.

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

In 2023, we hosted monthly 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, additional pulse surveys were completed which provided insight into our associates’ needs, shaping future engagement strategies.

Diversity, Equity and Inclusion.

First Financial prioritizes diversity, equity and inclusion (DEI) as an employer, a financial institution and as a member of the communities in which we operate.

The DEI Committee of the Board provides guidance and oversight to First Financial’s executive committee, the Manager of Diversity, Equity and Inclusion, and the First Financial Diversity Council, which is comprised of 10 associates from across our footprint.

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

The DEI Committee of the Board provides guidance and oversight to First Financial’s executive committee, the Diversity, Equity and Inclusion team, and the First Financial Diversity Council, which is comprised of 10 associates from across our footprint.

First Financial supports eight associate-led Business Resource Groups (BRGs) designed to facilitate networking and leadership development.

BRGs meet regularly throughout the year and host a variety of in person and virtual engagement opportunities.

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

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Smaller than super-regional and multi-national bank holding companies, First Financial believes that it can meet the needs of its markets through a local decision-making process and that it is better positioned to compete than smaller community banks that may have size or geographic limitations.

First Financial’s targeted customers include individuals and small to medium sized businesses within the Bank's geographic footprint.

First Financial’s targeted customers include individuals and small to medium sized businesses within the Bank's geographic

Through its diversified delivery systems of banking centers, ATMs, internet banking and telephone-based transactions, First Financial is able to meet the needs of its customers in an ever-changing marketplace.

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The Federal Reserve Board may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to its shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice.

Federal Reserve System

The Federal Reserve Board requires all depository institutions to maintain reserves at specified levels against their transaction accounts, primarily checking accounts.

In response to the COVID-19 pandemic, the Federal Reserve Board reduced reserve requirement ratios to 0% effective on March 26, 2020, to support lending to households and businesses.

The reserve requirement ratio remained at 0% as of December 31, 2023.

Economic Growth, Regulatory Relief and Consumer Protection Act

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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 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).

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The Federal Reserve Board has adopted risk-based capital guidelines for bank holding companies as well as state banks that are members of a Federal Reserve Bank.

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.

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 certain prompt corrective action regulatory provisions.

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These deposit-funding limitations can have an effect on the bank’s liquidity.

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

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

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

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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 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.

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 earnings 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.

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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.

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 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.

In the FDIC’s most recent semiannual update for the amended restoration plan in November 2023, the FDIC noted that increased loss provisions associated with the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in 2023 that reduced the DIF balance, coupled with strong growth in insured deposits, resulted in the reserve ratio declining 15 basis points from 1.25% as of December 31, 2022 to 1.10% as of June 30, 2023.

Despite the decline in the reserve ratio, the FDIC staff projected that the reserve ratio remains on track to reach the statutory minimum of 1.35% ahead of the deadline of September 30, 2028.

As a result, the FDIC staff recommended no changes to the amended restoration Plan and all scheduled assessment rates were maintained.

On November 16, 2023, the FDIC adopted a final rule implementing a special assessment to recover the loss to the DIF arising from the protection of uninsured depositors following the failures of Silicon Valley Bank and Signature Bank.

The assessment base for the special assessment is equal to an insured depository institution’s estimated uninsured deposits reported for the quarter ended December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits.

The FDIC will collect the special assessment at an annual rate of approximately 13.4 basis points, over eight quarterly assessment periods, beginning with the first quarter of 2024.

For the quarter ended December 31, 2022, the Bank reported $5.3 billion in uninsured deposits and recorded a $0.9 million expense in the fourth quarter of 2023 reflecting the full assessment.

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

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Banks are subject to regular examination to ensure compliance with federal statutes and regulations applicable to their business, including consumer protection statutes and implementing regulations.

The Dodd-Frank Act established the CFPB, which has extensive regulatory and enforcement powers over consumer financial products and services.

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 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.

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

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and (iv) establish related definitions, reporting, and recordkeeping requirements.

Separately, in May 2018, the OCC published guidance that encourages national banks and federal savings associations to offer responsible short-term, small-dollar installment loans with terms between two and twelve months and equal amortizing payments.

Pursuant to the OCC’s guidance on this issue, banks are encouraged to offer these products in a manner that is consistent with sound risk management principles and clear, documented underwriting guidelines.

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.

However, due to continuing appellate litigation regarding the constitutionality of the CPFB’s funding structure, which stems, in part, from legal challenges to the Small Dollar Rule, the effective date for nationwide compliance with the Final Small Dollar Rule remains uncertain at this time.

Separately, 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 2022 or 2023.

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

On October 24, 2023, the federal banking agencies, including the Federal Reserve Board, issued a final rule designed to strengthen and modernize the regulations implementing the CRA.

The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry, including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type.

The applicability date for the majority of the changes to the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027.

First Financial cannot predict the impact the changes to the CRA will have on its operations at this time.

Privacy Rules

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Regulatory authorities have imposed cease and desist orders and civil money penalties against institutions found to be violating these obligations.

Incentive Compensation

Following the adoption of additional listing requirements in 2023 to comply with the Dodd-Frank Act and rules adopted by the SEC in October 2022, public companies are now required to adopt, implement and disclose a "clawback" policy for incentive compensation payments that allows recovery of incentive compensation that was paid on the basis of erroneous financial information necessitating an accounting restatement due to material noncompliance with financial reporting requirements.

This clawback policy is intended to apply to compensation paid within the three completed fiscal years immediately preceding the date the issuer is required to prepare a restatement and would cover all executives (including former executives) who received incentive awards.

First Financial has adopted and implemented a clawback policy, which is included as Exhibit 97 to this Report.

Transactions with Affiliates;

Insider Loans

Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Board Regulation W generally:

• limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10.0% of the bank's capital stock and surplus;

• limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with all affiliates to an amount equal to 20.0% of the bank's capital stock and surplus;

• require that all such transactions be on terms substantially the same, or at least as favorable to the bank or subsidiary, as those provided to a non-affiliate.

An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank.

The term “covered transaction” includes the making of loans to the affiliate, the purchase of assets from the affiliate, the issuance of a guarantee on behalf of the affiliate, the purchase of securities issued by the affiliate and other similar types of transactions.

A bank’s authority to extend credit to executive officers, directors and greater than 10.0% shareholders, as well as entities such persons control, is subject to Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O promulgated thereunder by the Federal Reserve Board.

Among other things, these loans must be made on terms (including interest rates charged and collateral required) substantially similar to those offered to unaffiliated individuals or be made as part of a benefit or compensation program on terms widely available to employees and must not involve a greater than normal risk of repayment.

In addition, the amount of loans a bank may make to these persons is based, in part, on the bank’s capital position, and specified approval procedures must be followed in making loans which exceed specified amounts.

Cybersecurity

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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.

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.

In February 2018, the SEC published interpretive guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents.

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 that became effective in May 2022 requiring banking organizations that experience a computer-security incident to notify certain entities.

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First Financial expects this trend of new state-level activity to continue and is actively monitoring developments in the states in which we conduct business.

On July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents in a Current Report on Form 8-K and detailed information regarding their cybersecurity risk management, strategy, and governance on an annual basis in an Annual Report on Form 10-K.

Companies are required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination.

See “ITEM 1C CYBERSECURITY” of Part 1 of this Report.

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

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

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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.

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