What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-02-20 compared with 2024-02-22 · 205 added, 121 removed, 234 unchanged (58% of the section changed)

2 unchanged sentences

Additional risks that are not presently known, or that we presently deem to be immaterial, also could have a material effect on our financial condition, results of operations, business and prospects.

Additionally, the aggregate impact of multiple risk factors, whether presently deemed material or immaterial, could similarly result in a material effect on our financial condition, results of operations, business and prospects.

(See also “Item 7.

1 unchanged sentence

Risks Related to Economic and Market Conditions

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.

First Financial’s success depends, in part, on economic and political conditions, local and national, as well as governmental fiscal and monetary policies.

Conditions such as inflation, recession, unemployment, changes in interest rates, fiscal and monetary policy and other factors beyond First Financial’s control may affect its deposit levels and composition, demand for loans, the ability of borrowers to repay their loans and the value of the collateral securing the loans it makes.

Economic turmoil in different regions of the world, as well as military conflicts such as those currently ongoing in Ukraine and the Middle East, affect the economy and stock prices in the United States, which can affect First Financial’s earnings and capital and the ability of its customers to repay loans.

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.

While the Federal Reserve slowed the pace of interest rate hikes earlier in 2023, it may remain open to increasing rates further should inflation dynamics remain unfavorable.

Weakness in the economy and governmental policies, whether or not adopted in response to economic conditions such as inflation, may adversely affect us.

Our success depends, in part, on economic and political conditions, local and national, as well as governmental fiscal and monetary policies.

Conditions such as inflation, deflation, recession, unemployment, changes in interest rates, tariffs, fiscal and monetary policy and other factors beyond our control may affect our deposit levels and composition, demand for loans and other products and services, the ability of borrowers to repay their loans and the value of the collateral securing the loans it makes.

Economic turmoil in different regions of the world, as well as military conflicts such as those currently ongoing in Ukraine and the Middle East, affect the economy and stock prices in the United States, which can affect our earnings and capital and the ability of our customers to repay loans.

The new Presidential administration has stated its intention to scrutinize the United States’ trade relationships with its economic partners, indicated an interest in renegotiating trade agreements, and stated a willingness to implement tariffs with some of the United States’ trade partners which could lead to trade wars.

These statements by the administration have signaled a change in the United States’ economic policies, and it is not clear which policies, if any, will be implemented and what effect these policies may have on the local, national, and global economy.

Trade wars and tariffs can affect the economy and stock prices in the United States and can impact the costs of goods paid by customers, which can affect our deposit levels and concentration, the demand for loans and other products and services and the ability of our customers to repay outstanding loans, which could adversely affect our financial condition and the results of operations.

If the strength of the United States economy declines, this could result in, among other things, a deterioration of credit quality, altered consumer spending habits or a reduced demand for credit, including a resultant effect on our loan portfolio and allowance for credit losses.

While the Federal Reserve began cutting the target fed funds rate in 2024, there are no assurances that it will continue to cut the target fed funds rate in 2025 and it may remain open to increasing rates further should inflation dynamics remain unfavorable.

This scenario of higher short-term interest rates for a longer period than currently anticipated by market participants (“higher for longer”), along with other 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.

3 unchanged sentences

These fluctuations are not predictable, cannot be controlled and may have a material impact on our operations and financial condition even if other favorable events occur.

Changes in market interest rates or capital markets could affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital or liquidity.

Changes in market interest rates or financial markets could affect our revenues and expenses, the value of assets and obligations, and the availability and cost of capital or liquidity.

Given the nature of our business, and the fact that most of our assets and liabilities are financial in nature, we tend to be sensitive to market interest rate movements and the performance of the financial markets.

2 unchanged sentences

If the interest we pay on deposits and other borrowings increases at a faster rate than increases in the interest we receive on loans and investments, net interest income, and, therefore, our earnings, could be affected.

Earnings and capital levels could also be affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on deposits and other borrowings.

In addition to the general impact of the economy, changes in interest rates or in valuations in the debt, equity, or currency markets could directly impact us in one or more of the following ways:

Earnings and capital

levels could also be affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on deposits and other borrowings.

In addition to the general impact of the economy, changes in interest rates or in valuations in the debt, equity, commodities or currency markets could directly impact us in one or more of the following ways:

• the yield on earning assets and rates paid on interest bearing liabilities may change in disproportionate ways;

4 unchanged sentences

• the demand for loans and refinancings may decline, which could negatively impact income related to loan originations;

• the reset on interest rates on adjustable rate mortgages could cause financial strain on borrowers, making them more likely to default;

• to the extent we access capital markets to raise funds to support our business, such changes could affect the cost of such funds or the ability to raise such funds.

Although we have implemented procedures we believe will reduce the potential effects of changes in interest rates on our results of operations, these procedures may not always be successful.

In addition, any substantial or prolonged change in

market interest rates could affect our financial condition, results of operations and liquidity.

During 2023, the target fed funds rate increased by 100 basis points.

Because the First Financial balance sheet is asset sensitive, these interest rate increases resulted in $108.6 million of incremental net income in 2023.

Our loan portfolio consists of a significant number of loans secured by real estate and other assets, the value of which can be affected by market conditions.

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

In addition, any substantial or prolonged change in market interest rates could affect our financial condition, results of operations and liquidity.

During 2024, the target fed funds rate decreased by 100 basis points.

Because our balance sheet is asset sensitive, these interest rate decreases resulted in a decline in our net income in 2024.

The Presidential Administration’s regulatory agenda could result in substantial impact to our regulatory compliance procedures and operations.

We anticipate that the Presidential administration will seek to implement a regulatory reform agenda that is significantly different than that of the Biden administration, impacting the rulemaking, supervision, examination and enforcement priorities of the federal banking agencies.

While we do not specifically know what these changes will be, we may be required to implement different compliance procedures and modify our policies and activities to comply with changes set forth by the administration.

This may cause us to incur additional costs and expenses, and dedicate additional resources, to achieve compliance with any changes from the Presidential administration, which can impact our financial condition and the results of our operations.

Local economic factors may adversely affect our business and the results of our operations.

Our community banking business model and local market focus has led to a concentration in the markets in which we operate, namely Indiana, Ohio, Kentucky and Illinois.

As a result of this geographic concentration, our results of operations are largely dependent on economic conditions in these local markets.

Changes to the economic conditions in these local markets, which may be different from the national economic conditions, may adversely affect our financial condition and the results of our operations.

Declines in the local economic conditions in our market areas could impact:

our deposit levels and composition;

the demand for our products and services;

the strength of our credit quality;

the demand for loans;

the ability of borrowers to repay their loans;

the value of collateral securing loans;

the number of foreclosures and workouts;

the amount of our allowance for credit losses;

and the number of loans that we charge off.

This can lead to a detrimental impact on our financial condition and the results of our operations.

Our loan portfolio and investments in mortgage-backed securities consist of a significant number of loans secured by real estate and other assets, the value of which can be affected by national and local market conditions.

We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer and other loans and hold as investments a number of mortgage-backed securities, including collateralized mortgage obligations.

Many of our loans are secured by real estate (both residential and commercial) within our market area.

A major change in the real estate market, such as deterioration in the value of collateral, or in the local or national economy, could affect our customers' ability to pay these loans, which in turn could impact our results of operations and financial condition.

financial condition.

Additionally, increases in unemployment also may affect the ability of certain clients to repay loans and the financial results of commercial clients in localities with higher unemployment, may result in loan defaults and foreclosures and may impair the value of our collateral.

This is especially relevant in light of the sustained inflation and rising interest rates experienced in 2023.

Increases in loan defaults may also lead to additional losses in our investments in mortgage-backed securities, including collateralized mortgage obligations.

In 2024, we experienced losses in mortgage-backed securities primarily due to a $9.7 million impairment loss on two commercial mortgage backed securities where the underlying collateral consisted of skilled nursing facilities with credit deterioration, which we expect to sell in the near term.

This is especially relevant in light of the ongoing inflationary pressures and potential impact of trade wars and tariffs to increase those inflationary pressures.

Loan defaults and foreclosures are unavoidable in the banking industry, and we try to limit our exposure to this risk by monitoring carefully our extensions of credit.

Additionally, a concentration of natural disasters or a significant disruption in the insurance market could impact the risk relating to our insurance lending business.

We cannot fully eliminate credit risk, and as a result, credit losses may increase in the future.

Weakness in the secondary market for residential mortgage loans could affect us.

Disruptions in the secondary market for residential mortgage loans limit the market for and liquidity of many mortgage loans.

The effects of mortgage market challenges, combined with reductions in residential real estate market prices and reduced levels of home sales, could affect the value of collateral securing mortgage loans that we hold, mortgage loan originations and profits on sales of mortgage loans.

In 2024, our classified asset balances increased $83.1 million, driven by a $45.0 million asset that was recorded following the mutually agreed upon termination of a foreign exchange trade, as well as the downgrade of three commercial real estate loans, one commercial and industrial loan and one construction loan.

Continued increases in our classified asset balances and/or an increase in loan defaults may also increase our costs associated with servicing these loans, foreclosing on properties and costs of property maintenance on foreclosed properties .

We cannot fully eliminate credit risk, and as a result, credit losses may increase in the future and impact our financial condition and results of operations.

Weakness in the secondary market for residential mortgage loans could affect our financial condition and results of operations.

Declines in demand for residential mortgage loans, changed government laws or regulations or other disruptions in the secondary market for residential mortgage loans can limit the market for and liquidity of many mortgage loans that we seek to sell in the secondary market.

The effects of these disruptions to the secondary market for residential morgage loans, as well as reductions in residential real estate market prices and declining home sales, could affect the value of collateral securing mortgage loans that we hold, income generated from mortgage loan originations and profits on sales of mortgage loans in the secondary market.

Such conditions could result in higher losses or charge-offs in our mortgage loan portfolio and other lines of business.

Declines in real estate values, home sale volumes, financial stress on borrowers as a result of job losses, interest rate resets on adjustable rate mortgage loans or other factors could have further effects on borrowers that could result in higher delinquencies and greater charge-offs in future periods, which would affect our financial condition or results of operations.

Declines in real estate values, home sale volumes, financial stress on borrowers as a result of job losses, interest rate resets on adjustable rate mortgage loans or other factors, either independently or in the aggregate could have further effects on borrowers that could result in higher delinquencies and greater charge-offs in future periods, which would affect our financial condition or results of operations.

A decline in home values or overall economic weakness could also have an impact upon the value of real estate or other assets which we own upon foreclosing a loan and our ability to realize value on such assets.

2 unchanged sentences

At times, we also maintain certain assets that are classified and accounted for as trading assets.

The changes in fair value of available-for-sale securities are recognized in shareholders' equity as a component of other comprehensive income.

The changes in fair value of available-for-sale securities are recognized in shareholders' equity as a component of other comprehensive income, and these securities typically decrease in value when market interest rates rise.

The changes in fair value of financial instruments classified as trading assets are carried at fair value with changes in fair value recognized in earnings.

1 unchanged sentence

We manage the market risks associated with these instruments through broad asset/liability management strategies.

Changes in the market values of these financial instruments could have a material impact on our financial condition or results of operations.

Changes in the market values of these financial instruments or conditions that would require us to dispose of these investment securities earlier than anticipated could have a material impact on our financial condition or results of operations.

We may classify additional financial assets or financial liabilities at fair value in the future.

4 unchanged sentences

This process, which is critical to our financial results and condition, requires difficult, subjective and complex judgments, including reviews of economic conditions and how these economic conditions might impair the ability of our borrowers to repay their loans.

As is the case with any such assessments, there is always the chance that we will fail to identify the proper factors or that we will fail to accurately estimate the impacts of factors that we identify.

In addition, large loans, letters of credit and contracts with individual counterparties in our portfolio magnify the credit risk that we face, as the impact of large borrowers and counterparties not repaying their loans or performing according to the terms of their contracts has a disproportionately significant impact on our credit losses and reserves.

As is the case with any such assessments, there is always the chance that we will fail to identify the proper factors, that we will fail to accurately estimate the impacts of factors that we identify, or that we fail to accurately estimate the aggregate impacts of factors that we identify, all of which could impact the credit quality of our portfolio and have

an impact on the results of operations.

The information that we use in managing our credit risk may be inaccurate or incomplete, which may result in an increased risk of default and otherwise have an effect on our business, results of operations and financial condition.

1 unchanged sentence

We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors.

Nonetheless, in the near-term, high interest rates along with rising costs, particularly robust wage growth, are expected to weigh on firms’ profit margins.

Likewise, the resumption of federal student loan payments in October 2023 and the discontinuation of other government support programs pose uncertainty regarding the potential impacts on some borrowers’ ability to pay.

Nonetheless, in the near-term, higher interest rates along with elevated costs are expected to weigh on firms’ profit margins.

Although we regularly review our credit exposure to specific clients and counterparties and to specific industries that we believe may present credit concerns, default risk may arise from events or circumstances that are difficult to detect, such as fraud.

1 unchanged sentence

We may also fail to receive full information with respect to the risks of a counterparty.

In addition, in cases where we have extended credit against collateral, we may find that we are under-secured, for example, as a result of sudden declines in market values that reduce the value of collateral or due to fraud with respect to such collateral.

If such events or circumstances were to occur, it could result in a potential loss of revenue and have an effect on our business, results of operations and financial condition.

In addition, in cases where we have extended credit against collateral and/or guarantees, we may find that we are under-secured, for example, as a result of sudden declines in market values that reduce the value of collateral or due to fraud with respect to such collateral or the ability of a guarantor to fulfill its financial obligations.

If such events or circumstances were to occur, it could result in a potential loss of revenue, increase in costs and have an effect on our business, results of operations and financial condition.

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

5 unchanged sentences

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 such model.

We adjust our 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.

1 unchanged sentence

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.

The 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.

The 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.

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

5 unchanged sentences

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

In 2022, we recorded $6.7 million of provision expense as our loan portfolio grew and the overall duration of the portfolio extended due to rising interest rates.

In 2023, we recorded $43.1 million of provision expense as our loan portfolio grew, net charge-offs increased and the overall duration of the portfolio extended due to rising interest rates and slower loan prepayments.

In 2024, we recorded $49.2 million of provision expense as our loan portfolio grew and the overall duration of

the portfolio extended due slower loan prepayments.

Depending upon future circumstances, as well as broader macroeconomic shifts, we may incur significant provision expense for credit losses in future periods.

Our foreign exchange business plays a crucial role in facilitating various financial transactions, including foreign exchange, interest rate, and soon commodity hedging for our commercial clients and is largely dependent upon a small number of large clients and market volatility that could adversely affect our financial condition, results of operations, and reputation.

In August 2019, First Financial acquired Bannockburn, which engages in various capital markets activities as part of its matched book business encompassing foreign exchange, interest rate, and, coming in 2024, commodity hedging transactions.

Our foreign exchange business plays a crucial role in facilitating various financial transactions, including foreign exchange, interest rate, and commodity hedging for our commercial clients and is largely dependent upon a small number of large clients and market volatility that could adversely affect our financial condition, results of operations, and reputation.

• Concentration risk:

2 unchanged sentences

• Market risk:

Foreign currency transactions expose us to market risk, including fluctuations in foreign exchange rates, interest rates, and commodity prices.

Foreign currency and commodities transactions expose us to market risk, including fluctuations in foreign exchange rates, interest rates, and commodity prices.

These fluctuations could result in financial losses or decreased revenues if we fail to accurately predict or manage these risks.

Foreign currency transactions historically increase as market volatility increases.

Foreign currency and commodities transactions historically increase as market volatility increases.

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

14 unchanged sentences

• Political risk:

Our foreign exchange business is also susceptible to the risk that political events or changes in government policies could negatively impact the bank's matched book business.

We rely on other companies to provide key components of our business infrastructure, creating risks of failures by such companies and cybersecurity incidents involving our customers’ information.

Digitalization and technological innovation continue to advance the trend of banks outsourcing technology operations and banks entering partnerships or other arrangements with third parties.

Our foreign exchange business is also susceptible to the risk that political events or changes in government policies, such as renegotiated trade agreements or tariffs, could negatively impact the bank's matched book business.

We rely on other companies to provide key components of our business infrastructure, creating risks of failures or disruptions by such companies and cybersecurity incidents which may involve our customers’ information.

Digitalization and technological innovation continue to advance the trend of banks outsourcing technology operations and entering partnerships or other arrangements with third parties.

Third parties provide key components of our business infrastructure, such as processing and internet connections and network access.

These vendors also provide services that support our operations, including the storage and processing of sensitive consumer and business customer data, as well as our sales efforts.

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.

Any disruption in such services provided by these third parties, any failure of these third parties to handle current or higher volumes or any failure of third parties to perform in accordance with their agreements with us 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 such difficulties result in the interruption or discontinuation of services provided by that party, and could lead to potential regulatory issues, reputational harm and impact the results of our operations.

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

A material breach of customer data security at a service provider's site may negatively impact our business reputation and cause a loss of customers, result in increased expense to contain the event and/or require that we provide credit monitoring services for affected customers, result in regulatory fines and sanctions, and may result in litigation.

We may experience liability to our customers for losses arising from a breach of a vendor's data security system.

1 unchanged sentence

Furthermore, we may not be insured against all types of losses as a result of third-party failures, and our insurance coverage may be inadequate to cover all losses resulting from system failures or other disruptions.

Failures in our business infrastructure could interrupt the operations or increase the costs of doing business.

Failures in our business infrastructure could interrupt our operations, cause reputational harm, increase the costs of doing business and impact the results of our operations.

Unauthorized use or disclosure of sensitive or confidential client or customer information, whether through a breach of our computer systems or otherwise, or other breaches in the security of our systems could harm our business.

2 unchanged sentences

Ransomware actors continue to affect the sector by targeting banks and their third parties.

These attacks have the potential to affect banks and market operations by rendering critical data inaccessible as well as by threatening the confidentiality of customer data through data leaks.

These attacks have the potential to affect banks and market operations by rendering critical data inaccessible as well as by threatening the confidentiality of customer data obtained by these bad actors or through data leaks.

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

Our systems can be rendered inoperable, resulting in our inability to provide service to our customers.

Any security breach involving the misappropriation, loss, destruction or unauthorized disclosure of confidential customer information, whether by us or by our vendors, could severely damage our reputation, expose us to the risk of litigation and liability, disrupt our operations and have a material effect on our business.

Cybersecurity risk management programs are expensive to maintain and will not protect us from all risks associated with maintaining the security of customer data and our proprietary data from external and internal intrusions, disaster recovery and failures in the controls used by our vendors.

Any security breach involving the misappropriation, loss, destruction or unauthorized disclosure of confidential customer information, whether by us or by our vendors, could severely damage our reputation, lead to a loss of customers, expose us to the risk of litigation and liability, result in regulatory fines, penalties, or orders, disrupt our operations and have a material effect on our business, our financial condition and the results of our operations.

Cybersecurity risk management programs are expensive to maintain and mitigate cybersecurity risks, but will not protect us from all risks associated with maintaining the security of customer data and our proprietary data from external and internal intrusions, disaster recovery and failures in the controls used by our vendors.

Employee error or misconduct may result in failure to implement policies and procedures designed to avoid risks.

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

Moreover, as technology and cyberattacks change over time, we must continually monitor and change systems to guard against new threats, while also training our employees to remain diligent against cyberattacks.

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 our business and results of operations.

We rely on our systems, employees and certain counterparties, and certain failures could affect our operations.

We are exposed to many types of operational risk, including the risk of fraud by employees and outsiders, clerical and record-keeping errors, and computer/telecommunications systems malfunctions.

Congress and the legislatures of states in which we operate regularly consider legislation that would impose more stringent data privacy requirements which may result in increased costs of compliance and impact the results of our operations.

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

We rely on our systems, employees and certain counterparties, and certain failures or actions could affect our operations.

We are exposed to many types of operational risks, some of which are outside of our control, including, but not limited to, the risk of fraud or theft by employees and outsiders, clerical and record-keeping errors, computer/telecommunications systems malfunctions, and risks regarding the operations of our third party vendors.

Our business is dependent on our ability to process a large number of increasingly complex transactions.

If any of our financial, accounting or other data processing systems fail or have other significant shortcomings, we could be affected.

We depend on internal systems and outsourced technology to support these data storage and processing operations.

If any of our financial, accounting or other data processing or technological systems fail or have other significant shortcomings, our business could be affected.

We depend on internal systems and outsourced technology to support these data storage and processing operations, as well as harm our reputation amongst our customers.

Our inability to use or access these information systems at critical points in time could unfavorably impact the timeliness and efficiency of our business operations.

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 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.

Such events can also impact power or communications systems operated by others on which we rely.

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

These, and similar types of attacks and/or breaches of data, could result in losses in the form of lost revenues, costs to remediate, reputational harm, litigation losses and other impacts to our financial condition and results of operations.

Additionally, we could be affected if one of our employees or a third-party service provider causes a significant operational breakdown 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, accidents outside of our control, terrorism, international hostilities, and other exceptional or outlier events outside of our control.

Such events can impact operational systems operated by us or others on which we rely and can result in an impact to our business operations and subsequent impacts to our financial condition and results of operations.

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

While we have implemented precautions to mitigate the risk, 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 and/or regulatory enforcement actions, including fines, penalties and restrictions on our business.

In addition, continuing cyberattacks and current geopolitical tensions highlight the importance of heightened threat monitoring and safeguarding against disruptive attacks targeting the financial sector.

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.

There have also been increased instances of scammers who target clients to gain access to their accounts to conduct transactions or convince customers to initiate transactions for the scammers’ benefit.

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.

Such activity can result in financial liability and harm to our reputation.

Such activity can result in financial liability to us and/or our customers and harm to our reputation and impact the results of our operations.

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 provide liquidity from other sources.

6 unchanged sentences

To enhance liquidity, we may borrow under credit facilities or from other sources.

Turbulence in the capital and credit markets may cause many lenders and institutional investors to reduce or cease to provide funding to borrowers and, as a result, we may not be able to further increase liquidity through additional borrowings.

Limitations on our ability to receive dividends from our subsidiaries or an inability to increase liquidity through additional borrowings, or inability to maintain, renew or replace existing credit facilities, could have a material effect on our liquidity and on our ability to pay dividends on our common shares and interest and principal on our debt.

As of December 31, 2023, we had indebtedness of $1.3 billion.

As of December 31, 2024, we had indebtedness of $1.1 billion which was a decrease from $1.3 billion in 2023 in large part due to an increase in deposits.

If deposits were to decrease, we may need to incur additional indebtedness to ensure that we have adequate levels of liquidity.

Clients could pursue alternatives to bank deposits, causing us to lose a relatively inexpensive source of funding.

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

We regularly perform liquidity tress testing and sensitivity analyses of deposit assumptions.

We regularly perform liquidity stress testing and sensitivity analyses of deposit assumptions.

Both remain critical given recent trends in deposit balance and interest rate movements, as well as uncertainty regarding depositor behavior moving forward.

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.

Consumers may move money out of bank deposits in favor of other investments, including digital assets or cryptocurrency or money market funds, or into alternative financial services providers.

When clients move money out of bank deposits in favor of alternative investments or to alternative financial services providers, we can lose a relatively inexpensive source of funds, increasing our funding costs, and impacting the results of our operations.

Sound liquidity risk management, including processes that ensure sufficient committed capacity to meet contingent liquidity needs, remains critical.

Our financial condition, results of operations, and stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions.

The recent bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California, and the decision of Silvergate Bank in California to voluntarily liquidate its assets and wind down operations, each of which occurred during the first and second quarters of 2023, have caused uncertainty in the investor community and negative confidence among bank customers generally.

While we do not believe that the circumstances of these banks' failures and liquidations are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adverselyaffect financial markets and/or have a negative reputational ramification for the financial services industry, including us.

Our financial condition, results of operations, and stock price may be negatively impacted by unrelated bank failures and negative depositor and/or investor confidence in depository institutions.

The 2023 bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California, and the decision of Silvergate Bank in California to voluntarily liquidate its assets and wind down operations have caused uncertainty in the investor community and negative confidence among bank customers generally.

While we do not believe that the circumstances of these banks' failures and liquidations are indicators of broader issues with the banking system, the failures may reduce customer confidence, affect sources of funding and liquidity, increase regulatory requirements and costs, adversely affect financial markets and/or have a lasting negative reputational ramification for the financial services industry, including us.

These bank failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions, which in turn led to a greater focus by institutions, investors, and regulators on the on-balance sheet liquidity of and funding sources for financial institutions and the composition of its deposits.

Notwithstanding, our efforts to promote deposit insurance coverage with our customers and otherwise effectively manage our liquidity, deposit portfolio retention, and other related matters, our financial condition, results of operation, and stock price may be adversely affected by future negative events within the banking sector and adverse customer or investor responses to such events.

Notwithstanding, our efforts to promote deposit insurance coverage with our customers and otherwise effectively

manage our liquidity, deposit portfolio retention, and other related matters, our financial condition, results of operation, and stock price may be adversely affected by future negative events within the banking sector and adverse customer or investor responses to such events.

Disruptions in our ability to access capital markets on desirable terms may affect our capital resources, liquidity and business.

13 unchanged sentences

Projections for new business initiatives and strategies may prove inaccurate.

The introduction, implementation, withdrawal, success and timing of business initiatives and strategies, including, but not limited to, the opening of new banking centers or entering into new product lines, may be less successful or may be different than anticipated, which could affect our business.

The Bank makes certain projections and develops plans and strategies for its banking and financial products.

If we do not accurately determine demand for our banking and financial products, it could result in us incurring significant expenses without the anticipated increases in revenue, which could result in a material effect on the Bank’s business and/or capital.

If we do not accurately forecast demand for our banking and financial products, it could result in us incurring significant expenses without the anticipated increases in revenue, which could result in a material effect on the Bank’s business, capital, and/or results of our operations.

We may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches of representations and warranties, borrower fraud, or certain borrower defaults, which could harm our liquidity, results of operations and financial condition.

When we sell mortgage loans, whether as whole loans or pursuant to a securitization, we are required to make customary representations and warranties to the purchaser about the mortgage loans and the manner in which they were originated.

Our whole loan sale agreements require us to repurchase or substitute mortgage loans in the event we breach any of these representations or warranties.

In addition, we may be required to repurchase mortgage loans as a result of borrower fraud.

While we have taken steps to enhance our underwriting policies and procedures, there can be no assurance that these steps will be effective or reduce risk associated with loans sold in the past.

Our whole loan sale agreements require us to repurchase or substitute mortgage loans in the event we breach any of these representations or warranties including those that are breached as a result of misrepresentations or fraud by the borrowers.

While we have taken steps to enhance our underwriting policies and procedures to protect against breaches of these representations and warranties in subsequent sales of mortgage loans, there can be no assurance that these steps will be effective or reduce risk associated with loans sold in the past.

If the level of repurchase and indemnity activity becomes material, our liquidity, results of operations and financial condition may be affected.

Competition in the financial services industry is intense and could result in our losing business and/or key personnel or experiencing reduced margins.

Competition in the financial services industry is intense and could result in our losing business and/or experiencing reduced margins.

We operate in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological changes, and continued consolidation.

1 unchanged sentence

The ability of non-banking financial institutions to provide services previously limited to commercial banks has intensified competition.

Because non-banking financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility and lower cost structures.

Because non-banking financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with

greater flexibility and lower cost structures.

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

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, such as Financial Technology Companies, or FinTechs.

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

Some of our competitors have greater financial resources and/or face fewer regulatory constraints, such as FinTechs, digital assets or cryptocurrencies.

FinTechs and other new technologies seek to complete financial transactions without banks or by utilizing banks that are not dependent on having physical branches in a customer’s market area.

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.

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

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

2 unchanged sentences

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.

Another increasingly competitive factor in the financial services industry is the competition to attract and retain talented employees across many of our business and support areas, many of whom are key to executing our strategic plan and to maintaining relationships with the customers and communities they serve.

This competition could lead to adverse effects on our business, financial condition, or operating results and could also cause us to not pursue certain business opportunities.

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

1 unchanged sentence

In addition, in our interest rate sensitive business, pressure to increase rates on deposits or decrease rates on loans could reduce our net interest margin with a resulting negative impact on our net interest income.

Consumers may decide not to use banks to complete their financial transactions, or deposit funds electronically with banks having no branches within our market area, which could affect net income.

Technology and other changes allow parties to complete financial transactions without banks.

For example, consumers can pay bills and transfer funds directly without banks.

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

These competitive pressures could result in the loss of fee income and client deposits, increase our funding costs and impact our financial condition and results of our operations.

Maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services.

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

There is increasing pressure to provide products and services at lower prices with increased efficiency, 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 also make substantial capital expenditures through strategic partnerships or other corporate transactions to modify, adopt, develop or implement new technologies, products or services.

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

As a result, we could lose business, be forced to price products and services on less advantageous terms to retain or attract clients, be subject to increased costs or have a detrimental effect on the results of our operations.

Failure to keep pace or successfully adopt new technologies could adversely affect the results of our operations.

In addition to the new products and services that new technologies,including digital or cryptocurrencies, blockchain and other “fintech” technologies, bring to customers, successful adoption and implementation of new technologies can allow us to increase efficiencies and enable us to better serve customers in a more efficient manner at reduced costs.

Our success depends in part on recognizing the potential of new technology that can be implemented to achieve these benefits.

We may undertake additional costs to implement new technologies.

If we are not successful in implementing the new technologies, or otherwise do not realize the intended efficiency and cost benefits of the implementation of new technologies, we may be unable to recover the costs incurred during the implementation.

Additionally, implementation of certain new technologies, such as artificial intelligence, machine learning and other large language models and similar technologies, can expose us to new or increased operational risks, including risks related to our system of internal controls.

The implementation of these new technologies may have unintended consequences due to their limitations or failure to use and implement them effectively.

Further, many of our competitors have greater resources to

develop these and other new technologies without reliance on third party vendors or developers, which can reduce their costs and exposure to third party risks, which could put us at a competitive disadvantage.

Failure to attract and/or retain key employees could impact our business operations.

We face competition for talented employees not only by others in the financial services industry, but across sectors and geographic locations, as technological advancements have made it easier for employees to pursue opportunities that previously were inaccessible because of geographical restrictions.

Failure to attract and/or retain key employees, or otherwise experiencing persistent or extreme levels of employee turnover, could lead to adverse effects on our business, financial condition or operating results and could also cause us to not pursue certain business opportunities.

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

2 unchanged sentences

As our wealth management business grows, we may also face operational risk resulting from inadequate or failed internal processes, systems or errors, and regulatory risk, which could result in penalties or restrictions due to non-compliance with laws and regulations.

Additionally, many of the same technological advances that compete with our banking services may compete with our wealth management business.

Some of our competitors have greater financial resources and/or face fewer regulatory constraints, such as FinTechs, that allow customers trade investments without the use of wealth management services.

Further, customers are seeking to invest in the cryptocurrency markets which may also reduce our assets under management.

These competitive factors could further impact the amount of assets under management, decrease our earnings, increase costs to address competitive pressures and impact our financial condition and the results of our operations.

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 of our products or services to meet our clients’ expectations or applicable regulatory requirements, corporate governance and acquisitions, social media and other marketing activities, and the implementation of environmental, social and governance practices 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.

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 acts, comments, or statements made by employees or third parties we have engaged, whether individually or on behalf of us, and the implementation of environmental, social and governance practices 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, attract and/or retain employees, could expose us to litigation and/or regulatory action, and could have a material adverse effect on the results of our operations, our stock price or result in heightened volatility.

Negative public opinion could also affect our ability to borrow funds in the unsecured wholesale debt markets.

2 unchanged sentences

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.

Additionally, our funds to pay dividends on common shares are dependent upon the results of operations and 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.

4 unchanged sentences

However, significant and/or sustained declines in First Financial’s market capitalization, especially in relation to First Financial’s book value, could be an indication of potential impairment of goodwill.

Other considerations include forecasts of revenues and expenses derived from internal management projections for a period of five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective and require significant management judgment.

Changes in these key assumptions could materially affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.

Other considerations that factor into the aggregate estimated fair value of the reporting unit include forecasts of revenues and expenses derived from internal management projections for a period of five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective and require significant management judgment.

Changes in these key assumptions could materially affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment of goodwill.

A reduction in our credit rating could affect us or the holders of our securities.

The credit rating agencies assessing our creditworthiness regularly evaluate the Company, and credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including changes in rating methodologies and conditions affecting the financial services industry and the economy.

The credit rating agencies assessing our creditworthiness regularly evaluate us, and provide a credit rating.

Credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including changes in rating methodologies and conditions affecting the financial services industry and the economy as a whole.

There can be no assurance that we will maintain our current credit rating.

A downgrade of the credit rating of the Company could affect our access to liquidity and capital, and could significantly increase our cost of funds, trigger additional collateral or funding requirements and decrease the number of investors and counterparties willing to lend to us or purchase our securities.

This could affect our growth, profitability and financial condition, including liquidity.

Potential acquisitions may disrupt our business and dilute shareholder value, and we may not be able to successfully consummate or integrate such acquisitions.

This could affect our growth, profitability, financial condition, including liquidity, and the results of our operations.

Potential acquisitions may disrupt our business and dilute shareholder value, we may not be able to successfully consummate or integrate such acquisitions, and we may not realize the anticipated benefits contemplated when pursuing a potential acquisition.

We may acquire other financial institutions, or branches or assets of other financial institutions, in the future.

We may also open new branches and enter into new lines of business or offer new products or services.

We may also open new branches and enter into new lines of business or offer new products or services either through organic expansion, mergers, acquisitions or similar corporate transactions.

Any such expansion of our business will involve a number of expenses and risks, which may include:

10 unchanged sentences

• difficulty in receiving appropriate regulatory approval for any proposed transaction;

• potential changes in banking, or tax laws or regulations or accounting rules that may affect the target company.

• potential changes in banking, tax or other laws or regulations or accounting rules that may affect the target company or our realization of any anticipated benefits or accretive shareholder value from undertaking such expansion.

We regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies.

12 unchanged sentences

In addition, our policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner.

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.

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 Estimates” 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 2024 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.

From time to time, the FASB, SEC and other regulatory agencies change the financial accounting and reporting guidance that governs the preparation of our financial statements.

These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations.

In some cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior period financial statements.

From time to time, the FASB, SEC and other regulatory agencies may change the financial accounting and reporting guidance that governs the preparation of our financial statements.

These changes can be hard to predict and can materially impact how we manage, record and report our financial condition and results of operations.

In some cases, we could be required to apply a new or revised standard retroactively, resulting in a requirement to restate prior period financial statements.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

1 unchanged sentence

We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of management's system of controls are met.

These inherent limitations include the realities that judgments in decision making can be faulty, that alternative reasoned judgments can be drawn, or that breakdowns can occur because of a simple error or mistake.

These inherent limitations include the realities that judgments in decision making can be faulty, that alternative reasoned judgments can be drawn, that some information may be reported inaccurately because we must specifically rely upon the person providing such information or that breakdowns can occur because of a simple error or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.

2 unchanged sentences

We generally maintain investment securities and trading positions in the fixed income markets.

Unrealized gains and losses associated with our investment portfolio and mark to market gains and losses associated with our investment portfolio are affected by many factors, including our credit position, interest rate volatility and volatility in capital markets, among other economic factors.

Unrealized gains and losses associated with our investment portfolio and mark-to-market risks associated with our investment portfolio are affected by many factors, including our credit position, interest rate volatility and volatility in capital markets, among other economic factors.

Our return on such investments could experience volatility, and such volatility may affect our financial condition and results of operations.

If we were required to liquidate our holdings in these investment securities and/or exit positions prior to maturity or prior than we had anticipated, it could result in losses and may affect our financial condition and results of operations.

Additionally, accounting regulations may require us to record a charge prior to the actual realization of a loss when market valuations of such securities are impaired and such impairment is considered to be other than temporary.

We also have investments in mortgage backed securities, including collateralized mortgage obligations.

These securities are participations in pools of loans secured by mortgages under which payments of principal and interest are passed through to security holders.

These securities are subject to prepayment risk, particularly during periods of declining interest rates, and extension risk during periods of rising interest rates.

Prepayments of the underlying real estate loans may shorten the lives of the securities, thereby affecting yields to maturity and market values.

Losses on investment securities were higher in 2024 due to a $9.7 million impairment loss on two commercial mortgage backed securities where the underlying collateral consisted of skilled nursing facilities with credit deterioration, which we expect to sell in the near term and $13.2 million of losses resulting from the repositioning of a portion of the investment portfolio during 2024.

While we do not expect these losses to continue in 2025, these losses are an example of losses experienced as a result of volatility in revenues derived from investment securities.

Risks Related to the Legal and Regulatory Environment

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.

As such, we are subject to a wide variety of laws and regulations.

We operate in a highly regulated industry and compliance with regulations and/or regulatory actions could impact the results of our operations.

We, as well as our 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 ODFI.

As such, we are subject to a wide variety of state and federal laws and regulations that require compliance of a complex and evolving regulatory framework.

This includes, among others, capital adequacy requirements, Anti-Money Laundering and Bank Secrecy Act compliance, consumer protection laws and data privacy laws.

As part of their supervisory process, which includes periodic examinations and continuous monitoring, the regulators have the authority to impose restrictions or conditions on our activities and the manner in which we operate our business.

Additionally, actions by regulatory agencies against us could cause us to devote significant time and resources to defending our business and may lead to penalties that materially affect us and our shareholders.

Even the reduction of regulatory restrictions could have an adverse effect on us and our shareholders if such lessening of restrictions increases competition within our industry or our market area.

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, requiring us to undertake significant remedial measures, removing key employees from their positions, imposing additional capital, operating, or oversight requirements or ultimately, in the event that any regulatory violations or actions cannot be corrected and are substantial in nature to cause an imminent risk of loss to depositors, we could be placed into receivership or conservatorship.

Additionally, investigations and/or actions by regulatory agencies against us could cause us to devote significant time and resources to defending our business and/or modifying our practices and operations and may lead to penalties or fines that materially affect us and our shareholders.

These regulatory inquiries, investigations, examinations and actions ultimately could have an adverse effect on our reputation, lead to increased costs and impact our financial condition and the results of our operations.

Regulations related to information security, data protection and data privacy could expose us to regulatory risks, civil liabilities and increase our costs.

We are subject to a variety of data protection, information security and data privacy laws, which includes the implementation of security procedures, processes and procedures to safeguard against the unauthorized use of consumer information and data breach notification obligations.

Compliance with these laws has required us to undertake costs, devote personnel and implement processes and procedures to ensure compliance.

While we have implemented processes and procedures designed to ensure compliance with these laws and regulations, there is still the possibility of non-compliance.

Our failure to comply with data protection, information security and data privacy laws could result in potentially material regulatory and/or governmental investigations, actions, litigation, fines, sanctions and reputation harm, as well as costs incurred in responding to inquiries related to these laws, which could have an impact on our financial condition and results of operations.

State and federal regulators continue to revise and/or adopt legislation regarding information security, data protection and data privacy.

Revised and/or new legislation related to information security, data protection and data privacy can result in increased costs of compliance for us and impact our financial condition and results of operations.

The regulations under which we operate are subject to change, which could result in restrictions and requirements that could detrimentally impact the results of our operations.

Because we operate in a highly regulated industry, we may be required to adapt our processes and operations may be required and modify the way we conduct business to comply with regulatory requirements.

Regulations and laws are subject to change, and changes may impact us in a variety of ways, including increasing costs to operate our business, limiting our ability to offer certain products or services, requiring us to undertake significant measures to comply with the changing regulations or otherwise impact the results of our operations.

The 2023 bank failures of Silicon Valley Bank in California, Signature Bank in New York, and First Republic Bank in California, and the decision of Silvergate Bank in California to voluntarily liquidate its assets and wind down operations may result in modifications or additional laws which we would be subject to, including potentially increasing capital requirements, modifying regulations related to liquidity risk management, deposit concentrations, capital adequacy and other additional

oversight requirements.

These changes may result in increased compliance costs which could detrimentally affect the results of our operations.

The CFPB has recently undertaken an effort to eliminate “junk fees” which could subject us and our fee practices to additional scrutiny.

“Junk fees” has not been specifically defined, but has been focused on deposit products such as overdraft fees and non-sufficient funds fees.

The CFPB is soliciting comments on fee practices to determine the next steps, if any, to take in combatting “junk fees”.

As the regulatory focus shifts towards clarifying permissible and impermissible “junk fees”, we may be required to modify our fee practices and undergo costs to comply with new or modified regulations, which may cause a reduction in our non-interest income and impact the results of our operations.

On February 1, 2025, the director of the CFPB, Rohit Chopra, was relieved of his duties by President Trump, and the new director of the CFPB ordered the CFPB to cease all activities.

It is currently unknown what, if any, of the CFPB’s policies or directives will continue.

Additionally, if the regulatory restrictions in our industry were lessened or eliminated, it could have an adverse effect on us and our shareholders if such lessening or elimination of regulatory restrictions increases competition within our industry or our market area.

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.

2 unchanged sentences

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

6 unchanged sentences

There is no assurance that any such losses would not affect our financial condition or results of operations.

Maintaining or increasing market share depends on market acceptance and regulatory approval of new products and services.

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, 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.

As a result, we could lose business, be forced to price products and services on less advantageous terms to retain or attract clients or be subject to increased costs.

Further, weaknesses of other financial institutions can affect the demand for securities in the financial institutions industry, which could have a detrimental effect on the price of our common shares.

For more details regarding the potential impacts of weakness in other financial institutions, see the Risk Factor titled “ Our financial condition, results of operations, and stock price may be negatively impacted by unrelated bank failures and negative depositor confidence in depository institutions.

” on page 22.

The fiscal and monetary policies of the United States government and its agencies could have an effect on our earnings.

2 unchanged sentences

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

For example, in 2023, the Federal Reserve Open Markets Committee increased the target fed funds rate by 100 basis points resulting in the Bank's net interest margin on a fully tax equivalent basis increasing from 3.77% to 4.40% comprised of a 206 basis point increase in earning asset yields and a 190 basis point increase in total cost of interest-bearing liabilities.

At the same time, accumulated other comprehensive loss decreased from $358.7 million in 2022 to $309.8 million in 2023, driven by an increase in the valuation of available-for-sale securities.

For example, in 2024, the Federal Reserve Open Markets Committee decreased the target fed funds rate by 100 basis points resulting in the Bank's net interest margin on a fully tax equivalent basis decreasing from 4.40% at December 31, 2023 to 4.05% at December 31, 2024 as the increase in funding costs and interest bearing liabilities outpaced the impact from increased asset yields and higher earning asset balances.

At the same time, accumulated other comprehensive loss increased from $309.8 million in 2023 to $289.8 million in 2024, driven by an increase in the valuation of available-for-sale

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

3 unchanged sentences

We are subject to extensive federal, state and local taxes, including income, excise, sales/use, payroll, property, franchise, withholding and ad valorem taxes.

The new Presidential administration has stated that it will look at possibly changing tax laws during the President's term in office.

Changes to these tax laws can impact our tax liability and the tax liabilities of our customers.

Changes to our tax liability could have a material effect on our results of operations.

In addition, our customers are subject to a wide variety of federal, state and local taxes.

Changes in taxes paid by our customers may affect their ability to purchase homes or consumer products, which could affect their demand for our loans and deposit

Changes in taxes paid by our customers may affect our deposit levels and composition and customers' demand for loans and other products and services.

In addition, such negative effects on our customers could result in defaults on the loans we have made and decrease the value of mortgage-backed securities in which we have invested.

Adverse external events outside of our control, such as natural disasters, acts of war or terrorism, new public health issues, could impact our business operations.

While we have implemented processes and procedures as part of our business continuity and disaster recovery plans, there is still the potential that adverse external events outside of our control, such as natural disasters, acts of war or terrorism, new public health issues, could impact our business operations.

These events could impact our computer systems, communication systems, damage or destroy certain facilities or cause other impacts to our operations such as loss of power, as well as impact those systems, facilities and/or operations of our third party service providers.

There is no assurance that our business continuity and disaster recovery plans can adequately account for all contingencies or adequately mitigate these risks, and the occurrence of these adverse external events could adversely impact our properties, operations, employees, customers, reputation, collateral securing loans and/or interfere with our borrowers’ abilities to repay their loans.

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