What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-08 compared with 2022-03-09 · 339 added, 560 removed, 1256 unchanged (42% of the section changed)

18 unchanged sentences

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of First Financial Corporation (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of First Financial Corporation (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income and, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

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(2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No.

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinions

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Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses on Loans

4 unchanged sentences

Provision for credit loss expense for the year ending December 31, 2022 was $(2.0) million and the Allowance for Credit Losses at December 31, 2022 was $39.8 million.

The Company utilizes the cohort or open pool methodology for determining the allowance for credit losses.

The Company utilizes the cohort or open pool methodology for determining the allowance for credit losses on loans.

The open pool methodology identifies and captures the balance of a pool of loans with similar risk characteristics, as of a particular point in time to form a cohort.

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When past performance may not be representative of future losses, the historical loss experience is supplemented with other current factors based on the risks present for each portfolio segment.

These current factors include changes in lending policies or procedures, asset specific risks, the impact of COVID-19 on customers’ operations, and economic uncertainty in forward-looking forecasts.

These current factors include changes in lending policies or procedures, asset specific risks, and economic uncertainty in forward-looking forecasts.

Economic indicators that are used in determining the economic forecast factors include unemployment rate, gross domestic product, housing starts and interest rates.

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● Testing the effectiveness of controls over the Company’s preparation and review of the allowance for credit loss calculation, including data used as the basis for adjustments related to the qualitative factors, the development and reasonableness of qualitative factors and mathematical accuracy and appropriateness of the overall calculation

• Evaluating management’s judgments in the selection of the loss estimation model as well as the loan segmentation and historical loss periods used in the model

● Evaluating management’s judgments in the selection and application of reasonable and supportable forecast of economic variables

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CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data) 2021 2020

Cash and due from banks

1 unchanged sentence

Securities available-for-sale

Loans, net of allowance for credit losses of $ 48,305 in 2021 and $ 44,076 in 2020

2,767,590 2,566,218

Net deferred loan (fees)/costs

Allowance for credit losses

Restricted stock

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Bank-owned life insurance

Goodwill 86,135 78,592

Other intangible assets

Other real estate owned

Other assets 45,728 37,530

TOTAL ASSETS $ 5,175,099 $ 4,560,520

LIABILITIES AND SHAREHOLDERS’ EQUITY

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Interest-bearing:

Certificates of deposit that meet or exceed the FDIC insurance limit 74,015 107,764

Certificates of deposit exceeding the FDIC insurance limits

Other interest-bearing deposits

4,409,569 3,755,945

Short-term borrowings

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Common stock, $ 0.125 stated value per share;

Authorized shares- 40,000,000

Issued shares- 16,096,313 in 2021 and 16,075,154 in 2020

Outstanding shares- 12,629,893 in 2021 and 13,558,511 in 2020

Authorized shares- 40,000,000 Issued shares- 16,114,992 in 2022 and 16,096,313 in 2021 Outstanding shares- 12,051,964 in 2022 and 12,629,893 in 2021

Additional paid-in capital

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Treasury shares at cost- 4,063,028 in 2022 and 3,466,420 in 2021

( 118,125 ) ( 76,702 )

TOTAL SHAREHOLDERS’ EQUITY

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Years Ended December 31,

(Dollar amounts in thousands, except per share data) 2021 2020 2019

INTEREST AND DIVIDEND INCOME:

INTEREST INCOME:

Loans, including related fees

Taxable 13,998 13,625 15,191

Tax-exempt 8,762 7,952 7,674

Other 1,438 1,667 1,468

TOTAL INTEREST AND DIVIDEND INCOME 152,198 160,485 149,121

TOTAL INTEREST INCOME

INTEREST EXPENSE:

Deposits 8,158 12,801 15,711

Short-term borrowings

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NET INTEREST INCOME

Provision for credit loss expense 2,466 10,528 4,700

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 140,935 135,818 126,952

Provision for credit losses

NET INTEREST INCOME AFTER PROVISION

FOR CREDIT LOSSES

NON-INTEREST INCOME:

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Other service charges and fees

Securities gain (loss), net 114 233 44

Insurance commissions 162 158 133

Gain on sale of mortgage loans 5,003 6,626 2,573

Other 3,249 4,136 4,859

Securities gains, net

Interchange income

Loan servicing fees

Gain on sales of mortgage loans

TOTAL NON-INTEREST INCOME

NON-INTEREST EXPENSES:

NON-INTEREST EXPENSE:

Salaries and employee benefits

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Equipment expense

Federal Deposit Insurance 1,294 316 693

Other 32,690 31,741 33,041

TOTAL NON-INTEREST EXPENSE

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Provision for income taxes

NET INCOME 52,987 53,844 48,872

OTHER COMPREHENSIVE INCOME

OTHER COMPREHENSIVE INCOME (LOSS)

Change in unrealized gains/(losses) on securities, net of reclassifications and taxes

Change in funded status of post retirement benefits, net of taxes

COMPREHENSIVE INCOME $ 40,797 $ 71,109 $ 64,825

EARNINGS PER SHARE:

BASIC AND DILUTED $ 4.02 $ 3.93 $ 3.80

COMPREHENSIVE INCOME (LOSS)

PER SHARE DATA

Basic and Diluted Earnings per Share

Weighted average number of shares outstanding (in thousands)

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Common Additional Retained Accumulated

Comprehensive Treasury

(Dollar amounts in thousands, except per share data) Stock Capital Earnings Income/(Loss) Stock Total

Comprehensive

(Dollar amounts in thousands, except per share data)

Income/(Loss)

Balance, January 1, 2020

Net income — — 48,872 — — 48,872

Other comprehensive income (loss)

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Contribution of 39,029 shares to ESOP

— 422 — — 829 1,251

Acquisition of HopFed, Inc.

(1,423,143 shares) 178 61,700 — — — 61,878

Cash Dividends, $ 1.05 per share

— — ( 13,533 ) — — ( 13,533 )

Balance, December 31, 2020

Cumulative change in accounting principle (Note 1) — — (10,483) — — (10,483)

Balance, January 1, 2020 2,005 139,694 481,572 (7,501) (68,645) 547,125

Net income — — 53,844 — — 53,844

Other comprehensive income (loss)

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Contribution of 31,355 shares to ESOP

— 308 — — 1,163 1,471

Cash Dividends, $ 1.16 per share

— — ( 14,313 ) — — ( 14,313 )

Balance, December 31, 2021

Net income — — 52,987 — — 52,987

Other comprehensive income (loss)

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Contribution of 29,966 shares to ESOP

— 354 — — 1,048 1,402

Cash Dividends, $ 1.28 per share

— — ( 14,951 ) — — ( 14,951 )

Balance, December 31, 2022

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Years Ended December 31,

(Dollar amounts in thousands, except per share data) 2021 2020 2019

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $ 52,987 $ 53,844 $ 48,872

Adjustments to reconcile net income to net cash provided by operating activities:

Net (accretion) amortization on securities 8,433 7,184 4,848

Net amortization (accretion) of premiums and discounts on investments

Provision for credit losses

Securities (gains) losses ( 114 ) ( 233 ) ( 44 )

Securities gains

Depreciation and amortization

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Contribution of shares to ESOP

Stock compensation expense 807 820 801

Restricted stock compensation

Gain on sale of mortgage loans

Loss (gain) on sales of other real estate 18 ( 761 ) 44

(Gain) Loss on sale of other real estate

Origination of loans held for sale

Proceeds from loans held for sale

Other, net ( 19,432 ) 1,998 ( 9,080 )

NET CASH FROM OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES:

Sales of securities available-for-sale 9,369 28,161 3,259

Proceeds from sales of securities available-for-sale

Calls, maturities and principal reductions on securities available-for-sale

Purchases of securities available-for-sale

Loans made to customers, net of payments 31,628 53,144 ( 47,169 )

Proceeds from loans sold previously classified as portfolio loans

Loans made to customers, net of repayment

Net change in federal funds sold

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Cash received (disbursed) from acquisitions

Sale of other real estate 929 3,941 756

Proceeds from sales of other real estate owned

Additions to premises and equipment

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Dividends paid

Purchases of treasury stock ( 42,471 ) ( 9,220 ) ( 315 )

Purchase of treasury stock

Proceeds from other borrowings

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NET CHANGE IN CASH AND CASH EQUIVALENTS

CASH AND DUE FROM BANKS, BEGINNING OF YEAR 657,470 127,426 74,388

CASH AND DUE FROM BANKS, END OF YEAR $ 682,807 $ 657,470 $ 127,426

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD

CASH AND DUE FROM BANKS, END OF PERIOD

SUPPLEMENTAL DISCLOSURES OF CASH FLOW AND NONCASH INFORMATION:

Cash paid for the year for:

Interest $ 9,144 $ 14,845 $ 16,339

Income Taxes $ 15,025 $ 7,549 $ 9,595

See accompanying notes.

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Organization:

The consolidated financial statements of First Financial Corporation and its subsidiaries (the Corporation) include the parent company and its wholly-owned subsidiaries, First Financial Bank, N.A.

headquartered in Vigo County, Indiana, The Morris Plan Company of Terre Haute (Morris Plan), First Chanticleer Corporation, a property rental entity headquartered in Terre Haute, Indiana, JBMM, LLC, Heritage USA Title LLC, and Fort Webb LP, LLC, and FFB Risk Management Co., Inc., a captive insurance subsidiary headquartered in Las Vegas, Nevada.

The consolidated financial statements of First Financial Corporation and its subsidiaries (the Corporation) include the parent company and its wholly-owned subsidiaries, First Financial Bank, N.A., headquartered in Vigo County, Indiana, and FFB Risk Management Co., Inc., a captive insurance subsidiary headquartered in Las Vegas, Nevada.

Inter-company transactions and balances have been eliminated.

First Chanticleer Corporation was dissolved in December 2020.

First Financial Bank also has two investment subsidiaries, Portfolio Management Specialists A (Specialists A) and Portfolio Management Specialists B (Specialists B), which were established to hold and manage certain assets as part of a strategy to better manage various income streams and provide opportunities for capital creation as needed.

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Portfolio Management Specialists B also owns First Financial Real Estate, LLC.

At December 31, 2021, $ 910.1 million of securities and loans were owned by these subsidiaries.

At December 31, 2022, $ 1.0 billion of securities and loans were owned by these subsidiaries.

Specialists A, Specialists B, Global Portfolio Limited Partners and First Financial Real Estate LLC are included in the consolidated financial statements.

First Financial Bank also has wholly-owned subsidiaries JBMM, LLC and Fort Webb LP, LLC.

The Corporation, which is headquartered in Terre Haute, Indiana, offers a wide variety of financial services including commercial, mortgage and consumer lending, lease financing, trust account services and depositor services through its four subsidiaries.

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and three in Montgomery County, Tennessee.

There are four loan production offices, one in Hamilton County, Indiana;

There are five loan production offices, one in Hamilton County, Indiana;

one in Monroe County, Indiana;

one in Vanderburgh County, Indiana;

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Commercial real estate loans may be adversely affected by factors in the local market, the regional economy, or industry specific factors.

In addition, Commercial Construction loans are a specific type of commercial real estate loan which inherently carry more risk than loans for completed projects.

In addition, Commercial Construction loans are a specific type of commercial real estate loan

which inherently carry more risk than loans for completed projects.

Since these types of loans are underwritten utilizing estimated costs, feasibility studies, and estimated absorption rates, the underlying value of the project may change based upon the inaccuracy of these projections.

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We have made a policy election to report accrued interest receivable as a separate line item on the balance sheet.

The Corporation adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13), on December 31, 2020 with an effective date of January 1, 2020.

As of the adoption date, the Corporation increased the allowance for credit losses for loan, by $20 million, since the ASU covers credit losses over the expected life of a loan as well as considering future changes in macroeconomic conditions.

As of January 1, 2020, the Corporation recorded a cumulative effect adjustment of $10.5 million to decrease retained earnings.

The allowance for credit loss estimation process involves procedures to appropriately consider the unique characteristics of the loan portfolio segments.

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A loan is individually evaluated when the loan no longer shares similar risk characteristics with other loans in its respective loan pool.

a loan is individually evaluated, a portion of the allowance is allocated so that the loan is reported at the fair value of collateral, adjusted for selling costs, if repayment is expected solely from the collateral.

If a loan is individually evaluated, a portion of the allowance is allocated so that the loan is reported at the fair value of collateral, adjusted for selling costs, if repayment is expected solely from the collateral.

The pooled component covers pools of loans that share similar risk characteristics, and is based on historical loss experienced since 2008.

This historical loss experience is supplemented with other current factors based on the risks present for each portfolio segment.

These current factors include items such as changes in lending policies or procedures, asset specific risks, the impact of COVID-19 on customers’ operations, and economic uncertainty in forward-looking forecasts.

These current factors include items such as changes in lending policies or procedures, asset specific risks, and economic uncertainty in forward-looking forecasts.

Economic indicators utilized in forecasting include unemployment rate, gross domestic product, housing starts, and interest rates.

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The amortization of mortgage servicing rights is netted against loan servicing fee income.

Servicing fees totaled $ 1.3 million, $ 1.3 million and $ 1.3 million for the years ended December 31, 2021, 2020 and 2019.

Servicing fees totaled $ 1.4 million,

$ 1.3 million and $ 1.3 million for the years ended December 31, 2022, 2021 and 2020.

Late fees and ancillary fees related to loan servicing are not material.

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Transfers of Financial Assets:

Transfers of financial assets are accounted for as sales, when control over the assets has been

relinquished.

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.

Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Corporation, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.

The Corporation has selected December 31 as the date to perform the annual impairment test.

The Corporation engaged a third party to conduct an in-depth analysis of the Corporation as of October 31, 2021.

The Corporation has selected November 30 as the date to perform the annual impairment test.

The final results determined that there was no impairment of goodwill.

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The short-term portion of the plan is paid out within 75 days of year end and the long-term plan vests over a three year period and is paid out within 75 days of the end of each vesting period.

The compensation expense related to the plans in 2021, 2020 and 2019 was $ 2.3 million, $ 2.2 million and $ 1.9 million, respectively, and resulted in a liability of $ 1.8 million at December 31, 2021 and $ 1.4 million at December 31, 2020.

The compensation expense related to the plans in 2022, 2021 and 2020

was $ 2.0 million, $ 2.3 million and $ 2.2 million, respectively, and resulted in a liability of $ 1.6 million at December 31, 2022 and $ 1.8 million at December 31, 2021.

The Omnibus Equity Incentive Plan is a long term incentive plan that was designed to align the interests of participants with the interest of shareholders.

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Earnings and dividends per share are restated for stock splits and dividends through the date of issue of the financial statements.

Comprehensive Income:

Comprehensive income consists of net income and other comprehensive income.

Other comprehensive income includes unrealized gains and losses on securities available for sale and changes in the funded status of the retirement plans, net of taxes, which are also recognized as separate components of equity.

Comprehensive Income (Loss):

Comprehensive income (loss) consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and changes in the funded status of the retirement plans, net of taxes, which are also recognized as separate components of equity.

Loss Contingencies:

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Accounting Pronouncements Adopted:

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” These amendments remove specific exceptions to the general principles in Topic 740 in GAAP.

It eliminates the need for an organization to analyze whether the following apply in a given period:

exception to the incremental approach for intraperiod tax allocation;

exceptions to accounting for basis differences where there are ownership changes in foreign investments;

and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses.

It also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for:

franchise taxes that are partially based on income;

transactions with a government that result in a step up in the tax basis of goodwill;

separate financial statements of legal entities that are not subject to tax;

and enacts changes in tax laws in interim periods.

The guidance is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

The Corporation adopted ASU 2019-12 on January 1, 2021.

ASU 2019-12 did not have a material impact on the Corporation's financial statements.

Recently Issued Not Yet Effective Accounting Pronouncements :

In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The ASU provides optional expedients

and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

In January 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.

The Corporation is evaluating the impacts of this ASU and has not yet determined whether LIBOR transition and this ASU will have material effects on the Corporation's business operations and consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848”, which defers the sunset date of relief provisions within Topic 848 from December 31, 2022 to December 31, 2024.

The objective of the guidance in Topic 848 is to provide relief during the transition period.

The guidance is effective for all entities as of March 12, 2020 through December 31, 2024 The Corporation has discontinued originating LIBOR based loans and has a plan in place to transition all LIBOR indexed loans to term SOFR.

Recently Issued Not Yet Effective Accounting Pronouncements:

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-02, “Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures” (ASU 2022-02).

ASU 2022-02 eliminates the accounting guidance for troubled debt restructurings (TDRs) in ASC 310-40, “Receivables - Troubled Debt Restructurings by Creditors” for entities that have adopted the current expected credit loss (CECL) model introduced by ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (ASU 2016-13).

ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments—Credit Losses—Measured at Amortized Cost”.

ASU 2022-02 is effective for the Corporation for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted.

The Corporation is evaluating the effect that ASU 2022-02 will have on its consolidated financial statements and related disclosures.

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-03 “Fair Value Measurements (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

ASU 2022-03 is effective for the Corporation for fiscal years

beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption is permitted.

The Corporation is evaluating the effect that ASU 2022-03 will have on its consolidated financial statements and related disclosures.

FAIR VALUES OF FINANCIAL INSTRUMENTS:

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December 31, 2022

Fair Value Measurement Using

(Dollar amounts in thousands) Level 1 Level 2 Level 3 Carrying Value

Government entity mortgage-backed securities $ — $ 120,123 $ — $ 120,123

Fair Value Measurements Using

Significant Unobservable Inputs (Level 3)

(Dollar amounts in thousands)

Government agencies

Mortgage Backed Securities-residential

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Collateralized mortgage obligations

State and municipal obligations — 378,203 1,895 380,098

State and municipal

Municipal taxable

Treasury — 204 — 204

Collateralized debt obligations

Other securities — 3,477 1,743 5,220

TOTAL $ — $ 1,357,737 $ 6,997 $ 1,364,734

Derivative Assets

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December 31, 2021

Fair Value Measurement Using

(Dollar amounts in thousands) Level 1 Level 2 Level 3 Carrying Value

Government entity mortgage-backed securities $ — $ 97,814 $ — $ 97,814

Fair Value Measurements Using

Significant Unobservable Inputs (Level 3)

(Dollar amounts in thousands)

Government agencies

Mortgage Backed Securities-residential

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Collateralized mortgage obligations

State and municipal obligations — 304,236 1,895 306,131

State and municipal

Municipal taxable

Treasury — 2,753 — 2,753

Collateralized debt obligations

TOTAL $ — $ 1,015,713 $ 5,031 $ 1,020,744

Derivative Assets

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The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the twelve months ended December 31, 2022 and 2021.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

December 31, 2022

State and municipal obligations Collateralized debt obligations Other securities Total

Collateralized

(Dollar amounts in thousands)

debt obligations

Other securities

Beginning balance, January 1

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Included in other comprehensive income

Purchases — — 1,743 1,743

Settlements — — — —

Ending balance, December 31

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December 31, 2021

obligations Collateralized

debt obligations Total

Collateralized

(Dollar amounts in thousands)

debt obligations

Other securities

Beginning balance, January 1

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Included in other comprehensive income

Transfers — — —

Settlements ( 670 ) — ( 670 )

Ending balance, December 31

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Other real estate owned is valued at Level 3.

Other real estate owned at December 31, 2021 with a value of $ 108 thousand was reduced by zero for fair value adjustment.

Other real estate owned at December 31, 2022 with a value of $ 337 thousand was reduced by $ 25 thousand for fair value adjustment.

At December 31, 2022 other real estate owned was comprised of $ 39 thousand from commercial loans and $ 298 thousand from residential loans.

Other real estate owned at December 31, 2020 with a value of $ 1.0 million was reduced zero for fair value adjustment.

Other real estate owned at December 31, 2021 with a value of $ 108 thousand was reduced by zero for fair value adjustment.

At December 31, 2021 other real estate owned was comprised of $ 68 thousand from commercial loans and $ 40 thousand from residential loans.

Fair value is measured based on the value of the collateral securing those loans, and is determined using several methods.

Fair value for collateral dependent loans is measured based on the value of the collateral securing those loans, and is determined using several methods.

Generally the fair value of real estate is determined based on appraisals by qualified licensed appraisers.

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The following tables present quantitative information about recurring and non-recurring Level 3 fair value measurements at December 31, 2022 and 2021.

2021 Fair Value Valuation Technique(s) Unobservable Input(s) Range

State and municipal obligations $ 1,895 Discounted cash flow Discount rate 3.41 %- 4.44 %

Collateralized debt obligations $ 3,359 Discounted cash flow Discount rate 1.83 %

Other securities $ 1,743 Discounted cash flow Discount rate 0.65 %- 1.40 %

Collateral dependent loans $ 12,839 Discounted cash flows Discount rate for age of appraisal and market conditions 0.00 %- 50.00 %

2020 Fair Value Valuation Technique(s) Unobservable Input(s) Range

State and municipal obligations $ 1,895 Discounted cash flow Discount rate 3.41 %- 4.44 %

Collateralized debt obligations $ 3,136 Discounted cash flow Discount rate 1.93 %

Collateral dependent loans $ 6,581 Sales comparison/income approach Discount rate for age of appraisal and market conditions 0.00 %- 50.00 %

(Dollar amounts in thousands)

Valuation Technique(s)

Unobservable Input(s)

State and municipal obligations

Discounted cash flow

Discount rate

Collateralized debt obligations

Discounted cash flow

Discount rate

Collateral dependent loans

Discounted cash flow

Discount rate for age of appraisal and market conditions

0.00 %- 50.00

(Dollar amounts in thousands)

Valuation Technique(s)

Unobservable Input(s)

State and municipal obligations

Discounted cash flow

Discount rate

Collateralized debt obligations

Discounted cash flow

Discount rate

Collateral dependent loans

Discounted cash flow

Discount rate for age of appraisal and market conditions

0.00 %- 50.00

The carrying amounts and estimated fair values of financial instruments are shown below.

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Loan fair value estimates represent an exit price for 2022 and 2021.

Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values.

Fair values for collateral dependent loans are estimated using discounted cash flow analysis or underlying collateral values.

Fair value of debt is based on current rates for similar financing.

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December 31, 2022

Carrying Fair Value

(Dollar amounts in thousands) Value Level 1 Level 2 Level 3 Total

(Dollar amounts in thousands)

Cash and due from banks

Federal funds sold

Securities available-for-sale

Restricted stock 16,200 n/a n/a n/a n/a

Loans, net 2,767,590 — — 2,682,257 2,682,257

Restricted stock

Accrued interest receivable

Deposits ( 4,409,569 ) — ( 4,418,117 ) — ( 4,418,117 )

( 4,368,871 )

( 4,369,402 )

Short-term borrowings

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December 31, 2021

Carrying Fair Value

(Dollar amounts in thousands) Value Level 1 Level 2 Level 3 Total

(Dollar amounts in thousands)

Cash and due from banks

Federal funds sold

Securities available-for-sale

Restricted stock 14,812 n/a n/a n/a n/a

Loans, net 2,563,242 — — 2,560,683 2,560,683

Restricted stock

Accrued interest receivable

Deposits ( 3,755,945 ) — ( 3,763,358 ) — ( 3,763,358 )

( 4,409,569 )

( 4,418,117 )

Short-term borrowings

6 unchanged sentences

December 31, 2022

Amortized Unrealized

(Dollar amounts in thousands) Cost Gains Losses Fair Value

Government entity mortgage-backed securities $ 118,176 $ 2,688 $ ( 741 ) $ 120,123

(Dollar amounts in thousands)

Government agencies

Mortgage Backed Securities - residential

3 unchanged sentences

Municipal taxable

Treasury 205 — ( 1 ) 204

Collateralized debt obligations

Other securities 5,220 — — 5,220

TOTAL $ 1,344,790 $ 30,126 $ ( 10,182 ) $ 1,364,734

December 31, 2021

Amortized Unrealized

(Dollar amounts in thousands) Cost Gains Losses Fair Value

Government entity mortgage-backed securities $ 92,710 $ 5,105 $ ( 1 ) $ 97,814

(Dollar amounts in thousands)

Government agencies

Mortgage Backed Securities-residential

3 unchanged sentences

Municipal taxable

Treasury 2,750 3 — 2,753

Collateralized debt obligations

TOTAL $ 977,830 $ 43,354 $ ( 440 ) $ 1,020,744

As of December 31, 2022, the Corporation does not have any securities from any issuer, other than the U.S.

3 unchanged sentences

(Dollar amounts in thousands)

Proceeds $ 12,886 $ 36,696 $ 11,210

Gross gains 274 290 55

Gross losses ( 160 ) ( 57 ) ( 11 )

Gains of $ 6 thousand and losses of $ 3 thousand in 2022 and gains of $ 274 thousand and losses of $ 160 thousand in 2021 and gains of $ 290 thousand and losses of $ 57 thousand in 2020 resulted from redemption premiums on called and sold securities.

2 unchanged sentences

Available-for-Sale

Amortized Fair

(Dollar amounts in thousands) Cost Value

(Dollar amounts in thousands)

Due in one year or less

2 unchanged sentences

Due after ten years

524,889 547,630

Mortgage-backed securities and collateralized mortgage obligations

TOTAL $ 1,344,790 $ 1,364,734

The following tables show the securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at December 31, 2022 and 2021.

December 31, 2022

Less Than 12 Months More Than 12 Months Total

Unrealized Unrealized Unrealized

(Dollar amounts in thousands) Fair Value Losses Fair Value Losses Fair Value Losses

Government entity mortgage-backed securities $ 48,939 $ ( 739 ) 146 ( 2 ) $ 49,085 $ ( 741 )

Less Than 12 Months

More Than 12 Months

(Dollar amounts in thousands)

Government agencies

Mortgage Backed Securities - Residential

Mortgage Backed Securities - Commercial

Collateralized mortgage obligations

1 unchanged sentence

Municipal taxable

Treasury 204 ( 1 ) — — 204 ( 1 )

Total temporarily impaired securities

December 31, 2021

Less Than 12 Months More Than 12 Months Total

Unrealized Unrealized Unrealized

(Dollar amounts in thousands) Fair Value Losses Fair Value Losses Fair Value Losses

Government entity mortgage-backed securities $ — $ — $ 944 $ ( 1 ) $ 944 $ ( 1 )

Less Than 12 Months

More Than 12 Months

(Dollar amounts in thousands)

Government agencies

Mortgage Backed Securities - Residential

Collateralized mortgage obligations

State and municipal obligations

Municipal taxable

Treasury 250 — — — 250 —

Total temporarily impaired securities

1 unchanged sentence

The unrealized losses on collateralized mortgage obligations, all mortgage-backed securities and state and municipal obligations represent negative adjustments to fair value relative to the rate of interest paid on the securities and not losses related to the creditworthiness of the issuer.

Gross unrealized losses on investment securities were $ 10.2 million as of December 31, 2021 and $ 440 thousand as of December 31, 2020.

Gross unrealized losses on investment securities were $ 172.1 million as of December 31, 2022 and $ 10.2 million as of December 31, 2021.

Management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery.

12 unchanged sentences

These securities are collateralized by trust preferred securities issued primarily by bank holding companies, but certain pools do include a limited number of insurance companies.

Collateralized debt obligations include one additional investment in a CDO consisting of pooled trust preferred securities in which the issuers are primarily banks.

This CDO was paid in full in 2015.

In the first quarter of 2017 a CDO with no remaining book value was called with the bank receiving $ 3.1 million, which is included in other non-interest income on the consolidated statements of income and comprehensive income.

In the second quarter of 2018 one of the obligations was called, resulting in the elimination of the credit loss associated with that obligation.

A recovery of previously recorded credit loss of $4.2 million was received and recognized in non-interest income for the period.

In addition the Corporation received $2.4 million of interest income associated with the call.

The table below presents a rollforward of the credit losses recognized in earnings for the years presented:

(Dollar amounts in thousands)

Beginning balance, January 1, $ 2,974 $ 2,974 $ 2,974

Beginning balance

Reductions for securities called during the period

Ending balance, December 31, $ 2,974 $ 2,974 $ 2,974

Ending balance

Loans are summarized as follows:

(Dollar amounts in thousands)

Commercial $ 1,674,066 $ 1,521,711

Residential 664,509 604,652

Consumer 474,026 479,750

Total gross loans

1 unchanged sentence

Allowance for credit losses

TOTAL $ 2,767,590 $ 2,566,218

The Corporation periodically sells residential mortgage loans it originates based on the overall loan demand of the Corporation and the outstanding balances in the residential mortgage portfolio.

1 unchanged sentence

In the normal course of business, the Corporation’s subsidiary banks make loans to directors and executive officers and to their associates.

In 2021, the aggregate dollar amount of these loans to directors and executive officers who held office amounted to

$ 57.5 million at the beginning of the year.

During 2021, advances of $ 57.5 million, repayments of $ 64.1 million, and additions for new directors of $0.0 million were made with respect to related party loans for an aggregate dollar amount outstanding of $ 50.9 million at December 31, 2021.

In 2022, the aggregate dollar amount of these loans to directors and executive officers who held office amounted to $ 50.9 million at the beginning of the year.

During 2022, advances of $ 46.2 million, repayments of $ 45.7 million, and reductions for the removal of The Morris Plan directors of $ 5.3 million were made with respect to related party loans for an aggregate dollar amount outstanding of $ 46.1 million at December 31, 2022.

Loans serviced for others, which are not reported as assets, total $ 518.1 million and $ 542.8 million at year-end 2022 and 2021.

4 unchanged sentences

Beginning of year

Additions 1,094 956 579

Amortized to expense

End of year $ 1,959 $ 1,601 $ 1,435

Third party valuations are conducted periodically for mortgage servicing rights.

24 unchanged sentences

Federal Home Loan Bank stock

Loans 227,827

Premises and equipment

Core deposit intangibles

Other assets 4,567

Total assets acquired

Liabilities assumed

Deposits 286,098

FHLB advances

2 unchanged sentences

Net identifiable assets

Goodwill $ 7,543

The fair value of net assets acquired includes fair value adjustments to certain receivables that were not considered impaired as of the acquisition date.

3 unchanged sentences

The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2020.

The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, interest expense

on deposits acquired, and the related income tax effects.

The unaudited pro forma information includes adjustments for interest income on loans and securities acquired, interest expense on deposits acquired, and the related income tax effects.

The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been effected on the assumed dates.

2 unchanged sentences

Net interest income

Net income $ 53,714 $ 55,958

Basic and diluted earnings per share

1 unchanged sentence

The gross contractual amounts receivable relating to the purchased financial assets with credit deterioration was $ 18.3 million.

The Corporation estimates, on the date of acquisition, that $4.4 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

The Corporation estimates, on

the date of acquisition, that $ 4.4 million of the contractual cash flows specific to the purchased financial assets with credit deterioration will not be collected.

ALLOWANCE FOR CREDIT LOSSES:

2 unchanged sentences

December 31, 2022

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

(Dollar amounts in thousands)

Beginning balance

PCD ACL on acquired loans 4,410 — — 4,410

Provision for credit losses

Loans charged -off

Recoveries 1,069 616 3,884 — 5,569

Ending Balance

1 unchanged sentence

December 31, 2021

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

(Dollar amounts in thousands)

Beginning balance

Impact of adopting ASC 326 6,843 9,515 2,118 17,084

PCD ACL on acquired loans

Provision for credit losses

Loans charged -off

Recoveries 856 657 3,404 — 4,917

Ending Balance

1 unchanged sentence

December 31, 2020

(Dollar amounts in thousands) Commercial Residential Consumer Unallocated Total

(Dollar amounts in thousands)

Beginning balance

Impact of adopting ASC 326

Provision for credit losses

Loans charged off

Recoveries 1,092 1,360 3,028 — 5,480

Ending Balance

1 unchanged sentence

December 31, 2022

Loans Past Non-accrual

90 Day Still With No Allowance

(Dollar amounts in thousands) Accruing Non-accrual For Credit Loss

90 Days Still

(Dollar amounts in thousands)

For Credit Loss

Commercial & Industrial

Farmland — 15 —

Non Farm, Non Residential

Agriculture — 111 —

All Other Commercial

First Liens 346 2,339 33

Home Equity — 84 —

Junior Liens 89 294 —

Multifamily — 225 —

All Other Residential

1 unchanged sentence

All Other Consumer

TOTAL $ 543 $ 9,590 $ 4,593

December 31, 2021

Loans Past Non-accrual

90 Day Still With No Allowance

(Dollar amounts in thousands) Accruing Non-accrual For Credit Loss

90 Days Still

(Dollar amounts in thousands)

For Credit Loss

Commercial & Industrial

Farmland — 195 —

Non Farm, Non Residential

Agriculture — 409 —

All Other Commercial

First Liens 1,746 2,604 86

Home Equity 88 30 —

Junior Liens 252 206 —

Multifamily — 1,380 —

All Other Residential

1 unchanged sentence

All Other Consumer

TOTAL $ 2,458 $ 15,367 $ 4,457

During the years ending December 31, 2022, 2021, and 2020 the terms of certain loans were modified as troubled debt restructurings (TDRs).

The following tables present the activity for TDR’s.

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ — $ 3,589 $ 617 $ 4,206

Added 407 491 402 1,300

Charged Off — ( 29 ) ( 82 ) ( 111 )

Payments — ( 365 ) ( 231 ) ( 596 )

December 31, $ 407 $ 3,686 $ 706 $ 4,799

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ 11 $ 3,485 $ 698 $ 4,194

Added — 692 304 996

Charged Off — ( 6 ) ( 158 ) ( 164 )

Payments ( 11 ) ( 582 ) ( 227 ) ( 820 )

December 31, $ — $ 3,589 $ 617 $ 4,206

(Dollar amounts in thousands) Commercial Residential Consumer Total

January 1, $ 145 $ 4,043 $ 618 $ 4,806

Added — 195 375 570

Charged Off — ( 24 ) ( 81 ) ( 105 )

Payments ( 134 ) ( 729 ) ( 214 ) ( 1,077 )

December 31, $ 11 $ 3,485 $ 698 $ 4,194

(Dollar amounts in thousands)

Modification of the terms of such loans typically include one or a combination of the following:

17 unchanged sentences

Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

As of December 31, 2022 no loans remained under the program.

As of December 31, 2021, 1,225 loans totaling $ 253 million were modified, related to COVID-19, that were not considered troubled debt restructurings.

As of December 31, 2020, 961 loans totaling $210 million have resumed normal scheduled payments.

204 remaining loans are still under a debt

relief plan, which include 9 commercial loans totaling $36 million that have been provided additional payment relief since the initial payment relief plan.

1 loan totaling $17 thousand is under the original payment relief plan.

As of December 31, 2021, 961 loans totaling $ 210 million had resumed normal scheduled payments.

204 remaining loans were still under a debt relief plan, which include 9 commercial loans totaling $ 36 million that had been provided additional payment relief since the initial payment relief plan.

1 loan totaling $ 17 thousand was under the original payment relief plan.

The following table presents the amortized cost basis of collateral dependent loans by class of loans:

1 unchanged sentence

Collateral Type

(Dollar amounts in thousands) Real Estate Other

(Dollar amounts in thousands)

Commercial & Industrial

Farmland 3,669 —

Non Farm, Non Residential

Agriculture — —

All Other Commercial

First Liens 33 —

Home Equity — —

Junior Liens — —

Multifamily 935 —

All Other Residential

1 unchanged sentence

All Other Consumer

Total $ 28,506 $ 720

December 31, 2021

Collateral Type

(Dollar amounts in thousands) Real Estate Other

(Dollar amounts in thousands)

Commercial & Industrial

Farmland 2,771

Non Farm, Non Residential

Agriculture — 599

All Other Commercial

First Liens 86 —

Home Equity — —

Junior Liens — —

Multifamily 1,380 —

All Other Residential

1 unchanged sentence

All Other Consumer

Total $ 14,896 $ 2,844

The following tables present the aging of the recorded investment in loans by past due category and class of loans.

December 31, 2021 30-59 Days 60-89 Days than 90 days Total

(Dollar amounts in thousands) Past Due Past Due Past Due Past Due Current Total

December 31, 2022

(Dollar amounts in thousands)

Commercial & Industrial

Farmland 57 — — 57 141,189 141,246

Non Farm, Non Residential

Agriculture 90 42 89 221 141,682 141,903

All Other Commercial

First Liens 4,686 680 949 6,315 336,064 342,379

Home Equity 131 24 58 213 62,085 62,298

Junior Liens 179 120 283 582 50,048 50,630

Multifamily 342 146 — 488 178,849 179,337

All Other Residential

1 unchanged sentence

All Other Consumer

TOTAL $ 15,178 $ 2,833 $ 3,479 $ 21,490 $ 2,802,479 $ 2,823,969

December 31, 2020 30-59 Days 60-89 Days than 90 days Total

(Dollar amounts in thousands) Past Due Past Due Past Due Past Due Current Total

December 31, 2021

(Dollar amounts in thousands)

Commercial & Industrial

Farmland 22 — 91 113 118,528 118,641

Non Farm, Non Residential

Agriculture 28 30 275 333 146,147 146,480

All Other Commercial

First Liens 5,506 1,866 2,365 9,737 314,730 324,467

Home Equity 260 29 104 393 60,362 60,755

Junior Liens 421 68 341 830 53,346 54,176

Multifamily — — — — 151,042 151,042

All Other Residential

1 unchanged sentence

All Other Consumer

TOTAL $ 14,216 $ 4,102 $ 7,408 $ 25,726 $ 2,592,827 $ 2,618,553

Credit Quality Indicators:

17 unchanged sentences

Loans listed as not rated are either less than $ 100 thousand or are included in groups of homogeneous loans.

The following tables present the recorded investment of the commercial loan portfolio by risk category:

The following tables present the commercial loan portfolio by risk category.

These balances do not include accrued interest:

December 31, 2022

Term Loans at Amortized Cost Basis by Origination Year Revolving

2021 2020 2019 2018 2017 Prior Loans Total

Commercial and Industrial Pass $ 163,588 $ 71,271 $ 80,668 $ 40,441 $ 37,739 $ 113,887 $ 111,594 $ 619,188

Term Loans at Amortized Cost Basis by Origination Year

Commercial and Industrial

Special Mention

Substandard 4,521 896 348 5,148 2,325 7,934 2,648 23,820

Doubtful — — — — — — — —

Not Rated 21,134 1,610 959 466 189 140 — 24,498

Subtotal $ 196,804 $ 74,170 $ 83,816 $ 51,430 $ 40,516 $ 126,484 $ 121,724 $ 694,944

Farmland Pass $ 25,673 $ 12,060 $ 13,111 $ 13,246 $ 11,049 $ 49,158 $ 1,418 $ 125,715

Special Mention

Substandard 3,455 444 — 326 558 2,876 — 7,659

Doubtful — — — — — — — —

Not Rated — — — — — — — —

Subtotal $ 29,128 $ 13,695 $ 14,025 $ 13,572 $ 11,949 $ 55,281 $ 1,418 $ 139,068

Non Farm, Non Residential Pass $ 81,203 $ 37,971 $ 24,716 $ 32,775 $ 54,732 $ 97,241 $ 10,548 $ 339,186

Non Farm, Non Residential

Special Mention

Substandard — — 910 — 1,440 13,391 — 15,741

Doubtful — — — — — — — —

Not Rated — — — — — 402 — 402

Subtotal $ 81,203 $ 37,971 $ 26,729 $ 32,957 $ 58,120 $ 113,030 $ 10,548 $ 360,558

Agriculture Pass $ 14,426 $ 10,386 $ 10,135 $ 2,585 $ 4,932 $ 15,755 $ 68,937 $ 127,156

Special Mention

Substandard — 20 216 — 46 485 4,828 5,595

Doubtful — — — — — — — —

Not Rated 110 120 131 55 1 — — 417

Subtotal $ 14,536 $ 10,526 $ 11,482 $ 2,640 $ 5,516 $ 16,511 $ 79,022 $ 140,233

Other Commercial Pass $ 77,821 $ 69,117 $ 33,231 $ 36,495 $ 53,479 $ 58,819 $ 3,488 $ 332,450

Other Commercial

Special Mention

Substandard 72 — 25 475 — 9 — 581

Doubtful — — — — — — — —

Not Rated 89 — — 37 — — — 126

Subtotal $ 77,982 $ 69,117 $ 33,256 $ 37,007 $ 53,479 $ 64,934 $ 3,488 $ 339,263

Multifamily >5 Residential Pass $ 37,244 $ 63,312 $ 16,037 $ 7,471 $ 5,370 $ 35,284 $ 1,434 $ 166,152

Multifamily >5 Residential

Special Mention

Substandard — — — — — 958 — 958

Doubtful — — — — — — — —

Not Rated 1,149 — — — 44 384 — 1,577

Subtotal $ 38,393 $ 63,312 $ 16,037 $ 7,471 $ 5,414 $ 46,908 $ 1,434 $ 178,969

Total Pass $ 399,955 $ 264,117 $ 177,898 $ 133,013 $ 167,301 $ 370,144 $ 197,419 $ 1,709,847

Special Mention

Substandard 8,048 1,360 1,499 5,949 4,369 25,653 7,476 54,354

Doubtful — — — — — — — —

Not Rated 22,482 1,730 1,090 558 234 926 — 27,020

Total commercial loans $ 438,046 $ 268,791 $ 185,345 $ 145,077 $ 174,994 $ 423,148 $ 217,634 $ 1,853,035

December 31, 2021

Term Loans at Amortized Cost Basis by Origination Year Revolving

2020 2019 2018 2017 2016 Prior Loans Total

Commercial and Industrial Pass $ 159,494 $ 77,253 $ 64,298 $ 41,806 $ 20,564 $ 103,598 $ 91,615 $ 558,628

Term Loans at Amortized Cost Basis by Origination Year

Commercial and Industrial

Special Mention

Substandard 3,780 323 4,187 1,148 3,543 2,565 3,124 18,670

Doubtful — — — — — — — —

Not Rated 2,618 1,772 1,446 580 105 2,255 — 8,776

Subtotal $ 170,740 $ 80,679 $ 74,358 $ 43,750 $ 25,490 $ 112,984 $ 98,434 $ 606,435

Farmland Pass $ 10,010 $ 12,775 $ 12,149 $ 10,089 $ 15,863 $ 40,338 $ 1,386 $ 102,610

Special Mention

Substandard 1,718 2,303 — 716 1,628 826 — 7,191

Doubtful — — — — — — — —

Not Rated — — — — — — — —

Subtotal $ 12,716 $ 16,025 $ 12,149 $ 11,035 $ 19,391 $ 43,820 $ 1,386 $ 116,522

Non Farm, Non Residential Pass $ 39,914 $ 33,261 $ 38,111 $ 63,371 $ 49,511 $ 83,052 $ 4,092 $ 311,312

Non Farm, Non Residential

Special Mention

Substandard — 1,188 — 4,310 7,484 7,028 — 20,010

Doubtful — — — — — — — —

Not Rated — — — — — 682 — 682

Subtotal $ 39,914 $ 35,447 $ 38,111 $ 67,986 $ 66,977 $ 97,573 $ 4,092 $ 350,100

Agriculture Pass $ 13,336 $ 8,330 $ 3,485 $ 5,329 $ 3,732 $ 16,792 $ 67,052 $ 118,056

Special Mention

Substandard — 3,834 18 223 2,435 1,988 5,926 14,424

Doubtful — — — — — — — —

Not Rated 159 216 110 6 13 — — 504

Subtotal $ 13,495 $ 13,863 $ 4,816 $ 6,222 $ 6,185 $ 19,208 $ 80,589 $ 144,378

Other Commercial Pass $ 44,673 $ 57,200 $ 41,470 $ 61,442 $ 40,196 $ 50,325 $ 5,162 $ 300,468

Other Commercial

Special Mention

Substandard — — — 24 528 24 — 576

Doubtful — — — — — — — —

Not Rated — 3 52 39 345 — — 439

Subtotal $ 44,673 $ 57,203 $ 41,522 $ 61,512 $ 41,069 $ 53,135 $ 5,162 $ 304,276

Multifamily >5 Residential Pass $ 44,599 $ 9,892 $ 36,563 $ 19,749 $ 4,676 $ 21,704 $ 1,293 $ 138,476

Multifamily >5 Residential

Special Mention

Substandard — — 1,380 — — — — 1,380

Doubtful — — — — — — — —

Not Rated — — — — — — — —

Subtotal $ 44,599 $ 9,892 $ 37,943 $ 19,749 $ 4,778 $ 32,366 $ 1,293 $ 150,620

Total Pass $ 312,026 $ 198,711 $ 196,076 $ 201,786 $ 134,542 $ 315,809 $ 170,600 $ 1,529,550

Special Mention

Substandard 5,498 7,648 5,585 6,421 15,618 12,431 9,050 62,251

Doubtful — — — — — — — —

Not Rated 2,777 1,991 1,608 625 463 2,937 — 10,401

Total commercial loans $ 326,137 $ 213,109 $ 208,899 $ 210,254 $ 163,890 $ 359,086 $ 190,956 $ 1,672,331

The Corporation evaluates the credit quality of its other loan portfolios, which includes residential real estate, consumer and lease financing loans, based primarily on the aging status of the loan and payment activity.

Accordingly, loans on non-accrual status, loans past due 90 days or more and still accruing interest, and loans modified under troubled debt restructurings are considered to be nonperforming for purposes of credit quality evaluation.

The following table presents the recorded investment of our other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming:

The following table presents the other loan portfolio based on the credit risk profile of loans that are performing and loans that are nonperforming.

These balances do not include accrued interest:

December 31, 2022

Term Loans at Amortized Cost Basis by Origination Year Revolving

2021 2020 2019 2018 2017 Prior Loans Total

First Liens Performing $ 86,224 $ 49,633 $ 22,262 $ 24,377 $ 26,437 $ 126,828 $ 3,061 $ 338,822

Term Loans at Amortized Cost Basis by Origination Year

Non-performing

Subtotal $ 86,224 $ 49,633 $ 22,297 $ 24,446 $ 26,597 $ 129,249 $ 3,061 $ 341,507

Home Equity Performing $ 757 $ 9 $ 152 $ 719 $ 62 $ 1,332 $ 59,059 $ 62,090

Non-performing

Subtotal $ 757 $ 34 $ 152 $ 719 $ 65 $ 1,389 $ 59,059 $ 62,175

Junior Liens Performing $ 13,255 $ 10,189 $ 8,124 $ 7,888 $ 4,158 $ 5,554 $ 968 $ 50,136

Non-performing

Subtotal $ 13,255 $ 10,195 $ 8,188 $ 7,985 $ 4,277 $ 5,648 $ 968 $ 50,516

Other Residential Performing $ 20,218 $ 6,665 $ 1,697 $ 662 $ 883 $ 1,092 $ — $ 31,217

Other Residential

Non-performing

Subtotal $ 20,218 $ 6,665 $ 1,752 $ 705 $ 883 $ 1,119 $ — $ 31,342

Motor Vehicle Performing $ 188,675 $ 155,156 $ 60,676 $ 23,367 $ 9,307 $ 2,384 $ — $ 439,565

Motor Vehicle

Non-performing

Subtotal $ 188,874 $ 155,529 $ 60,867 $ 23,476 $ 9,350 $ 2,407 $ — $ 440,503

Other Consumer Performing $ 14,924 $ 8,225 $ 3,119 $ 948 $ 304 $ 1,121 $ 4,194 $ 32,835

Other Consumer

Non-performing

Subtotal $ 15,266 $ 8,406 $ 3,226 $ 983 $ 322 $ 1,124 $ 4,196 $ 33,523

Total Performing $ 324,053 $ 229,877 $ 96,030 $ 57,961 $ 41,151 $ 138,311 $ 67,282 $ 954,665

Non-performing

1 unchanged sentence

December 31, 2021

Term Loans at Amortized Cost Basis by Origination Year Revolving

2020 2019 2018 2017 2016 Prior Loans Total

First Liens Performing $ 47,875 $ 33,737 $ 31,634 $ 36,426 $ 30,419 $ 135,456 $ 3,235 $ 318,782

Term Loans at Amortized Cost Basis by Origination Year

Non-performing

Subtotal $ 47,875 $ 33,777 $ 31,729 $ 36,769 $ 30,526 $ 139,518 $ 3,235 $ 323,429

Home Equity Performing $ 854 $ 135 $ 644 $ 20 $ — $ 1,525 $ 57,334 $ 60,512

Non-performing

Subtotal $ 854 $ 135 $ 645 $ 20 $ — $ 1,616 $ 57,358 $ 60,628

Junior Liens Performing $ 13,125 $ 12,742 $ 11,139 $ 6,214 $ 3,948 $ 5,099 $ 1,333 $ 53,600

Non-performing

Subtotal $ 13,125 $ 12,871 $ 11,187 $ 6,412 $ 3,957 $ 5,165 $ 1,333 $ 54,050

Other Residential Performing $ 9,773 $ 2,775 $ 1,372 $ 292 $ 178 $ 733 $ 651 $ 15,774

Other Residential

Non-performing

Subtotal $ 9,773 $ 2,837 $ 1,422 $ 292 $ 178 $ 772 $ 651 $ 15,925

Motor Vehicle Performing $ 245,839 $ 113,293 $ 51,649 $ 24,786 $ 10,026 $ 1,600 $ — $ 447,193

Motor Vehicle

Non-performing

Subtotal $ 246,157 $ 113,648 $ 51,906 $ 24,913 $ 10,062 $ 1,611 $ — $ 448,297

Other Consumer Performing $ 15,298 $ 7,328 $ 2,622 $ 724 $ 854 $ 703 $ 3,352 $ 30,881

Other Consumer

Non-performing

Subtotal $ 15,529 $ 7,528 $ 2,714 $ 746 $ 854 $ 711 $ 3,371 $ 31,453

Total Performing $ 332,764 $ 170,010 $ 99,060 $ 68,462 $ 45,425 $ 145,116 $ 65,905 $ 926,742

Non-performing

3 unchanged sentences

(Dollar amounts in thousands)

Land $ 18,612 $ 17,574

Building and leasehold improvements

Furniture and equipment

137,190 126,399

Less accumulated depreciation

TOTAL $ 69,522 $ 62,063

Aggregate depreciation expense was $ 4.8 million, $ 4.6 million and $ 4.4 million for 2022, 2021 and 2020, respectively.

On October 31, 2022, First Financial Corporation issued a press release announcing plans to optimize its banking center network as part of a plan to improve operating efficiencies and accommodate changing customer preferences.

On January 31, 2023, the Corporation closed and consolidated seven of its seventy-two branches.

These consolidations are projected to save the Corporation approximately $1.5 million per year in operating expenses, commencing in the first quarter of 2023.

The Corporation recognized an impairment of $1.3 million on the value of the land and buildings on the owned buildings at these branches.

One branch was leased, and no loss was recognized on the terminated lease.

The Company leases certain branch properties and equipment under operating leases.

1 unchanged sentence

Rent commitments, before considering renewal options that generally are present, were as follows:

Thereafter 838

See Note 19 for additional discussion on leases.

3 unchanged sentences

Goodwill was as follows at year-end:

2021 2020 2019

Beginning of year

Acquired goodwill

Impairment — — —

End of year $ 86,135 $ 78,592 $ 78,592

Goodwill related to the acquisition of Hancock Bancorp, Inc.

was increased by $ 850 thousand in 2022 due to adjustments to deferred tax assets related to the filing of the final Hancock Bancorp, Inc.

Intangible assets subject to amortization at December 31, 2022 and 2021 are as follows:

Gross Accumulated Gross Accumulated

(Dollar amounts in thousands) Amount Amortization Amount Amortization

(Dollar amounts in thousands)

Core deposit intangible

Acquired cored deposit intangible 652 (16) — —

$ 21,857 $ 13,833 $ 21,205 $ 12,233

Aggregate amortization expense was $ 1.6 million, $ 1.7 million and $ 923 thousand for 2021, 2020 and 2019, respectively.

Aggregate amortization expense was $ 1.3 million, $ 1.6 million and $ 1.7 million for 2022, 2021 and 2020, respectively.

Estimated amortization expense for the next five years is as follows:

Time deposits that meet or exceed the FDIC Insurance limit of $250,000 at year-end 2022 and 2021 were $ 50.6 million and $ 74.0 million.

Scheduled maturities of time deposits for the next five years are as follows:

(dollar amounts in thousands)

2022 $ 326,173

SHORT-TERM BORROWINGS:

3 unchanged sentences

Repurchase Agreements

$ 93,374 $ 116,061

(Dollar amounts in thousands)

14 unchanged sentences

December 31, 2022

Repurchase Agreements and Repurchase to Maturity Transactions Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands) Overnight and continuous Up to 30 days 30 - 90 days Greater than 90 days Total

Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations $ 83,576 $ — $ 5,816 $ 707 $ 90,099

Repurchase Agreements

Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands)

Mortgage Backed Securities - Residential and Collateralized

Mortgage Obligations

December 31, 2021

Repurchase Agreements and Repurchase to Maturity Transactions Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands) Overnight and continuous Up to 30 days 30 - 90 days Greater than 90 days Total

Mortgage Backed Securities - Residential and Collateralized Mortgage Obligations $ 86,335 $ 1,086 $ 21,342 $ 798 $ 109,561

Repurchase Agreements

Remaining Contractual Maturity of the Agreements

(Dollar amounts in thousands)

Mortgage Backed Securities - Residential and Collateralized

Mortgage Obligations

OTHER BORROWINGS:

2 unchanged sentences

FHLB advances

Junior subordinated debentures — —

TOTAL $ 15,937 $ 5,859

The aggregate minimum annual retirements of other borrowings are as follows:

19 unchanged sentences

Loan servicing fees (a)

Net gains on sales of securities (a)

Net gains/(losses) on sales of securities (a)

Other service charges and fees (a)

3 unchanged sentences

the remaining balance is outside the scope of ASC 606.

(c) Legal settlement totaling $ 4 million received in first quarter 2022, and $ 2.5 million from BOLI mortality payment in third quarter 2022.

Service charges on deposits :

6 unchanged sentences

The Corporation earns asset management fees from its contracts with trust customers to manage assets for investment, and/or to transact on their accounts.

These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of

assets under management at month-end.

These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month-end.

Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e.

13 unchanged sentences

Currently payable

Deferred 1,488 1,188 2,435

9,466 9,074 9,553

Currently payable

Deferred 80 196 406

3,160 2,618 2,574

TOTAL $ 12,626 $ 11,692 $ 12,127

The reconciliation of income tax expense with the amount computed by applying the statutory federal income tax rate of 21 % to income before income taxes is summarized as follows:

6 unchanged sentences

General business tax credits

Other, net ( 87 ) 250 97

TOTAL $ 12,626 $ 11,692 $ 12,127

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2022 and 2021, are as follows:

3 unchanged sentences

Net unrealized losses on retirement plans

Net unrealized loss on available for sale securities

Loan loss provisions

5 unchanged sentences

Purchase accounting

Deferred loss on acquisition — —

Other 2,770 2,186

GROSS DEFERRED ASSETS

1 unchanged sentence

Net unrealized gains on securities available-for-sale

Depreciation ( 1,611 ) ( 2,155 )

Mortgage servicing rights

Pensions ( 1,647 ) ( 843 )

Right-of-use asset

Intangibles ( 5,717 ) ( 5,458 )

FHLB stock dividends

Other ( 4,113 ) ( 3,963 )

GROSS DEFERRED LIABILITIES

9 unchanged sentences

The Corporation does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next 12 months.

The total amount of interest and penalties recorded in the income statement for the years ended December 31, 2021, 2020 and 2019 was an expense increase of $ 21 thousand, an increase of $ 11 thousand, and an decrease of $ 9 thousand, respectively.

The total amount of interest and penalties recorded in the income statement for the years ended December 31, 2022, 2021 and 2020 was an expense increase of $ 18 thousand, an increase of $ 21 thousand, and an increase of $ 11 thousand, respectively.

The amount accrued for interest and penalties at December 31, 2022, 2021 and 2020 was $ 103 thousand, $ 85 thousand and $ 64 thousand, respectively.

The Corporation and its subsidiaries are subject to U.S.

federal income tax as well as income tax of the states of Indiana and Illinois.

federal income tax as well as income tax of the states of Indiana, Illinois, Kentucky, Tennessee, and other states.

The Corporation is no longer subject to examination by taxing authorities for years before 2019.

2 unchanged sentences

These financial instruments include conditional commitments and commercial letters of credit.

The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial statements.

The financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of amounts recognized in the financial

The Corporation’s maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans is limited generally by the contractual amount of those instruments.

2 unchanged sentences

(Dollar amounts in thousands)

Home Equity $ 92,346 $ 88,672

Commercial Operating Lines

Other Commitments

TOTAL $ 823,422 $ 716,382

Commercial letters of credit

16 unchanged sentences

The gross losses associated with these interest rate swaps was $ 2.8 million and $ 1.0 million at December 31, 2022 and 2021.

These balances are included in other assets and other liabilities.

RETIREMENT PLANS:

9 unchanged sentences

Contributions to the ESOP are determined by the Corporation’s Board of Directors.

The Corporation made contributions to the defined benefit plan of $ 2.05 million, $ 4.44 million and $ 1.77 million in 2021, 2020 and 2019.

The Corporation made contributions to the defined benefit plan of $ 126 thousand, $ 2.05 million and $ 4.44 million in 2022, 2021 and 2020.

The Corporation contributed $ 1.45 million, $ 1.40 million and $ 1.47 million to the ESOP in 2022, 2021 and 2020.

There were contributions of $ 1.1 million, $ 1.2 million and $ 926 thousand to the ESOP for employees no longer participating in the defined benefit plan in 2021, 2020 and 2019 respectively.

There were contributions of $ 1.1 million, $ 1.1 million and $ 1.2 million to the ESOP for employees no longer participating in the defined benefit plan in 2022, 2021 and 2020 respectively.

The Corporation uses a measurement date of December 31.

16 unchanged sentences

Benefit obligation at January 1

Service cost 1,355 1,300

Interest cost

13 unchanged sentences

Prior service cost (credit)

$ 21,051 $ 29,007

The accumulated benefit obligation for the defined benefit pension plan was $ 102.4 million and $ 105.2 million at year-end

2021 and 2020.

The accumulated benefit obligation for the defined benefit pension plan was $ 81.5 million and $ 102.4 million at year-end 2022 and 2021.

Principal assumptions used to determine pension benefit obligation at year end:

8 unchanged sentences

Plan Assets — The Corporation’s pension plan weighted-average asset allocation for the years 2022 and 2021 by asset category are as follows:

Target Allocation ESOP

Target Allocation Pension

Percentage of Plan

Assets at December 31, ESOP

Percentage of Plan

Assets at December 31,

ASSET CATEGORY

Equity securities

63 % 63 % 98 % 99 %

Debt securities

32 % 31 % — % — %

Other 0- 20 %

5 % 6 % 2 % 1 %

TOTAL 100 % 100 % 100 % 100 %

Fair Value of Plan Assets — Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.

8 unchanged sentences

Quoted Prices

Identical Assets Significant

Inputs Significant

(Dollar amounts in thousands) Total (Level 1) (Level 2) (Level 3)

Identical Assets

(Dollar amounts in thousands)

Equity securities

5 unchanged sentences

Quoted Prices

Identical Assets Significant

Inputs Significant

(Dollar amounts in thousands) Total (Level 1) (Level 2) (Level 3)

Identical Assets

(Dollar amounts in thousands)

Equity securities

15 unchanged sentences

Other equity securities are predominantly stocks in large cap U.S.

Contributions — The Corporation expects to contribute $ 250 thousand to its pension plan and $ 703 thousand to its ESOP in 2022.

Contributions — The Corporation expects to contribute zero to its pension plan and $ 642 thousand to its ESOP in 2023.

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:

1 unchanged sentence

(Dollar amounts in thousands)

2027-2031 34,497

Supplemental Executive Retirement Plan — The Corporation has established a Supplemental Executive Retirement Plan (SERP) for certain executive officers.

8 unchanged sentences

The Corporation has $ 7.5 million and $ 8.8 million recognized in the balance sheet as a liability at December 31, 2022 and 2021.

Amounts in accumulated other comprehensive income consist of $ 3.2 million net loss at December 31, 2021 and $ 3.6 million net loss at December 31, 2020.

Amounts n accumulated other comprehensive income consist of $ 1.2 million net loss at December 31, 2022 and $ 3.2 million net loss at December 31, 2021.

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:

(Dollar amounts on thousands)

2027-2031 3,104

Post-retirement medical benefits — The Corporation also provides medical benefits to certain employees subsequent to their retirement.

4 unchanged sentences

Benefit obligation at January 1

Service cost 43 38

Interest cost

Plan participants' contributions

Actuarial (gain) loss ( 53 ) 238

Actuarial (gain)

Benefits paid

1 unchanged sentence

Funded status at December 31

Amounts recognized in accumulated other comprehensive income consist of a net loss of $ 212 thousand at December 31, 2021 and $ 266 thousand net loss at December 31, 2020.

Amounts recognized in accumulated other comprehensive income consist of a net gain of $ 546 thousand at December 31, 2022 and $ 212 thousand net loss at December 31, 2021.

The post-retirement benefits paid in 2022 and 2021 of $ 300 thousand and $ 259 thousand, respectively, were fully funded by company and participant contributions.

8 unchanged sentences

(Dollar amounts in thousands)

Service cost $ 43 $ 38 $ 34

Interest cost

8 unchanged sentences

(Dollar amounts in thousands)

2027-2031 1,242

STOCK BASED COMPENSATION:

11 unchanged sentences

The Corporation has the right to retain shares to satisfy any withholding tax obligation.

A total of 21,159 shares of restricted common stock of the Corporation were granted under the 2011 Amended Plan.

A total of 18,679 shares and 21,159 shares of restricted common stock of the Corporation were granted under the 2011 Amended Plan in 2022 and 2021, respectively.

A total of 360,162 remain to be granted under this plan.

3 unchanged sentences

Compensation related to the plan was $ 825 thousand, $ 807 thousand, and $ 820 thousand in 2022, 2021 and 2020, respectively.

Number Weighted Average

Grant Date Number Weighted Average

(shares in thousands) Outstanding Fair Value Outstanding Fair Value

Weighted Average

(shares in thousands)

Nonvested balance at January 1,

8 unchanged sentences

The following table summarizes the changes, net of tax within each classification of accumulated other comprehensive income for the years ended December 31, 2022 and 2021.

gains and 2021

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

(Losses) on available-

(Dollar amounts in thousands)

Beginning balance, January 1,

Change in other comprehensive income before reclassification ( 18,403 ) 4,744 ( 13,659 )

Change in other comprehensive income (loss) before reclassification

Amounts reclassified from accumulated other comprehensive income

1 unchanged sentence

Ending balance, December 31,

gains and 2020

for-sale Retirement

(Dollar amounts in thousands) Securities plans Total

(Losses) on available-

(Dollar amounts in thousands)

Beginning balance, January 1,

Change in other comprehensive income before reclassification 19,444 ( 3,479 ) 15,965

Change in other comprehensive income (loss) before reclassification

Amounts reclassified from accumulated other comprehensive income

1 unchanged sentence

Ending balance, December 31,

Period Balance

(Dollar amounts in thousands) 1/1/2021 Change 12/31/2021

Unrealized gains (losses) on securities available-for-sale

without other than temporary impairment $ 31,810 $ ( 18,655 ) $ 13,155

Unrealized gains (losses) on securities available-for-sale

with other than temporary impairment 2,352 167 2,519

Total unrealized gain (loss) on securities available-for-sale $ 34,162 $ ( 18,488 ) $ 15,674

Unrealized loss on retirement plans ( 24,398 ) 6,298 ( 18,100 )

TOTAL $ 9,764 $ ( 12,190 ) $ ( 2,426 )

Period Balance

(Dollar amounts in thousands) 1/1/2020 Change 12/31/2020

Unrealized gains (losses) on securities available-for-sale

without other than temporary impairment $ 12,178 $ 19,632 $ 31,810

Unrealized gains (losses) on securities available-for-sale

with other than temporary impairment 2,715 ( 363 ) 2,352

Current Period

(Dollar amounts in thousands)

Unrealized gains (losses) on securities available-for-sale without other than temporary impairment

Unrealized gains (losses) on securities available-for-sale with other than temporary impairment

Total unrealized gain (loss) on securities available-for-sale

Unrealized loss on retirement plans ( 22,394 ) ( 2,004 ) ( 24,398 )

TOTAL $ ( 7,501 ) $ 17,265 $ 9,764

Balance at December 31, 2021

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

Unrealized gain (loss) on retirement plans

Current Period

(Dollar amounts in thousands)

Unrealized gains (losses) on securities available-for-sale without other than temporary impairment

Unrealized gains (losses) on securities available-for-sale with other than temporary impairment

Total unrealized income (loss) on securities available-for-sale

Unrealized gain (loss) on retirement plans

Year Ended December 31, 2022

Details about accumulated

Amount reclassified from

Affected line item in

other comprehensive

accumulated other

the statement where

income components

comprehensive income

net income is presented

(in thousands)

Unrealized gains and losses $ 114 Net securities gains (losses)

on available-for-sale ( 29 ) Income tax expense

securities $ 85 Net of tax

Amortization of $ ( 2,072 ) (a)

retirement plan items 518 Income tax expense

$ ( 1,554 ) Net of tax

Total reclassifications for the period $ ( 1,469 ) Net of tax

Unrealized gains and losses

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

Salary and benefits

retirement plan items

Income tax expense

Total reclassifications for the period

(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits.

1 unchanged sentence

Balance at December 31, 2021

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

Details about accumulated

Amount reclassified from

Affected line item in

other comprehensive

accumulated other

the statement where

income components

comprehensive income

net income is presented

(in thousands)

Unrealized gains and losses $ 233 Net securities gains (losses)

on available-for-sale ( 58 ) Income tax expense

securities $ 175 Net of tax

Amortization of $ ( 1,967 ) (a)

retirement plan items 492 Income tax expense

$ ( 1,475 ) Net of tax

Total reclassifications for the period $ ( 1,300 ) Net of tax

Unrealized gains and losses

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

Salary and benefits

retirement plan items

Income tax expense

Total reclassifications for the period

(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits.

1 unchanged sentence

Balance at December 31, 2020

Details about accumulated Amount reclassified from Affected line item in

other comprehensive accumulated other the statement where

income components comprehensive income net income is presented

Details about accumulated

Amount reclassified from

Affected line item in

other comprehensive

accumulated other

the statement where

income components

comprehensive income

net income is presented

(in thousands)

Unrealized gains and losses $ 44 Net securities gains (losses)

on available-for-sale ( 11 ) Income tax expense

securities $ 33 Net of tax

Amortization of $ ( 1,558 ) (a)

retirement plan items 390 Income tax expense

$ ( 1,168 ) Net of tax

Total reclassifications for the period $ ( 1,135 ) Net of tax

Unrealized gains and losses

Net securities gains (losses)

on available-for-sale

Income tax expense

Amortization of

retirement plan items

Income tax expense

Total reclassifications for the period

(a) Included in the computation of net periodic benefit cost which is included in salaries and benefits.

13 unchanged sentences

Lease costs were as follows:

(Dollar amounts in thousands) Year Ended

(Dollar amounts in thousands)

December 31, 2022

7 unchanged sentences

Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2022 were as follows:

(Dollar amounts in thousands) December 31, 2021

(Dollar amounts in thousands)

December 31, 2022

Twelve Months Ended December 31,

Thereafter 3,021

Total Future Minimum Lease Payments

5 unchanged sentences

Further, the Corporation’s primary source of funds to pay dividends to shareholders is dividends from its subsidiary banks and compliance with these capital requirements can affect the ability of the Corporation and its banking affiliates to pay dividends.

At December 31, 2021, approximately $ 8.4 million of undistributed earnings of the subsidiary banks, included in consolidated retained earnings, were available for distribution to the Corporation with regulatory approval.

At December 31, 2022, none of undistributed earnings of the subsidiary banks, included in consolidated retained earnings, were available for distribution to the Corporation with regulatory approval.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and Banks must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

1 unchanged sentence

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and Banks to maintain minimum amounts and ratios of Total, Common equity tier I capital and Tier I Capital to risk-weighted assets, and of Tier I Capital to average assets.

Under the Basel lll rules, the Corporation must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios.

Under the Basel III rules, the Corporation must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios.

The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.

5 unchanged sentences

To Be Well Capitalized

For Capital Under Prompt Corrective

Actual Adequacy Purposes Action Provisions

(Dollar amounts in thousands) Amount Ratio Amount Ratio Amount Ratio

Under Prompt Corrective

Adequacy Purposes

Action Provisions

(Dollar amounts in thousands)

Total risk-based capital

Corporation – 2021 $ 533,599 15.63 % $ 358,575 10.500 % N/A N/A

Corporation – 2020 $ 538,440 17.40 % $ 324,849 10.500 % N/A N/A

Corporation – 2022

Corporation – 2021

First Financial Bank – 2022

1 unchanged sentence

Common equity tier I capital

Corporation – 2021 $ 490,842 14.37 % $ 239,050 7.000 % N/A N/A

Corporation – 2020 $ 499,664 16.15 % $ 216,566 7.000 % N/A N/A

Corporation – 2022

Corporation – 2021

First Financial Bank – 2022

1 unchanged sentence

Tier I risk-based capital

Corporation – 2021 $ 490,842 14.37 % $ 290,275 8.500 % N/A N/A

Corporation – 2020 $ 499,664 16.15 % $ 262,973 8.500 % N/A N/A

Corporation – 2022

Corporation – 2021

First Financial Bank – 2022

1 unchanged sentence

Tier I leverage capital

Corporation – 2021 $ 490,842 9.83 % $ 199,702 4.00 % N/A N/A

Corporation – 2020 $ 499,664 11.24 % $ 177,781 4.00 % N/A N/A

Corporation – 2022

Corporation – 2021

First Financial Bank – 2022

12 unchanged sentences

Land and headquarters building, net

Other 7,518 6,000

Total Assets $ 597,771 $ 610,982

LIABILITIES AND SHAREHOLDERS' EQUITY

8 unchanged sentences

Dividends from subsidiaries

Other income 746 1,054 720

Interest on borrowings

4 unchanged sentences

Equity in undistributed earnings of subsidiaries

Net income $ 52,987 $ 53,844 $ 48,872

Comprehensive income $ 40,797 $ 71,109 $ 64,825

Comprehensive income (loss)

CONDENSED STATEMENTS OF CASH FLOWS

2 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income $ 52,987 $ 53,844 $ 48,872

Adjustments to reconcile net income to net cash provided by operating activities:

7 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

(Increase) decrease in premises and equipment

Cash received (disbursed) from acquisitions

10 unchanged sentences

Cash paid during the year for:

Interest $ — $ 375 $ —

Income taxes $ 15,025 $ 7,549 $ 9,595

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data