First Financial Bancorp: Form 10-Q for the period ended Mar 31, 2024

CONDITION AND RESULTS OF OPERATIONS

(Unaudited)

All significant reclassifications of prior period amounts, if applicable, have been made to conform to the current period’s presentation and had no effect on the Company's previously reported net income or financial condition.

EXECUTIVE SUMMARY

First Financial Bancorp. is a $17.6 billion financial holding company headquartered in Cincinnati, Ohio. The Company primarily operates through First Financial Bank, an Ohio-chartered commercial bank with 130 full service banking centers at March 31, 2024. First Financial provides banking and financial services products to business and retail clients through its six lines of business: Commercial, Retail Banking, Mortgage Banking, Wealth Management, Investment Commercial Real Estate and Commercial Finance. The Commercial Finance business lends to targeted industry verticals on a nationwide basis. Operating under the brand of Yellow Cardinal Advisory Group, Wealth Management had $3.6 billion in assets under management as of March 31, 2024 and provides the following services: financial planning, investment management, trust administration, estate settlement, business succession planning services, brokerage services and retirement planning.

Additional information about First Financial, including its products, services and banking locations, is available on the

Company's website at www.bankatfirst.com (http://www.bankatfirst.com).

The major components of First Financial’s operating results for the current and prior year are discussed in greater detail in the sections that follow.

MARKET STRATEGY

First Financial develops a competitive advantage by utilizing a local market focus to provide superior service and build long-term relationships with clients while helping them achieve greater financial success. First Financial serves a combination of metropolitan and community markets in Ohio, Indiana, Kentucky and Illinois through its full-service banking centers. First Financial's investment in community markets is an important part of the Bank's core funding base and has historically provided stable, low-cost funding sources.

First Financial also has certain specialty lending platforms that extend beyond the geographic banking center footprint. These specialty finance businesses provide insurance premium financing, equipment lease financing and financing to franchise owners and clients within the financial services industry.

First Financial’s market selection process includes multiple factors, but markets are primarily chosen for their potential for long-term profitability and growth. First Financial intends to concentrate plans for future growth and capital investment within its current markets, and will continue to evaluate additional growth opportunities in metropolitan markets located within, or in close proximity to, the Company's current geographic footprint. Additionally, First Financial may assess strategic acquisitions that provide product line extensions or additional industry verticals that complement its existing business and diversify its product suite and revenue streams.

BUSINESS COMBINATIONS

On February 29, 2024, First Financial closed its acquisition of Agile Premium Finance in an all cash transaction. Headquartered in Lincolnshire, IL, Agile originates commercial loans for the payment of annual property and casualty insurance for businesses. The loans are secured by the unearned premium of the policies and have an average original term of approximately ten months. Agile is among industry leaders in the premium finance lending space and is active in all 50 states. Upon completion of the transaction, Agile became a division of the Bank and continues to operate as Agile Premium Finance, taking advantage of its existing brand recognition within the insurance premium financing industry.

The Agile transaction was accounted for using the acquisition method of accounting and accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date in accordance with FASB ASC Topic 805, Business Combinations. The fair value measurements of assets acquired and liabilities assumed were $97.8 million and $2.7 million, respectively. Acquisition accounting adjustments are considered preliminary at March 31, 2024. These present value measurements are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values become available, and the measurement period ends in March 2025.

Goodwill arising from the Agile acquisition was $1.8 million while other intangible assets created in the transaction include a customer list, non-recourse agreements, trade name and a servicing asset.

In the first quarter of 2023, First Financial purchased the assets of Brady Ware Capital, LLC (Brady Ware). Located in Miamisburg, Ohio, Brady Ware was an advisory firm for mergers and acquisitions, focusing primarily on business succession planning. First Financial acquired all of the assets of Brady Ware for aggregate consideration of approximately $4.3 million, consisting of $3.4 million in cash and a $0.9 million earn-out payment. Pursuant to the purchase agreement, the earn-out payments are payable annually for each of the five years following the closing of the acquisition, contingent upon the results of Brady Ware's operations.

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration exchanged were recorded at estimated fair value on the acquisition date in accordance with FASB ASC Topic 805, Business Combinations. Goodwill arising from the Brady Ware acquisition was $4.2 million and reflects the business’s growth potential and the expectation that the acquisition will provide additional revenue growth with the expansion of the Bank's advisory business. In May 2023, First Financial also acquired Brady Ware Corporate Finance, a broker-dealer and member of FINRA. First Financial recorded $0.1 million of goodwill in connection with the acquisition of Brady Ware Corporate Finance. The fair value measurements of Brady Ware assets and liabilities are subject to refinement for up to one year after the closing date of the acquisition as additional information relative to closing date fair values become available, and the measurement period ends in January 2024 for Brady Ware Capital. The measurement period for recording adjustments to the fair value of assets and liabilities ends in May 2024 for Brady Ware Corporate Finance.

NON-GAAP FINANCIAL MEASURES

The Company utilizes certain non-GAAP financial measures, which we believe provide useful insight to the reader of the Consolidated Financial Statements. These non-GAAP measures should be supplemental to primary GAAP measures and should not be read in isolation or relied upon as a substitute for the primary GAAP measures.

For analytical purposes, net interest income is presented in the following table adjusted to a tax equivalent basis assuming a 21% marginal tax rate. Net interest income is disclosed on a tax equivalent basis to consistently reflect income from tax-exempt assets, such as municipal loans and investments, in order to facilitate a comparison between taxable and tax-exempt amounts. Management believes it is a standard practice in the banking industry to present net interest margin and net interest income on a fully tax equivalent basis as these measures provide useful information to make peer comparisons.

(Dollars in thousands)

(1) Calculated using annualized net interest income divided by average earning assets.

In addition to capital ratios defined by the U.S. banking agencies, First Financial considers various measures when evaluating capital utilization and adequacy, including the return on average tangible shareholder's equity and the tangible common equity ratio. These calculations are intended to complement the capital ratios defined by the U.S. banking agencies for both absolute and comparative purposes and may be useful for evaluating the performance of a business as the ratios calculate the capital and return available to common shareholders without the impact of intangible assets and their related amortization. As GAAP does not include capital ratio measures, the Company believes there are no comparable GAAP financial measures to these ratios. These ratios are not formally defined by GAAP or codified in the federal banking regulations and, therefore, are considered to be non-GAAP financial measures.

First Financial encourages readers to consider its Consolidated Financial Statements in their entirety and not to rely upon any single financial measure.

The following table reconciles non-GAAP capital ratios to GAAP:

(Dollars in thousands)

45

OVERVIEW OF OPERATIONS

Linked quarter comparison: First quarter 2024 net income was $50.7 million and earnings per diluted common share were $0.53. This compares with fourth quarter 2023 net income of $56.7 million and earnings per diluted common share of $0.60. Return on average assets was 1.18% for the first quarter of 2024 compared to 1.31% for the fourth quarter of 2023. Return on average shareholders’ equity was 9.00% for the first quarter of 2024 compared to 10.50% for the fourth quarter of 2023.

Year-to-date comparison: For the three months ended March 31, 2024, net income was $50.7 million and earnings per diluted common share were $0.53. This compares with net income of $70.4 million and earnings per diluted common share of $0.74 for the first three months of 2023. Return on average assets for the three months ended March 31, 2024 was 1.18% compared to 1.69% for the same period in 2023, and return on average shareholders' equity was 9.00% and 13.71% for the first three months of 2024 and 2023, respectively.

(Dollars in thousands)

(Dollars in thousands, except per share data)

(1) Non-GAAP financial measure. For details on the calculation of this non-GAAP financial measure, see "Non-GAAP Financial Measures" section.

A discussion of First Financial's operating results for the three month period ended March 31, 2024 follows.

NET INTEREST INCOME

First Financial’s principal source of income is net interest income, which is the excess of interest received from earning assets, including loan-related fees and purchase accounting accretion, minus interest paid on interest-bearing liabilities. The amount of net interest income is determined by the volume and mix of earning assets, the rates earned on such assets and the volume, mix and rates paid for the deposits and borrowed money that support the earning assets. Earning assets consist of interest-bearing loans to customers as well as marketable investment securities.

(Dollars in thousands)

Linked quarter comparison: Net interest income for the first quarter of 2024 was $148.7 million, a decrease of $5.0 million, or 3.3%, from the fourth quarter of 2023. Net interest margin on a fully tax equivalent basis for the quarter ended March 31, 2024 was 4.10%, a decrease of 16 bp when compared to 4.26% for the fourth quarter of 2023. Net interest margin declined during the period as deposit pricing pressure led to an increase in interest expense during the period, which outpaced the increase in interest income.

Interest income increased $2.2 million, or 0.9%, in the first quarter of 2024 when compared to the fourth quarter of 2023 largely due to a $273.9 million increase in earning assets. Average earning assets were $14.8 billion for the first quarter of 2024 compared to $14.5 billion for the fourth quarter of 2023. Average loan balances increased by $315.2 million, or 2.9%, during the first quarter of 2024.

Interest expense of $91.9 million increased $7.3 million, or 8.6%, in the first quarter of 2024 when compared to the fourth quarter of 2023, largely due to higher interest rates coupled with increases in average deposits and borrowings. The Company's total cost of interest bearing deposits increased 23 bps to 3.02% in the first quarter of 2024, while average deposit balances increased $76.3 million, or 0.6%, to $13.3 billion. The increase in average deposits was driven primarily by increases in money market accounts and retail CDs. Average borrowed funds increased $55.1 million, or 5.1%, from the linked quarter.

To mitigate interest rate risk on certain variable-rate commercial loan pools, First Financial entered into interest rate collars and floors, which are designated as cash flow hedges. The structure of the interest rate collars is such that First Financial pays the counterparty an incremental amount if the collar index exceeds the cap rate. Conversely, First Financial receives an incremental amount if the index falls below the floor rate. No payments are required if the collar index falls between the cap and floor rates. The structure of First Financial's interest rate floors is such that First Financial receives an incremental amount if the index falls below the floor strike rate. No payments are required if the index remains above the floor strike rate.

The notional value of the Company's cash flow hedges was $1.0 billion as of March 31, 2024, with the $0.3 million change in the fair value recorded in AOCI in the Consolidated Balance Sheet. Comparatively, the notional value of cash flow hedges as of December 31, 2023 was $1.0 billion with the $3.8 million change in fair value recorded in AOCI. As of March 31, 2024 and December 31, 2023, the maximum length of time over which the Company was hedging its exposure to the variability in future cash flows was 57 months and 60 months, respectively.

Year-to-date comparison: Net interest income for the first three months of 2024 decreased $10.6 million, or 6.6%, compared to the same period of 2023. Net interest margin on a fully tax equivalent basis was 4.10% for the three months ended March 31, 2024, a decrease of 45 bps when compared to the same period in 2023. This was driven by a 158 bp increase in the cost of average interest bearing deposits and a 56 bp increase in the cost of borrowed funds, which outpaced a 64 bp increase in earning asset yields.

Interest income for the three months ended March 31, 2024 grew $32.1 million, or 15.4%, to $240.7 million compared to $208.6 million for the same period of the prior year due to higher interest rates. Average earning assets of $14.8 billion for the first three months of 2024 increased $430.9 million, or 3.0%, when compared to the same period of 2023, driven primarily by a $692.9 million, or 6.7%, increase in average loan balances, which more than offset a $497.7 million, or 13.7%, decrease in average investment securities.

Interest expense for the three months ended March 31, 2024 was $91.9 million compared to $49.3 million for the same period in the prior year. The increase was driven by a $1.3 billion, or 14.1%, increase in average interest bearing deposits coupled with a 158 bp increase in rates on those deposits. Additionally, average borrowed funds decreased $295.3 million from the same period of the prior year, while the cost of those borrowed funds increased 56 bps due to higher interest rates.

CONSOLIDATED AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

(Dollars in thousands)

(1) Loans held for sale and nonaccrual loans are included in gross loans.

(2) The net interest margin exceeds the interest spread as noninterest-bearing funding sources, demand deposits, other liabilities and shareholders' equity also support earning assets.

RATE/VOLUME ANALYSIS

The impact on net interest income from changes in interest rates and volume of interest-earning assets and interest-bearing liabilities is illustrated in the table below:

(Dollars in thousands)

(1) Loans held for sale and nonaccrual loans are included in gross loans.

NONINTEREST INCOME

(Dollars in thousands)

Linked quarter comparison: First quarter 2024 noninterest income was $46.5 million, decreasing $0.5 million, or 1.0%, compared to $47.0 million for the fourth quarter 2023. The decrease from the linked quarter was primarily driven by losses on the sale of investment securities and a decline in other noninterest income, largely offset by increases in leasing business income and foreign exchange income. Losses on the sale of investment securities increased $4.4 million largely as a result of the strategic repositioning of $228.8 million of the investment portfolio during the first quarter. While the repositioning resulted in a $5.2 million loss, the reinvestment is expected to result in a 278 bp increase in yield resulting in an earn-back of approximately 1 year. Other noninterest income decreased $1.2 million, or 19.5%, due to lower income from limited partnership investments during the period. Leasing business income increased $1.7 million, or 13.5%, primarily driven by higher volumes and remarketing fees during the first quarter. Foreign exchange income increased $1.7 million, or 19.5%, largely due to a $4.6 million loss on a trade recognized in the fourth quarter of 2023.

Year-to-date comparison: Noninterest income of $46.5 million for the first three months of 2024 decreased $9.0 million, or 16.3%, from $55.5 million in the comparable period of 2023. The decline was primarily attributed to lower foreign exchange income and higher losses on the sale of investment securities, partially offset by higher gains on the sale of loans. Foreign exchange income decreased $6.5 million, or 38.2%, due to lower demand in 2024, while losses on the sales of investment securities increased $5.3 million compared to the prior year due to a repositioning of a portion of the investment portfolio in the first quarter of 2024. Gains on the sales of loans increased $1.4 million, or 62.1%, as mortgage demand increased as a result of stabilized interest rates in the current year.

NONINTEREST EXPENSE

(Dollars in thousands)

Linked quarter comparison: First quarter 2024 noninterest expense was $122.4 million, an increase of $3.2 million, or 2.7%, from $119.1 million for the fourth quarter 2023. This increase was primarily driven by higher salaries and benefits, other noninterest expense and leasing business expense, partially offset by declines in FDIC assessments and professional services expense. Salaries and benefits expenses increased $3.4 million, or 4.8%, from the linked quarter primarily due to seasonal employee costs such as annual raises and payroll taxes as well as higher variable compensation, which is tied to fee income. Other noninterest expenses increased $1.2 million, or 14.2%, from the linked quarter primarily due to an increase in pension related costs. Leasing business expenses increased $0.8 million, or 8.9%, for the first quarter of 2024 as a result of increased production. Partially offsetting these increases, FDIC assessments decreased $0.9 million, or 23.9%, largely due to the special assessment recorded in the fourth quarter, while professional services decreased $0.9 million, or 28.0%, due to lower legal expenses and consulting costs.

Year-to-date comparison: Noninterest expenses of $122.4 million for the first three months of 2024 increased $5.7 million, or 4.9%, compared to the same period in 2023 primarily due to higher other noninterest expense, salaries and benefits expenses and leasing business expenses, partially offset by lower data processing expenses. Other noninterest expense increased $2.3 million, or 31.9%, primarily due to a $0.8 million increase in fraud losses as well as a $0.5 million increase in pension related costs. Salaries and benefits expenses increased $1.8 million, or 2.5%, due to annual salary increases and higher restricted stock awards, partially offset by lower incentive compensation. Leasing business expense increased $1.8 million, or 22.9%, as a result of the growth in the leasing portfolio. Partially offsetting these increases, data processing expenses decreased $0.7 million, or 7.9%, in the current year, largely due to the Company's online banking system conversion which occurred in 2023.

INCOME TAXES

Linked quarter comparison: In the first quarter of 2024, First Financial recorded income tax expense of $11.0 million on pre-tax income of $61.7 million, resulting in an effective tax rate of 17.9%. This compared to income tax expense of $14.7 million on pre-tax income of $71.4 million with an effective tax rate of 20.5% for the fourth quarter 2023. The lower effective tax rate in 2024 is primarily driven by tax credits realized in 2024 as well as lower taxable income.

Year-to-date comparison: For the first three months of 2024, income tax expense was $11.0 million on pre-tax income of $61.7 million, resulting in an effective tax rate of 17.9%. This compared to income tax expense of $17.3 million on pre-tax income of $87.7 million and an effective tax rate of 19.7% for the comparable period in 2023. Similar to the linked quarter comparison, the lower effective tax rate in 2024 compared to 2023 is primarily driven by tax credits realized in the current year as well as lower taxable income.

The Company's effective tax rate may fluctuate from period to period due to changes in tax jurisdictions, forecasted income, tax-enhanced assets and tax credit investments.

INVESTMENTS

First Financial's investment portfolio totaled $3.1 billion, or 17.4% of total assets, at March 31, 2024 and $3.2 billion, or 18.4% of total assets, at December 31, 2023. AFS securities totaled $2.9 billion at March 31, 2024 and $3.0 billion December 31, 2023, while HTM securities totaled $79.5 million at March 31, 2024 and $80.3 million at December 31, 2023. The effective duration of the investment portfolio was 4.6 years at both March 31, 2024 and December 31, 2023.

The Company invests in certain securities whose realization is dependent on future principal and interest repayments. As such, these securities carry a certain amount of credit risk. Prior to purchase, First Financial performs a detailed collateral and structural analysis on these securities and strategically invests in asset classes in which First Financial has expertise and experience, as well as a senior position in the capital structure. First Financial continuously monitors credit risk and geographic concentration risk in its evaluation of market opportunities that enhance the overall performance of the portfolio.

Losses on the sale of investment securities were $5.2 million during the first quarter of 2024, largely as a result of the strategic repositioning of $228.8 million of the investment portfolio. The repositioning resulted in $7.9 million of gross losses, however it is expected to result in a 278 bp increase in future yield and have an earn-back of approximately 1 year. The losses incurred from the repositioning were partially offset by $2.2 million of gains recognized from the sale of the Company's remaining Class B Visa shares.

The Company's Consolidated Financial Statements reflected a $289.1 million and $282.0 million unrealized after-tax loss on debt securities as of March 31, 2024 and December 31, 2023, respectively. These unrealized losses were included as a component of equity in accumulated other comprehensive income on the Consolidated Balance Sheets and were driven by an increase in interest rates.

The Company had net unrealized losses of $8.7 million and $8.6 million on its HTM securities at March 31, 2024 and December 31, 2023, respectively. Similar to the unrealized losses on AFS securities, this unrealized loss was driven by interest rate increases. The unrealized losses on HTM securities have no impact on the Consolidated Financial Statements of the Company.

The Company had a $0.1 million unrealized gain on equity securities recorded in noninterest income for the three months ended March 31, 2024 and a $0.2 million unrealized gain for the same period ended December 31, 2023. For the first three months 2023, the Company had an unrealized gain on equity securities of $0.1 million.

First Financial will continue to monitor loan demand and deposit activity, as well as balance sheet composition, capital sensitivity and the interest rate environment, when considering future investment strategies.

LOANS AND LEASES

Excluding loans held for sale, loan balances increased $271.9 million, or 2.5%, to $11.2 billion as of March 31, 2024 from $10.9 billion as of December 31, 2023. C&I loans increased $90.2 million, or 2.6%, to $3.6 billion largely due to $118.6 million of Agile loans added during the period. Construction loans increased $76.8 million, or 13.6%, to $641.6 million; commercial real estate loans increased $65.0 million, or 1.6%, to $4.1 billion; finance leases increased by $18.0 million, or 3.8%, to $492.9 million; home equity increased $15.1 million, or 2.0%, to $773.8 million and residential real estate loans increased by $11.0 million, or 0.8%, to $1.3 billion. Partially offsetting these areas of loan growth, installment loans decreased $5.2 million, or 3.3%, to $153.8 million.

First quarter 2024 average loans of $11.1 billion, excluding loans held for sale, increased $315.6 million, or 2.9%, from the fourth quarter 2023. The growth over the linked quarter was primarily driven by C&I loans, which increased $121.1 million, or 3.5%; real estate construction, which increased $63.7 million, or 11.8%; and lease financing, which increased $61.4 million, or 14.6%.

Through the first three months of 2024, average loans of $11.1 billion, excluding loans held for sale, increased $0.7 billion, or 6.6%, from the comparable period of 2023. The increase from prior year reflected broad-based growth across most loan categories, including an $86.8 million, or 2.5%, increase in C&I loans; a $220.9 million or 19.8%, increase in residential real estate; a $228.3 million, or 90.5%, increase in lease financing; an $84.2 million, or 2.1% increase in CRE; and a $67.7 million, or 12.6%, increase in real estate construction.

In an effort to mitigate credit risk, First Financial routinely reviews its loan portfolio for various concentrations. These reviews consider the Bank's collateral position as well as exposure to a given industry sector. First Financial believes that the loan portfolio is sufficiently diversified to provide protection from deterioration in any particular industry or devaluation of a specific collateral type. The following tables, C&I and Owner Occupied Loans by Sector and Investor CRE Loans by Property Type, provide additional detail behind the Company's C&I and CRE loan portfolios as of March 31, 2024.

C&I and Owner Occupied CRE Loans by Sector (1)

(Dollars in thousands)

(1) Excludes loan marks and loans in process

Table of Content

Investor CRE Loans by Property Type (1)

(Dollars in thousands)

(1) Excludes loan marks and loans in process

Additionally, given the potential for stress related to commercial office space, First Financial performed a targeted review of its exposure to this sector. As of March 31, 2024, First Financial had $439.4 million of loans collateralized by non-owner occupied office space, which represents 3.9% of the total loan portfolio. The overall LTV of the portfolio at origination was strong, and 66.4% of the portfolio is located in suburban locations. Additionally, the majority of the portfolio is secured by Class A and Class B assets with recourse to the sponsor. As of March 31, 2024, 83.8% of the office portfolio was pass rated, and there were two relationships totaling $17.4 million on nonaccrual status.

COMMITMENTS AND CONTINGENCIES

Off-balance sheet arrangements include commitments to extend credit and financial guarantees. Loan commitments are agreements to extend credit to a client absent any violation of any condition established in the commitment agreement. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. First Financial had outstanding commitments to extend credit, including overdraft lending lines, totaling $4.4 billion at March 31, 2024 and $4.5 billion at December 31, 2023. As of March 31, 2024, commitments with a fixed interest rate totaled $91.6 million while commitments with variable interest rates totaled $4.3 billion. At December 31, 2023, commitments with a fixed interest rate totaled $108.2 million while commitments with variable interest rates totaled $4.4 billion. The fixed rate commitments have interest rates ranging from 0% to 21% and maturities ranging from less than 1 year to 31.0 years at March 31, 2024 and maturities ranging from less than one year to 31.6 years for December 31, 2023.

Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party. First Financial’s letters of credit consist primarily of performance assurances made on behalf of clients who have a contractual commitment to produce or deliver goods or services. First Financial has issued letters of credit aggregating $37.0 million and $34.9 million at March 31, 2024 and December 31, 2023, respectively. Management conducts regular reviews of these instruments on an individual client basis.

First Financial is a party in risk participation transactions of interest rate swaps, which had total notional amount of $326.2 million and $341.7 million at March 31, 2024 and December 31, 2023, respectively. Under a risk participation agreement, the Company either assumes or sells a portion of the credit exposure associated with an interest rate swap with a counterparty. The Company's exposure is limited to instances where the loan customer defaults on its obligation to perform under the interest rate swap agreement.

First Financial is a limited partner in several tax-advantaged limited partnerships whose purpose is to invest in approved qualified affordable housing, renewable energy, or other renovation or community revitalization projects. These investments are included in accrued interest and other assets in the Consolidated Balance Sheets, with any unfunded commitments included in accrued interest and other liabilities in the Consolidated Balance Sheets. As of March 31, 2024, First Financial expects to recover its remaining investments through the use of the tax credits that are generated by the investments. First Financial had unfunded commitments related to tax credit investments of $95.7 million and $96.4 million at March 31, 2024 and December 31, 2023, respectively.

Additionally, as part of the ordinary course of business, First Financial and its subsidiaries are parties to litigation, including claims to the ownership of funds in particular accounts, the collection of delinquent accounts, challenges to security interests in collateral, foreclosure interests that are incidental to our regular business activities and other matters. While the ultimate liability with respect to these litigation matters and claims cannot be determined at this time, First Financial believes that damages, if any, and other amounts relating to pending matters are not probable or cannot be reasonably estimated as of March 31, 2024. Reserves are established for these various matters of litigation, when appropriate, under FASB ASC Topic 450, Contingencies, based in part upon the advice of legal counsel. First Financial had no reserves related to litigation matters as of March 31, 2024 and December 31, 2023.

ASSET QUALITY AND ALLOWANCE FOR CREDIT LOSSES

Loans are classified as nonaccrual when, in the opinion of management, collection of principal or interest is doubtful or when principal or interest payments are 90 days or more past due. Generally, loans are classified as nonaccrual due to a borrower's continued failure to adhere to contractual payment terms, coupled with other pertinent factors. When a loan is placed into nonaccrual status, any unpaid accrued interest is reversed and the recognition of interest income is suspended.

Nonaccrual loans were $59.2 million, or 0.53% of total loans, as of March 31, 2024, reflecting a $6.5 million, or 9.9%, decline from $65.8 million as of December 31, 2023. The decrease in nonaccrual loans was primarily due to the $4.5 million charge-off related to a single commercial real estate relationship. Nonperforming assets, which consist of nonaccrual loans and OREO, were $59.4 million, or 0.34% of total assets, at March 31, 2024 compared to $65.9 million, or 0.38% of total assets, at December 31, 2023.

Classified assets, which are defined by the Company as nonperforming assets plus performing loans internally rated substandard or worse, totaled $162.3 million as of March 31, 2024 compared to $141.0 million at December 31, 2023. Classified assets were 92 bps as a percentage of total assets at March 31, 2024, compared to 80 bps as of December 31, 2023. The increase in classified assets during the period was primarily due to the downgrade of one CRE relationship and one C&I relationship during the period.

Allowance for credit losses. The ACL is a reserve accumulated on the Consolidated Balance Sheets through the recognition of the provision for loan and lease losses. First Financial records provision expense in the Consolidated Statements of Income to maintain the ACL at a level considered sufficient to absorb expected credit losses for financial assets in the portfolio over their expected remaining lives with consideration given to current and forward-looking information.

The recorded adjustments to remove or reduce values of the loans and leases from the Consolidated Balance Sheets due to credit deterioration are referred to as charge-offs. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect the principal amount owed in full either through payments from the borrower or from the liquidation of collateral. All loans charged-off are subject to continuous review and concerted efforts are made to maximize any recovery. In most cases, the borrower’s debt obligation is not canceled even though the loan balance may have been charged-off. Actual losses on loans and leases are posted against the ACL as a charge-off. Any subsequent collection of a previously charged-off loan is credited back to the ACL as a recovery.

Management estimates the allowance using relevant available information from both internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. 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 therein. These adjustments are commonly known as the Qualitative Framework. The evaluation of these factors is the responsibility of the ACL committee, which is comprised of senior officers from the risk management, credit administration, finance and lending areas.

The Company utilized the Moody's March baseline forecast as its R&S forecast in the quantitative model at March 31, 2024. For reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts and slower prepayment speeds. These alternative analyses were utilized to inform the Company's qualitative adjustments. Additionally, First Financial considered its credit exposure to certain industries believed to be at risk for future credit stress, such as franchise, hotel and investor commercial real estate lending, when making qualitative adjustments to the ACL model.

The total ACL, which includes both funded and unfunded reserves, was $160.4 million at March 31, 2024 and $159.9 million as of December 31, 2023.

ACL - loans and leases. The ACL on loans and leases was $144.3 million as of March 31, 2024 and $141.4 million as of December 31, 2023. As a percentage of period-end loans, the ACL was 1.29% as of both March 31, 2024 and December 31, 2023. The increase in the ACL was driven by loan growth and slower prepayment speeds, which effectively increased the duration of the loan portfolio.

In the first quarter of 2024, the Company recorded net charge-offs of $10.6 million, or 38 bp of average loans and leases on an annualized basis, compared to net charge-offs of $12.6 million, or 46 bps, for the fourth quarter of 2023. The charge-offs in the first quarter included a $4.5 million loss on a single CRE loan. Through the first three months of 2024, the Company recorded net charge-offs of $10.6 million, or 38 bp on an annualized basis compared to insignificant net charge-offs for the same period of 2023.

The ACL as a percentage of nonaccrual loans was 243.6% at March 31, 2024 and 215.1% at December 31, 2023. The increase in this ratio was primarily driven by the $6.5 million, or 9.9%, decline in nonaccrual loans during the period outpacing the increase in the reserve.

Provision expense is a product of the Company's ACL model combined with net charge-off activity during the period. During the first quarter of 2024, the Company recorded $13.4 million of provision expense for loans and leases compared to $8.8 million during the fourth quarter of 2023. First quarter 2024 provision expense was primarily driven by net charge-offs and loan growth during the period. Through the first three months of 2024, the Company recorded a provision expense of $13.4 million compared to a provision expense of $8.6 million for the same period of 2023.

ACL - unfunded commitments. The ACL on unfunded commitments was $16.2 million as of March 31, 2024 and $18.4 million as of December 31, 2023. First Financial recorded $2.3 million of provision recapture for credit losses on unfunded commitments for the three months ended March 31, 2024, compared to $1.4 million of provision expense in the fourth quarter 2023, and provision expense of $1.8 million for the first quarter of 2023.

See Note 5 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements for further discussion of First Financial's ACL.

The table that follows includes the activity in the ACL for the quarterly periods presented.

(Dollars in thousands)

Allowance for credit loss activity

56

Table of Content

(Dollars in thousands)

DEPOSITS AND FUNDING

Total deposits were $13.5 billion as of March 31, 2024, an increase of $96.4 million, or 0.7%, from December 31, 2023. With the rise in interest rates, the Company's deposit mix has shifted to higher cost interest bearing deposit balances, specifically money market accounts and retail CDs, with lower transaction deposit balances. As such, time deposits increased $178.5 million, or 6.6%, and savings deposits increased $136.7 million, or 3.2%, while noninterest bearing deposits decreased $142.1 million, or 4.3%, and interest bearing demand deposits decreased $76.7 million, or 2.6%, during the period.

Average deposits for the first quarter of 2024 were $13.3 billion, an increase of $76.3 million, or 0.6%, from $13.2 billion for the fourth quarter of 2023. Consistent with the previously noted shift in customer preferences, average savings deposits increased $164.1 million, or 3.9%, and average time deposits increased $202.8 million, or 7.8%, from the linked quarter. These increases were partially offset by a $198.3 million, or 5.9%, decrease in average noninterest bearing deposits and a decrease of $92.3 million, or 3.1%, in interest bearing demand deposit.

Through the first three months of 2024, average deposits increased $467.0 million, or 3.6%, when compared to the same period of 2023.

Uninsured deposit balances were $5.5 billion, or 40.5% of total deposits, as of March 31, 2024. The Company reviews uninsured deposits for concentration risk, and typically evaluates this risk by excluding public funds and intercompany deposits to arrive at an adjusted uninsured deposit amount. As such, excluding public funds and intercompany accounts, adjusted uninsured deposits were $3.2 billion, or 24.0% of total deposits, at the end of the first quarter.

First Financial maintains diverse funding sources, including Fed Funds, the Fed discount window, brokered CDs, FHLB borrowings and deposit placement services. The Company believes its funding capacity provides sufficient flexibility to respond to any event that would stress its deposit balances.

Borrowed funds were $1.2 billion as of March 31, 2024 compared to $1.3 billion at December 31, 2023. Borrowings declined due to increases in deposits combined with decreases in investment securities. First Financial had short-term borrowings of $862.1 million as of March 31, 2024 and $937.8 million as of December 31, 2023. Short-term borrowings with the FHLB were $700.0 million at March 31, 2024 and $800.0 million at December 31, 2023. There were no federal funds purchased included in short-term borrowings at March 31, 2024 or December 31, 2023.

Long-term debt, which may include subordinated notes, FRB/FHLB long-term advances or other borrowings, was $343.2 million and $344.1 million at March 31, 2024 and December 31, 2023, respectively. Outstanding subordinated debt totaled $312.8 million as of March 31, 2024 and $312.6 million as of December 31, 2023.

First Financial had no FHLB long-term advances at March 31, 2024 or December 31, 2023. First Financial's total remaining borrowing capacity from the FHLB was $632.9 million as of March 31, 2024.

See Note 8 – Borrowings in the Notes to Consolidated Financial Statements for further discussion of First Financial's borrowed funds.

LIQUIDITY

Liquidity management is the process by which First Financial manages the continuing flow of funds necessary to meet its financial commitments on a timely basis and at a reasonable cost. These funding commitments include withdrawals by depositors, credit commitments to borrowers, shareholder dividends, share repurchases, operating expenses and capital expenditures. Liquidity is derived primarily from deposit growth, principal and interest payments on loans and investment securities, maturing loans and investment securities, and access to wholesale funding sources.

First Financial’s most stable source of liability-funded liquidity for both long and short-term needs is deposit growth and retention of the core deposit base. In addition to core deposit funding, First Financial also utilizes a variety of other short and long-term funding sources, which include subordinated notes, longer-term advances from the FRB and FHLB and its short-term line of credit.

Both First Financial and the Bank received investment grade credit ratings from Kroll Bond Rating Agency, Inc, an independent rating agency. These credit ratings impact the cost and availability of financing to First Financial, and a downgrade to these credit ratings could affect First Financial's or the Bank’s ability to access the credit markets and potentially increase borrowing costs, negatively impacting financial condition and liquidity. Key factors in maintaining high credit ratings include consistent and diverse earnings, strong credit quality and capital ratios, diverse funding sources and disciplined liquidity monitoring procedures. The ratings of First Financial and the Bank at March 31, 2024 were as follows:

For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $6.3 billion of certain eligible residential, commercial and farm real estate loans, home equity lines of credit and government, agency, and CMBS securities as collateral for borrowings from the FHLB as of March 31, 2024.

First Financial's principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. AFS securities were 97.3% and 97.4% of the total investment portfolio as of March 31, 2024 and December 31, 2023, respectively. The market value of investment securities classified as AFS totaled $2.9 billion and $3.0 billion at March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, $1.4 billion of AFS securities were unpledged and there were $390.8 million of securities available to be sold at breakeven. Additionally, $472.1 million of AFS securities have floating rates and could be sold with minimal losses at March 31, 2024.

HTM securities that are maturing within a short period of time can be an additional source of liquidity. As of both March 31, 2024 and December 31, 2023, the Company had no HTM securities maturing within one year.

In total, First Financial expects $554.0 million of cash flows from its investment portfolio in the next 12 months.

Other sources of liquidity include interest-bearing deposits with other banks. At March 31, 2024, these balances totaled $751.3 million. Additionally, First Financial had unused and available overnight wholesale funding sources of $5.2 billion, or 29.4% of total assets, to fund loan and deposit activities in addition to other general corporate requirements.

First Financial also has a $40.0 million short-term credit facility with an unaffiliated bank that matures in December, 2024. This facility has a variable interest rate and provides First Financial additional liquidity, if needed, for various corporate activities including the repurchase of First Financial common stock and the payment of dividends to shareholders. First Financial had no outstanding balance on this short-term credit facility as of March 31, 2024 and December 31, 2023. The credit agreement requires First Financial to comply with certain covenants including those related to asset quality and capital levels, and First Financial was in compliance with all covenants associated with this facility as of March 31, 2024 and December 31, 2023. This credit facility also required First Financial to pledge as collateral the Bank's common stock where the lender is granted a security interest in this collateral.

Certain restrictions exist regarding the Bank's ability to transfer funds to First Financial in the form of cash dividends, loans, other assets or advances and the approval of the Bank's primary federal regulator is required to pay dividends in excess of regulatory limitations. Dividends paid to First Financial from the Bank totaled $50.0 million for the first three months of 2024. As of March 31, 2024, the Bank had retained earnings of $929.1 million, of which $206.3 million was available for distribution to the Bancorp without prior regulatory approval. As an additional source of liquidity, First Financial had $151.8 million in cash at the parent company as of March 31, 2024.

Share repurchases also impact First Financial's liquidity. For further information regarding share repurchases, see the Capital section that follows.

Capital expenditures were $7.1 million and $4.5 million for the first three months of 2024 and 2023, respectively. Management believes that sufficient liquidity exists to fund its future capital expenditure commitments.

Management is not aware of any other events or regulatory requirements that, if implemented, are likely to have a material effect on First Financial’s liquidity.

CAPITAL

Risk-based capital. The Board of Governors of the Federal Reserve System approved Basel III in order to strengthen the regulatory capital framework for all banking organizations, subject to a phase-in period for certain provisions. Basel III established and defined quantitative measures to ensure capital adequacy. These measures require First Financial to maintain minimum amounts and ratios of Common equity Tier 1 capital, Total and Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets (Leverage ratio).

Basel III includes a minimum ratio of Common equity Tier 1 capital to risk-weighted assets of 7.0% and includes a fully phased-in capital conservation buffer of 2.5% of risk-weighted assets. Further, the minimum ratio of Tier 1 capital to risk-weighted assets is 8.5% and all banks are subject to a 4.0% minimum leverage ratio, while the minimum required Total risk-based capital ratio is 10.5%. Failure to maintain the required Common equity Tier 1 capital will result in potential restrictions on a bank’s ability to pay dividends, repurchase stock and pay discretionary compensation to its employees. The capital requirements also provide strict eligibility criteria for regulatory capital instruments and change the method for calculating risk-weighted assets in an effort to better identify riskier assets, such as highly volatile commercial real estate and nonaccrual loans.

First Financial's tier 1 capital decreased 6 bps to 12.00% at March 31, 2024 compared to 12.06% at December 31, 2023, while the total capital ratio increased to 14.31% at March 31, 2024 compared to 14.26% at December 31, 2023. The leverage ratio increased to 9.75% at March 31, 2024 from 9.70% at December 31, 2023. The Company’s tangible common equity ratio increased to 7.23% at March 31, 2024 from 7.17% at December 31, 2023. The 6 bp increase in the tangible common equity ratio was driven by current period earnings, which were partially offset by an increase in unrealized losses on the Company's investment portfolio.

As of March 31, 2024, management believes that First Financial met all capital adequacy requirements to which it was subject. The Company's most recent regulatory notifications categorized First Financial as "well-capitalized" under the regulatory framework for prompt corrective action. There have been no conditions or events since those notifications that management believes have changed the Company's categorization. Total regulatory capital exceeded the minimum requirement by $516.7 million on a consolidated basis at March 31, 2024.

The following tables present the actual and required capital amounts and ratios as of March 31, 2024 and December 31, 2023 under the Basel III Capital Rules and include the minimum required capital levels based on the phase-in provisions of the Basel III Capital Rules. Capital levels required to be considered "well capitalized" are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.

(Dollars in thousands)

60

Table of Content

(Dollars in thousands)

Shareholder dividends. First Financial paid a dividend of $0.23 per common share on March 15, 2024 to shareholders of record as of March 1, 2024. Additionally, First Financial's board of directors authorized a dividend of $0.23 per common share, payable on June 17, 2024 to shareholders of record as of June 3, 2023.

Share repurchases. Effective December 2023, First Financial's board of directors approved a stock repurchase plan (the 2024 Stock Repurchase Plan), replacing the 2022 Stock Repurchase Plan which became effective in January 2022. The 2024 Stock Repurchase Plan continues for two years and authorized the purchase of up to 5,000,000 shares of the Company's common stock and will expire in December 2025. First Financial did not repurchase any shares under this plan during the first quarter of 2024. Therefore, at March 31, 2024, all 5,000,000 common shares remained available for repurchase under the 2024 Stock Repurchase Plan.

Shareholders' equity. Total shareholders’ equity was $2.3 billion at both March 31, 2024 and December 31, 2023.

For further detail, see the Consolidated Statements of Changes in Shareholders’ Equity.

ENTERPRISE RISK MANAGEMENT

First Financial manages risk through a structured ERM approach that routinely assesses the overall level of risk, identifies specific risks and evaluates specific actions to mitigate those risks. First Financial continues to enhance its risk management capabilities and has embedded risk awareness into the culture of the Company. First Financial has identified the following types of risk that it monitors in its ERM framework: credit, market (composed of interest rate, liquidity, capital, foreign exchange and financial risk), operational, compliance, strategic, reputation, information technology, cyber and legal.

For a full discussion of these risks, see the Enterprise Risk Management section in Management's Discussion and Analysis in First Financial’s 2023 Annual Report on Form 10-K. The sections that follow provide additional discussion related to credit risk and market risk.

CREDIT RISK

Credit risk represents the risk of loss due to failure of a customer or counterparty to meet its financial obligations in accordance with contractual terms. First Financial manages credit risk through its underwriting process, periodically reviewing and approving its credit exposures using credit policies and guidelines approved by the board of directors.

MARKET RISK

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, foreign exchange rates and equity prices. The primary sources of market risk for First Financial are interest rate risk and liquidity risk.

Interest rate risk. Interest rate risk is the risk to earnings and the value of the Company's equity arising from changes in market interest rates. Interest rate risk arises in the normal course of business to the extent that there is a divergence between the amount of interest-earning assets and the amount of interest-bearing liabilities that are prepaid, withdrawn, re-priced or mature in specified periods. First Financial seeks to achieve consistent growth in net interest income and equity while managing volatility from shifts in market interest rates, while operating within acceptable limits established for interest rate risk and maintaining adequate levels of funding and liquidity.

Potential cash flows, sales, or replacement value of many of our assets and liabilities, especially those that earn or pay interest, are sensitive to changes in the general level of interest rates. This interest rate risk arises primarily from our normal business activities of gathering deposits and extending loans. Many factors affect our exposure to changes in interest rates, such as general economic and financial conditions, client preferences, historical pricing relationships, and re-pricing characteristics of financial instruments. Our earnings can also be affected by the monetary and fiscal policies of the U.S. Government and its agencies, particularly the Federal Reserve.

In managing interest rate risk, the Company establishes guidelines and strategies for asset and liability management, including measurement of short and long-term sensitivities to changes in interest rates, through our internal Balance Sheet Strategies and Asset Liability Committee, which is comprised of senior officers from the treasury, risk management, credit administration, finance and lending areas. These guidelines and strategies are also reviewed with the Capital Markets Committee of our Board of Directors.

First Financial monitors its interest rate risk position using income simulation models and EVE sensitivity analyses that capture both short-term and long-term interest rate risk exposure. Income simulation involves forecasting NII under a variety of interest rate scenarios. EVE is calculated by discounting the cash flows for all balance sheet instruments under different interest rate scenarios. First Financial uses EVE sensitivity analysis to understand the impact of changes in interest rates on long-term cash flows, income and capital. For both NII and EVE modeling, First Financial leverages instantaneous parallel shocks to evaluate interest rate risk exposure across rising and falling rate scenarios. Additional scenarios evaluated include various non-parallel yield curve twists.

First Financial’s interest rate risk models are based on the contractual and assumed cash flows and repricing characteristics for the Company’s assets, liabilities and off-balance sheet exposure. A number of assumptions are also incorporated into the interest rate risk models, including prepayment behaviors and repricing spreads for assets in addition to attrition and repricing rates for liabilities. Assumptions are primarily derived from behavior studies of the Company’s historical client base and are continually refined. Modeling the sensitivity of NII and EVE to changes in market interest rates is highly dependent on the assumptions incorporated into the modeling process.

Non-maturity deposit modeling is particularly dependent on the assumption for repricing sensitivity known as a beta. Beta is the amount by which First Financial’s interest bearing non-maturity deposit rates will increase when short-term interest rates rise. The Company utilized a weighted average deposit beta of 43% in its interest rate risk modeling as of March 31, 2024. First Financial also includes an assumption for the migration of non-maturity deposit balances into CDs for all upward rate scenarios beginning with the +100 bps scenario, thereby increasing deposit costs and reducing asset sensitivity.

Presented below is the estimated impact on First Financial’s NII and EVE position as of March 31, 2024, assuming immediate, parallel shifts in interest rates:

62

“Risk-neutral” refers to the absence of a strong bias toward either asset or liability sensitivity. “Asset sensitivity” is when a company's interest-earning assets reprice more quickly or in greater quantities than interest-bearing liabilities. Conversely, “liability sensitivity” is when a company's interest-bearing liabilities reprice more quickly or in greater quantities than interest-earning assets. In a rising interest rate environment, asset sensitivity results in higher net interest income while liability sensitivity results in lower net interest income. In a declining interest rate environment, asset sensitivity results in lower net interest income while liability sensitivity results in higher net interest income.

The projected results for NII and EVE reflect an asset sensitive position, due to a strong funding mix of low cost transactional deposits supporting loans priced primarily off the short end of the rate curve. The difference in sensitivity between the down and up rate scenarios is driven by an assumed compositional shift in funding makeup. First Financial continues to manage its balance sheet with a bias toward asset sensitivity while simultaneously balancing the potential earnings impact of this strategy.

First Financial continually evaluates the sensitivity of its interest rate risk position to modeling assumptions. The following table reflects First Financial’s estimated NII sensitivity profile as of March 31, 2024 assuming a 25% increase and a 25% reduction to the beta assumption on managed rate deposits:

See the Net Interest Income section of Management’s Discussion and Analysis for further discussion.

Liquidity risk. Liquidity risk is the potential that an entity will be unable to meet its obligations as they come due because of an inability to liquidate assets, or obtain funding or that it cannot easily unwind or offset exposures without significantly lowering market prices because of inadequate market depth or market disruptions. Management focuses on maintaining and enhancing liquidity by maximizing collateral-based liquidity availability. First Financial manages liquidity in relation to the trend and stability of deposits; degree and reliance on short-term, volatile sources of funds, including any undue reliance on borrowings or brokered deposits to fund longer-term assets. Management identifies, measures, monitors and manages liquidity while seeking to maintain diversification of funding sources, both on- and off-balance-sheet.

Management, including the Balance Sheet Strategies and Asset Liability Committee, monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts. The Company continually refines and updates its liquidity risk management processes, such as refining the contingency funding plan, meeting frequently, and securing additional contingent borrowing capacity. We maintain strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, properly manage capital market funding sources and to address unexpected liquidity requirements.

Management closely monitors the usage of excess business deposits, the balance of personal deposits and the broader macroeconomic environment. This monitoring includes consideration of various metrics and establishment of internal thresholds related to balance sheet composition, borrowing composition, and liquidity composition. Balance sheet composition metrics reviewed include the loan to deposit, loans to total assets and core deposits to total assets ratios among others. Borrowing composition monitoring includes, but is not limited to, consideration of borrowing capacity as a percentage of total assets, brokered CDs as a percentage of total assets and Fed funds lines to total assets. Liquidity composition ratios include remaining liquidity to total assets, and tier 1 liquidity sources as a percentage of both 30 and 90 day maturing liabilities, among others. As of March 31, 2024, all metrics reviewed were within the Company's policy limits.

The Company utilizes its contingency funding plan to assess the ability of the Company to successfully navigate significant liquidity events. The contingency funding plan considers various sources of liquidity, including loan and deposit growth rates, decreasing access to secured and unsecured wholesale funding sources and declining financial performance, to determine First Financial’s ability to meet liquidity requirements over certain time horizons and in certain stress scenarios. The contingency funding plan also includes the process for creating a Contingency Funding Task Force. During a liquidity crisis, the CFTF, via the Balance Sheet Strategies and Asset Liability Committee, would assess and identify key mitigation strategies needed for addressing a liquidity crisis. These mitigation strategies would be assigned to appropriate personnel for implementation with established targets and reporting requirements. Typical mitigation strategies would include, but not be limited to, curtailing loan originations, pricing options for stabilizing/growing deposits, options for expanding wholesale funding sources, and asset liquidation options.

For further discussion of the Company's liquidity, please see the Liquidity section within Management's Discussion and Analysis.

CRITICAL ACCOUNTING ESTIMATES

First Financial’s Consolidated Financial Statements are prepared based on the application of the Company's accounting policies. These policies require the reliance on estimates and assumptions which are inherently subjective and may be susceptible to significant change. Changes in underlying factors, assumptions or estimates could have a material impact on First Financial’s future financial condition and results of operations. In management’s opinion, some of these estimates and assumptions have a more significant impact than others on First Financial’s financial reporting. For First Financial, these estimates and assumptions include accounting for the ACL - loans and leases, goodwill, pension and income taxes. The estimates and assumptions are discussed in detail in the Critical Accounting Estimates section of Management’s Discussion and Analysis in First Financial’s 2023 Annual Report. There were no changes to the accounting estimates and assumptions for the ACL, goodwill, pension or income taxes during the three months ended March 31, 2024.

ACCOUNTING AND REGULATORY MATTERS

Note 2 - Recently Adopted and Issued Accounting Standards in the Notes to Consolidated Financial Statements discusses new accounting standards adopted by First Financial in 2024 and 2023, as well as the expected impact of accounting standards issued but not yet adopted. To the extent the adoption of new accounting standards materially affects financial condition, results of operations or liquidity, the impacts are discussed in the applicable Notes to the Consolidated Financial Statements and sections of Management’s Discussion and Analysis.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this report which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as ‘‘believes,’’ ‘‘anticipates,’’ “likely,” “expected,” “estimated,” ‘‘intends’’ and other similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Examples of forward-looking statements include, but are not limited to, statements we make about (i) our future operating or financial performance, including revenues, income or loss and earnings or loss per share, (ii) future common stock dividends, (iii) our capital structure, including future capital levels, (iv) our plans, objectives and strategies, and (v) the assumptions that underlie our forward-looking statements.

As with any forecast or projection, forward-looking statements are subject to inherent uncertainties, risks and changes in circumstances that may cause actual results to differ materially from those set forth in the forward-looking statements. Forward-looking statements are not historical facts but instead express only management’s beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management’s control. It is possible that actual results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-looking statements. Important factors that could cause actual results to differ materially from those in our forward-looking statements include the following, without limitation:

• economic, market, liquidity, credit, interest rate, operational and technological risks associated with the Company’s business;
• future credit quality and performance, including our expectations regarding future loan losses and our allowance for credit losses
• the effect of and changes in policies and laws or regulatory agencies, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and other legislation and regulation relating to the banking industry;
• Management’s ability to effectively execute its business plans;
• mergers and acquisitions, including costs or difficulties related to the integration of acquired companies;
• the possibility that any of the anticipated benefits of the Company’s acquisitions will not be realized or will not be realized within the expected time period;
• the effect of changes in accounting policies and practices;
• changes in consumer spending, borrowing and saving and changes in unemployment;
• changes in customers’ performance and creditworthiness;
• the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
• current and future economic and market conditions, including the effects of changes in housing prices, fluctuations in unemployment rates, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth;
• the adverse impact on the U.S. economy, including the markets in which we operate, of the novel coronavirus, which causes the Coronavirus disease 2019 (“COVID-19”), global pandemic, and the impact on the performance of our loan and lease portfolio, the market value of our investment securities, the availability of sources of funding and the demand for our products;
• our capital and liquidity requirements (including under regulatory capital standards, such as the Basel III capital standards) and our ability to generate capital internally or raise capital on favorable terms;
• financial services reform and other current, pending or future legislation or regulation that could have a negative effect on our revenue and businesses, including the Dodd-Frank Act and other legislation and regulation relating to bank products and services;
• the effect of the current interest rate environment or changes in interest rates or in the level or composition of our assets or liabilities on our net interest income, net interest margin and our mortgage originations, mortgage servicing rights and mortgage loans held for sale;
• the effect of a fall in stock market prices on our brokerage, asset and wealth management businesses;
• a failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber attacks;
• the effect of changes in the level of checking or savings account deposits on our funding costs and net interest margin; and
• our ability to develop and execute effective business plans and strategies.

These and other risk factors are more fully described in First Financial's Annual Report on Form 10-K for the year ended December 31, 2023 under the section entitled “Item 1A. Risk Factors” and from time to time, in other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Actual results may differ materially from those expressed in or implied by any forward-looking statements. Except to the extent required by applicable law or regulation, First Financial undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

The information contained in “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk” of this report is incorporated herein by reference in response to this item.

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under

Rule 13a-15 of the Securities Exchange Act of 1934, that are designed to cause the material information required to be disclosed by First Financial in the reports it files or submits under the Securities Exchange Act of 1934 to be recorded, processed, summarized, and reported to the extent applicable within the time periods required by the Securities and Exchange Commission’s rules and forms. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

As of the end of the period covered by this report, First Financial performed an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in First Financial's internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, First Financial's internal control over financial reporting.

There are a number of factors that may adversely affect the Company's business, financial results, or stock price. See "Risk Factors" as disclosed in response to "Item 1A. to Part I - Risk Factors" of Form 10-K for the year ended December 31, 2023.

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.