FIRST FINANCIAL BANCORP /OH/ (FFBC) FY 2021 MD&A

Management’s Discussion and Analysis of Financial Condition and Results of Operations

(1) Tax equivalent basis was calculated using a 21.0% tax rate.

(2) Includes loans held for sale.

12 First Financial Bancorp 2021 Annual Report

This annual report contains forward-looking statements. See the Forward-Looking Statements section that follows for further information on the risks and uncertainties associated with forward-looking statements.

The following discussion and analysis is presented by management to facilitate the understanding of the financial condition, cash flows, other changes in financial condition and results of operations of First Financial Bancorp. Management's discussion and analysis identifies trends and material changes that occurred during the reporting periods presented and should be read in conjunction with the Statistical Data, Consolidated Financial Statements and accompanying Notes.

Certain reclassifications of prior years' amounts have been made to conform to current year presentation. Such reclassifications had no effect on net earnings, total assets, liabilities and shareholders' equity.

EXECUTIVE SUMMARY

First Financial Bancorp. is a $16.3 billion financial holding company headquartered in Cincinnati, Ohio, which operates through its subsidiaries primarily in Ohio, Indiana, Kentucky and Illinois. These subsidiaries include First Financial Bank, an

Ohio-chartered commercial bank, which operated 139 full service banking centers as of December 31, 2021. 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 into targeted industry verticals on a nationwide basis. Wealth Management had $3.4 billion in assets under management as of December 31, 2021 and provides the following services: financial planning, investment management, trust administration, estate settlement, 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.

The major components of First Financial’s operating results for the previous three years are summarized in Table 1 – Financial Summary and 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, and

provides financing to franchise owners and clients within the financial services industry throughout the United States. 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’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

The transactions discussed in this section were accounted for using the acquisition method of accounting. 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.

In December 2021, the Company completed its acquisition of Summit Funding Group, Inc. and its subsidiaries. Summit was a privately held, full service, equipment financing company that originates, purchases, sells and services equipment leases to commercial businesses in the United States and Canada. Upon completion of the transaction, Summit became a subsidiary of the Bank and continues to operate as Summit Funding Group, taking advantage of its existing brand recognition within the equipment financing industry.

First Financial Bancorp 2021 Annual Report 13

Pursuant to the purchase agreement, First Financial agreed to acquire all of the issued and outstanding equity securities of Summit for aggregate consideration of approximately $127.1 million consisting of $113.5 million in cash and $10.0 million of First Financial common stock, and a $3.6 million earn-out payment. 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 Summit's operations. First Financial incurred expenses related to the Summit acquisition of $2.6 million during the year ended December 31, 2021.

The fair value measurements of assets acquired and liabilities assumed in the SFG acquisition were $185.8 million and $125.9 million, respectively, and included $42.3 million of financing leases and $73.9 million of operating leases. Given the timing of the transaction closing, acquisition accounting adjustments are considered preliminary at December 31, 2021. These fair 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 December 2022. Goodwill arising from the Summit acquisition was $63.0 million and reflects the business’s high growth potential and the expectation that the acquisition will provide additional revenue growth with the expansion of the Bank's leasing business. The goodwill is not deductible for income tax purposes as the transaction was accounted for as a tax-free exchange.  For further detail, see Note 9 – Goodwill and Other Intangible Assets.

In August 2019, the Company acquired Bannockburn Global Forex, LLC, an industry-leading capital markets firm. The

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

closely held enterprises, financial sponsors and financial institutions across the United States. Bannockburn became a division of the Bank and continues to operate as Bannockburn Global Forex, taking advantage of its existing brand recognition within the foreign exchange industry. The total purchase consideration was $114.6 million, consisting of $53.7 million in cash and $60.9 million of First Financial common stock. The transaction resulted in First Financial recording $57.5 million of goodwill on the Consolidated Balance Sheet, which reflects BGF's high growth potential and the expectation that the acquisition will provide additional revenue growth and diversification. The goodwill is deductible for income tax purposes as the transaction is considered a taxable exchange.

See Note 23 – Business Combinations in the Notes to Consolidated Financial Statements, for further discussion of these transactions.

COVID-19 CONSIDERATIONS

The Company's operations and financial results for the majority of 2021 and 2020 were substantially influenced by the

COVID-19 pandemic. At the onset of the pandemic, the Company updated operating protocols to continuously provide

essential banking services, while prioritizing the health and safety of both its clients and associates. Banking centers offered

drive through services without interruption, while lobbies were fully open or accessible to clients via appointment, conditional

to virus trends at any point in time. Sales associates, support teams and management largely worked remotely.

The Company continued to prioritize the health and safety of clients and associates in 2021, although without the significant disruptions to our workforce that occurred in 2020. Banking centers offered drive through services without interruption, while lobbies were fully open and accessible to clients. Sales associates, support teams and management returned to corporate offices and operations centers in the second and third quarters of 2021.

To assist clients during the pandemic, the Company implemented distinct COVID-19 relief programs to provide payment

deferrals and fee waivers, in addition to temporarily suspending vehicle repossessions and residential property foreclosures.

Further, the Company continuously monitored the actions of federal and state governments to proactively assist clients and

ensure awareness of each financial assistance program available to them, while focusing internally on enhancing remote, mobile

and online processes to better support a bank anytime, anywhere environment.

The Bank underwent a significant level of cross training and redeployment of associate resources to rapidly meet the influx of

client requests in response to the passage of the CARES Act, the establishment of the Paycheck Protection Program and the

approval of the Consolidated Appropriations Act. The Company's response to the PPP resulted in successes in providing

customer relief, although the program and assistance had substantially wound down by the end of 2021. As such, the Company had outstanding PPP loans totaling $55.6 million in balances, net of $2.6 million of unearned fees, as of of December 31, 2021, compared to $594.6 million of PPP loans, net of $13.7 million of unearned fees, as of December 31, 2020.

14 First Financial Bancorp 2021 Annual Report

Further, as of December 31, 2021, the Company had $16.5 million in loans that were still in a payment deferral to provide relief to borrowers adversely impacted by the pandemic, compared to $320.2 million as of December 31, 2020. As provided in the CARES Act and subsequently amended by the Consolidated Appropriations Act, loan modifications in response to COVID-19 that were executed on a loan that was not more than 30 days past due as of December 31, 2019 and executed between March 1, 2020 and January 1, 2022 are not required to be reported as TDR.

OVERVIEW OF OPERATIONS

Net income for the year ended December 31, 2021 was $205.2 million, resulting in earnings per diluted common share of $2.14. This compares to net income of $155.8 million and earnings per diluted common share of $1.59 in 2020. First Financial’s return on average shareholders’ equity for 2021 was 9.08%, compared to 7.02% for 2020, and First Financial’s return on average assets was 1.28% and 1.00% for 2021 and 2020, respectively.

Net interest income in 2021 decreased $4.4 million, or 1.0%, from 2020, to $452.1 million, primarily driven by lower yields earned on the loan and investment portfolios resulting from a lower interest rate environment. The net interest margin on a fully tax equivalent basis was 3.31% for 2021 compared to 3.51% in 2020.

Noninterest income decreased $17.6 million, or 9.3%, to $171.5 million during 2021 from $189.1 million in 2020. The decrease in 2021 was primarily driven by a decline in gains on sales of mortgage loans following record production in 2020.

Noninterest expense increased $10.1 million, or 2.6%, from $390.7 million in 2020 to $400.8 million in 2021. This increase was impacted by higher salaries and benefits directly related to the Company's financial performance, as well as higher data processing expenses, tax credit investment write-downs and legal settlement costs.

Income tax expense increased $7.2 million, or 25.1%, to $35.8 million in 2021 from $28.6 million in 2020, with the effective tax rate decreasing to 14.8% in 2021 from 15.5% in 2020. The lower effective tax rate in 2021 was primarily related to tax credit investments realized during the period.

Total loans decreased $612.7 million, or 6.2%, to $9.3 billion at December 31, 2021 from $9.9 billion at December 31, 2020, primarily driven by the runoff of PPP balances. Total deposits increased $640.0 million, or 5.2%, to $12.9 billion as of December 31, 2021 from $12.2 billion at December 31, 2020. This increase is attributed to an increase in consumer savings rates resulting from retaining stimulus payments, PPP loan proceeds and tax refunds.

The ACL was $132.0 million, or 1.42% of total loans at December 31, 2021, compared to $175.7 million, and 1.77% of total loans at December 31, 2020. In addition, First Financial recorded $19.0 million in provision recapture during 2021, compared to $70.8 million of provision expense in 2020, as the Company's classified asset balances declined $37.2 million, or 26.2%, and economic forecasts improved.

First Financial’s operational results may be influenced by certain economic factors and conditions, such as market interest rates, industry competition, household and business spending levels, consumer confidence and the regulatory environment. For a more detailed discussion of the Company's operations, please refer to the sections that follow.

NET INCOME

2021 vs. 2020. First Financial’s net income increased $49.4 million, or 31.7%, to $205.2 million in 2021, compared to net income of $155.8 million in 2020. The increase in 2021 was primarily related to a $89.8 million, or 126.9%, decrease in provision expense, which was partially offset by a $17.6 million, or 9.3%, decline in noninterest income, a $10.1 million, or 2.6%, increase in noninterest expenses, a $7.2 million, or 25.1%, increase in income tax expense, and a $4.4 million, or 1.0%, decrease in net interest income.

2020 vs. 2019. First Financial’s net income decreased $42.3 million, or 21.3%, to $155.8 million in 2020, compared to net

income of $198.1 million in 2019. The decrease was primarily related to a $27.7 million, or 5.7%, decrease in net interest

income as well as a $40.1 million, or 131.9%, increase in provision expense and a $48.3 million, or 14.1%, increase in

noninterest expenses, which was partially offset by a $57.8 million, or 44.0%, increase in noninterest income and a $16.2

million, or 36.1%, decrease in income tax expense during 2020.

First Financial Bancorp 2021 Annual Report 15

Management’s Discussion and Analysis of Financial Condition and Results of Operations

For more detail, refer to the Net interest income, Noninterest income, Noninterest expenses, Income taxes and Asset quality and credit risk sections that follow.

NET INTEREST INCOME

First Financial’s net interest income for the years 2019 through 2021 is shown in Table 1 – Financial Summary.

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, less 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.

For analytical purposes, net interest income is also presented in Table 1 – Financial Summary on a tax equivalent basis assuming a 21% marginal tax rate. Net interest income on a taxable equivalent basis adjusts for the tax-favored status of income from certain loans and securities held by First Financial that are not taxable for federal income tax purposes 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. First Financial's tax equivalent net interest margin was 3.31%, 3.51% and 4.00% for 2021, 2020 and 2019, respectively.

Table 2 – Volume/Rate Analysis - Tax Equivalent Basis describes the extent to which changes in interest rates as well as changes in the volume of earning assets and interest-bearing liabilities have affected First Financial’s net interest income on a tax equivalent basis during the years presented. Nonaccrual loans and loans held for sale were included in the average loan balances used to determine the yields in Table 2 – Volume/Rate Analysis - Tax Equivalent Basis, which should be read in conjunction with the Statistical Information table.

Loan fees included in the interest income computation for 2021, 2020 and 2019 were $46.8 million, $32.8 million and $15.9 million, respectively. Interest income also included purchase accounting accretion of $12.3 million, $20.0 million and $26.8 million for 2021, 2020 and 2019, respectively.

2021 vs. 2020. Net interest income decreased $4.4 million, or 1.0%, from $456.5 million in 2020 to $452.1 million in 2021, as interest rates declined and purchase accounting accretion moderated during 2021. The tax equivalent yield on earning assets declined due to lower interest rates and more than offset an increase in average earning asset balances during the period. Additionally, PPP fees increased $12.6 million, or 73.3%, in 2021, partially offsetting the impact from a challenging interest rate environment.

Net interest margin on a fully tax equivalent basis decreased 20 bps to 3.31% for 2021 compared to 3.51% in 2020 as a decline in interest rates drove a 49 bp decline in asset yields. These lower rates more than offset higher earning asset balances and a 39 bp decline in funding costs.

Interest income declined $41.7 million, or 8.0%, in 2021 when compared to the prior year as the yield on earning assets declined to 3.54% from 4.03%, which more than offset the impact of higher earning asset balances. Average earning assets increased to $13.8 billion as of December 31, 2021 from $13.2 billion in 2020 as the Company invested excess liquidity into investment securities.

Interest expense decreased due to a 35 basis point decline in the cost of interest-bearing deposits and lower borrowing balances. The low interest rate environment drove the decline in the cost of interest-bearing deposits, which was 0.17% in 2021 compared to 0.52% for the same period in the prior year. Average borrowed funds declined $811.5 million in 2021, while the cost of these borrowed funds increased to 2.57% in 2021 from 1.82% during 2020. Both the decline in balances and the increase in rate were attributable to the repayment of PPPLF borrowings in 2021, which were used to fund PPP activity and carried a relatively modest interest rate of 0.35%.

2020 vs. 2019. Net interest income decreased $27.7 million, or 5.7%, from $484.3 million in 2019 to $456.5 million in 2020,

as interest rates declined and purchase accounting accretion moderated during 2020. Average earning assets increased from

$12.3 billion in 2019 to $13.2 billion in 2020 primarily due to PPP activity, while the tax equivalent yield on earning assets

decreased from 5.00% in 2019 to 4.03% in 2020.

16 First Financial Bancorp 2021 Annual Report

Net interest margin on a fully tax equivalent basis decreased 49 bps to 3.51% for 2020 compared to 4.00% in 2019 as a decline

in interest rates drove a 97 bp decline in asset yields, which combined with higher earning asset balances to more than offset a

61 bp decline in funding costs.

Interest income decreased $82.6 million, or 13.6%, in 2020 when compared to 2019 as the yield on earning assets

declined to 4.03% from 5.00%, which more than offset the impact of higher earning asset balances. The declining yield on

earning assets resulted from an approximate 150 bp reduction in the fed funds target rate from December 31, 2019. Average

earning assets increased to $13.2 billion as of December 31, 2020 from $12.3 billion in 2019 as loan balances grew largely due

to PPP activity.

Interest expense decreased due to lower rates paid on deposits, the Company's aggressive and deliberate management of

funding costs and lower borrowing balances. Lower interest rates led to a 52 bp decline in the cost of interest-bearing deposits,

which was 0.52% in 2020 compared to 1.04% for the same period in the prior year. The cost of borrowed funds decreased to

1.82% in 2020 from 2.65% during 2019, reflecting the decline in interest rates and a shift to FRB long-term borrowings, which

were used to fund PPP activity and carried an interest rate of 0.35%.

(1) Tax equivalent basis was calculated using a 21.00% tax rate.

(2) Includes nonaccrual loans and loans held-for-sale.

(3) Includes HTM securities, AFS securities and other investments.

NONINTEREST INCOME AND NONINTEREST EXPENSES

Noninterest income and noninterest expenses for 2021, 2020 and 2019 are shown in Table 3 – Noninterest Income and Noninterest Expenses.

NONINTEREST INCOME

2021 vs. 2020. Noninterest income decreased $17.6 million, or 9.3%, from $189.1 million in 2020 to $171.5 million in 2021. The decline was attributed to an $18.2 million, or 35.5%, decrease in Gain on sale of loans, an $8.3 million, or 92.2%, decrease in Unrealized gain (loss) on equity securities, a $5.3 million, or 116.6%, decrease on Sales of investment securities and a $2.4 million, or 23.1%, decrease in Client derivative fees. These declines were partially offset by a $5.4 million, or 13.8%, increase in Foreign exchange income, a $3.7 million, or 30.1%, increase in Other noninterest income, a $2.6 million, or 22.0%, increase in Bankcard income, a $2.5 million, or 11.7%, increase in Trust and wealth management fees, and a $2.4 million, or 8.3%, increase in Service charges on deposit accounts.

First Financial Bancorp 2021 Annual Report 17

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Gains on the sales of retail mortgage loans declined from record levels in the prior year, as loan demand softened and premiums moderated in 2021. Gains from sales of investment securities and unrealized gains on equity securities both declined in 2021 due to sales of Visa Class B shares and recording the remaining shares at fair value during 2020. Client derivatives fees declined from prior year as demand moderated in 2021 in line with a decrease in loan balances.

Partially offsetting those declines, Bannockburn produced record foreign exchange income in 2021 due to an increased demand for currency transactions, while other noninterest income increased due to an increase in limited partnership income and syndication fees during the period. In addition, wealth management, bankcard and service charge income all increased in 2021 as the economy began to recover from pandemic-related uncertainty.

2020 vs. 2019. Noninterest income increased $57.8 million, or 44.0%, from $131.4 million in 2019 to $189.1 million in 2020.

The increase was primarily related to a $36.3 million, or 244.6%, increase in Gain on sale of loans, a $31.6 million, or 408.8%,

increase in Foreign exchange income, a $5.0 million increase on Sales of investment securities and an $8.5 million increase in

Unrealized gain (loss) on equity securities. These increases were partially offset by an $8.5 million, or 22.4%, decrease in

Service charges on deposit accounts, a $7.1 million, or 37.6%, decrease in Bankcard income and a $5.3 million, or 34.2%,

decrease in Client derivative fees.

Higher gain on sale of loans in 2020 was a result of record mortgage banking origination activity driven by historically low interest rates, while foreign exchange income was attributable to the full-year impact of the BGF acquisition, which closed in August of 2019 and generated record income in the back half 2020. The Company recorded net realized gain on sale of Visa Class B shares of $4.5 million during the year, driving the increase in gain on sale of investment securities, while the Company recorded unrealized gains on its remaining investment in Visa Class B shares of $8.8 million in noninterest income when recording those shares on the Consolidated Balance Sheet at their estimated fair value, resulting in the increase in unrealized gain on equity securities.

Service charges on deposit accounts declined during 2020 due to pandemic related fee waivers and lower transaction activity,

while the decline in bankcard income was due to the full-year impact of the Durbin Amendment cap on interchange fees, which

became applicable to First Financial in the third quarter of 2019, along with lower transaction volumes due to the pandemic.

Demand for back to back swaps slowed as loan growth moderated, resulting in lower client derivative fees during the year.

18 First Financial Bancorp 2021 Annual Report

NONINTEREST EXPENSES

2021 vs. 2020. Noninterest expenses increased $10.1 million, or 2.6%, in 2021 compared to 2020, primarily due to a $9.1 million, or 3.9%, increase in Salaries and employee benefits, a $3.8 million, or 14.0%, increase in Data processing expenses, a $1.7 million, or 17.2%, increase in Professional services, a $1.6 million, or 24.5%, increase in Marketing expenses, and a $6.5 million, or 16.9%, increase in Other noninterest expenses. These increases were partially offset by a $7.3 million, or 100.0% decrease in Debt extinguishment costs, a $1.8 million, or 29.7%, decrease in State intangible taxes, a $1.3 million, or 11.6%, decrease in Intangible asset amortization expense, a $1.1 million, or 7.7%, decrease in Furniture and equipment expenses and $1.1 million, or 4.8%, decrease in Net occupancy expenses.

Higher salaries and employee benefits in 2021 were driven by annual compensation adjustments and performance related incentives tied to the Company's financial results. Data processing and professional services increased in 2021 due to Company's continued investment in technology and expenses associated with the Summit acquisition, respectively, while marketing expenses increased due to an increase in events sponsored in 2021 compared to 2020, which was impacted by the pandemic.

Other noninterest expenses rose primarily as a result of an increase in tax credit investment write-downs in 2021, as well as $7.1 million of costs related to overdraft litigation settled during the year. Like many banks, First Financial has been the subject of lawsuits relating to overdraft fees. This type of litigation is time consuming and expensive in large part due to the amount of data to be sorted and disclosed, in some cases going back multiple years. During 2021, First Financial determined

First Financial Bancorp 2021 Annual Report 19

Management’s Discussion and Analysis of Financial Condition and Results of Operations

that it was in its best interest to settle lawsuits in the states of Indiana and Ohio and have signed settlement agreements that are being presented to the court for approval, resulting in higher litigation settlement expense in the year.

Debt extinguishment costs declined in 2021 as 2020 included $7.3 million of charges that did not recur in 2021 related to the prepayment of $120.0 million of higher cost long-term FHLB debt. The decline in net occupancy expenses in 2021 was primarily a result of branch consolidation efforts, while state intangible taxes decreased during the current year due to the state of Kentucky changing their taxation method from a franchise tax to an income tax. Additionally, intangible asset amortization declined in 2021 due to accelerated amortization on intangible assets associated with the MSFG merger in prior years, while furniture and equipment expenses declined in 2021 as certain assets became fully depreciated.

2020 vs. 2019. Noninterest expenses increased $48.3 million, or 14.1%, in 2020 compared to 2019, primarily due to a $27.7

million, or 13.3%, increase in Salaries and employee benefits, $7.3 million of Debt extinguishment expenses, a $6.2 million, or

19.1%, increase in Other noninterest expenses, a $5.6 million, or 25.7%, increase in Data processing expenses and a $3.1

million, or 159.0% increase in FDIC assessments.

Higher salaries and employee benefits in 2020 were driven by performance related incentives and commissions, as well as

higher healthcare costs and annual compensation adjustments. Noninterest expenses also increased as the Company incurred

$7.3 million of debt extinguishment costs related to the prepayment of $120.0 million of higher cost long-term FHLB debt as

the Company strategically repositioned its funding mix to take advantage of its liquidity position. The increase in other

noninterest expenses was primarily due to a $5.3 million increase in contributions made to the First Financial Foundation

during 2020 as well higher write downs of tax credit investments, while data processing expenses increased as the Company continued to make strategic investments to enhance its digital capabilities and establish required PPP lending processes. FDIC

assessments increased in 2020 due to the recognition of a $3.4 million small bank assessment credit from the FDIC in 2019.

INCOME TAXES

2021 vs. 2020. First Financial’s income tax expense in 2021 totaled $35.8 million compared to $28.6 million in 2020, resulting in effective tax rates of 14.8% and 15.5% for 2021 and 2020, respectively. The lower effective tax rate in 2021 was primarily related to an increase in tax credit activity during the year, partially offset by higher pre-tax income.

2020 vs. 2019. First Financial’s income tax expense in 2020 totaled $28.6 million compared to $44.8 million in 2019, resulting

in effective tax rates of 15.5% and 18.4% for 2020 and 2019, respectively. The lower effective tax rate in 2020 was primarily

related to lower pre-tax income, coupled with stable non-taxable revenue sources, as well as an increase in tax credit activity during the year.

For further information on income taxes, see Note 15 – Income Taxes in the Notes to Consolidated Financial Statements.

INVESTMENTS

First Financial utilizes its investment portfolio as a source of liquidity and interest income, as well as a tool for managing the Company's interest rate risk profile. As such, the Company's primary investment strategy is to invest in debt securities with low credit risk, such as treasury and agency-backed residential MBS. The investment portfolio is also managed with consideration to prepayment, extension and maturity risk. First Financial invests primarily in MBS issued by U.S. government agencies and corporations, such GNMA, FHLMC and FNMA, as these securities are considered to have a low credit risk and high liquidity profile due to government agency guarantees. Government and agency backed securities comprised 55.5% and 52.9% of First Financial's investment securities portfolio as of December 31, 2021 and 2020, respectively.

The Company also invests in certain securities that are not supported by government or agency guarantees and whose realization is dependent on future principal and interest repayments. 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 would enhance the overall performance of the portfolio. Securities not supported by government or agency guarantees represented 44.5% and 47.1% of First Financial's investment securities portfolio as of December 31, 2021 and 2020, respectively.

The other investments category in the Consolidated Balance Sheets consists primarily of First Financial’s investments in FRB stock, FHLB stock and class B Visa shares.

20 First Financial Bancorp 2021 Annual Report

2021 vs. 2020. First Financial’s investment portfolio at December 31, 2021 totaled $4.3 billion, compared to $3.6 billion at December 31, 2020, and represented 26.4% of total assets at December 31, 2021. The $750.0 million, or 21.1%, increase in the investment portfolio during 2021 was primarily related to Company's strategic redeployment of balance sheet liquidity resulting from an increase in deposits.

First Financial classified $4.2 billion, or 97.7%, and $3.4 billion, or 96.3%, of investment securities as AFS at December 31, 2021 and 2020, respectively. First Financial classified $98.4 million, or 2.3%, and $131.7 million, or 3.7%, of investment securities as HTM at December 31, 2021 and 2020, respectively.

First Financial recorded a $21.0 million unrealized after-tax gain on the investment portfolio as a component of equity in AOCI resulting from changes in the fair value of AFS securities at December 31, 2021. This unrealized after-tax gain decreased $52.5 million in 2021 from a $73.6 million unrealized after-tax gain at December 31, 2020.

Debt securities issued by the U.S. government and U.S. government agencies and corporations, including the FHLB, FHLMC, FNMA and the U.S. Export/Import Bank was not meaningful as a percentage of the portfolio at either December 31, 2021 or December 31, 2020.

Investments in MBS securities, which include CMOs, represented 51.4% and 57.9% of First Financial's total investment portfolio at December 31, 2021 and 2020, respectively. MBS are participations in pools of loans secured by mortgages under which payments of principal and interest are passed through to the security holders. These securities are subject to prepayment risk, particularly during periods of falling interest rates, and extension risk during periods of rising interest rates. Prepayments of the underlying residential real estate loans may shorten the lives of the securities, thereby affecting yields to maturity and market values.

Tax-exempt securities of states, municipalities and other political subdivisions totaled $1.1 billion as of December 31, 2021 and $912.4 million as of December 31, 2020, comprising 25.4% and 25.7% of the investment portfolio at December 31, 2021 and 2020, respectively. The securities are diversified to include states as well as issuing authorities within states, thereby decreasing geographic portfolio risk. First Financial continuously monitors the risk associated with this investment type and reviews underlying ratings for possible downgrades. First Financial does not own any state or other political subdivision securities that are currently impaired.

Asset-backed securities were $719.6 million, or 16.7% of the investment portfolio at December 31, 2021 and $481.9 million, or 13.5% of the investment portfolio at December 31, 2020. First Financial considers these investment securities to have lower credit risk and a high liquidity profile as a result of explicit guarantees on the collateral.

Other securities, consisting primarily of taxable securities of states, municipalities and other political subdivisions, in addition to debt securities issued by corporations, were $166.1 million, or 3.9% of the investment portfolio, at December 31, 2021 and $104.0 million, or 2.9% of the investment portfolio, at December 31, 2020.

The overall duration of the investment portfolio increased to 3.8 years as of December 31, 2021 from 3.2 years as of December 31, 2020. First Financial has avoided adding to its portfolio any particular securities that would materially increase credit risk or geographic concentration risk and the Company continuously monitors and considers these risks in its evaluation of current market opportunities that would enhance the overall performance of the portfolio.

First Financial Bancorp 2021 Annual Report 21

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The estimated maturities and weighted-average yields of HTM and AFS investment securities as of December 31, 2021 are shown in Table 5 – Investment Securities. Tax-equivalent adjustments using a rate of 21% were included in calculating yields on tax-exempt obligations of state and other political subdivisions.

First Financial held cash on deposit with the Federal Reserve of $214.8 million and $20.3 million at December 31, 2021 and 2020, respectively. First Financial continually monitors its liquidity position as part of its ERM framework, specifically through its asset/liability management process.

First Financial will continue to monitor loan and deposit demand, balance sheet composition, capital sensitivity and the interest rate environment as it manages investment strategies in future periods. See Note 4 – Investment Securities in the Notes to Consolidated Financial Statements for additional information on the Company's investment portfolio and Note 22 – Fair Value Disclosures for additional information on how First Financial determines the fair value of investment securities.

22 First Financial Bancorp 2021 Annual Report

(1) Tax equivalent basis was calculated using a 21% tax rate and yields were based on amortized cost.

(2) Maturity represents estimated life of investment securities.

LENDING PRACTICES

First Financial remains dedicated to meeting the financial needs of individuals and businesses through its client-focused business model. The loan portfolio is comprised of a broad range of borrowers primarily located in the Ohio, Indiana and Kentucky markets; however, the commercial finance line of business serves a national client base.

First Financial’s loan portfolio consists of commercial loan types, including C&I, lease financing (equipment leasing), construction real estate and commercial real estate, as well as consumer loan types, such as residential real estate, home equity, installment and credit card loans. First Financial's lending portfolios are managed to avoid the creation of inappropriate industry, geographic, franchise concept or borrower concentration risk.

Credit Management. Subject to First Financial’s credit policy and guidelines, credit underwriting and approval occur within the market and/or the centralized line of business originating the loan. First Financial has delegated a lending limit sufficient to address the majority of client requests in a timely manner to each market president and line of business manager. Loan requests for amounts greater than those limits require the approval of a designated credit officer or senior credit committee and may require additional approvals from the chief credit officer, the chief executive officer and the board of directors. This allows First Financial to manage the initial credit risk exposure through a standardized, strategic and disciplined approval process, but with an increasingly higher level of authority. Plans to purchase or sell a participation in a loan, or a group of loans, requires the approval of certain senior lending and administrative officers, and in some cases could include the board of directors.

Credit management practices are dependent on the type and nature of the loan. First Financial monitors all significant

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

exposures on an ongoing basis. Commercial loans are assigned internal risk ratings reflecting the risk of loss inherent in the loan. These internal risk ratings are assigned upon initial approval of credit and are updated periodically thereafter. First Financial reviews and adjusts its risk ratings based on actual experience, which is the basis for determining an appropriate ACL. First Financial's commercial risk ratings of pass, special mention, substandard and doubtful are derived from standard regulatory rating definitions and facilitate the monitoring of credit quality across the commercial loan portfolio. For further information regarding these risk ratings, see Note 5 – Loans and Leases in the Notes to the Consolidated Financial Statements.

Commercial loans rated as special mention, substandard or doubtful are considered criticized, while loans rated as substandard or doubtful are considered classified. Commercial loans may be designated as criticized/classified based on individual borrower performance or industry and environmental factors. Criticized/classified loans are subject to more frequent internal reviews to assess the borrower’s credit status and develop appropriate action plans.

Classified loans are considered to be the leading indicator of credit losses, and are typically managed by the Special Assets Department. Special Assets is a commercial credit group whose primary focus is to handle the day-to-day management of commercial workouts, recoveries and problem loan resolutions. Special Assets ensures that First Financial has appropriate oversight, improved communication and timely resolution of issues throughout the loan portfolio. Additionally, the Credit Risk Management group within First Financial's Risk Management function provides independent, objective oversight and assessment of commercial credit quality and processes.

Consumer lending credit approvals are based on, among other factors, the financial strength and payment history of the borrower, type of exposure and the transaction structure. Consumer loans are generally smaller dollar amounts than other types of lending and are made to a large number of customers, providing diversification within the portfolio. Credit risk in the consumer loan portfolio is managed by loan type, and consumer loan asset quality indicators, including delinquency, are continuously monitored. The Credit Risk Management group performs product-level performance reviews and assesses credit quality and compliance with underwriting and loan administration guidelines across the consumer loan portfolio.

LOANS AND LEASES

2021 vs. 2020. Loans, excluding loans held for sale, totaled $9.3 billion at December 31, 2021, decreasing $612.7 million, or 6.2%, compared to December 31, 2020. C&I loans decreased $287.5 million, or 9.6%, largely due to the forgiveness of PPP loans originated in response to COVID-19. Construction real estate loans decreased $180.2 million, or 28.3%, while Commercial real estate loans decreased $81.2 million, or 1.9%. The decline in CRE loans was driven by the sale of $143.5 million of loans in the fourth quarter of 2021 in order to address various portfolio concentrations. Residential real estate loans declined $107.0 million, or 10.7%, and Home equity loans decreased $34.7 million, or 4.7%, as demand for these loans moderated in 2021. Partially offsetting these declines were increases in both installment loans and lease financing. Finance lease balances increased $36.6 million, or 50.2%, primarily due to the acquisition of $42.3 million of leases in the Summit acquisition. Installment loans increased $37.6 million, or 45.9%, during 2021 as a result of First Financial's partnership with Upstart lending, which sourced $43.8 million of loans during the year. Average loan balances, including loans held for sale, were $9.6 billion at December 31, 2021, a decrease of $262.4 million, or 2.7%, compared to December 31, 2020.

Table 6 – Loan Maturity/Rate Sensitivity indicates the contractual maturity of all loans outstanding at December 31, 2021 as well as their sensitivity to changes in interest rates.

For discussion of risks associated with the loan portfolio and First Financial's ACL, see the Asset Quality and Credit Risk section included in Management’s Discussion and Analysis.

24 First Financial Bancorp 2021 Annual Report

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 commitments outstanding to extend credit totaling $4.0 billion and $3.4 billion at December 31, 2021 and 2020, respectively. This increase in commitments was driven by the Company's strong origination efforts during the year. As of December 31, 2021, loan commitments with a fixed interest rate totaled $129.2 million while commitments with variable interest rates totaled $3.8 billion. The fixed rate loan commitments have interest rates ranging from 0% to 21% for both

First Financial Bancorp 2021 Annual Report 25

December 31, 2021 and 2020 and have maturities ranging from less than 1 year to 30.9 years at December 31, 2021 and less than 1 year to 30.8 years at December 31, 2020.

Letters of credit are conditional commitments issued by First Financial to guarantee the performance of a client to a third party.  First Financial’s portfolio of letters of credit consists 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 $41.1 million and $36.1 million at December 31, 2021, and 2020, 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 $362.8 million and $242.4 million at December 31, 2021 and 2020, respectively.

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 December 31, 2021, 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 $72.5 million and $55.6 million at December 31, 2021 and 2020, respectively.

Additionally, as part of the ordinary course of business, First Financial and its subsidiaries are parties to other 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 December 31, 2021. 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 December 31, 2021 or December 31, 2020.

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 classified as nonaccrual, the accrual of interest income is discontinued and previously accrued but unpaid interest is reversed.

Loans are classified as TDRs when borrowers are experiencing financial difficulties and concessions are made by the Company that would not otherwise be considered for a borrower with similar credit characteristics. TDRs are generally classified as nonaccrual for a minimum period of six months and may qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement.

Nonperforming assets consist of nonaccrual loans, accruing TDRs (collectively, nonperforming loans) and OREO.

See Table 7 – Summary of the ACL and Selected Statistics for a summary of First Financial’s nonaccrual loans, TDRs and OREO.

2021 vs. 2020. Nonaccrual loans were $48.4 million, or 0.52% of total loans as of December 31, 2021. This represents a $32.4 million, or 40.1%, decline from $80.8 million as of December 31, 2020. The decline in nonaccrual loans was a result of strong resolution efforts during the year, in addition to risk rating upgrades as borrower performance improved since the beginning of the pandemic. Total nonperforming assets declined $29.0 million, or 32.6%, to $60.1 million at December 31, 2021 from $89.1 million at December 31, 2020. The decline in nonperforming assets was driven by the decline in nonaccrual loans as well as a $1.2 million decline in OREO balances, which was partially offset by a $4.5 million increase in accruing TDRs.

Classified asset balances declined $37.2 million, or 26.2%, to $104.8 million at December 31, 2021 from $142.0 million at December 31, 2020. The improvement in classified asset balances during 2021 was driven by strong resolution efforts during the year, including the loan sales, as well as an improvement in general economic conditions.

26 First Financial Bancorp 2021 Annual Report

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 values of the loans and leases actually removed 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 balance may have been charged-off. Actual losses on loans and leases are charged against the ACL. Any subsequent recovery of a previously charged-off loan is credited back to the ACL.

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.

See Table 7 – Summary of the ACL and Selected Statistics for a summary of activity impacting the ACL and Table 13 – Allocation of the ACL for detail on its composition.

2021 vs. 2020. The ACL at December 31, 2021 was $132.0 million, or 1.42% of loans, which was a $43.7 million, or 24.9%, decrease from $175.7 million, and 1.77% of loans at December 31, 2020. Provision expense decreased $89.8 million, or 126.9%, to $19.0 million of provision recapture in 2021 from $70.8 million of provision expense in 2020. The ACL and corresponding provision expense was elevated in 2020 due to the adverse economic impact of COVID-19, however, the ACL declined in 2021 as the Company's economic outlook and credit trends improved.

The Company utilized the Moody's December baseline forecast as its R&S forecast in the quantitative model as of December 31, 2021. For reasonableness, the Company also considered the impact to the model from alternative, more adverse economic forecasts, slower prepayment speeds and increased default rates. 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 related to the COVID-19 pandemic, such as franchise, hotel and investor commercial real estate lending when making qualitative adjustments to the ACL model.

Net charge-offs increased $10.4 million, or 72.9%, to $24.7 million for 2021 compared to $14.3 million for 2020, while the ratio of net charge-offs as a percentage of average loans outstanding increased to 0.26% in 2021 from 0.14% in 2020. This increase in net charge-offs was primarily driven by the sale of $133.8 million of hotel loans in 2021, which resulted in $9.2 million of additional net charge-offs. This loan sale was executed to address various portfolio concentrations.

The ACL as a percentage of nonaccrual loans was 272.8% at December 31, 2021 and 217.6% at December 31, 2020. The increase in this ratio was attributed to the decline in nonaccrual loans during the period, which more than offset the decrease in the ACL. The ACL as a percentage of nonperforming loans, including accruing TDRs was 220.0% at December 31, 2021 compared with 200.0% at December 31, 2020.

Provision expense is a product of the Company's ACL model combined with net charge-off activity during the period. Provision expense decreased $89.8 million during 2021 as the Company recorded $19.0 million of provision recapture during the period compared to $70.8 million of provision expense in 2020.

The ACL on unfunded commitments was $13.4 million as of December 31, 2021 and $12.5 million as of December 31, 2020.

Additionally, First Financial recorded $0.9 million of provision expense on unfunded commitments for the year ended

December 31, 2021 compared to $0.2 million of provision recapture for the same period of 2020. The increases in both the ACL and provision expense on unfunded commitments were driven by an increase in the volume of outstanding commitments due to strong origination efforts during 2021.

See Note 6 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements for further discussion of First

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial's ACL.

28 First Financial Bancorp 2021 Annual Report

For further discussion of First Financial's ACL, see Note 6 – Allowance for Credit Losses in the Notes to Consolidated Financial Statements.

(1) Includes loans classified as nonaccrual and troubled debt restructurings.

(2) Nonaccrual loans include nonaccrual TDRs of $16.0 million, $14.7 million, $18.5 million, $22.4 million, and $6.4 million, as of December 31, 2021, 2020, 2019, 2018, and 2017, respectively.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

DERIVATIVES

First Financial is authorized to use certain derivative instruments including interest rate caps, floors, swaps and foreign exchange contracts to meet the needs of its clients while managing interest rate risk associated with certain transactions.  The Company does not use derivatives for speculative purposes.

First Financial primarily utilizes interest rate swaps, which generally involve the receipt by First Financial of floating rate amounts from swap counterparties in exchange for payments to these counterparties by First Financial of fixed rate amounts received from borrowers. This results in the Company's loan customers receiving fixed rate funding while providing First Financial with a floating rate asset.

In conjunction with participating interests in commercial loans, First Financial periodically enters into risk participation agreements with counterparties whereby First Financial assumes a portion of the credit exposure associated with an interest rate swap on the participated loan in exchange for a fee. Under these agreements, First Financial will make payments to the counterparty if the loan customer defaults on its obligation to perform under the interest rate swap contract with the counterparty.

First Financial enters into IRLCs and forward commitments for the future delivery of mortgage loans to third party investors, which are considered derivatives. When borrowers secure an IRLC with First Financial and the loan is intended to be sold, First Financial will enter into forward commitments for the future delivery of the loans to third party investors in order to hedge against the effect of changes in interest rates impacting IRLCs and loans held for sale.

First Financial may enter into foreign exchange derivative contracts for the benefit of commercial customers to hedge their exposure to foreign currency fluctuations. Similar to the hedging of interest rate risk from interest rate derivative contracts, First Financial also enters into foreign exchange contracts with major financial institutions to economically hedge the exposure from client driven foreign exchange activity.

See Note 12 – Derivatives in the Notes to Consolidated Financial Statements for additional information regarding First Financial's use of derivative instruments.

DEPOSITS

First Financial solicits deposits by offering commercial and consumer clients a wide variety of transaction and savings accounts, including checking, savings, money-market and time deposits of various maturities and rates.

2021 vs. 2020. First Financial's total deposits increased $640.0 million, or 5.2%, to $12.9 billion as of December 31, 2021 from $12.2 billion at December 31, 2020. This increase was driven by an increase in noninterest bearing deposits of $421.9 million, or 11.2%, an increase in savings deposits of $476.6 million, or 12.9%, and an increase in interest-bearing checking deposits of $284.0 million, or 9.7%. These increases were partially offset by a $542.5 million, or 29.0%, decline in time deposits. Total non-time deposit balances were $11.5 billion as of December 31, 2021 and $10.4 billion as of December 31, 2020.

30 First Financial Bancorp 2021 Annual Report

Total average deposits for 2021 increased $1.3 billion, or 11.4%, from 2020 primarily due to an increase in average noninterest bearing deposits of $694.6 million, or 21.0%, an increase in average interest-bearing demand deposits of $362.1 million, or 13.8%, and an increase in average savings deposits $804.8 million, or 24.7%, partially offset by a decrease in average time deposits of $566.3 million, or 26.1%. The year-over-year growth in average deposits was largely attributable to customers retaining stimulus payments, PPP loan proceeds and tax refunds.

Table 9 – Uninsured Deposits-Maturities of Time Deposits Greater Than or Equal to $250,000 details the contractual maturity of deposits that are not FDIC insured. Time Deposits Greater Than or Equal to $250,000 represent 1.5% and 1.8% of total deposits outstanding at December 31, 2021 and 2020 respectively.

BORROWINGS

First Financial's short-term borrowings are utilized to manage the Company's normal liquidity needs. These borrowings include repurchase agreements utilized for corporate sweep accounts with cash management account agreements in place, as well as overnight advances from the FHLB. The Company's long-term borrowings consist of subordinated debt, FRB borrowings, FHLB long-term advances, repurchase agreements utilizing investment securities pledged as collateral and a capital loan from a municipality.

2021 vs. 2020. Short-term borrowings increased $129.6 million, or 77.8%, to $296.2 million at December 31, 2021, from $166.6 million at December 31, 2020.

First Financial utilizes short-term borrowings and long-term advances from the FHLB as wholesale funding sources. First Financial had $225.0 million of short-term borrowings from the FHLB at December 31, 2021 compared to none at December 31, 2020. Short term borrowings also included repurchase agreements of $51.2 million and $126.6 million at December 31, 2021 and 2020, respectively. The Company had no federal funds purchased as of December 31, 2021 compared to $40.0 million at December 31, 2020.

Total long-term debt was $409.8 million and $776.2 million at December 31, 2021 and 2020, respectively. Outstanding subordinated debt totaled $313.2 million and $321.4 million as of December 31, 2021 and 2020, respectively. The Company issued $150.0 million of fixed to floating rate subordinated notes in the second quarter of 2020. The subordinated debt is treated as Tier 2 capital for regulatory capital purposes and also included unamortized valuation and debt issuance costs of $8.6 million and $9.3 million as of December 31, 2021 and 2020, respectively.

Additionally, in conjunction with the acquisition of Summit, First Financial assumed $96.4 million in outstanding long-term borrowings at December 31, 2021. These outstanding long-term borrowings consisted of $23.0 million of lines of credit with

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

other banks utilized to operate the business and carried an average interest rate of 2.77%. Additionally, acquired long term borrowings included $73.4 million of term notes, both with and without recourse, with an average interest rate of 4.09%, that were used to finance Summit's equity investment in the purchase of equipment to be leased to customers. Shortly after year-end, First Financial paid off and terminated the outstanding bank lines of credit acquired in the Summit transaction and anticipates paydowns of the existing term loans in 2022.

The Company had no FRB advances from the PPPLF included in long-term borrowings as of December 31, 2021 compared to $435.0 million as of December 31, 2020. The PPPLF was established by the Federal Reserve to supply a source of liquidity and term financing to financial institutions participating in the PPP. These borrowings carried an interest rate of 0.35% and were secured by the Company's PPP loans.

The Company also had no FHLB long-term advances as of December 31, 2021, compared to $20.0 million at December 31, 2020. First Financial's total remaining borrowing capacity from the FHLB was $1.4 billion at December 31, 2021. For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $5.8 billion of certain eligible residential, commercial and agricultural real estate loans, home equity lines of credit and certain agency CMOs, municipals and CMBS securities as collateral for borrowings from the FHLB as of December 31, 2021.

See Note 11 – Borrowings in the Notes to Consolidated Financial Statements for additional information on First Financial's borrowings.

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 short and long-term funding sources, which include subordinated notes, longer-term advances from the FHLB and its short-term line of credit. For further information regarding the company's liability-funded liquidity, see Note 10 - Deposits and Note 11 - Borrowings.

First Financial has a $40.0 million short-term credit facility with an unaffiliated bank that matures in December, 2022. 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. As of December 31, 2021, First Financial had an outstanding balance of $20.0 million. 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 December 31, 2021.

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 abilities 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 December 31, 2021 were as follows:

For ease of borrowing execution, First Financial utilizes a blanket collateral agreement with the FHLB. First Financial pledged $5.8 billion of certain eligible residential, commercial and farm real estate loans, home equity lines of credit and government, agency and CMBS investments as collateral for borrowings from the FHLB as of December 31, 2021.

32 First Financial Bancorp 2021 Annual Report

First Financial's principal source of asset-funded liquidity is marketable investment securities, particularly those of shorter maturities. The market value of investment securities classified as AFS totaled $4.2 billion and $3.4 billion at December 31, 2021 and 2020, respectively. HTM securities that are maturing within a short period of time can be an additional source of liquidity. As of December 31, 2021 and 2020, the Company had no HTM securities maturing within one year.

Other sources of liquidity include cash and due from banks and interest-bearing deposits with other banks. At December 31, 2021, these balances totaled $434.8 million, and First Financial had unused and available overnight wholesale funding sources of $4.8 billion, or 29.5% of total assets, to fund loan and deposit activities in addition to general corporate requirements.

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 $200.0 million, $80.0 million and $196.8 million for 2021, 2020 and 2019, respectively. As of December 31, 2021, the bank had retained earnings of $722.2 million, of which $166.2 million was available for distribution to First Financial without prior regulatory approval. As an additional source of liquidity, First Financial had $49.7 million in cash at the parent company as of December 31, 2021.

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

Capital expenditures, such as banking center expansion, remodeling and technology investments, were $15.3 million for 2021, $16.5 million for 2020 and $20.9 million for 2019. Material commitments for capital expenditures as of December 31, 2021, were $33.7 million. Management believes that sufficient liquidity exists to fund its future capital expenditure commitments.

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

CAPITAL

Risk-Based Capital. First Financial and its subsidiary, First Financial Bank, are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory guidelines. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet minimum capital requirements can initiate regulatory action.

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 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 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 to 11.22% at December 31, 2021 from 12.20% at December 31, 2020, while the total capital ratio decreased to 14.10% from 15.55% during the same period. The leverage ratio decreased to 8.70% at December 31, 2021,compared to 9.55% at December 31, 2020, while the Company’s tangible common equity ratio decreased to 7.58% at December 31, 2021 from 8.47% at December 31, 2020. The decline in the Company's capital ratios during 2021 was primarily driven by the acquisition of Summit and share repurchases during the year.

As of December 31, 2021, First Financial met all capital adequacy requirements to which it was subject. At December 31, 2021 and 2020, regulatory notifications categorized First Financial Bank as well-capitalized under the regulatory framework for

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

prompt corrective action. There have been no conditions or events that management believes has changed the Company’s capital categorization.

For further detail on First Financial's capital ratios at December 31, 2021, see Note 19 – Capital in the Notes to Consolidated Financial Statements.

First Financial generally seeks to balance the return of earnings to shareholders through shareholder dividends and share repurchases with capital retention in order to maintain adequate levels of capital and support the Company's growth plans.

Shareholder Dividends. First Financial’s dividend payout ratio, or total dividends paid divided by net income available to common shareholders, was 42.6%, 57.5% and 44.8% for the years 2021, 2020 and 2019, respectively. The dividend payout ratio is continually reviewed by management and the board of directors for consistency with First Financial’s overall capital planning activities and compliance with applicable regulatory limitations. In January 2022, the board of directors authorized a dividend of $0.23 per common share, payable on March 15, 2022 to all shareholders of record as of March 1, 2022.

Share Repurchases. Effective January 2022, First Financial's board of directors approved a stock repurchase plan (the 2022 Repurchase Plan), replacing the 2020 Repurchase Plan which became effective in January 2021. The 2022 Repurchase Plan continues for two years and authorizes the purchase of up to 5,000,000 shares of the Company's common stock and will expire in December 2023.

34 First Financial Bancorp 2021 Annual Report

The 2020 Repurchase Plan was authorized in December of 2020, and replaced the 2019 Repurchase Plan, which expired on December 31, 2020. The 2020 Repurchase Plan authorized the repurchase of up to 5,000,000 shares of the Company's common stock. In 2021, First Financial repurchased 4,633,355 shares at an average market price of $23.33 under the 2020 Plan.

Under the 2019 Repurchase Plan, First Financial repurchased 880,000 shares at an average market price of $18.96 during 2020 and 2,753,272 shares at an average market price of $24.05 during 2019.

Shareholders' Equity. Total shareholders’ equity at both December 31, 2021 and December 31, 2020 was $2.3 billion.

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

PENSION PLAN

First Financial sponsors a non-contributory defined-benefit pension plan covering substantially all employees. The significant assumptions used in the valuation and accounting for the pension plan include the discount rate, expected return on plan assets and the rate of employee compensation increase. The discount rate assumption was determined based on highly rated corporate bonds, weighted to adjust for their relative size, projected plan cash flows using the annuity substitution method as well as comparisons to external industry surveys. The expected return on plan assets was 7.25% for both 2021 and 2020, and was based on the composition of plan assets, actual returns, economic forecasts and economic trends. The assumed rate of compensation increase was 3.50% and was compared to historical increases for plan participants for reasonableness.

Presented below is the estimated impact on First Financial’s projected benefit obligation and pension expense as of December 31, 2021, assuming shifts in the significant assumptions:

Based upon the plan’s current funding status and updated actuarial projections for 2021, First Financial recorded expense related to its pension plan of $3.4 million for 2021, $2.5 million for 2020 and $1.0 million for 2019 in the Consolidated Statements of Income. First Financial will make contributions to the plan if plan assets do not meet or exceed ERISA’s minimum funding standards.  Given the plan's over-funded status, First Financial made no cash contributions to fund the pension plan in 2021, 2020 or 2019 nor does it expect to make a cash contribution in 2022.

See Note 16 – Employee Benefit Plans in the Notes to Consolidated Financial Statements for additional information on First Financial's pension plan.

ENTERPRISE RISK MANAGEMENT

First Financial considers risk to be any issue that could have an adverse impact on the Company's capital or earnings, or negatively impact the Company's ability to meet its objectives. First Financial manages risks through a structured ERM approach that routinely assesses the overall level of risk, identifies specific risks and evaluates the steps being taken to mitigate those risks. First Financial continues to enhance its risk management capabilities and has, over time, embedded risk awareness into the Company's culture. ERM allows First Financial to align a variety of risk management activities within the Company into a cohesive, enterprise-wide approach and focus on process-level risk management activities and strategic objectives within the risk management culture. Additionally, ERM allows the Company to deliberately develop risk responses and evaluate the effectiveness of mitigation compared to established thresholds for risk appetite and tolerance, in addition to facilitating the consideration of significant organizational changes and consolidation of information through a common process for management and the board of directors.

First Financial has identified nine types of risk that it monitors in its ERM framework. These risks include credit, market (composed of interest rate, liquidity, capital, foreign exchange and financial risk), operational, compliance, strategic, reputation, information technology, cyber and legal.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

First Financial uses a robust regulatory risk framework as one of the foundational components of its ERM framework. This allows for a common categorization across the Company and provides a consistent and complete risk framework that can be summarized and assessed enterprise-wide. Additionally, the risk framework utilized is consistent with that used by the Company’s regulators, which results in additional feedback on First Financial’s ability to assess and measure risk across the organization as well as the ability for management and the board of directors to identify and understand differences in assessed risk profiles.

ERM helps ensure that First Financial continues to identify and adequately address risks that emerge from a combination of new customers, products and associates, changing markets, new lines of business and processes and new or evolving systems.

The goals of First Financial’s ERM framework are to:

•focus on the Company at both the enterprise and line of business levels;

•align the Company's risk appetite with its strategic, operational, compliance and reporting objectives;

•enhance risk response decisions;

•reduce operational deficiencies and possible losses;

•identify and manage interrelated risks;

•provide integrated responses to multiple risks;

•improve the deployment and allocation of capital; and

•improve overall business performance.

Specific enterprise-level objectives include:

•creating a holistic view of risk in which risk is comprehensively considered, consistently communicated and documented in decision making;

•centralizing the oversight of risk management activities;

•defining the risks that will be addressed by the enterprise and each functional area or business unit to create an awareness of risks affecting the Company;

•establishing and maintaining systems and mechanisms to identify, assess, monitor and measure risks that may impact First Financial’s ability to achieve its business objectives;

•creating a process which ensures that, for all new lines of business and new product decisions, management evaluates the expertise needed and assesses the risks involved;

•establishing and maintaining systems and mechanisms to monitor risk responses;

•developing risk occurrence information systems to provide early warning of events or situations that create risk for the Company;

•maintaining a compliance culture and framework that ensures adherence to laws, rules and regulations, fair treatment and privacy of customers and prevention of money laundering and terrorist financing;

•implementing and reviewing risk measurement techniques that management may use to establish the Company’s risk tolerance, assess risk likelihood and impact, main effective controls and analyze risk and control monitoring processes; and

•establishing appropriate management reporting systems regarding the enterprise-wide risk exposures and allocation of capital.

Line of business-level objectives focus on why and where the particular business or business unit risk exists; how the business unit’s management of its risks affects the Company’s strategy, earnings, reputation and other key success factors; whether the line of business objectives are aligned with enterprise objectives, how effective internal procedures are integral to successful

business operations , and whether internal controls and their maintenance are reliable.

Board of Directors and Board Risk & Compliance Committees. First Financial’s board of directors is responsible for understanding the Company’s compliance and risk management objectives and risk tolerance, and as such, board oversight of the Company’s compliance and risk management activities is a key component to an effective risk management process. Responsibilities of the board of directors include:

•establishing and guiding the Company’s strategic direction and tolerance for risk, including the determination of the aggregate risk appetite and identifying the senior managers who have the responsibility for managing risk;

•monitoring the Company’s performance and overall risk profile, ensuring that the level of risk is maintained at prudent levels and is supported by adequate capital;

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•ensuring that the Company implements sound fundamental principles that facilitate the identification, measurement, monitoring and control of risk;

•ensuring that adequate resources are dedicated to compliance and risk management; and

•ensuring that awareness of risk management activities is evident throughout the organization.

The board of directors has defined broad risk tolerance levels, or limits, to guide management in the decision-making process, and is responsible for establishing information and communication requirements to ensure that risk management activities remain within these tolerance limits. The risk and compliance committee, a standing committee of the board of directors, is responsible for carrying out the board’s responsibilities in this regard. Other standing committees of the board (audit, compensation, corporate governance and nominating, and capital markets) oversee particular areas of risk governance assigned specifically to them.

Executive and Senior Management. Members of executive and senior management are responsible for managing risk activities and delegating risk authority and tolerance to the responsible risk owners.

Management must identify which processes and activities are critical to achieving the Company’s business objectives within tolerance levels.  Management must then delegate responsibility, authority and accountability to the appropriate risk owners who are responsible for ensuring that the respective processes and activities are designed and implemented to manage the related risks within those delegated tolerance levels. Management analyzes and monitors risk management performance with key risk indicator (KRI) and key performance indicator (KPI) dashboards.

Chief Risk Officer. The chief risk officer is responsible for the oversight of the Company’s ERM processes.  The chief risk officer may appoint other officers or establish other management committees as required for effective risk management and governance, including risk identification, risk measurement, risk monitoring, risk control or mitigation and risk reporting and assurance.  The chief risk officer is also responsible for the maintenance of procedures, methodologies and guidelines considered necessary to administer the ERM program.

Chief Compliance Officer. The chief compliance officer is responsible for the oversight of the Company’s compliance management function, which includes Bank Secrecy Act/Anti-Money Laundering and all other regulatory compliance.  The chief compliance officer is authorized to implement all necessary actions to ensure achievement of the objectives of an effective compliance program and may appoint other officers or establish other management committees as required for effective compliance management. The chief compliance officer reviews and evaluates compliance issues and concerns and is responsible for monitoring and reporting results of the compliance efforts in addition to providing guidance to the board of directors and senior management team on matters relating to compliance.

Committee Chairs. The ERM program utilizes multiple management committees as its primary assessment and communication mechanism for identified risks.  Committee chairs play key roles in the execution of risk management activities throughout the enterprise and are responsible for continuous updates and communication among committee members in conjunction with the risk management department regarding changes to risk profiles, changes to risk assessments and the emergence of new risks that could impact the Company.

Internal Audit. Internal audit is responsible for planning audit activities to periodically reassess the design and operation of key risk management processes and to make periodic evaluations of the ongoing accuracy and effectiveness of the communications from risk owners to senior management and from senior management to the board of directors.

Risk Assessment Process. The periodic assessment of risks is a key component of a sound ERM program.  Managers, business line leaders and executives are responsible for developing the risk and control assessment for their individual departments, business lines and subsidiaries.  The chief risk officer, management and the board risk and compliance committee are responsible for ensuring that risk is viewed and analyzed from an enterprise-level global perspective. Furthermore, interrelated risks are considered, assessing how a single risk or event may create multiple risks.

Risk management programs, in each functional component and in aggregate, accomplish the following:

•identify risks and their respective owners;

•link identified risks and their mitigation to the Company's strategic objectives;

•evaluate the risks and their associated likelihood of occurrence and consequences;

•encourage employees in all units to develop a working understanding of upstream and downstream activities;

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

•develop strategies to manage risk, such as avoiding the risk; reducing the negative effect of the risk; transferring the risk to another party; and/or accepting some or all of the consequences of a particular risk;

•prioritize the risk issues with regard to the current residual risk status and trend;

•provide reports to management and risk owners that will assist them in implementing appropriate risk management processes;

•assist management in assessing the alternatives for managing risks;

•assist management in the development of risk management plans; and

•track risk management/mitigation efforts.

Monitoring and Reporting. The board of directors oversees risk reporting and monitoring through the board risk and compliance committee, which meets at least quarterly.

Management continually reviews any risk identified as key, as well as the appropriateness of established tolerance limits and the actions considered as necessary to mitigate key risks.  As circumstances warrant, management provides recommendations to the board risk and compliance committee related to changes or adjustments to key risks or tolerance limits.

First Financial believes that communication is fundamental to successful risk management and productive reporting and communication between the risk management department, management and the board of directors is required for collaborative and effective risk management.

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 and ongoing administration practices, 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 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.

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 36% in its interest rate risk modeling as of December 31, 2021.

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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 BP scenario, thereby increasing deposit costs and reducing asset sensitivity.

Presented below is the estimated impact on First Financial’s NII and EVE as of December 31, 2021, assuming immediate, parallel shifts in interest rates:

“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.

First Financial was within policy limits set for the disclosed interest rate scenarios as of December 31, 2021. The projected

results for NII and EVE reflected an asset sensitive position due to significant growth in low cost transactional deposits, which have replaced wholesale borrowings in the Company's funding mix. First Financial continues to manage its balance sheet with a bias toward modest 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 December 31, 2021 assuming both a 25% increase and decrease to the beta assumption on managed rate deposit products:

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

Table 11 – Market Risk Disclosure projects the principal maturities and yields of First Financial’s interest-bearing financial instruments at December 31, 2021 for the next five years and thereafter, as well as the fair value of the instruments. For loans, securities and liabilities with contractual maturities, the table presents principal cash flows and related weighted-average interest rates by contractual maturities. For investment securities, including MBS and CMO, principal cash flows are based on estimated average lives. For loan instruments without contractual maturities, such as credit card loans, principal payments are allocated based on historical payment activity trends. Maturities for interest-bearing liability accounts with no contractual maturity dates are estimated according to historical experience of cash flows and current expectations of client behaviors when calculating fair value, but are included in the maturing in one year or less category as they can be withdrawn on demand.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

(1) Includes loans held for sale.

(2) Deposits without a stated maturity are represented as maturing within one year due to the ability of the client to withdraw deposited amounts on demand.

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.

In 2021, the Company continued to update liquidity risk management processes, such as refining the contingency funding plan, proactively meeting more frequently during the pandemic, securing additional contingent borrowing capacity, and developing additional ad-hoc liquidity reporting to monitor funding inflows and outflows related to the PPP funding and forgiveness. Management is closely monitoring the usage of excess business deposits, the balance of personal deposits and the broader macroeconomic environment. For further discussion of the Company's liquidity, please see the Liquidity section within Management's Discussion and Analysis.

OPERATIONAL RISK

Operational risk is the risk of loss due to human behavior, inadequate or failed internal systems and controls and external influences such as market conditions, fraudulent activities, natural disasters and security risks. First Financial continuously strives to strengthen the Company’s system of internal controls and operating processes as well as associates' ability to assess the impact on earnings and capital from operational risk.

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COMPLIANCE RISK

Compliance risk represents the risk of regulatory sanctions, reputational impact or financial loss resulting from the Company’s failure to comply with rules and regulations issued by the various banking agencies and standards of good banking practice. Activities which may expose First Financial to compliance risk include, but are not limited to, those dealing with the prevention of money laundering, privacy and data protection, community reinvestment initiatives, fair lending challenges resulting from the Company’s ongoing management of its banking center network and employment and tax matters.

STRATEGIC AND REPUTATION RISK

Strategic risk represents the risk of loss due to failure to fully develop and execute business plans, failure to assess current and new business opportunities, markets and products, inability to effectively manage human capital risk factors such as satisfaction, engagement, attrition, retention, and diversity, equity and, inclusion (DEI) and any other event not identified in the defined risk types previously mentioned. Strategic risk focuses on analyzing factors that affect the direction of the institution or improper implementation of decisions

Reputation risk represents the risk of loss or impairment of earnings and capital from negative publicity. This affects the ability of First Financial to establish new relationships or services or to continue servicing existing relationships. Reputation risk is recognized by the effect that public opinion could have on First Financial's franchise value and has evolved in recent years with the growth in social media. First Financial also seeks to build social responsibility into its brand and has formed a corporate responsibility working group to develop an initial corporate social responsibility (CSR) report, which will highlight First Financial’s efforts, goals, and plans to help the environment and our communities.

Mitigation of strategic and reputation risk elements is achieved through initiatives that help First Financial better understand and report on the various risks it faces each day, including those related to the development of new products and business initiatives and client feedback response and mitigation routines that analyze and share feedback data with business lines for client experience and process improvements.

INFORMATION TECHNOLOGY RISK

Information technology risk is the risk that the information technologies utilized by FFB are not efficiently and effectively supporting the current and future needs of the business, operating as intended or compromise the availability, integrity and reliability of data and information. This risk also considers whether or not the Company’s information technology exposes the Company's assets to potential loss or misuse, or threatens the Company’s ability to sustain the operation of critical business processes.